Non-Discrimination and its Dimensions in a Possible WTO Framework Agreement on Investment

Reflections on the Scope and Policy Space for the. Development of Poor Economies

in The Journal of World Investment & Trade
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Non-Discrimination and its Dimensions in a Possible WTO Framework Agreement on Investment

Reflections on the Scope and Policy Space for the. Development of Poor Economies

in The Journal of World Investment & Trade

References

The International Court ofJustice, 1970 I.Cj. Rep. 3, at 47-48. 2 Panel Report, DS23/R, adopted 19 June 1992, B.I.S.D. 39S/209, para. 5.21. 3 WTO Doc. WT/W(;TI/W/72,13 April 1999. ^ See Benno Ferranini, A Multilateral Framework for Investment? in Simon J. Evenett and State Secretariat of Economic Affairs (eds.), The Singapore Issues and the World Trading Systern: The Road to Cancun and Beyond, World Trade Institute, Bcrnc, Switzerland, 2003, at p. 4. According to the World Trade Organization, "FDI occurs when an investor in one country (the home country) acquires or expands its ownership of a business entity in another country (the host country) and the equity participation is sufficiently large to give the investor management control. The latter qualification is important: it is the management dimension that distinguishes Fm from portfolio investment in foreign stocks and other financial instruments. Foreign direct investors are predominantly multinational enterprises (Mtves). Indeed, direct investment is the vehicle by which enterprises go multinational. Just exporting to another market does not suffice for the label "multinational", nor does portfolio investment abroad or contractual supply or production arrangements with foreign firms. It is the establishment of foreign affiliates that form an integral part of the network of production and trade activities under the control of a central dccision-makcr (the parent company) that is the hallmark of MNes." See Note by the Secretariat, Wm Doc. WT/Wf.n/W/7.

5 See generally United Nations Confercnce on Trade and Development, World Investment Report 2003- FDI Policies for Development: National and International Perspectives, United Nations, New York and Geneva, July 2003. 1 Giorgio Sacerdoti, Private Foreixn Investments in the Present International Economic System: Financial Flown, Econornir Functions anA Legal Regulation, Academie de Droit Intemational, Recueil des Cours, Collected Courses, 1997, Vol. 269, pp. 251-460, at pp. 262-263. 7 For an early indication of the veracity of this claim, see generally E.M. Graham and P.R. Drugman, The Surge of Foreign Direct Investment in the 1980s, in K.A. Froot. (ed.), Foreign Direct Investment, National Bureau of Economic Research Project Report, University of Chicago Press, Chicago, 1994. 1 See Submission by the European Comnuarities, Concept Paper on Non-discrimination, WTO Doc. WT /W(;Il/ W /122, 22 Junc 2002, stating: "Customary international law docs not require any host country to guarantee a non- discriminatory treatment to foreign investors wishing to establish their activities in its territory or even to those already established." I According to Sornarajah, the right of a State to control foreign direct investment is based on the international law regarding aliens and the right of a State to deny entry to such aliens; sec M. Sornarajah, The International 1-aw on Foreign Investment, Cambridge University Press, Cambridge, U.K., 1994, p. 83. Fatouros extends the rights of States in this regard to cover "trade and foreign investors"; see A.A. Fatouros, Tomards an International Agreement on Foreign Direct Investment? 10 ICSID Rcv.-F.LL.J. 181, 1995, at p. 193. 111 Sec Andrew Walter, British /M[�'�f7tc� Treaties in South Asia: Currertt Status and Future Trends, report prepared for the International Development Centre of Japan, January 2000; available at: «personal.lse.ac.uk/wyattwal/ Bridsh%201nvestment%20Treaties%20in%20South%20Asia.pdf�: noting that bilateral investment treaties have become "one of the main legal and political instruments for the promotion and protection of foreign direct investment in the 1990s. By 1997, the number of Bits had increased to 1,513 involving 169 countries and territories." See also Sacerdoti, supra, footnote 6, at p. 264.

11 This Agreement is of particular interest for a number of reasons. The first is that it involves a largc number of the poorest countries in the world. The second is that the nature of the relationship it engenders is in the process of review. The third reason is that not much literature exists on the investment aspects of this Agreement. The fourth and final reason is that most of the A(:p countries that arc negotiating Economic Partnership Agreements with the European Union have very little understanding of the key investment (or most other) issues in the agenda of negotiations (with the notable exception of Mauritius, which has taken a very proactive role in the discussions and that has a team of well-regarded and knowledgeable trade experts.) See Sanoussi Bilal and Dirk Willem te Velde, Foreign Direct Investment in the /1CP-FU Development Gnopemtion: From Lome to Cotarrou, paper presented at the Unctad Expert Meeting on the Development Dimension of FDI, Geneva. Switzerland, 6-8 November 2002: noting that investment co-operation was first provided for in the Lore m Convention. Subsequently, Lore m and Lore iv/u'5 carrie(INFAC) which, managed by the European Investment Bank, provides USS 2.2 billion to be focused on the private sector to stimulate regional and international investment and to support the development ofsustainable local lending. 12 Other discerning observers differ. Professor Kevin Kennedy of Michigan State University has, for instance, written recently expressing doubt as to whether a Multilateral framework on investment (Mn) will successfully be negotiated in the WTO context. He writes: "Whether the W ro can succeed in concluding a multilateral agreement on investment is subject to doubt. Several W to Members e.g. the EU have supported such a frantework agreement, while others such as the United States have expressed misgivings and shown reluctance to move forward on meaningful negotiations ..." See Kevin C. Kennedy, A WTO Agreement on Investment: A Solution in Scarch of a Problem? 24 University of Pcnnsylvania J. Int'l Econ. L. 77, at 183. 13 See Trade-Related Aspects of Investment Measures, in World Trade Organization, The Legal Texts: 77re Results of the Lkuguay Round of Multilateral Trade Negotiations, Cambridge University Press, Cambridge, U.K., 1999, pp.143-146. " See 1'icrrc Sauve, A First Look at Investment in the Filial Act of the Uruguay Round, 28 J.W.T. 5, October 1994, pp. 5 et seq. ts See Patrick Low and Arvind Subramanian, TRIMS in the Uruguay Round: An Unfinished Business? presented at The Uruguay Round and the Developing Economies, A World Bank Conference, Washington, D.C., 26-27 January 1995, at 5. is, In 1992, the World Bank put together what amounts to an attempt to codify the legal principles that should govern international investment in the form of the "Guidelines" which have come to be popularly known as "The World Bank Guidelines"; see World Bank, Lxgal Framework for the Treatment nf Foreign Investment, 1992, Vol. u, "Guidelines".

17 See World Trade Organization, Annual Report, 1996. Special Tonic Trade and Foreign Direct Investment, WTO, Geneva, Switzerland, 1996, at p. 59. 18 Id. '`t Id. 2(1 See Peter Drahos, When the Weak Bargain with the Strong: Negotiations in the World Trade Organization, International Negotiation 8, 2003, pp. 79-109. =' In investment, developed countries have abundance of capital and, with few exceptions, developing countries are almost always in deficits; see generally Michael H. Davis and Dana Neascu, Legitimacy, C/o�/y: Thr Incoherence of Free Trade Practice, Global Economics and their Governing Principles of Political Economy, 69 University of Missouri Kansas City L. Rev. 733; Steven Husted and Michael Mclvin, International Economics, HarperCollins, New York, 1990; and Todd G. Buchholz and Martin Feldstein, Nerv Ideas from Dead Economists: An Introduction to Modern Economic 111OIIght, NAL 1300ks, New York, 1989, at p. 62: noting that the law of comparative advantage actually derives from the law ofabsolute advantage promulgated in the eighteenth century by Adam Smith. According to Smith, a country maintains absolute advantage in a good where it "produces a good using fewer production inputs than is possible anywhere else in the world". Hence, the most efficient global division oflabor occurs when trading nations specialize in the production of those goods in which the nations maintain absolute advantage. The fact that developing countries almost always have an investment deficit has been acknowledged in the case of Africa by the New Partnership ¡or Africa Development (Nepad) document, which states at paragraph 147: "... Africa needs to fill an annual resource gap of 12 percent of its Gut>, or USS 64 billion. This will require increased domestic savings, as well as improvements in the public revenue collection systems. However, the bulk of needed resources will have to be obtained from outside the continent." Text available at: <>.

== But see WTO Doc. WT/W(.T!/W/)6 in which the Republic ofKorea, one of the biggest proponents of an Mn, documents an experience contrary to the view taken here. In South Korea's submission to the Working Group on the Relationship between Trade and Investment (Wc; n), it stated: "Technology development basically occurs in two ways: technology transfer and technology diffusion. A well-known mechanism of technology transfer is a joint venture. Joint ventures between transnational corporations and local companies often include licensing agreements and management, marketing, and technical service contracts with the foreign partner. The effect of technology transfer depends on the quality of the transferred technology. Technology diffusion is the delivery of technologies from foreign affiliates to local companies. Although technology diffusion can be a lengthy process, it contributes to spreading important technological know-how in all sectors of the economy. Some studies have addressed Korea's experience with technology development caused by FDI. A survey shaws that considerable technology transfer was achieved in Kurea through official channels, such as document exchange between a parent company and its affiliate, dispatch of supervisors, and technology training proqrams related to hiqh-teclnology organized on a regular or ad hoc basis." (emphasis added). 23 Scc WTO Doc. WT/WGTf/W/65. z^ Sec Thomas Stewart, The Health of Knowledge: Intellectual Capital and the Twertty First Century Organization, Doubleday, New York, December 2001, at p. 5, stating: "... knowledge has become what we buy, sell and do. It is the most important factor of production ... knowledge assets, that is intellectual capital, have become more important to companies than financial or physical assets"; and Thomas Stewart, Intellectual Capital: The New Wealth of Organizations, Bantam Books, New York, December 1998: noting in the preface that "information and knowledge are the thermonuclear competitive weapons of time" and that "knowledge is more valuable than natural resources, big factories or fit bankrolls". 2S A WTO Secretariat Note that could have shed light on this issue in the WGTI cleverly skirts around it by stating: "Although it is known that multinational firms produce and own the bulk of the world's modern technology, it is not obvious how exactly MNE technology spreads across international borders and what role MNES play in the process. One reason, of course, is that 'technology' is an inherently abstract concept, and therefore difficult to observe and evaluate. None of the available measures of technology and technology production-such as Kid expenditures, numbers of new patents, payments for licenses and royalties, stocks of capital equipment, and so forth-covcrs more than a part of this." See WTO Doc. WT/W(;n/W/65.

21, Sec Francis Mangcni, Wlrat Type of 'Technology for LeaU Developed Countries? SEATINI Bulletin, Vol. 4, No. 4, 28 February 2001, The International South Group Network, Harare, Zimbabwe. 27 Konrad von Moltke expresses this desirability in more figurative terms thus: "It seems alnmst self c·vident that non-discrimination in foreign investment is a desirable goal of public policy." (emphasis added); see Konrad von Moltke, Discrimination and Non-discrimination in Foreign Direct Investment: Mil1ing Issues, available at: ,,Iittp://www.iiattiral-resoLirces.org/niiiicrals/dcvclopiiieiit/docs_ijivest.litm#Fl)]-; last visited on 18 June 2003. =� See id.

Zy Kennedy explains that the EU has been a strong proponent of an MFI simply because it would like to divert attention from negotiations on agricultural reform and the EU's Common Agricultural Policy, an issue far more intractable and, according to Kennedy, one that is so politically charged within the EU that "if any EU politician touches it, their political life is finished"; see Kennedy, supra, footnote 12, at p. 78. 3u Examples of such discriminatory demands could be a requirement that nationals of would-be host country must hold some percentage of equity shares in the business entity beyond the acceptable nominal shares or, for instance, in the post-establishment phase of a particular business venture, a demand that the business be disposed of in a certain way and, perhaps, in a manner prejudicial to the profit maximization of thc investor, or a demand that the business source a certain minimum of its production inputs from local producers.

3� See Prcparatioiisfor the Fifth Session of the Ministerial Conference Drafi Cancun Ministerial Text, Second Revision, JoB(03)/150/Rev.2, 13 September 2003. See also, Latest Declaration Cln-bundles Singapore Issues, Proceeds to Negotiations on Tw�o, Inside U.S. Trade, 13 September 2003; available at: «http://www.insidetrade.com». 32 See Thomas Cottier and Petros Mavroidis (eds.), Regulatory Barriers and the Principle of Non-discrimination in World Trade Law, University of Michigan Press, Ann Arbor, Michigan, 2002; in particular, see William Davey and Joost Pauwelyn, MFnr Unconditionally: A Legal Analysis of the Concept in View of its Evolution in GATT/WTO jurisprudence with I'articular Reference to the Issue of `Like Products', at pp. 13-50. 33 John H. Jackson, World 1'iade and the Law of GATT, Bobbs-Merrill/The Mitchie Co., Law Publishers, Charlottesville, Virginia, 1969.

11 There have been two approaches to national treatment in international law: the Calvo doctrine, which required that foreigners and their property are entitled to the same treatment as nationals of a particular country under its national laws; and the doctrine of State responsibility, which required that foreigners and their property be accorded a certain minimum international standard in treatment even though national laws fall short of this minimum standard, meaning essentially that foreigners could receive more favorable treatment than nationals. 35 According to UNCTAD, "... no single country has so far seen itself in a position to grant national treatment without qualifications, especially when it comes to the establishment of investment." See United Nations Conference on Trade and Development, National Treatment, UNCTAD Series on Issues in International Investment Agreements, United Nations, New York and Geneva, May 1999, U.N. Doc. No. Unctad/Ite/Iit/1 Vol. m, at p. 1.

36 Sec id.

�� See W ro Doc. WT /WC;TI/W /22: noting that "most bilateral investment treaties of the United States and some recent treaties concluded by Canada require application of MEN and national treatment standards in respect of both establishment and subsequent treatment of investments, subject to the ability of the parties to make or maintain exceptions in sectors or matters specified in an annex to the treaty." Also see id. JX According to a paper submitted by India to the W(; i-i: "There arc only two countries (the U.S. and Canada) that arc known to insist on 'pre-establishment' national treatment provisions in their bilateral investment treaties (Brrs). International investment agreements (IlAs) also in general do not envisage national treatment at pre- establishment, stage. When certain international instruments envisage national treatment at entry stage, i.e. at the pre-establishment stage, it has been noticed that such instruments are non-binding. A case in point is the C)ECn Code for the Liberalization of Capital Movements in which the right of establishment was introduccd in 1984. Another instance is that of the Apec Non-Binding Investment Principles. A multilateral Agreement on Investment under the auspices of the economically well-off countries of the OECD, which envisaged in the draft agreement binding national treatment obligations, did not find favor with many of these countries, and had to be abandoned. How then can an agreement of this nature, envisaging national treatment and MFN provisions of a binding nature, be considered in a much more heterogenous group like Wro?" See WT/Wcn/W/149. According to Unctad, "more recent IW particularly BiTs by Canada and the United States (apart from the Friendship, Commerce and Navigation treaties of the United States), have extended national treatment to the pro-entry stage"; see UNCTAD, supra, footnote 35, at page 4. 39 According to Unctad, "national treatment was seen to be relevant almost exclusively to the treatment accorded to foreign investors aJUer they had entered a host country market"; UNCTAI), id. (emphasis added). 4(l See Advisory Opinion on Naticmality Decrees Issue in Tunis and Morocco, P.C.!.]., Series B, No. 4 (1923). 'rr To extend this assertion further, it was recognized also that a country has permanent sovereignty over its natural resources and investments in the natural resources sector; see Ria Kemper, The Concept of PermallC1lt Sovereignty over Natural Resources and Its Impart on Mineral Contracts, in Legal and Institutional Arrangements in Minerals Development 29, 1982, pp. 29-32; compare Kamal Hossain and Subrata R. Chowdhury (eds.), Permanent .Sovereignty over Natural Resources in Irrternntiorml Lntv, Francis Pinter, London, 1984, p. 1; Thomas W. Walde, Permanent Sovereignty over Natural Resources: Recent Developments in the Mineral Sertor, 7 Nat. Resources F. 239, 1983, at p. 239; Pierre Legoux, Legal Aspects ofmitiirig Development in Developing Countries, 5 Nat. Resources F. 167, 1981, at p. 174.

4= See UNCTAD, supra, footnote 35, at p. 17. 43 These treaties preceded the current U.S. bilateral investment treaty practice and were primarily trade instruments. A good example is the Treaty of Amity and Commerce of 6 February 1778 between France and the United States. See generally Herman Walker, Jr., Modern Treaties of Friendship, Commerce and Navigation, 42 Minn. L. Rev. 805, 1958. See also Sumitomo Shoji America, Inc. v. Avagliano, 457 U.S. 176, 185-87 (1982), in which the U.S. Supreme Court traces the history of these treaties. 14 See Andrew T. Guzman, Explaining the Popularity of Bilateral Investment Treaties: Why LDCS Sign Treaties that Hurt Them, New York University School of Law, Jean Monnct Working Papers No. 12/97, at footnote 78; available at: �,http://vrvwjcaniiioiiiictprograni.org/papers/97/97-12.litiiil-.

45 Sec, for instancc, China's BITS with Sweden and Norway. Also see Unctad, id. 4" For instance, the Treaty of Rorne, as amended by the Treaty of Amsterdam, which entered into force on 1 May 1999; see UNCTAD, id. 47 See UNCTAD, id.

4' See for instance: GATTS Article m, which uses "treatment no less favorable"; Article 10 of the Energy Charter Treaty, which also uses "treatment no less favorable"; and Article 1103 of NAF'I'A, which also uses "treatment no less favorable" but qualifies it with the provision that such treatment will only be accorded "in like circumstances". For The Energy Charter Treaty, see 34 I.L.M. 360, 1995. For a fascinating discussion of this Treaty, see generally Thomas W. Walde, International Investment under the 1994 Energy Charter Treaty--Legal, Negotiating and Palicy Implications for International Investors within Western and Commonwealth ofindependent States/Eastern European Countries, 29 J. W.T. 5, October 1995, at p. 56. r9 Article 1103 ofNAFTA extends MFN to both the investor and its investment. Other examples of agreements that extend MFN treatment to both the investor and the investment would be the bilateral investment agreements of Germany, Switzerland and the United Kingdom. Treaties have also made distinctions between the types of activities that are to be covered by the Metv treatment provision. The one grossly generalized observation would seem to be that the MFN provision is usually crafted in a rather broad way. At Article 1103 ofNAFIA, for instance, MFN treatment extends to "the establishment, acquisition, expansion, management, conduct, operation and sale or other disposition of investments"; Article 10, para. 7 of the Energy Charter Treaty extends MFN treatment to "management, maintenance, use, enjoyment or disposal"; and Article II of the GATS extends MFN treatment to "any measure covered by" the Agreement. 50 A good example of such an agreement is the Energy Charter Treaty, which only grants MFN treatment to the investment and not to the investor. See Article 10, para. 7 thereof. Yet another example of such an agreement would be the bilateral investment agreements negotiated by the United States.

St See Unctad, Most Favored Nation Treatment, UNCTAD Series on Issues in International Investment Agreements, United Nations, New York and Geneva, 1999. sz According to Article 10(7) of the Energy Charter Treaty, "Each contracting party shall accord to investment in its area ofinvestors ofother contracting parties, and their related activities including management, maintenance, use, enjoyment or disposal, treatment no less favorable than that which it accords to investments of its own investors or of the investors of any other contracting party or of any third states and their related activities including management, maintenance, use, enjoyment or disposal, whichever is the most favorable." 53 Other good examples of agreements that have an MFN clause that covers both the pre- and post-entry phases of investment include Mercosur (Article 2) and the Anec Non-Binding Investment Principles. st GATS Article XIV states: "Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a disguised restriction on trade in services, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any Member of measures: (a) necessary to protect public morals or to maintain public order; (b) necessary to protect human, animal or plant life or health; (c) necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement including those relating to: (i) the prevention of deceptive and fraudulent practices or to deal with the effects of default on services contracts; (ii) the protection of the privacy of individuals in relation to the processing and dissemination of personal data and the protection of confidentiality of individual records and accounts; (iii) safety; (d) inconsistent with Article xvn, provided that the difference in treatment is aimed at ensuring the equitable or effective imposition or collection of direct taxes in respect of services or service suppliers of other Members,; (e) inconsistent with Article u, provided that the difference in treatment is the result of an agreement on the avoidance of double taxation or provisions on the avoidance of double taxation in any other international agreement or arrangement by which the Member is bound." There is, however, the caveat that such measures must not be applied in a manner that constitutes unjustifiable discrimination between countries where like conditions prevail. 55 This is one of few very explicit national security exceptions, one of the others being NAFTA Article 2102. GAYS Article x7vbis states: "Nothing in this Agreement shall be construed: (a) to require any Member to furnish any information, the disclosure of which it considers contrary to its essential security interests; or (b) to prevent any Member from taking any action which it considers necessary for the protection of its essential security interests: (i) relating to the supply of services as carried out directly or indirectly for the purpose of provisioning a military establishment; (ii) relating to fissionable and fusionable materials or the materials from which they are derived; (iii) taken in time of war or other emergency in international relations; or (c) to prevent any Member from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security."

sr· See, for instance, Article 56 of the Treaty Establishing the European Community, which talks about public policy, security or health. See also Article 2 of the OECD Code on the Liberalization of Capital Movements, which allows Members of the OECD to take any action they may consider necessary for the maintenance of public order or the protection of public health, morality and safety. For the Code, see Cynthia Day Wallace, The Mnltirrntional Enterprise and Legnl Control: Host State Sovereignry in an Era of Economic Globalization, Kluwer Law International, The Hague, London, 2002, at Chapter xtx, § 2(a)(ii). See also Article 24, para. 3c of the Energy Charter Treaty, which contains an exception from MFN treatment for the maintenance of public order and the protection of human, animal or plant life or health; there is, however, the caveat here also that such measures must not be applied in a manner that constitutes unjustifiable discrimination between investors or investments, in Article 24, para. 2b(i). The national security exception is particularly prone to abuse and has been used by different countries for various purposes. To limit possible abuse of what constitutes national security matters for the purposes of the GATT, some commentators have argued that the W'r<> be allowed to look to the practice of the United Nations in establishing objective criteria. See Antonio F. Perez, Win and UN Law: Institutional Curnity in National Security, 23 Yale J. Int'l L. 301, 1998. 5� See UNClAD, Bilateral Irrvestrneat Treaties in the AM- <990.<, United Nations, New York and Geneva. United Nations Publication Sales No. E.9H.11.1).5. �ri See I�rahos, sura, footnote 20. ''r For a more extended analysis of this point, see generally Victor Mosoti, Legal Implications of Sudan's 's Accession to ihe WTO, background paper presented at a national capacity-building seminar, sponsored by the Food and Agriculture Organization of the United Nations, held in Khartoum, Sudan, 29 September-4 October 2003, on file with the author. See also Waldcn Bcllo, Multilateral Punishment: The Philippines in the W7'o, 1995-2003, Focus on the Global South, Manila, 20 June 2003; Deepak Bhattasali, L.I. Shantong and Will Martin, Impact and Polity Implications tf Wro Accession for China, The World Bank, Working Papers, available at: <>; and WTO Doc WT/Acc/1, Accessiorr to the World Trade Organization, 24 March 1995.

611 The "Singapore Issues" refers to the group of four issues that first appeared in the WTO agenda at the Singapore Ministerial in 1996. These arc Investment, Competition, Trade Facilitation and Government Procurement. 61 Submission by the European Communities, supra, footnote 8, at p. 2.

62 Id. 63 1 d. f'4 Ibid., at p. 4. 65 ld. 66 WTO Doc. WT/WGTI/W/121, paras. on pp. 2-3. 67 Ibid., paras. on p. 4.

68 See Ferranini, supra, footnote 4, at p. 16. (,9 See WTO Doc. WT/WGTI/W/ 153. 711 Ibid., at p. 2. 71 ld.

72 Id. 71 Id. ''r Ibid., at p. 1. 75 See WTO Doc. WT/W(;TI/W/95, quoting an Orci) study to the effect that: "Evidence suggests that Fm is less likely to raise such problems than other types of capital inflows. Direct investment involves much more stable and generally smaller amounts of capital than portfolio investment and credits. Because the transaction costs, and therefore the risks involved, are considerably higher when an investor establishes an enterprise compared to the purchase of short-term Treasury bills for example, green-field direct investments represent long-term, carefully selected investment projects which cannot be liquidated at short notice. Furthermore, direct investment most often takes the form of equity capital, which, as opposed to debt creating instruments, imposes no obligations on the debtor to make fixed interest payments and to reimburse the principal at a determined date; a foreign investor may be unable or unwilling to liquidate his shares unless he can find a counterpart willing to buy them at the desired price. Finally and perhaps even more importantly, in the absence of perfectly fluid financial markets and substitutable financing instruments, direct investment can be expected to contribute to the financing of productive investment in a higher proportion overall than portfolio investment and credits, thereby enhancing the host country's capacity to assure the service of its debt through increased exports at a later stage." 7(1 See Who Doc. WT7W(.n/W/14().

�� See Wro Doc. WT/WGTI/W/74. ™ Wro Doc. WT/WG-ri/W/ 140, at p. 7.

79 Id. I" See Cancun Ministerial Collapses Over Siiigapore Issues, Inside U.S. Trade, 14 September 2003; available at: «http://www.insidetrade.orga, last visited on 5 November 2003. 81 See id. Taking the hard-line position, South Korea is reported to have objected even to this suggestion by adopting an "all or nothing" argument. See also Callow Declaration Envisioned Unbundling of Sillgapore Issues, Inside U.S. Trade, 15 September 2003; available at: «http://www.insidetrade.org», last visited on 5 November 2003. 12 Id. This remark is attributed to Ambassador Richard Bernal, a Caribbean diplomat. $3 See Inside U.S. Trade, supra, footnote 81. Also sec the Draft Declarations at: <

Ra See Ministerial Statement, WTO. Doc. WT/MIN(03)20; available at: <Cancun Collayse: Where There is no Will, There is no Way, Bridges Daily Update, Issue No. 6, 15 September 2003; available on the lc'rsn Website at: «http://www.ictsd.org».

11 See WTO Doe. WT/WGTl/W/22.

H7 "Covered agrecmcnts" is the term used in the Dispute Settlement Understanding (Dsu) to describe the agrccments under its aegis and refers to the agreements under Annex 1 of the (jencra! Agreement. The Dsu itself is Annex 2. Annex 3, which provides for the Trade Policy Mechanism is excluded from the Dsu by Appendix 1 of the Dsu. The Annex 4 agreements are plurilateral and are not automatically covered, as parties to each of these agreements have to specifically adopt a decision to that effect. 88 See WTO Doc. WT/W<:II/W/115, at p. 1. m As was the case in EC-Hall<1llas (WI3/I)S27/At3/R), EC- Trade Description o{Sardill1'S (WT/DS231 /18). See also Gregory Shaffer, Huw to Make the Dispute Settlement System Work for Developing Countries: Some Proactive Strateqies for Developing Conrrtries, in International Centre for Trade and Sustainable Development, Towards a Development- Supportive Dispute Settlement System in the W'l'o, 1(: 1 si) Resource Paper No. 5, March 2003. See generally Scliaffer, ibid. See ibid., at p. 16.

9= See W ro Doc. TN/DS/W/15. i3 See WTO Doc. WT/W(;ii/W/115, at p. 3. Canada shares this view and seeks to promote what it calls "complementarity" in the following words: "Canada's consideration of the elements identified by Ministers in Doha has been informed by the fact that any prospective multilateral framework on invcstment would coexist and interact with other WTO Agreements. Indeed, Canada believes that a WTO framework on investment should ensure a high degree of coherence or complementarity among the various WTO Agreements that include investment- related provisions. Such an approach does not prejudge the potential architecture, scope or disciplines of a multilateral framework; complementarity may be reached by a number of avenues. It does argue, however, against the adoption of principles or instruments that may, at this time, be incompatible with the existing WTO architecture." See W'ro Doc. WT/WGTI/W/147.

94 For a contrary view to that expressed here, see also the paper by Canada which states in part: "There arc other arguments in favor of relyiug on the existing dispute settlement mechanism under the Dsu, not least of which is that the WTO was designed to establish rights and obligations for Mcmbcrs, not private parties. In addition, Members' have considerable familiarity and experience with the Dsu. Finally, as the Secretariat points out, the Dsu includes a number of provisions on special and differential treatment for developing and least-developed countries, including the provision of technical assistance to developing countries involved in a dispute." See id. `'S See the proposal from the African Group and the Lix: Group on dispute settlement. 11 Some view the leeway for investors to file disputes against governments negatively, particularly as is provided under the NAF'[A; see Luke Peterson, Changing Investment Litiqation Brr by Bar, Brzu�ces, Issue 5, No. 4, May 2001, ICTSD, Geneva., Switzerland: indicating that NAFTA has "controversial features" including the "investor- state mechanism which allows investors to take their own claims to tribunals ..." See also Ferranini, supra, footnote 4, at pp. 21-22: indicating that the fact that an MFI will not provide for investor-State disputes is one of the shortcomings of the EC's proposal for such an agreement. 97 Japan notes in this regard thus: "The administering bodies of W ro Agreements are state parties, and even if an investment agreement were to be set out, it would be inappropriate to recognize private individuals as having a standing in dispute settlement. Otherwise, there would be a high possibility of a sharp increase in lawsuits being filed by investors, creating a large burden for Member governments. From the point of view of flexibility, stipulations are made to pay special consideration to least developed countries in dispute settlement procedures in WTO Agreements." See WTO Doc. WT/Wc-n/W/104.

9R For a very insightful and comprehensive discussion of the evolution and scope of GATT non-violation claims, see Sungjoon Cho, GATT Non-violation Issues in the Wio Frameu�ork: Are they the Achilles 7�'f/ rf tlse Disputes Settlement Process, Harvard International Law Journal, Vol. 39 No. 2; also available online, Jean Monnet Papers, No. 9/98, at: <Handbook of GAIT Dispute Settlement, Kluwer Law and Taxation Publishers, New York, 1992, p. 4. 11111 Sec UN Doc. E/YC/T186, at 53; quoted in Frieder Roessler, Should Principles of Competition Policy Be Incorporated Into W1U Law 71iroi�q/i Nun-niolatiou Complaints? Journal of Intcrnational Economic Law, 1999, 413-421. tnt Id. 1112 See id. The topic of Roessler's paper in a way contemplates the scope that Article XXIII has to expand the confines of the GA i Agreement. He discusses whether Article XXIII could be expanded to bring competition policy issues into the Wro. He also quotes Bhagwati, saying: "... it is possible even under the current GATT rules ... on non-violation to bring in competition policy related questions before the GATT and to develop jurisprudence that will reflect some minimal norms that are commonly shared."

liI.1Sec Japan-TaxesonNnn-AlrolrolirBeverages, Report ofthc Appellate Body, W'I'/l)S8/AB/R, at 28 and 29. r°° See European C(}f1lf1ltI1ljties-R�f!jme.filr the Importation and Distribution (?/ Balla1las-Recourse to Arhitration by the European Communities Under Article 22.6, Rcport of the Appellate Body, WT/DS27/AB/R, at 5.38. 105 According to Roessler, the GATT negotiators never intended that the concept of non-violation would become the subject of binding third-party adjudication. In their minds, non-violation nullification and impairment was "... a benchmark guiding consultations, negotiation and multilateral decision-making." Roessler, supra, footnote 100, at p. 418. 10(, See Craig Bamberger et al., The Energy Charter Treaty irr 2000: In a New Phase, CEMPL Online Law Journal, Vol. 7; available at: <>. 1117 See Agency for International, Trade Information and Cooperation (ArTre), l1/elllatic File: Post-Doha Agenda, The Singapore Issues: Trade and Investment in the Wn'o, AITIC. Geneva, Switzerland, June 2003.

1118 See the Antic Website at: <supra, footnote 107. 11t1 Roessler, supra, footnote 100, at p. 419. m See Australian Subsidy on Ammonium Sulphate, B.I.S.D. 11/188-196 (1949). r See Robert Hudcc, Enforring International Trade Law, Butterworths, 1993, at pp. 421-422. n3 Ibid., at p. 421. 114 According to Rocssler, the Working Party could have easily disposed of this dispute by holding that the two fertilizers were like directly competing products under the Article m national treatment provision; see Roessler, supra, footnote 100, at p. 419. 115 See Treatment of Sardines, B.LS.D. 1S/53-59; see also Hudec, supra, footnote 112; at pp. 427-428. 116 see ELc-Paymellt and Subsidies Paid to Processors and Producers of Oilseeds and Related Animal Feed Proteins, DS28/R, B.I.S.D. 39S/91-127. For an excellent discussion on the GATT philosophy in this Decision, sec generally Ronald A. Brand, Competing Philosophies of the GATT Dispute Settlement Systern in tlre Oilseeds Case and thc Draft Understanding on Dispute Resolution, 27 J.W.T. 6, December 1993. rt� See Rcport of the Panel, WT/DS163/R.

11" See WTO Doc. WT/Wgti/W/130. is'! The U.S. Model BIT contains five core elements: national treatment and Mfn treatment for investments; standards for expropriation and compensation in the event of a taking; the right to transfer funds; limits on performance requirements consistent with the provisions of the NAFTA and the Tkims Agreement; and a binding dispute settlement mechanism; see Kennedy, supra, footnote 12, at note 29. Kennedy notes further that the "prototypc Bit docs not differ in its material respects from other countries' standard models for Brrs" and proceeds to give examples illustrating this view. Several reports have been submitted to the Wc indicating the prevailing Brr practice in other countries as part of the study in the Working Group; see, in particular: Communication from Japan, WT/WGTI/W/34, 8 April 1998; Communication from the Republic, of Korea, WT/WGTI/W/42, 6 July 1998: Communication from Turkey, WT/WGT)/W/51, 18 September 1998. 120 WTO Doc. WT/WcTt/W/19.

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