WORLD TRADE
ORGANIZATIONWT/GC/W/239
6 July 1999
(99-2816)
General Council Original:  English
PREPARATIONS FOR THE 1999 MINISTERIAL CONFERENCE
Agreement on Investment
Communication from Japan
The following communication, dated 6 July 1999, has been received from the Permanent
Mission of Japan.
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Proposal
1. An enhanced predictability for investors w ould not only promote foreign direct investment
but would also expand world trade, thereby contributing to the development of the global economy.
The next WTO negotiations, therefore, should incl ude a multilateral rule-making on investment.  The
objective of a WTO agreement on investment rules sh ould be to promote foreign direct investment by
providing disciplines for governmental measures on such investment, and priority should be given on
improving the transparency and stability of the legal systems in host countries.  While the rules need
to substantially contribute to the promotion of foreign direct investment, consideration should be
given to providing an appropriate balance with the development needs of developing-country
Members.
Background
2. As the global economy is further integrated, investment and trade will becoming increasingly
interlinked for the companies operating internationa lly.  However, while the GATS provides a certain
level of rules for investment in service sectors, international rules for investment, particularly in
manufacturing sectors, have been less developed.  Therefore, the establishment of multinationalinvestment rules in the WTO will enhance predictabil ity for investors, and thus further expand foreign
direct investment and world trade.
3. The establishment of investment rules in the WTO will benefit both developed and
developing countries.  The expansion of foreign direct investment resulting from the establishment of
investment rules would stimulate the economies of developing countries, by expanding theiremployment and improving their level of technology.  As the world economy continues to face
economic difficulties that started in Asia, further improvement in the investment environment is
important in order to promote foreign direct investment in developing countries.  We believe that
investment rules will benefit developing countries themselves.  Nevertheless, we think that future
investment rules in the WTO should give due consideration to the developing needs of developingcountries.  For example, it should be noted that rapid investment liberalization may have a strong
impact on the development policies of developing countries.  Investment rules must also ensure that
the economic environment leads to sustainable development.WT/GC/W/239
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4. A future WTO agreement on investment rules needs to reflect the interests of all Members;
thus, a clear distinction must be made between the forthcoming investment negotiations in the WTO
and those carried out in other fora having a different membership.
5. The principal elements of investment rules in the WTO should include the following:
(a) While there are various types of foreign investment, it is the foreign direct investment
that makes the most direct contribution to the economic development of host
countries through employment creation and technology transfer, as well as making
investors commit to the host country's economy on the long term.  Investment rules in
the WTO should, therefore, aim at providing the necessary disciplines for
governmental measures on foreign direct investment.  They should, in principle,
exclude both the short-term investment that does not aim at establishing a long-term
economic relationship, and the equity investment below a certain level ofparticipation.  With regard to portfolio investment, in particular, it is important to
carefully consider the wide range of ongoing discussions as to ensuring financial
integrity.
(b) Transparency and stability in the legal systems of host countries enable investors to
make stable investment on a mid- to long-term perspective.  It is also necessary to
prevent a situation where investment-related applications are not processed in a
prompt and fair manner, particularly due to the lack of transparency in the
administrative procedures of host countries.  It is therefore necessary to develop rules,
taking note of the relevant existing provisions, including those on publications anddomestic procedures in the GATT and GATS.
(c) National treatment and the most-favoured-nation treatment are the basic principles of
the WTO Agreement, and thus should be included in the future investment rules of
the WTO.  In particular, once a foreign company is established in a host country, itshould, in principle, be treated in a manner equal to that of domestic companies, as
there are in most cases no rationales for discriminatory treatment.  On the other hand,
national treatment for foreign companies in a pre-establishment phase, which in effect
provides the liberalization of investment, should be introduced in a progressive
manner, striking a balance with the development policies of Members.  It is thus
desirable to adopt a so-called "positive-list" approach.  In addition, in order to
enhance transparency in the investment envi ronment, it is necessary to consider the
way to draw up a list of as many investment restriction measures as possible in
sectors where commitments are not undertaken.  Providing investment protection is
also one of the basic needs of investors, and appropriate rules should be developed
based on the existing international investment rules.
(d) Performance requirements, which developing countries have adopted as a tool for
economic development policies, may not only restrict or distort trade, but may make
it difficult for investors to develop their own international business operations in an
efficient manner and to respond flexibly to changes in the economic environment.
On the other hand, due consideration must be given to the development perspectivesof developing countries when formulating investment rules in the WTO;  thus, the
contents of such rules should be carefully considered in regard to performance
requirements.  It is also necessary to carefully consider rules on investment incentives
by taking into account the importance of incentives for the economic development of
developing countries.WT/GC/W/239
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(e) Regarding dispute settlement, the existing system in the WTO has basically been
functioning effectively, thereby allowing for a prompt settlements of disputes.  The
existing WTO dispute settlement mechanism should, therefore, be used for disputes
under future investment rules in the WTO, thereby excluding introduction of a new
state-investor dispute settlement mechanism.  It should further be noted that allowing
invocation of the dispute settlement mechanism by investors may not only cause
significant burdens to the host country governments, but also may transform the
primary nature of the WTO as an intergovernmental organization.
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