OECD ­ National treatment instrument ­ Approval by the Council of the outcome of the negotiations conducted by the Commission within the OECD on the national treatment instrument
Date: 1991-11-18
Institutions: European Commission
Subjects: EU relations, European political cooperation, OECD, equal treatment, international investment, multinational enterprise, regulation of investments, the EU's international role

COMMISSION  OF  THE  EUROPEAN  COMMUNITIES 

COM(91) 442 final - SYN 367 

Brussels, 18 November 1991 

OECD - National treatment instrument 

Approval by the Council of the outcome of the negotiations 

conducted by the Commission within the OECD 

on the national treatment instrument 

(Commission communication to the Council) 

Proposal for a 

COUNCIL DECISION 

- SYN 367 

on participation by the Community in the third revised OECD 

decision concerning national treatment 

(presented by the Commission) 

I. 

INTRODUCTION 

On the Commission's  recommendation, on 28 May  1990 the Council  authorized 
the Commission  to negotiate a decision on national  treatment  within the 
OECD.  To this end  Joint guidelines were established. 

On  16 September  1991 the CIME - the OECD's Committee on  International 
Investment  and Multinational  Enterprises, which  had been conducting the 
negotiations - approved a report  to be transmitted  to the OECD Council  for 
adoption at  its meeting of  14 November.  This Commission communication 
reviews the outcome of the negotiations and contains an accompanying 
proposal  for a Council  Decision marking  the Community's acceptance of the 
results of  the negotiations. 

I I.  HISTORICAL BACKGROUND AND ASSESSMENT OF THE RESULTS 

1.  On 21 June 1976 the governments of  the OECD member  countries adopted a 
déclarât ion on  international  investment  and multinational enterprises. 
Section  II of  the declaration, which concerns national  treatment,  includes 
an undertaking given by the OECD member  countries to grant  the same 
treatment  as given to their own nationals to companies under  foreign 
control1  operating  in their  territory.  National  treatment means that the 
firms must not be discriminated against under  the  laws, regulations and 
administrative practices  in force  in the OECD member  country concerned by 
comparison with  firms controlled by nationals of  that country. 

In  its decision of  17 May 1984, adopted pursuant  to Article 5 of the OECD 
Convention, the OECD Council  laid down  legally binding notification and 
review procedures for measures retained  in the OECD member  countries in 
derogation from the national  treatment  principle. 

At their May 1988 meeting the ministers of  the OECD member countries 
2. 
called on the CIME to examine possible means of strengthening  the national 
treatment  instrument. 

In  its present  form the national  treatment  instrument  is composed of two 
parts: 

the revised section on national  treatment  contained  in the 1976 
déclarât ion on  international  investment  and multinational enterprises, 
defining  the policy undertakings given by  the member  states  in respect 
of national  treatment  and  liberalization; 

These are firms controlled by nationals of other OECD member 
countries. 

-  2 -

- 

the second  revised decision on national  treatment  containing  legaliy 
binding obligations concerning  notification  and  review of exceptione 
and derogations and setting out  the procedures  for  the settlement of 
disputes. 

From  the beginning  the Committee  decided  to aim at a binding 
3. 
instrument, modelled on the Codes of Liberalization of capital  movements 
and current  invisible operations.  In practice, this  involved  the adoption 
of an OECD decision pursuant  to Article 5 of  the OECD Convention. 

4. 
28 May  1990 contained  the following elements: 

The  Joint guidelines adopted  by the Council  cf  the Communities on 

the decision  to be negotiated must  be consistent  with  the  Community's 
internal  legislative process and with obligations arising  from other 
international  instruments  in existence or  in the process of being 
negotiated; 

specific provisions must  be worded  in such a way  as to cover all 
situations  for which Community  legislation  contains  provisions 
limiting national  treatment  for third-country  nationals; 

the national  treatment  instrument will  have to provide  for an 
equivalent  degree of commitment  by the various OECD member  countries, 
whatever  their  internal  organizational  structure. 

A relatively  speedy solution was found  to the problems arising  from 

5. 
the measures adopted with a view to completing  the single market.  In 
particular, consensus was quickly  arrived  at on  the  idea of  the Community's 
becoming  party  to the decision,  in view of  the external  implications of the 
single market  and  the existence of derogations  from national  treatment 
which could only be notified  at Community  level.  Provisions were also 
adopted  to take  into account  the outcome of current  Uruguay Round 
negotiations  in the field of services. 

However, negotiations  to arrive at a binding  instrument  stumbled on 

6. 
two major obstacles and this eventually  led the ministers of  the OECD 
member  countries meeting on 5 June this year  to settle for a  less ambitious 
object ive. 

In accordance with  the Joint guidelines, the Commission  and  the delegates 
of  the Member  States strove to obtain  from all OECD members a comparable 
degree of commitment, whatever  their  internal  organization.  A number of 

-  3 -

member  countries with a federal  structure  (United  States, Canada, 
Australia) refused  to accept  any binding  commitment  involving  their 
territorial  subdivisions  for  reasons of  Jurisdiction or  political 
expediency.  In the case of  the United  States  in particular,  the government 
took  the view  that  the field covered  by  the draft  decision on national 
treatment  was too "narrow";  in the circumstances  it preferred  not  to submit 
the draft  national  treatment  instrument  to Congress so as to preserve the 
"political  capital" needed  to obtain Congress' approval  once an agreement 
on an  international  instrument  covering  all  investment  fields was  reached. 

Accordingly  the parties came to the conclusion  that  it was  impossible to 
reach a balanced  agreement  on the objective that  the Committee  had set 
itself at  the outset. 

An attempt  was made  to arrive at a strengthened  instrument  which would 
preserve  the twin structure - policy declaration  and decision on procedures 
-  but would  incorporate  the progress achieved  through  the  Committee's 
efforts.  It failed  in the end because  the United  States and Canada did not 
succeed  in finding common ground on  the exceptions concerning  the 
protection of cultural  identity - the second obstacle  that  the working 
party  had been unable  to overcome. 

To safeguard  the progress made  in respect  of procedures, the 

7. 
ministers decided  nevertheless  to adopt  a third  revised  decision.  It 
should  be noted  in particular  that, unlike  the previous decision, this 
revised version will  apply  to all members  in respect  of measures taken both 
centrally and at  territorial  subdivision  level.  This  is a first  positive 
step,  if a modest  one, towards full  integration of  territorial  subdivisions 
in undertakings concerning  national  treatment.  Further  progress may be 
possible  in future  if the preliminary work on a general  instrument  covering 
investment  in all  its aspects should  lead to specific  proposals.  Progress 
might  also be made at  the Uruguay  Round  negotiations. 

In agreement  with  the Member  States  it was decided  to confirm  the resolve 
of  the Community  as such  to be party  to the national  treatment  instrument. 

More specifically, this  implies a twofold  approach when  the  Committee's 
report  is formally  adopted  by  the OECD Council: 

(I)  the Community  should endorse  the 1976 declaration on national 

treatment.  This being a policy declaration,  it will  not  require the 
adoption of any  legal  provision  at Community  level.  The  Commission 
will  inform  the OECD member  countries of  the Community's  intention to 
comply with  the undertakings contained  in the declaration; 

-  4 -

(ii)  the Community  should notify  the Secretary  General  of  the OECD of  its 

acceptance of  the third  revised OECD Council  decision on national 
treatment. 

The measures  involved concern  the conditions  in which firms under  foreign 
control  operate on the territory of OECD member  countries and are  therefore 
linked with  the growth of  trade  in goods and services between OECD 
countries.  They  are also relevant  to the completion of  the  internai 
market.  These considerations are of capital  importance when  choosing a 
legal basis. 

In view of  the fact  that  the Community  has  Jurisdiction  in this field, the 
Member  States will  be able to commit  themselves  to being party  to the 
decision once the relevant  Community  formalities have been completed.  This 
will  call  for  implementation of  the procedure  agreed  in 1988  in respect of 
OECD  instruments. 

In accordance with Article  1 of  the third  revised  decision of  the OECD 
Council  on national  treatment,  the Commission  will  notify  the OECD of any 
measures derogating from national  treatment. 

CONCLUSION 

The Commission  calls on the Council: 

(i) to authorize  it to declare on behalf of  the Community  that  the 

Community  endorses  the principles contained  in the declaration on 
international  investment  and multinational  undertakings adopted by 
the governments of  the member  states of  the OECD on 21  June 1976; 

(ii) to declare,  in accordance with  the procedure agreed with  the OECD, 

that  the Community  intends to be party  to the third  revised OECD 
Council  decision after  completion of  the  internal  procedures; 

(ill) to adopt  the annexed decision. 

on participation by the Community  in the third  revised OECD 
decision concerning national  treatment 

COUNCIL DECISION 

ANNEX 

THE COUNCIL OF THE EUROPEAN COMMUNITIES, 

Having regard  to the Treaty establishing  the European Economic Community, 
and  in particular Articles 57 and  113 thereof, 

Having  regard to the proposal  from the Commission, 

In cooperation with the European Parliament, 

Whereas the OECD member countries adopted on 21  June 1976 a declaration on 
international  investment and multinational enterprises; 

Whereas the OECD Council  adopted  18 May  1984 a second  revised decision on 
national  treatment modifying  the procedures  laid down to examine the  laws, 
regulations and administrative practices representing a departure from 
national  treatment; whereas that decision together with  the declaration on 
international  investment and multinational  enterprises make up the national 
treatment  instrument; 

Whereas at the OECD Council meeting of  19 May  1988 the member  countries 
decided  to strengthen the national  treatment  instrument  and opened 
negotiations to this end; 

Whereas the European Community  took part  in these negotiations in 
accordance with  its powers; 

Whereas the European Community,  in view of  the outcome of  the negotiations, 
has endorsed  the declaration on  international  investment; 

Whereas the Community should become party  to the third  revised decision on 
national  treatment and any further amending decisions  in accordance with 
Article 7 of  that decision, 

HAS DECIDED AS FOLLOWS: 

The  text  of  the  third  revised OECD  decision on  national  treatment  is hereby 
approved. 

A r t i c le  1 

The  text  is annexed  to this  Decision. 

Article  2 

The Commission  shall  give  notification  of  the Community's  participation  in 
the  third  revised OECD decision on  the national  treatment  instrument  in 
accordance  with  the procedures  provided  for  therein. 

It shall  also notify  the OECD of  all  Community  legislative  provisions which 
represent  a departure  from  national  treatment,  and  any other  measure 
affecting  national  treatment,  in accordance  with  the provisions of  the 
decision  referred  to above. 

Done at  Brussels 

For  the Council 
The  President 

Annex 2 

THIRD REVISED DECISION OF THE COUNCIL ON 
NATIONAL TREATMENT 

THE COUNCIL. 

Having regard to the Convention on the Organisation for Economic 

Co-operation and Development of 14th December 1960 and, in particular, to 
Articles 2 c ),  2 d ),  3 and 5 a) thereof; 

Having regard to the Resolution of the Council of 13th December 1984 on 

the Terms of Reference of the Committee on International Investment and 
Multinational Enterprises [C(84)171(Final)]; 

Having regard to the Section on National Treatment of the Declaration by 

Governments of OECD Member countries of 21st June 1976 on International 
Investment and Multinational Enterprises  [hereinafter called "the 
Declaration"]; 

Having regard to the Second Revised Decision of the Council of 17th May 

1984 on National Treatment [C(84)91]; 

Having regard to the report on the National Treatment Instrument by the 

Committee on International Investment and Multinational Enterprises 
[C/MIN(91)7/ANN2]; 

Considering it appropriate to strengthen the procedures established 
within the Organisation for reviewing laws, regulations and administrative 
practices (hereinafter called "measures") which depart from National Treatment, 
as defined in the Declaration (hereinafter called "National Treatment"); 

On the proposal of the Committee on International Investment and 

Multinational Enterprises; 

DECIDES : 

The Second Revised Decision of the Council of 17th May 1984 on National 

Treatment  [C(84)91] is repealed and replaced by the following: 

8 

Article 1 

NOTIFICATION 

Members (1) shall notify the Organisation, of all measures constituting 

a. 
exceptions to National Treatment within 60 days of their adoption and of any 
other measures which have a bearing on National Treatment.  All exceptions 
shall be set out in Annex A to this Decision. 

b. 
Members shall notify the Organisation within 60 days of their 
introduction of any modifications of the measures covered in paragraph (a). 

The Organisation shall consider the notifications submitted to it in 

c. 
accordance with the provisions of paragraphs (a) and (b) with a view to 
determining whether each Member is meeting its commitments under the 
Declaration. 

Article 2 

EXAMINATION 

The Organisation shall examine each exception lodged by a Member and 

a. 
other measures notified under Article 1 at intervals to be determined by the 
Organisation.  These intervals shall, however, be not more than three years, 
unless the Council decides otherwise. 

b. 
Each Member shall notify the Organisation prior to the periodic 
examination called for in paragraph  (a), whether it desires to maintain any 
exception lodged by it under Article 1 and if so, state its reasons therefore. 

The examinations provided for in paragraph (a) shall be directed at 

c. 
making suitable proposals designed to assist Members to withdraw their 
exceptions. 

The examinations provided for in paragraph (a) shall be country reviews 

d. 
in which all of the exceptions lodged by a Member are covered in the same 
examination. 

e. 
Notwithstanding paragraph  (d), the examinations provided for in 
paragraph (a) may focus on specific types or groups of measures of particular 
concern, as and when determined by the Organisation. 

(1)  For the purposes of this Decision, "Members" means all parties to the 

Decision. 

11 

> 

Article 3 

REFERENCE TO THE  ORGANISATION 

If a Member considers that another Member has. contrary to its 

a. 
undertakings with  regard to National Treatment,  retained,  introduced  or 
reintroduced measures and if it considers  itself to be prejudiced thereby, it 
may  refer to the Organisation. 

The fact that the case is under consideration by the Organisation  shall 

b. 
not preclude the Member which has referred' to the Organisation from entering 
into bilateral discussion on the matter with the other Member  concerned. 

AO 

Article 4 

COMMITTEE ON INTERNATIONAL INVESTMENT 
AND MULTINATIONAL ENTERPRISES: GENERAL TASKS 

The Committee on International Investment and Multinational Enterprises 

a. 
(hereinafter called "the Committee") shall consider all questions concerning 
the interpretation or implementation of the provisions of the Declaration or of 
Acts of the Council relating to National Treatment and shall report its 
conclusions thereon to the Council. 

The Committee shall submit to the Council any appropriate proposals in 

b. 
connection with its tasks as defined in paragraph (a) and, in particular, with 
the abolishing of measures constituting exceptions to National Treatment. 

Article 5 

COMMITTEE ON INTERNATIONAL INVESTMENT 
AND MULTINATIONAL ENTERPRISES:  SPECIAL TASKS 

a. 

The Committee shall: 

i) consider, in conformity with paragraphs (a) and (b) of Article 2, 

each exception notified to the Organisation and make, where appropriate, 
suitable proposals to assist Members to withdraw their exceptions; 

ii) consider, in accordance with Article 1, the notifications submitted 

to the Organisation; 

iii) consider references submitted to the Organisation in accordance 

with the provisions of Article 3; 

iv) act as a forum for consultations, at the request of a Member, in 

respect of any matter related to the Declaration and its implementation. 

b. 
The Committee may periodically invite the Business and Industry Advisory 
Committee to the OECD (BIAC) and the Trade Union Advisory Committee to the OECD 
(TUAC) to express their views on matters related to National Treatment and 
shall take account of such views in its reports to the Council. 

M 

Article 6 

REVIEW OF THE DECISION 

This Decision shall be reviewed, within three years. 

Article 7 

PARTICIPATION BY THE EUROPEAN ECONOMIC  COMMUNITY 

The present Decision, as well as any'further Decision amending  it. shall 
be open for accession by the European Economic Community.  Such accession shall 
be notified to the Secretary-General of the Organisation. 

ISSN 0254-1475 

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