RESTRICTED
WORLD TRADE WT/WGTI/W/19
11December 1997
ORGANIZATION(97-5423)
Original: English Working Group ontheRelationship
between Trade andInvestment
SUBMISSION FROM CANADA
Thefollowing communication reproduces thestatement made bythedelegate ofCanada at
the8December 1997meeting oftheWorking Group under theagenda item"stocktaking andanalysis
ofexisting agreements intrade andinvestment".
_______________
Introduction: stocktaking ofexisting agreements
Atthelastmeeting oftheWorking Group, weemphasized thatnocomprehensive multilateral
setofrules ontrade andinvestment exists. There isaneed, therefore, forafullassessment ofthe
trade andinvestment interface intheWTO, particularly iftheWTO istoevolve andistocontinue
toprovide theprimary institutional anchor totheworld trading system.
Currently, theWTO addresses anumber ofimportant investment-related issues. There are,
nonetheless, anumber ofimportant gaps. Amajor taskoftheWTO Working Group ontheRelationship
between Trade andInvestment istoidentify these gaps.
LastOctober, wesuggested theWorking Group carry outanextensive stocktaking andanalysis
ofexisting bilateral, regional andplurilateral investment agreements (item IIIoftheChair's4June1997
"Checklist") toassist usinefforts toidentify these gaps. Wehaverequested theWTO Secretariat
toundertake anoverview oftheissue. Wethink thisstocktaking should beundertaken inparallel with
theWorking Group 'sanalysis ofexisting WTO provisions asthese relate toinvestment.
Substantive elements inexisting agreements
Hundreds ofbilateral investment agreements havebeennegotiated among WTO Members.
Asignificant number oftheseinstruments havebeensigned sincetheconclusion oftheUruguay Round.
Initsmostrecent World Investment Report ,UNCTAD calculated thatbyJanuary 1997, 1,330 bilateral
investment agreements involving 162countries hadbeensigned, upfrom lessthan400agreements
in1990. UNCTAD alsopointed outdeveloping countries areoften signing these agreements with
other developing countries aswellaswithmajor capital exporters.
Some ofusarenowembarking onplurilateral andregional efforts. Although thecontent and
formofthese various bilateral, plurilateral andregional investment agreements maydiffer, itisclear
thatcountries from alllevels ofdevelopment areinvolved innegotiating them.
These extensive programmes ofnegotiation aretaking place, inspiteofwhattheUruguay Round
wasabletoachieve oncommercial presence andperformance requirements. Clearly, WTO Members
aresupplementing existing WTO disciplines through bilateral andregional means. WecanfacilitateWT/WGTI/W/19
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ourunderstanding ofwhatismissing inthecurrent WTO framework byexamining existing investment
agreements.
Theremainder ofthisintervention willfocus onsome ofthesubstantive elements inCanada 's
bilateral andplurilateral investment agreements, many ofwhich arenotcurrently covered bytheWTO
framework. Specifically, wewilldiscuss elements which provide guarantees ofprotection forour
investors intheiroperations abroad, andforforeign investors inCanada.
Canada 'sbilateral investment agreements, NAFTA Chapter 11,andtheCanada/Chile trade
agreement provide forthebetter ofnational treatment orMFN treatment respecting theestablishment
ofaninvestment intheterritory ofother signatories. These important commitments arealsoextended
tothetreatment ofinvestors afteraninvestment hasbeenestablished andareparticularly relevant to
themanagement, operation andsaleofinvestments inthehosteconomy. Theinvestment agreements
which Canada hasentered intoprovide scope forexceptions fromthesefundamental principles covering
thetreatmentofinvestorsandtheirinvestments.Exceptionshoweverareclearlyidentified,andgenerally
aresubject tostandstill. Thisapproach contributes totransparency andprovides greater certainty for
theforeign investor.
Anumber ofother provisions alsoadvance investor protection. These include aminimum
standard oftreatment oftheinvestor; non-discriminatory treatment withrespect tocompensation for
non-commercial losses; disciplines onabroad spectrum ofperformance requirements; commitments
withrespect tosenior management andboards ofdirectors; commitments topermit freetransfer of
funds related toaninvestment; andclear rules onexpropriation. Investor/state dispute settlement
mechanisms arealsocentral elements tothese agreements andtogether withstate-to-state dispute
settlement, increase theeffectiveness andenforceability ofthese agreements.
Minimum standard commitments require signatories toaccord fairandequitable treatment,
andfullprotection andsecurity inaccordance withthestandards ofinternational law.Thisisthebase
upon which thespecific investment protection articles arebuilt. Commitments oncompensation for
losses require non-discriminatory treatment inapplying measures taken byagovernment tocompensate
businesses suffering losses intheir territory asaresult ofarmed conflict andcivilstrife. Some
agreements extend these commitments tomeasures taken inresponse tonatural disasters.
From itsillustrative list,itiscleartheTRIMs Agreement covers local-content, trade-balancing,
import-substitution, foreign-exchange andexport-limitation requirements related totrade ingoods.
Clearly, other performance requirements existwhich canhaveimportant effects onaninvestment.
Requirements totransfer technology, aproduction process, orproprietary knowledge asacondition
toestablish oroperate aninvestment areexamples. Disciplines ontheuseofsuchmeasures areincluded
inexisting investment agreements towhich Canada isaparty.
Inthesesameagreements,Canadaanditsinvestmentpartnersundertakethatnospecialnationality
requirements should beimplemented withrespect tosenior management positions intheinvestor 's
enterprise. Thisprovides foraguarantee withrespect toaninvestor 'sability tomanage theirinvestment.
While signatories permit certain nationality requirements withrespect totheboard ofdirectors ofan
enterprise ofaninvestor, theyagree thattheserequirements beimplemented inawaysoasnottoimpair
theability oftheinvestor toexercise control overitsinvestment.
Animportant provision ofourinvestment agreements relate totheinward andoutward transfer
offunds related toaninvestment. They include themovement ofcapital related totheestablishment
orsaleofaninvestment, aswellasreturns suchasprofits anddividends. Normally, these agreements
statethatthese transfers aremade freely andwithout delay. Exceptions from thiscommitment areWT/WGTI/W/19
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clearly defined andlimited, suchaswithrespect tobankruptcy, criminal offence proceedings, orbalance
ofpayments problems. Investors arealsoprotected fromhome country requirements torepatriate funds.
Clear rules onexpropriation, andrelated compensation, arecentral toinvestor protection.
Canada 'sinvestment agreements permit nationalization orexpropriation onlyifittakes place fora
public purpose, under dueprocess oflaw,inanon-discriminatory manner andagainst prompt, adequate
andeffective compensation. Compensation istobebased onfairmarket value. Theinvestor isgiven
theright, under thelawofthehostcountry making theexpropriation, toprompt review byajudicial
orother independent authority ofthehostcountry.
WTO coverage
With respect toWTO coverage, wehavereferred already totheTRIMs Agreement. Asthe
WTOSecretariatnotesinJob2988,theTRIMsAgreementisconcernedwiththediscriminatorytreatment
ofimported andexported goods andisnotspecifically oriented tothetreatment offoreign legal or
natural persons, suchasaforeign investor. Clearly, bilateral andregional agreements cover anexpanded
range ofissues relevant totheoperations offoreign investors inahostcountry.
TheGATS includes provisions related tocertain aspects ofservice provider protection,
specifically withrespect toMFN andnational treatment, transfer offunds andmovement ofpersons.
TheGATS doesnotcontain alltheinvestor protection provisions raised above. Many oftheGATS
obligations related toservice provider protection arebased onspecific sectoral andsub-sectoral offers.
Incontrast, bilateral andregional investment agreements arehorizontal orcross-sectoral in
coverage, generally providing abroader spectrum ofprotection commitments across allsectors inthe
territories ofsignatories.
Investment rights andobligations incorporated intotrade agreements "deepen" trade agreements
TheWorking Group needs todiscuss thereasons fortheexplosion inthenumber ofbilateral
investment treaties which havebeennegotiated thisdecade.
Unquestionably, trade andinvestment decisions areoften linked byinternational business
decision-makers. Itmakes sense tointegrate commitments onbothtrade andinvestment inthesame
agreement from theperspective oftheoperations ofthese business decision-makers.
Atradeagreementwhichincludesrightsandobligationswithrespecttointernationalinvestment,
suchastheNAFTA ortheCanada/Chile bilateral tradeagreement, deepens thetradeagreement. These
trade andinvestment agreements provide notonlyfortreatment oftraded goods andservices, butalso
forthetreatment oftheowners oftheassets which produce goods andservices. They provide amore
integrated, orunified, setofrules forbusinesses operating internationally.
Bilateralinvestmentagreementsfocusonthetreatmentofforeigninvestorsandtheirinvestments,
andinclude fewcommitments ontrade ingoods andservices. Thisisclearly asecond bestsolution.
Theproliferation ofbilateral agreements alsoleads toacomplex worldwide webofinvestment
agreements, which mayresult inaconfusing framework forinternational investment.
Yet,these bilateral instruments areclearly ofvalue tothemany countries signing them. This
maybebecause these instruments canusually benegotiated relatively quickly, providing atimely way
todevelop commitments onthetreatment offoreign investor operations. Thisinturnassists inthe
creation ofpositive conditions forinvestors, facilitating theefforts ofsignatories toattract investment
toenhance theireconomic development.WT/WGTI/W/19
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Conclusions: anintegrated approach tothe1998 work programme
Thesummary discussion wehaveprovided onsome oftheelements ofbilateral andregional
agreements towhich Canada isasignatory isintended tostimulate further discussion bytheWorking
Group onthese topics under itemIIIoftheChair's"Checklist" (i.e.,stocktaking ofexisting trade and
investment instruments).
TheWorking Group 'songoing work under itemIIIwillprovide anessential foundation for
ourwork inthecoming year, particularly withrespect toitemIV.Weneedtogivecontinued attention
tothesubjects identified under theitemIIIheading.
Wepropose thattheWorking Group focus attention onthefirsttwosections under itemIV
inthefirstpartof1998. These twosections dealwithidentifying common features anddifferences
andpossible gapsinexisting international instruments, andwiththeadvantages anddisadvantages of
entering intobilateral, regional andmultilateral rules oninvestment, including from adevelopment
perspective.
These twosections should beapproached inanintegrated way,drawing fromourdiscussions
andstocktaking under itemIII.Wethink thisapproach willassist inlaying theground formore in
depth discussion bytheendof1998.