RESTRICTED
WORLD TRADE WT/WGTI/W/22
26January 1998
ORGANIZATION(98-0269)
Working Group ontheRelationship
between Trade andInvestment
BILATERAL, REGIONAL, PLURILATERAL AND
MULTILATERAL AGREEMENTS
Note bytheSecretariat
Table ofContents
I. INTRODUCTION ..........................................1
II. BILATERAL AGREEMENTS ..................................2
II.1 Treaties ofFriendship, Commerce andNavigation .................2
II.2 Bilateral treaties forthepromotion andprotection offoreign investment ....3
II.3 Bilateral freetrade agreements ..............................7
II.4 Other relevant bilateral agreements ...........................7
III. REGIONAL AND PLURILATERAL AGREEMENTS ...................7
III.1 Provisions oninvestment adopted inthecontext ofregional andplurilateral
trade andeconomic integration andcooperation agreements ............7
III.1.1 Rules onrightofestablishment andfreemovement ofcapital ....8
III.1.2 Rules building ontreatment andprotection principles ofbilateral
investment treaties ................................12
III.1.3 Rules oninvestment from thirdcountries ..................20
III.1.4 Rules onstatus ofregional enterprises and cooperative
arrangements ....................................21
III.2 Investment rules established inacontext dedicated toinvestment ........22
IV. MULTILATERAL AGREEMENTS ...............................24
IV.1 Instruments containing substantive norms .......................24
IV.2 Dispute settlement .....................................26
IV.3 Investment insurance ....................................27
I. INTRODUCTION
1. Atthemeeting heldon6and7October 1997, theWorking Group requested theSecretariat
toprepare afactual overview ofexisting bilateral, regional, plurilateral andmultilateral agreements,
referred tointhesecond indent ofItemIIIoftheChecklist ofIssues Suggested forStudy. Inresponse
tothisrequest, thepresent noteidentifies themain existing intergovernmental agreements andtheirWT/WGTI/W/22
Page2
mainfeatures.1Forthepurpose ofthisnote,theterm"agreements" covers bothinstruments ofalegally
binding nature andinstruments ofanon-legally binding nature.
2. Thenoteaddresses bilateral agreements inSection II,regional andplurilateral agreements in
Section IIIandmultilateral agreements inSection IV.Inview ofthesubstantial increase inrecent
years ofthenumber ofbilateral treaties forthepromotion andprotection ofinvestment, Section II
isdevoted, inlarge part,toanoverview oftheprincipal provisions commonly found insuchtreaties.
Thestructure ofSection IIIisdesigned totakeintoaccount thedifferent contexts inwhich rules on
investment havebeenadopted atregional andplurilateral levels. Thus, adistinction ismade between
investment provisions adopted aspartofawider process oftrade andeconomic integration or
cooperation, ontheonehand, andprovisions adopted inacontext dedicated toinvestment, ontheother.
Section IVdistinguishes between multilateral instruments containing substantive norms, instruments
dealing withdispute settlement andinstruments dealing withinvestment insurance. Itdoesnotaddress
WTO provisions relevant toinvestment, which havebeenthesubject ofaseparate Secretariat note
submitted totheWorking Group inMay1997 (document No.2988).
II. BILATERAL AGREEMENTS
II.1 Treaties ofFriendship, Commerce andNavigation
3. Matters relating totheentry andtreatment offoreign nationals were historically dealt with
inTreaties ofFriendship, Commerce andNavigation ("FCN treaties") aspartofawide range of
provisions onbilateral economic, cultural andpolitical cooperation. Post-World WarIIFCNtreaties
aredistinguishable from earlier FCN treaties bytheirgreater emphasis onforeign investment, asa
result oftheapplication ofprovisions onentry andtreatment offoreign nationals notonlytonatural
persons butalsotocompanies. NonewFCNtreaties havebeenconcluded sincethe1960s. Theextent
towhich thelarge number ofsuchtreaties thatremain inforce continues tobeoperationally relevant
tocurrent investment relations between countries issomewhat unclear, especially given thatsome of
themdatebacktothe19thcentury.2Some FCN treaties concluded inthe1940s and1950s, including
treaties concluded bytheUnited States withJapan andwithanumber ofcountries inEurope, have
beenreferred toinrecent domestic judicial proceedings andinternational dispute settlement.3
1Thetexts ofmost oftheagreements discussed inthisnotecanbefound intheUNCTAD publication,
International Investment Instruments: ACompendium ,Vols. I-III(1996). Formore detailed comparative and
historical analyses, see,forexample, theintroduction toVolume IoftheUNCTAD Compendium; Organization
ofAmerican States, Trade Unit, Investment Agreements intheWestern Hemisphere: ACompendium
(Washington D.C., May1997); UNCTAD, World Investment Report 1996: Investment, Trade andInternational
Policy Arrangements ,Chapters VandVI;T.L.Brewer andS.Young, "Investment Policies inMultilateral and
Regional Agreements: AComparative Analysis", inTransnational Corporations ,Vol. 5,No.1, April 1996,
pp.9-35; A.A. Fatouros (Ed.), Transnational Corporations: TheInternational Legal Framework ,United Nations
Library onTransnational Corporations (London andNew York, Routledge fortheUnited Nations, 1994) Vol.
20;"Surveys ofExisting Instruments" inICSID Review -Foreign Investment LawJournal ,Vol. 7,No.2,
Fall1992.
2See,forexample, thelistofFCN treaties inforce between member States oftheEuropean Community
andthird countries published inanannex totheEuropean Union Council Decision 97/351/EC of2June1997
authorizingtheautomaticrenewalorcontinuationinforceofprovisionsgoverningmatterscoveredbythecommon
commer cialpolicycontainedinthefriendship,tradeandnavigationtreatiesandtradeagreemen tsconcludedbetween
memb erStatesandthirdcountries.OfficialJournaloftheEuropeanCommunities,No.L151,10June1997,p.24
3Forexample, the"ELSI" casedecided bytheInternational Court ofJustice in1989 involved aclaim by
theUnited States thatItaly hadbreached certain obligations under itsFCN Treaty with theUnited States.
Elettronica S.p.A. (ELSI), Judgment ,I.C.J. Reports 1989, p.15WT/WGTI/W/22
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II.2 Bilateral treaties forthepromotion andprotection offoreign investment
4. Bilateral treaties forthepromotion andprotection offoreign investment ("bilateral investment
treaties") canberegarded asthehistorical successor toFCNtreaties, fromwhich theydiffer principally
bytheir exclusive focus on,andmore detailed treatment of,foreign investment. While bilateral
investment treaties havebeenconcluded since thelate1950s, theirwidespread usebycountries inall
regions isaveryrecent phenomenon. Thenumber ofsuchtreaties increased from lessthan400at
thebeginning ofthe1990s tosome 1,330 inJanuary 1997, when 162countries wereparties tobilateral
investment treaties.4Themajority ofthese treaties arebetween adeveloped country, ontheonehand,
andadeveloping country oreconomy intransition, ontheother, buttheproportion ofbilateral
investment treaties concluded between developing countries andbetween developing countries and
countries intransition isincreasing.5Unlike FCN treaties, bilateral investment treaties haverarely
beenconcluded between developed countries.
5. Bilateral investment treaties6arecharacterized byabasic similarity intheir structure and
substantive coverage. Coreelements found inallsuchtreaties dealwithscope ofapplication, admission
ofinvestment, general standards oftreatment, standards oftreatment onspecific matters anddispute
settlement. Comparative studies ofthecontent ofthesetreaties7reveal areasofsubstantial convergence,
forexample regarding theadoption ofawidedefinition oftheterm"investment", aswellasnotable
differences, forexample regarding theapplicability ofnational treatment andMFN treatment standards
withrespect totheadmission offoreign investment andthecoverage ofperformance requirements.
6. Acharacteristicfeatureofbilateralinvestmenttreatiesistheuseofabroad,open-endeddefinition
oftheterm"investment". Atypical definition states that"investment means every kindofasset"8,
followed byanillustrative listwhich includes traditional property rights, rights incompanies, claims
tomoney andtitles toperformance, intellectual property rights, andconcessions andsimilar rights.
Insome bilateral investment treaties, thescope oftheinvestments covered hasbeenexpressly limited
4SeeUNCTADWorldInvestmentReport1997,annextableB.10foralistofthenumberofbilateralinvestment
treaties concluded byindividual countries bypartner country/region.
5According tothedatacontained intheUNCTAD World Investment Report 1997,thecountries withthe
largest number ofbilateral investment treaties areGermany (111), theUnited Kingdom (87), Romania (82),
Switzerland(81),China(80),France(74),theNetherlands(58),Poland(58),Italy(53),theRepublicofKorea(49),
Argentina (44), Egypt (43), Hungary (43), Turkey (42), Belgium-Luxembourg (40), Malaysia (40), theUnited
States (39), Denmark (38), Ukraine (38), Bulgaria (37)Spain (37), Chile (36), Indonesia (35), Sweden (35)and
VietNam (32).
6Thetextsofbilateralinvestmenttreatiescanbefoundinaloose-leafcollectionpublishedbyICSID,Investment
Promotion andProtection Treaties .TheUNCTAD Compendium, Volume III,reproduces model bilateral
investment treaties used bysome countries.
7See,forexample, Organization ofAmerican States, Trade Unit, op.cit. ;UNCTAD, Bilateral investment
treaties andtheir relevance toapossible multilateral framework oninvestment: issues andquestions ,
TD/B/COM.2/EM.1/2, 21March 1997; R.Dolzer andM.Stevens, Bilateral Investment Treaties (TheHague,
Boston, New York, 1995); United Nations Centre onTransnational Corporations andInternational Chamber
ofCommer ce,BilateralInvestmentTreaties1959-1991(NewYork,UnitedNations,1992);M.I.Khalil,"Treatment
ofForeignInvestmentinBilateralInvestmentTreaties",ICSIDReview-ForeignInvestmentLawJournal,Vol.7,
No.2,Fall1992, pp.339-383. Document WT/WGTI/W/21 includes areport onanUNCTAD expert meeting
onbilateral investment treaties heldinMay 1997. Acomprehensive study ofbilateral investment treaties by
UNCTAD isforthcoming.
8Bilateral investment treaties oftheUnited States usetheexpression "every kindofinvestment".WT/WGTI/W/22
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toinvestments made inaccordance withthedomestic lawofthehoststateortoinvestments approved
ordulyregistered bythehoststate. Arelated aspect ofthescope ofapplication ofabilateral investment
treaty concerns thedefinition ofthenatural andlegalpersons whowillbeconsidered asinvestors of
aparty andthusenjoy theprotection ofthetreaty. Regarding natural persons, thetreaties typically
apply tothenationals oftheparties, asdefined inthedomestic legislation ofeachparty. Onthemore
complex question ofwhen companies andother legalentities aretoberegarded asinvestors ofaparty,
there areconsiderable differences between thetreaties withrespect towhether theyrelyon:(1)place
ofincorporation; (2)thelocation oftheregistered office orseat;or(3)thenationality oftheownership
orcontrolling interest. Regarding theapplication intimeofbilateral investment treaties, some earlier
treaties exclude investments made prior totheirentry intoforce butthemore recent treaties apply to
investments made before oraftertheirentry intoforce.9Theinitial duration ofabilateral investment
treaty istypically aperiod oftenor15years. Inmostcases, itisstipulated that,afterthetermination
ofthetreaty, itsprovisions willcontinue tobeeffective during aspecified period oftimetoinvestments
made during thetimethetreaty wasinforce.
7. Twomainapproaches existinbilateral investment treaties regarding theadmission offoreign
investment. Thevastmajority ofsuchtreaties contain aprovision requiring eachparty toencourage
andcreate favourable conditions forinvestors oftheother party tomake investments initsterritory
andtoadmit suchinvestments, subject toitsdomestic lawsandregulations, andinsome cases, policies.
Consequently, these treaties donotlimitaparty'sability toapply restrictive measures withrespect
totheadmission offoreign investment provided forin(existing orfuture) domestic legislation. By
contrast, mostbilateral investment treaties oftheUnited States andsome recent treaties concluded by
Canada require application ofMFN andnational treatment standards inrespect ofbothestablishment
andsubsequent treatment ofinvestments, subject totheability oftheparties tomake ormaintain
exceptions insectors ormatters specified inanannex tothetreaty.
8. Standardsoftreatmentofforeigninvestmentcontainedinbilateralinvestmenttreatiesareusually
classifiedintogeneralstandardsandstandardsrelatingtospecificmatters.Generalstandardsoftreatment
usually require theparties toaccord covered investments fairandequitable treatment andfullorconstant
protection andsecurity, andtorefrain from impairing byunreasonable ordiscriminatory measures
themanagement, maintenance, use,enjoyment ordisposal ofcovered investments. Insome cases,
these standards havebeencombined withareference totreatment asrequired byinternational law.
Inaddition,althoughanumberofsuchtreatiesonlyprovideforMFNtreatment,mostbilateralinvestment
treaties require thatbothMFN andnational treatment beaccorded. TheMFN obligation isinmost
cases subject toanexception fortreatment accorded tothird states byvirtue ofregional economic
integration agreements andagreements inthefieldoftaxation.10Aspreviously noted, inthemajority
oftreaties, theseMFN andnational treatment standards onlyapply tothetreatment ofinvestment once
ithasbeenadmitted. Other differences between bilateral investment treaties regarding thecontent
oftheMFN andnational treatment standards pertain totheextent towhich theyprovide forexceptions
9However, disputes which havearisen before theentry intoforce ofabilateral investment treaty arealways
explicitly excluded from thetreaty.
10Insome cases, reference hasalsobeen made tointernational agreements concluded intheframework of
GATT/WTO.Thus,forexample,thebilateralinvestmenttreatybetweenCanadaandTrinidadandTobago(1995)
exempts fromtheMFN obligation treatment accorded tothirdcountries pursuant toanyexisting orfuture bilateral
agreement "negotiated within theframework oftheGATT oritssuccessor organization andliberalizing trade
inservices". Thebilateral investment treaty between theUnited States andJamaica (1994) exempts from MFN
treatment advantages accorded tonationals orcompanies ofanythird country byvirtue of"that Party'sbinding
obligations under anymultilateral international agreement under theframework oftheGeneral Agreement on
Tariffs andTrade".WT/WGTI/W/22
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withrespect tospecific measures orsectors, whether theyapply onlytoinvestments ortoboth
investments andinvestors, andwhether theyarequalified bytheexpression "inlikesituations".
9. Specific treatment standards commonly contained inbilateral investment treaties dealwith
expropriation,transferoffundsrelatedtoinvestments,andcompensationforlossesduetoarmedconflict,
civilstrife andsimilar circumstances. Virtually alltreaties prohibit direct orindirect expropriation
ofcovered investments, except iftheexpropriation takes place forapublic purpose, ona
non-discriminatory basis, under dueprocess oflawandagainst payment ofcompensation which must
meetcertain conditions regarding itsamount, form andtimeofpayment. Provisions ontransfer of
funds obligate parties toallow investors tomake freetransfers ofpayments related toinvestments.
Theynormallyspecifythetypesofpaymentscoveredbythefreedomoftransferandcontainrequirements
regarding thecurrency andthetimeofthetransfer. Thisrightoffreetransfer isoften unqualified but
insome cases itissubject tolimitations, forexample, regarding measures taken incaseofbalance-of-
payments difficulties ormeasures pursuant toincome taxlegislation. Alimitation ofthisrightoftransfer
canalsoresult fromreferences made insome treaties totherights oftheparties under theIMFArticles
ofAgreement. Withregard tolosses suffered byinvestors duetoarmed conflict, civilstrife orsimilar
circumstances, thetreaties provide fornational treatment andMFN treatment tobeaccorded toforeign
investors inrespect ofanyindemnification orcompensation paidforsuchlosses. Some treaties also
contain aspecific requirement forpayment ofcompensation ifinthesecircumstances aforeign investor
suffers losses duetotherequisitioning ordestruction ofproperty bytheforces orauthorities ofaparty.
10. Many bilateral investment treaties obligate eachparty toobserve anyobligation itmayhave
entered intowithregard toinvestments ofnationals orcompanies oftheother party. Inaddition, there
isnormally aprovision totheeffect thatthetreaty doesnotderogate from rules ofdomestic lawor
international obligations which accord more favourable treatment toaninvestor thanthetreatment
provided forinthetreaty.
11. Most bilateral investment treaties contain asubrogation clause requiring that,ifaparty oran
agency ofaparty makes apayment tooneofitsnationals orcompanies pursuant toaninvestment
insurance scheme, theotherpartyshallrecognize theassignment oftherights ofthatnational orcompany
totheparty oritsagency.11Another clause related toinvestment insurance found inmost treaties
precludes aparty fromraising asadefence inadispute settlement proceeding thefactthataninvestor
hasbeenindemnified under ainvestment insurance scheme oftheother party. Therelationship between
investment insurance schemes andbilateral investment treaties goesbeyond these specific provisions
insofar asanumber ofcountries which operate investment insurance schemes make theeligibility of
aninvestment project forcoverage under suchschemes conditional ontheexistence ofabilateral
investment agreement withthethirdcountry inquestion.
12. Apart fromtheabove-mentioned themes which aretypically addressed inbilateral investment
treaties, some bilateral investment treaties, notably those concluded bytheUnited States andsome
recent treaties concluded byCanada, alsodealwithperformance requirements12,therightoftemporary
entry andstayofmanagerial personnel inconnection withtheestablishment andmanagement ofan
investment, andtherightofforeign investors tohirekeypersonnel oftheirchoice regardless oftheir
nationality.
11Bilateral investment treaties oftheUnited States donotcontain thissubrogation clause. Instead, theUnited
States deals withthismatter inseparate "investment incentive agreements" withthird countries.
12Theperformancerequirementsprohibitedbythesetreatiesincluderequirementswithrespecttolocalcontent,
trade balancing, export performance, transfer oftechnology andinsome cases, research anddevelopment. The
prohibition ofsuch requirements applies tobothgoods andservices.WT/WGTI/W/22
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13. Bilateral investment treaties often contain exceptions totheapplication oftheirprovisions in
specificsectorsormeasures.Examplesofmatterswhicharesometimesthesubjectofspecificexceptions
aretaxation, subsidies andintellectual property.13Exceptions ofageneral nature found insome treaties
pertain tomeasures necessary forthemaintenance ofpublic order, thefulfilment ofaparty'sobligations
withrespect tothemaintenance ofinternational peace orsecurity ortheprotection ofaparty'ssecurity
interests. Some treaties alsoallow aparty todenythebenefits ofthetreaty toacompany incorporated
under thelawsofanother party andowned orcontrolled byinvestors ofathirdcountry ifthatcompany
hasnosubstantial business activities intheterritory oftheother party orisowned orcontrolled by
investors fromathirdcountry withwhich thefirstparty doesnotmaintain normal economic relations.
14. Dispute settlement rulesinbilateral investment treaties typically provide thatdisputes between
theparties ontheinterpretation orapplication ofthetreaty which theparties havebeenunable toresolve
through diplomatic means shallattherequest ofeither party besubmitted tobinding adhocarbitration14
inaccordance withspecific ruleslaiddown ineachtreaty withregard totheconstitution ofthearbitration
tribunal, itsrulesofprocedure, liability forcostsandthelawtobeapplied. Bilateral investment treaties
alsocontain procedures which enable foreign investors toresort tointernational arbitration inadispute
withthegovernment ofahostcountry. Withrespect totheprocedures forarbitration ofsuchdisputes,
reference isnormally made toinstitutional arbitral regimes thathavebeenestablished inother contexts.
Thus, amajority ofbilateral investment treaties provide forarbitration ofinvestor-state disputes in
accordance withtheConvention ontheSettlement ofInvestment Disputes between States andNationals
ofOther States ("ICSID Convention")15butotherarbitration rulesandprocedures, suchasthearbitration
rules oftheUnited Nations Commission onInternational Trade LawandtheInternational Chamber
ofCommerce havealsobeenused. Animportant distinction regarding investor-state arbitration clauses
inbilateral investment treaties isthatbetween treaties inwhich theparties express their advance,
unqualified consent torecourse tointernational arbitration byaninvestor oftheother party andtreaties
inwhich aspecific expression ofconsent byaparty inagiven caseisnecessary inorder foraninvestor
tobeabletoreferadispute tointernational arbitration. Other differences thathavebeennoted with
regard toinvestor-state arbitration clauses inbilateral investment treaties relate tomatters suchasthe
scope ofthedisputes which canbereferred tointernational arbitration andwhether ornotresort to
international arbitration andresort todomestic courts aremutually exclusive.
15. Theexperience withdispute settlement mechanisms ofbilateral investment treaties israther
limited. Itwould appear thatnointergovernmental arbitration proceedings havebeeninitiated under
13Bilateral investment treaties oftheUnited States usually provide thattheMFN/national treatment obligation
doesnotapply toprocedures provided inmultilateral agreements concluded under theauspices oftheWorld
Intellectual Property Organization relating totheacquisition ormaintenance ofintellectual property rights. The
bilateral investment treaty between Canada andTrinidad andTobago (1995) allows eachParty toderogate from
theMFN andnational treatment requirements inregard tointellectual property inamanner thatisconsistent
withtheUruguay Round Final Act.Thebilateral investment treaty between Hong Kong, China andJapan (1997)
states that,notwithstanding theinclusion ofintellectual property inthedefinition ofinvestment, nothing inthis
agreement shall beconstrued soastoderogate from therights andobligations oftheparties under international
agreements relating tointellectual property rights towhich theyareparties.
14Unlike earlier FCN treaties, bilateral investment treaties generally donotprovide forthesubmission of
disputes totheInternational Court ofJustice. However, most treaties envisage aroleoftheInternational Court
ofJustice intheappointment ofarbitrators.
15Seeinfra,Section IV.2. Inmany cases, thetreaties alsomention thepossibility ofarbitration under the
ICSID Additional Facility, which isavailable incases where oneoftheparties isnotaContracting Party ora
national ofaContracting Party totheICSID Convention.WT/WGTI/W/22
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suchtreaties andthatonlytwodecisions havebeenrendered byICSID tribunals inproceedings initiated
pursuant toinvestor-state arbitration clauses ofbilateral investment treaties.16
II.3 Bilateral freetrade agreements
16. Provisions oninvestment intheFreeTrade Agreement between Mexico andCosta Rica(1994)
andtheFreeTrade Agreement between Mexico andBolivia (1994) closely resemble theinvestment
rules contained intheTreaty onFreeTrade between Columbia, Mexico andVenezuela.17TheFree
Trade Agreement between Canada andChile (1996) contains investment provisions which arenearly
identical tothose ofChapter 11oftheNorth American FreeTrade Agreement.18
II.4 Other relevant bilateral agreements
17. Ofparticular importance among other bilateral treaties relevant toinvestment arethemore
than1,500 bilateral treaties fortheavoidance ofdouble taxation .Theaimofsuchtreaties istoavoid
ormitigate theeffects ofinternational double taxation, which canoccur when income fallswithin the
fiscal jurisdiction ofboththehostcountry, asthesource country where theincome isearned, andthe
home country, asthecountry ofresidence ofthebeneficiary oftheincome. Thetreaties allocate taxation
rights between source andresidence countries andprovide forcooperation, exchange ofinformation
anddispute settlement. Model bilateral taxtreaties havebeenadopted bytheOrganization forEconomic
Cooperation andDevelopment andtheUnited Nations. Provisions oninvestment promotion inanumber
ofbilateral,regionalandplurilateralinvestmentagreementscontaincommitmentsregardingtheconclusion
ofsuchtaxtreaties between theparties. Other relevant bilateral treaties include agreements inthe
fields ofjudicial assistance, antitrust cooperation andscience andtechnology cooperation.
III. REGIONAL AND PLURILATERAL AGREEMENTS19
18. Adistinction canbemade between provisions oninvestment adopted inthecontext ofregional
andplurilateral trade andeconomic integration andcooperation agreements, ontheonehand,
(Section III.1) andseparate rules established inacontext exclusively dedicated tothetreatment of
investment matters, ontheother (Section III.2).
III.1 Provisions oninvestment adopted inthecontext ofregional andplurilateral tradeandeconomic
integration andcooperation agreements
19. Rules oninvestment havebeenrelated towider processes oftrade andeconomic integration
andcooperation invarious ways. Anumber ofagreements contain rules which aimattheremoval
ofrestrictions onrightofestablishment andmovement ofcapital (Section III.1.1) while otheragreements
laydown rulesontheadmission andtreatment ofinvestment which areinspired bystandards originally
16SeeAsian Agricultural Products LTD. (AAPL) v.Republic ofSriLanka ,International Legal Materials ,
Vol.30(1991) p.577 andAmerican Manufacturing &Trading, Inc.v.Republic ofZaire ,International Legal
Materials ,Vol. 36(1997) p.531.
17Infra,paragraphs 38and39
18Infra,paragraphs 32-36. Anotable difference between theCanada-Chile FreeTrade Agreement andthe
investment provisions oftheNAFTA istheinclusion intheformer agreement ofprovisions permitting Chile
toderogate from theprovisions onfreetransfer offunds inorder topreserve thestability ofitscurrency.
19Certain agreements between theEuropean Community andthird countries which strictly speaking could
beregarded asbilateral agreements areincluded inthissection because ofthenumber ofcountries involved.WT/WGTI/W/22
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developed inbilateral investment treaties (Section III.1.2). Although inmostagreements investment
provisions apply onlytothemutual relations between theparties, afewagreements provide foradegree
ofharmonization ofinvestment policies towards third countries (Section III.1.3). Finally, some
agreements contain rules onthestatus oftransnational, regional enterprises oroncooperative
arrangements between enterprises (Section III.1.4).
III.1.1 Rules onrightofestablishment andfreemovement ofcapital
20. TheTreatyEstablishingtheEuropeanCommunity(1957)addressesinvestmentprimarilythrough
provisions onfreedom ofestablishment andfreemovement ofcapital inTitle IIIoftheTreaty
(Free Movement ofPersons, Services andCapital).20Article 52prohibits restrictions onthefreedom
ofestablishment ofnationals ofamember State intheterritory ofanother member State andonthe
setting upofagencies, branches orsubsidiaries bynationals ofanymember State established inthe
territory ofanymember State.21Freedom ofestablishment includes therighttotakeupandpursue
activities asself-employed persons andtosetupandmanage undertakings under theconditions laid
down foritsnationals bythelawofthecountry where suchestablishment iseffected. Byvirtue of
Article 58,thisrightofestablishment alsoapplies tocompanies orfirms formed inaccordance with
thelawofamember Stateandhaving theirregistered office, central administration orprincipal place
ofbusiness within theCommunity.22Therules onfreedom ofestablishment arenotapplicable to
activities connected withtheexercise ofofficial authority (Article 55)andaresubject toexceptions
ongrounds ofpublic policy, public security orpublic health (Article 56).Since theendofthetransitional
period on31December 1969, Article 52hasbeendirectly applicable inthesense thatitcanbeinvoked
byindividualsbeforethenationalscourtsofmemberStates.ECTreatyrulesonfreedomofestablishment
arenotonlyaddressed tothemember States butalsorequire theadoption ofmeasures bytheCommunity
institutions withrespect toawiderange ofmatters specified inArticles 54and57inorder tofacilitate
theimplementation ofthefreedom ofestablishment. Pursuant totheseprovisions, directives havebeen
adopted interaliawithrespect tostandards inspecific sectors, company law,government procurement,
andthemutual recognition andacceptance ofdiplomas, certificates andother evidence offormal
qualifications.
21. Withrespect tomovement ofcapital, Article 73(b) oftheECTreaty, which wasadded bythe
1992 Treaty onEuropean Union, provides fortheprohibition asof1January 1994 ofrestrictions on
movements ofcapital andpayments between themember States andbetween themember States and
thirdcountries. Capital movements covered bythisprovision include direct investments, defined as
investments ofallkinds which serve toestablish ortomaintain lasting anddirect links between the
person providing thecapital andtheundertaking towhich thecapital ismade available inorder tocarry
onaneconomic activity. Thisgeneral prohibition issubject to"grandfather" andtransition clauses
inrespect ofcertain existing restrictions, exceptions (e.g.relating totaxation andprudential measures)
20InJune 1997, theEuropean Commission issued aCommunication oftheCommission onCertain Legal
Aspects Concerning Intra-EU Investment (97/C 220/06), which setsforth theCommission 'sviews onthe
interpretation oftheECTreaty rules onestablishment andcapital movements. Official Journal oftheEuropean
Communities ,No.C220, 19July1997, p.15
21Thereference intheoriginal texttotheprogressive abolition ofrestrictions ontheright ofestablishment
inthecourse ofthetransitional period wasdeleted andreplaced bytheconcept ofprohibition inamendments
made bytherecent Treaty ofAmsterdam. Official Journal oftheEuropean Communities ,No.C340,
10November 1997, p.61
22Article 221requires member States toaccord nationals oftheother member States thesame treatment as
theirownnationals asregards participation inthecapital ofcompanies orfirms within themeaning ofArticle 58.WT/WGTI/W/22
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andasafeguard clause applicable incaseofdifficulties fortheoperation ofeconomic andmonetary
union caused bycapital movements toorfrom thirdcountries.
22. TheAgreement ontheEuropean Economic Area (1992) includes provisions onfreedom of
establishment andmovement ofcapital which arebasically identical tothose oftheECTreaty and
alsoincorporates relevant secondary EClegislation inthese fields.
23. TheEuropeAgreementsconcludedintheearlyandmid-1990sbetweentheEuropeanCommunity
anditsmember States ontheonehand, andCentral andEastern European countries ontheother23,
provide fornational treatment withregard totheestablishment andoperation ofcompanies and
nationals.24Thisobligation applies tomember States oftheEuropean Community immediately upon
theentry intoforce oftheAgreement butissubject totransition periods inthecaseoftheCentral and
Eastern European countries, particularly withrespect totheestablishment ofCommunity companies
andnationals. Theterm"establishment" isdefined ineachoftheseAgreements asmeaning, asregards
nationals, therighttotakeupandpursue economic activities asself-employed persons andtosetup
andmanage undertakings and,asregards companies, therighttotakeupandpursue economic activities
bymeans ofthesetting upandmanagement ofsubsidiaries, branches andagencies. Exceptions and
limitations pertain tosectors ormatters specified inannexes toeachAgreement, certain transport sectors,
measures justified ongrounds ofpublic policy, public security orpublic health andactivities which
intheterritory ofeachParty areconnected withtheexercise ofofficial authority. AParty mayalso
apply non-discriminatory regulatory measures totheestablishment andoperation ofcompanies and
nationals ofanother Party, including, withrespect tofinancial services, measures necessary forthe
conduct ofitsmonetary policy orjustified onprudential grounds, andmayapply particular rules to
branches andagencies ofcompanies ofanother Party operating initsterritory which arenotincorporated
initsterritory. During atransition period, theCentral andEastern European countries maytake
safeguard measures inspecific industries. Theassociation council established under eachofthese
Agreements isrequired totakethenecessary stepstoprovide forthemutual recognition ofqualifications
inorder tomake iteasier fornationals ofoneParty totakeupandpursue regulated professional services
intheterritory oftheother Party. Therulesonestablishment inthese Agreements include provisions
allowing anational orcompany ofaParty toemploy intheterritory ofanother Party certain key
personnel whoarenationals ofthefirstParty.
24. AlsorelevanttoinvestmentaretheprovisionsoftheEuropeAgreementsonmovementofcapital.
Thus, forexample, Article 60oftheEurope Agreement withHungary requires theParties toensure,
fromtheentry intoforce oftheAgreement, thefreemovement ofcapital relating todirect investments
made incompanies formed inaccordance withthelawsofthehoststateandinvestments made in
accordance withtheprovisions ofthisAgreement onestablishment, theliquidation orrepatriation of
suchinvestments, andofanyprofit stemming therefrom.
23Bulgaria, theCzech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, theSlovak Republic
andSlovenia
24See,forexample, Article 44oftheEurope Agreement establishing anassociation between theEuropean
Communities andtheirmember States, oftheonepart, andtheRepublic ofHungary, oftheother part(1993)
andArticle 45oftheEurope Agreement establishing anassociation between theEuropean Communities and
their member States, oftheonepart, andtheCzech Republic, oftheother part(1994).WT/WGTI/W/22
Page10
25. ThePartnership andCooperation Agreement between theEuropean Communities andtheir
member States, oftheonepart, andtheRussian Federation, oftheother part, (1994)25mentions as
oneofitsobjectives thecreation ofthenecessary conditions forbringing about freedom ofestablishment
ofcompanies, ofcross-border tradeinservices andcapital movements. Theconcept of"establishment"
isdefined tomean theright ofCommunity companies orRussian companies totakeupeconomic
activities bymeans ofthesetting upofsubsidiaries andbranches inRussia orintheCommunity,
respectively. Thus, establishment inthesense oftheright ofnationals ofoneParty totakeupand
pursue economic activities asself-employed persons intheterritory ofanother Party isnotcovered
bythisAgreement. Article 28requires theParties togrant toeachother MFN treatment withregard
totheconditions affecting theestablishment ofcompanies intheirterritories; thebetter ofnational
treatment26andMFN treatment inrespect oftheoperation ofsubsidiaries oftheother Party intheir
territories, subject toreservations listed inannexes totheAgreement; andMFN treatment inrespect
oftheoperation ofbranches ofcompanies oftheother Party intheirterritories. Withregard tobanking
andinsurance services, special provisions aresetforth inannexes totheAgreement governing the
establishment ofCommunity companies inRussia. TheAgreement contains acommitment oftheParties
toconsider atafuture stagethepossibility ofgranting national treatment inrespect oftheestablishment
and,where notsoforeseen intheAgreement, theoperation ofeachother'scompanies intheirterritories
(Article 33)andtoendeavour toavoid taking anymeasures oractions which render theconditions
forestablishment andoperation ofeachother'scompanies more restrictive thanthesituation existing
onthedaypreceding thedateofsignature oftheAgreement (Article 34). Inthelatter regard, the
Agreement provides forexamination within theCooperation Council established under thisAgreement
ofmeasures introduced byaParty sincethesignature oftheAgreement which affect theestablishment
oroperation ofcompanies oftheother Party. Article 32obligates eachParty toallow eachother's
companies toemploy keypersonnel whoarenationals oftheother Party. Safeguards andexceptions
inrespect ofthese rulesonestablishment andoperation ofcompanies pertain toprudential measures,
measures toensure theintegrity andstability ofthefinancial system, certain transport services,
commitments entered intounder economic integration agreements, measures justified ongrounds of
public policy, public security orpublic health andactivities connected withtheexercise ofofficial
authority.
26. Inthecontext ofrulesonmovement ofcapital, theAgreement obligates theParties toensure
thefreemovement ofcapital between residents oftheCommunity andRussia intheform ofdirect
investment made incompanies formed inaccordance withthelawsofthehostcountry andinvestments
made inaccordance withtheprovisions oftheAgreement onestablishment, thetransfer abroad ofsuch
investment andanyprofit stemming therefrom (Article 52).
27. TheTreaty Establishing theCaribbean Community (1973)27,asamended byaProtocol adopted
inJuly1997, prohibits theintroduction bymember States ofanynewrestrictions relating totheright
ofestablishment ofnationals ofother member States (Article 35b). Therightofestablishment includes
therighttoengage innon-wage earning activities ofacommercial, industrial, professional orartisanal
natureandtocreateandmanageeconomicenterprises.MemberStatesarerequiredtoremoverestrictions
25Entered intoforce inDecember 1997. Similar Partnership andCooperation Agreements were concluded
during theperiod 1994-1996 bytheCommunity anditsmember States withUkraine, Kazakhstan, Kyrgyzstan,
Moldova, Belarus, Georgia, Armenia, Azerbaijan andUzbekistan.
26InthecaseoftheCommunity anditsmember States: "treatment nolessfavourable thanthatgranted to
other Community Companies".
27Member States areAntigua andBarbuda, theBahamas, Barbados, Belize, Dominica, Grenada, Guyana,
Jamaica, Montserrat, Saint Kitts andNevis, Saint Lucia, Saint Vincent andtheGrenadines andTrinidad and
Tobago.WT/WGTI/W/22
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ontherightofestablishment ofnationals ofother member States, including restrictions onthesetting
upofagencies, branches orsubsidiaries bynationals ofamember State intheterritory ofanother
member State (Article 35c). Theremoval ofthese restrictions istotakeplace inaccordance witha
programme tobedetermined bytheCouncil forTrade andEconomic Development identifying the
activities inrespect ofwhich therightofestablishment shallnotapply andsetting outtheconditions,
stages andtime-frames fortheremoval ofthese restrictions (Articles 35candd).Other measures
tobeadopted bytheCommunity institutions inthisconnection include thedevelopment ofcommon
standards andmeasures foraccreditation orwhen necessary forthemutual recognition ofdiplomas,
certificates andother evidence ofqualifications ofthenationals ofmember States inorder tofacilitate
access to,andengagement in,non-wage earning activities intheCommunity andthecoordination of
legislative andadministrative requirements ofmember States fortheconduct ofnon-wage earning
activitiesintheCommunity(Article35e).TheProtocolalsoprovidesforprohibitionsontheintroduction
ofnewrestrictions, andrequires theremoval ofexisting restrictions onfreemovement ofservices
andcapital (Articles 36and37). These provisions onestablishment, services andcapital arenot
applicable toactivities involving theexercise ofgovernmental authority andaresubject tocertain general
exceptions andsafeguard clauses, including forbalance-of-payments difficulties anddifficulties ofa
sectoral orregional nature. Inaddition, member States areallowed todetermine thatthepublic interest
requires theexclusion orrestriction oftherightofestablishment inanyindustry orinaparticular sector
ofanindustry. There isalsoaprocedure whereby amember Statemayapply totheCommunity Council
forawaiver ofitsobligations under theprovisions ofthisProtocol.
28. TheTreaty Establishing theAfrican Economic Community (1991)28andtheTreaty Establishing
theCommonMarketforEasternandSouthernAfrica(COMESA)(1993)29includeamongtheirobjectives
theremoval among member States ofobstacles tothefreemovement ofcapital andtherightofresidence
andestablishment.30Inrespect ofmovement ofcapital, thesetreaties provide thatmember States shall
ensure thefreemovement ofcapital through theelimination ofrestrictions onthetransfer ofcapital
funds between member States inaccordance withatimetable tobedetermined bytheCouncils of
Ministers established under these treaties.31Theconclusion ofadditional protocols isenvisaged with
respect totherightofresidence andrightofestablishment.32
29. TheRevised Treaty oftheEconomic Community ofWestAfrican States (ECOWAS) (1993)33
includes among itsobjectives theestablishment ofacommon market involving interaliatheremoval
28Signatories arethemembers oftheOrganization ofAfrican Unity.
29Thesignatories oftheCOMESA Treaty areAngola, Burundi, Congo, Democratic Republic of,Comoros,
Eritrea, Ethiopia, Kenya, Lesotho, Malawi, Mauritius, Rwanda, Sudan, Swaziland, Tanzania, Uganda and
Zimbabwe. TheCOMESA Treaty hassuperseded theTreaty fortheEstablishment ofthePreferential Trade
Area forEastern andSouthern Africa concluded in1982. Itentered intoforce inDecember 1994.
30See, respectively Article 4(2)(i) oftheTreaty Establishing theAfrican Economic Community and
Article 4(4)(c) and4(6)(e) oftheCOMESA Treaty.
31Article 45oftheTreaty Establishing theAfrican Economic Community andArticle 81oftheCOMESA
Treaty. Thelatter provision alsorequires member States toensure thatthecitizens ofandpersons resident in
themember States areallowed toacquire stocks, shares andother securities ortoinvest inenterprises inthe
territories oftheother member States; andtoencourage cross border trade ingovernment securities such as
treasury bills, development andloanstocks within theCommon market.
32Article 43oftheAEC Treaty andArticle 164oftheCOMESA Treaty
33Benin, Burkina Faso, Cape Verde, Côted'Ivoire, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali,
Mauritania, Niger, Nigeria, Senegal, Sierra Leone andTogoWT/WGTI/W/22
Page12
ofobstacles tothefreemovement ofpersons, goods, services andcapital, andtotherightofresidence
andestablishment (Article 3(2)) andcommits member States toundertake toachieve theremoval of
these obstacles within fiveyears following thecreation oftheenvisaged customs union (Article 55).34
With respect tocapital movements, Article 53provides fortheestablishment ofaCapital Issues
Committee which shallinteraliaensure theunimpeded flowofcapital among themember States through
theremoval ofcontrols onthetransfer ofcapital inaccordance withatimetable determined bythe
ECOWAS Council ofMinisters andensure thatnationals ofamember Statearegiven theopportunity
ofacquiring stocks, shares andother securities orotherwise ofinvesting inenterprises intheterritories
ofother member States. TheTreaty Establishing theEconomic andMonetary Union ofWestAfrica
(1996)35provides forfreedom ofnationals ofonemember State toprovide services intheterritory
ofanother member State andproscribes restrictions onmovement ofcapital.
III.1.2 Rules building ontreatment andprotection principles ofbilateral investment treaties
30. Intheframework oftheAssociation ofSouth EastAsian Nations (ASEAN), anAgreement
Among theGovernments ofBrunei Darussalam, theRepublic ofIndonesia, Malaysia, theRepublic
ofthePhilippines, theRepublic ofSingapore andtheKingdom ofThailand forthePromotion and
Protection ofInvestments wasconcluded in1987. TheAgreement adopts thewide definition of
investment common tobilateral investment treaties butitsapplicability islimited to"investments which
arespecifically approved inwriting andregistered bythehostcountry andupon suchconditions as
itdeems fitforthepurposes ofthisAgreement" (Article II).Inrespect oftheadmission ofinvestments
ofinvestors ofanother Contracting Party, theAgreement requires thateachContracting Party, ina
manner consistent withitsnational objectives, encourage andcreate favourable conditions initsterritory
forinvestments fromtheother Contracting Parties (Article III).General treatment standards contained
inArticles IIIandIVprovide thatContracting Parties shallaccord fairandequitable treatment and
fullprotectionandsecuritytoinvestmentsfromotherContractingParties;observeanyobligationarising
fromparticular commitments entered intowithregard tospecific investments ofnationals orcompanies
oftheother Contracting Parties; andrefrain fromimpairing byunjustified ordiscriminatory measures
themanagement, maintenance, use,enjoyment, extension, disposition orliquidation ofinvestments
from other Contracting Parties. While theAgreement requires MFN treatment tobeaccorded to
investments made byinvestors ofother Contracting Parties, national treatment isasubject forbilateral
negotiations between Contracting Parties (Article IV).Amendments made in1996introduced provisions
onsimplification ofinvestment procedures andapproval processes andontransparency ofinvestment
lawsandregulations.
31. Other substantive provisions ofthisAgreement dealwithexpropriation, compensation forlosses
duetotheoutbreak ofhostilities orastateofemergency, repatriation ofcapital andearnings and
subrogation. Taxation matters areexempted fromthescope oftheAgreement. Withrespect todispute
settlement, Article Xsetsforthprocedures forinternational arbitration ofdisputes between aContracting
Party andanational orcompany ofanother Contracting Party. Suchdisputes maybereferred toany
arbitration procedure agreed upon bytheparties, including arbitration under theICSID rules,
UNCITRAL rules, theregional centre forarbitration atKuala Lumpur oranyother regional centre
forarbitration inASEAN. Ifthere isnosuchagreement between theparties, anadhocarbitration
tribunal istobeformed. Theoriginal Agreement provided thatdisputes between Contracting Parties
weretobesubmittedtoASEANEconomicMinistersforresolution.Amendmentsmadein1996replaced
thisreference toASEAN Economic Ministers astheforum forintergovernmental dispute settlement
withareference totheASEAN Dispute Settlement Mechanism.
34According toArticle 35oftheECOWAS Treaty, thecustoms union shallbeestablished bytheyear2000.
35Member States areBenin, Burkina Faso, Côte d'Ivoire, Mali, Niger, Senegal andTogo.WT/WGTI/W/22
Page13
32. TheNorth American FreeTrade Agreement (NAFTA) (1992) contains generic provisions on
investment inChapter 11.36"Investment" isdefined inArticle 1139 through abroad listofassets
along withanegative listofcertain claims tomoney, including claims arising from commercial
transactions, which arenotconsidered tobeinvestments. Each Party isrequired toaccord thebetter
ofnational treatment andMFN treatment toinvestors ofanother Party, andtoinvestments ofinvestors
ofanother Party, withrespect totheestablishment, acquisition, expansion, management, conduct,
operation, andsaleorotherdisposition ofinvestments (Articles 1102-1104). Thisobligation isqualified
bytheParties 'ability tolodge country-specific reservations listed inannexes totheAgreement37and
issubject tocertain exceptions withrespect togovernment procurement, subsidies andintellectual
property.38Minimum standards oftreatment inArticle 1105require eachParty toaccord toinvestments
ofinvestors ofanother Party treatment inaccordance withinternational law,including fairandequitable
treatment andfullprotection andsecurity, andnon-discriminatory treatment withrespect tomeasures
aParty adopts ormaintains relating tolosses suffered byinvestments initsterritory owing toarmed
conflict orcivilstrife.
33. Theprovisions oftheNAFTA concerning performance requirements apply tobothinvestments
ofinvestors ofaParty andinvestments ofinvestors ofanon-Party. Article 1106(1) proscribes the
imposition orenforcement ofmandatory requirements andtheenforcement ofanyundertakings or
commitments: (1)toexport agiven levelorpercentage ofgoods orservices; (2)toachieve agiven
levelorpercentage ofdomestic content; (3)topurchase, useoraccord apreference togoods produced
orservices provided intheterritory ofaParty ortopurchase goods orservices from persons inits
territory; (4)torelate thevolume orvalue ofimports tothevolume orvalue ofexports ortotheamount
offoreign exchange inflows associated withinvestment; (5)torestrict sales ofgoods orservices
produced orprovided byaninvestment inaParty'sterritory byrelating suchsalestothevolume or
value ofexports orforeign exchange earnings oftheinvestment; (6)totransfer technology, aproduction
process orother proprietary knowledge; and(7)toactastheexclusive supplier ofthegoods produced
orservices provided byaninvestment toaspecific region orworld market. With theexception of
thefirstandthelasttworequirements, these requirements arealsoprohibited ifapplied asconditions
forthereceipt ofanadvantage (Article 1106(2)). Theprovisions onperformance requirements are
subject tovarious qualifications andlimitations.39NAFTA Article 1107prohibits aParty fromrequiring
36Inaddition toChapter 11,provisions oninvestment arecontained inChapter 14onfinancial services,
Chapter 15oncompetition, monopolies andstateenterprises, andChapter 16ontemporary entry forbusiness
persons.
37Article 1108 allows forsuch country-specific reservations withregard to:(1)existing non-conforming
measures maintained byaParty atthefederal, stateorlocal level, assetoutinthatParty 'sSchedule toAnnex I
orIIItotheAgreement; (2)anymeasure thataParty maintains oradopts withrespect tospecified sectors,
subsectors oractivities, assetoutinitsSchedule toAnnex II;and(3)treatment accorded byaParty pursuant
tospecified agreements orwithrespect tosectors, assetoutinitsSchedule toAnnex IV.
38Withrespecttointellectualproperty,thenationaltreatmentandMFNobligationsdonotapplytoanymeasure
thatisanexception to,orderogation from, theobligations under thenational treatment article oftheNAFTA
Chapter onintellectual property, asspecifically provided forinthatarticle.
39First, Article 1106(3) states thattheprohibition ofcertain requirements asconditions forthereceipt of
anadvantage isnottobeconstrued aspreventing aParty from conditioning thereceipt orcontinued receipt of
anadvantage oncompliance witharequirement tolocate production, provide aservice, trainoremploy workers,
construct orexpand particular facilities, orcarry outresearch anddevelopment initsterritory. Second,
Article 1106(6) provides foranexception totheprohibition ofsome oftheperformance requirements mentioned
in1106(1)and(2)formeasuresnecessarytosecurecompliancewithlawsandregulationswhicharenotinconsistent
withtheprovisions oftheNAFTA; measures toprotect human, animal orplant lifeorhealth; ormeasures
(continued...)WT/WGTI/W/22
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thatanenterprise ofthatParty thatisaninvestment ofaninvestor ofanother Party appoint individuals
ofanyparticular nationality tosenior management positions.40AParty mayrequire, however, that
amajority oftheboard ofdirectors, oranycommittee thereof, ofanenterprise ofthatParty thatis
aninvestment ofaninvestor ofanother Party beofaparticular nationality orresident intheterritory
ofthatParty, provided thattherequirement doesnotmaterially impair theability oftheinvestor to
exercise control overitsinvestment.
34. Withrespect totransfers, theNAFTA notonlyobligates Parties topermit alltransfers relating
toaninvestment ofaninvestor ofanother Party tobemade freely andwithout delay, butalsoproscribes
theimposition ofrequirements onaninvestor ofaParty totransfer income, earnings, profits orother
amounts derived from, orattributable to,investments intheterritory ofanother Party (Article 1109).
Direct orindirect nationalization orexpropriation ofinvestments ofaninvestor ofanother Party and
measures tantamount tonationalization orexpropriation areprohibited byArticle 1110, except fora
public purpose, onanon-discriminatory basis, inaccordance withdueprocess oflawandtheminimum
standards oftreatment setforthinArticle 1105, andonpayment ofcompensation inaccordance with
specified criteria.41Article 1111 permits aParty toadopt ormaintain measures prescribing special
formalities inconnection withtheestablishment ofaninvestment, suchasarequirement thatinvestments
belegally constituted under thelawsorregulations ofaParty, andmeasures regarding theprovision
ofroutine information byinvestors forinformational orstatistical purposes. Article 1113 permits a
Party todenyincertain circumstances thebenefits ofChapter 11toaninvestor ofanother Party that
isowned orcontrolled byinvestors ofanon-Party. Finally, Article 1114 allows eachParty toapply
anymeasuresotherwiseconsistentwiththisChapterthatitconsidersappropriatetoensurethatinvestment
activity initsterritory isundertaken inamanner sensitive toenvironmental concerns. Italsoprovides
thattheParties recognize thatitisinappropriate toencourage investment byrelaxing domestic health,
safety orenvironmental measures andthatParties should notwaive orotherwise derogate fromsuch
measures inorder toattract orretain investment intheirterritories.
35. Apart from exceptions specifically provided forinChapter 11,theinvestment provisions of
NAFTA arealsoqualified bycertain general exceptions which appear inNAFTA Chapter 21with
regard tomeasures taken ongrounds ofnational security, taxation andmeasures taken incaseof
balance-of-payments difficulties andbyanannex relating tocultural industries.
36. NAFTA Articles 1115-1138 provide forinternational arbitration ofdisputes between aParty
andaninvestor ofanother Party. Aninvestor maysubmit tointernational arbitration, onitsownbehalf
oronbehalf ofanenterprise ofanother Party thatisajuridical person thattheinvestor owns orcontrols,
directly orindirectly, aclaim thatanother Party hasbreached anobligation under Chapter 11orunder
39(...continued)
necessary fortheconservation ofliving ornon-living exhaustible natural resources. Third, Parties have been
allowed tolodge country-specific reservations under Article 1108 inrelation totheobligations ofArticle 1106.
Finally,Article1108(8)providesthatcertainprohibitionsinArticle1106donotapplytoqualificationrequirements
forgoods orservices withrespect toexport promotion andforeign aidprogrammes, government procurement,
andrequirementsimposedbyanimportingPartyrelatingtothecontentofgoodsnecessarytoqualifyforpreferential
tariffs orpreferential quotas.
40Parties havebeenallowed tomake country-specific reservations inaccordance withArticle 1108 inrespect
ofthisprohibition.
41Pursuant toArticle 1110(7), these provisions onexpropriation andcompensation donotapply totheissuance
ofcompulsorylicencesgrantedinrelationtointellectualpropertyrights,ortotherevocation,limitationorcreation
ofintellectual property rights, totheextent thatsuchissuance, revocation, limitation orcreation isconsistent
withtheprovisions oftheNAFTA Chapter onintellectual property.WT/WGTI/W/22
Page15
certain provisions ofthechapter onmonopolies andstateenterprises andthattheinvestor hasincurred
lossordamage byreason of,orarising outof,thatbreach.42Article 1122 contains theunconditional
consent oftheParties tothesubmission ofaclaim toarbitration. Theinvestor canelecttoproceed
under theICSID Convention, theAdditional Facility Rules ofICSID ortheUNCITRAL Arbitration
Rules. Detailed rulesarecontained inthese provisions onmatters suchastheconstitution ofarbitral
tribunals, consolidation ofclaims, applicable law,nature ofremedies, andfinality andenforcement
ofarbitral awards.
37. TheColonia Protocol onReciprocal Promotion andProtection ofInvestments within
MERCOSUR ,adopted in1994, covers investments ofinvestors ofoneMERCOSUR member State
intheterritory ofanother MERCOSUR member State. Itprovides thateachContracting Party shall
accord national treatment andMFN treatment inrespect oftheadmission ofinvestments ofinvestors
ofanother Contracting Party (Article 2).AnAnnex totheProtocol identifies foreachContracting
Party specific sectors inwhich itmaymaintain limited, temporary exceptions tothisobligation, requires
Contracting Parties tomake allefforts toeliminate these exceptions assoonaspossible, andprovides
forperiodic consultations tomonitor theprocess oftheirelimination. With respect tothetreatment
ofinvestment onceadmitted, Article 3oftheProtocol requires theContracting Parties toaccord fair
andequitabletreatmentandfulllegalprotection;torefrainfromimpairingthemanagement,maintenance,
use,enjoyment ordisposal ofinvestments through unjustified ordiscriminatory measures; andtoaccord
national treatment andMFN treatment.43ThisArticle alsoprohibits theimposition ofrequirements
regarding theexport ofgoods, thepurchase ofgoods orservices fromdomestic sources andanyother
similar requirements. TheAnnex provides thatArgentina andBrazil reserve theright tomaintain
temporary exceptions tothisprohibition regarding performance requirements intheautomotive sector.
Article 4prohibits nationalization orexpropriation ofcovered investments, except forapublic purpose,
onanon-discriminatory basis, andinaccordance withdueprocess oflawandlaysdown requirements
regarding thestandard andmethod ofcalculation oftheamount ofpayment ofcompensation. Italso
requires thatnational treatment andMFN treatment beaccorded tocovered investments inrelation
tomeasures taken withrespect toindemnification orcompensation forlosses suffered owing towar,
other armed conflict orinternal disorder. Inaddition, theProtocol provides forfreedom oftransfers
related toinvestments (Article 5).Disputes between theContracting Parties ontheinterpretation and
applicationoftheProtocolaretobesubmittedtodisputesettlementproceduresestablishedintheProtocol
ofBrasilia fortheSettlement ofDisputes, concluded in1991 orofanysuccessor tothisinstrument.
TheProtocol allows forthesubmission ofdisputes between aContracting Party andaninvestor of
another Contracting Partytointernational arbitration under theICSID Convention, theICSID Additional
Facility Rules ortoadhocarbitration inaccordance withtheUNCITRAL arbitration rules.
42Theability ofaninvestor tosubmit amatter tointernational arbitration isqualified bycertain limitations.
Thus, claims mayonlybesubmitted within three years after thedateonwhich theinvestor ortheenterprise
acquired, orshould haveacquired, knowledge ofthealleged breach andknowledge thattheinvestor orenterprise
hasincurred lossordamage. Certain matters arespecifically excluded from theinvestor-state arbitration
mechanism. Aprocedural limitation arises fromtherequirement thataninvestor mayinprinciple submit aclaim
toarbitration onlyiftheinvestor waives theright toinitiate orcontinue proceedings before anadministrative
tribunal orcourt withrespect tothemeasure atissue intherequest forarbitration.
43WithregardtothenationaltreatmentandMFNobligation,theAnnexcontainsareservationbyBrazilrelating
togovernment procurement.WT/WGTI/W/22
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38. TheTreaty onFreeTrade between Colombia, Mexico andVenezuela (1994)44contains rules
oninvestment inChapter XVII.45"Investment" isdefined as"resources transferred tothenational
territory ofoneParty orreinvested therein byinvestors oftheother Party", followed byanillustrative
list.Credit anddebttransactions arespecifically excluded. Byvirtue ofArticle 17-03, Parties are
required toaccord national treatment andMFN treatment toinvestors ofanother Party andtheir
investments, subject toanexception fortreatment accorded pursuant tobilateral agreements forthe
avoidance ofdouble taxation46andtotherightofeachParty toimpose special formalities inconnection
withtheestablishment ofaninvestment andtoimpose information requirements. TheTreaty envisages
theconclusion ofanadditional Protocol containing listsofsectors andsubsectors inwhich eachParty
maymaintain oradopt measures notconforming tothese national treatment andMFN treatment
obligations (Article 17-06).47Article 17-04 prohibits performance requirements, whether imposed on
amandatory basis orlinked toanadvantage, relating to:(1)thepurchase orusebyanenterprise of
goods ofnational origin orfromnational sources; (2)limitations onthepurchase oruseofimported
goods byanenterprise toanamount related tothevolume orvalue oflocal goods exported bythe
enterprise; (3)restrictions onimports ofgoods usedbyanenterprise initslocal production and
limitations onaccess bytheenterprise toforeign exchange toanamount related totheforeign exchange
imputable totheenterprise; and(4)restrictions ontheexportation orthesaleforexportation ofgoods
byanenterprise.48IfaParty considers thataperformance requirement applied byanother Party and
notcovered bythisprohibition adversely affects theflowoftrade orconstitutes asignificant barrier
toinvestment, itmayrefer thematter totheCommission established under thisTreaty which may
recommend totheParty inquestion thatitsuspend therequirement. With regard toemployment and
enterprise management, Article 17-05 provides thatlimits onthenumber orproportion offoreigners
thatmaywork inanenterprise orperform managerial oradministrative duties under thelawsofeach
Party mayinnocaseprevent orhinder aninvestor from exercising control overitsinvestment.
39. Article 17-07 ofthisTreaty provides forfreetransfers offunds relating toinvestments, subject
tocertain qualifications andexceptions, including intheevent ofexceptional orserious
balance-of-payments difficulties. Direct orindirect expropriation andnationalization ofinvestments
ofinvestors ofanother Party andmeasures tantamount toexpropriation ornationalization areprohibited
byArticle 17-08, except forapublic purpose, onanon-discriminatory basis, inaccordance withdue
process oflawandonpayment ofcompensation inaccordance withspecified criteria. Theinvestment
rulesofthisTreaty alsoprohibit theexercise ofextraterritorial jurisdiction byaParty toinvestments
ofinvestors ofaParty thatareconstituted andorganized under thelawsandregulations ofanother
Party (Article 17-12) andtheelimination orwaiver ofdomestic health, safety orenvironmental measures
inorder toattract investment (Article 17-13). General exceptions totheprovisions ofthisChapter
44This Treaty entered intoforce inJanuary 1995.
45These rules apply tomeasures adopted ormaintained byaparty withrespect tofinancial services onlyto
theextent expressly provided forintheChapter onfinancial services.
46TheTreaty provides foracommitment oftheParties toinitiate between themselves bilateral negotiations
fortheconclusion ofagreements ontheavoidance ofdouble taxation.
47Thepossibility tomake country-specific reservations alsoapplies totheprovisions onperformance
requirements.
48There areexceptions tosome ofthese prohibitions withrespect torequirements forthequalification of
goodsforexportpromotionprogrammes ;thepurchasesorusebyapartyorbyastateenterprise;andrequirements
imposed byanimporting Party withrespect tothecontent required forgoods inorder toqualify forpreferential
tariffs orduties. Moreover, itisstated thatnothing inthisarticle shall beconstrued toprevent aParty from
imposing, withregard toanyinvestment initsterritory, requirements tolocate production, generate jobs, train
workers orcarry outresearch anddevelopment.WT/WGTI/W/22
Page17
relate tomeasures taken ongrounds ofnational security orpublic order andmeasures taken pursuant
toaParty'scriminal law(Article 17-02). Inaddition, aParty maydenythebenefits ofthisChapter
toaninvestor thatisanenterprise ofanother Party ifsuchinvestor isowned orcontrolled byinvestors
ofanon-Party andtheenterprise hasnosubstantial business activity intheterritory oftheParty under
whose lawsitisconstituted ororganized (Article 17-11). TheTreaty allows aninvestor ofaParty,
onitsownaccount oronbehalf ofanenterprise thatitowns orcontrols, tosubmit tointernational
arbitration aclaim thatanother Party hasbreached anobligation under Chapter XVII, provided that
theinvestor hasincurred lossordamage asresult ofsuchabreach (Articles 17-16 -17-24). Such
aclaim maybesubmitted toarbitration under theICSID Convention, theICSID Additional Facility
Rules, where applicable, ortheUNCITRAL Arbitration Rules. Certain matters, including measures
taken byaParty under thenational security andpublic order exceptions, areexcluded fromthescope
ofthisinvestor-state arbitration mechanism. Submission ofaclaim tointernational arbitration and
initiation ofproceedings before domestic courts aremutually exclusive. Specific provisions areset
forthregarding timing ofthesubmission ofaclaim toarbitration, consolidation ofprocedures, applicable
law,nature ofremedies thatmayberecommended byanarbitral tribunal, finality andenforcement
ofarbitral awards.
40. TheEnergy Charter Treaty (ECT) (1994)49aimsattheestablishment ofalegal framework
topromote long-term cooperation intheenergy field. Itcontains provisions ontradeinenergy materials
andproducts, competition, transit, transfer oftechnology, access tocapital, investment promotion and
protection, sovereignty overenergy resources, environmental aspects, transparency, taxation, state
andprivileged enterprises anddispute settlement. PartIIIoftheECT (Articles 10-17) deals with
investment promotion andprotection. Thedefinition oftheterm"investment" inArticle 1iscomparable
tothedefinitions found inbilateral investment treaties butthescope oftheECTislimited toinvestments
which are"associated withaneconomic activity intheenergy sector". Article 10laysdown certain
general obligations regarding thetreatment ofinvestments ofinvestors ofother Contracting Parties.
Itprovides thateachContracting Party shallencourage andcreate stable, equitable, favourable and
transparent conditions forinvestors ofotherContracting Parties tomake investments initsarea; accord
fairandequitable treatment andthemostconstant protection andsecurity toinvestments ofinvestors
ofother Contracting Parties; refrain fromimpairing byunreasonable ordiscriminatory measures the
management, maintenance, use,enjoyment ordisposal ofsuchinvestments; accord treatment which
shallbenolessfavourable thanthatrequired byinternational law,including treaty obligations50;and
observe anyobligation ithasentered intowithaninvestor oraninvestment ofaninvestor ofanyother
Contracting Party. With regard tonational treatment andMFN treatment, thisArticle distinguishes
between thetreatment ofestablished investments andtheadmission ofinvestments. Regarding the
treatment ofestablished investments, Article 10(7) requires Contracting Parties toaccord thebetter
ofnational treatment andMFN treatment toinvestments ofinvestors ofother Contracting Parties and
theirrelated activities, including management, maintenance, use,enjoyment ordisposal. Thisobligation
49TheECT hasbeen signed byAlbania, Armenia, Australia, Austria, Azerbaijan, Belarus, Belgium,
Bosnia-Herzegovina,Bulgaria,Croatia,Cyprus,theCzech Republic,Denmark,Estonia,EuropeanCommunities,
Finland, France, Georgia, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Kazakhstan, Kyrgyzstan,
Latvia,Liechtenstein,Lithuania,Luxembourg,FYRMacedonia,Malta,Moldova,Netherlands,Norway,Poland,
Portugal,Romania,theRussianFederation,theSlovakRepublic,Slovenia,Spain,Sweden,Switzerland,Tajikistan,
Turkey, Turkmenistan, Ukraine, United Kingdom andUzbekistan. Asaconsequence ofthedeposit ofthe30th
instrument ofratification on16January 1998, theECT willenter intoforce on16April 1998.
50AnUnderstanding adopted aspartoftheFinal ActoftheECT Conference explains thatthisreference to
treaty obligations doesnotinclude decisions ofinternational organizations andtreaties which entered intoforce
before 1January 1970.WT/WGTI/W/22
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doesnotapply tointellectual property51andgrants andother forms offinancial assistance andcontracts
forenergytechnology.RegardingtheadmissionofinvestmentsofinvestorsofotherContractingParties,
theECTprovides thatContracting Parties "shall endeavour" toaccord thebetter ofnational treatment
andMFN treatment toinvestors ofother Contracting Parties andenvisages thenegotiation ofa
supplementary treaty which shall, subject totheconditions tobelaiddown therein, oblige each
Contracting Party toaccord suchtreatment inrespect oftheadmission ofinvestment (Article 10(2)
and(4)).52
41. With respect tokeypersonnel, Article 11oftheECT provides thateachContracting Party
shall, subject toitslawsandregulations relating toentry andstayofnatural persons, examine ingood
faith requests byinvestors ofother Contracting Parties ortheir keypersonnel toenter andstay
temporarily initsarea, andshallpermit investors ofother Contracting Parties andtheirinvestments
toemploy anykeyperson oftheirchoice. Intheevent oflosses suffered byaninvestor owing towar
orother armed conflict, state ofnational emergency, civildisturbance orsimilar circumstances,
Contracting Parties areobligated toaccord toinvestors ofotherContracting Parties thebetter ofnational
treatment andMFN treatment asregards restitution, indemnification, compensation orothersettlement.
Aminimum standard ofprompt, effective andadequate restitution orcompensation applies tosituations
inwhich losses areduetotherequisitioning ordestruction ofaninvestment bytheauthorities orforces
ofaContractingParty(Article12).ECTArticle13prohibitsnationalization,expropriationandmeasures
having equivalent effect, except where suchexpropriatory measures aretaken forapurpose which
isinthepublic interest, onanon-discriminatory basis, carried outunder dueprocess oflawand
accompaniedbythepaymentofpromptadequateandeffectivecompensation.ObligationsofContracting
Parties regarding thefreetransfer offunds related toinvestments aresetforth inArticle 13.
42. Contracting Parties mayunder certain circumstances denythebenefits ofPartIIIoftheECT
toinvestors ofother Contracting Parties, forexample, incaseofalegalentity organized under the
lawsofanother Contracting Party which isowned orcontrolled bynationals orcitizens ofathirdstate
andwhich hasnosubstantial business activity intheareaoftheContracting Party inwhich itisorganized
(Article 14). Transition provisions inArticle 32oftheECT allow certain countries todelay full
compliance withcertain provisions ofPartIII.Theinvestment provisions inPartIIIarealsosubject
toexceptions relating totaxation (Article 21),general exceptions, including formeasures taken on
grounds ofnational security andpublic order (Article 24),andanexception forregional economic
integration agreements (Article 25).
43. Article5inPartIIoftheECT("Commerce")containsrulesontrade-relatedinvestmentmeasures
which essentially incorporate theprovisions oftheWTO Agreement onTrade-Related Investment
Measures. Thus, Article 5(1)oftheECT prohibits theapplication ofanytrade-related investment
51ECTArticle10(10)statesthatthetreatmentofintellectualproperty"shallbeasspecifiedinthecorresponding
provisions oftheapplicable international agreements fortheprotection ofIntellectual Property rights towhich
therespective Contracting Parties areparties".
52Thesupplementary treaty willalsodealwithprivatization anddemonopolization andwiththemodalities
ofapplication ofthenational treatment andMFN obligations ofArticle 10(7) togrants orother financial assistance
andcontracts forenergy technology research anddevelopment. Article 10(4) provides fortheconclusion of
thissupplementarytreatynotlaterthan1January1998.AccordingtoinformationprovidedbytheEnergyCharter
Secretariat, most outstanding issues relating tothissupplementary treaty were resolved atmeetings heldin
December 1997.WT/WGTI/W/22
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measure which isinconsistent withtheprovisions ofArticles IIIorXIoftheGATT.53Thelistof
measures covered bythisprohibition inArticle 5(2)issimilar tothelistcontained intheannex tothe
Agreement onTrade-Related Investment Measures. Anannex totheECT laysdown amechanism
forthenotificationandphase-outoftrade-relatedinvestmentmeasuresthatareinconsistentwithArticle5.
Thetransition period forthephase-out ofthese measures willstartonthedateofentry intoforce of
theECT.
44. Dispute settlement mechanisms intheECTprovide forarbitration ofintergovernmental disputes
concerning theapplication orinterpretation oftheECT(Article 27)andarbitration ofdisputes between
aContracting Party andaninvestor ofanother Contracting Party concerning analleged breach bythe
former ofanobligation under PartIII(Article 26).Inthelatter regard, theinvestor canchoose between
arbitration under theICSID Convention, arbitration inaccordance withtheUNCITRAL arbitration
rules, orarbitration under theArbitration Institute oftheStockholm Chamber ofCommerce. Article 26
explicitly provides fortheadvance, unconditional consent ofContracting Parties tothesubmission
ofsuchadispute tointernational arbitration butpermits certain limitations tothisunconditional consent
inthecaseofContracting Parties listed inannexes totheECT.54Thearbitration mechanism contained
inArticle 27oftheECTforthesettlement ofdisputes between Contracting Parties isnotapplicable
todisputes concerning Article 5unless theContracting Parties soagree (Article 29). However,
Article 10(11) allows fortheinvocation oftheinvestor-state arbitration procedure ofArticle 26inregard
totheapplication oftrade-related investment measures inconsistent withArticle 5.
45. Rules regarding investment promotion andprotection setforth inArticles 158-162 ofthe
COMESA Treaty55require themember States to:(a)accord fairandequitable treatment toprivate
investors; (b)adopt aprogramme forthepromotion ofcross-border investment; (c)create andmaintain
apredictable, transparent andsecure investment climate; (d)remove administrative, fiscal andlegal
restrictions tointra-Common Market investment; and(e)accelerate thederegulation oftheinvestment
process. Subject totheaccepted principle ofpublic interest, member States arerequired torefrain
fromnationalizing orexpropriating private investment andtopayadequate compensation intheevent
private investment isnationalized orexpropriated. TheTreaty alsodefines rights ofprivate investors
withrespect totransfers ofinvestment-related funds andrequires member States toconclude between
themselves agreements ontheavoidance ofdouble taxation andtotakesteps toaccede tomultilateral
investment agreements, notably theICSID andMIGA Conventions.
46. Anumber ofregional andplurilateral agreements existwhich, instead ofdirectly incorporating
thefullrange ofinvestment protection anddispute settlement provisions typically found inbilateral
investment treaties, envisage theconclusion ofsuchbilateral treaties between theparties. Anexample
ofthisapproach istheFourth ACP(Lomé) Convention. Chapter 3ofthisConvention, which ispart
ofTitleIIIondevelopment finance cooperation, setsforthgeneral principles regarding thetreatment
offoreign investment, suchastherequirement toaccord fairandequitable treatment, andenvisages
thatmorespecific regulation ofpolicies onforeign investment willbedealtwiththrough thenegotiation
ofbilateral agreements between theContracting Parties. With aviewtofacilitating thenegotiation
53Article 5(3)stipulates thatthisprohibition isnottobeconstrued toprevent aContracting Party fromapplying
thetrade-related investment measures described inArticle 5(2)asacondition foreligibility forexport promotion,
foreign aid,government procurement orpreferential tariff orquota programmes.
54Annex IDlistsContracting Parties which donotconsent tointernational arbitration ofadispute iftheinvestor
haspreviously submitted thedispute toadomestic court. Annex IAlistsContracting Parties which donotconsent
tointernational arbitration ofdisputes involving theprovision inArticle 10concerning theobservance bya
Contracting Party ofobligations entered intowithrespect toaninvestor oraninvestment.
55Supra ,paragraph 28WT/WGTI/W/22
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ofsuchagreements, aJointDeclaration inAnnex LIIIoftheConvention provides thattheContracting
Parties willundertake astudy ofthemainclauses ofamodel bilateral investment agreement.56Various
recent agreements oftheEuropean Community withthirdcountries alsorefertothepossible conclusion
ofbilateralinvestmenttreatiesbetweenmemberStatesoftheEuropeanCommunityandthethirdcountries
inquestion.57
47. InthecontextoftheAsia-PacificEconomicCooperation(APEC),normsofalegallynon-binding
nature relating totheadmission, treatment andprotection offoreign investment havebeenadopted
intheAPECNon-BindingInvestmentPrinciples(1994).PrinciplesofageneralnaturestatethatMember
economies willensure transparency withrespect tolaws, regulations andpolicies affecting foreign
investment; extend MFN treatment toinvestors fromanyeconomy withrespect totheestablishment,
expansion andoperation oftheirinvestments; andaccord national treatment toforeign investors in
relation totheestablishment, expansion, operation andprotection offoreign investment, withexceptions
asprovidedforindomesticlaws,regulationsandpolicies.MorespecificPrinciplesprovidethatMember
economies willnotrelax health, safety andenvironmental regulations asanincentive toencourage
foreign investment; minimize theuseofperformance requirements thatdistort orlimitexpansion of
trade andinvestment; andpermit thetemporary entry andsojourn ofkeypersonnel forthepurpose
ofengaging inactivities connected withforeign investment, subject torelevant lawsandregulations.
Member economies willnotexpropriate foreign investments ortakemeasures thathaveasimilar effect,
except forapublic purpose, onanon-discriminatory basis, inaccordance withthelawsofeacheconomy
andprinciples ofinternational law, andagainst theprompt payment ofadequate andeffective
compensation, andwillfurther liberalize towards thegoals ofthefreeandprompt transfer offunds
related toforeign investments infreely convertible currency. Member economies willalsoendeavour
toavoid double taxation. Ondispute settlement, thePrinciples statethatMembers accept thatdisputes
arising inconnection withaforeign investment willbesettled promptly through consultations and
negotiations between theparties tothedispute or,failing this,through procedures forarbitration in
accordancewithMembers'internationalcommitmentsorthroughotherarbitrationproceduresacceptable
tobothparties. With regard toinvestor behaviour, thePrinciples provide thatacceptance offoreign
investments isfacilitated when foreign investors abide bythehosteconomy 'slaws, regulations,
administrative guidelines andpolicies. Finally, thePrinciples statethatMember economies accept
thatregulatory andinstitutional barriers totheoutflow ofinvestment willbeminimized.
III.1.3 Rules oninvestment from thirdcountries
48. Inthecontext oftheAndean Community58,rules aiming attheharmonization ofinvestment
policies ofmember countries towards investment from third countries were firstadopted in1970.
ThecurrentlyapplicableregimeappearsinDecision291oftheCommissionoftheCartagenaAgreement-
CommonCodefortheTreatmentofForeignCapitalandonTrademarks,Patents,LicencesandRoyalties
(1991). ThisDecision provides thatforeign investors shallhavethesame rights andobligations as
56Inthisconnection, astatement onInvestment Protection Principles intheACP States wasadopted bythe
European Community inNovember 1992.
57Inaddition totheEurope Agreements andthePartnership andCooperation Agreements, references tothe
future conclusion ofbilateral investment treaties appear in,forexample, theCooperation Agreement between
theEuropeanCommunityandtheKingdomofNepal(1995),Article10;theInterregionalFramew orkCooperation
Agreement between theEuropean Community anditsMember States, oftheonepart,andtheSouthern Common
Market anditsParty States, oftheother part(1995), Article 12,andtheFramework Cooperation Agreement
leading ultimately totheestablishment ofapolitical andeconomic association between theEuropean Community
anditsMember States, oftheonepart, andtheRepublic ofChile, oftheother part(1996), Article 15.
58Member States areBolivia, Colombia, Ecuador, Peru andVenezuela.WT/WGTI/W/22
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nationalinvestors,exceptasotherwiseprovidedinthelegislationofeachmembercountry,andeliminates
thepreviously existing requirement tosubject foreign investment toanauthorization procedure. It
alsoremoves restrictions contained intheprevious rulesonthetransfer offunds byobligating member
countries topermit foreign investors andsubregional investors toremit abroad inconvertible currency
theverified netprofits derived from foreign direct investment andtheproceeds from thesaleor
liquidation ofsuchinvestment. Athirdimportant change effected bytheDecision istheremoval of
restrictions onaccess ofproducts produced byforeign enterprises tothebenefits from thetrade
liberalization under theCartagena Agreement. Prior totheadoption ofthisDecision, suchproducts
could benefit from thistrade liberalization onlyiftheforeign enterprise undertook toconvert intoa
jointornational enterprise. Aside fromtheseprovisions onrights andobligations offoreign investors,
theDecision contains rules requiring theregistration ofcontracts forimports oftechnology and
prohibiting theinclusion ofcertain kinds ofrestrictive clauses insuchcontracts.
49. InAugust 1994, Member States oftheMERCOSUR adopted aProtocol onPromotion and
Protection ofInvestments fromStates notParties toMERCOSUR. TheStates Parties tothisProtocol
undertake nottoaccord toinvestments ofinvestors ofthirdcountries more favourable treatment than
thatprovided forintheProtocol. Each State Party isrequired topromote investments from third
countries andtoadmit them inconformity withitsdomestic lawsandregulations. Inrespect ofthe
treatment ofestablished investments, theProtocol laysdown general standards oftreatment which are
similar tothose contained intheColonia Protocol, except thattheStates Parties enjoy discretion to
decide whether ornottoaccord national treatment andMFN treatment toestablished investments of
investors ofthirdcountries. States Parties totheProtocol maynotextend toinvestors ofthirdcountries
treatment, preferences orprivileges accorded under regional trade andintegration agreements or
agreements inthefieldoftaxation. TheProtocol contains noprovisions onperformance requirements.
Provisions onexpropriation, compensation forlosses andtransfer offunds arecomparable butinsome
cases lessdetailed thanthecorresponding provisions oftheColonia Protocol. International arbitration
isprovided forinregard tothesettlement ofdisputes between aState Party andathirdstatewhich
hasnotbeensettled bydiplomatic means. TheProtocol allows investors ofthirdcountries tosubmit
adispute withaState Party tointernational arbitration before anadhocarbitral tribunal orinthe
framework ofaninternational arbitration institution.
50. Asnoted previously, theTreaty Establishing theEuropean Community ,asamended bythe
1992 Treaty onEuropean Union, contains aprohibition ofrestrictions onmovement ofcapital and
payments which applies notonlytotransactions between member States butalsototransactions between
member States andthirdcountries.
III.1.4 Rules onstatus ofregional enterprises andcooperative arrangements
51. Several regional agreements aimatfostering cooperation between firms ofmember States by
establishing aspecial legal regime fortheformation ofaregional, transnational form ofbusiness
enterprises orforcooperative arrangements between enterprises fromthemember States. Forexample,
theUniform CodeonAndean Multinational Enterprises established byDecision 292oftheCommission
oftheCartagena Agreement provides fortheformation ofAndean Multinational Enterprises. One
oftheconditions forthecreation ofsuchanenterprise isthatcapital contributions bynational investors
oftwoormore member countries mustmake upmore than60percentofthecapital oftheenterprise.
Among theprivileges which theDecision requires member countries togrant tosuchenterprises are
national treatment withrespect togovernment procurement, export incentives andtaxation, theright
toparticipate ineconomic sectors reserved fornational companies, therighttoopenbranches inany
member country, andtherightoffreetransfer offunds related toinvestments. TheBasic Agreement
ontheASEAN Industrial Cooperation Scheme (AICO Scheme) wasconcluded bymembers ofASEANWT/WGTI/W/22
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in1996 topromote jointmanufacturing industrial activities between ASEAN-based companies.59It
provides forprivileges intheformofpreferential tarifftreatment, localcontent accreditation andother
non-tariff incentives forproducts produced orusedincooperative arrangements involving companies
fromdifferent ASEAN countries. Inorder toqualify forparticipation inthisscheme, companies must
beincorporated andoperating inanyASEAN country, haveaminimum of30percentnational equity
andundertake resource sharing, industrial complementation orindustrial cooperation activities. The
COMESA Treaty (1993) contains acommitment ofMember States topromote andencourage the
establishment ofmultinational industrial enterprises aspartofprovisions oncooperation inindustrial
development.60
III.2 Investment rules established inacontext dedicated toinvestment
52. Intheframework oftheOrganization forEconomic Cooperation andDevelopment (OECD) ,
Codes ofLiberalisation ofCapital Movements andCurrent Invisible Operations wereadopted in1961
aslegally binding decisions oftheOECD Council which obligate member countries toprogressively
liberalize between oneanother restrictions onmovements ofcapital movements andcurrent account
transactions. Theitemrelating todirect investment61intheAnnexes totheCapital Movements Code
wasamended in1984 toinclude anobligation toaccord national treatment with regard tothe
establishment ofsuchinvestment.62TheCodes allow forcountry-specific reservations andcontain
temporary derogations, including intheevent ofadverse balance-of-payments developments, and
exceptions formeasures taken ongrounds ofpublic order andsecurity, measures taken pursuant to
obligations under existing multilateral agreements andmeasures applied bymembers forming partof
special customs ormonetary systems. Theimplementation oftheCodes byindividual member countries
isreviewed intheOECD Committee onCapital Movements andInvisible Transactions.
53. While theCodes ofLiberalisation govern theentry ofinvestment, aseparate OECD National
TreatmentInstrumentdealswiththetreatmentofinvestmentafteritsadmission.ThisNationalTreatment
Instrument isoneoffourcomponents ofanon-legally binding Declaration onInternational Investment
andMultinational Enterprises (1976).63Itprovides thatmember countries should, consistent withtheir
needs tomaintain public order, toprotect theiressential security interests andtofulfil commitments
59ThisAgreement supersedes twoother ASEAN agreements inthefield ofindustrial cooperation, namely
theBasic Agreement onASEAN Industrial Joint Ventures (1987) andtheMemorandum ofUnderstanding on
theBrand-to-Brand Complementation Scheme (1988).
60Inthecontext oftheEuropean Community, theadoption ofaCouncil Regulation toestablish astatute of
aEuropean Company hasbeensuggested onseveral occasions since the1970s butsofarnoaction hasbeentaken
onthismatter.
61"Direct investment" isdefined intheCode as"investment forthepurpose ofestablishing lasting economic
relationswithanundertakingsuchas,inparticular,investmentswhichgivethepossibilityofexercisinganeffective
influence onthemanagement thereof ...bymeans of...creation orextension ofawholly-owned enterprise,
subsidiary orbranch, acquisition offullownership ofanexisting enterprise; participation inaneworexisting
enterprise; oraloanoffiveyears orlonger".
62Theamendment provides that:"The authorities ofMembers shall notmaintain orintroduce: regulations
orpractices applying tothegranting oflicences, concessions, orsimilar authorizations, including conditions or
requirements attaching tosuchauthorizations andaffecting theoperation ofenterprises, thatraisespecial barriers
orlimitations withrespect tonon-resident, (ascompared toresident) investors, andthathave theintent orthe
effect ofsignificantly impeding inward direct investment bynon-residents."
63TheDeclaration wasmost recently revised in1991. SeeOECD, TheOECD Declaration andDecisions
onInternational Investment andMultinational Enterprises -1991 Review (Paris, 1992) .WT/WGTI/W/22
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relating tointernational peace andsecurity, accord toenterprises operating intheirterritories andowned
orcontrolled directly orindirectly bynationals ofanother member country treatment consistent with
international lawandnolessfavourable thanthataccorded inlikesituations todomestic enterprises.64
Several non-OECD member countries recently adhered tothisNational Treatment Instrument.
Notification andexamination ofexceptions tothisnational treatment commitment takeplace inthe
contextoftheOECDCommitteeonInternationalInvestmentandMultinationalEnterprisesinaccordance
withprocedures adopted in1991.
54. Thesecond component oftheOECD Declaration onInternational Investment andMultinational
Enterprises istheGuidelines forMultinational Enterprises, which laydown non-legally enforceable
standards fortheactivities ofmultinational enterprises operating indifferent member countries. The
Guidelines address matters ofageneral nature, suchastheneedtotakefully intoaccount policy
objectives ofmember countries, tofavour close cooperation withthelocalcommunity andbusiness
interests,andtorefrainfrombriberyandimproperpoliticalactivity,andsetforthmorespecificstandards
pertaining todisclosure ofinformation, competition, financing, taxation, employment andindustrial
relations, environmental protection, andscience andtechnology. AnOECD Council Decision taken
in1991 requires member countries toestablish national contact points forundertaking promotional
activities, handling inquiries andfordiscussions withtheparties concerned onmatters related tothe
Guidelines. Thethirdcomponent oftheDeclaration contains acommitment ofmember countries to
cooperate inorder toavoid orminimize theimposition ofconflicting requirements onmultinational
enterprises. Inthisconnection, itsetsforthconsiderations tobetaken intoaccount bymember countries
when contemplating theadoption ofmeasures which mayconflict withlegalrequirements orestablished
policies ofother member countries andprovides fornotification andconsultation. Finally, the
Declarationurgesmembercountriestogivedueweighttotheinterestsofothermembercountriesaffected
byinvestment incentives anddisincentives andtoendeavour tomake suchmeasures astransparent
aspossible. TheOECD Committee onInternational Investment andMultinational Enterprises isthe
forum fordiscussion oftheimplementation oftheGuidelines forMultinational Enterprises andfor
consultations onconflicting requirements andinvestment incentives anddisincentives.
55. AUnified Agreement fortheInvestment ofArab Capital intheArab States wasconcluded in
1980bymember States oftheleague ofArabStates.65Itlaysdown minimum standards forthetreatment
ofArab investors, including non-discrimination, freedom tomake transfers related toinvestments,
protection against expropriatory measures andright ofentry andresidence ofinvestors andtheir
employees. Disputes arising under thisAgreement between member States orbetween amember State
andaninvestor maybesubmitted toconciliation, adhocarbitration ortoanArab Investment Court
establishedundertheAgreement.TheAgreementalsostipulatesthattheInter-ArabInvestmentGuarantee
Corporation, which wasestablished in1971, shallprovide insurance forinvestments made pursuant
totheAgreement.
56. TheAgreement onPromotion, Protection andGuarantee ofInvestments among Member States
oftheOrganization oftheIslamic Conference (1981)66requires Contracting Parties toadmit investments
bynationals ofother Contracting Parties "inthefields permitted forinvestments inaccordance with
theirlaws", toaccord suchinvestments adequate protection andsecurity, andtoaccord MFN treatment
64TheOECD publication, National Treatment ForForeign-Controlled Enterprises (Paris, 1993) discusses
theinterpretation ofthenational treatment commitment andcontains listsofmeasures notified byOECD member
countries asexceptions tonational treatment orfortransparency purposes.
65TheAgreement entered intoforce in1981 andhasbeen ratified byallmember States oftheArab League
except Algeria andtheComoros.
66ThisAgreement entered intoforce in1986.WT/WGTI/W/22
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toestablished investors (Article 7).67TheAgreement prohibits expropriation ofinvestments, except
ifexpropriation occurs inthepublic interest inaccordance withthelaw,without discrimination, on
prompt payment ofadequate andeffective compensation inaccordance withthelawsofthehoststate
regulating suchcompensation andoncondition thattheinvestor hastherighttocontest themeasure
ofexpropriation inthecompetent court ofthehoststate(Article 10),andobliges Contracting Parties
toguarantee freetransfers relating toinvestments within specified periods oftime(Article 11).With
respect todispute settlement, theAgreement provides forconciliation andadhocarbitration
(Article 17).68While mostoftheAgreement 'sprovisions dealwiththetreatment offoreign investors,
italsoincludes aprovision setting forth certain obligations ofinvestors.69Aninvestment insurance
scheme, which wasenvisaged inArticle 15ofthisAgreement, wascreated in1992 when members
oftheIslamic Organization concluded theArticles ofAgreement oftheIslamic Corporation forthe
Insurance ofInvestment andExport Credit .Investment insurance canbeprovided under thisAgreement
inrespect ofnon-commercial risksrelating tolosses resulting fromrestrictions oncurrency transfers,
expropriation andsimilar measures, breach ofcontract, andwarandcivildisturbance.
IV. MULTILATERAL AGREEMENTS
IV.1 Instruments containing substantive norms
57. Substantive norms forthetreatment offoreign investment arecontained intheWorld Bank
Guidelines ontheTreatment ofForeign Direct Investment. These Guidelines, which arenotlegally
binding, weredeveloped intheWorld BankGroup following arequest inApril 1991bytheIMF-World
Bank Development Committee forthepreparation ofareport on"anoverall legalframework which
would embody theessential legalprinciples soastopromote foreign direct investment" andwere"called
totheattention" ofthemembers oftheWorld Bank Group bytheDevelopment Committee in
September1992.70TheGuidelinescomprisefivesections.ThefirstGuidelineexplainsthattheGuidelines
areintended tobeusedbymembers asacomplement toapplicable bilateral andmultilateral treaties
andother international instruments andasapossible source onwhich national legislation governing
private foreign investment maydraw. They apply toexisting andnewinvestments established and
operating asbona fideprivate foreign investments infullconformity withthelawsandregulations
ofthehoststateandarebased onthegeneral premise thatequal treatment ofinvestors insimilar
circumstances andfreecompetition among themareprerequisites ofapositive investment environment.
Thesecond Guideline, while recognizing theright ofeachState tomake regulations governing the
admission ofinvestments, encourages States tofacilitate theadmission ofinvestments bynationals of
other States andtoadopt anapproach ofopen admission, possibly subject toarestricted listof
investments, which areeither prohibited orrequire screening andlicensing, asbeing more effective
thananapproach involving theimposition ofperformance requirements asacondition fortheadmission
offoreign investment. Bywayofexceptions tothispreferred approach, aStatemayrefuse admission
offoreign investment ongrounds ofnational security orinrespect ofsectors reserved bythelawof
67TheMFN obligation issubject toseveral exceptions, including regional integration andtaxation agreements.
68Resort todomestic courts pursuant toArticle 16andresort toarbitration pursuant toArticle 17aremutually
exclusive.
69Article 9stipulates thatinvestors shallbebound bythelawsandregulations inforce inthehoststate, shall
refrain from actsthatmaydisturb public order ormorals orthatmaybeprejudicial tothepublic interest, and
shall refrain from exercising restrictive practices andfrom trying toachieve gains through unlawful means.
70Adetailed explanation oftheGuidelines iscontained intheaccompanying Report totheDevelopment
Committee ontheLegal Framework fortheTreatment ofForeign Investment. SeeInternational Legal Materials ,
Vol. 31(1992), p.1368.WT/WGTI/W/22
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aStatetoitsnationals onaccount oftheState'seconomic development objectives orthestrictexigencies
ofitsnational interest.
58. Thetreatment ofestablished foreign investments isthesubject ofthethirdGuideline, which
contains recommendations regarding fairandequitable treatment, national treatment, fullprotection
andsecurity, MFN treatment71,theprompt issuance oflicences andpermits andtheprompt granting
ofconcessions, authorization oftheemployment offoreign personnel, freedom tomake transfers relating
toinvestments72,andprevention andcontrol ofcorrupt business practices. ThisGuideline alsourges
caution inrespect oftheuseofinvestment incentives73andencourages developed andcapital surplus
States toadopt appropriate measures tofacilitate investment flows todeveloping countries, including
taxation agreements, investment guarantees andtechnical assistance. Thefourth Guideline provides
thataState maynotexpropriate orotherwise takeinwhole orinpartaforeign private investment
initsterritory ortakemeasures having similar effects, except where thisisdoneinaccordance with
applicable legal procedures, inpursuance ingood faithofapublic purpose, without discrimination
onthebasisofnationality andagainst payment ofappropriate compensation. Itdefines "appropriate"
as"adequate, effective andprompt" andsetsforth specific criteria fordetermining theconformity of
thepayment ofcompensation witheachofthesethreestandards.74TheGuideline allows forexceptions
totherequirements regarding payment ofcompensation ifinvestments areexpropriated asasanction
foraviolation ofthehoststate'slawsorregulations, asdetermined byacourt oflaw,andincase
ofcomprehensive,non-discriminatorynationalizationseffectedintheprocessoflarge-scalesocialreforms
under exceptional circumstances ofrevolution, warandsimilar exigencies. ThefifthGuideline
recommendsthatdisputesbetweenprivateforeigninvestorsandhoststatesbesettledthroughnegotiations
between them, andfailing this,through national courts orthrough other agreed mechanisms, including
conciliation andbinding independent arbitration. Inthelatterregard, eachStateisencouraged toaccept
thesettlement ofsuchdisputes through arbitration under theICSID Convention, ifitisaparty tothat
Convention, ortheICSID Additional Facility Rules, ifitisnotaparty tothatConvention.
59. TheILOTripartite Declaration ofPrinciples Concerning Multinational Enterprises andSocial
Policy wasadopted in1977andtookeffect in1978. TheDeclaration contains principles recommended
togovernments, employers 'andworkers 'organizations ofhome andhostcountries andtomultinational
enterprises. These principles pertain togeneral policies, employment, training, conditions ofwork
andlifeandindustrial relations. In1986, theILOadopted aprocedure fortheexamination ofdisputes
concerning theapplication oftheTripartite Declaration.
71Subject toanexception forcustoms unions andfreetrade areaagreements
72With respect totransfers relating totheliquidation orsaleofinvestments, theGuideline provides thatin
exceptional cases where States faceforeign exchange stringencies such transfers maybemade ininstalments
within aperiod which willbeasshort aspossible andwillnotinanycaseexceed fiveyears from thedateof
liquidation orsale.
73Guideline III(9) states:
Nothing inthisGuideline suggests thataState should provide foreign investors withtaxexemptions
orother fiscal incentives. Where suchincentives aredeemed tobejustified bytheState, theymayto
theextent possible beautomatically granted, directly linked tothetypeofactivity tobeencouraged and
equally extended tonational investors insimilar circumstances. Competition among States inproviding
suchincentives, especially taxexemptions, isnotrecommended. Reasonable andstable taxrates are
deemed toprovide abetter incentive thanexemptions followed byuncertain orexcessive rates.
74These provisions onexpropriation andcompensation alsoapply totheunilateral termination oralteration
byastate ofacontract withaforeign investor forother thancommercial reasons.WT/WGTI/W/22
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60. Matters related toforeign investment, including standards concerning expropriation and
compensation, havebeenthesubject ofanumber ofresolutions adopted bytheGeneral Assembly of
theUnited Nations inthe1960s and1970s.75In1980, theGeneral Assembly adopted theSetof
Multilaterally Agreed Principles andRules fortheControl ofRestrictive Business Practices.
IV.2 Dispute settlement76
61. TheConvention ontheSettlement ofInvestment Disputes between States andNationals ofOther
States ,concluded in196577(ICSID Convention), established anInternational Centre forSettlement
ofInvestment Disputes under theaegis oftheWorld Bank toprovide facilities fortheresolution of
disputes between States andforeign investors. TheConvention contains provisions onthefunctions,
organizationandjurisdictionoftheCentreandonproceduresforconciliationandarbitrationproceedings.
While theCentre performs various administrative functions, forexample withrespect totheinitiation
ofproceedings, theactual conciliation andarbitration proceedings areconducted byconciliation
commissions andarbitral tribunals which areconstituted foreachspecific dispute. Acceptance ofthe
ICSID Convention doesnotbyitselfimply anobligation foraContracting Statetoaccept thejurisdiction
oftheCentre asthedispute settlement mechanisms provided forintheConvention apply onlytodisputes
which theparties haveconsented inwriting tosubmit totheCentre (Article 25).Thisrequired consent
inwriting canbeexpressed inspecific arbitration agreements orarbitration clauses incontracts between
states andforeign investors butcanalsoresult onthepartofhostgovernments from unilateral
commitments inforeign investment lawsandfrom arbitration clauses ininternational investment
agreements. Asnoted previously, references todispute settlement under theICSID Convention appear
inalarge number ofbilateral, regional andplurilateral investment agreements.
62. While thetaskofaconciliation Commission established under theICSID Convention isto
clarify theissues indispute between theparties andtoendeavour tobring about agreement between
them upon mutually acceptable terms, anarbitral tribunal istodecide adispute inaccordance with
rules oflaw.78Consent toarbitration under theICSID Convention isdeemed toexclude recourse to
anyother remedy (Article 26).Inaddition, ahome stateofaninvestor isinprinciple precluded from
giving diplomatic protection orbringing aninternational claim, inrespect ofadispute which oneof
itsnationals andanother Contracting Statehaveconsented tosubmit toarbitration under theConvention
(Article 27). Arbitral wards arebinding ontheparties andshallnotbesubject toanyappeal orto
anyother remedy except those provided forintheConvention itself.79Moreover, eachContracting
State isrequired torecognize anarbitral award rendered pursuant totheConvention asbinding and
75Resolution 1803 (XVII): Permanent Sovereignty overNatural Resources (1962); Resolution 3202 (S-VI):
Programme ofAction ontheEstablishment ofaNewInternational Economic Order (1974); andResolution 3281
(XXIX): Charter ofEconomic Rights andDuties ofStates (1974)
76Whilethissectiononlycoversinstrumentsofanintergovernmentalnature,itshouldbenotedthatinternational
investment agreements sometimes allow forarbitration under rulesestablished inthecontext ofnon-governmental
entities, such astheInternational Chamber ofCommerce.
77TheConvention entered intoforce in1966. Ithasbeen accepted by129States.
78Article 42oftheConvention provides thatthearbitral tribunal shall decide adispute inaccordance with
suchrules oflawasmaybeagreed bytheparties andthat,intheabsence ofsuchagreement, itshall apply the
lawoftheContracting State party tothedispute (including itsrules onconflict oflaws) andsuch rules of
international lawasmaybeapplicable.
79Thisrefers totheprovisions inArticles 50-52 oftheConvention oninterpretation, revision andannulment
ofawards.WT/WGTI/W/22
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enforce thepecuniary obligations imposed bythataward within itsterritory asifitwereafinaljudgement
ofacourt inthatState (Article 53).
63. Todate,43disputes havebeensubmitted forresolution under theICSID Convention, involving
40arbitration cases andthree conciliation cases. Twodisputes wererecently referred forarbitration
under theICSID Additional Facility Rules which wereadopted in1978toallow ICSID toadminister
disputes falling outside thescope oftheICSID Convention, including disputes where oneoftheparties
isnotaContracting State oranational ofaContracting State. Twelve cases arecurrently pending
before theCentre. Themajority oftheother cases havebeensettled byagreements between theparties.
Resort toICSID hasbecome more frequent inrecent years. TheICSID secretariat hasobserved that
twothirds ofallcases brought before theCentre havebeeninitiated sincethemid-1980s andconsiders
thatthisincrease incaseloadisexplained inlarge measure bytherecent proliferation ofinvestment
treaties which contain provisions forrecourse toICSID.80Thisisalsoevidenced bythefactthatfour
outofsixdisputes registered byICSID infiscal year1997 were referred totheCentre onthebasis
ofarbitration clauses ofinvestment treaties, including theNAFTA.
64. Arbitration Rules andConciliation Rules oftheUnited Nations Commission onInternational
Trade Law,adopted in1976and1980, respectively, aimtofacilitate theconduct ofcommercial dispute
resolution byproviding internationally accepted procedural norms which canbeusedbyparties toa
dispute inthecontext ofadhocarbitration orconciliation. Unlike theICSID Convention, theydo
notestablish aninstitutional mechanism andarenotspecifically designed foruseindisputes between
states andforeign investors. Although theprimary significance ofthese rulesliesintheircontribution
totheinternational harmonization ofrules forarbitration andconciliation ofcommercial disputes,
several recent investment agreements, including NAFTA andtheEnergy Charter Treaty, provide for
adhocarbitration pursuant totheUNCITRAL rules asoneofthemethods fortheresolution of
investor-state disputes.
65. TheUnited Nations Convention ontheRecognition andEnforcement ofForeign Arbitral Awards
(1958) (New York Convention)81provides fortherecognition andenforcement intheterritory ofone
Contracting State ofarbitral awards made intheterritory ofanother Contracting State. Itnotonly
requires Contracting States torecognize andenforce foreign arbitral awards (Article III)butalsoto
recognize awritten agreement tosubmit adispute toarbitration, which entails anobligation fornational
courts ofContracting States nottointervene insuchadispute (Article II).TheConvention specifies
themethod forobtaining recognition andenforcement ofawards (Article IV)anddefines several grounds
onwhich suchrecognition andenforcement mayberefused (Article V).Investor-state arbitration clauses
ofanumber ofinternational investment agreements explicitly refertotheNewYork Convention so
astoensure theability ofparties toobtain recognition andenforcement ofarbitral awards.
IV.3 Investment insurance
66. TheConventionEstablishingtheMultilateralInvestmentGuaranteeAgency(MIGAConvention)
(1985)82aimstofacilitate foreign investment flows todeveloping countries byproviding amultilateral
investment insurance scheme against non-commercial risksindeveloping countries asacomplement
tonational, regional andprivate investment insurance schemes. Investment guarantees maybeissued
byMIGA against losses resulting from restrictions oncurrency transfers, expropriation andsimilar
80WT/WGTI/W/5, p.20. Alistofinvestment disputes registered byICSID intheperiod January 1993-
April 1997 isreproduced onpp.20-26 ofthesame document.
81TheConvention entered intoforce in1959 andhasbeen accepted by106States.
82TheMIGAConventionenteredintoforcein1988.AsofDecemb er1997,therewere143ContractingStates.WT/WGTI/W/22
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measures, breach ofcontract byahostcountry government, andwarandcivildisturbance. Inaddition
toproviding direct insurance, MIGA alsocooperates withnational andregional investment insurance
entities through reinsurance andcoinsurance arrangements. TheConvention provides that, in
guaranteeing aninvestment, MIGA mustsatisfy itselfastotheeconomic soundness oftheinvestment
anditscontribution tothedevelopment ofthehostcountry; compliance oftheinvestment withthe
hostcountry 'slawsandregulations; consistency oftheinvestment withthedeclared development
objectives andpriorities ofthehostcountry; andtheinvestment conditions inthehostcountry, including
theavailability offairandequitable treatment andlegalprotection fortheinvestment. With respect
tothelastcondition, MIGA 'sOperational Regulations explain thataninvestment willberegarded as
having adequate legalprotection ifitisprotected under theterms ofabilateral investment treaty between
thehostcountry andthehome country oftheinvestor. Intheabsence ofsuchatreaty, theexistence
ofadequate legalprotection should beascertained inthelightoftheconsistency ofthelawandpractice
ofthehostcountry withinternational law. Apart from theprovision ofinvestment guarantees, the
Convention requires MIGA toundertake activities withrespect toinvestment promotion. These include
research, activities topromote investment opportunities indeveloping member countries, technical
assistancetoimprovetheinvestmentconditionsinindividualmembers,theencouragementoftheamicable
settlement ofdisputes between investors andhostcountries andthepromotion oftheconclusion of
bilateral investment treaties among members.83
__________
83DetailedfactualinformationoninvestmentguaranteesissuedbyMIGAandonMIGA'sinvestmentpromotion
activities wasprovided bytherepresentative oftheWorld Bank atthefirstmeeting oftheWorking Group. See
document WT/WGTI/W/5, pp.11-16.