./.WORLD TRADE
ORGANIZATIONWT/GC/W/268
21 July 1999
(99-3034)
General Council Original:  English
PREPARATIONS FOR THE 1999 MINISTERIAL CONFERENCE
Negotiations on Trade and Investment
Communication from Hong Kong, China
The following communication, dated 20 July 1999, has been received from the Hong Kong
Economic and Trade Office.
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Proposal
1. Hong Kong, China proposes that the next round of negotiations to be launched at the Third
Ministerial Conference should include negotiations on core rules and disciplines that should apply to
foreign direct investments.  The aim is to maximize allocative efficiency and to promote more trade
and investment in a globalized environment while providing a level playing field with greater
predictability and stability for investors. The ne gotiations should take into account the existing
architecture of the WTO Agreements and the needs of all Members, and in particular the developing
and least-developed Members.
Issues
2. There is a complex interaction between trade and investment policies.   Trade barriers can
influence investment decisions.  Similarly, invest ment measures can affect the flow of goods and
services among economies.  The interaction can then distort mutually beneficial trade based on
comparative advantage.  This interaction issue ga ins in prominence in tandem with the increasing
globalization of production and share of intra-firm tr ade.  It is therefore imperative to tackle the
implications of this interaction so that the economic benefits of trade liberalization are not
undermined by distortive investment measures.   Against this background, Hong Kong, China is of the
view that WTO work in this regard should be limited to foreign direct investments which entail either
commercial presence, lasting interest and/or manage rial control.   Portfolio investments which result
in none of the three should not be included.
3. There is a wide range of measures which can influence investment decisions.  Members have
also adopted very diverse approaches in handling foreign direct investments.  Noting this diversity,
Hong Kong, China is of the view that harmonizatio n is not feasible, nor is an ambitious framework
achievable within a three-year round.  We therefore favour a building block approach so as to provide
the foundation for work in the future.   We consider it prudent to identify first the key elements of the
interaction which should be brought within the WTO framework, and then the core multilateral
rules/disciplines that can help minimize the distortive effects of investment measures insofar as theWT/GC/W/268
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key interaction elements are concerned.   As Members are at different levels of development,
commitments to liberalize investment opportunities should be made on a bottom-up basis.
4. In respect of the elements of the interaction, possibilities for multilateral rule-making include
investment incentives, local content and export requirements, and restrictions on foreign directinvestments.   As regards core rules/disciplines, transparency, non-discrimination (MFN and national
treatment) and dispute settlement mechanism should be included.
5. Any core rules/disciplines that may emerge from the next round should be an integral part of
the WTO framework.  Hong Kong, China therefore believes it important for the discussions on the
legal form of the core rules/disciplines to take into account the existing architecture of the WTO
Agreements, including provisions therein which may be relevant to trade and investment.   Worthy ofparticular reference is the need to consider the implications of multinational firms for disputes on
trade and investment that may arise and what these may mean in respect of the applicability of the
WTO Dispute Settlement Understanding.
6. Hong Kong, China also recognizes that foreign direct investments can have developmental
implications.  We consider it important that the multilateral rules/disciplines on trade and investment
should address the special needs of developing and least-developed Members.  These needs can be
recognized in several ways:  for example by longer phase-in of rules for such Members and by
considering ways in which the developmental benefits of foreign direct investments can be enhanced.
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