RESTRICTED
WORLD TRADE WT/WGTI/W/2
17June1997
ORGANIZATION(97-2478)
Original: English Working Group ontheRelationship
between Trade andInvestment
COMMUNICATION FROM SWITZERLAND
Thefollowing communication hasbeenreceived fromthePermanent Mission ofSwitzerland
withtherequest thatitbecirculated toMembers.
_______________
Introduction
Thepurpose ofthiscontribution istoassist intheimplementation oftheSingapore Ministerial
mandate onTrade andInvestment. Based onthismandate, westartbyrecalling theexisting WTO
rules anddisciplines ofrelevance tothissubject andsuggest anumber ofavenues andissues which
could beexplored bytheWorking Group tobeestablished inaccordance withtheMinisterial mandate.
TheMinisterial mandate
Paragraph 20oftheSingapore Ministerial Declaration reads asfollows:
"HavingregardtotheexistingWTOprovisionsonmattersrelatedtoinvestment
andcompetitionpolicyandthebuilt-inagendaintheseareas,includingundertheTRIMs
Agreement, andontheunderstanding thatthework undertaken shall notprejudge
whether negotiations willbeinitiated inthefuture, wealsoagree to:
establish aworking group toexamine therelationship between trade
andinvestment; and
establish aworking group tostudy issues raised byMembers relating
totheinteraction between tradeandcompetition policy, including anti-
competitive practices, inorder toidentify anyareas thatmaymerit
further consideration intheWTO framework.
These groups shalldraw uponeachother'swork ifnecessary andalsodraw uponand
bewithout prejudice totheworkinUNCTAD andotherappropriate intergovernmental
fora. Asregards UNCTAD, wewelcome thework under wayasprovided forinthe
Midrand Declaration andthecontribution itcanmake totheunderstanding ofissues.
Intheconduct ofthework oftheworking groups, weencourage cooperation withthe
above organizations tomake thebestuseofavailable resources andtoensure thatthe
development dimension istaken fullyintoaccount. TheGeneral Council willkeep
thework ofeachbodyunder review, andwilldetermine aftertwoyears howthework
ofeachbodyshould proceed. Itisclearly understood thatfuture negotiations, ifany,WT/WGTI/W/2
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regarding multilateral disciplines inthese areas, willtakeplace onlyafteranexplicit
consensus decision istaken among WTO Members regarding suchnegotiations."
How toapproach thesubject
Itisproposed tostudy thequestions atissue inthewayoutlined below, witheachstepbeing
discussed intheWorking Group. Thisdiscussion would appear tobemost fruitful ifitwasbased,
ontheonehand, onbackground notes andbaseline material tobeprovided bytheSecretariat and,
ontheother hand, oncontributions byindividual Members.
Theeconomic caseoftheinteraction between trade andinvestment
Asapreliminary remark, itmaybepointed outthatthere aremany reasons foroperators to
choose between thenumerous forms trade andinvestment aretaking intoday'sworld. Alternatives
andsubstitutes abound, ofteninfluenced bygovernmental policies. Onemayquickly replace theother;
evenmore often, onegoeswiththeother. While inmany cases industry decisions aretaken onthe
basisofeconomic factor costsonly, insome other instances aninvestment mayreplace trade inorder
tobenefit fromanoffered incentive, ortojump overaprotective hurdle established toprevent foreign
competition through trade -especially inanimportant market. When discussing theeconomic case
oftheinterface between trade andinvestment thisfacthastobeborne inmind, eventhough, from
agovernmental policy point ofview, thereasons forthechoice ofindividual companies mayoften
bebeyond thereach ofsuchpolicies.
Thebackground material forthediscussion ontheeconomic caseoftradeandinvestment should
comprise:
- apresentation ofthegrowing importance ofinvestment inallitsforms;
- adescription ofthelinkbetween trade andinvestment.
Pastandpresent trade andinvestment flows willequally havetobeexamined andtaken into
account when discussing theimpact ontradeandinvestment ofcertain policy instruments. Itisindeed
amostimportant partofthisexercise toseewhether tradeandinvestment policies, besides thegeneral
impact ontheirowndomain, haveanymutually supportive ordistortive effects. Thepurpose ofthe
impact discussion should primarily beageneral evaluation ofthesituation andoftheemerging trends,
inorder toreach anunderstanding ontheconclusions WTO Members might draw fromthissituation.
Identification ofpossible conflicts
Based onthisinitial discussion, work should proceed withtheidentification of:
- possible trade distortions arising from investment policies;
- possible problems resulting from conflicting trade andinvestment policies.
Itwould indeed beinappropriate if,ateither national orinternational levels, trade and/or
investment rules, policies andincentives would offset eachother inthesense ofleading toresource
allocation decisions byindividual operators which, inthelightofmacroeconomic andoverall growth,
employment andwelfare considerations, would represent alessthanoptimal solution.WT/WGTI/W/2
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Analysis inthelightofexisting WTO provisions
From aWTO perspective itwould appear advisable topursue thiswork bytaking stock of
theWTO rulesanddisciplines already inforce andexamining theirrelevance tothesubject, namely,
theircapacity toprevent ortosolve problems identified bytheWorking Group. Bysuchrules we
mean notonlythetrade-related investment disciplines outlined, forinstance, intheTRIMs Agreement
but,primarily, thegeneral WTO principles suchasthenon-discrimination andthenational treatment
obligation inasmuch astheymayextend tothetrade-investment field. Other general rulesanddisciplines
mayalsoapply, suchasMFN-treatment, prohibition ofquantitative restrictions, aswellasthegeneral
exceptions (environment, national security toname buttwo). These rulespertain stricto sensu totrade
ingoods andservices only, buttheymayhaveindirect effects oninvestment; inanycase, theyare
deemed toinfluence therelationship between trade andinvestment.
TheUruguay Agreements havebrought about anumber ofprovisions withadirect orindirect
bearing onthetrade-investment interface. Atthispoint, ashort andnon-exhaustive listsufficiently
underlines thefactthatthenegotiators haverecognized theimportance ofthisrelationship:
- GATS (MFN, commercial presence, rightofestablishment, keypersonnel);
- TRIPS (protection, subrogation, transfer ofinvestment revenues, indemnification,
restrictive business practices);
- Subsidies (disciplines onfinancial contributions toenterprises bygovernments, e.g.
(i)prohibition ofexport subsidies, (ii)nonactionability, under precisely defined
conditions,ofsubsidiespertainingtoresearchanddevelopment,environmentalprotection
andregional development);
- TRIMs (performance requirements suchaslocalcontent clauses, import restrictions
andexport obligations; review clause withanexplicit mention ofinvestment assuch).
OneshouldfurtherpointoutcertainTBTandADprovisions,theAgreementonImportLicensing
Procedures, various notification obligations (e.g.TRIPS), thedispute settlement procedure (insofar
asitcontributes totransparency andfaithful treaty implementation) andotherprovisions including those
pertaining tosubnational coverage ofWTO obligations: indeed, allhaveapotential bearing onthe
national andinternational investment climate andpolicy framework andtherefore mayalsoshedsome
lightonthetrade-investment link. Itistherefore proposed thatallofthese subjects beapproached
bytheWorking Group inacomprehensive manner.
Thesameistrueforthevarious provisions pertaining tothespecial anddifferentiated treatment
ofdeveloping countries which, inthefieldofinvestment, willcontribute tofullytaking intoaccount
thedevelopment dimension ofthesubject.
Further steps
Finally, andinorder tofulfilitsmandate adopted bytheMinisters, theWorking Group could
thentrytoidentify possible gapsoroverlaps intheexisting WTO rulesanddiscuss theprosandcons
ofacloser lookandofapossible negotiation pertaining tosuchgaps.
TheWorking Group willhavetoreport totheGeneral Council onitswork bytheendof1998.
TheGeneral Council willthenhavetodecide onhowtofurther proceed withthesubject soastofulfil
theMinisterial mandate, keeping alsoinmind thereview clauses intheTRIMs, GATS andother
agreements aswellasdevelopments inother fora.WT/WGTI/W/2
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Conclusion
TheWTO Working Group onTrade andInvestment hasalotofwork instore, butnotalot
oftimeifoneconsiders therapid paceofinternational developments bothontheindustry andthe
intergovernmental side. TheWTO willretain thecornerstone ofthemultilateral trading system only
ifitcontinues toliveuptothechallenges ofaglobalizing world economy.