GENERAL PROVISIONS

1. One delegation proposed that the Preamble include the following language on taxation: "aware of the importance of taxation for investments and investors, emphasising that double taxation agreements cover most OECD countries in a satisfactory manner, and that tax policy considerations shall be taken into account in the process of accession of new Contracting Parties, in particular the existence of a network of bilateral tax treaties;" This proposal was not discussed. It may need to be revisited in the light of further consideration of taxation matters by the Negotiating Group.

2. Two delegations support including in the Preamble the following language on natural resources: "Reaffirming the sovereignty and sovereign rights of States over natural resources within the limits of national jurisdiction."

3 . Some delegations proposed an explicit reference to the World Trade Organisation. One delegation proposed the addition immediately after the words "world trading systerm" of: "encompassing multilateral and bilateral investment instruments as well as agreements of the World Trade Organisation". This proposal would need some refinement to ensure that it does not limit the scope of the phrase "world trading system" by excluding, for example, regional agreements.

4. One delegation proposed this language. Others oppose the inclusion of such language because they believe that it would prejudge, and be prejudicial to, future work on investment in the World Trade Organisation.

5. The square brackets in this tiret, the first set of brackets in the next tiret and the overall brackets on this and the next tiret were requested by some delegations which oppose inclusion of texts on the matter concerned in the Preamble. The brackets do not reflect a divergence on drafting at this stage, although some delegations have concerns with respect to the reference to "conservation". One delegation has put forward additional language on the environment and labour which is set out in the Commentary and which is supported by one delegation.

6. Some delegations proposed that the statement is open to accession by all countries be strengthened.

7. One delegation proposed that the Preamble state that the Guidelines include, in particular, recommendations on employment and industrial relations and environmental protection; other delegations were of the view that the text introducing the Guidelines as an annex should specify the eight subject areas, including those just mentioned, on which the Guidelines make recommendations (see Section III below). In addition, one delegation would like to add words to the effect that the Contracting Parties consider the Guidelines to be "a valuable part of the framework for the consideration of issues of investment and multilateral enterprises." The draft text on associating the Guidelines with the MAI, together with an accompanying footnote, is found on page 86.

SCOPE AND APPLICATION

1. The Negotiating Group agreed that this broad definition of investment calls for further work on appropriate safeguard provisions. In addition, the following issues require further work to determine their appropriate treatment in the MAI: indirect investment, intellectual property, concessions, public debt and real estate.

2. For greater certainty, an interpretative note will be required to indicate that, in order to qualify as an investment under the MAI, an asset 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.

3. A number of EG1 delegations were of the view that rather than an article on geographical scope, an article should define the "territory" or "area" of a Contracting Party to which the MAI would be applicable and in that case, it could be included in a general definitions part of the agreement. Some delegations had serious misgivings about the feasibility of embarking on this approach.

4. EG1 agreed that an alternative text of subparagraph (b) illustrating the "functional' approach supported by some delegations should be included in order to preserve the approach for future consideration if the Negotiating Group were to decide to pursue that option further. An alternative subparagraph (b), could read:

"................... investments beyond the territorial sea under the jurisdiction of a Contracting Party in accordance with international law as reflected in the 1982 United Nations Convention on the Law of the Sea."

5. In case such a declaration of application were to be accompanied by reservations or exceptions beyond those of the declaring state, these would be subject to acceptance of the other Parties.

TREATMENT OF INVESTORS AND INVESTMENTS

1. The Chairman of the Negotiating Group proposed to keep this sentence without brackets, noting that several delegations could go along with this proposal provided that there was a satisfactory explanatory statement in the commentary.

2 . Proposed by one delegation.

3. Whether there should be an anti-abuse clause, its precise wording, as well as its specific placement is to be decided.

4. Interpretative note: "The granting of an "authorisation to work" may imply that a natural person may have to meet specific professional qualifications required in order to carry out particular activities. Professional qualification criteria that may be applicable are outside the scope of this Article."

5. Enterprise under this Article would have the same meaning as under the definition of Investment.

6. Interpretative note: "It is understood that the national authorities may periodically verify continued eligibility under this paragraph".

7. Some countries prefer "shall endeavour" and may need to refer to capitals before agreeing to deletion.

8. Several delegations have concerns with extending the benefits of the MAI Key Personnel provisions to permanent residents of another Contracting Party. As a result of the Negotiating Group discussion on 23-25 April 1997, the Chairman proposed that at least for the purposes of investors, nationals AND permanent residents should be covered. Delegations should reflect further on the inclusion of permanent residents as concerns the categories of executive, manager, or specialist.

9. Three delegations maintained a reservation on the coverage of the article concerning membership on boards of directors.

10. It was pointed out that there may be a need to define "senior management positions" and "membership on boards of directors"

11. It is understood that this article would not interfere with national antidiscrimination and labour laws.

12. One delegation reserved its position on all obligations on performance requirements that go beyond those in the TRIMS Agreement and the Energy Charter Treaty.

13. This listing of investment operations omits the following terms "maintenance, use, enjoyment, sale or other disposition of investments" which appear in the National Treatment/MFN articles. Some delegations reserve on the inclusion of the word "conduct".

14. One delegation proposes that the following phrase be added at the end of the chapeau of this paragraph: "or condition the receipt or continued receipt of an advantage on compliance with any of the following requirements". This addition is intended to make clear that the performance requirements article applies in two basic circumstances: i) when linked to the establishment, expansion, etc. of an investment; and ii) when linked to the granting of an advantage.

Unless expressly stated (as proposed) in paragraph 1, there could always be some uncertainty as to whether the article would apply in cases of granting an advantage. This delegation considers this addition necessary for legal reasons as well as to provide investors with greater certainty. As was the intention in the development of a "one list" approach, the proposed addition would, in the second case (linked to an advantage), limit prohibitions to "requirements" imposed by governments. Extending the prohibitions to only certain (but not all) "commitments and undertakings" would unduly interfere with government practices regarding "voluntary" commitments in exchange for an advantage and could result in a significant burden on Contracting Parties on lodging reservations for government-firm agreements containing "Prohibited" voluntary undertakings.

15. Two delegations proposed an interpretative note which could read: "It is understood that this provision does not extend commitments on cross-border provision of services under the GATS." A number of delegations felt that this concern should be addressed in the context of a general provision on the relationship between the MAI and the WTO obligations. One delegation reserved its position on the inclusion of "services" in 1(c) with respect to requirements associated with the granting of an advantage.

16. A large number of delegations indicated that they can agree to a final version of this paragraph only if a clear exception is made for the possibility of enforcing competition laws and for the transfer of intellectual property rights, as long as the latter is not contrary to the TRIPS Agreement. The exact wording of this paragraph remains to be determined in consultation with competition and intellectual property experts, to reflect the comments made in paragraph 7 of the Report to the Negotiating Group on Intellectual Property. In this context questions were raised concerning the meaning of "proprietary knowledge" and the reference to the relevant authorities.

17. One delegation reserves its position on paragraph (g) and notes that the inclusion of (g) may inadvertently oblige Contracting Parties to lodge reservations in respect of basic business incoporation laws in so far as such laws oblige the establishment and/or maintenance of representative or head offices for legal purposes.

18. It was recognised that paragraph i) is not intended to interfere with legitimate government employment programmes or employment discrimination laws. A number of delegations conditioned their acceptance of this provision on the elaboration of appropriate language to give greater precision to the obligation and ensure consistency with the article on Key Personnel. Many delegations supported the deletion of this paragraph.

19. This item is meant to cover specific performance requirements expressed in terms of given numbers or percentages of employees while the article on employment requirements addresses problems of discrimination among natural persons holding a valid permit of sejour and work in a given Contracting Party. Some delegations felt that the prohibition in j) should apply to the hiring of national, as opposed to local personnel. Some delegations maintained a reserve on this latter proposal. One delegation wondered whether this provision should apply to residency requirements. Another delegation recalled that the Chairman of the Negotiating Group suggested that residency requirements should not be considered to be inconsistent with the obligations of the MAI.

20. At the Negotiating Group meeting in April 1997, the Chairman noted that a large majority was in favour of including (k) and (l) in the list of prohibited performance requirements. It would not be necessary to have an interpretative note regarding the application of national treatment and MFN. One delegation reserved its position concerning the inclusion of (k) and (l) noting with respect to (l) the requirement to have provisions for nominal qualifying shares. One delegation suggested that items (k) and (l) could be combined into one provision since in their view they achieve the same result. One delegation felt that these items should, for the time being, be kept separate.

21. The term "commitments or undertakings" would be deleted if the above proposal for the chapeau of paragraph 1 was agreed to. Two delegations supported the inclusion of item 1(a). This would appear necessary to cover inter alia, agricultural export support and trade-marketing support programmes. One delegation referred to their concerns on the coverage of services. Another delegation, on the other hand, felt that the inclusion of 1(a) would be incompatible with the provisions of the WTO Agreement on Subsidies and Countervailing Measures. One delegation felt that there might be questions about export credits or export promotion, which would be better addressed in paragraph 5. One delegation pointed to the difficulty of distinguishing in many instances between export promotion and foreign aid programmes. As regards items (g), (h), (k) and (l), several delegations failed to see the link between these items and the receipt of an advantage and suggested that they not be listed in paragraph 2. One delegation also supported the deletion of the reference to 1(f).

22. The listing of the subparagraphs would depend on the coverage of paragraph 2. Several delegations expressed concerns about the scope of the envisaged carve-out. Questions were raised in particular with regard to the reference to the provision of "particular" services and the construction and expansion of particular facilities (which could be assimilated to investment operations). Some delegations considered paragraph 3 to be redundant given the content of paragraph 2.

23. One delegation suggested the use of the term "employee" rather than "worker".

24. Several delegations shared the view that issues relating to the environment and protection of human, animal or plant life or health would be more appropriately treated in the context of a more general article of the MAI. A number of delegations also remained concerned about the wide coverage of subparagraph (a). Many delegations were willing to consider replacing paragraph 4 with the following interpretative note proposed by one delegation:

"Nothing in paragraphs 1(b) and 1(c) shall be construed to prevent any Contracting Party from adopting or maintaining measures necessary to secure compliance with environmental [laws and regulations] that are not otherwise inconsistent with the provisions of this Agreement and that are necessary for the conservation of living or non-living exhaustible natural resources, or [that are necessary to protect human, animal or plant life or health.]"

One delegation considered that the phrase "that are not inconsistent with the provisions of this Agreement" did not fit well in this proposal.

25. One delegation proposed the following interpretative note as an alternative for paragraph 5:

"Nothing in paragraph 1(a), (b) and (c) shall be construed to prevent any Contracting Party from conditioning the receipt or continued receipt of an advantage, in connection with an investment in its territory of a Contracting Party or of a non-Contracting Party, on compliance with qualification requirements for goods or services with respect to export promotion [and foreign aid] programmes.

Nothing in subparagraph 1(b) [or 1(c)] shall be construed to prevent any Contracting Party from applying the WTO rule of Origin of Goods to the qualification for procurement by the Contracting Party or its state enterprise."

26. Many delegations continued to support the inclusion of foreign aid programmes in paragraph (a). Other delegations felt that this reference should be deleted. Several delegations failed to see the link between export promotion (or export credits for that matter) or foreign aid programmes and investment operations. One delegation noted that it is very difficult in many instances to distinguish between export promotion and foreign aid programmes. Another delegation observed that export promotion covers a much narrower field than export credits or subsidies. It also noted that foreign aid programmes are not always given directly to states, but sometimes proceed through private entities such as Non-Governmental Organisations (NGOs). Domestic sourcing requirements imposed on such organisations might result in preferential treatment to domestically-controlled firms over foreign-controlled ones. One delegation felt that these special situations would be better addressed in an interpretative note.

27. The term "state enterprise" would need to be defined.

28. Delegations confirmed that the performance requirements article should not interfere with the Contracting Party's rights and obligations under the WTO Government Procurement Agreement. Several delegations questioned however whether the proposed carve-out afforded by subparagraph 5(b) would achieve that result or might be construed instead to be in conflict with commitments under the WTO Agreement on Government Procurement. Other delegations believe that the proposed language does not achieve this objective and consider it necessary given that the WTO disciplines do not apply in the same way to all countries and government entities and that it would be desirable to preserve the delicate balance reached under the WTO Government Procurement Agreement. It was generally recognised that the matter needs to be examined further to ensure that consistency is achieved between the MAI and the WTO provisions. There was greater support, nevertheless, for the inclusion of 1(b) and 1(c) than for the inclusion of 1(f) and 1(h).

Two delegations proposed consideration of the following interpretative note to clarify the relationship with the WTO Government Procurement Agreement:

"The Performance Requirements article does not affect any obligations that my exist under the WTO Government Procurement Agreement."

This suggestion was not discussed.

29. One delegation suggested that this paragraph could be the subject of an interpretative note.

30. Several delegations supported the inclusion of paragraph 5(d) to avoid any potential conflicts between paragraph 1(i) and privatisation operations. The problems could also be solved if paragraph 1(i) was deleted. Two delegations opposed the inclusion of this provision.

31. Two delegations reserve their position on all privatisation obligations. One considers that dedicated MAI provisions on privatisation are unnecessary, since the basic NT/MFN obligations would apply to privatisation, and thus reserves its position on all such provisions.

32. One delegation reserves its position.

33. Some delegations reserve their position on sub-paragraph (b) as it goes beyond the scope of a privatisation article. Delegations agree that this provision does not apply to the behaviour of private entities (corporate practices). It is understood that the meaning of that provision is to prevent Contracting Parties from imposing rules on such secondary transactions which are inconsistent with NT/MFN. In the light of this, some delegations proposed to include language along the lines of "b) measures governing subsequent...". It is felt useful that legal experts examine the ultimate formulation of this provision on the basis of this understanding.

34. One delegation is ready to withdraw this proposal if reference to vouchers schemes under paragraph 3, alternative 2, letter d, is deleted.

35. Two delegations propose to insert "prejudice Contracting Parties' rules governing the system of property ownership or" between the words "shall" and "be".

36. Work on paragraph 3 was based on alternative 1, which was supported by a large number of delegations. However, one delegation maintained its preference for alternative 2. It cannot accept the phrase "are compatible with paragraph 1" (Alternative 1, paragraph 3) on the grounds of the implication that such special rules, regardless of how they are exercised, necessarily conform with NT/MFN. The use, application or exercise of such relevant measures under the tirets (alternative 1) may in fact not conform with NT/MFN. Another delegation shares this view. These delegations propose the deletion of paragraph 3.

37. One delegation would still prefer the inclusion of an illustrative list.

38. One delegation proposed the following note: "As with other measures contrary to obligations on National Treatment and MFN treatment, use of special share arrangements should be subject to listing as reservations. Recognising that Contracting Parties may privatise assets in the future, Contracting Parties will be permitted to take precautionary reservations for the use of special share arrangements in those sectors where Contracting Parties generally have state- owned enterprises or government restrictions." This proposal was not discussed by the delegations.

39. This language is put forward as a compromise. A number of delegations supporting alternative 1 state their willingness to accept this compromise pending the outcome of the discussions in the Negotiating Group on how to handle de facto discrimination in the context of lodging country specific reservations. One delegation suggested the insertion, after "investments" on the second line, of the words "on the ground of nationality"; of the word "intentionally" after "arrangements" on the third line; and, "on the ground of nationality", after "discrimination" on the same line. That delegation also suggested the inclusion of an illustrative list.

40. This proposal by a delegation has not been discussed.

41. One delegation proposed that the obligation should apply to all levels of government.

42. It is understood that the obligation of this article will be met wherever the information on a privatisation operation is made available.

43. Two delegations support the insertion of the sentences in the bracket. The other delegations see no need for such text.

44. This alternative was proposed by one delegation following bilateral consultations. It was not discussed by the experts.

45. Two delegations reserve their position on the definition. Several delegations considered that the terms "state enterprise" and "government entity" would have to be defined in the Agreement. In addition, the inclusion of "state" in the definition would make necessary additional text in order to ensure that in case of sales by several tranches all transactions would be covered even if the company ceased to be a state enterprise.

46. This note assembles proposals made at various stages on the subject of monopolies/State enterprises/concessions, namely those contained in previous texts.

47. One delegation reserves its position on all obligations on monopolies that go beyond those of the GATT and GATS.

48. The right of governments to designate or maintain a monopoly is not disputed. Some delegations considered, nevertheless, that this right should be made explicit for the sake of clarity and certainty. This right could also be the subject of a footnote or interpretative note on this paragraph. Other delegations continued, however, to favour the deletion of the paragraph, notably on the grounds that it could give rise to questions regarding the obligations on expropriation and compensation and possible market access provisions in the MAI.

49. Delegations remain divided on the desirability of removing these brackets. The issue is linked to the inclusion of provisions in the Agreement on concessions. Some delegations are willing to drop the contents of the brackets if there would be satisfactory provisions in the MAI on concessions.

50. One delegation has difficulties with the inclusion of the term "maintains" since this could create disciplines with respect to existing contracts between the government and such privately- owned monopolies and have general ramifications on the rights of existing shareholders. Another delegation is of the view that this problem could be increased by the coverage of sub- national entities. Other delegations consider it essential that monopolies designated by sub- national authorities should be covered by the disciplines. They recognised that the reference to national and sub-national governments might not be necessary in light of the solution found for the general treatment of sub-national entities under the MAI.

51. There is broad agreement that the issue of delegated regulatory powers of monopolies should be the subject of an anti-circumvention clause. Many delegations felt that the matter could be addressed in the context of a general anti-circumvention clause for the MAI.

52. One delegation raised the issue of the treatment of subcontracting of monopoly activities. Another delegation remains concerned about the broad scope of carve-out implied by the second sentence and favours its deletion, noting that much, if not all, of the core business of government is not involved in producing goods and services for commercial sale.

53. A few delegations supported this alternative on the basis of it being broader and more precise than alternative 2.

54. One delegation felt that the inclusion of this term would be necessary to cover damages incurred by foreign investors in the pre-establishment phase.

55. That delegation could not could agree to the deletion of the phrase "in particular through the abusive use of prices" on the understanding that this practice was covered by the terms "predatory conduct". Another delegation considered that the term "abusive use of prices" has a broader coverage than the concept of anti-competitive practices.

56. This proposal, based on Article Vlll of the GATS, was supported by several delegations. These delegations considered that this provision would be useful in dealing with the activities of monopolies outside the scope of their monopoly rights, without getting too deeply into competition policy. One delegation wondered what abuses of monopoly positions would be "inconsistent" with the obligations of the MAI.

57. Some delegations considered that alternatives 1 and 2 involve too great of an intrusion into competition policy and supported their deletion. Two delegations supported alternative 2 as a fallback in view of its more limited implications for competition policy. One delegation supported alternative 3 on the ground that abuses of dominant positions should be dealt with under competition policy.

58. This is a proposal by two delegations. Many delegates questioned, however, the feasibility and desirability of requiring monopolies to act in accordance with "commercial considerations". One delegation provided a number of explanations in favour of the inclusion of subparagraph e):

Sub-paragraph (e) would present the advantage of increasing transparency: non-cormmercial considerations must be both non-discriminatory [as indicated in (b), (c) and (d)] and must be clearly stated in terms of its designation. (Note, however, that if a government wants to continue to pursue social and other noneconomic objectives, it can still do so through the designation.) Sub-paragraph (e) would also clarify that outside the terms of a monopoly's designation, a monopoly should act in accordance with commercial considerations just like any other enterprise (i.e. that it not use its monopoly power to influence the market). This is, in the view of that delegation, particularly important given the potential power of monopolies over markets in the context of accession. Finally, the proposed language in the two notes would make it clear that charging different prices to different customers, for example, might be justified on the basis of commercial considerations. Consideration could be given to a definition of "commercial considerations" along the lines of accepted wording in GATT Article XVII. Many delegations questioned, however, the feasibility and desirability of requiring monopolies to act in accordance with "commercial considerations".

59. Proposal by one delegation. Some delegations were opposed to the principle of lodging reservations after the entry into force of the MAI. Another delegation proposed that such reservations be made the subject of scrutiny by the "Parties Group" to ensure that they do not negatively affect the level of liberalisation under the MAI.

60. One delegation suggested that the concept of prior notification found in Article VIII.4 of the GATS should also be examined and that the Parties Group should have a role in examining all notifications resulting from this article.

61. It was suggested that the period of three months, which is the notification period for monopolies under paragraph VIII.4 of the GATS, could be an alternative. However, it was felt that the length of the notification period could usefully be decided in light of other notification requirements that might arise under the Agreement.

62. The issue of lodging new reservations for monopolies is linked to the question dealt with under paragraph 4 of this Article.

63. Some delegations explained that paragraph 3(a), unlike paragraphs 3(b), 3(c), 3(d) and 3(e), would discipline circumventions of a Contracting Party's obligations -- including non- discriminatory treatment. The same dispute settlement alternatives should therefore be made available as those for when a Contracting Party's own actions are challenged. Three delegations also pointed to the novelty and complexity of the proposed provisions on monopolies, which argue in favour of limiting the dispute settlement procedures to state-to-state disputes apart from paragraph 3(a). They also believed that most governments do not even allow private "anti-trust' actions in their own courts by their citizens; thus it would be a leap to suggest that there be privately-initiated scrutiny of monopolies' anticompetitive actions pursuant to 3(d). These delegations considered that state-to-state dispute settlement should provide a useful procedural compromise. Many delegations considered, however, this paragraph should be deleted as they believe that Contracting Parties should only sign up to commitments that they would be prepared to defend against individual investors.

64. Several delegations supported this option. Some of them were willing, however, to consider the coverage of state enterprises in the context of an anti-circumvention clause which would cover all enterprises, i.e. both state and private enterprises to which authority has been granted by any level of government. One delegation could not support any of the options presented and will submit an alternative option.

65. Both alternatives address the issue of anti-circumvention of the MAI obligations through the delegation of regulatory, administrative and other governmental authority to entities not covered by the anti-circumvention clause for monopolies found in paragraph 3, subparagraph (a) of the Article on monopolies (see Section A above). The first alternative is limited to state enterprises wherever they exercise regulatory, administrative or other governmental authority. The second alternative covers all entities wherever they exercise regulatory, administrative or other governmental authority without distinction of being privately or publicly owned. Some delegations considered this alternative goes too far in the domain of corporate practices. Other delegations were of the view, however, that it would be both possible and appropriate, in order to ensure the purpose of the anti-circumvention clause, to cover all entities as far as they have been given governmental authority. As with the anti-circumvention clause for monopolies, many delegations argued, however, that these matters could be addressed in the context of a general anti-circumvention clause for the MAl.

66. Two delegations believe that the need for such provisions is predicated by the fact that state enterprises are different from private enterprises because of the links with governmental authorities. One delegation pointed out that when an enterprise is under civil law and the state is a shareholder, the state does not have any special privilege in comparison with any other shareholder. Therefore the government does not have any special authority to influence the behaviour of enterprises.

67. Some delegations pointed out that this paragraph would be needed whichever alternative was chosen. One delegation would like this paragraph to apply to both paragraphs 1 and 2.

68. This proposal was offered as a compromise by one delegation, which favours, nevertheless, option (a) (i.e. no additional provisions) as its first option.

69. One delegation proposes the exclusion of concessions with exclusive rights from the definition of monopolies.

70. While it is recognised that the MAI would need to draw a line between monopolies and concessions, serious doubts were expressed about the use of an "indefinite period of time" as possible criterion for the demarcation.

71. One delegation considers alternative 3 to be acceptable provided that Article A, paragraph 1 is accepted. ln that case, it would perhaps be better to replace in paragraph 1 the term "designating" by the term "establishing".

72. Three delegations questioned the need for this definition.

73. A number of delegations questioned the need for a definition of state enterprises.

74. Proposal by one delegation. It was recognised that there is a link between the issue of concessions and monopolies [paragraph 2 of the article on monopolies (see Section A)]. Those delegations favouring the inclusion of provisions on concessions into the MAI are ready to drop their opposition to the inclusion of "best endeavour" in paragraph 2 if the suggested provision on concessions are included in the MAI. Many delegations question the need for this article. Some delegations felt that further work was required to clarify the issues.

75. One delegation provided a background note on natural resources and concessions in the context of the MAI.

76. A number of delegations consider that the issue of transparency is particularly important for concessions and that special provisions should be developed on this topic under the MAI. Other delegations wondered why similar provisions have not been proposed for monopolies.

77. One delegation proposed to replace the reference to the official languages of the OECD by the official languages of the United Nations. Two delegations questioned the need to impose a language requirement for the publication of awarding procedures.

78. This proposal needs further consideration. One delegation favours the deletion of the reference to natural resources in the proposed text. With respect to mineral resources, including hydrocarbons resources, it also proposes to replace paragraph (vii) of the current definition of "investment" in the MAI, with the following language:

"-- Rights conferred pursuant to law or contract regarding property ownership over mineral resources, including hydrocarbon resources;

-- rights conferred pursuant to any law, regulation, administrative or contractual provision or instrument issued thereunder by which the competent authorities of a Contracting Party entitle an investor or a group of investors, on its own behalf and at its own risk, the exclusive right to prospect for or explore for or produce minerals, including hydrocarbons, in a geographical area."

79. The Group proceeded on the basis of report of EG2 with respect to the treatment of tax incentives.

80. Some delegations favoured the deletion of "the granting of".

81. While it is agreed that investment incentives should be subject to NT and MFN obligations, there are different views on the desirability of making this explicit. Consequently, some delegations consider this paragraph to be unnecessary. One delegation maintains a pre- scrutiny reservation on the text of this draft article. The dispute settlement mechanism would, in particular, apply to this article. One delegation raises the possibility of taking reservations with regard to NT.

82. Several delegations point out that not all investment incentives are bad -- the problem arises in drawing a line between good and bad incentives. It is suggested that the distorting effects of investment incentives on investment decisions and capital flows should be balanced against their possible benefits in achieving legitimate social objectives. Other delegations note that these concerns were addressed in paragraph 3 of the draft article.

83. Some delegations remain unconvinced by the need for special consultation procedures for non-discriminatory investment incentives as defined in paragraph 2, although final judgement would need to await the decisions taken on the coverage of the MAI. The presumption is that, as with other agreements, consultations would be the first procedural step of the dispute settlement mechanism of the MAI. It should be possible to revisit the adequacy of the provisions on dispute settlement and the role of the Parties Group when their configuration is better known. One delegation questions whether the dispute settlement mechanism of the MAI could apply to investment distorting investment incentives or to investment incentives granted illegally. These questions would also deserve further attention. Some delegations questioned the role of the parties group in any consultation process.

84. One delegation suggested the first sentence of paragraph 3 could be added to paragraph 4, and the rest of paragraph 3 deleted.

85. The form and placement of this text would have to be decided.

86. Some delegations feel that the MAI should include additional disciplines on investment incentives from the time it enters into force. Another delegation cautions that additional disciplines could have far-reaching implications for other multilateral agreements as well as for national tax laws and regulatory regimes.

87. Some delegations express the view that positive discrimination should be prohibited and this should be placed in the text.

88. One delegation considers the transparency Article of the MAI would already be sufficient.

89. Some delegations consider it very difficult to recommend future negotiations without agreement on their nature and scope.

90. The Chairman concluded that there is full agreement that government-imposed discriminatory practices would be covered by the MAI. In view of the views expressed by a clear majority of delegations, the MAI should not contain disciplines on non-government imposed discriminatory corporate practices. However, Contracting Parties to the MAI should follow future developments in this area and could take up the matter again if the need arises.

91. See Commentary.

92. See Commentary.

93. There was general agreement that public debt rescheduling should fall outside the MAI disciplines. This present draft provision was submitted by one delegation and other delegations and considered by financial experts in informal consultations on 14-15 April, and not yet discussed by the Negotiating Group. Some delegations continued to reserve their position on the inclusion of public debt within the scope of MAl disciplines.

94. Four delegations oppose any provision on these matters. One delegation could accept a provision covering health, safety, and the environment, but not labour. One other delegation could accept only a non-binding provision.

95. If "measure" is preferred, then the word "lowering" should be replaced by "relaxing". In either case, the term selected should be defined. For reference purposes, delegations mentioned the definition of "measure" in NA.FTA or to be found in the Transparency Article of the MAI and the definition of "standard" in NAFTA and in the WTO Agreement on Technical Barriers to Trade.

96. Delegations noted that no universally accepted definitions existed for "core" or

"domestic" standards. Most delegations preferred "domestic" which was recognised to be wider in scope.

97. A major difference of view as between Alternative 1 and Alternative 2 concerns the first sentence of Alternative 1. This sentence is part of a difference of approach as to whether the provision should refer to respect for universal standards or only to the relaxation of domestic standards. Views differ on whether this sentence is useful or necessary.

98. If "should" were preferred, it might be desirable to add the last sentence of Alternative 1. Those preferring "should'' argued that use of the word "shall" would prevent the authorities offering necessary waivers under domestic law, for example, to help resolve a specific case of damage to the environment and might prevent resolution of particular cases through consultations and persuasion. They also expressed concern that "shall" might expose the authorities to dispute settlement challenge. One delegation expressed concern over the use of the broader phrase "domestic labour" standards with recourse to dispute settlement in that it could create disputes under the MAI over changes in programmes relating to minimum wages or retirement qualifications; this delegation questioned if this was what was intended by this provision. Those preferring "shall" argued that the purpose of this Article is to prohibit a waiver or derogation only if used as an encouragement to an investment.