./.WORLD TRADE
ORGANIZATIONWT/GC/W/267
20 July 1999
(99-3043)
General Council Original:  English
PREPARATIONS FOR THE 1999 MINISTERIAL CONFERENCE
Trade and Investment
Communication from Korea
The following communication, dated 20 July 1999, has been received from the Permanent
Mission of Korea.
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Background
1. Foreign direct investment (FDI) is one of th e main engines of economic growth.  Promotion
of FDI is, therefore, crucial to the sustained grow th of the world economy.  A stable, transparent and
predictable environment for investment is a prerequisite for achieving this goal.
2. The existing network of bilateral and regional investment arrangements is effective to some
degree in creating a favorable climate for foreign investment but has fundamental limitations.  The
discrepancies in disciplines of these arrangements, which are often mutually incompatible, may make
the world investment environment more complicated and distort investment flows.  Multilateral rules
on investment can serve as an institutional mechanis m that is effective in resolving such problems,
thus promoting FDI.  Considering the ever closer  interface between trade and investment, investment
is an issue that deserves a rightful place in the WTO.  The rule-based multilateral trading system can
be further strengthened with the establishment of WTO rules on investment.
3. WTO rules on investment should reflect the different realities faced by each Member so as to
represent an overall balance of interests among Members, including in particular, developmentinterests of developing countries.  Therefore, the need to pursue higher level of liberalization and
protection should be balanced with the need to provide flexibility for host countries in formulating
their own policies.
Proposal(a) Objectives
4. Negotiations should aim at establishing WTO rules on investment in the form of a stand-alone
multilateral agreement ("the Agreement"). It may be necessary to harmonize the Agreement with
investment-related provisions of the existing WTO agreements such as the GATS, TRIMs and TRIPS.
5. The Agreement should aim at facilitating flow of international investment through enhanced
transparency and predictability.  Such a goal, however, should be reconciled with the need to respect
host country’s right to set its own policies, in particular development policies of developing countries.WT/GC/W/267
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(b) Key elements
Scope
6. The Agreement should focus on FDI.  The WTO is not an appropriate forum for tackling the
issue of short-term capital flows.  Likewise, caut ion should be applied in dealing with portfolio
investment in the light of its implications for financial security.
Investment liberalization and protection
7. The fundamental WTO principles of most-favored-nation treatment and national treatment
should be adopted as guiding principles of the Agreement.  At the pre-establishment phase, however,
a bottom-up (positive list) approach of the GATS appears to be an appropriate model to follow.  Once
a company is established locally, national treatment should be granted with limited exceptions.
8. The Agreement should establish a reasonably high standard of investment protection by
consolidating key elements of protection included in a variety of existing bilateral and regional
arrangements.  However, the Agreement should preserve the host country’s right to regulate according
to its unique economic situation as long as the regulations are compatible with the Agreement.
Transparency
9. Foreign investors are unlikely to invest in a country where they cannot ascertain the laws,
regulations and administrative procedures that would apply to their investments.  Therefore, rules on
transparency should be developed and included as a core component of the Agreement.  Given the
limited capacity of many developing countries, the Agreement should also include provisions fortechnical assistance to aid countries desiring to enhance the overall level of transparency of their
investment regime.
Performance requirements and investment incentives
10. The Agreement should address the concerns about performance requirements and investment
incentives with a view to minimizing their distortive effects.  On the other hand, their potential value
as domestic policy tool should not be overlooked.  Transparency in the host country’s related laws and
regulations could be a minimum requirement to this end.
Dispute settlement procedures
11. The existing WTO dispute settlement procedures should be applied to the Agreement.  In
view of the inter-governmental nature of the WTO system, the Agreement should focus on disputesbetween WTO Members, to the exclusion of State-investor disputes.
Development dimension
12. About 40 percent of the world’s FDI is made in developing countries, and more than 10 per
cent of FDI flows from developing countries.  These figures clearly indicate the significance of thedeveloping world in FDI.  Therefore, the Agreement should duly reflect the interests of developing
countries and development dimension should be an integral part of the Agreement.
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