ENVIRONMENT
Convinced of the need for optimal use of the world's resources in accordance with the objective of sustainable development.
Recognising that investment can result in changes in the scale and structure of economic activity within countries, with potential effects on health and the environment.
Recognising the interdependent nature of their environments.
Encouraging the protection, conservation, preservation and enhancement of the environment.
Reaffirming their commitment to the Rio Declaration and Agenda 21, including to sustainable development as reflected therein, and recognising that investment, as an engine of economic growth, can play a key role in ensuring that growth is sustainable, when accompanied by appropriate environmental policies to ensure it takes place in an environmentally sound manner.
Noting that principles of relevance to investment include, inter alia, those relating to polluter pays, the precautionary approach, public participation and the right of communities to have access to information, and the avoidance of the relocation and transfer of activities causing severe environmental degradation or found to be harmful to human health.
Resolved to implement this agreement in a manner consistent with environmental protection and conservation.
LABOUR
Recognising that development of economic and business ties can promote respect for core labour standards.
Resolved to foster investment with due regard for the importance of labour laws and core labour standards.
Affirming their commitment to the observance of internationally-recognised core labour standards, i.e., freedom of association, the right to organise and bargain collectively, a prohibition of forced labour, the elimination of exploitative forms of child labour, and non-discrimination in employment.
Noting that, as members of the International Labour Organisation, they have endorsed the Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy, and agreeing to renew their support for that voluntary instrument.
The definitions of "investor" and "investment" need to be carefully reviewed for consistency with text elsewhere in the agreement, and for grammatical precision, including the use of the words "and" and "or".
Investor
1. It was noted that branches in one Member country have the legal capacity to invest. However, this specific situation would be covered by the definition of investor even after deletion of the word "branch" since the list of "legal and other entities" covered by the definition of "investor" is not exclusive.
2. Some delegations called attention to one delegation's suggestion in the EG5 report to add the phrase "provided it has the legal capacity to invest" at the end of the definition of investor. Most delegations considered that this approach was unnecessary and could create legal uncertainty.
3. Some delegations would like to include "Contracting Parties" in the definition of investor arguing that, for consistency, the definition should include all entities with the capacity to invest. They were concerned that a Contracting Party may itself make an investment without being a legal person that is owned or controlled privately or by the government. Most delegations thought that the concept of a legal person or the definition of state-owned enterprises would cover the situation where a State was an economic actor, and consider that the State as such would otherwise be protected by diplomatic processes under international law.
4. One delegation raised the question whether a legal person organised under the applicable law of a Contracting Party but constituted under the law of another State is covered by the text of the definition of investor in paragraph 1. (ii). According to that country's Commercial Code, a legal person constituted under the law of a foreign country for the purpose of conducting business activities with its permanent seat abroad, may transfer its seat to that country provided that the law of the country in which the seat is now located allows relocation. The transfer of the permanent seat shall be effective from the day on which it is entered into the Companies Register. Such an entity is regarded as a resident of that country. However, its internal legal relations, including the liability of the entity's partners (members) towards third parties, shall be governed by the law of the country under which the legal entity was originally constituted. In the opinion of this delegation, a possible solution could be found in adding the words "or otherwise established" after "constituted or organised" in the definitions of investor and investment. The Drafting Group considered that the concern raised by this delegation is covered by the definition as currently drafted.
Investment
1. The draft definition of investment defines investment in terms of assets and includes an illustrative list of assets so as to cover all recognised and evolving forms of investment. The definition would include the products of an investment.
2. Views differ on whether the definition of investment should cover investments indirectly owned or controlled by investors of a Party. Some delegations are of the opinion that covering such investment offers maximum protection to investors, including access to MAI dispute settlement. In addition, those delegations believe that this approach offers the most flexibility to investors in managing their capital flows, and avoids diverting investment flows from developing countries. The Group considered four cases:
(b) investment by an investor established in a non-MAI Party, but owned or controlled by a MAI Party investor
(c) investment by an investor established in another MAI Party, but owned or controlled by an investor of a third MAI Party
(d) investment in a MAI Party by an investment there covered by the MAI
3 . There was a broadly shared view that case (a) investments should be covered by the MAI. Most delegations favoured providing for certain exclusions in a denial of benefits clause which would permit, but not require, exclusion. Some delegations were concerned about possible abuse of this provision. It was suggested that the condition for exclusion would be where the MAI investor lacked substantial business activity in the MAI Contracting Party. One delegation suggested limiting this to cases in which the investor was constituted "for no other purpose than obtaining MAI benefits" (exact wording not finalised).
4. There was wide support for covering case (b) investments; however, whether to do so was considered a policy issue to be considered by the Negotiating Group.
5 . There was consensus that case (c) and case (d) investments would be covered by the MAI.
6. One delegation considered that the inclusion of indirectly controlled investments might pose serious problems to its Members states as far as their present level of liberalisation is concerned as this normally also applies to companies established in its territory, but under control of another country. This delegation suggested that such problems could eventually be effectively addressed by a general MAI provision on measures taken within Regional Economic Integration Agreements.
7. The term "enterprise" is defined in parenthesis in the proposed text but could be defined separately. It was agreed that the definition covers, inter alia, scientific research institutes and universities. Most delegations favoured the same definition of enterprise for "investor" and "investment". It was also proposed to define "enterprise of a Contracting Party".
8. Item (ii), as well as item (iii), includes portfolio investment and minority holdings. It is for consideration whether the definition covers strategic alliances and other arrangements involving know-how, intellectual property, or technology or the joint conduct of research and development programmes. This item is also understood to cover an interest in an enterprise that entitles the owner to share in income and profits of an enterprise and its assets.
9. Item (iii) covers loans of all maturities and debt securities of a state enterprise.
10. It is understood that "Claims to money" in item (v) includes bank deposits. Most delegations consider that this item covers derivatives which are not covered elsewhere in the list of assets.
11. Claims to money may also arise as a result of a sale of goods or services. These claims are not generally considered as investments.
12. All forms of intellectual property are included in the definition of "investment," including copyrights and related rights, patents, industrial designs, rights in semiconductor layout designs, technical processes, trade secrets, including know-how and confidential business information, trade and service marks, and trade names and goodwill. Views differed on whether it is necessary to specifically refer to some of these elements in the definition as part of the illustrative list of assets. Some delegations consider that "literary and artistic property rights" should not be included. One delegation wishes to cover intellectual property rights under the MAI only when acquired in the expectation of economic benefit or other business purposes.
13. Further work is necessary to clarify the relationship of the MAI to other international agreements that relate to intellectual property, particularly where these conventions might require standards of treatment which differ from the MAI or where these conventions provide for dispute settlement mechanisms. See also discussion below under "Special Topics: Intellectual Property".
14. Rights such as concessions, licenses and permits are generally meant to cover rights to search for, cultivate, extract or exploit natural resources. Most bilateral treaties, and the ECT, refer to rights conferred by law or under contract and extend protection to such rights. One delegation considered that this item covers public law contracts.
15. Most delegations preferred to keep concessions in the definitions and to require reservations by any country wishing to discriminate in granting concessions. Some delegations were of the opinion that the issue of the granting of concessions should be kept outside the definition of investments.
16. Some delegations indicated that certain aspects of concessions raised issues related to monopolies in general and to cross-border govenment procurement, which might require some special provision or clarification in the MAI. One delegation submitted a note on this matter.
17. Further work will be necessary, bearing in mind that some delegations believe it is necessary to determine whether the rights conferred by virtue of concessions, or the concession as such, are separate elements under the definition of investment.
18. One delegation points out that the granting of authorisations, licences and concessions in both the petroleum and fisheries sectors involve measures relating to the conservation and management of natural resources. In the petroleum sector it also involves the exercise of property rights over hydrocarbon resources. The conservation and management of the living resources in the exclusive economic zone is regulated in the United Nations Convention on the Law of the Sea of 1982. The management of hydrocarbon resources is inter alia regulated in the Energy Charter Treaty and in the EU Directive on the conditions for the granting and use of authorisations for the prospection, exploration and production of hydrocarbons. This directive is incorporated into the Treaty establishing the European Economic Area. In the view of this delegation, these issues fall outside the mandate for the negotiation of the MAI.
19. Real estate is a common form of property protected under BITs, the ECT and NAFTA. There are different views on how to treat summer residences or second homes. NAFTA excludes real estate or other property which is not acquired in the expectation, or used for the purpose, of economic benefit or other business purposes, and some delegations prefer such an approach.
1. Expert Group 1 identified two approaches for addressing the issue of the geographical scope of application of the MAI; the "geographical" and the "functional" approach, i.e. referring to economic activities relating to investments.
2. Various draft texts were considered reflecting one, or the other, approach. Delegations agreed that it would be difficult at this stage to make a final recommendation to the Negotiating Group, which would attract the full support of the Expert Group, as to which approach should be followed. Many delegations were of the opinion that this question would have to be re-examined once other substantive issues in the MAI, including the definition of investment, and the nature and content of the reservations and exceptions had been examined.
3 . Some delegations wish to include in paragraph b) of the proposed text the words "the seabed, its subsoil and the natural resources of the superjacent waters". Other delegations stated that they would need to review the acceptability of the reference to the 1982 United Nations Convention on the Law of the Sea. One delegation wished to exclude the maritime areas from the scope of the agreement.
It was understood that the drafting of articles 1 and 2 was without prejudice to other aspects of the Agreement, including definitions, reservations, exceptions, standstill and rollback, and the role of the Parties Group.
1. While some delegations would have preferred separate articles on pre- and post-establishment, the majority of delegations felt that a single text would better capture the intended coverage of the agreement and avoid the difficult task of defining the boundary between pre- and post establishment. It was agreed, as a starting point, to work on the basis of a single text. Some delegations pointed to the links between a single text covering treatment of investors both pre- and post-establishment and the issues of definitions and the scope of the Agreement. Two delegations reserved their position pending the outcome of the discussion on these issues. The Drafting Group also felt that the scope of the commitments by individual countries could be identified by using precise language in any agreed reservations to National Treatment/MFN and perhaps by including references to relevant laws or regulations. The Group agreed that all diversification activities are covered by the references to "establishment, acquisition and expansion".
2. Including the words "in its territory" in Articles 1.1 and 1.2 was suggested for two reasons: i) to define the scope of application of national treatment and MFN; and ii) to provide an appropriate benchmark for assessing national treatment and MFN. Adding these words would make it clear that the Contracting Parties do not have obligations with regard to investors of another Contracting Party in a third country. One delegation suggested that a third reason for including "in its territory" would be to underline the need to avoid conflicting requirements on multinational enterprises. At the same time, however, it was important not to unduly limit the scope of the agreement, for example by excluding the international activities of established foreign investors and their investments. The place of this term in these paragraphs is still to be determined. It was also suggested that a solution might be found, as in NAFTA, in the article dealing with the scope of the Agreement. Whatever should be decided on this matter, it should be treated consistently throughout the Agreement.
3. Some delegations proposed the "same" or "comparable" treatment as the appropriate standard rather than "no less favourable" treatment. The purpose would be to prevent unlimited competition for international investment funds with consequential costs and distortions to investment flows. However, most delegations considered that this would unacceptably weaken the standard of treatment from the investor's viewpoint.
4. Different views were expressed on the value of a "closed" or "open" list of investment activities to be covered by the National Treatment and MFN provisions, before and/or after establishment. A closed list had the advantage of certainty, but risked omitting elements that could be important to the investor. An open list would cover all possible investment activities, including new activities. But it could also create uncertainties as to the scope of the Agreement and might have adverse effects on the operation of existing bilateral and other investment agreements using a closed list. Several Delegations believed that the list "establishment, acquisition, expansion, operation, management, maintenance, use, enjoyment and sale or other disposition of investments" should be considered a comprehensive one whose terms were intended to cover all activities of investors and their investments for both the pre- and post-establishment phases. In their view, this was the preferable approach. It was also suggested that the term "sale or other disposition" should replace "disposal" in Article 1.2 of the draft articles on selected topics on Investment Protection.
5 . National treatment and MFN treatment are comparative terms. Some delegations believed that the terms for national treatment and MFN treatment implicitly provide the comparative context for determining whether a measure discriminates against foreign investors and their investments; they considered that the words "in like circumstances" were unnecessary and open to abuse. Other delegations believed that the comparative context should be spelled out and thus inclusion of the phrase "in like circumstances". Examples of the inclusion of a specific reference are found in the NTI, some BITs and NAFTA. Examples of no specific reference are found in some other BITS and the ECT (although two delegations made a Declaration concerning the term "in like circumstances").
6. DG3 considered two options: "In like circumstances" deleted (option A) and: "In like circumstances" included (option B).
Regarding Option B. One delegation provided the following commentary:
"National treatment and most favoured nation treatment are relative standards requiring a comparison between treatment of a foreign investor and on investment and treatment of domestic or third country investors and investments. The goal of both standards is to prevent discrimination in fact or in law compared with domestic investors or investments or those of a third country. At the same time, however, governments may have legitimate policy reasons to accord differential treatment to different types of investments.
"In like circumstances" ensures that comparisons are made between investors and investments on the basis of characteristics that are relevant for the purposes of the comparison. The objective is to permit the consideration of all relevant circumstances, including those relating to a foreign investor and its investment, in deciding to which domestic or third country investors and investments they should appropriately be compared, while excluding from consideration those characteristics that are not germane to such a comparison."
7. The question was asked whether the treatment accorded to foreign investors by a sub-federal state or province would meet the national treatment test only if it were no less favourable than the treatment accorded to the investors of the same state or province, or whether it would be sufficient to accord treatment no less favourable than that accorded to the investors from any other state or province. The question will need to be answered by the Negotiating Group in due course.
8. One delegation made a written proposal to refer, in the treatment of investors/investments article, to the concept of "equivalent competitive opportunities" analogous to that of GATS (Article XVII). This was presented as a means of strengthening the national treatment provision by requiring that foreign investors and their investments have the opportunity to compete on terms equivalent to those enjoyed by domestic investors. This proposal was considered by some delegations to have positive elements particularly with respect to the treatment of branches of foreign financial institutions. "Equivalent treatment" was the basis of comparison, in the OECD Code of Liberalisation of Current Invisible Operations, between domestic financial institutions and branches, agencies, etc., of foreign financial institutions. Several delegations considered, however, that the introduction of the concept of "equivalent competitive opportunities" into Article 1 might create confusion on how to apply the national treatment and MFN obligations, and might even go beyond what these obligations were intended to cover. Other delegations suggested that issues concerning branches might be solved in the definition of "investments".
9. As indicated by the Negotiating Group, Article 1 is intended to address any problem of de facto as well as de jure discrimination.
10. One delegation also suggested the addition of a distinct provision on "market access", modelled on the GATS (Article XVI), to deal with situations where the same restrictions apply to both domestic and foreign investors. Such measures may include both quantitative restrictions (e.g. economic need tests or numerical quotas) and qualitative measures (e.g. restrictions on the legal form of the activities permitted in a given sector). It was considered that this subject raised issues outside the traditional domain of National Treatment and MFN and required prior discussion in the Negotiating Group.
11. Some delegations expressed the view that Article 1.3 was not strictly necessary since it does not add any substantive obligation to Articles 1.1 and 1.2. Article 1.3 underlines, however, that, taken together, the purpose of Articles 1.1 and 1.2 is to give the investors and their investments the better of National Treatment and MFN.
1. Public dissemination of measures affecting foreign investment was considered essential to the operation of the MAI. Nevertheless a balance should be struck between this objective and the administrative burden of implementing it.
2. When sub-national, local or other authorities publish or otherwise make publicly available information on matters under their jurisdiction, this would be considered sufficient to meet the obligation of Article 2.1. There would be no obligation to duplicate this information at the federal or central government level.
3. The second sentence of Article 2.1 refers to situations in some countries where governments choose to establish policies that are not expressed in laws, regulations or other measures listed in this paragraph. However, as the legal standing and recourse to these policies varies among Member countries, it was agreed that they should be subject to transparency obligations only for governments which use this approach.
4. Regarding Article 2.2, a majority of delegations considered the establishment of specific enquiry points to be unnecessary. Other delegations considered that these enquiry points could contribute to the effective functioning of the MAI. They could also be useful to foreign investors by making available information of interest to them.
5. Article 2.3 addresses the concerns that may arise with respect to the disclosure of information in the context of law enforcement or laws protecting confidentiality. Such concerns are addressed in other international agreements (GATS, Energy Charter, NAFTA). It was felt unnecessary, however, to add a reference to national security and public order since this issue would be addressed in the general exception article.
6. One delegation, supported by others, proposed to add an additional sentence to article 2.3 and an additional paragraph on Special Formalities and Information Requirements as follows:
(b) ["Nothing in Article 1.1 1 shall be construed to prevent a Contracting Party from adopting or maintaining a measure that prescribes special formalities in connection with the establishment of investments by investors of another Contracting Party, such as a requirement that investors be residents of the Contracting Party, or that investments be legally constituted under the laws or regulations of the Contracting Party, provided that such formalities do not materially impair the protections afforded by a Contracting Party to investors of another Contracting Party and investments of investors of another Contracting Party pursuant to this Agreement."]
7. Some delegations expressed concern that the additional texts could be used to circumvent the nondiscrimination obligations of the Agreement. There were serious concerns as to the substantive implications of the paragraph, in particular relating to the residency requirements.2
8. DG3 considered including a notification obligation along the following lines:
9. Such a provision could play a role in support of the possible activities of the Parties Group in connection with non-conforming measures subject to review and rollback, and general exceptions or any temporary derogations. It was agreed that this matter could be revisited once the MAI obligations in these areas had been clearly defined.
10. DG3 noted the suggestion that any Contracting Party should be entitled to notify to the Contracting Parties Group any measure taken by any other Contracting Party which it considers affects the operations of the Agreement. This too may be relevant to the functions of the Parties Group.
11. One delegation suggested that consideration be given to an article based on Article 5 ("Controls and Formalities") of the OECD Codes of Liberalisation.
TEMPORARY ENTRY, STAY AND WORK OF INVESTORS AND KEY PERSONNEL
Paragraph 1
1. While several delegations supported including a requirement of a "substantial amount of capital" in paragraph 1, others considered it would create uncertainties and could represent an important barrier to certain forms of investment. It was noted that Drafting Group 3 has developed a provision on Denial of Benefits in the context of indirect ownership or control using the concept of "substantial business activity". DG3 decided that it was not necessary to define this term.
2. Some delegations do not think it necessary to include "essential" in this paragraph and emphasise the difficulties associated with defining this term.
3. There are different views on whether to include a prior employment requirement. Some delegations think this requirement can distort the investment process by impacting unfairly on new investors and small/rnedium enterprises without any corresponding benefit to the "admitting" country. Furthermore, these delegations believe that it may not correspond to the real needs of an investment and should not be used as a measure of whether an individual is essential to an investment. Several delegations thought it necessary to retain such a requirement if only because there is a corresponding requirement in their national immigration laws. One delegation thought it might be necessary to specify that the prior employment relation must be continuous and should immediately precede entry. Another delegation questioned whether the use of prior employment requirements to avoid circumvention of national immigration laws was effective.
Paragraph 3
Natural person of another Contracting Party 3
Executive, Manager, Specialist
The Expert Group thought the definition of the categories of executive and manager were generally appropriate, except that there might be some overlap between the two. The category of "Specialist" will need some further reflection and may need to refer to the possibility of verifying professional qualifications. One delegation would like to include "trainers" in this category.
PRIVATISATION 4
General
Some delegations questioned the need for a separate article confirming the application of the National Treatment/MFN obligations to privatisation operations. Other delegations felt, on the contrary, that it was worthwhile to underline this important addition to OECD obligations. Privatisation can be a complex and politically sensitive matter. There is thus a need to specify how the MAI obligations would interrelate to particular privatisation transactions or schemes. Foreign investors attached particular importance to transparency.
Paragraph 3
One EG3 delegation doubted whether the provision was fully consistent with the National Treatrnent/MFN Treatment obligations. Another delegation considered there is a lack of balance, and thus discrimination, inherent in special share arrangements in that they would allow a Contracting Party to retain control while devolving business risks to private investors. Some delegations considered that special share arrangements will remain a feature of individual privatisation schemes and that the MAI should provide some flexibility in this area. A large majority shared the view that these special schemes should not be considered to be inconsistent with the National Treatment and MFN Treatment obligations unless they explicitly or intentionally discriminate against foreign investors. There might be a need, for instance, to set aside a proportion of initial sales to private persons or institutes. As in the case of monopolies, there is also a link with the room of manoeuvre the Contracting Parties would have in regard to the lodging of country specific reservations/exceptions: precautionary reservations would be necessary. Some delegations expressed reservations about the idea of special consultation procedures in this area in addition to those that might be contemplated under the consultation/dispute settlement provisions of the MAI.
MONOPOLIES/STATE ENTERPRISES/CONCESSIONS 5
A. Article on Monopolies
Paragraph 1
There is consensus in EG3 that the right of governments to create, allow or maintain monopolies could not be challenged under the MAI. But there is no consensus on the need to make it explicit in the MAI. Several delegations supported the language confirming the right of governments to designate new monopolies, although this could also be done through an interpretative note. One delegation was of the view that, without such a provision, there would be uncertainties about the scope of application of the MAI in this field. Some delegations remained unconvinced, however, of the need to mention this right explicitly in the Agreement. One delegation noted that government prerogatives on monopolies also apply to their elimination; inclusion of the word "eliminating" at the end of the phrase would make this clear and produce a more balanced provision. Some delegations noted the link between the designation of new monopolies and the MAI article on Expropriation and Compensation. One delegation pointed out that the need for paragraph 1 would be enhanced by the inclusion of market access disciplines in the MAI.
Paragraph 2
A large majority of EG3 delegations considered that the National Treatment and MFN Treatment obligations should apply to the designation of new monopolies. Several delegations pointed out the difficulty of applying such obligations to every situation that may arise in the future, notably in the context of the introduction of new technologies and felt that a "best endeavour" undertaking would be more appropriate. Delegations also noted the link with the demonopolisation issue and, in particular, that of the lodging of country-specific reservations or exceptions.
Paragraph 3
1. A large majority of delegations considered that the provisions of the Monopolies article should apply to government-designated monopolies at all levels of government and not be limited to those designated by central governments. One delegation suggested that in the case of privately-owned monopolies, the obligations should apply only to those created after the entry into force of the MAI and not to existing ones. This delegation argued that would be difficult to apply the obligations retroactively to existing privately-owned monopolies while such practical difficulties would not arise with respect to existing government monopolies.
2. Concerning subparagraph d), it was recognised in EG3 that monopolies have the capacity to introduce market distortions, notably by cross-subsidising their business activities in competitive sectors. It was also acknowledged that abuse of dominant position was a competition policy issue. Further thought will also need to be given to the meaning of the "abusive use of prices".
Paragraph 4
1. EG3 was of the view that demonopolisation operations are generally favourable to liberalisation since they open up new investment activities. Demonopolisation operation would have the effect, however, of extending the obligations of the MAI to a new area. Several delegations felt therefore that the MAI should provide the Contracting Parties with the possibility to lodge new country-specific reservations/exceptions when this situation occurs. This would not be contrary to standstill since country-specific reservations/exceptions introduced at the time of demonopolisation, would, in principle, be subject to standstill. These delegations welcomed, as a result, the flexibility in paragraph 4. An alternative to this approach would be precautionary country-specific reservations/exceptions lodged at the time of the entry into force of the Agreement. This problem clearly belongs to the broader issue of liberalisation and balance of commitments.
2. Some other delegations considered that the possibility of lodging country specific reservations or exceptions should be limited to the time a Contracting Party adheres to the MAI. In the absence of such reservations or exceptions, the National Treatment obligations would apply to demonopolisation operations. One delegation thought that the combined ability to designate new monopolies and to cover by reservations or exceptions new non-conforming measures could be used to evade MAI obligations.
Paragraph 5
The desirability of introducing a notification requirement for existing and new monopolies was found by some EG3 delegations to be closely related to the issue of country-specific reservations/exceptions and to a MAI article on Market Access. One delegation wondered what use the Parties Group could make of this information and feared the administrative burden. One delegation suggested that a best endeavour undertaking to provide, wherever possible, prior notification of any newly designated monopoly, along the lines of article 1502(a) of NAFTA, might offer a more palatable approach. Another delegation recalled the proposal made in the context of the negotiations of the Supplementary Treaty to the Energy Charter Treaty which limits reporting requirements for government-designated monopolies at the sub-national level to classes of monopolies as opposed to individual monopolies.
Paragraph 6
A few EG3 delegations proposed to exclude from investor-state arbitration matters arising out of paragraphs 3(b), 3(c), 3(d) or 3(e) of this Article. Other delegations felt that this could set a dangerous precedent for other MAI obligations. One delegation suggested that governments should keep control over the dispute settlement process because the disputes that may arise between government-designated monopolies and foreign investors are most likely be a function of the manner in which these monopolies are regulated than to their own behaviour.
B. Article on [State enterprises] [entities with which a Government has a specific relationship]
Several EG3 delegations questioned the need for specific provisions on state enterprises. The
problem of anti-circumvention of the MAI obligations could be addressed in the context of a general article on the subject or in the context of corporate practices. State enterprises operating in the competitive sector should be treated no differently than private enterprises. One delegation considered, however, that it is not always certain that governments can divorce themselves from the activities of their state enterprises. Foreign investors may, in any case, entertain this suspicion, particularly where such enterprises play a significant role. A balance should be struck between their rights under the MAI as investors and their obligations as suppliers of goods or services to domestic and foreign investors. One delegation felt that the best way to ensure this balance is to submit state enterprises to the same rights and obligations than private enterprises.
C. Definitions related to Articles on Monopolies [and State Enterprises]
1. One delegation suggested brackets around the word "local". A number of EG3 delegations considered that the concept of government-designated "monopolies" should also cover that of "exclusive suppliers" as in the case of Article VIll of the GATS. One delegation suggested that it be discussed whether enterprises with special concessions, for example banks, should be included or not. It was also noted that the possibility of having a GATT article XVIII-type definition relating to "any enterprise" to which a party "formally or in effect" has given exclusive or special privileges", could be considered. Finally, it was recalled that Article 22 of the ECT covers state as well as "privileged enterprises".
2. One delegation suggested the insertion of the words "subject to Annex..."to allow, as in NAFTA, that country specific characteristics be taken into account.
INVESTMENT INCENTIVES 6
1. The discussion on investment incentives in EG3 was based on a Note, including a proposal for draft provision, by one delegation and a proposal by another delegation.
2. Many delegations believed that disciplines on investment incentives would be important for the overall credibility of the MAI while at the same time recognising the role of investment incentives with regard to the aims of policies, such as regional, structural, social, environmental or R&D policies.
3. One delegation argued that a definition of investment incentives is a necessary prerequisite for increased transparency and disciplines regarding such measures. It suggested a definition of investment incentives based largely on the definitions of subsidies and "specificity" found in the WTO Agreement on Subsidies and Countervailing Measures (ASCM). This delegation also provided text for a specific transparency provision.
4. Several delegations, however, considered the nature and scope of the disciplines proposed by this delegation and others to be too ambitious. Since WTO members were still grappling with related issues, it would be premature to include disciplines in the MAI that could duplicate or detract from WTO obligations. They also took the view that there has been insufficient analysis of the nature and impact of incentives and of the nature and extent of any disciplines which would be required given the objectives of the MAI. One delegation believed more work was necessary to identify fully the degree of the negative effect of individual incentives in relation to the policy goals, often beneficial, implemented through those incentives. Problems need to be clearly identified prior to drafting disciplines aimed at addressing those problems.
5. Several delegations also questioned the viability of creating, at this stage, standstill and rollback provisions on non-discriminatory investment incentives. Subjecting investment incentives to the NT and MFN obligations would already constitute a major step forward. One delegation felt that this would also imply submitting investment incentives to transparency obligations and subjecting nonconforming measures to standstill and rollback.
6. Most delegations believed that any plans for disciplines on tax incentives should be taken up by EG2. Some delegations thought that tax measures should be excluded.
7. Some delegations expressed concern that any additional disciplines on investment incentives in the MAI could divert foreign investment to non-Members and place MAI Contracting Parties at a disadvantage relative to non-Members in their ability to retain or attract investment. Such disciplines could also constitute an obstacle to accession to the MAI by non-Members. On the other hand, some delegations noted that it was always envisaged that the MAI, as a high standards agreement, would mandate more liberal FDI regimes among Parties than typically maintained by non-Members, and disputed claims that disciplines on incentives presented any special problems in this regard.
TECHNOLOGY R&D
(Proposal by one delegation)
On the topic of Technology R&D, one delegation has proposed the following text:
INTELLECTUAL PROPERTY
The Definition of Investment
Virtually all delegations recognised the need for further examination of the concept of intellectual property in the definition. Delegations stressed that decisions on definition are closely linked to the resolution of the substantive problems discussed below. Delegations had varying views on whether the MAI should have an open or closed definition of intellectual property. Of those delegations that proposed a closed definition, some thought that the definition should cover only those rights specified in the TRIPS agreement and others thought that other existing rights should also be covered. Several delegations thought that the definition should exclude copyright and neighbouring rights and databases. In addition, delegations had varying views on whether the definition should cover future as well as existing intellectual property rights. Some delegations thought that it would be important to reflect footnote 2 of the Chair's text on the Definitions of Investment and Investor. That footnote contemplates that an asset, to qualify as an investment, must have the characteristics of an investment, such as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk.
National Treatment, Most Favoured Nation Treatment and General Treatment
1. All delegations agreed that the current formulation of National Treatment and Most Favoured Nation Treatment in the MAI goes beyond existing national and international practice for intellectual property. Delegations formulated three possible approaches. The MAI could provide that National Treatment and MFN:
(b) would have no application to intellectual property; or
(c) would apply to intellectual property, but a MAI Party could derogate from NT and MFN in a manner consistent with the TRIPS Agreement and, perhaps, other intellectual property agreements.
2. Virtually all delegations that expressed an opinion supported either approach (b) or (c). Of those delegations, many want to consider whether the approach should also be applied to the MAI provision on General Treatment. In addition, some delegations thought that the concepts of "use" and "enjoyment' in the NT, MFN and General Treatment provisions should not apply to intellectual property.
Expropriation and Transfers
1. Delegations thought that the MAI could significantly improve the existing international law on intellectual property through its investment protection provisions - in particular, the expropriation provisions - although some delegations thought that additional clarification on the actual value added would be helpful. In addition, some delegations expressed the view that the concepts of direct and indirect expropriation and the concept of a measure having an equivalent effect to expropriation should not cover certain intellectual property practices, such as the issuance of compulsory licenses or the revocation, limitation or creation of intellectual property rights, that are permissible under TRIPS and, perhaps, other intellectual property agreements. Delegations identified three approaches protecting these practices:
(b) refine the concepts of "equivalent effect" and "indirect expropriation" to ensure that they do not apply to these practices; or
(c) draft a provision stating that the concepts of expropriation and measure having equivalent effect shall not apply to practices consistent with TRIPS and, perhaps, with other international agreements.
2. Some delegations thought that the provisions of the MAI on Transfers will have no adverse impact on intellectual property practices. However, other delegations expressed concern that these provisions may force some MAI Parties to ensure that certain payments are freely transferable in a manner inconsistent with their intellectual property regimes. Particular concern was expressed about the possible impact of the Transfer provisions on collective management regimes. Delegations considered that this issue will require further study to determine whether there is a problem and, if so, how the problem might be solved.
Performance Requirements
Delegations agreed that restrictions on perfomance requirements should not cover a requirement that is imposed, or a commitment or undertaking that is enforced, by a court, administrative tribunal or competition authority to remedy an alleged violation of competition laws regarding intellectual property rights or to act in a manner not inconsistent with other provisions of the MAI. Currently, there is a square-bracketed text to this effect in the draft MAI text. One delegation proposed that the words "court, administrative tribunal, competition authority" be followed by "or other competent authorities". A large number of delegations also believed that restrictions on performance requirements should also not cover use of intellectual property rights without the authorisation of the rights holder, to the extent that such use is consistent with the TRIPS Agreement. Finally, one delegation had concerns about the meaning of the phrase "proprietary knowledge".
Monopolies
Delegations agreed that the definition of monopolies should continue to include bracketed text that would exclude from the definition an entity that has been granted an exclusive intellectual property right solely by reason of such grant. Delegations thought that this issue will require further study to determine whether there is a problem and, if so, how the problem might be solved.
Dispute Settlement
Delegations noted that Expert Group No. 1 is addressing issues arising from the relationship between dispute settlement under the MAI and under other international agreements. Some delegations doubt that overlap between dispute settlement systems gives rise to issues that are unique to the field of intellectual property. Other delegations are concerned that intellectual property may indeed require special attention. In particular, the concerns that were expressed included conflicting panel decisions on TRIPS provisions, the applicability of investor to state dispute settlement to intellectual property and possible problems with forum shopping. These delegations want to consider the issue of dispute settlement further.
Other lssues
During the discussion, delegations identified a number of issues that are new and that require further consideration:
(b) when does an intellectual property right take on the characteristics of an investment;
(c) does the status of a rights holder give rise to any issues that must be addressed with respect to the MAI provisions on key personnel;
(d) will the MAI contain provisions on corporate practices that might give rise to intellectual property concerns; and
(e) will the MFN provision of TRIPS be triggered by any substantive or procedural provisions of the MAI and, if so, what is the impact?
PUBLIC DEBT 8
1. It was agreed that the issue of trade insurance and export credit guarantees still needs to be addressed.
2. A footnote could be added to explain the meaning of "appropriate institutions".
3. One delegation considered that the obligation of MFN treatment needs to be preserved in the context of public debt rescheduling.
4. Some delegations wished to review whether the carve-out should apply to rescheduling of all public debt or only to debts owed to other Contracting Parties and to private creditors whose claims were linked to the rescheduling of state-to-state debt.
5. Some delegations continued to reserve their position on the inclusion of public debt within the scope of MAI disciplines.
6. Most delegations remained of the view that, with the exception of the proposed carve-out for debt rescheduling, public debt should be fully covered by the MAI disciplines. Situations where country public debt management policies may not be consistent with the MAI provisions can be covered by country-specific reservations. A few delegations, however, expressed concern over this approach and considered that public debt management should be totally excluded from the scope of the MAI.
1. Reference to "encouragement and promotion of investments", usually found in BITs does not constitute a principle of general treatment but may be included at some other place of the MAI.
2 . Depending on the definition of investment/investor adopted in the MAI, the wording of Article 1 ("investments of investors") and subsequent articles may have to be changed.
3. Reference to international law is critical in this article and worded in the most simple manner. This may be a general issue to be discussed when other references to international law are made in other articles of the MAI.
4. The link between general treatment and NT/MFN was underlined as critical. However, since general treatment was considered as an "absolute" principle as opposed to NT/MFN considered as "relative" principles, it was agreed that it was justified to separate the articles on General Treatment and NT/MFN respectively.
5. In the course of discussions it was agreed to suggest that special commitments entered into by a Contracting Party vis-a-vis an investor should be addressed in the MAI in a manner to be discussed at a later stage.
6. Obligations apply in all circumstances (i.e. "at all times"), although specific language was not considered necessary on this point.
7. Regarding Article 1.2, three formulations were suggested which have in practice three different implications. The proposal by one delegation is reflected in a footnote and calls for no additional standards with respect to which a govemment's actions would be measured, but makes clear that the standards in the first paragraph apply to all activities relating to an investment. The other two formulations are shown in brackets and provide either: (i) that a government's actions would be measured as against either one of the two concepts (unreasonable, discriminatory), applied independently or (ii) that a government's actions would be measured as against both concepts, applied conjunctively. The group stresses that this choice will have to take into consideration the choices to be made on other aspects of the MAI, such as National Treatment and taxation. DG3 believes that this question is a policy matter for the Negotiating Group which cannot be resolved through a drafting exercise. This delegation subsequently submitted a new proposal to help resolve article 1.2.
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