WORLD TRADE
ORGANIZATIONWT/WGTI/4
27 November 2000
(00-5075)
REPORT (2000) OF THE WORKING GR OUP ON THE RELATIONSHIP BETWEEN
TRADE AND INVESTMENT TO THE GENERAL COUNCIL
TABLE OF CONTENTS
Paragraph
A. INTRODUCTION 1
B. PROCEDURAL INFORMATION ON THE GROUP'S 2-4
ACTIVITIES
(a) Sources and materials used in the Group's work 2
(b) Meetings held in 2000 3
(c) Cooperation with other intergovernmental organizations 4
C. SUBSTANTIVE WORK DONE IN THE GROUP IN 2000 5-80
I. IMPLICATIONS OF THE RELATIONSHIP BETWEEN 7-33
TRADE AND INVESTMNET FOR DEVELOPMENT AND
ECONOMIC GROWTH
(a) The relationship between FDI and the transfer of technology 9-23
to host economies
(b) General discussion on issues requiring further study in the 24-33
Working Group
II. THE ECONOMIC RELATIONSHIP BETWEEN TRADE 34-41
AND INVESTMENT
III. STOCKTAKING AND ANALYSIS OF EXISTING 42-51
INTERNATIONAL INSTRUMENTS AND ACTIVITIES
REGARDING TRADE AND INVESTMENT
(a) WTO provisions on matters related to investment 43(b) Bilateral, regional, plurilateral and multilateral agreements 44-51
and initiatives;  implications for trade and investment flows
of existing international instruments
IV. ITEM IV OF THE CHECKLIST OF ISSUES SUGGESTED 52-80
FOR STUDY
ANNEX 1: TEXT OF THE SINGAPORE MINISTERIAL
DECLARATION, PARAGRAPH 20
ANNEX 2: CHECKLIST OF ISSUES SUGGESTED  FOR STUDY
ANNEX 3: TABULAR SUMMARY OF WRITTEN CONTRIBUTIONS
PROVIDED TO THE WORKING GROUP ON THE
RELATIONSHIP BETWEEN TRADE AND INVESTMENTIN 2000WT/WGTI/4
Page 2
A. INTRODUCTION
1. At its meeting held on 9-11 and 18 December 1998, the General Council had before it in
document WT/WGTI/2 the Report (1998) of the Working Group on the Relationship between Trade
and Investment and took the following decision with respect to the continuation of the work of this
Working Group:
"The General Council decides that the Working Group on the Relationship between
Trade and Investment shall continue the educational work that it has been
undertaking on the basis of the mandate contained in paragraph 20 of the Singapore
Ministerial Declaration. The work of the Working Group, which shall be reviewed by
the General Council, shall continue to be based on issues raised by Members with
respect to the subjects identified in the Checklist of Issues Suggested for Study.  It is
understood that this decision is without prejudice to any future decision that might betaken by the General Council, including in the context of its existing work
programme."
1
This report provides an overview of the work done by the Working Group in 2000 pursuant to
the General Council's decision.
B. PROCEDURAL INFORMATION ON THE GROUP'S ACTIVITIES
(a) Sources and materials used in the Group's work
2. The work of the Working Group in 2000 has been based on written contributions, and on oral
statements, questions and answers by Members in the Group.  This material has been supplemented
by information received from observer intergovernmental organizations.  A tabular summary ofwritten contributions provided to the Group in 2000 is attached as Annex 3.
(b) Meetings held in 2000
3. The Working Group has held three formal meetings in 2000, on 8 June, 11 October and
16 November.  The dates of these meetings were determined in the light of the instruction in
paragraph 22 of the Singapore Ministerial Declaration that careful attention be given to coordinatingmeetings of the Working Groups established under paragraphs 20 and 21 with those of relevant
UNCTAD bodies.  At the meetings of 8 June and 11 October, the Working Group considered all
Items of the Checklist of Issues Suggested for Study.  At the meeting of 16 November, the Working
Group adopted its report to the General Council and decided on the date of its next two meetings in
2001.  Reports on the meetings held in 2000 have been circulated in documents WT/WGTI/M/11, 12and 13.
(c) Cooperation with other intergovernmental organizations
4. The Singapore Ministerial Declaration (paragraph 20) encouraged the Working Group to
undertake its work in cooperation with UNCTAD and other appropriate intergovernmental fora in
order to make the best use of available resources and to ensure that the development dimension is
taken fully into account.  In this regard, the IMF and the World Bank attended the Working Group's
meetings in an observer capacity, pursuant to the cooperation agreements concluded between theWTO and these organizations.  UNCTAD, OECD and UNIDO also attended the meetings as
observers, on the basis of an invitation from the Working Group.  In the course of the Group's
meetings, these organizations have kept the Group updated on their relevant activities and contributed
                                                     
1 WT/GC/M/32, p. 52.  The text of paragraph 20 of the Singapore Ministerial Declaration is reproduced
in Annex 1. The Checklist of Issues Suggested for Study is reproduced in Annex 2.WT/WGTI/4
Page 3
to the debate.  The Working Group is highly appreciative of the valuable contributions to its work
made by the observers.
C. SUBSTANTIVE WORK DONE  IN THE GROUP IN 2000
5. This part of the report provides an overview  of the substantive work done in the Working
Group, pursuant to the mandate given in paragraph 20 of the Singapore Ministerial Declaration and to
the General Council's decision adopted in December 1998.  By its very nature, such an overviewcannot reflect everything that was said and capture all nuances, such as can be found in the detailed
records of the meetings of the Working Group (WT/WGTI/M/11, 12 and 13) and in Members' written
contributions (see Annex 3).
6. As provided for in the General Council's decision, the work undertaken in 2000 was
structured on the basis of the Checklist of Issues Suggested for Study which the Group took note of at
its meeting on 2 and 3 June 1997.  This summary uses the same structure.
I. IMPLICATIONS OF THE RELATIONSHIP BETWEEN TRADE AND INVESTMENT
FOR DEVELOPMENT AND ECONOMIC GROWTH
7. Written contributions on this Item of the Checklist were provided by Korea (W/82)
2 and India
(W/86).  A study prepared for the World Bank which contains an overview of literature on the
relationship between trade, foreign direct investment and the transfer of technology was circulated in
W/88.  Oral statements were made by Korea, the United States, Japan, Costa Rica, the European
Communities, Pakistan, India, Hungary, Canada, Malaysia, Brazil, Mexico, Switzerland, Kenya, Côte
d'Ivoire, Chile, Argentina and Hong Kong, China.
8. The discussions on this Item of the Checklist focused on the issue of the relationship between
foreign direct investment (FDI) and the transfer of technology to host economies.  In addition, the
contribution contained in W/86, which provided an assessment of the work carried out to date in theWorking Group and identified subjects requiring furthe r attention, gave rise to an exchange of views
of a more general nature.
(a) The relationship between FDI and the transfer of technology to host economies
9. In regard to the experience of one Member with the role of FDI in its technological
development, the point was made that access to the technology and other know-how of multinationalenterprises was one of the most significant benefits of FDI for host countries.  In addition to the
internal transfer of such technology and know-how fr om a parent firm to its foreign affiliate, positive
externalities resulted from the training of locally hired employees of foreign affiliates and from the
establishment of linkages between multinational enterprises and local firms and institutions.  This
Member's economic development of the past decades illustrated how technology transfers associatedwith FDI had promoted economic growth.  Until th e 1970s, inward FDI had played an important role
in building the foundations of this Member's economy by bringing in expertise, capital and
technologies.  Once absorbed and used by local firms, these technologies had contributed to the
creation of the research and development capabilities which were necessary to shift production from
low value-added activities to high value-added activities.  While this Member had initially tried to
impose transfer of technology requirements, it had ev entually realized that foreign investors subject to
such requirements preferred to transfer less advanced technologies.  As a result, after a period of trialand error, this Member had adopted a hands-off approach which proved better than the imposition of
technology transfer requirements, as the natural diffusion of such technology through training of local
staff or cooperation with local firms was a more efficient way of absorbing new technologies.  This
                                                     
2 Documents issued in the series WT/WGTI/W/- are referred to in this report as "W/-".  Documents
issued in the series WT/WGTI/M/- are referred to  as "M/-".WT/WGTI/4
Page 4
hands-off approach had been supplemented by efforts to improve the overall investment environment
through investment in infrastructure, education and training.3
10. In the Group's discussion of this contribution, support was expressed for the view that access
to technology, resulting from the internal transfer of technology from a parent to its foreign affiliate
and from various external, spillover effects, was one of the most important benefits of FDI for host
countries.4  Reference was made, in this respect, to studies that provided empirical evidence of the
positive effect of FDI on the technological development of certain Members5 and to the Note by the
Secretariat in W/65 on the technology and other know-how spillover effects of FDI.6  It was stated
that buying foreign technology as an alternative to  relying on FDI was not always a realistic option,
and that in any event important elements of the technology associated with FDI, such as know-how
and management methods, usually could not be bought.7
11. There was also support for the view that mandatory transfer of technology requirements were
often counterproductive, and that efficient polici es to enhance the contribution of FDI to the
technological development of host countries needed to be market-oriented and be aimed at enhancing
the spread of technology through mechanisms such as the movement of skilled labour, contractual
arrangements between foreign-owned firms and loca l firms, in-house research and development, and
competition in the host country's market.8  It was stated, in this regard, that mandatory requirements
with respect to the transfer of technology had nega tive effects on the level of FDI received by a host
country and on the quality of the technology transferred, and that such requirements could also induce
policy makers to neglect the elaboration of a proper domestic framework designed to favour the
adoption and diffusion of new technologies.9  The view was expressed that key elements of efficient,
market-oriented policies to enhance the contribution of FDI to the transfer and diffusion of technology
included the establishment of a stable and predictable legal and regulatory framework, adequateprotection of intellectual property rights, human cap ital formation, the fostering of linkages between
domestic and foreign-owned firms, and competition policy.
10  A further observation made in this
context was that the capacity of a host country to absorb technology associated with FDI affected the
extent to which transfer of technology occurred and the design of appropriate policies.11
12. In reaction to the views summarized in the preceding paragraphs, it was stated that there was
no disagreement in the Working Group on the basic assertion that FDI could play an important role in
the transfer of technology, and that the key question on which the Working Group should concentrate
was the extent to which transfer of technology actually occurred in different contexts and the policy
frameworks that would be most conducive to the effective transfer of technology.  In this view, the
issue of the design of optimal policies to realize the possible benefits of FDI in the area of technologywas not amenable to generalization.
12  Thus it was argued that the views expressed regarding the
negative effects of transfer of technology requirements needed to be substantiated by empirical
evidence on the experiences of countries at different levels of development.13  Mention was made of
the experiences of several countries which demonstrated that mandatory transfer of technology
                                                     
3 M/11, para. 2.
4 M/11, paras. 3-6 and 9.
5 M/11, paras. 9 and 10.
6 M/11, para. 10.
7 M/11, para. 9.
8 M/11, paras. 3, 5-6, 9-10 and 15.
9 M/11, paras. 3 and 10.
10 M/11, paras. 3,5-6, 9, and 15.
11 M/11, paras. 6 and 9.
12 M/11, paras. 7 and 17.
13 M/11, para. 17.WT/WGTI/4
Page 5
requirements were sometimes necessary and did not have negative effects on the level of FDI and the
quality of the technology received by host countries.14
13. Furthermore, it was stated that the conclusion drawn by one Member regarding the
counterproductive effects of transfer of technology requirements was contradicted by the evidence of
the positive role played by such requirements in the economic development of that Member.15
Related to this, it was observed that a strategy in which the role of the government was limited to
ensuring a sound macroeconomic environment and good infrastructure might lead to the exploitation
of static comparative advantages, but might not push the local technological frontier nor promote
industrial upgrading and the creation of extensive local linkages.  To tap the potential of FDI, host
countries might have to play a proactive role in inducing multinational enterprises to upgrade
technologies and enter complex activities, because technologically-competent enterprises could exist
even in low-income economies and might well be in a position to absorb or even generate technology.
In this connection, it was stated that the Member which had concluded from its experience thattransfer of technology requirements were counterproductive had spearheaded its industrialization
drive by building up an impressive research and development capability, drawing extensively on
foreign technology in forms that promoted local co ntrol.  It had permitted FDI only when other means
of accessing technology were not available and foreign majority ownership had not been permitted
unless it was a condition of having access to closely held technologies.  As described in the UNCTADWorld Investment Report 1999, some multinational enterprises had been induced to sell their equity to
local partners once the transfer of technology was complete.  It was also stated that the recent
experience of the liberalized open-economy regimes in South-East Asia underlined the fact that, in
spite of having a fairly free investment regime, the technology that was transferred into these
countries was of a low quality.
16
14. In response to these observations, the Member in question pointed out that during the 1960s
and 1970s it had pursued a policy of import protection, restrictions on FDI, and mandatory technology
licensing.  This centrally directed public intervention had channelled resources to highly concentrated
industries to help them master reverse engineering and efficient mass production techniques.  By
directing resources to a few selected industries, the policy had given rise to the creation of largeconglomerates which had engaged in rent-seeking behaviour that was contrary to the broader national
interest.  Thus, the preferences accorded to these conglomerates, including, for example, government-
directed loans to uncompetitive businesses, had been a major cause of the financial crisis in 1997.  In
addition, the use of mandatory technology licensing requirements as part of the policy favouring such
conglomerates had resulted in a dearth of independent and innovative small- and medium-sizedsupplier firms.  This meant that the extent of t echnology diffusion was limited and that this Member's
entire economy could be affected by the failure of a few conglomerates.  A number of empirical
studies had shown a trend toward the reduction of the use of performance requirements, reflecting the
experience of countries that these requirements, once seen as essential, in the end had proved
detrimental.  In the view of this Member, rather than focusing on the question of whether or not
countries should obligate multinational enterprises to transfer technology, the Working Group should
concentrate on the identification of market-friendly and WTO-consistent policy instruments topromote the transfer of technology.
17  The point was also made that this Member's analysis of its
experience regarding the use of transfer of technology requirements was supported by the literature
mentioned in the study in W/88, and by a recent OECD study entitled Foreign Direct Investment and
Development:   A Reassessment of the Evidence and Policy Implications.  This study demonstrated that
FDI was most likely to be harmful to the growth and welfare of the developing countries when the
                                                     
14 M/11, paras. 11 and 17.
15 M/11, paras. 7, 11,17, 20 and 21.
16 M/12, para. 9.
17 M/11, para. 18.WT/WGTI/4
Page 6
investor was sheltered from competition in the domestic market and burdened with high domestic
content, mandatory joint venture and technology-sharing requirements.18
15. In response to the comment on the level of tech nology associated with recent FDI inflows into
South East Asia,  it was said that the quality of the technology transferred by multinational enterprises
depended upon the extent of competition in a given market.  Experience showed that, if a country had
an open investment regime accompanied by a protective trade regime, the lack of competitivepressure made it unnecessary for multinational enterp rises to exploit their most advanced technology.
By contrast, if forced to compete in an open trade environment, it was in the commercial self-interest
of such enterprises to use the most advanced technology.
19
16. In regard to the comment on the role of large conglomerates in one Member's development, it
was stated that such conglomerates had actually contributed to that Member's industrialization, and
that this constituted evidence of the positive role of mandatory technology transfer requirements.  It
was also stated that the financial crisis of 1997 could not be attributed solely to that Member's pastindustrial development strategy. 
20
17. The view was expressed that, instead of discussing in the abstract the effects of mandatory
transfer of technology requirements, it would be more productive for the Working Group to examine
this matter on the basis of contributions by individual Members on their concrete policy experiences.
Information on any positive experiences of Members with the use of such requirements would be ofparticular interest in this regard.
21
18. It was also stated that identical measures mi ght have a different impact according to the
particular market situation of different countries.  Excessive performance requirements regarding the
transfer of technology could effectively discourage investors.  Conversely, measures that were attuned
to the specific circumstances of the domestic market could yield the desired results in terms of theimpact on the technological development of the host country.  The idea that the transfer of technology
should be subject to market forces was not totally unfounded, but performance requirements for the
transfer of technology could effectively achieve objectives that would not materialize if such transfer
was left exclusively to market forces.
22
19. The view was expressed that, while there might not be economic reasons for mandating the
transfer of technology, there were some situations where, in the exercise of legitimate environmental
or public health regulatory authority, limited kinds of technology transfer might be required.23  In a
comment on this view, it was stated that in addition to the protection of public health and the
environment, it was possible to envisage developmental situations where market mechanisms were
not entirely adequate or where, because the particular market situation did not provide sufficientincentives to firms to transfer technology, a regula tory mechanism was necessary.  Thus, theoretically,
the list of areas in which such market mechanisms were not adequate could be expanded, depending
upon the specific economic environment.
24  In response, it was stated that the transfer of technology
was best achieved through market mechanisms and that, while mandatory requirements might be
necessary for public health and environmental purposes, in considering which other policy areas
might require transfer of technology, the negative effect of such requirements on the level of
investment and the level of technology transfer should be kept in mind.25
                                                     
18 M/12, para. 12.
19 M/12, para. 10.
20 M/11, para. 20.
21 M/11, paras. 6 and 14;  M/12, para. 10.
22 M/11, para.13.
23 M/11, para. 3.
24 M/11, para. 17.
25 M/11, para.19.WT/WGTI/4
Page 7
20. It was proposed that there be further work on the relationship between FDI and the transfer of
technology, including a consideration of how the transfer of technology and related incentives and
performance requirements could be dealt with in multilateral rules.26  The comment was made that
this proposal required further clarification, and that it was preferable to focus the work of the Working
Group on more central investment issues.27
21. It was stated that the recent inflows of FDI into the South-East Asian developing countries
had been due to liberalization of government investment policies, but also to the prevailing trade
restrictions of the 1990s which had given rise to tariff-jumping FDI.  It was argued, in this respect,
that, as a result of the progressive phasing-out of the quantitative trade restrictions in recent years, the
motivation of the foreign investors was likely to change, leading to a change in the direction and
nature of FDI inflows.  The removal of import restrictions and the strengthening of intellectual
property rights protection by developing countries might very well lead to increased exports of high-
technology products from the developed countries.  Thus, it was possible that the transaction costs ofexporting to distant markets would remain as the sole determinant of the choice of other production
sites away from the home country of the multinational enterprise.
28
22. The view that the sole determinant of investment decisions was the transaction cost of
exporting was contested.  It was said that this was only one, and not the most important, determinant
of investment decisions.  FDI occurred in various forms, including the acquisition of existing foreign
facilities with a view to integrating them into a world-wide production network in which such
facilities could benefit from the technological capacity of the parent firm.29
23. In regard to the relationship between FDI and the transfer of technology, the Working Group
also considered a recent study prepared for the World Bank which provided a survey of the literature
on trade, FDI and the transfer of technology (W/88).  Comments made on this study highlighted itsconclusions regarding the prominent role of FDI as a channel of the transfer of technology; the lack of
evidence of the effectiveness of mandatory transfer of technology requirements; the fact that spillover
effects of FDI in the area of technology were more of a vertical than a horizontal nature in that they
arose from linkages between foreign investors and local suppliers and buyers;  the fact that, regardless
of the evidence on the issue of spillovers, FDI resulted in a more effective use of resources in hostcountries; the importance of the absorptive capacity of host countries and the consequent need to
complement liberalization of trade and FDI policies by appropriate policy changes with respect to
education, research and development, and human capital accumulation.
30  It was said that this study
was a comprehensive review of the existing research in this area, and that in considering possible
further work on this topic it was important to realize that the Working Group already had a wealth ofinformation at its disposal.
31
(b) General discussion on issues requiring further study in the Working Group
24. The view was expressed that certain issues that had emerged from the discussions in the
Working Group underlined the need for the Working Group to continue its work in accordance with
its existing mandate.  These issues were:  the complexity of the relationship between trade and
investment;  the central importance of the developm ental dimension in the educational process and the
need for developing countries to retain policy flex ibility;  the inconclusive nature of the evidence of
the benefits of FDI;  the flexibility provided for in the present regime of bilateral investment treaties
which enabled countries to channel FDI into priority  areas;  the lack of evidence that multilateral
                                                     
26 M/11, paras. 2, 15 and 16.
27 M/11, para. 3.
28 M/12, para. 9.
29 M/12, para. 10.
30 M/12, paras. 4-8 and W/88, pp. 26-27.
31 M/12, paras. 7 and 8.WT/WGTI/4
Page 8
investment rules would have any significant effect  on the pattern and flow of FDI;  the negative
impact of multilateral investment rules in limiting the policy flexibility currently available to
developing countries;  and the fact that a country's  investment regime was only one of many factors
affecting FDI.32
25. In this connection, certain issues were identified which should be the subject of further
examination by the Working Group: 33
- First, the implications of the relationship between trade and investment for development and
economic growth, with a focus on FDI, as distin guished from other capital flows.  This should
include an examination of the interrelations hip between trade and investment, on the one
hand, and the stages of economic development and trade profiles of individual countries, on
the other, and also an analysis of the experiences of different countries, including the present
industrialised or newly industrialising countries, at various stages of their development.
Closely related to this was the need for developing countries to be able to regulate FDIthrough policies that took into account the differences between particular sectors of economy
activity and between particular kinds of FDI in terms of their contribution to the development
process.
- Second, the Working Group needed to address the inconsistency between the treatment of the
issue of movement of labour, on the one ha nd, and the treatment of movement of goods,
services and capital, on the other.
- Third, the advantages of bilateral investment treaties, as compared to multilateral rules on
investment, required further consideration, given that bilateral treaties were adequate to
provide protection of foreign investment, while at the same time allowing host countries
policy flexibility, and that the recent increase in FDI flows had occurred in the absence of a
multilateral framework.
- Fourth, the positive role of performance requirements in ensuring a level playing field
between foreign and domestic investors and in enhancing the benefits of FDI for the host
country needed to be examined.
- Fifth, there was a need to consider more closely the costs and benefits of multilateral
investment rules, bearing in mind that global we lfare gains alleged to result from such rules
did not necessarily translate into national welfare gains for the host country.
- Sixth, the Working Group should take into consideration the view expressed in a recent
analysis of the potential benefits of multilateral investment rules that priority should be given
to exploiting the potential offered by the GATS before seeking to negotiate generaldisciplines on investment policies.
- Seventh, the question of investment incentives was an important issue and needed to be
reflected upon carefully by all WTO Members.
- Eighth, the important question of foreign investors' obligations should be examined,
especially given that a large share of world trade was accounted for by transnational
corporations.  The point was made in the latter regard that the issue of restrictive business
practices of multinational enterprises had not received sufficient attention in the WorkingGroup on the Interaction between Trade and Competition Policy.
                                                     
32 M/11, para. 23 and W/86, para. 3.
33 M/11, para. 24 and W/86, paras. 5-12.WT/WGTI/4
Page 9
It was stated that, notwithstanding the need for further analysis of these issues and the lack of
evidence of the benefits of multilateral rules on investment, proposals had already been made to
proceed to negotiations on this subject.  However, without further work to address these issues from
the viewpoint of the entire membership of the WTO, it was possible that a premature move in this
area would only widen developmental disparities.34
26. In response to these observations and proposals, it was acknowledged that the relationship
between trade and foreign investment was complex and not susceptible to definitive conclusions, but
it was stated that the mandate of the Working Group was to "examine" this relationship, and that this
did not require the Working Group to attempt to reac h definitive conclusions.  The examination of this
relationship was useful in that it could assist Members in defining their domestic FDI policies and in
formulating their views on the appropriate scope and content of international investment rules.
Similarly, it was stated that, in recognition of the central importance of the developmental dimension,
the Working Group had done a considerable amount of work on how FDI could play a positive role indevelopment, but that the mandate of the Working Group did not require the Working Group to arrive
at definitive conclusions on this matter.
35  It was also stated that the available evidence showed that
there was a positive relationship between FDI and development.36  A further observation made in this
context was that the need for further analysis of certain issues also depended upon the content of
possible multilateral rules that Members would be ready to negotiate.37
27. It was also stated, in this connection, that further precision was necessary in regard to the
meaning of the concept of policy flexibility.38  The comment was made that any international
agreement necessarily involved a loss of a measure of policy flexibility, but that this was compensated
by a gain in terms of greater predictability and stability of rules.39  The view was also expressed that
governments needed to be able to treat economic operators differently on the basis of differencesbetween such operators that were relevant to a policy objective, but that this kind of differential
treatment should be distinguished clearly from purely nationality–based discrimination, for which
there was no economic rationale.
40
28. The view that a multilateral agreement on investment would necessarily provide less
flexibility than a bilateral investment treaty and could not take into account the specificities ofindividual countries was contested.  It was argued that a multilateral agreement on investment in the
WTO would have the scope and flexibility desired by its Members, and the GATS was mentioned as a
multilateral agreement on a particular kind of FDI that fully took into account the specific situation of
each country and the differences in level of development between Members.
41  In regard to the idea
that bilateral investment treaties allowed parties to channel FDI into areas of priority, it was said thatthis issue was not addressed by such treaties.
42  It was stated that the suggestion that priority should be
given to exploiting the potential offered by the GATS before considering the negotiation of general
investment rules would entail discrimination that was not rational in economic terms between
suppliers of goods and suppliers of services.43
29. It was stated that, while it was true that a country's investment regime was only one of many
factors affecting investment decisions, and that other economic factors such as market size were more
important, lack of stability and transparency of an investment regime could no doubt have a negative
                                                     
34 M/11, para. 25 and W/86, para. 13.
35 M/12, para. 15.
36 M/12, paras. 18-20.
37 M/12, para. 19.
38 M/12, paras. 15 and 16.
39 M/12, para. 16.
40 M/12, paras. 15, 19 and 22.
41 M/12, paras. 16-17.
42 M/12, paras. 19-20.
43 M/12 paras. 17 and 18.WT/WGTI/4
Page 10
effect on investment decisions.44  A further observation made in this context was that a multilateral
agreement on investment per se  would not resolve all problems faced by developing countries in
attracting FDI, but that it would add to the factors that made a country attractive as a destination for
FDI.45
30. In respect of the point regarding the discrepancy between the treatment of capital and the
movement of labour, it was stated that it was interesting that, while bilateral investment treaties hadnot been able to address the issue of labour mobility, in the area of services there was a multilateral
agreement that addressed both investment and the movement of labour.
46
31. Support was expressed for the view  that there was a lack of evidence on the benefits of
multilateral investment rules.47  It was stated that the key issue in dispute was not whether FDI could
make a positive contribution to the development process, but whether multilateral rules on investment
were preferable to bilateral investment treaties.  Since existing bilateral investment treaties adequately
addressed the issue of legal protection of foreign investment, multilateral rules on investment wouldbe aimed essentially at providing market access for foreign investors.  While reference had been made
to the GATS approach as a possible model for future investment rules, the GATS was a very different
kind of instrument.  An additional argument advanced in this connection was that, in light of the
views expressed on the notion of flexibility, it was doubtful whether an approach similar to the GATS
could provide the degree of flexibility needed by developing countries.  It was very unlikely that if, inthe context of multilateral investment rules based on the GATS approach, developing countries made
national treatment commitments in particular sect ors and subsequently found that such commitments
were not compatible with their development needs, there would be scope to adjust such commitments.
Reference was made, in this regard, to the difficulties currently encountered by developing countries
in respect of reasonable and legitimate requests for an extension of the transition period under theTRIMs Agreement.
48
32. In reaction to these comments, it was stated that market access was only one of many aspects
of multilateral investment rules, and that proponent s of multilateral rules on investment in the WTO
had made it clear that they were not envisaging rules that would entail an unfettered right of market
access for foreign investors, and that they favoured rules allowing for flexibility through negotiatedcommitments, with the GATS as a possible model.
49  With reference to a recent contribution, the
point was made that transparency was one area where multilateral rules would yield significant
benefits.50
33. The point was made that, in light of the general recognition of the importance of FDI in
development, it was unclear why it was argued that it was not necessary for the Working Group toreach conclusions on the relationship between trade, development and investment.  In response to the
point that multilateral rules on investment would also serve objectives other than market access, it was
stated that the experience of developing countries showed that such other objectives were best served
by autonomous liberalization efforts side-by-side with bilateral investment treaties.  Thus, no
additional benefits would accrue from a multilateral framework of rules on investment.  Rather, any
set of rules that would bind developing countries, set stipulated minimum standards and restrain the
use of performance requirements of any kind might restrict global investment flows generally andespecially to developing countries.  The point was also made that, given that there were numerous
bilateral investment treaties but only few regional arrangements on investment, which were limited in
                                                     
44 M/12, para. 16.
45 M/12, para. 20.
46 M/12, para. 18.
47 M/12, paras. 14 and 21.
48 M/12, para. 21
49 M/12, para. 22.
50 M/12, para. 19.WT/WGTI/4
Page 11
coverage, and in light of the experience with the OECD's negotiations on a Multilateral Agreement on
Investment (MAI), it was premature to start discussions on the elements of a multilateral framework
for investment.  Instead, the Working Group needed to devote more time to the analysis of the
implications for development of different kinds of investment.  No convincing case had been made
that a multilateral agreement could help countries better achieve their developmental objectives.  On
the issue of the movement of labour, reference was made to a Member's view on the limited scope ofthe GATS in this regard.  It was also stated that it had not been argued that bilateral investment
treaties could usefully address this issue, but that there was a two-way relationship between capital
and labour, and that any discussion of the mobility of capital would remain incomplete unless the
scope for labour mobility was appropriately investigated.
51
II. THE ECONOMIC RELATIONSHIP BETWEEN TRADE AND INVESTMENT
34. No written contributions were provided with respect to this Item of the Checklist.  Oral
statements were made by the European Communities, New Zealand, Mexico, Argentina, Costa Rica,Malaysia, the United States, Canada, Hungary and Hong Kong, China.
35. The principal subject raised in the discussions on this Item of the Checklist was the issue of
investment incentives.
36. The view was expressed that the widespread use of investment incentives and their impact on
trade and investment flows warranted consideration of the possible need for, and nature of, WTOdisciplines on investment incentives, while recognizing that investment might be necessary to attain
certain policy objectives.  In this connection, it was proposed that the Working Group examine the
relevance of the Agreement on Subsidies and Countervailing Measures (ASCM) to investment
incentives, and that it consider how WTO princi ples of transparency and non-discrimination could
apply to the granting of investment incentives.
52  In regard to the proposal to consider the relevance of
the ASCM, it was suggested that the Secretariat prepare a study which could help further work in
several respects.  First, the study would help clarify to what extent investment incentives were already
covered by the various disciplines under the ASCM.  Second, it was worthwhile to explore whether it
was desirable and feasible to identify commonly accepted criteria to distinguish between desirable and
undesirable investment incentives. The proposed Secretariat study could contribute to this byreviewing the negotiating history leading to the distinctions made in the ASCM between prohibited,
actionable, non-actionable and non-specific subsidies.  Third, a number of yardsticks had been built
into the ASCM to determine the trade-distortive ef fects of a subsidy.  The Secretariat study could
provide useful clues as to whether and how these concepts could be transplanted to the field of
investment incentives.  Finally, this body of information would help the Working Group in addressingthe problem of the lack of a universally agreed definition of investment incentives.  Given the likeness
between investment incentives and subsidies, it was worth exploring the extent to which the various
elements of the definition of subsidy under the ASCM could be adapted for investment incentives in
the WTO context.
53
37. The point was made that the ASCM already applied to investment incentives to the extent that
such incentives were subsidies within the meaning of  that Agreement, but that the effectiveness of the
ASCM in disciplining such incentives was limited in  that the ASCM only applied to trade in goods,
and in that its remedies were effective only when  an investment had given rise to trade flows. 54  It
was stated that further consideration should be given to the question of whether the concepts used in
the ASCM, including the distinction between ac tionable, non-actionable and prohibited subsidies,
                                                     
51 M/12, para. 23.
52 M/11, para. 28.
53 M/12, para. 25.
54 M/11, para. 29 and M/12, para. 27.WT/WGTI/4
Page 12
could apply to investment incentives that were not subsidies within the meaning of the ASCM.55  It
was also stated that, while transparency was an important and well established WTO principle that
could apply to incentives,  the question arose as to whether lack of information on incentives was a
genuine policy problem, as public authorities wishing to attract investment through the granting of
incentives were likely to ensure that the availability of such incentives was known to potential
investors.56  Regarding the principle of non-discrimination, mention was made of the practice of one
Member to accord non-discriminatory treatment to domestic investors and foreign-owned or
controlled firms in the granting of investment incentives.  It was suggested, in this connection, that the
issue of discrimination between domestic and foreign investors in the granting of investment
incentives was perhaps less relevant than the issue of discrimination between domestic and foreign
products in the granting of subsidies. 57
38. Support was expressed for the view that the issue of investment incentives merited more
detailed consideration and for the proposal to request the Secretariat to prepare a study on therelevance of the ASCM to investment incentives.
58  In one of the statements made in support of this
proposal, reference was made to a view that had been expressed on past occasions that the use of
fiscal, financial and other types of incentives in order to attract FDI was not justified on grounds of
economic efficiency as it entailed an inefficient allocation of resources and could, in the best of
circumstances, only provide a second best solution.  In addition, while it was often argued thatincentives could correct market failures and help realize positive externalities, empirical evidence did
not confirm that these objectives were achieved in reality.  In any case, the use of incentives was not
an optimal policy as it was preferable to correct, rather than to compensate, structural or economic
policy failures.  Even assuming that incentives could help absorb positive externalities associated with
FDI, their supposed benefits were often exceeded by their costs.
59
39. It was also stated, however, that there was no need for a study by the Secretariat on the
applicability of the ASCM to investment incentives, and that work on investment incentives should
proceed on a Member-driven basis.60  In addition, it was suggested that, as a first step, Members
interested in this topic should submit contributions to the Working Group, and that the issue of a
possible Secretariat study should be considered at a later stage after such contributions had beenreceived and discussed in the Working Group.  A fu rther observation in this connection was that it
was questionable whether the topic of investment incentives was a good use of the Group's efforts.  It
was argued, in this respect, that investment agreements had not focused on investment incentives
beyond those related to performance requirements, and that the Working Group should focus on more
traditional investment issues, such as transparency, MFN and national treatment.
61
40. In response to these objections, the point was made that it was necessary for the Working
Group to embark on research to improve its understanding of this subject, and that a study by the
Secretariat was a logical first step in this process.62  Given that this study would be of a purely factual
nature, it was consistent with the Member-driven character of the work in the Working Group and
would not prejudge the outcome of discussions between Members.63  It was also stated that work in
this area would need to recognize that incentives could be necessary to attain certain policy
objectives.64
                                                     
55 M/11, para. 29 and M/12, para. 27.
56 M/11, para. 29.
57 M/11, para. 29.
58 M/11, para. 11 and M/12, paras. 28-30 and 33.
59 M/12, para. 33.
60 M/11, para. 31 and M/12, para. 26.
61 M/12, para. 31.
62 M/12, paras. 25 and 28.
63 M/12, paras. 28 and 32.
64 M/12, paras. 25,28 and 32.WT/WGTI/4
Page 13
41. The view was expressed that discussions on investment incentives should be comprehensive
in coverage and include grants and other kinds of incentives provided at different levels of
government.65 In response to a comment that grants provided on an ex ante  basis were frequently used
by developed countries, whereas incentives offered by developing countries typically were
performance-based and granted on an ex post facto  basis,66  it was said that both the kind of incentives
typically granted by developed countries and the incentives granted by developing countries wereharmful and necessitated international disciplines, but that incentives that were beneficial to
development should not be proscribed.
67  It was also stated that competition between governments to
attract investment through the use of incentives was harmful to developing countries not only where
incentives were granted by developed countries but also where they were granted by other developing
c ountries.68
III. STOCKTAKING AND ANALYSIS OF EXISTING INTERNATIONAL INSTRUMENTS 
AND ACTIVITIES REGARDING TRADE AND INVESTMENT
42. No written contributions were provided on this Item of the Checklist.  Oral statements were
made by Guatemala, Bolivia, Venezuela, Japan, India, the European Communities, Canada,
Hong Kong, China, Switzerland and th e observers for UNCTAD and the OECD.
(a) WTO provisions on matters related to investment
43. It was stated that the provisions on matters relevant to investment, as contained in the TRIMs
Agreement, the GATS and the ASCM, were limited in scope and lacked coherence, and that pending
a convergence of views on whether and how to negotiate investment rules in the context of a possible
new round, Members should build on existing WTO rules to ensure that the benefits of trade
liberalization were not eroded by distortive investment  measures.  It was suggested, in this regard, that
the Working Group consider the merits of proposals to expand the coverage of the TRIMs Agreementand to establish disciplines in respect of investment incentives.  Any outcomes reached by this Group
on these issues could be fed into the paralle l process in the Council for Trade in Goods.
 69
(b) Bilateral, regional, plurilateral and multilateral agreements and initiatives; 
implications for trade and investment flows of existing international instruments
44. In a statement on one Member's investment regime, the point was made that significant
liberalization had occurred in recent years which had resulted in a substantial increase in FDI inflows.
The liberalization of FDI regimes by this Member and other developing countries was taking place on
an autonomous basis and had been accompanied by a proliferation of bilateral investment treaties
since the early 1990s.  It was argued that these treaties were favoured by developing countries because
they did not impose restrictions on developing coun tries in following their own FDI policies.  Since
the developing counties had the freedom to grant national treatment only in the post-establishment
phase of the investment, subject to such qualifications as might be considered necessary, and
conforming to the host country's laws, policies and regulations, they could also afford to allow for a
wider range of investments, based on the asset-based definition, to come under the purview of
bilateral investment treaties.  The increasing number of bilateral investment treaties was a recognition
of the positive role of FDI in a country's economic development.  It was stated that, while bilateral
investment treaties abounded, the experience with regional investment arrangements was still limited,
                                                     
65 M/11, para. 32.
66 M/11, para. 31.
67 M/11, para. 32.
68 M/12,para. 32.
69 M/11, para. 34.WT/WGTI/4
Page 14
and that, at the international level, the OECD ne gotiations on the MAI had exposed the difficulties
that even the developed countries faced in arriving at an agreement on investment.70
45. Concerning the reference made to the OECD negotiations on the MAI, it was said that the
experience with these negotiations was of no relevance to the ongoing debate on trade and investment
in the WTO as there were major differences between these negotiations and the current discussions in
the WTO in regard to the institutional context, participation, aims and level of ambition.71
46. Referring to one Member's recent negotiations of bilateral investment treaties with developing
countries, it was stated that bilateral investment treaties and a multilateral approach each had their
distinct objectives and advantages, and that the conclusion of bilateral investment treaties was
therefore not inconsistent with the pursuit of a multilateral framework as a long-term approach.72
47. Information was provided on various recent regional initiatives.  These included a symposium
held in December 1999 in Guatemala City on international investment arrangements and their
implications for regional integration in Central America;  the conclusion of a treaty in January 2000between El Salvador and Guatemala on trade in services and investment, a meeting held in March-
April 2000 in Lima at which participating countries had concluded bilateral investment treaties; a
regional seminar on international investment arrangements held in Caracas in December 1999 for
Latin American and Caribbean countries; an APEC seminar on trade, investment and competition
held in Lima in August 2000; and an ASEM conference on trade, investment and competition held inSeptember 2000 in Vienna, and also forthcoming seminars in Chile and South Africa.
73
48. The observer for UNCTAD provided information on the work of the Commission on
Investment, Technology and Related Financial Issues at its fourth session, which had taken place in
October 1999;  various technical cooperation activities undertaken by UNCTAD with regard to
international investment agreements; decisions taken at UNCTAD X on UNCTAD's future work oninvestment; the World Investment Report 2000; studies recently published in UNCTAD's Series on
Issues in International Investment Agreements; and a forthcoming Expert Meeting on Home Country
Measures.
74
49. In comments on the UNCTAD World Investment Report 2000, which contained a special
study on mergers and acquisitions, the point was made that the differences between the benefits forhost countries of FDI in the form of greenfield investment and FDI in the form of mergers and
acquisitions should not be overstated.
75
50. The observer for the OECD informed the Working Group of the recently adopted revised
Guidelines for Multinational Enterprises.76
51. Statements were made on the importance of the revised Guidelines, which as a multilaterally
endorsed, voluntary instrument and as a complement to domestic legislation and corporate initiatives,
could contribute to enhancing investors' responsibilities and to maximizing the benefits of FDI to host
countries.77
                                                     
70 M/12, para. 36.
71 M/12, para. 37.
72 M/11, para. 37.
73 M/11, para. 35 and M/12, para. 44.
74 W/85 and 94.
75 M/12, paras. 39-40.
76 W/93.
77 M/12, paras. 42-43.WT/WGTI/4
Page 15
IV. ITEM IV OF THE CHECKLIST OF ISSUES SUGGESTED FOR STUDY
52. Written contributions on this Item of the Checklist were provided by Hungary (W/83), the
European Communities (W/84 and 89), Japan (W/87 and 92), Korea (W/91) and Hong Kong, China
(W/90).  Oral statements were made by the European Communities, Japan, Hungary, Malaysia,
Pakistan, Korea, Costa Rica, Chile, Canada, the United States, Australia, India, Switzerland, Mexico
and Hong Kong, China.
53. In regard to a contribution on the impact of international investment rules on national policies,
the view was expressed that an analysis of intern ational investment arrangements showed that it was
possible to design international investment rules in a manner that preserved the ability of host
countries to pursue their domestic policy objectives.  Concerning the admission of foreign investment,
the analysis in this contribution suggested that multilateral rules providing for widespread and across-
the-board liberalization of restrictions would probably be regarded as too restrictive by many
countries, but that, in view of the liberal practice of countries, there was scope for developingmultilateral rules on this matter, possibly on the basis of positive commitments.  On the treatment of
foreign investment, it was stated that the analysis in this contribution had found widespread
acceptance of the principle of non-discrimination of foreign investment once admitted, subject to
exceptions of a general nature and exceptions pertaining to specific sectors or policies.  The
contribution had not found any obvious negative impact of such standards of treatment on domesticpolicy objectives in various areas, including development, education, training, employment and
environmental protection.  Finally, the analysis in this contribution had also found that, while the
provision of benefits to investors was widespread in both developed and developing countries,
normally such benefits were not granted on a discriminatory basis.
78
54. Support was expressed for the view that an approach along the lines of the GATS would
make it possible to design multilateral investment rules without interfering with important domestic
policy objectives.79  In another comment on this contribution, certain themes were identified as
requiring further consideration, including the extent to which national investment regimes included
admission clauses;  whether national treatment and MFN treatment were applied unconditionally or
only subject to such terms as specified in domestic  legislation;  whether national treatment and MFN
treatment were applied with respect to both pre- and post-establishment;  the criteria to define
potential investors if national treatment was accorded to foreign investors in the pre-establishment
phase;  and the exceptions to national treatment and most-favoured-nation treatment that would be
necessary to ensure flexibility.80
55. It was also stated that the view that a multilateral framework on investment could be
consistent with the pursuit of domestic policy objectives was questionable, and that the contribution at
issue was too positive in its assessment of the bottom-up approach to multilateral investment rules,
without examining the implications of that approach  for developing countries.  In this respect, the
point was made that it was not clear how the non-discriminatory treatment of foreign investors could
be reconciled with the pursuit of domestic policy objectives in the case of a country which set policy
objectives regarding industrialization and the transfer of technology.  The sector-specific national
treatment exemptions that were permitted by the GATS might not be possible in the case ofinvestment measures relating to goods, such as limitations relating to local content which could
contravene the GATT and the TRIMs Agreement.  Th e point was made that, in the case of trade in
goods, the domestic industry had a level of protection afforded by tariffs.  In the case of trade in
services, the domestic industry had a level of protection mainly through limitations on access in the
sector concerned, including restrictions on national treatment.  In the case of foreign investment ingoods, however, there was no protection to the domestic firms.  Performance requirements to be
                                                     
78 M/11, para. 39.
79 M/11, paras. 44,46-47 and 53.
80 M/11, para. 45.WT/WGTI/4
Page 16
fulfilled by foreign investors could fill this void.  It was therefore fundamental that developing
countries retain the policy option of using performance requirements for achieving their policy
objectives.81
56. The point was also made that, notwithstanding the assertion that there was no reason to
believe that a multilateral framework would adversely impact on the ability of states to regulate, this
was still a major concern among Members, and that it might therefore be preferable to focusconsideration on non-controversial issues, such as transparency.
82
57. The view was also expressed that the Workin g Group should take into account that there
existed various possible approaches to the question of exceptions necessary to protect specific internal
interests of countries in the context of international investment rules.  It was suggested, in this regard,
that the Working Group should consider the merits of extending protection to the pre-establishment
phase of investment, subject to a top-down list of exceptions.  The fact that countries had adopted this
approach in many bilateral investment treaties and regional agreements and initiatives showed thatthis approach was realistic.  It was stated that, while the GATS offered one approach for registering
exceptions, Members should be willing to explore ot her mechanisms, such as the top-down approach,
which in the long run would have a greater impact on investment liberalization.  One reason why such
a top-down approach might be achievable was that most sensitive sectors were services and were
already covered by the GATS.  The point was made that, while the time was not ripe for investmentnegotiations in the WTO, at some point in the fu ture such work might be warranted.  Given this
extended time line, the make-up of a possible future agreement should not be prejudged.  The number
of countries supporting a top-down approach might increase over time as countries entered into
additional international arrangements.
83
58. In a further comment on this contribution on the impact of international investment rules on
national policies, the point was made that, when analyzing for national treatment or MFN purposes
the possible differential treatment of foreign and domestic investors, the investors compared needed to
be in like circumstances.84
59. The Working Group received a written contribution which highlighted the positive role of
FDI in one Member's transition to a market economy, especially with respect to export performance,structural adjustment and the introduction of ne w technologies and management methods.  Based on
this experience, this Member had concluded that a multilateral framework for FDI was necessary.  It's
experience regarding the benefits of FDI was not unique and was instructive for countries facing
problems similar to those that this Member had encountered at the beginning of its transition process.
This Member aimed at maintaining a stable and substantial inflow of FDI in the coming years andbelieved that, by improving legal certainty with respect to the entry and treatment of FDI, a
multilateral framework of rules would bring stability and predictability for investors and host
governments and would lead to increased overall FD I flows.  It was proposed that such a framework
concentrate on FDI and exclude volatile short-term capital flows, and that it be based on the principles
of non-discrimination, follow the positive list approach of the GATS, and not allow for investor-to-
state dispute settlement procedures.  It was stated that the establishment of multilateral framework for
FDI in the WTO would resolve the systemic problem of the inconsistency between the coverage offoreign investment in services in the GATS and the lack of coverage of foreign investment in
manufacturing.
85
                                                     
81 M/12, para. 54.
82 M/11, para. 51.
83 M/12, para. 63.
84 M/12, para. 64.
85 M/11, para. 41.WT/WGTI/4
Page 17
60. In comments made on this contribution, it was stated that many developing countries had
similarly positive experiences with FDI, and that this Member's experience demonstrated the
importance of a transparent and predictable investment regime.86  There was also support expressed
for this Member's views on the design of multilateral rules on investment in the WTO.87
61. It was also said that the developments describe d by this Member regarding the role of FDI in
its reform process did not justify the conclusion that a multilateral framework for FDI would lead toincreased FDI flows.  It was noted, in this respect,  that this Member's contribution had also underlined
that, left to itself, FDI might not contribute to economic development to the desired extent, and that
efforts were necessary to ensure the diffusion of modern technology to local industries, to realize a
better utilisation of human resources in research and development and to attain the objective of
balanced regional development.  These were precisely the reasons why developing countries insisted
on retaining the freedom to screen foreign investme nt and to direct it to desired economic activities,
while at the same time autonomously liberalizing their investment regimes.
88
62. In response to these comments, the point was made that the experience of the Member in
question showed that, while there was a role for gove rnments in meeting such challenges, they did not
warrant a policy of screening of FDI.89
63. In regard to a contribution on the issue of how to improve the transparency of laws and
regulations concerning FDI, it was stated that such transparency was of growing importance to thepromotion of FDI, especially in light of the accelerating pace of regulatory changes in many countries.
The contribution discussed various means by which transparency could be enhanced at the
international level.  It emphasized the benefits of enhanced transparency from the perspective of
developing countries, but acknowledged the need to take into account possible administrative
burdens.  Following an examination of provisions on transparency contained in existing internationalinvestment arrangements, particularly the WTO Agreement, the contribution highlighted the
advantages of the WTO as an institutional framework to promote the transparency of laws and
regulations affecting foreign investment and made concrete suggestions on specific transparency
provisions that could be included in a possible multilateral framework.
90
64. In comments made on this contribution, it was stated that transparency was important to the
promotion of FDI,91 and that there was broad support among WTO Members for the principle of
transparency.92  Statements were made in favour of the inclusion of provisions on transparency as a
core element of possible multilateral rules on investment in the WTO.93  The point was made that the
issue of transparency was perhaps less contentious than some other issues that had been raised in the
Working Group.94  In the latter regard, a comment of a more general nature was that it appeared that
some elements commanded support, such as the application of the principles of transparency and non-
discrimination in the post-establishment phase of an investment and respect for the development
dimension, while other elements, such as investor-t o-state dispute settlement, disciplines on portfolio
investment and investment protection, did not command such support.  If the Working Group could
narrow the debate to the less contentious issues, this might provide some comfort to Members who
were concerned about the direction of discussions in this area.95
                                                     
86 M/11, paras. 45, 48 and 52.
87 M/11, para. 44.
88 M/12, para. 51.
89 M/12, para. 52.
90 M/11, para. 40.
91 M/11, paras. 44-45,47-49 and 51 and M/12, paras. 62, 64-65 and 67.
92 M/11, paras. 42-43 and M/12, para. 64.
93 M/11, paras. 44 and 48 and M/12, paras. 58, 62, 65 and 67.
94 M/11, paras. 42-43 and 51.
95 M/11, paras. 47 and 51.WT/WGTI/4
Page 18
65. The view was also expressed, however, that, given the importance of transparency to the
promotion of FDI, governments acting in their self-interest would take steps to enhance the
transparency of their investment regime, and that the benefits of a multilateral agreement on
transparency in the area of foreign investment were therefore questionable.  In this connection, the
point was made that the Working Group's mandate did not allow for the Working Group to consider
the establishment of possible disciplines in this area.   It was also stated that any rules-based approach
to transparency could prove to be onerous for developing countries with limited human and material
resources.  A further observation in this context was that it was unclear how WTO dispute settlement
procedures would operate in relation to a possible agreement on transparency of investment
measures.96
66. In response to the scepticism expressed about the benefits of multilateral rules on
transparency in the field of investment, it was stated that multilateral provisions on transparency
would be useful in facilitating access to information by small- and medium-sized enterprises.Notwithstanding national efforts to enhance transparen cy, such firms often found it difficult to obtain
relevant information.  It was also stated that multilateral provisions would enhance transparency
between WTO Members, which was distinct from transparency at a domestic level.
97
67. The point was made that care should be taken to avoid transparency requirements that would
be too onerous for developing countries.98  As an example, mention was made of a suggestion
regarding the advance publication of regulations and the provision of an opportunity for comment.99
It was stated that this was one area where the Working Group could benefit from the experience of theWorking Group on Transparency in Government Procurement.
100  It was also stated that developing
countries could benefit significantly from enhanced transparency, and that the administrative costs of
transparency were outweighed by the positive effects of transparency not only vis-à-vis  foreign
investors but also vis-à-vis  the domestic industry.101  The need for technical assistance to developing
countries in connection with possible transparency rules in the area of investment was mentioned.102
68. Comments were made on existing WTO provisions on transparency and their relevance to
investment.  It was stated that a key question wa s whether existing WTO provisions on transparency,
such as Article X of GATT 1994, could apply to investment.103  The point was also made that,
because Articl e III of the GATS applied to all measures of general a pplication pertaining to or
affecting the operation of the GATS, including measures relating to the establishment of a commercial
presence, the WTO already contained transparency obligations in regard to FDI in the services sector.
It would seem logical, therefore, that Article III of the GATS should serve as a source of inspiration
when considering transparency provisions on FDI.104  Another comment made was that certain
provisions of the GATS on transparency had in practice not resulted in the expected benefits.105  I t
was stated that in its work on transparency the Working Group should take into account the current
discussions in the GATS Working Party on Domestic Regulations on the possibility of elaborating
further disciplines on transparency.106  Finally, attention was drawn to the role of the Trade Policy
Review Mechanism in contributing to transparency in the area of investment.107
                                                     
96 M/12, paras. 53 and 68.
97 M/12, para. 69.
98 M/11, paras. 42-43 and 47 and M/12, para. 65.
99 M/11, para.43.
100 M/11, para.43.
101 M/12, paras. 62 and 65.
102 M/12, para. 58.
103 M/11, para. 46.
104 M/12, para. 65.
105 M/11, para. 45.
106 M/12, paras. 65 and 70.
107 M/12, para. 62.WT/WGTI/4
Page 19
69. Reference was made to provisions on transparency contained in international investment
agreements of a Member.  Certain regional investment agreements to which this Member was a party
addressed the issue of transparency in general provisions relating to publication, notification and
administration of laws, and in the annexes to the investment chapters of these agreements. The point
was made that the use of a negative list approach to reservations ensured that parties listed all their
non-conforming measures which they wished to ex clude from certain obligations.  This approach
offered the highest degree of certainty and transparen cy to investors.  In bilateral investment treaties
to which this Member was a party a more gene ric approach was used whereby all non-conforming
measures existing on the date of entry into force of the agreement were automatically "grandfathered"
and thus protected from dispute settlement.  Each such agreement also provided that, after the
signature of the agreement, a list of non-confor ming measures would be exchanged between the
parties for the purposes of transparency.  The bilateral agreements also included a general
transparency provision whereby the parties agreed to ensure, to the extent practicable, that their laws,
regulations and procedures were published or otherwise made available.  They also provided that,
upon request of the other party, information be exchanged on measures that might impact on new
investments, investments or returns covered by the agreement.108
70. In respect of another contribution on transparency, the point was made that transparency
obligations contained in existing investment-related provisions in the GATS and the TRIMsAgreement could be classified as follows:  (i) requirements to make publicly available information on
measures which were likely to be investment-related;  (ii) obligations to notify measures introduced
by Members;  (iii) obligations to establish enquiry points and/or to respond to requests for information
and, in the case of developed-country Members, to establish contact points to facilitate the access of
developing-country Members' service suppliers to information related to their respective marketsunder GATS Article IV;  (iv) obligations to ensure the transparency of administrative procedures; and
(v) obligations to expand the transparency provisions of the GATS in a sector-specific context.  It was
suggested that future work in the Working Group on how best to achieve transparency with regard to
investment policies could focus on certain key policy questions.  These questions pertained to:  (i) the
optimal scope of WTO transparency rules in terms of the kinds of investment policies, measures,
practices, laws and regulations and the level of government that should be covered by such rules;
(ii) whether transparency rules should apply not only after a measure had been adopted formally but
also to the process of adopting new or amended investment measures;  (iii) the desirability and
practicability of providing for rules on procedural transparency;  (iv) the possible need created by the
business realities of the new economy to develop innovative means to promote transparency;  (v) theneed for, and possible nature of, exceptions to new transparency obligations;  and (vi) the question of
possible costs of new WTO provisions on transparency on investment-related matters, especially the
issue of how the objective of enhanced transparency could be pursued without imposing burdensome
obligations on developing-country Members.
109
71. In response to the question raised in this contribution on the scope of possible WTO
transparency provisions in the field of investment, the view was expressed that such provisions should
in principle apply to all measures, policies and practices that might affect investment and to all levelsof government.  Specific mention was made, in this regard, of the issue of investment incentives.  A
further observation made in this context was that the question of the scope of such provisions could
not be addressed in isolation, but should be examined in the context of the general question of the
scope of a possible multilateral framework on investment.
110  The point was made that transparency
provisions applicable to the adoption of rules might be useful, but that the kind of public commentprocedure that was mentioned in this contribution wa s perhaps not realistic.  Provisions to promote
procedural transparency were desirable, but their precise scope would need further clarification.
111
                                                     
108 M/11, para. 49.
109 M/12, para. 48.
110 M/12, paras. 58 and 67.
111 M/12, para. 58.WT/WGTI/4
Page 20
Support was expressed for the suggestion to expl ore how development in information technology
could be applied in the context of multilateral rules on transparency in the area of investment.112  It
was stated that special exceptions to WTO rules on transparency might need to be envisaged, but that
the reasons for such exceptions would need to be clearly explained.113  Finally, it was acknowledged
that obligations that would be too onerous for developing countries should be avoided, and that
technical assistance might need to be provided by developed countries to developing countries.114
72. In response to the comment that all measures affecting investment should be subject to
transparency rules, support was expressed for this view, but it was also stated that in the GATS
Working Party on Domestic Regulation a suggestion had been made that transparency should be
limited to regulations.115
73. Statements were made on steps recently taken by several Members to enhance the
transparency of their domestic legislation and procedures relating to foreign investment.116  In this
respect, it was suggested that it would be useful to exchange information on practices of individualMembers with regard to the promotion of the transparency of their investment regime.
117
74. In regard to a contribution which was intended to address certain concerns that had often been
raised in the Working Group, the view was expressed that the distinction that was sometimes made
between positive and negative effects of FDI was somewhat misleading.  The alleged negative effects
of FDI on a host economy were very often hard to distinguish from negative effects of any kind ofinvestment and were due to structural problems in that economy.  Moreover, countries that believed
that a distinction between good and bad FDI was useful had the possibility to decide for themselves
whether or not they wished FDI.  In reality, however , almost all countries were trying hard to attract
FDI.  With respect to the relationship between bilateral and multilateral investment rules, which was
another theme that had been frequently debated in this Working Group, the point was made thatbilateral and multilateral rules on investment could be complementary, and that certain issues required
a coherent and uniform treatment at a multilateral level, while for other topics such coherence and
uniformity was less important.  While there was no guarantee that multilateral investment rules would
lead to increased investment flows, the same applied to bilateral investment treaties.  International
investment rules were not a substitute for domestic economic factors that determined a country'sattractiveness for foreign investors, but the stability provided by international investment rules was an
important factor in investment decisions.  It was noted, in this regard, that investors of one Member
had expressed a preference for multilateral rules on investment as compared to bilateral investment
treaties.  With regard to the argument that it was necessary to agree on a common definition of
investment before the merits of multilateral investment rules could be considered, the point was madethat the definition of investment was a matter for negotiations, and that useful work had been done in
the Working Group to identify a range of possible approaches.  It was also stated that the view that
one should first exploit the potential offered by th e GATS in regard to foreign investment involved a
distinction between the treatment of investment in services and investment in other sectors which was
without rationale and which could lead to distortions.
118
75. In a comment on this contribution, it was stated that most existing bilateral investment treaties
lacked an integrated approach to the post-establi shment and pre-establishment phases of investment,
and that there was no evidence of a significant influence of such treaties on investment flows.  The
point was also made that, while FDI flows to deve loping countries had increased significantly, they
                                                     
112 M/12, paras. 58 and 67.
113 M/12, para. 58.
114 M/12, paras. 58 and 67.
115 M/12, para. 70.
116 M/12, paras. 53 and 67.
117 M/12, para. 68.
118 M/12, para. 46.WT/WGTI/4
Page 21
were heavily concentrated in a few countries, and that the competition between countries to attract
FDI through the granting of incentives had harmful effects.  In this respect, the view was expressed
that a multilateral framework would offer an integr ated approach which could remedy many of the
shortcomings of bilateral investment treaties.  Although it was difficult to predict whether investment
flows would actually increase as a result of the creation of a multilateral framework, there was no
doubt that potential long-term benefits existed as long as there was agreement on the validity of theenhanced transparency and predictability for the stable  flow of FDI, which in turn would contribute to
the overall economic growth and development.
119
76. In reaction to the view that bilateral treaties and multilateral rules on investment were
complementary, the question was raised as to which specific subjects were considered to be suitable
for inclusion in a multilateral framework.120  In response, it was said that there were no issues that
inherently were not suitable for multilateral rules,  and that it was for the collective Membership of the
WTO to decide on the appropriate scope of multilateral rules.  In this respect, the view was expressedthat an issue as important as foreign investment should be subject to the same basic principles of non-
discrimination, transparency and access through negotiated commitments that had been successfully
applied in the framework of the GATT and the WTO to other areas of economic activity.
121
77. In regard to a contribution on expropriation and compensation, the point was made that
difficulties had recently arisen in regard to the interpretation of the concept of expropriation asdefined in international investment agreements.  In particular, while expropriation was generally
defined as comprising both direct and indirect expropriation, there was no generally accepted
definition of the terms "indirect expropriation" and  "creeping expropriation".  The issue of whether
"regulatory takings" should be considered to amount to expropriation of foreign investment had been
raised in the MAI negotiations and in several NAFTA  investment disputes.  The failure of the MAI
negotiations had prevented in-depth discussion of this important question, notwithstanding the
agreement among MAI negotiators on the need for a more precise concept of expropriation.  It was
suggested that, in order to arrive at a common understanding of the expropriation clauses of
international investment agreements, it was useful to focus discussions on three questions:  (i) when
governments concluded bilateral investment treaties, what was the usual kind of expropriations forwhich they were willing to provide compensation? (i i) how strongly did foreign investors feel their
investment was being protected in the host count ry by the expropriation clause? and (iii) for non-
governmental organizations, what was the acceptable nature and range of expropriations that should
be compensated?  The point was made that the development of a framework mutually agreed upon by
the host and home countries, foreign investors and non-governmental organizations was essential tocreating a transparent and predictable environment for international investments.  This could not be
constructively undertaken through multiple networks of bilateral investment treaties which applied a
plethora of different definitions, standards and conditions.
122
78. The question was raised whether the Member which had submitted this contribution on
expropriation and compensation considered that this subject should be dealt with in a multilateral
framework. 123
79. In regard to a contribution on the question of the definition of investment, the point was made
that, based on the various approaches adopted in bilateral investment treaties, the NAFTA, and the
GATS, and in light of the definition of FDI used  by the IMF and the OECD, three options could be
distinguished with regard to the definition of invest ment in a multilateral framework.  The first option
would be to define investment along the lines of the IMF and OECD definition of FDI, i.e. to adopt
                                                     
119 M/12, para.55.
120 M/12, para.60.
121 M/12,para.61.
122 M/12, para. 49.
123 M/12, para. 60.WT/WGTI/4
Page 22
the enterprise-based criteria.  This definition would have the effect of narrowing the scope of the
investment rules.  The second option would be to ha ve a broad definition of investment at the outset
and then to allow regulation of short-term capital  movements, or to exclude speculative short-term
capital movement from the scope of the rules.  This would provide the regulatory agencies with
considerable room for manoeuvre.  The third option would be a combination of the first two options.
This would mean that the scope of the definition would vary according to each element of theagreement.  For example, in connection with the pr ovisions concerning the protection of investment, a
broad definition of investment could be used em bracing portfolio investment.  At the same time,
certain provisions, such as national treatment obliga tions with respect to the pre-establishment stage,
could be tied to a narrow definition of FDI.  E ach option had its own advantages and disadvantages.
However, it seemed clear that, on the one hand, broad regulatory discretion should be retained for the
control of short-term capital movement and that, on the other, security and predictability for investors
should not be compromised for that purpose.  In this respect, the view was expressed that it might benecessary to define FDI from an enterprise-based approach and, at the same time, to consider a way in
which a wider scope of investment could be covered by provisions on investment protection.
124
80. In a comment on this contribution, it was stated that the third option suggested in this
contribution was similar to the approach adopted in the domestic legislation of one Member which
combined an enterprise-based definition at the pre-establishment stage with a broader, asset-baseddefinition at the post-establishment stage.  While the Member in question had in past discussions
taken the view that the work of this Working Group should be limited to FDI, it was willing to
explore the various options described in this contribution.
125  Another observation made on this
contribution was that it demonstrated that the definition of investment was complex and delicate, but
that it was possible to resolve this issue if th e close relationship was acknowledged between the
definition of investment and the substantive rules to which that definition was intended to apply.126  It
was also stated that earlier discussions in this Working Group on the question of the definition of
investment had suggested that only a fairly limited definition might be possible, but that there was
scope for further discussions on this issue.127
                                                     
124 M/12, para. 50.
125 M/12, para. 56.
126 M/12, para. 57.
127 M/12, para. 70.WT/WGTI/4
Page 23
ANNEX 1
TEXT OF THE SINGAPORE MINISTERIAL DECLARATION, PARAGRAPH 20
"20. Having regard to the existing WTO provisions on matters related to investment and
competition policy and the built-in agenda in these areas, including under the TRIMs Agreement, andon the understanding that the work undertaken shall not prejudge whether negotiations will be
initiated in the future, we also agree to:
- establish a working group to examine the relationship between trade and investment;
and
- establish a working group to study issues raised by Members relating to the
interaction between trade and competition policy, including anti-competitive
practices, in order to identify any areas that may merit further consideration in the
WTO framework.
These groups shall draw upon each other's work if necessary and also draw upon and be without
prejudice to the work in UNCTAD and other appropriate intergovernmental fora.  As regards
UNCTAD, we welcome the work under way as provided for in the Midrand Declaration and the
contribution it can make to the understanding of issues.  In the conduct of the work of the working
groups, we encourage cooperation with the above organizations to make the best use of available
resources and to ensure that the development dimension is taken fully into account.  The GeneralCouncil will keep the work of each body under revi ew, and will determine after two years how the
work of each body should proceed.  It is clearly understood that future negotiations, if any, regarding
multilateral disciplines in these areas, will take place only after an explicit consensus decision is taken
among WTO Members regarding such negotiations."WT/WGTI/4
Page 24
ANNEX 2
CHECKLIST OF ISSUES SUGGESTED FOR STUDY
Non-Paper by the Chair
Revision
It was widely recognized that the Working Group's work programme should be open, non-
prejudicial and capable of evolution as the work pr oceeds.  It was also emphasized that all elements,
not only category I, should be permeated by the de velopment dimension.  Particular attention should
be paid to the situation of least-developed countries.  In pursuing the items of its work programme, the
Working Group should avoid unnecessary duplication of work done in UNCTAD and otherorganizations.
_______________
I. Implications of the relationship between trade and investment for development and economic
growth, including:
- economic parameters relating to macroeconomic stability, such as domestic savings,
fiscal position and the balance of payments;
- industrialization, privatization, employment, income and wealth distribution,
competitiveness, transfer of technology and managerial skills;
- domestic conditions of competition and market structures.In this work, the Working Group should seek to benefit from the experience of Members at
different stages of development and take account of recent trends in foreign investment flows
and of the relationship between different kinds of foreign investment.
II. The economic relationship between trade and investment:
- the degree of correlation between trade and investment flows;- the determinants of the relationship between trade and investment;
- the impact of business strategies, practices and decision-making on trade and
investment, including through case studies;
- the relationship between the mobility of capital and the mobility of labour;
- the impact of trade policies and measures on investment flows, including the effect of
the growing number of bilateral and regional arrangements;
- the impact of investment policies and measures on trade;
- country experiences regarding national investment policies, including investment
incentives and disincentives;WT/WGTI/4
Page 25
- the relationship between foreign investment and competition policy.
III. Stocktaking and analysis of existing international instruments and activities regarding trade 
and investment:
- existing WTO provisions;
- bilateral, regional, plurilateral and multilateral agreements and initiatives;- implications for trade and investment flows of existing international instruments.
IV. On the basis of the work above:
128
- identification of common features and differences, including overlaps and possible
conflicts, as well as possible gaps in existing international instruments;
- advantages and disadvantages of entering into bilateral, regional and multilateral rules
on investment, including from a development perspective;
- the rights and obligations of home and host countries and of investors and host
countries;
- the relationship between existing and possible future international cooperation on
investment policy and existing and possible future international cooperation on
competition policy.
                                                     
128 The question of the timing of work under section IV was the subject of a decision taken by the
Working Group at its meeting of 2-3 June 1997.WT/WGTI/4
Page 26
ANNEX 3
Summary of contributions received in the Working Group
on the Relationship between Trade and Investment in 2000
Symbol
(WT/WGTI/W/-)Member / Other
sourceWhere introduced
(Reference in Minutes)Topic
W/82 Korea M/11, Para. 2 FDI and transfers of technology
W/83 Hungary M/11, Para. 9 The need for a multilateral
framework for FDI:  TheHungarian experience
W/84 European
Community and
member StatesM/11, Para. 39 Advantages and disadvantages of
entering into bilateral, regional and
multilateral rules on investment,
including from a developmentperspective:  Impact ofinternational investment rules oncurrent national policies
W/85 UNCTAD M/11, Para. 36 International Investment and
Development:  A report of
UNCTAD's Work Programme in
the area of investment afterUNCTAD X
W/86 India M/11, Para. 23 Checklist of Issues Suggested for
Study:  Issues that still need to beclarified
W/87 Japan M/11, Para. 40 Improving transparency
W/88 World Bank M/11, Para. 27 Study on Trade, FDI and Transfer
of Technology
W/89 European
Community andmember StatesM/12, Paras. 15, 46 Flexibility and non-discrimination
W/90 Hong Kong,
ChinaM/12, Para. 48 Transparency of investment
environment
W/91 Korea M/12, Para. 49 Investment Protection:
Expropriation and Compensation
W/92 Japan M/12, Para. 50 Definition of investment
W/93 OECD M/12, Para. 41 Revised OECD Guidelines for
Multinational Enterprises
W/94 UNCTAD M/12, Para. 38 International Investment and
Development:  A report on
UNCTAD's Work Programme inthe Area of InternationalInvestment
__________