WORLD TRADE
ORGANIZATIONWT/WGTI/W/131
3 July 2002
(02-3714)
Working Group on the Relationship
between Trade and InvestmentOriginal:  English
COMMUNICATION FROM CANADA
The following communication, dated 2 July 2002, has been received from the Permanent
Mission of Canada.
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DEVELOPMENT PROVISIONS
I. INTRODUCTION
1. Canada considers that policies conducive to attracting foreign investment, such as transparent
and non-discriminatory administrative norms and legal standards, are an essential condition for
economic growth.  The benefits of foreign investment, such as technological innovation and increasedproductivity, are most fully realized when local capacities, physical infrastructure, as well as policies
of the host government reinforce the way in which the productive capacity of an economy is enhanced
through investment, whether it be of domestic or foreign origin.
2. Far-reaching changes in the direction and magnitude of world trade and investment in recent
years have brought increased economic growth to many countries.  There is broad agreement among
all Members of the Working Group on the Relationship between Trade and Investment (WGTI) that
foreign direct investment has played, and will continue to play, an essential role in the developmentprocess.  Although trade and investment liberalization is recognized as important for economic
growth, we are still grappling with how best to encourage liberalization across countries that are at
various stages of development.  The inclusion in international investment agreements of principles
and provisions aimed at promoting benefits from international investment flows to all Members is
essential.  The successful elaboration of such principles and provisions in the context of such aframework, in addition to technical assistance and capacity building, would help encourage foreign
investment and promote economic growth and prosper ity in developing and least-developed countries.
3. The potential provisions addressing development issues will depend on the architecture, scope
and disciplines of any multilateral investment agreement.  For example, an agreement with
comprehensive obligations may necessitate greater flexibility and development provisions than wouldan agreement that contains only limited disciplines or commitments.  However, the balance between
substantive obligations for the liberalization and protection of investments on the one hand, and
development provisions on the other, must be struck in a way as to ensure that flexibility does not
translate into discrimination.  As well, there is a n eed for a high degree of transparency to ensure that
investors are fully cognizant of the conditions governing the treatment of their investments.  Finally,technical assistance and capacity building will be required to ensure that developing and
least-developed countries are able to participate fully in the negotiation and implementation of any
multilateral investment framework.WT/WGTI/W/131
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4. In considering how development provisions might be elaborated in the context of a potential
multilateral framework on investment, Canada has found it useful to consider the guidelines set down
by Ministers in paragraph 22 of the Doha Declaration.  What follows is an attempt to illustrate
possible means by which flexibility for development could be incorporated into a prospective
investment framework, without seeking to pr ejudge the form or operation of any eventual
development provisions or the architecture and scope of an investment agreement; such an elaboration
will be a matter for potential future negotiations.  Canada’s contribution is made without prejudice to
its position in any future negotiations toward a multilateral framework on investment.
A. A NY FRAMEWORK SHOULD REFLECT IN A BALANCED MANNER THE INTERESTS OF HOME
AND HOST COUNTRIES , AND TAKE DUE ACCOUNT OF THE DEVELOPMENT POLICIES AND
OBJECTIVES OF HOST GOVERNMENTS AS WELL AS THEIR RIGHT TO REGULATE IN THE PUBLIC
INTEREST
5. Ministers’ direction that any framework should reflect in a balanced manner the interests of
home and host countries is predicated on the earlier acknowledgement by Members of the importance
of securing transparent, stable and predictable conditions for long-term cross-border investment that
will contribute to the expansion of trade.  Capital-importing countries equally have an interest in
attracting high-quality, productive foreign investment.  Capital-exporting countries have an interest insecuring market access opportunities for investments in capital importing countries, as well as greater
protection for established investments.  To the extent that developed and developing countries
participate to varying degrees in both inward and outward foreign direct investment, all countries
share these interests.
6. As is evident from the Doha Declaration, countries place great importance on ensuring that
their ability to govern and regulate in the public interest is preserved.  Countries need to preserve their
ability to maintain or establish measures in key sectors or policy areas (e.g., culture, regional
development, aboriginal affairs).  In addition, there is recognition that the extent and pace of
liberalization may differ between Members at different levels of development.  We note that GATS
Article XIX:2 states:  “The process of liberalization shall take place with due respect for nationalpolicy objectives and the level of development of individual Members, both overall and in individual
sectors.”  Canada believes that recognition of the right to regulate, flexibility with respect to key
sectors or policy areas, as well as recognition that the process of liberalization should take into
account differing levels of development, should be key elements in any agreement on investment.
7. There are a variety of architectural and scope-related elements that appear in investment
agreements, and which would arguably appear in a multilateral investment framework, which provide
signatories with the necessary flexibility to pursue national policy goals.  Such architectural andscope-related elements are normally applicable to all signatories and speak to publicly-defined
interests issues, including development-related concerns.
8. A comprehensive multilateral investment framework should include non-discriminatory
treatment, which is to say national treatment and most-favoured-nation (MFN) treatment, for
investments across the lifetime of an investment.  National treatment is a standard principle ofnon-discrimination in many existing investment treaties, and requires that foreign investors and their
investments be treated no less favourably than domestic investors and their investments in like
circumstances.  In the context of a multilateral investment framework, MFN would mean (subject to
possible exception, such as for economic integration) that no Member would receive treatment less
favourable than that granted to any other Member.
9. In discussing modalities, the WGTI will have to assess how alternative approaches to
commitments (positive and/or negative lists) could be used with respect pre-establishment and
post-establishment.  Both approaches provide ampl e flexibility for development purposes.  Under aWT/WGTI/W/131
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positive list approach, certain obligations apply only to sectors scheduled, along with specified
limitations.  Under a negative list approach, reservations and exceptions are taken with respect to
obligations of general applicability.  Both approaches enable a country to maintain non-conforming
measures and to adopt discriminatory measures where necessary.  While some WTO Members prefer
a positive-list approach for national treatment with  respect to pre-establishment, a negative-list
approach has been used for MFN in the GATS and for post-establishment national treatment in most
bilateral investment agreements.  Both positive-list and negative-list approaches can accommodate, in
either lists of commitments or reservations, phase-out periods or transition periods.
10. With respect to exceptions to obligations undertaken in any prospective multilateral
framework on investment, since it would operate within the context of the other WTO agreements, the
general exceptions listed under GATT Article XX and security exceptions under GATT Article XXI,
as well as general exceptions listed under GATS Article XIV and security exceptions under GATSArticle XIV bis, could be examined for their potential applicability to an investment agreement.
11. Moreover, just as GATT Articles XII and XVIII:B permit certain restrictions on trade in
goods, and GATS Article XII permits certain restrictions on trade in services, where a country is
facing serious balance-of-payments problems, provisions could be built into a prospective framework
on investment to permit certain restrictions on investment under particular conditions andcircumstances.  Such exceptions would have to be applied in a transparent and non-discriminatory
manner.
12. Under these various scenarios, while developi ng and least-developed countries would retain
the flexibility to take national developmental policy-related decisions regarding the projected
establishment or acquisition of an investment, investors would understand the reasons for suchdecisions.  The host country would maintain policy flexibility and the international investment
community would gain the benefit of transparency and predictability.
B. T
HE SPECIAL DEVELOPMENT , TRADE AND FINANCIAL NEEDS OF DEVELOPING AND LEAST -
DEVELOPED COUNTRIES SHOULD BE TAKEN INTO ACCOUNT AS AN INTEGRAL PART OF ANY
FRAMEWORK , W HICH SHOULD ENABLE MEMBERS TO UNDERTAKE OBLIGATIONS AND
COMMITMENTS COMMENSURATE WITH THEIR INDIVIDUAL NEEDS AND CIRCUMSTANCES
13. In considering the special developmental, trade and financial needs of developing and
least-developed countries, perhaps the most significan t point is that these considerations refer to their
“individual” needs and circumstances.  This is significant because it draws attention to the fact that
developing and least-developed countries cannot be dealt with as though they comprised a monolithic,
homogeneous group.  This much is evident even from the differentiation in the use of the qualifiers
“developing” and “least-developed”.  Beyond the recognition that these countries, as a whole, requirespecial and differential treatment to assist them in  attaining their developmental goals, there must also
be an acknowledgement that, individually, they may require differing treatment based on their specific
objectives and needs.  Some have argued in previous meetings of the WGTI that bilateral investment
agreements are more amenable to this kind of co nsideration, and that a multilateral framework would
be too unwieldy to accommodate such a disparate variety of needs and objectives.  This argumentruns counter to the spirit of the Doha Development Agenda, which places the needs and interests of
developing and least developed countries at the heart of the Doha Work Programme.  In addition to
the potential development provisions outlined in the previous section, there are a number of possible
mechanisms that would allow developing and least-developed countries to implement a prospective
multilateral investment framework commensurate with their individual needs and circumstances.
14. Consideration might be given to phase-in periods for compliance that would allow developing
and least-developed countries time to build up the capacity necessary to comply with moreWT/WGTI/W/131
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comprehensive obligations.  Alternatively, flexibility for developmental purposes could be
accommodated by means of phase-out periods for existing non-conforming measures.
15. Consideration could also be given to a mechanism whereby developing and least-developed
countries could be granted a grace period allowing them to make adjustments to their lists or
schedules.  This type of flexibility would obviate concerns that failure to list a measure, or converselyinappropriate scheduling of a commitment, would lo ck a country into an obligation that would be
contrary to its developmental policy objectives.  Any such provision would require the most rigorous
transparency disciplines to ensure that it was not being applied in an arbitrary or discriminatory
fashion.
16. Arguably, the purpose of providing provisions such as phase-ins and grace periods is to allow
developing and least-developed countries time to make domestic adjustments/preparations for when
their markets are opened to international competition.  Such an approach could be complemented byexternal mechanisms to ensure that the necessary adjustment takes place.  Consideration could be
given to providing targeted capacity building and/or trade-related technical assistance during the
adjustment period to help ensure that the adjustment takes place.
C. D
UE REGARD SHOULD BE PAID TO OTHER RELEVANT WTO P ROVISIONS
17. As Canada noted in its previous submission on “scope and definitions”, any prospective
investment agreement in the WTO would co-exist and interact with a number of other agreements
within the WTO system, including the TRIMs and the GATS, as well as with other international
agreements on investment.  Other WTO agreements are particularly relevant insofar as they contain
both investment-related and development-related provisions.  Our objective should be to ensure that
any development provisions elaborated in the context of a prospective multilateral framework oninvestment draw on and complement development prov isions in the existing agreements, such as the
provisions contained in Article XVIII of GATT 1994, among others.  Thus, for example, development
provisions for non-services sectors should assess the adaptability of the development provisions in the
GATS, since this agreement covers, among modes of services delivery, commercial presence.
II. CONCLUSION
18. Canada is committed to actively participating in technical assistance and capacity building
activities so that developing and least-developed countries can have in place an appropriate policy
framework conducive to attracting foreign direct investment to their economies.  The development
provisions of a prospective multilateral framework on investment will reflect the eventual scope,
structure and substantive obligations of that framework.  Regardless of the architecture, the
elaboration of the development provisions should be guided by two fundamental principles.  These are
flexibility and transparency.  This will ensure a closer approximation to the optimal balance betweencountries’ need to retain the ability to maintain or apply measures for national policy objectives and
investors’ interest in transparent, stable investment  regimes.  Canada believes that technical assistance
and capacity-building could be most constructive in assisting with this process.
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