WORLD TRADE
ORGANIZATIONWT/WGTI/W/110
27 March 2002
(02-1569)
Working Group on the Relationship
between Trade and InvestmentOriginal:  English
COMMUNICATION FROM THE EUROPEAN COMMUNITY
AND ITS MEMBER STATES
The following communication, dated 25 March 2002, has been received from the Permanent
Delegation of the European Commission.
_______________
CONCEPT PAPER ON TRANSPARENCY
1. Paragraph 22 of the Doha Ministerial Declaration mentions, inter alia, transparency as one of
the issues to be clarified in the Working Group on the Relationship between Trade and Investment, in
the period until the Fifth Ministerial Conference.  The issue of transparency has already been
addressed in a number of papers presented in this Working Group since 1997.1  In this context, this
submission aims at outlining the EC view on the main elements of transparency that could be included
in a multilateral framework on FDI.
I. WHAT IS TRANSPARENCY ?
2. Transparency means information.  Making available relevant information for all interested
operators is essential in order to enable them to make investment decisions.  Information on both the
substance of the rules and on the process (i.e. the way in which the rules are applied) is equally
important.  The notion of transparency is closely linked to the principle of fairness as well aseconomic efficiency and legal security.  In the international trade and investment area the legal
requirement of transparency on host countries mean s, in general terms, the requirement of making
available the relevant “rules of the game” in force in  their territory.  The “rules of the game” cover the
relevant laws and regulations as well as the procedural rules and formalities regarding investment.
II. WHY IS TRANSPARENCY IMPORTANT ?
3. Ministers of WTO Members have recognised “... the case for a multilateral framework to
secure transparent, stable and predictable conditions for long-term cross border investment,
particularly FDI ...”.
2  The reason is that greater transparency encourages higher flows of FDI, by
reducing investor perceptions of risk, and a multilateral benchmark for transparency provides an
objective benchmark for overcoming this sort of obstacle to FDI.
4. Improving transparency is not only in the interest of investors (domestic and foreign) and host
countries, but also of all other stakeholders such as, for instance, home country outward investment
promotion agencies, third country governments, employees, shareholders, etc.
                                                     
1 See, for instance WT/WGTI/W/70 (Korea);  WT /WGTI/W/75 (Japan);  WT/WGTI/W/87 (Japan);
WT/WGTI/W/90 (Hong Kong, China).
2 Doha Ministerial Declaration, paragraph 20.WT/WGTI/W/110
Page 2
5. We believe that “making available the rules of the game” should be seen as complementary to
investment promotion efforts in host countries and to good internal governance.  Transparency, in fact
can be enhanced in a pro-active way, by disseminating information, in order to promote investment
opportunities in potential host countries.
6. The TN SOFRES Business Survey, conducted for the EC Commission in April 2000 among
some of the biggest EU companies3, showed that lack of transparency on local legislation and rules
was considered the most frequent hindrance to investment by 71 per cent of the companies.
7. This is particularly important for developing economies who seek not just more capital but
also technology transfer, management and other know-how.  The lack of transparency in any given
country means a lost opportunity to attract more investment.
8. In general, transparency is an essential element of good governance.  Even the process of
improving the transparency of its investment regime could represent, for any country, an opportunityfor further rationalising investment rules and procedures, to the benefit of domestic and foreign
operators.  This process could also be seen as an opportunity for developing countries to promote the
improved conditions for foreign investment in th eir territory.  According to UNCTAD more than
90 per cent of the investment measures applied by host countries in the last few years have been
towards more liberalisation.  Thus, it would be important to disseminate this information as widely aspossible.
III. PROBLEMS CAUSED BY TH E LACK OF TRANSPARENCY
9. Lack of transparency deters potential investors from entering markets.
4  When companies are
unsure about the existing legal regime on investment in a certain country, they tend to overestimate
the risk associated with that country well beyond real ity.  And risk is costly.  In general terms, the
lack of information distorts economic decisions, including the decisions to invest in a certain activity
or in a given country.  Thus a non-transparent business environment will distort the allocation of
capital, creating unnecessary costs and wasting opportunities.
10. Uncertainty on the exact rules governing any stage of investment in a given host country
prevents investors from developing long-term business plans.  Needless to say, this kind of lack oftransparency does not favour the needed transfer of capital and technology to the host country.
Moreover, improving transparency of the investment  regime benefits all investors, domestic and
foreign.  Lack of transparency hampers business opportunities particularly in developing countries
where suppliers of goods and services could potentially develop their businesses and create jobs, as a
complement to domestic and foreign investments.  In fact, deterred FDI might not even be the most
damaging effect of lack of transparency on the growth potential of a host country.  Other negative
effects on productivity, domestic investment and growth could be quantitatively more important thandeterred FDI.
11. Lack of transparency, however, is not only a problem concerning the legislation and rules that
constitute the investment regime, but is often related to the application of the rules.  This can be
equally costly for businesses and harmful in terms of deterred investment for the host economy.
Moreover, the lack of clear rules is often the environment where private, secret and possibly corruptdeals and practices tend to prosper.  Even when practices are not corrupt, the lack of transparency
produces the inevitable perception that they might be affected by corruption.
                                                     
3 See http://europa.eu.int/comm/trade/miti/invest/surveys.htm.
4 See the PriceWaterhouseCoopers Report:  Investigating the Costs of Opacity:  Deterred Foreign
Direct Investment, 2001.WT/WGTI/W/110
Page 3
12. In general, if policies and regulations concerning FDI are inconsistently applied and
arbitrarily changed, or impose excessive time-consuming procedures, the scope and the nature of
activities of foreign investors is likely to be negatively affected.  For instance, it has been observed
that when investors lack confidence in the host country’s legal system, foreign direct investment,
when it occurs, may be structured to make sure  that the proceeds of the venture are immediately
moved off-shore rather than invested in the host economy.
13. In sum, a non-transparent investment climate in any given host country does not allow foreign
investors to take full advantage of the economic opportunities that could be expected from their
venture abroad.  This, in turn, will impede the po sitive feedback between FDI and growth in the host
economy that would occur in a more transparent environment.
IV. HOW TO IMPROVE TRANSPARENCY
14. Finding a solution for all forms of lack of transparency of the business climate goes well
beyond the scope of this paper and of what is needed within a trade and investment agreement.  We
will focus on the provisions that are commonly included in trade and investment agreements.
15. The Working Group on the Relationship between Trade and Investment has analysed in detail
some of the existing provisions on transparency that have been adopted in international trade and
investment instruments.  These can be summarised in the following categories.
A. P UBLICATION OF RULES AND MEASURES RELATED TO THE AGREEMENT
16. GATT Article X:1, TRIPS Article 63(1) and GATS Article III:1 require WTO Members to
publish all measures (e.g., “laws, regulations, judicial decisions and administrative rulings of general
application”;  “all relevant measures of general application which pertain to or affect the operation of
this Agreement”).
B. TIME LIMIT FOR PUBLICATION
17. The requirement concerning the deadline for publication can vary between a point in time
when the measures enter into force or in advan ce in order to guarantee that business disposes of
sufficient time to adapt to the new legislation.  Hence, the provision can stipulate to publish any
measure “promptly” (GATT Article X).  This term can be specified by an additional phrase “at thelatest by the time of their entry into force” (GATS Article III).  A more ambitious approach requires
any measure to be published in advance and provide a reasonable opportunity to comment any new
measures (NAFTA article 1802).
C. N
OTIFICATION
18. In addition to publication, Members may be required to notify their relevant measures to the
WTO Secretariat, as in TRIPS Article 63(2) and GATS Article III.  In some cases, as in the TBT
Agreement Article 2.9, Members are required to notify the regulations before their adoption.
D. CREATION OF ENQUIRY POINTS AND RESPONSE TO REQUESTS
19. Article III.4 of the GATS requires all WTO Members to establish enquiry points.  These
enquiry points have the task of providing specific information and to respond promptly to questions
and enquiries by other Members, related to the agreement.WT/WGTI/W/110
Page 4
E. ADMINISTRATIVE PROCEDURES
20. While substantive transparency consists of the publication of all relevant governmental
measures, the concept of transparency can also include the procedures followed in the implementation
of rules, for instance when authorisation procedures are required.  Procedural transparency is
mentioned in GATS Article VI.3 which requires Members to disclose information regarding the statusof applications for authorisations in the context of service provisions.
F. E
XEMPTIONS
21. Notwithstanding the requirements to publish any relevant measures, parties can be exempted
from applying transparency provisions for certain reasons.  For instance, GATS Article III stipulates
that the requirement to publish relevant measures at the latest by the time of their entry into force can
be waived in emergency situations.  Moreover, GA TT Article X and GATS Article III bis provide for
exemptions to transparency provisions in cases where disclosure of confidential information wouldimpede law enforcement, or would be contrary to the public interest, or which would harm legitimate
commercial interests of public or private enterprises.
V. PROPOSAL FOR TRANSPARENCY PROVISIONS IN A MULTILATERAL
FRAMEWORK ON INVESTMENT
22. In our view there is no logical reason for which direct investments in the primary,
e.g., mining, and secondary, e.g., manufacturing, sectors should not benefit from at least the same
transparency provisions that already apply for direct investment in the services sectors
(i.e. “commercial presence”).  FDI needs transparency in all areas.  It is desirable, therefore, to
develop transparency provisions in a multilateral framework that would at least match what is
applicable for investors in services.  This would not require WTO members to set up any newadministrative machinery or to commit additional budgetary or staffing resources.
23. Beyond this, the EC believes that transparency should not only be seen as a set of
requirements for the host country, although it is eventually the host country that benefits the most
from increased FDI.  A new multilateral investment framework, in our view, provides the opportunity
to set transparency provisions also in a pro- active meaning.  For instance, facilitating the
dissemination of information on the investment regime of countries, in order to promote them
vis-à-vis potential investors.
A. T
HE STARTING POINT
24. Transparency provisions for investment should include, at least, the following elements:
Publication:   Each member should publish, or otherwise make publicly available, all relevant
measures of general application which pertain to or affect the operation of the Agreement.  This
should include measures affecting the establishmen t, expansion, withdrawal, operation of investment
and international agreements pertaining to FDI.
Notification:   a notification procedure should apply for any new or changes to, existing laws,
regulations, judicial decisions, and administrative procedures which significantly and directly affect
FDI.  A standard proforma could be created to ensure consistency in the notifications, as in the TBT
Agreement.  This would make sure that all notifications cover the same important areas such as scopeof measure, rationale, timing, contact for further details, etc.
Deadline:   publication should be made promptly, and at the latest by the time of the entry into
force of the relevant measures.  Generally speaking transparency increases if the measures are madeWT/WGTI/W/110
Page 5
public earlier.  Better regulation, as well as better transparency is achieved by early public awareness
of a prospective measure.  Transparency also imp lies the need to tackle the problem of uncertainty
caused by policy changes.  Thus, making available information on possible reforms affecting
investment will increase predictability of rules.
25. WTO Members could endeavour to publish and notify proposed measures on FDI in advance,
in order to allow interested Parties to become acquainted with them.  For instance, if WTO Members
are consulting on proposed laws that would substantively affect foreign investors they may find
notifying the WTO as a useful way of broadening the scope of that consultation and thus helping to
ensure that any potential problems are discovered before enactement.
Enquiry:   Members should be required to respond promptly to all reasonable requests by
other Members for specific information on any of its measures of general application.
26. Transparency can only be effectively implemented if it contains provisions that guarantee that
requests for information will be satisfied.  The creation of one-stop-shops such as enquiry points (new
or existing ones) in all the host countries for requests of information concerning investment seems to
be the best solution to facilitate and to grant transparency for all WTO Members.  The WTO
Secretariat could keep an updated list of addresses (physical and virtual) of the Enquiry points.
27. Obviously, appropriate flexibility on the timing for setting up these Enquiry points (if they are
new), and technical assistance, should be foreseen for developing countries.
Procedural transparency:   Members shall ensure that all measures affecting FDI are
administered in a reasonable, objective and impa rtial manner.  Each member shall maintain or
establish judicial, arbitral or administrative tri bunals or procedures for prompt and impartial review
and remedy of administrative decisions affecting FDI.
28. Transparency should be ensured by providing for the right of Members to be informed about
any administrative steps and authorisations that are necessary for the establishment, expansion and
operation of FDI.  In these cases, applicants should have the right to be informed of the decisions that
have been taken since the request for authorisation, within a reasonable period of time.  Licensing
requirements should be based on objective and transparent criteria.
Exemptions  may be needed in certain cases, in order to preserve confidential information and
public interest.  However, the potential of abusing certain exemption provisions should be taken into
account and it has to be defined under which circumstances and on what grounds should exemptions
be granted.
B. I MPROVING TRANSPARENCY AT MANAGEABLE COST
1. The role of new technology (e-government)
29. Any mechanism to ensure transparency can be applied more easily and at a lower cost by
using new electronic information technologies.  The use of websites, electronic databases and E-mail
can play a significant role in improving transparency in a cost-friendly and effective manner.  Ideally,
all investment relevant laws and a consolidated code of regulations, could be made available on a
database, contact addresses could be put on websites, and public comment procedure prior to the
adoption of new legislation including all stakeholders could be run electronically.  This would implyregular up-dates of the information contained and guaranteed access to the electronic information.WT/WGTI/W/110
Page 6
30. Needless to say, the use of new technologies will necessitate governmental authorities that
have the facilities to use them.  In order to put such mechanisms gradually in place WTO Members
would need to assess the infrastructure and training resources that would be required.
2. Assistance for developing countries to in crease transparency and promote investment
opportunities
31. In order to increase the potential benefits, some of the transparency mechanisms could also be
used by host countries, in a positive manner, as a way to inform on the investment regimes and
promote the investment opportunities in their territory.
32. The question of identifying the domestic laws and regulations that are of most immediate
interest to prospective investors and especially the dissemination of this information, should be an
important element of investment promotion.
33. It is objectively difficult for any country to identify and list all the domestic laws and
regulations that may be relevant to the operation of foreign investors (or of domestic investors too, for
that matter).  These laws and regulations are usually scattered in different legislative and regulatory
texts (even where some of them are collected in an “investment code”) and are the responsibility of
different branches of government or, in many countries, of independent agencies or sub-national
governments.  A developing country could need help in financing and training the human resources tocomb through such domestic laws and regulations, and to devise suitable, effective and non-
cumbersome ways to disseminate the relevant information on its investment regime and to promote
investment opportunities in its territory.
34. Technical assistance for the specific goal of improving transparency could build on existing
projects and offer support to officials and invest ment promotion agencies from developing countries
in terms of know-how as regards (i) identification of national legislation concerning investment,
(ii) dissemination of information, and (iii) strengthening the capacity to upgrade regulatory
frameworks and to maintain this upgrading.  In this context, the existing activities of the World
Association of Investment Promotion Agencies (WAIPA
5), the World Bank (MIGA6, FIAS7), and
UNCTAD could also be very useful.
35. WTO Members could try to make the most of these instruments in order to:  (i) improve their
capacity for investment promotion and dissemination of information;  (ii) at the same time, to comply
with transparency provisions that a multi lateral investment framework could include.
36. In order to obtain effective results, any technical assistance and capacity building activity
should be demand-driven and fully owned by each individual recipient country.  Developing countries
should therefore be invited to articulate their precise needs in this area.
__________
                                                     
5 http://www.waipa.org.
6 The MIGA Agency, part of the World Bank group, aims at encouraging foreign investment by
providing investment insurance against non-commercial ri sks in developing countries.  MIGA is also involved
in programs, dissemination of information on investment opportunities, and technical assistance that enhancesnational investment promotion capabilities.
7 The Foreign Investment Advisory Service (FIAS) helps developing and transition country
governments design initiatives to attract foreign direct i nvestment.  FIAS advises on laws, policies, incentives,
institutions, and strategies.  It helps countries increase the amount of investment they receive - and the benefits
this investment produces.