WORLD TRADE
ORGANIZATIONWT/WGTI/W/67
30 November 1998
(98-4806)
Working Group on the Relationship
between Trade and InvestmentOriginal:  English
COMMUNICATION FROM JAPAN
The following communication, dated 25 November 1998, has been received from the
Permanent Mission of Japan with the request that it be circulated to Members.
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The Differences between Multilateral and Bilateral Agreements on Investment Rule-making
The Working Group has discussed common elements as well as the differences between
existing multilateral (plurilateral) investment agreemen ts and bilateral ones.  In this context, we would
like to present our views on the differences between multilateral and bilateral investment agreements.
I. NEGOTIATIONS
A. FAIRNESS AND EQUITY
When a bilateral agreement is negotiated, especially between a developing country and a
developed country, it may be affected by the unbalanced relations of power in political and economic
terms of between the two nations.  For example, in such cases where a government of the home
country of a foreign investor requests that a bilateral investment be agreed as a legal infrastructure for
the receiving government, as well as in such cases where a home-country government requests a
bilateral agreement as a condition for giving investment insurance, the host government could notavoid concluding a disadvantageous bilateral invest ment agreement to ensure receiving the foreign
direct investment ("FDI").  This danger could be reduced in the framework of negotiations for a
multilateral investment agreement.  Indeed, in multilateral negotiations, parties are both the recipient
country and the investing country, thus the parties can negotiate the agreement, free from being in the
position of just a recipient or an investing country.
Views of developing countries can more easily be reflected in a multilateral forum, such as
the WTO.  Even if there are differences in the economies of each country, obligations under a
multilateral agreement can be tailored to be those acceptable to all countries.
B. 
EFFICIENCY
It has been pointed out that a multilateral legal framework for investment is needed as
investment activities are becoming more and more globalized.  The approach to the issue through
creating additional bilateral investment agreements, thereby expanding the networks of bilateral
agreements, would be costly and an inefficient administrative burden.
On the other hand, the creation of a multilateral investment agreement would be more
efficient as it can be built on the common elements of existing bilateral agreements.WT/WGTI/W/67
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C. LENGTH OF THE NEGOTIATIONS
The length of time for the negotiations of bila teral investment agreements tends to be rather
short due to the bilateral negotiation involving only two parties, thus allowing for the coordination to
balance the interests to be easier.  The fact that an increasing number of bilateral investment
agreements are being concluded reflects this tendency.
On the other hand, negotiation for a multilateral agreement tends to take a somewhat longer
time than that for bilateral agreements as it involves many countries which may insist on their various
positions.
II. SUBSTANCE OF RULES
A. CONSISTENCY AMONG RULES
The number of bilateral investment treaties has been increasing in the 1990s.  Each bilateral
agreement reflects the unique economic and political relations between the two signatory countries.
Differences among the various bilateral investment agreements will occur due to the uniqueness of
each bilateral agreement.
Such problems of inconsistency among bilateral agreements can be solved by making a
multilateral investment agreement.  Consistency among rules is an indispensable factor to ensure
predictability for investors.  If  a multilateral investment agreement is negotiated in the WTO,
consistencies with the GATS, TRIMs and other relevant provisions are likely to be ensured.  In
addition, the uniqueness of each country's investment situation can be reflected in a multilateralinvestment agreement.
B. 
HARMONIZATION OF RULES
When different bilateral investment agreements are made, certain market distortion effects
may occur.  FDI may be discouraged due to insuff icient predictability regarding the amendment of
bilateral agreements.  Market distortion effects cannot be avoided, even in a multilateral investment
agreement, especially if several restrictive measures are allowed according to each country's situation,
though the degree would be lower than that of bilateral agreements.  Changes to a multilateral
agreement are made by the members of such an agre ement, thus the predictability of the rules can be
heightened.
C. REVIEWS AND DEVELOPMENT OF RULES
Investment agreements need to be reviewed periodically to adjust to the changes in the
situations related to the FDI.  In particular, the restrictions provided for by investment agreements
should be reviewed periodically in order to gradually reduce such restrictions.
Periodical reviews of each bilateral investment agreement would be inefficient and time
consuming.  If a multilateral investment agreement is created, and a responsible standing body to
monitor the implementation is to be made, reviews by such body would be conducted periodically in a
systematic manner.  Such reviews of the agreement and monitoring of each country's implementation
would contribute to the gradual enhancement of the régime.
D. DESIRABILITY OF RULES
A bilateral investment agreement may be made according to the situation of each country.  At
the same time, it may be affected by bilateral political and economic relations.  In the case of aWT/WGTI/W/67
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multilateral agreement, a momentum for rule-making by the international society will facilitate the
conclusion of balanced and desirable multilateral rules, enabling countries to overcome problems
related to bilateral interests and relations.
III. USE OF RULES
A. PREDICTABILITY
There is a possibility that the existence of many bilateral rules rather inconvenience to
investors.  In other words, it is not easy for inve stors to examine the existence, the contents and the
ways of applying bilateral investment rules whenever they are to make decisions on investments.
Such inconvenience will make the rules less likely to be utilised effectively.
On the other hand, a multilateral agreement will be most convenient for investors as they will
only need to examine one agreement to find out the situation of investment rules in any country.  This
will significantly contribute to the improvement of predictability for investors.
B. FAIRNESS
Despite fair dispute settlement procedures provided in treaties, the dispute settlement process
arising from bilateral treaties may be easily influenced  by the nature of the dispute or the relationship
between the two countries as such process will involve bilateral consultations.  Under a multilateral
agreement, a dispute settlement process between countries will be handled in a framework provided
by a responsible international organization, a nd will be observed by other member countries.
Supervision through a multilateral system will ensure that a dispute settlement process will be fair andtransparent.
C. 
EFFECTIVENESS
Given the cumbersome procedures and time and expense needed, the dispute settlement
process under bilateral treaties may not easily be utilised for state-to-state disputes regarding theirinterpretation and application.  Under a multilateral agreement, disputes will be settled based on
uniform rules, and judicial precedents will be gradually accumulated.  Furthermore, under multilateral
rules, it will be easier than under bilateral rule s to create a simple, convenient and effective dispute
settlement process which allows a quick resolution of disputes.
IV. RESPONDING TO NON-MEMBERS
If a multilateral investment agreement is added to a set of international treaties that provide
rules for an international organization, a country which asks for membership will be required to
accept all the existing rules of the organization as a package.  The entry of a new member to the
international organization means an increase in the members for the multilateral investment
agreement.  Both the current members of the international organization and its new members will be
relieved of the burden of concluding bilateral investment treaties.
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