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PART I
PART ONE:
CONSOLIDATED TEXTS
I. GENERAL PROVISIONS
II. SCOPE AND APPLICATION
1. Investor means:
(i) a natural person having the nationality of, or who is permanently residing in, a Contracting Party in accordance with its applicable law; or
(ii) a legal person or any other entity constituted or organised under the applicable law of a Contracting Party, whether or not for profit, and whether private or government owned or controlled, and includes a corporation, trust, partnership, sole proprietorshipl,2, joint venture.association or organisation.
2. Investment means:
(a) Every kind of asset owned or controlled[,] directly [or indirectly,] by an investor, including3:
(i) an enterprise (being a legal person or any other entity constituted or organised under the applicable law of the Contracting Party, whether or not for profit, and whether private or government owned or controlled, and includes a corporation, trust, partnership, sole proprietorship, branch, joint venture, association or organisation);
(ii) shares, stocks or other forms of equity participation in an enterprise, and rights derived therefrom;
(iii) bonds, debentures, loans to and other form of debt [of an enterprise]4; and rights derived therefrom;5
begin footnote
1One delegation has proposed to delete this term from paragraph (ii) considering that a sole proprietorship would be covered by the term natural person" in paragraph (i).
2Taking account of the advice by EGS on Financial Matters, DG3 considered that branches should be deleted from the definition of investor. France and the United States requested some time to verify that deletion of branches does not pose a problem for non-financial sectors.
3Pending final determination of the scope and content of the agreement, Canada reserves its position as to whether the positive list should be open or closed.
4Some delegations proposed to retain "of an enterprise" in order to clarify that debts of an enterprise are covered. DG3 agreed to retain this in brackets pending clarification of whether natural persons are to be included or excluded. If it decides to include natural persons it can do so explicitly by adding "and of a natural person" after the words "of an enterprise" or it can do so implicitly by deleting any reference to enterprise. If DG3 decides to exclude natural persons it might wish to reflect this on the negative list. Concerns relating to public debt would also be addressed via the negative list.
5Korea reserves its position item (iii).
end footnote
(iv) rights under contracts, including turnkey, construction, management, production or revenue sharing contracts;
(v) claims to money and claims to performance6,7;
(vi) intellectual property rights8;
(vii) rights conferred pursuant to law or contract [such as] or [by virtue of]9 concessions10, licenses, authorisations11, and permits12.
(viii) any other tangible and intangible, movable and immovable property, and any related property rights, such as leases, mortgages, liens and pledges, [unless such assets lack the characteristics of an investment.]
(b) "Investment" does not include13,14:
[(i) public debt;] [debt securities of and loans to a state enterprise or Contracting Party;]
begin footnote
6Some delegations wish to verify the consequences of omitting the words "pursuant to a contract" at the end of item (v).
7Some delegations wish to verify the consequences of omitting from item (v) the words "having an economic value" to determine the possible need to retain these words in the definition.
8Several delegations have concerns relating to this item. France proposed that literary and artistic works should not be included in the definition of investment.
9If the words "such as" are retained, Norway would wish to add the following two elements to the negative list:
-- the granting of authorisations, licences and concessions for the prospection, exploration and production of hydrocarbons;
-- the licensing of fishermen, fishing vessels and equipment.
10France proposed that the term "concessions" may need to be defined, taking account of the substantive obligations to be agreed.
11Canada reserves its position on the inclusion of the word "authorisations".
12Mexico reserves its position on item (vii).
13Some delegations wish to retain for further consideration the idea that the negative list would not apply for purposes of expropriation and compensation and protection from strife and transfers.
14A formula needs to be found to deal with the relationship between the MAI and obligations concerning international trade in goods and services. In this regard, Canada referred to paragraph 34 of the Commentary on the Consolidated Texts [DAFFE/MAI(96)16/REV1]. Mexico and Denmark prefer to retain on the negative list"claims to money that arise solely from commercial transactions including the extension of credit for the sale of goods and services".
end footnote
[(ii) financial assets;]
[unless the transactions [to which such debt or other assets relate] otherwise have the characteristics of an investment; or]
[unless the respective claims are assets of an enterprise mentioned
in paragraph (a) (i); or]
[unless such assets are acquired for the purpose of establishing lasting
economic relations with an enterprise; or]
[(iii) derivatives where the underlying asset is not regarded as an investment],
[(iv) real estate or other property, tangible or intangible, not acquired in the expectation or used for the purpose of economic benefit or other business purposes]15,
[(v) moveable or immovable property, and any related rights, acquired for personal use].
begin footnote
15Australia wants a broader exclusion of real estate and proposes to replace this text by "real estate or rights associated with land".
end footnote
GEOGRAPHICAL SCOPE OF APPLICATION16
This Agreement shall apply in:
(a) the land territory, internal waters, and the territorial sea of a Contracting Party, and, in the case of a Contracting Party which is an archipelagic state, its archipelagic waters; and
(b) the maritime areas beyond the territorial sea with respect to which
a Contracting Party exercises sovereign rights or jurisdiction in accordance
with international law, as reflected particularly in the 1982 United Nations
Convention on the Law of the Sea.17
APPLICATION TO OVERSEAS TERRITORIES
A State may at any time declare in writing to the Depositary that this Agreement shall apply to all or to one or more of the territories for the international relations of which it is responsible.18 Such declaration, made prior to or upon ratification, accession or acceptance, shall take effect upon entry into force of this Agreement for that State. A subsequent declaration shall take effect with respect to the territory or territories concerned on the ninetieth day following receipt of the declaration by the Depositary.
A Party may at any time declare in writing to the Depositary, that this Agreement shall cease to apply to all or to one or more of the territories for the international relations of which it is responsible. Such declaration shall take effect upon the expiry of one year from the date of receipt of the declaration by the Depositary, with the same effect regarding existing investment as withdrawal of a Party.
begin footnote
16A number of 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.
17EG1 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."
18In 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.
end footnote
III. TREATMENT OF INVESTORS AND INVESTMENTS
NATIONAL TREATMENT AND MOST FAVOURED NATION TREATMENT
1.1. Each Contracting Party shall accord to investors of another Contracting Party and to their investments, treatment no less favourable than the treatment it accords [in like circumstances] to its own investors and their investments with respect to the establishment, acquisition, expansion, operation, management, maintenance; use, enjoyment and sale or other disposition of investments.
1.2. Each Contracting Party shall accord to investors of another Contracting Party and to their investments, treatment no less favourable than the treatment it accords [in like circumstances] to investors of any other Contracting Party or of a non-Contracting Party, and to the investments of investors of any other Contracting Party or of a non-Contracting Party, with respect to the establishment, acquisition, expansion, operation, management, maintenance, use, enjoyment, and sale or other disposition of investments.
1.3. Each Contracting Party shall accord to investors of another Contracting Party and to their investments the better of the treatment required by Articles 1.1 and 1.2, whichever is the more favourable to those investors or investments.
l. Notwithstanding any other provisions of the Agreement, a Contracting Party shall not be prevented from taking prudential measures with respect to financial services, including measures for the protection of investors, depositors, policy holders or persons to whom a fiduciary duty is owed by an enterprise providing financial services, or to ensure the integrity and stability of its financial system.
2. Where such measures do not conform with the provisions of the Agreement, they shall not be used as a means of avoiding the Contracting Party's commitments or obligations under the Agreement.
2.1. Each Contracting Party shall promptly publish, or otherwise make publicly available, its laws, regulations, procedures and administrative rulings and judicial decisions of general application as well as international agreements which may affect the operation of the Agreement. Where a Contracting Party establishes policies which are not expressed in laws or regulations or by other means listed in this paragraph but which may affect the operation of the Agreement, that Contracting Party shall promptly publish them or otherwise make them publicly available.1
2.2. Each Contracting Party shall promptly respond to specific questions and provide, upon request, information to other Contracting Parties on matters referred to in Article 2.1.
begin footnote
1The 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 [DAFFE/MAI/M(96)4].
end footnote
2.3 Nothing in this Agreement shall prevent a Contracting Party from requiring an investor of another Contracting Party, or its investment, to provide routine information concerning that investment solely for information or statistical purposes. No Contracting Party shall be required to furnish or allow access to information concerning particular investors or investments the disclosure of which would impede law enforcement or would be contrary to its laws [policies, or practices]2 protecting confidentiality.
A. Temporary entry and stay of investors and key personnel3
Except as explicitly provided for in [paragraph 5 of] this Article, nothing in this Agreement shall prevent the application of Contracting Parties' national laws relating to immigration and labour. [These shall not be invoked by a Contracting Party as a means of evading its obligations under this Article.]4,5,6
1. Each Contracting Party shall grant temporary entry and stay and provide any necessary confirming documentation to a natural person of another Contracting Party who is:
(a) an investor who seeks to establish, develop, administer7 or provide advice or essential technical services to the operation of an [enterprise] [investment] to which the investor has committed, or is in the process of committing, a substantial amount of capital8, or
begin footnote
2Proposed by the Australian delegation.
3Japan reserves its position on this article except for paragraph
4The chapeau clause would carve out labour and immigration laws from the coverage of the other substantive articles of the Agreement. The bracketed options in the chapeau reflect a difference of view as to the extent to which the provisions of this article would prevail in the event of conflict with national immigration and labour laws. There are three main options: first, all of this article would prevail, except paragraph 4b) which is drafted as a best endeavours obligation; the second option is that only paragraph 5 would prevail. The third option, which is a variant of the second, adds an "anti-abuse" clause shown in square brackets.
5Australia suggests referring here to "regulations and policies" as well as "laws".
6Austria proposes that the chapeau should also include the application of general wage and working conditions based on laws, regulations and collective agreements.
7This term is understood to include liquidation of an investment.
8"Substantial amount of capital" is a relative test which would be met if capital were substantial with respect to the size of the investor or the size of the investor's share in an investment, taking into account the field of activity of the investor and the investment. Some delegations question the use of this term.
end footnote
[(b) an employee employed by an [enterprise] [investment]9 referred to in (a) above, in a capacity of executive, manager or specialist and who is essential10 to such [enterprise] [investment]]11
or
[(b) an employee of an [enterprise] [investment] of another Contracting Party for a period of not less than one year, seeking to:
(i) establish a subsidiary or affiliate of that [enterprise] [investment] to which the [enterprise] [investment] has committed, or is in the process of committing, a substantial amount of capital, or
(ii) render services to a subsidiary or affiliate of that [enterprise] [investment]12 provided that the employee is employed in a capacity of executive, manager or specialist [and that such employee is essential to the present investment.]]
[2. To be eligible for temporary entry and stay pursuant to subparagraph (a) or (b), a natural person must comply with applicable measures relating to public health and safety13, criminal law, and national security.]14
3. Temporary entry and stay shall be granted to a person for [a period not exceeding 1-3 years] so long as that person continues to meet the requirements of this Article.15
4. (a) Each Contracting Party shall grant temporary entry and stay and provide any necessary confirming documentation to the spouse and minor children of a person who has been granted temporary entry and stay in accordance with this Article. The spouse and minor children shall be admitted [under the conditions] and for the same duration16 as that person.
begin footnote
9It is proposed to replace "investment" by "investor" in this subparagraph as well as in the alternative paragraph lb).
10One delegation proposes that the essentiality test apply only to specialists.
11Several delegations support inclusion in this subparagraph of a prior employment requirement of at least one year.
12In Austria's opinion, this does not include direct sales or services rendered to unaffiliated enterprises.
13Two delegations propose to replace "public safety" by "public order".
14There is a proposal to delete paragraph 2 with the understanding that the article would be governed by the chapeau clause and that the General Exceptions provisions of the Agreement would also be applicable. One delegation considers that the chapeau and paragraph 2 serve complementary but distinct functions.
15It is understood that the national authorities may periodically verify continued eligibility under this paragraph.
16One delegation suggests replacing "for the same duration as that person" by "for a period not longer than the stay of that person".
end footnote
(b) Each Contracting Party shall endeavour to grant authorisation to work to the spouse of the person who has been granted temporary entry and stay in accordance with this Article.17
5. No Contracting Party may:
(a) as a condition for temporary entry and stay in accordance with this Article, require labour market or other economic needs tests or procedures;18 or
(b)impose or maintain any numerical restriction relating to temporary entry and stay in accordance with this Article.19
6. For the purposes of these paragraphs:
[Natural person of another Contracting Party means a natural person having the nationality of [or who is permanently residing in] another Contracting Party in accordance with its applicable law;]
[Enterprise of another Contracting Party means a legal person or any other entity constituted or organised under the applicable law of another Contracting Party, whether or not for profit, and whether private or government owned or controlled, and includes a corporation, trust, partnership, sole proprietorship, joint venture, association or organisation, and a branch of an enterprise;]
Executive means a natural person-who primarily directs the management of an [enterprise] [investment] or establishes goals and policies for the enterprise or a major component or function of the enterprise, exercises wide latitude in decision-making and receives only general supervision or direction from higher- level executives, the board of directors, or stockholders of the enterprise;
Manager means a natural person who directs the management of an enterprise, or department, or subdivision of the enterprise, supervises and controls the work of other supervisory, professional or managerial employees, has the authority to hire and fire or recommend hiring, firing, or other personnel actions and exercises discretionary authority over day-to-day operations at a senior level; and
Specialist means a natural person [who possesses knowledge at an advanced level of expertise and who possesses proprietary knowledge of the enterprise's product, service, research equipment, techniques, or management.]
begin footnote
17Some delegations prefer that this undertaking be a binding obligation. Others do not want any provision of this kind in the MAI.
18Norway reserves on paragraph 5a.
19Regarding paragraph 5 a) and b), some delegations explain that for political reasons their countries would wish to continue to maintain economic needs tests and numerical restrictions. These countries would have to take a reservation if the MAI were to have a legally binding obligation not to impose labour market or economic needs tests or numerical restrictions. An alternative is proposed which would allow those countries to maintain labour market tests or numerical restrictions as long as they are not applied to deny temporary entry and stay to investors or key personnel of an MAI Party. Such an alternative could read:
"No Contracting Party may deny temporary entry and stay in accordance with this Article for reasons relating to labour market or other economic needs tests or numerical restrictions in national laws."
end footnote
B. Employment Requirements
[A Contracting Party shall permit investors of another Contracting Party and their investments to employ any natural person of the investor's or the investment's choice regardless of nationality and citizenship provided that such person is holding a valid permit of sejour and work delivered by the competent authorities of the former Contracting Party [and that the employment concerned conforms to the terms, conditions and time limits of the permission granted to such person.] ] (Based on ECT, article 11 (2)).
[No Contracting Party may apply national employment quotas relating to the employment of a natural person by an investor or an investment of another Contracting Party provided the person is holding a valid permit of sejour and work delivered by the competent authorities of the former Contracting Party.]
PERFORMANCE REQUIREMENTS 20,21
Paragraph I
No Contracting Party may impose, enforce or maintain any of the following requirements, or enforce any commitment or undertaking, in connection with the establishment, acquisition, expansion, management, operation, or conduct of an investment of an investor of a Contracting Party or of a non-Contracting Party
in its territory22:
(a) to export a given level or percentage of goods or services23;
(b) to achieve a given level or percentage of domestic content;
(c) to purchase, use or accord a preference to goods produced or services provided in its territory, or to purchase goods or services from persons in its territory;
(d) to relate in any way the volume or value of imports to the volume or value of exports or to the amount of foreign exchange inflows associated with such investment;
(e) to restrict sales of goods or services in its territory that such investment produces or provides by relating such sales in any way to the volume or value of its exports or foreign exchange earnings;
begin footnote
20Particular concerns of some delegations in relation to this article could be covered by country-specific reservations.
21Australia reserves its position on all obligations on performance requirements in the MAI that go beyond those in the TRIMs Agreement And the Energy Charter Treaty. Hungary expresses concerns over the possible retroactive application of this article to performance requirements agreed in the context of privatisation operations.
22The place of the term "in its territory" is still to be determined in the National Treatment and Most Favoured Nation Treatment provisions [see DAFFE/MAI(96) 16/REV1].
23Hungary reserves its position on subparagraph (a). Spain reserves its position on the inclusion of services in subparagraphs (a), (c) and (e) pending clarification of its implications. It also wishes to maintain a scrutiny reservation on the coverage of "purchase" in subparagraph (c).
end footnote
(f) to transfer technology, a production process or other proprietary knowledge to a natural or legal person in its territory [except when the requirement is imposed or the commitment or undertaking is enforced by a court, administrative tribunal or competition authority to remedy an alleged violation of competition laws or to act in a manner not inconsistent with other provisions of the Agreement]24;
(g) to locate its headquarters for a specific region or the world market in that Contracting Party25;
(h) to supply one or more of the goods that it produces or the services that it provides to a specific region or world market exclusively from the territory of that Contracting Party;
[(i) to achieve a given level or value of production, investment, manufacturing, sales26, employment, research and development in its territory;]27
[(j) to hire a given level or type of local personnel; ]
(k) to establish a joint venture28; or
begin footnote
24Norway reserves its position on the first part of subparagraph (f). France and Japan are concerned with the breadth of the derogation implied by the square bracketed text. Canada can accept subparagraph (f) only in its complete form. It was explained by those delegations favouring the full text that, as in the WTO "TRIPS" Agreement and NAFTA, the purpose of the exception for competition enforcement contained in the brackets is to clarify that normal administration of competition laws sometimes calls for limited licensing (or divestiture) of patents or "know-how" to remedy situations of monopoly or abuse, and that such individual applications of law do not constitute mandatory technology transfer. This exception is not likely to be used frequently. Delegations should further consult their competition authorities on this matter to determine its relevance to their own "antitrust" laws. Other delegations are of the view that further consideration needs to be given to the means of ensuring consistency with IPR provisions in existing international agreements (WIPO, TRIPS, ....) since these may allow certain compulsory performance requirements under certain conditions.
25Canada reserves its position on subparagraph(g).
26Some delegations consider that PR obligations should apply to minimum domestic sales requirements, for example in the event of a domestic shortage of oil. Other delegations express concern that such requirements should not be included because that might undermine the right of Contracting Parties to impose export bans in appropriate circumstances.
27Several delegations consider the language of this subparagraph to be too general and propose its deletion. Moreover, its key aspects are already covered in subparagraphs (a) to (h). The United Kingdom proposes deletion of the terms "investment" and "employment" while Spain proposes deletion of the word "employment". The European Commission suggests that the performance requirements listed in subparagraph (I) be discussed further before a decision is taken regarding their deletion.
28A few delegations prefer to delete this subparagraph and to rely instead on the National Treatment/MFN provisions, possibly supplemented by an explanatory note. Another approach would be to develop a separate provision on specific types of legal entity along the lines of GATS Article XV1 on market access.
end footnote
[(l) to achieve a minimum level of local equity participation29.]
Paragraph 2
[A measure that requires an investment to use a technology to meet generally applicable health, safety or environmental requirements shall not be construed to be inconsistent with paragraph 1(f)30. For greater certainty, Articles XXX on National Treatment and MFN apply to the measure.]31
Paragraph 332
Alternative 1
No Contracting Party may condition the receipt or continued receipt of an advantage, in connection with an investment in its territory of an investor of a Contracting Party or of a non-Contracting Party, on compliance with any of the following requirements:33
[(a) to export a given level or percentage of goods or services]34;
(b) to achieve a given level or percentage of domestic content;
(c) to purchase, use or accord a preference to goods and services35 produced in its territory;
begin footnote
29Several delegations prefer to delete this subparagraph and rely instead on the National Treatment and MFN provisions.
30Many delegations consider this provision to be unnecessary. No one questions the need for the MAI to allow Contracting Parties to take non-discriminatory measures necessary to ensure the respect of health, safety and environmental requirements. However, delegations doubt that such measures would run counter to the prohibition of performance requirements concerning the transfer of technology. They also suggest that such measures might better be addressed in an explanatory note, to paragraph 1, in paragraph 5 of this Article, or in the general exception provision of the Agreement.
31Several delegations consider that this sentence may be unnecessary or could be picked up in a more general provision dealing with the relationship between National Treatment/MFN and other provisions of the Agreement.
32The alternative texts for this paragraph offer different presentational options. They do not imply differences of substance.
33Japan proposed a simplified presentation of paragraph 3 which would read: "... on compliance with any of the requirements listed in paragraph 1 a) - e)." However, this approach could be adopted only if the same language of the subparagraphs applied in paragraphs 1 and 3. Ireland proposes that the list of requirements be an open-ended illustrative list.
34Several delegations wish to consider further the inclusion of services in paragraph 3. One concern related to the treatment of tax measures relating to services.
35It is yet to be determined how this provision would exclude contracted services. A related question is whether to include. as in subparagraph 1 (c), purchases from "persons in its territory".
end footnote
(d) to relate in any way the volume or value of imports to the volume or value of exports or to the amount of foreign exchange inflows associated with such an investment;
(e) to restrict sales of goods or services in its territory that such investment produces or provides by relating such sales in any way to the volume or value of its exports or foreign exchange earnings; or
[(f) others to be defined36.]
Paragraph 1 shall not apply insofar as a Contracting Party conditions the receipt or continued receipt of an advantage on compliance with requirement other than those set out above.
Alternative 2
Paragraph 137 (f) (g) (h) (i) (j) (k) (l) do not apply if the requirements described in one or more of these provisions are conditions for the receipt or continued receipt of an advantage in connection with the establishment, acquisition, expansion, management or operation, or conduct of an investment of an investor (of a Contracting Party or a non-Contracting Party, in its territory), [in particular if the requirements and the advantage are subject to a contractual obligation between the investor or investment on the one side and the host state or its sub-federal entities on the other].
[Paragraph 4
Nothing in paragraph 3 shall be construed to prevent a Contracting Party from conditioning the receipt or continued receipt of an advantage, in connection with an investment in its territory of an investor of a Contracting Party or of a non-Contracting Party, on compliance with a requirement to locate production, provide a service, train or employ workers, construct or expand particular facilities, or carry out research and development, in its territory.]
[Paragraph 5
Provided that such measures are not applied in an arbitrary or unjustifiable manner, or do not constitute a disguised restriction on international trade or investment, nothing in paragraph l(b) or (c) or 3(b) or (c) shall be construed to prevent any Contracting Party from adopting or maintaining measures, including environmental measures:
(a) necessary to secure compliance with laws and regulations that are not inconsistent with the provisions of this Agreement;
(b) necessary to protect human, animal or plant life or health; or
(c) necessary for the conservation of living or non-living exhaustible natural resources.]
begin footnote
36Japan suggests the addition of joint venture and local equity participation requirements.
37Hungary reserves its position on the inclusion of subparagraph (a).
end footnote
[Paragraph 6a38
The provision of:
a) Paragraphs (1) (a), (b) and c) and (3) [(a)], (b) and (c) do not apply to qualification requirements for goods or services with respect to export promotion and foreign aid programmes.
b) Paragraph (1)(b), (c), (f) and (i), and 3(b) and (c) do not apply to procurement by a Contracting Party or a state enterprise; and
c) Paragraphs (3)(b) and (c) do not apply to requirements imposed by an importing Party relating to the content of goods necessary to qualify for preferential tariffs or preferential quotas.]
[(d)Paragraph (l) (i) does not apply to requirements imposed by a Contracting Party as a part of privatisation operations.]
begin footnote
38 Proposal by the United States, supported by Canada, for paragraph 6 (a) - (c). Proposal by Hungary for subparagraph (d).
end footnote
Paragraph 1 (National Treatment and Most-Favoured Nation Treatment)40
Alternative 1
[Each Contracting Party shall accord treatment as defined in Paragraph XX (National Treatment/MFN Treatment) in case of a privatisation, both as regards the initial privatisation41 and as regards [subsequent transactions] [involving a privatised asset] [(secondary sales)] between investors or investments]42.
Alternative 2
[The obligation to accord National Treatment and MFN treatment applies to all aspects of privatisation of a government-controlled enterprise, irrespective of the method of privatisation (whether by public offering, direct sale, or other method) or the timing of a particular sale (initial issue or subsequent sale).]43
Paragraph 2 (Right to privatise)
[Nothing in this Agreement shall [prejudice Contracting Parties' rules governing the system of property ownership or]44 be construed as imposing an obligation on a Contracting Party to privatise.]
begin footnote
39Hungary and Mexico reserve their position on all privatisation obligations.
40Some delegations suggest the text might alternatively be adopted as an "interpretative note". Canada does see any value added in reaffirming the application of NT/MFN obligations to privatisation.
41Several delegations, including Australia and Sweden, reserve on the inclusion of obligations on initial privatisation. Two delegations suggest exclusion of voucher system.
42Canada and Japan state that the obligations on subsequent transactions should not interfere with the normal business prerogatives of privatised enterprises. Sharing this view, Italy suggests dividing paragraph 1 into two parts as follows:
"a) Each Contracting Party shall accord treatment as defined in Paragraph XX (NT/MFN) in case of a privatisation.
b) Each Contracting Party shall not impose any obligation or condition incompatible with Paragraph XX (NT/MF) as regards subsequent transactions involving a privatised asset."
43Proposal by the United States.
44Most delegations favour the deletion of the text in square brackets. Norway and the European Commission reserve on this proposal.
end footnote
Paragraph 3 (Special share arrangements)45
Alternative 1
a. Contracting Parties acknowledge that [methods of privatisation and]46 special rules as regards the ownership, [management]47, or control of privatised assets [such as]:
-- a Contracting Party or any person designated by the Contracting Party maintaining special shareholder rights to influence or veto any decision concerning such assets after the privatisation,
-- arrangements under which managers or other employees of an enterprise are granted special treatment as regards the acquisition of shares of that enterprise,
[--arrangements under which shareholders are required to maintain their share in the capital of the enterprise during a certain period of time, or to guarantee the achievement or maintenance of a certain level or value of investment, manufacturing, production or employment of the enterprise,]48
[-- a Contracting Party being free to choose categories of buyers in a privatisation process]49
[-- arrangements under which locals of a certain community are granted special treatment as regards the acquisition of this community's property,]50
[are compatible with Paragraph 1, unless [in like circumstances]51 they explicitly or intentionally favour national investors or discriminate against foreign investors because of their nationality [or residence]].52
b. [Arrangements under which physical persons of a Contracting Party are granted exclusive rights as regards the initial privatisation are acceptable as a method of privatisation under this Agreement provided that the exclusive right as regards the initial privatisation is limited to physical persons only and provided that there is no restriction on subsequent sales.]53
begin footnote
45Canada, Germany and the United Kingdom support deletion of paragraph 3.
46Proposal by Sweden.
47Proposal by Spain.
48Proposal by Spain.
49Proposal by Sweden.
50Proposal by the Czech Republic.
51Proposed addition by Spain.
52Combination of proposals by France, Spain and Japan.
53Proposal by the Czech Republic.
end footnote
[Contracting Parties acknowledge54, however, that such special rules may, in certain circumstances, adversely affect the rights of investors or investments of another Contracting Party.] A Contracting Party which considers that another Contracting Party has taken such measures, may request consultations with that Contracting Party55.
Alternative 2
[Special share holding arrangements including, inter alia, a) the retention of "golden shares" by Contracting Parties, b) stable shareholder groups assembled by a Contracting Party, c) management/employee buyouts, and d) voucher schemes for members of the public, hold strong potential for discrimination against foreign investors and are, in fact, inconsistent with National Treatment and MFN treatment obligations in many instances.]56
Paragraph 4 (Transparency)57
Alternative 1
Obligations pursuant to the Transparency Article YY apply to any privatisation in its territory and in particular to its conditions and timing.58
Alternative 2
For the purposes of this Article, each Contracting Party shall publish promptly the essential features and procedures for participation in each privatisation that is undertaken.59
begin footnote
54Proposal by France.
55Italy and Japan reserve on the principle of consultations. It was noted that such consultations may have a different character from those foreseen under the normal dispute settlement procedures of the MAI.
56United States' proposal, together with 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."
57Some delegations feel no need for a specific transparency provision for privatisation unless it goes beyond the Transparency Article YY in the Consolidated Texts. However, any additional obligations would need to include appropriate protection of confidentiality.
58Proposal by the European Commission.
59Proposal by the United Kingdom.
end footnote
Alternative 3
This note confirms the application of the Transparency Article YY. Specifically, the obligations to accord National Treatment and MFN treatment will prohibit discrimination against a foreign investor in respect of all arrangements for making public information about the enterprise to be privatised. A government that gives, to domestic investors, access to information concerning the fact of privatisation must at the same time give that same access to foreign investors. For very small scale privatisations, that fact may be made known to local investments of foreign investors. Any business information available to domestic investors must be available to foreign investors, e.g., the government must provide financial statements on request. Governments would violate National Treatment if, in order to benefit domestic investors, they refrain from making information publicly and widely available, either about the fact of privatisation or about the privatising enterprise.60
Paragraph 5 (Definition)61
Alternative 162
"Privatisation" means a partial or complete sale or other form of transfer of [the function of the government or]63 ownership or control of assets64 [of nationally owned enterprises]65 from a Contracting Party66 to [a private]67 [an investor or an investment] [the private sector].
begin footnote
60Proposal by the United States.
61It remains open whether the definition of privatisation should be "asset-based" or "entity-based". An asset-based definition, however, might be too broad and lead to a long list of assets to be excluded. An entity-based definition might be too narrow since it excludes such transactions as the sale of government buildings. It might also be open to abuse since an entity could be effectively privatised through the sale of its assets. Alternative 1 is an asset-based approach. Alternative 2 is a combination of entity- and asset-based approaches.
62A number of delegations have concerns about the coverage of real estate. The issue also raises the problem of de minimus rules.
63Proposed addition by Japan.
64Hungary would add: "which according to domestic laws and regulations may be privatised..."
65Proposed addition by Japan.
66The issue of subnationals is expected to be dealt with in another part of the Agreement. Otherwise one might insert: "or any subnational thereof."
67There is broad agreement that state enterprises should be able to participate in privatisation operations on an equal footing with private companies. Accordingly, many delegations consider that the word "private" should be deleted. There is also agreement that privatisation does not cover intra-government transfers: the European Commission noted that the text in the final tiret of the definition suggested in alternative 1 will take care of this concern.
end footnote
However, for the purpose of this agreement privatisation does not mean the following transactions:68
-- the sale or other form of transfer of ownership or control of debt securities of the Contracting Party, unless they have attached preferred rights to acquired shares;
-- [the granting of concessions; ]
-- [the sale or other form of transfer of ownership or control of real estate [including arable land]69;]
-- [the sale or other form of transfer of ownership or control of assets to a non-private investor of the same Contracting Party];
-- [...]
Alternative 2
"Privatisation" means the sale or other disposition of equity interests of a Contracting Party in a state enterprise70 or governmental entity, or the sale or other disposition of the assets of a state enterprise or governmental entity.71
Alternative 372
Privatisation means a partial or complete sale or other form of transfer of the function of the government or ownership or control of assets of nationally owned enterprises from a Contracting Party to an [private] investor or an investment.
However, for the purpose of this agreement privatisation does not mean the following transactions:
-- the sale or other form of transfer of control of debt securities of the Contracting Party, unless they have attached preferred rights to acquired shares;
-- [the granting of concessions;]
-- [the sale or other form of transfer of control of real estate;]
-- [...]
begin footnote
68 Several delegations wish to exclude small transactions, especially in real estate. Australia suggests a de minimus exemption level of $US 50-100 million, below which privatisation transactions are exempted from obligations. However, Germany questions whether the range proposed qualifies as "de minimis", especially for real estate transactions.
69Proposal by Hungary.
70"State enterprise" would need to be defined.
71Proposal by Canada.
72Proposal by Japan.
end footnote
A. Monopolies73
[1. Nothing in this Agreement shall be construed to prevent a Contracting Party from maintaining, designating or eliminating a monopoly.]74
2. Each Contracting Party shall [endeavour to]75 accord non-discriminatory treatment when designating a monopoly.
3. Each Contracting Party shall ensure that [any monopoly that [its national or subnational governments]76 [its national government] maintains or designates] or [any privately-owned monopoly that it designates and any government monopoly that it maintains or designates]:
[a) acts in a manner that is not inconsistent with the Contracting Party's obligations under this Agreement wherever such a monopoly exercises any regulatory, administrative or other governmental authority that the Contracting Party has delegated to it in connection with [the purchase or sale of] the monopoly good or service;]77
begin footnote
73Australia reserves its position on all obligations on monopolies that go beyond those of the GATT and GATS.
74The right of governments to designate or maintain a monopoly is not disputed. A number of delegations favour, however, the deletion of the paragraph on the grounds that it could give rise to questions regarding the expropriation and compensation obligations of the MAI and prejudge the Negotiating Group's discussion on market access. Moreover, the MAI is not the proper context to state this right. Other delegations favour the inclusion of the paragraph for the sake of clarity and certainty.
75A number of delegations are prepared to delete "endeavour to". Other delegations wish to maintain a scrutiny reserve pending the definition of the monopoly concept and clarification of the intent of the paragraph. Some delegations suggest that the designation of a monopoly should not be based on nationality considerations.
76Most delegations consider that the obligations of the Article should apply to all levels of government.
77There is broad agreement that the issue of delegated regulatory powers of monopolies would be more adequately addressed in the context of a general anti-circumvention clause for the MAI. Sub-paragraph (a) can be kept in, nevertheless, as a marker. If the issue were to be addressed in paragraph 3, however, the text might be improved by ending the sentence after the words "delegated to it" or by harmonising it with the rest of the paragraph with the addition of the words "purchase and sale". France supports the deletion of sub-paragraph (a) on the ground that sub-paragraphs 3(b), (c), (d) would cover the concerns dealt with in sub-paragraph (a).
end footnote
b) provides non-discriminatory treatment78 to investors of another Contracting Party79 and their investments in its sale80 of the monopoly good or service in the relevant market;
[c) provides non-discriminatory treatment to investors of another Contracting Party and their investments in its purchase of the monopoly good or service in the relevant market. This paragraph does not apply to procurement by governmental agencies of goods or services for government purposes and not with a view to commercial resale or with a view to use in the production of goods or services for commercial sale;]81
[d) does not use its monopoly position, in a non-monopolised market in its territory, to engage, either directly or indirectly, including through its dealing with its parent company, its subsidiary or other enterprise with common ownership, in anticompetitive practices that might adversely affect an investment by an investor of another Contracting Party, including through the discriminatory provision of the monopoly good or service, cross-subsidisation or predatory conduct [, in particular through the abusive use of prices]]82.
[e) Except to comply with any terms of its designation that are not inconsistent with subparagraph (b) (c) or (d), acts solely in accordance with commercial considerations in its purchase or sale of the monopoly good or service in the relevant market, including with regard to price, quality, availability, marketability, transportation and other terms and conditions of purchase or sale. ]83
[Nothing in Article A shall be construed to prevent a monopoly from charging different prices in different geographic markets, where such differences are based on normal commercial considerations, such as taking account of supply and demand conditions in those markets.]84
begin footnote
78United Kingdom wishes to maintain a scrutiny reserve pending clarification of the non-discriminatory obligation for sales by monopolies in which governments maintain golden shares. The United States notes that sub-paragraph (e) addresses this concern.
79Canada wishes to limit the obligations of sub-paragraph (b), (c), and (d) to "investments of investors of a Contracting Party in its territory".
80Germany and the European Commission wonder whether the coverage should not go beyond the sale and purchase of a monopoly good or service. New Zealand proposes to replace "sale" by "supply".
81A number of delegations want to study the implications of this sub-paragraph further, notably in relation to the GATT Agreement on Government Procurement. Sweden favours its deletion. Some delegations reserve their position on the second sentence.
82While France, Canada, New Zealand and the United States support the general thrust of sub-paragraph (d), several delegations are concerned about its intrusion into the area of competition policy, notably through the reference to 'anti-competitive practices". Germany proposes to replace the term "anti- competitive" by "discriminatory". Ireland favours a simplification of sub-paragraphs (c) and (d).
83Proposal by Canada and the United States. A number of delegations question the feasibility and desirability of requiring monopolies to act in accordance with "commercial considerations".
84Proposal by Canada and the United States not discussed by the Expert Group.
end footnote
[Article A, paragraph 3 (e) differences in pricing between classes of customers, between affiliated and non-affiliated firms, and cross-subsidisation are not in themselves inconsistent with this provision; rather, they are subject to this subparagraph when they are used as instruments of anticompetitive behaviour by the monopoly firm].
[4. In case of a demonopolisation which has the effect of extending the obligations under the Agreement to a new area, the principle of standstill does not intend to prevent any Contracting Party from lodging any reservation to the Agreement for this new area.]
[5. Each Contracting Party shall notify to the Parties Group any existing monopoly within [60] days after the entry into force of the Agreement and any newly created monopoly within [60] days after its creation.]86
[6. Neither investors of another Contracting Party nor their investments may have recourse to investor-state arbitration for any matter arising out of paragraph 3 (b), (c), (d) or (e) of this Article.]87
[B. [State Enterprises88]
1. Each Contracting Party shall ensure that any state enterprise that it maintains or establishes acts in a manner that is not inconsistent with the Contracting Party's obligations under this Agreement wherever such enterprise exercises any regulatory, administrative or other governmental authority that the Contracting Party has delegated to it.
2. Each Contracting Party shall ensure that any state enterprise that it maintains or establishes accords non-discriminatory treatment in the sale, in the Contracting Party's territory, of its goods or services to investors of another Contracting Party and their investments.
3. Neither investors of another Contracting Party nor their investments may have recourse to investor-state arbitration for any matter arising out of paragraph 2 of this Article.]
C. Definitions Related to Monopolies [and State Enterprises]
1. "Delegation" means a legislative grant, and a government order, directive or other act transferring to the monopoly or state enterprise, or authorising the exercise by the monopoly or state enterprise of, governmental authority.
begin footnote
85Proposal by Canada and the United States not discussed by the Expert Group.
86Japan proposes that the concept of "prior notification" for newly designated-monopolies be examined in this paragraph. Other delegations feel that the notification period of 60 days may be too short. Ireland reserves its position on the whole paragraph.
87The United States explains 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.
88Australia reserves its position on all obligations on state enterprises that go beyond those of the GATT and the GATS. France considers that state enterprises should not be treated differently from private enterprises and that the MAI obligations on corporate practices should apply to both situations. Hungary would delete article B.
end footnote
[2. "Designate" means to establish, designate or authorise, or to expand the scope of a monopoly to cover an additional good or service, after the date of entry into force of this agreement.]
3. ["Monopoly" means an entity, including a consortium or government agency, that in any relevant market in the territory of a Contracting Party is designated as the sole provider or purchaser of a good or service, but does not include an entity that has been granted an exclusive intellectual property right solely by reason of such grant] or ["Monopoly" means any person, public and private, designated by a national [or local] government authority as the sole supplier or buyer of a good or service in a given market in the territory of a Contracting Party.]89
[4. "Relevant market" means the geographic and commercial market for a good or service.]90
5. "Non-discriminatory treatment" means the better of national treatment and most favoured nation treatment. as set out in the relevant Provisions of this Agreement.
[6. "State enterprises" means, [subject to Annex ...., ] an enterprise owned, or controlled through ownership interest, by a Contracting Party.]
begin footnote
89Spain proposes the exclusion of concessions from government-designated monopolies [see DAFFE/MAI/EG3/RD(96)14]. France and Norway consider that further work on concessions is needed in the broader context of the MAI.
90The United States suggests adding "in the territory of the Contracting Party" at the end of the sentence.
end footnote
Provisions
Alternative 1
Several delegations believe that no additional text is necessary. They consider that the current draft articles in the MAI are sufficient to cover investment incentives at this time.
Alternative 2
Many delegations, however, would favour specific provisions on incentives in the MAI although they hold different views as to their nature and scope. Some proposed a built-in agenda for future work. Discussion of possible provisions focused on the following draft article which is regarded as a compromise text by those who would still prefer more far-reaching disciplines.
Article91
1. The Contracting Parties confirm that Article XX (on NT and MFN) applies to the granting of investment incentives.92
2. The Contracting Parties acknowledge that[, in certain circumstances,] even if applied on a non-discriminatory basis, investment incentives may have distorting effects on the flow of capital and investment decisions.93 Any Contracting Party which considers that its investors or their investments are adversely affected by an investment incentive adopted by another Contracting Party and having a distorting effect, may request consultations with that Contracting Party.94 The former Contracting Party may also bring the incentive before the Parties Group for its consideration.
begin footnote
91Some delegations feel that tax measures should not be covered by this Article.
92While 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. Ireland 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.
93Several 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.
94Some 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.
end footnote
3.95 In order to further avoid and minimise such distorting effects and to avoid undue competition between Contracting Parties in order to attract or retain investments, the Contracting Parties [shall] enter into negotiations with a view to establishing additional MAI disciplines [within three years] after the signature of this Agreement.96 These negotiations shall recognise the role of investment incentives with regard to the aims of policies, such as regional, structural, social, environmental or R&D policies of the Contracting Parties, and other work of a similar nature undertaken in other fora. These negotiations shall, in particular, address the issues of positive discrimination,97 [transparency98], standstill and rollback99.
4. For the purpose of this Article, an "investment incentive" means:
Alternative 1
The grant of a specific advantage arising from public expenditure100 in connection with the establishment, acquisition, expansion, management, operation or conduct of an investment of a Contracting Party or a non-Contracting Party in its territory.
Alternative 2
The definition proposed by New-Zealand (see attachment).
begin footnote
95The form and placement of this text would have to be decided.
96Some 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.
97Some delegations express the view that positive discrimination should be prohibited.
98One delegation considers the transparency Article of the MAI would already be sufficient.
99Some delegations consider it very difficult to recommend future negotiations without agreement on their nature and scope.
100The question of including tax measures needs to be considered in the light of work by EG2.
end footnote
Attachment*
1.1 For the purpose of this Agreement, an investment incentive shall be deemed to exist if:
(a) there is a financial contribution by a government, i.e., where:
(i) a government provides a direct transfer of funds (e.g, grants, loans, and equity infusion), potential direct transfers of funds or liabilities (e.g., loan guarantees);
(ii) government revenue that is otherwise due is foregone or not collected (e.g. fiscal incentives such as tax credits);
(iii) a government provides goods or services other than general infrastructure, or purchases goods;
(iv) a government makes payments to a funding mechanism, or entrusts or directs a private body to carry out one or more of the type of functions illustrated in (i) to (iii) above which would normally be vested in the government and the practice, in no real sense, differs from practices normally followed by governments;
and
(b) benefit is thereby conferred;
and
(c) the financial contribution meets the requirements for specificity as defined in paragraph 2.1 below;
[or]
[(d) possible text defining regulatory incentives, or a subset thereof]
begin footnote
*Definition proposed by New Zealand. The term 'government' as used in this Article is intended to refer to all levels of government to which the MAI's obligations apply.
end footnote
2.1 In order to determine whether a financial contribution, as defined in paragraph 1 of this Article, is specific to an enterprise or industry or group of enterprises or industries (referred to in this Agreement as 'certain enterprises') within the jurisdiction of the granting authority, the following principles shall apply:
(a) Where the granting authority, or the legislation pursuant to which the granting authority operates, explicitly limits access to a financial contribution to certain enterprises, such a financial contribution shall be specific.
(b) Where the granting authority, or the legislation pursuant to which the granting authority operates, establishes objective criteria or conditions** governing the eligibility for, and the amount of, a financial contribution, specificity shall not exist, provided that the eligibility is automatic and that such criteria and conditions are strictly adhered to. The criteria or conditions must be clearly spelled out in law, regulation, or other official document, so as to be capable of verification.
(c) If, notwithstanding any appearance of non-specificity resulting from the application of the principles laid down in subparagraphs (a) and (b), there are reasons to believe that the financial contribution may in fact be specific, other factors may be considered. Such factors are: use of a subsidy programme by a limited number of certain enterprises, predominant use by certain enterprises, the granting of disproportionately large amounts of financial contribution to certain enterprises, and the manner in which discretion has been exercised by the granting authority in the decision to grant a financial contribution.*** In applying this subparagraph, account shall be taken of the extent of diversification of economic activities within the jurisdiction of the granting authority, as well as of the length of time during which the financial contribution programme has been in operation.
2.2 A financial contribution which is limited to certain enterprises located within a designated geographical region within the jurisdiction of the granting authority shall be specific. It is understood that the setting or change of generally applicable tax rates by all levels of government entitled to do so shall not be deemed to be a specific financial contribution for the purposes of this Agreement.
2.3 Any determination of specificity under the provisions of this Article shall be clearly substantiated on the basis of positive evidence.
begin footnote
**Objective criteria or conditions, as used herein, mean criteria or conditions which are neutral, which do not favour certain enterprises over others, and which are economic in nature and horizontal in application such as number of employees or size of enterprise.
***In this regard, information on the frequency with which applications for a subsidy are refused or approved and the reasons for such decisions shall, in particular, be considered.
end footnote
CORPORATE PRACTICES AND SENIOR MANAGEMENT AND BOARD OF DIRECTORS
A. Corporate practices1
Option I
Draft Article
Paragraph 1 (Obligations on government imposed corporate practices)2
Contracting Parties shall not [encourage] or [require] a company established in its territory, by law [or other government measures], to conduct its activities [in a manner inconsistent with the Contracting Party's obligations] pursuant to [any] provisions of this Agreement.
[Such [encouragement] or [requirement] inconsistent with the Contracting Party's obligations includes3:
-- limits to the acquisition of shares of the voting capital the company which distinguishes between investors or investments of that Contracting Party and investors or investments of other Contracting Parties;
-- rules on the nationality or residency of members of the company's board of directors;
-- the issuing of different classes of shares with different voting rights with provisions governing the right of foreigners;
-- [others to be defined].]
begin footnote
1Australia reserves its position on Option I, paragraph 1; paragraph 3, alternatives 2, 3 and 4; paragraph 4; and, Option II. France considers that if the behaviour of state enterprises were to be covered by this article, there would no need to have a specific article on state enterprises. The coverage of state enterprises in this article could be achieved by adding the words "public and private" before "company" in paragraph 1 and before "corporations" in paragraph 2.
2While several delegations favour the general thrust of paragraph 1, it is felt necessary to discuss further its content, notably that of the square brackets: for example, the word "require" could be replaced with "impose" and the word "any" with "National Treatment/MFN/Transparency". Some delegations wonder whether it is necessary to list specific examples of corporate practices. Denmark, Germany, Norway and Sweden, in particular, stress the problem of including residency provision for boards of directors which is a regulatory requirement in their countries. Some delegations noted a possible inconsistency between the second tiret and the draft article on senior management and board of directors presented below.
3Japan favours a closed list.
end footnote
Paragraph 2 (Introduction to obligations on non-government imposed corporate practices)4
Contracting Parties recognise that corporate practices not imposed by Contracting Parties can involve discriminatory treatment of foreign investors [and their investments].5
Paragraph 3 (Obligations on non-government imposed corporate practices)6
Alternative 17
Contracting Parties shall require that the statutes, articles of association and by-laws of their corporations shall not contain provisions providing for the discriminatory treatment of foreign investors [and their investments].
Alternative 28
Contracting Parties shall require that the statutes, articles of association and by-laws of their corporations listed in security exchanges shall not contain provisions providing for the discriminatory treatment of foreign investors [and their investments].
Alternative 39
Contracting Parties shall ensure that the articles of association of enterprises established under its law do not provide for the following types of rules:
-- limits to the acquisition of shares of the voting capital the company which distinguishes between investors or investments of that Contracting Party and investors or investments of other Contracting Parties;
-- rules on the nationality or residency of members of the company's board of directors;
-- the issuing of different classes of shares with different voting rights with provisions governing the right of foreigners;
begin footnote
4The text of this paragraph may need to be modified in accordance with the approach adopted for paragraph 3.
5Australia reserves its position on the inclusion of "and their investments" in paragraphs 2 and 3.
6Several delegations have serious reservations about creating obligations on corporate practices which are not mandated by governments since this would interfere with the freedom of business to contract and may be difficult to implement. New Zealand suggests the addition of the word "explicitly" between provisions" and "providing".
7Proposal by Australia.
8Proposal by Norway aiming at limiting the obligations to practices by corporations listed in security exchanges.
9Proposal by the European Commission.
end footnote
-- [others to be defined].
Contracting Parties shall endeavour10 "to effectively limit the use of corporate practices which may [de facto discriminate against] [which may have distorting effects on]ll foreign investors [and their investments], including:
-- the designation of voting rights to shareholders which are not proportionate to the shareholder's stake in the company capital12;
-- the issue of preference shares without voting rights;
-- provisions in the articles of association which confer on the holders of a particular category of shares an exclusive right to put forward nominations for a majority of those members of the administrative organ whose appointment is a matter for the general meeting.
-- [others to be defined].
Alternative 4
Zero option
Paragraph 4 (Transparency)13
Contracting Parties shall provide at the request of another Contracting Party information on certain corporate practices of its own investors or investments, subject to its domestic law [and to the conclusion of satisfactory agreement concerning the safeguarding of its confidentiality by the requesting Contracting Party]. [At the request of the information-providing Contracting Party this information must be kept confidential by the requesting Contracting Party.]14
begin footnote
10Japan expresses concern about the relationship between a best endeavour clause and the dispute settlement mechanism of the MAI.
11It needs to be determined whether this best endeavour provision should be limited to cases of "discrimination" against foreign investment or measures that "may negatively affect" such investments.
12Sweden reserves its position on this indent.
13With a view of giving greater focus to the transparency provisions, the United Kingdom proposed the following alternative language: "Subject to confidentiality requirements, Contracting Parties shall make publicly available the articles of association of enterprises established in their territory."
14Proposal by the European Commission. It is suggested that legal experts verify if the version in the latter square bracket might overcome the conditionality of this provision-contained in the former square bracket (as in GATS).
end footnote
Paragraph 5 (Consultations)15
Each Contracting Party shall, at the request of any other Contracting Party, enter into consultation with a view to eliminating corporate practices16 of the type not covered by paragraph 3, alternative 1. The Contracting Party addressed shall accord full and sympathetic consideration to such a request and shall co-operate through the supply of publicly available non-confidential information of relevance to the matter in question. The Contracting Party shall provide information available on corporate practices to the requesting Contracting Party, subject to its domestic laws and practices and to the conclusion of satisfactory agreement concerning the safeguarding of its confidentiality by the requesting Contracting Party17, 18
Paragraph 6 (Dispute settlement)19
Dispute settlement as provided for in the Agreement shall apply in relation to paragraphs 3, 4 and 5.20
Option II
A number of delegations believe that no text on corporate practices is necessary. The existing draft MAI provisions would be sufficient to cover government measures which mandate corporate practices which discriminate against foreign investors or their investments. They consider that the MAI should not get into the domain of private corporate practices.21
B. Senior management and board of directors22
Paragraph 1
No Party may require that an enterprise of that Party that is an investment of an investor of another Party appoint to senior management positions individuals of any particular nationality.
begin footnote
15Proposal by Australia. Japan reserves its position on this paragraph.
16New Zealand suggests the insertion of "not discriminatory effect" after "corporate practices".
17Proposal by Australia.
18Canada considers that the consultations should pertain to corporate practices referred to in paragraph 2.
19Proposal by Australia. Japan reserves its position on this paragraph.
20A number of delegations wish to study further the relationship between the proposed consultation procedures and the dispute settlement mechanism of the MAI. There are strong reservations about submitting corporate practices to investor-to-state dispute settlement.
21There are also reservations about using Article IX of the GATS as a precedent for disciplining corporate practices since this article relates to restrictive business practices in a competition policy context.
22Australia reserves its position on this article.
end footnote
Paragraph 2
[A Party may require that a majority of the board of directors, or any committee thereof, of an enterprise of that Party that is an investment of an investor of another Party, be of a particular nationality, or resident in the territory of the Party, provided that the requirement does not materially impair the ability of the investor to exercise control over its investment.]23
begin footnote
23Most delegations reserve their position on paragraph 2.
end footnote
1.1. Each Contracting Party shall accord to investments in its territory of investors of another Contracting Party fair and equitable treatment and full and constant protection and security. In no case shall a Contracting Party accord treatment less favourable than that required by international law.
1.2. A Contracting Party shall not impair by [unreasonable or discriminatory] [unreasonable and discriminatory] measures the operation, management, maintenance, use, enjoyment or disposal of investments in its territory of investors of another Contracting Party.
2. EXPROPRIATION AND COMPENSATION
2.1. A Contracting Party shall not expropriate or nationalise directly or indirectly an investment in its territory of an investor of another Contracting Party or take any measure or measures having equivalent effect (hereinafter referred to as "expropriation") except:
a) for a purpose which is in the public interest, b) on a non-discriminatory basis, c) in accordance with due process of law, and d) accompanied by payment of prompt, adequate and effective compensation in accordance with Articles 2.2 to 2.5 below.
2.2. Compensation shall be paid without delay.
2.3. Compensation shall be equivalent to the fair market value of the expropriated investment immediately before the expropriation occurred. The fair market value shall not reflect any change in value occurring because the expropriation had become publicly known earlier.
2.4. Compensation shall be fully realisable and freely transferable.
2.5. [Compensation shall include interest at a commercial rate established on a market basis for the currency of payment from the date of expropriation until the date of actual payment.]2
begin footnote
1Sweden proposed to delete Article 1.2 and revise Article l.l as follows:
"Each Contracting Party shall accord to investments in its territory of investors of another Contracting Party fair and equitable treatment and full and constant protection and security. Such treatment shall also apply to the operation, management, maintenance, use, enjoyment or disposal of such investments. In no such case shall a Contracting Party accord treatment less favourable than that required by international law."
2Drafting Group 3 identified four options for calculating compensation which are set out in the commentary.
end footnote
2.6. Due process of law includes, in particular, the right of an investor of a Contracting Party which claims to be affected by expropriation by another Contracting Party to prompt review of its case, including the valuation of its investment and the payment of compensation in accordance with the provisions of this article, by a judicial authority or another competent and independent authority of the latter Contracting Party.
3.1. An investor of a Contracting Party which has suffered losses relating to its investment in the territory of another Contracting Party due to war or to other armed conflict, state of emergency, revolution, insurrection, civil disturbance, or any other similar event in the territory of the latter Contracting Party, shall be accorded by the latter Contracting Party, as regards restitution, indemnification, compensation or any other settlement, treatment no less favourable than that which it accords to its own investors or to investors of any third State, whichever is most favourable to the investor.
3.2. Notwithstanding Article 3.1, an investor of a Contracting Party which, in any of the situations referred to in that paragraph, suffers a loss in the territory of another Contracting Party resulting from
(a) requisitioning of its investment or part thereof by the latter's forces or authorities, or
(b) destruction of its investment or part thereof by the latter's forces or authorities, which was not required by the necessity of the situation,
shall be accorded by the latter Contracting Party restitution or compensation which in either case shall be prompt, adequate and effective and, with respect to compensation, shall be in accordance with Articles 2.1 to 2.5.
4.1. Each Contracting Party shall ensure that all payments relating to an investment in its territory of an investor of another Contracting Party may be freely transferred into and out of its territory without delay. Such transfers shall include, in particular, though not exclusively:
a) the initial capital and additional amounts to maintain or increase an investment;
b) returns3;
c) payments made under a contract including a loan agreement;
d) proceeds from the sale or liquidation of all or any part of an investment;
e) payments of compensation under Articles 2 and 3;
f) payments arising out of the settlement of a dispute;
g) earnings and other remuneration of personnel engaged from abroad in connection with an investment.
begin footnote
3As defined in the Article on definitions.
end footnote
4.2. Each Contracting Party shall further ensure that such transfers may be made in a freely convertible4 currency. [Freely convertible currency means a currency which is widely traded in international foreign exchange markets and widely used in international transactions.] or [Freely convertible currency means a currency which is, in fact, widely used to make payments for International transactions and is widely traded in the principal exchange markets].
4.3. Each Contracting Party shall also further ensure that such transfers may be made at the market rate of exchange prevailing on the date of transfer.
[4.4. In the absence of a market for foreign exchange, the rate to be used shall be the most recent exchange rate for conversion of currencies into Special Drawing Rights.]
4.5. Notwithstanding Article 4.1(b) above, a Contracting Party may restrict the transfer of a return in kind in circumstances where the Contracting Party is permitted under the GATT 1994 to restrict or prohibit the exportation or the sale for export of the product constituting the return in kind. Nevertheless, a Contracting Party shall ensure that transfers of returns in kind may be effected as authorised or specified in an investment agreement, investment authorisation, or other written agreement between the Contracting Party and an investor or investment of another Contracting Party.5
[4.6. Notwithstanding Articles 4.1 to 4.5, a Contracting Party may require reports of transfers of currency or other monetary instruments and ensure the satisfaction of Judgements in civil, administrative and criminal proceedings through the equitable, non-discriminatory, and good faith application of its laws and regulations. Such requirements shall not unreasonably impair or derogate from the free and undelayed transfer ensured by this Agreement.]
5.1. If a Contracting Party or its designated agency makes a payment under an indemnity, guarantee or contract of insurance6 given in respect of an investment of an investor in the territory of another Contracting Party, the latter Contracting Party shall recognise the assignment of any right or claim of such investor to the former Contracting Party or its designated agency and the right of the former Contracting Party or its designated agency to exercise by virtue of subrogation any such right and claim to the same extent as its predecessor in title.7
5.2. A Contracting Party shall not assert as a defence, counterclaim, right of set-off or for any other reason, that indemnification or other compensation for all or part of the alleged damages has been received or will be received pursuant to an indemnity, guarantee or insurance contract.
begin footnote
4US agreement in Article 4.2 on the deletion of "usable" and acceptance of the word "convertible" supposes agreement on its definition and on Article 4.6.
5Canada has difficulties with the obligations referred to in the second sentence.
6Mexico and Norway cannot agree to deletion of the words "non-commercial risks" at this stage.
7Mexico has difficulties with the obligations in this paragraph.
end footnote
6. PROTECTING EXISTING INVESTMENTS
[This Agreement shall apply to investments made prior to its entry into force for the Contracting Parties concerned [consistent with the legislation of the Contracting Party in whose territory it was made] as well as investments made thereafter. This Agreement shall not apply to claims arising out of events which occurred, or to claims which had been settled, prior to its entry into force.] or [This Agreement shall apply to investments existing at the time of entry into force as well as to those established or acquired thereafter.]
7. PROTECTING INVESTOR RIGHTS FROM OTHER AGREEMENTS
ILLUSTRATIVE TEXTS (See Commentary)
Substantive Approach - Inclusive Respect Clause
Each Contracting Party shall observe any obligation it has entered into with regard to a specific investment of a national of another Contracting Party.
Procedural Approach - Limited Scope8 Dispute Settlement Clause
An investor of another Contracting Party may submit to arbitration in accordance with [the investor-state provisions of the MAI] any investment dispute arising under the provisions of this Agreement or concerning any obligation which the Contracting Party has entered into with regard to a specific investment of the investor through:
(a) an investment authorisation granted by its competent authorities specifically to the investor or investment, or
(b) a written investment agreement9 or contract granting rights with respect to natural resources or other assets or economic activities controlled by the national authorities,
and on which the investor has relied in establishing, acquiring, or significantly expanding an investment
begin footnote
8The choice of the precise method of limitation was not discussed in depth.
9The term "investment agreement" may require definition.
end footnote
A. General Provisions1
1. The rules and procedures set out in Articles A-C shall apply to the avoidance of conflicts and the resolution of disputes between Contracting Parties regarding the interpretation or application of the Agreement unless the disputing parties agree to apply other rules or procedures. However, the disputing parties may not depart from any obligation regarding notification of the Parties Group and the right of Parties to present views, under Article B, paragraph[s l.a and] 3.c, and Article C, paragraphs l.a, 3.c, and 4.e.
2. Contracting Parties and other participants in proceedings shall protect any confidential or proprietary information which may be revealed in the course of proceedings under Articles B and C and which is designated as such by the Party providing the information. Contracting Parties and other participants in the proceedings may not reveal such information without written authorisation from the Party which provided it.
begin footnote
1The European Commission has requested the inclusion of a provision that recognises the right of the European Community to associate itself with any case, whether state-state or investor state, touching on Community Law. The provision, which would be modified slightly for the investor-state context, is as follows:
"a. When a member State of the European Community implements Community law and the implementing measure is challenged by another Contracting Party, the European Community and its Member States shall be considered to be one party to a dispute settlement case even if the action is directly only against either of them."
"b. When a measure or a set of measures challenged in a dispute settlement procedure has partly been adopted by the European Community and partly by one or more Member States, the European Community and the Member States concerned shall determine their respective responsibility and become joint parties to the procedure."
The Norwegian and Iceland delegates reserved their position on this point. They could not accept any new competence under the MAI for the European Commission in relation to Iceland, Liechtenstein or Norway on issues which, pursuant to the Treaty establishing the European Economic Area, fall under the competence of the EFTA Surveillance Authority.
Some delegations questioned any specific European Commission provision, preferring to draft in general terms for any Regional Economic Integration Organisation which might become Party to the MAI.
end footnote
B. Consultation, Conciliation And Mediation
1. Consultations
a. One or more Contracting Parties may request any other Contracting Party to enter into consultations regarding any dispute about the interpretation or application of the agreement.2 The request shall be submitted in writing and shall provide sufficient information to understand the basis for the request, including identification of the measures at issue. The requested Party shall promptly enter into consultations. The requesting Contracting Party [may] [shall] notify the Parties Group of the request for consultation.
b. A Contracting Party may not initiate arbitration against another Contracting Party under Article C of this Agreement unless the former Contracting Party has requested consultation and has afforded that other Contracting Party a consultation period of no less than 60 days after the date of the receipt of the request.
[2. Multilateral Consultations
a. In the event that consultations under paragraph 1 of this Article, have failed to resolve the dispute within 50 days after the date of receipt of the request for those consultations, [either Contracting Party in dispute] [the Contracting Parties in dispute, by agreement] may request the Parties Group to consider the matter.
b. Such request shall be submitted in writing and shall give the reason for it, including identification of the measures at issue, and shall indicate the legal basis for the complaint.
c. The Parties Group may only adopt clarifications on issues of law and on the provisions of the agreement that have been raised by [one of] the Parties in dispute, in accordance with Article _ [article which will allow the Parties Group to adopt clarifications in accordance with a procedure to be defined]. The Parties Group shall conclude its deliberations within [60] days after the date of receipt of the request
begin footnote
2France suggests that the scope of consultations be no broader than the scope of arbitration and that this paragraph utilise whatever language is ultimately adopted in Article C, paragraph l.a.
end footnote
[d. In the event that a dispute is submitted to the Parties Group, none of the Contracting Parties shall submit the case to the arbitral tribunal before the expiration of the delay mentioned in paragraph c.]]3
3. Mediation or Conciliation
If the Parties are unable to reach a mutually satisfactory resolution of a matter through consultations, they may have recourse to good offices, including those of the Parties Group, or to mediation or conciliation under such rules and procedures as they may agree.4
4. Confidentiality of Proceedings, Notification of Results
a. Proceedings involving consultations, mediation or conciliation shall be confidential.
b. No Contracting Party may, in any binding legal5 proceedings, invoke or rely upon any statement made or position taken by another Contracting Party in consultations, conciliation or mediation proceedings initiated under this Agreement.
c. The Parties to consultations, mediation, or conciliation under this Agreement shall inform the Parties Group of any mutually agreed solution.6
begin footnote
3This proposal is supported by a number of delegations which consider it important to preserve the possibility that traditional OECD methods, including peer pressure, be available to help resolve a dispute before resort to arbitration is needed. A number of other delegations expressed reservations about or opposition to formally providing for multilateral consultations. In their view, such a possibility would pose a serious risk of politicising the dispute and making its resolution more difficult to achieve. The later group note that the omission of an institutionalised role for the Parties Group in the dispute settlement mechanism would be without prejudice to the ability of any Contracting Party to raise a matter relating to the general interpretation of the agreement within the Parties Group. These delegations were of the opinion that this latter role is more properly considered in the discussion of the general role of a Parties Group.
A number of questions are raised in connection with this proposal, including the number of contracting Parties which must request Parties Group consideration and whether this could be done without consent of both sides to the dispute, the voting rule for adopting any clarification, and the status of any clarification, in particular whether a consensus clarification should be binding.
One delegation suggested that consideration be given as well to a provision allowing the state-state and investor-state arbitral proceedings to be suspended for the Tribunal to seek Parties Group clarification of a disputed provision of the MAI.
4Some delegations pointed out that the proposal for multilateral consultations may the reference to Parties Group good offices in this paragraph at least in part. Another delegation suggested that this reference would obviate the need for a provision on formal Parties Group consultations.
5The United States maintains a scrutiny reserve on the words "binding legal".
6Some delegations reserve on this requirement out of concern that it may inhibit agreement.
end footnote
C. Arbitration
1. Scope and Initiation of Proceedings7
a. Any dispute between Contracting Parties concerning8 [the interpretation or application on [an alleged non-compliance with] [the inconsistency of a measure9 of one of them with] this Agreement shall, at the request of any Contracting Party that is a party to the dispute and has complied with the consultations requirements of Article B, be submitted to an arbitral tribunal10 for binding11 decision. A request, identifying the matters in dispute, shall be delivered to the other Party through diplomatic channels, [unless a Contracting Party has
begin footnote
7The United States suggest that, in this paragraph or elsewhere, there be a provision establishing a default set of terms of reference. It suggests the following text:
"Unless the disputing Parties otherwise agree within 20 days after the request for the establishment of the tribunal, the terms of reference shall be: 'To examine, in light of the relevant provisions of the Agreement, the measures referred to in the request for consultations.'"
8The bracket alternatives which follow reflect differences among the delegations as to when a dispute is ripe for arbitration. Some wish to be able to take a Party to arbitration when it has adopted a law or regulation likely to result in a violation of obligations under the MAI. These delegations favour the first option, which is the broadest, though one expressed the view that the second ("alleged non-compliance") might meet the concern. Some others believe that arbitration should only be permitted when the Party has no discretion remaining under its law or regulation to act consistently with the MAI. Norway, which considers that this issue can only be resolved at a later stage of the negotiations, suggests that a dispute should be ripe for arbitration only when a Party "has acted in contravention" of the MAI.
9The US proposes to include a definition of "measure" but a number of delegations question its utility. A suggestion is being considered for dealing with the definition of measure and concern about the meaning of "dispute" with the following note in the Expert Group report:
This text is based on the understanding that (i) a "measure" of a Contracting Party for purposes of an arbitrable dispute encompasses, inter alia, any law, regulation, procedure, requirement, practice, act, or failure to act and (ii) "dispute" means a legal dispute ripe for arbitration.
10Norway maintains a reservation on submission of MAI disputes to ad hoc arbitration and has submitted an alternative proposal giving Parties the ability to choose the ICJ instead.
A suggestion is being considered that this concern, which is related to the law of the sea, be dealt with through a reservation. The signatories might note in the record of the negotiations or its Final Act that they will not object to a reservation by which a Party addresses the case in which resolution of a dispute under this Agreement would require decision on a disputed question of the law of the sea. Such a reservation may provide that the Party does not consent to the decision of any disputed question of the law of the sea by an arbitral tribunal formed under this Agreement, provided that the reservation is accompanied by the Party's consent to submission of such a question and, at the option of the other party to the dispute, the entire dispute to the International Court of Justice or other competent international tribunal.
One delegation noted that the entire question of reservations may have to be addressed in the overall context of whether or not to allow Contracting Parties to go beyond specifically identified country exceptions to MAI measures.
Some delegations consider that the word "binding" should not be 11stated here, but only in the paragraph 5.f) on awards.
end footnote
designated another channel for notification and so notified the Depositary,]12 and a copy of the request shall be delivered to the Parties Group.
b. A Contracting Party may not initiate proceedings under this Article for a dispute which its investor has submitted, or consented to submit, to arbitration under Article D, unless the other Contracting Party has failed to abide by and comply with the award rendered in that dispute.13, 14
2. Formation of the Tribunal
a. [Alternative A] Within 30 days after receipt of a request15 for arbitration, each Party or, in the event there is more than one requesting Party, each side to the dispute shall appoint one member of the tribunal. Within 30 days after their appointment, the two members shall, in consultation with the Parties in dispute, select a national of a third state who will be Chairman of the tribunal. At the option of any party or side, two additional members may be appointed, one by each party or side.
[Alternative B] Within 30 days after receipt of a request for arbitration, the Parties to the dispute shall appoint by agreement three members of the tribunal and designate one of them as Chairman. Except for compelling reasons, the members shall be persons proposed by the [Parties Group Secretariat] [Secretary General ICSID]16. If the Parties agree, the tribunal shall include two additional members, one appointed by each Party or side to the dispute.
begin footnote
12Diplomatic channels are the normal channel for notice of state-state disputes. See, e.g., Article 2, paragraph 1, of the PCA Optional Rules for Arbitrating Disputes Between Two States. The United States suggests that consideration be given to permitting Contracting Parties to designate a special channel for MAI dispute notices.
13This paragraph, based on ICSID Article 27, is intended to assure that the initiation of any form of investor-state arbitration provided by the MAI would restrain parallel state-state proceedings under the MAI to the same extent as, but no more than, would initiation of ICSID arbitration for a MAI contracting party which is also an ICSID party. This is a very limited preclusion, effecting the right to bring the very same claim. The ICSID observer confirmed that ICSID Article 27 should not preclude a state-to-state arbitration of an issue of treaty interpretation or application which was also involved in the investor-state dispute, as long as this did not amount to the espousal of the claim of the investor. It was recognised that an award in such a state-state proceeding would not affect an award rendered in the investor-state proceeding.
14One delegation is still examining the potential implications of any overlap of state-state disputes under this Article with the provisions for dispute settlement procedures in the WTO.
15One delegation raised for consideration the question of timing if more than one request for arbitration were made.
16Norway suggests the Secretary-General of the Permanent Court of Arbitration (PCA).
end footnote
b. If the necessary appointments have not been made within the periods specified in subparagraph a, above, either Party or side to the dispute may, in the absence of any other agreement, invite the Secretary General of the Centre for the Settlement of Investment Disputes17 to make the necessary appointments. The Secretary-General shall do so, as far as possible, in consultations with the Parties and within thirty days after receipt of the request.
c. Parties and the [Secretary-General] [Parties Group Secretariat] should consider appointment to the tribunal of members of a roster of highly qualified individuals willing and able to serve on arbitral tribunals under this Agreement, nominated by the Contracting Parties. If arbitration of a dispute requires special expertise on the tribunal, rather than solely through expert advice under the rules governing the arbitration, the appointment of individuals possessing expertise not found on the roster should be considered18. Each Contracting Party should nominate up to [four] members of the tribunal roster. Nominations are valid for renewable terms of five years.
d. Any vacancies which may arise in a tribunal shall be filled by the procedure by which the original appointment had been made.
e. Members of a particular arbitral tribunal shall be independent and impartial.
3. Joinder/Consolidation19
a. Contracting Parties in dispute with the same Contracting Party over the same matter should act together as far as practicable for purposes of dispute settlement under this Article. Where more than one Contracting Party requests the submission to an arbitral tribunal of a dispute with the same Contracting Party relating to the same measure,20 the disputes shall, if feasible, be considered by a single arbitral tribunal.
b. To the extent feasible, if more than one arbitral tribunal is formed, the same persons shall be appointed as members of both and the timetables of the proceedings shall be harmonised.
begin footnote
17Norway suggests the Secretary General of the PCA here as well.
18One delegation stated that this was a possible approach, but it required further consideration in light of the sensitivity of assuring appropriate participation of experts in MAI arbitration.
An alternative approach would be to provide for special rosters of tax, environment and other experts as the Parties Group may decide. A number of delegations expressed doubt about additional rosters.
19This proposal is based on the WTO approach. An alternative is found in the investor-state consolidation provision in Article D, paragraph 8, which is NAFTA based.
20France suggests substituting "question" for "measure."
end footnote
4. Third Parties21
Any Contracting Party wishing to do so shall be given an opportunity to present its views to the arbitral tribunal on the issues in dispute. The tribunal shall establish the deadlines for such submissions in light of the schedule of the proceedings and shall notify such deadlines, at least thirty days in advance thereof, to the Parties Group.
5. Proceedings and Awards
a. The arbitral tribunal shall decide disputes in accordance with this Agreement[, interpreted and applied in accordance with the applicable rules of international law].22
b. The tribunal may, at the request of a Party, recommend provisional measures which either Party should take to avoid serious prejudice to the other pending its final award.23
c. The tribunal, in its award, shall state the reasons for its findings and may, at the request of a Party, award the following forms of relief.24
i. a declaration that [a measure of a Party is incompatible] [a Party has failed to comply] with its obligations under this Agreement;
ii. a recommendation that a Party bring its measures into conformity with the Agreement:
begin footnote
21Canada, at the request of the Group, has prepared an alternative text on third Party rights to present views, which is also being considered. Some delegations questioned certain features of the Canadian paper, e.g., the legal consequences it would impose on a failure to join as a complaining Party, and the extensive rights of participation it would grant Contracting Parties which do not join as Complaining Parties.
22The "applicable rules" referred to are those concerning the interpretation and application of treaties. Accordingly, this provision would not provide a basis for a Panel to rule on a dispute about a Contracting Party's compliance with other international legal obligations.
Canada noted that it accepted this proposal on the basis that it was without prejudice to the question of the incorporation into the MAI of an international law standard in the minimum standard of treatment owed investors.
23The delegate of the United States questioned the appropriateness of recommendations of provisional measures in state-state disputes that do not involve espousal of an investor's claim and suggested that the entire paragraph 5 may need to be reviewed in light of this distinction in types of cases.
24The United States proposes the following alternate drafting for this chapeau:
"The tribunal shall render an award setting out its findings of law and fact and its decision regarding whether the relevant measures are inconsistent with the Agreement, together with its reasons therefor, and may, at the request of a Party, award:"
end footnote
iii. [pecuniary compensation;]25 and
iv. any other form of relief to which the Party against whom the award is made consents, including restitution in kind.
d. The tribunal shall draft its award consistently with the requirement of confidentiality set out in Article A, paragraph 2 and the requirements of subparagraph e, below.26 It shall issue its award in provisional form to the Parties to the dispute, as a general rule within [180] days after the date of formation of the tribunal. The parties to the dispute may, within [15][30] days thereafter, submit written comment upon any portion of it. The tribunal shall consider such submissions, may solicit additional written comments of the parties, and shall issue its final award within [15] days after closure of the comment period.27
e. The tribunal shall promptly transmit a copy of its final award to the Parties Group as a publicly available document.
f. Tribunal awards shall be final and binding28 between the parties to the dispute [unless the Parties Group, by [consensus] [consensus minus one], otherwise decides within thirty days after receipt of a copy of the award.]29
g. Each party shall pay the cost of its representation in the proceedings. The costs of the tribunal shall be paid for equally by the Parties unless the tribunal directs that they be shared differently.30 Fees and expenses payable to tribunal members will be subject to schedules established by the Parties Group and in force at the time of the constitution of the tribunal.
begin footnote
25The delegate of France suggested that, at minimum, the MAI should state the conditions in which this relief could be awarded. The United States delegate noted that, if this element remains, it might need to be aligned with the drafting of the corresponding provision in investor-state arbitration, particularly where a state was an investor bringing a state-state case for itself.
26The United States has a scrutiny reserve on this drafting solution to the problem of confidential information and public awards.
27Several delegations questioned issuance of all or part of an award in provisional form for comment.
28The United States delegation questioned the meaning of "final and binding" in the state-state context. They also suggested that consideration be given to enabling the Parties Group later to establish an appellate procedure, on a consensus basis, without requiring amendment of the MAI.
29Some delegations question this approach to aberrant awards. One suggests that much of the problem can be dealt with at the enforcement stage. Another suggests considering a more judicial appeal procedure.
30The United States delegate questioned whether it made sense to allow a Panel to award costs in a state-state proceeding.
end footnote
6. Default Rules
The [UNCITRAL arbitration rules] [PCA Optional Rules for Arbitrating
Disputes between Two States]31 shall apply to supplement provisions
of these Articles.32, 33
7. Enforcement of Awards
a. In the event of non-compliance34 with an award of an arbitral
tribunal, the Contracting Party in whose favour it was issued may raise
the matter in the Parties Group. The Parties Group shall endeavour to bring
about compliance. It may, by consensus minus the defaulting Party, suspend
the non-complying Party's right to participate in decisions of the Parties
Group.35
b. [Possible exhaustive list of permitted countermeasures - no draft
provided].
c. [Possible procedural safeguards on resort to countermeasures - no draft provided]
begin footnote
31The Permanent Court of Arbitration, in 1992, with the advice
of an expert committee, adopted a modern set of arbitral rules based on
the UNCITRAL rules with modifications to adapt them for state to state
arbitration. The principal changes were to replace "contract"
with "treaty or other agreement", to double the various time
limits in Light of the institutional requirements of states, to provide
for the role of the Secretary-General and the International Bureau of the
PCA, and to provide for the parties to choose a tribunal of one, three
or five persons.
32Once a set of default rules have been chosen, the text
of the entire article should be reviewed to eliminate elements which are
adequately provided for in the rules, e.g., the use of diplomatic channels
in the PCA rules., and the possible need for additional specific departures
from the default rules.
33The United States suggest that consideration be given to
authorising the Parties Group to adopt supplementary rules, for general
application, should deficiencies in the MAI provisions and the default
rules become apparent. This would avoid requiring the more cumbersome treaty
amendment procedures to be used.
34The delegate of Germany suggested that there may be disputes
about whether or not a Party is complying with an award.
35Some delegations expressed reservations about this sentence.
end footnote
D. Disputes Between an Investor and a Contracting Party36
1. Scope and Standing
This article applies to disputes37, 38 between a Contracting Party39 and an investor of another Contracting Party concerning an alleged breach of an obligation of the former under this Agreement [or under an investment agreement with or authorisation to the investor]40 which causes[, or is likely to cause,] loss or damage to41 the investor or his investment.42
begin footnote
36Some delegations noted that, if investment agreements between
Contracting Parties and investors are brought within the scope of this
Article through a respect clause or procedural option, the question of
providing equal rights for Contracting Parties under this Article would
arise and its provisions would need to be reviewed. One delegate pointed
to the technical difficulty of an intergovernmental agreement providing
the prior consent of the investor necessary for the Contracting Party to
have the right to initiate arbitration. Another delegate noted that States
were always free to use their own courts to enforce agreements with investors.
37The delegate of the United Kingdom suggests inserting the
word "legal" before disputes which should allow deletion of the
last bracketed language. Some delegations do not consider the word "legal"
to narrow standing adequately.
38Norway wishes to restrict the scope of this Article to
commercial disputes. The ICSID observer noted that this would cause a problem
under the ICSID texts which distinguish between commercial and investment
disputes, a problem which was avoided by leaving the reference to commercial
disputes in paragraph 15, where it was limited to the New York Convention.
39The European Commission would wish to provide for the European
Community to participate in appropriate cases brought against a Member
state. See footnote 1.
40This text is a "procedural" option regarding
the protection of investor rights from other sources. Some delegations
prefer to restrict dispute settlement to "this Agreement", i.e.,
the "zero" option. The delegate of the United States suggests
that, if the procedural option were to be adopted, there would be a need
to define "investment agreement or authorisation". (See Commentary).
41Delegations agree that an investor should be concretely
affected by an alleged breach of the MAI to have standing to bring a claim
against the host state, but disagree on whether damage must have been incurred
before the dispute is ripe for arbitration. The delegate of Japan suggests
inserting "actual" before "loss".
The question has also been raised as to the adequacy of the "loss
or damage" formulation for pre-establishment cases. However, discussion
confirmed the understanding that a lost opportunity to profit from a planned
investment would be a type of loss sufficient to give an investor standing
to bring an establishment dispute under this article, without prejudice
to the question of whether a specific amount of lost profits might later
prove too remote or speculative to be recoverable as damages. In this connection,
it was noted that the claim would be initiated on the basis of allegations
of loss or damage, but their existence and actual amount would remain to
be demonstrated, along with the remainder of the investor's case, during
the proceedings on the merits of the dispute.
42Under this drafting, which includes effects on the investor,
and therefore applies to all the investor's rights including those relating
to establishment, there is no need to state expressly that the reference
to "investment" means "whether or not established."
Australia, Denmark, Finland, Hungary, Japan, Mexico and Norway maintain a reservation on the inclusion of pre-establishment disputes. Austria is reflecting further on this point.
end footnote
2. Means of Settlement
Such a dispute should, if possible, be settled by negotiation or consultation.
If it is not so settled, the investor may choose to submit it for resolution:
a. to the competent courts or administrative tribunals of the Contracting
Party to the dispute43;
b. in accordance with any applicable [previously]44 agreed
dispute settlement procedure; or
c. by arbitration in accordance with this Article under:45
i. the Convention on the Settlement of Investment Disputes between States
and Nationals of other States (the "ICSID Convention"), if the
ICSID Convention is available;
ii. the Additional Facility Rules of the Centre for Settlement of Investment
Disputes ("ICSID Additional Facility"), if the ICSID Additional
Facility is available;
iii. the Arbitration Rules of the United Nations Commission on International
Trade Law ("UNCITRAL")[, if neither the ICSID Convention nor
the ICSID Additional Facility is available]46; or
iv. the Rules of Arbitration of the International Chamber of Commerce ("ICC")47 [if neither the ICSID Convention nor the ICSID Additional Facility is available]
begin footnote
43Some delegations wish to keep open the option of treating
the MAI as not self-executing and therefore not giving their courts competence
to deal with claims arising directly under the MAI as opposed to claims
arising under implementing legislation. They note that the term "competent"
may preserve that option. Some delegations expressed concern about this
possibility. One delegation suggested that the acceptability of the approach
would depend on the adequacy of those countries' implementing legislation
in incorporating the obligations imposed by the MAI. Another suggested
this be dealt with by country specific reservations.
44Some delegations wish to retain this word to protect investors
from undue pressure to accept disadvantageous arrangements. Others wish
to delete this word to maximise investor choice.
45Japan wishes the choice of forum within paragraph 2.c)
to be that of the Contracting Party.
46Norway questions inclusion of dispute settlement other
than through ICSID and the ICSID Additional Facility. Some delegations
consider that, since only ICSID and the ICSID Additional Facility are designed
for arbitration between a state and a private party, the UNCITRAL and ICC
options should be available only if the former are not.
47Some delegations question making the ICC an available choice of the investor.
end footnote
By submitting a dispute to arbitration in accordance with this Article
under paragraph 2.c, the investor consents to the application of all provisions
of this Article[, including the assumption of jurisdiction over the dispute
by a panel constituted under paragraph 8, Consolidation of Multiple Claims].48
3. Contracting Party Consent
a. Subject only49 to paragraph 3.b, each Contracting Party
hereby50 gives its unconditional consent to the submission of
a dispute to international arbitration in accordance with the provisions
of this Article.51
b. A Contracting Party may, by notifying the Depositary upon deposit
of its instrument of ratification or accession, provide52 that
its consent given under paragraph 3.a only applies on the condition that
the investor and the investment waive the right to initiate any other dispute
settlement procedure with respect to the same dispute53 and
withdraw from any such procedure in progress before its conclusion. A Contracting
Party may, at any time, reduce the scope of that limitation by notifying
the Depositary.54
4. Time periods and notification
An investor may submit a dispute for resolution pursuant to paragraph 2.c of this Article after [sixty] [ninety] days following the date on which notice of intent to do so was received by the Contracting Party in dispute, but no later than [three] [six] years from the date the investor first acquired [or should have acquired] knowledge of the events which gave rise to the dispute.55 Notice of intent, a copy of which shall be delivered to the Parties Group, shall specify:
begin footnote
48This provision may not be legally necessary, since an investor
submitting a case under any provision of the Article, would be consenting
to the entire Article; but the provision may be useful to avoid disputes,
e.g. over whether an investor has consented to a consolidation tribunal
under paragraph 8. The United Kingdom maintains a reservation against forcing
the investor to consent to consolidation.
49Norway would also want to be able to condition consent
on prior exhaustion of local remedies.
50Norway maintains a reservation on granting advance consent
in the treaty itself and proposes specifying in this paragraph either:
"The Contracting Parties listed in Annex _ give their consent" or
"The Contracting Parties listed in Annex _ do not give their consent."
51Japan suggests that, in the context of across-the-board
prior consent, there should be clear limits on standing, e.g., a requirement
of concrete damage, and procedural safeguards against frivolous claims,
e.g., clear provision for preliminary objections.
52Some delegations suggest requiring, as a precondition to this limitation, that the Contracting Party have a constitutional impediment to accepting arbitration without the fork in the road.
53It was noted that the fork in the road would only be triggered
by the same dispute, i.e., one arising under the MAI or provisions putting
its obligations into force as domestic law, not by disputes over the same
measure arising under other provisions of a Contracting Party's law.
54The delegate of Austria put down a reserve to permit review
of this new drafting.
55A more precise version of the cut-off provision is found in NAFTA Article 1116, paragraph 2.
end footnote
a. the name and address of the disputing investor;
b. the name and address, if any, of the investment;
c. the provisions of this Agreement alleged to have been breached and
any other relevant provisions;
d. the issues and the factual basis for the claim; and
e. the relief sought, including the approximate amount of any damages
claimed.
5. Written Agreement of the Parties
The consent given by a Contracting Party in subparagraph 3.a, together
with either the written submission of the dispute to resolution by the
investor pursuant to subparagraph 2.c or the investor's advance written
consent to such submission, shall constitute the written consent and the
written agreement of the parties to the dispute to its submission for settlement
for the purposes of Chapter II of the ICSID Convention, the ICSID Additional
Facility Rules, Article 1 of the UNCITRAL Arbitration Rules, the Rules
of Arbitration of the ICC, and Article II of the United Nations Convention
on the Recognition and Enforcement of Foreign Arbitral Awards (the "New
York Convention").
6. Appointments to Arbitral Tribunals
a. Unless the parties to the dispute otherwise agree, the tribunal shall
comprise three arbitrators, one appointed by each of the disputing parties
and the third, who shall be the presiding arbitrator, appointed by agreement
of the disputing parties.
b. If a tribunal has not been constituted within 90 days56
after the date that a claim is submitted to arbitration, the arbitrator
or arbitrators not yet appointed shall, on the request of either disputing
party, be appointed by the appointing authority. For arbitration under
paragraph 2, subparagraphs c.i, c.ii and c.iii, and paragraph 8, the appointing
authority shall be the Secretary-General of ICSID. For arbitration under
paragraph 2, subparagraph c.iv, the appointing authority shall be the International
Court of Arbitration of the ICC.
c. The parties to a dispute submitted to arbitration under this article
and the appointing authority should consider the appointment of:
i. members of the roster maintained by the Contracting Parties pursuant to Article C, paragraph 2.c: and
begin footnote
56Some delegations expressed concern that the various time periods in this and other paragraphs were longer than for state-state arbitration and would unduly delay formation of a Tribunal to hear an investor-state dispute. The ICSID observer noted that the time periods provided for state-state were, in practice, very short and that parties often required ninety or more days to form an ICSID tribunal.
end footnote
ii. individuals possessing expertise not found on the roster, if arbitration
of a dispute requires special expertise on the Tribunal, rather than solely
through expert advice under the rules governing the arbitration.
d. The appointing authority shall, as far as possible, carry out its
function in consultation with the parties to the dispute.
e. In order to facilitate the appointment of arbitrators of the parties'
nationality on three member ICSID tribunals under Article 39 of the ICSID
Convention and Article 7 of Schedule C of the ICSID Additional Facility
Rules, and without prejudice to each party's right independently to select
an individual for appointment as arbitrator or to object to an arbitrator
on grounds other than nationality:
i. the disputing Contracting Party agrees to the appointment of each
individual member of a tribunal under paragraph 2.c.i or ii of this Article;
and
ii. a disputing investor may initiate or continue a proceeding under paragraph 2.c.i or ii only on condition that the investor agrees in writing to the appointment of each individual member of the tribunal.57
begin footnote
57This subparagraph, based on NAFTA Article 1125, is intended to assure that a three member panel may include nationals of the parties to the dispute, without requiring that each member of the panel be, in fact, chosen by agreement.
end footnote
[7. Standing of the Investment58
An enterprise constituted or organised under the law of a Contracting Party but which, from the time of the events giving rise to the dispute until its submission for resolution under paragraph 2.c, was an investment of an investor of another Contracting Party, shall, for purposes of disputes concerning that investment, be considered "an investor of another Contracting Party" under this article and "a national of another Contracting State" for purposes of Article 25(2) (b) of the ICSID Convention.]
begin footnote
58This clause is a variant of the clauses which appear in
many investment agreements, allowing the established company to have standing
to bring the claim to arbitration against the host state. Such a clause
would be redundant under the drafting approach of the French BIT.
Germany, Ireland, Mexico and Portugal expressed serious reservations
about this approach, in particular giving the established investment standing
to bring the host government to international arbitration. Some of these
delegations also suggested that this provision fails to protect against
the parent restarting the case if the investment were to lose.
The NAFTA countries suggest adopting the alternative approach found
in Articles 1117, 1121, paragraph 2, and 1135, paragraph 2, of the NAFTA.
(See Appendix). The NAFTA specifically provides for the investor to have
the right to bring a claim as representative of the investment, and provides
for waivers by the enterprise itself and for payment of any award of damages
and the making of any restitution directly to the enterprise. A text inspired
by NAFTA might read as follows:
"If a dispute involves a claim of loss or damage to a juridical
person of one Contracting Party that is an investment of an investor of
another Contracting Party which is not the investment's sole owner, that
investor may bring a claim on behalf of the investment, i.e., for the entire
loss or damage to the investment, provided that:
a. the investment remains a going concern at the time of the submission
of the dispute for resolution or can reasonably be expected to resume functioning
as a going concern if the claim is successful;
b. the investment waives its right to initiate or continue any dispute
settlement proceedings regarding the measure alleged by the investor to
breach this Agreement; and
c. any damages or interest awarded shall be paid to and any restitution
awarded shall be made to the investment.
Some delegations questioned the need for either the provision in paragraph 7 or the NAFTA approach.
end footnote
8. Consolidation Of Multiple Proceedings
a. In the event that two or more disputes submitted to arbitration with
a Contracting Party under paragraph 2.c have a question of law or fact
in common, the Contracting Party59 may submit to a separate
arbitral tribunal, established under this paragraph, a request for the
consolidated consideration of all or part of them. The request shall stipulate:
i. the names and addresses of the parties to the proceedings sought
to be consolidated,
ii. the scope of the consolidation sought, and
iii. the grounds for the request.
The Contracting Party shall deliver the request to each investor party
to the proceedings sought to be consolidated and a copy of the request
to the Parties Group.
b. The request for consolidated consideration shall be submitted to
arbitration [by the means chosen by agreement of the investor parties from
the list contained in paragraph 2.c. The investor parties shall act as
one side for the purpose of the formation of the tribunal.
c. If the investor parties have not agreed upon a means of arbitration
and the nomination of an arbitrator within 30 days after the date of receipt
of the request for consolidated consideration by the last investor to receive
it:
i. the request shall be submitted to arbitration]60 in accordance
with this article [under the ICSID Convention or under the ICSID Additional
Facility Rules, where available, or, if neither is available,] under the
UNCITRAL rules, and
ii. the appointing authority shall appoint the entire arbitral tribunal,
in accordance with paragraph 6.
d. The arbitral tribunal shall assume jurisdiction over all or part of the disputes and the other arbitral proceedings shall be stayed or adjourned, as appropriate if, after considering the views of the parties, it decides that to do so would best serve the interest of fair and efficient resolution of the disputes and that the disputes fall within the scope of this paragraph.
begin footnote
59Some delegations object to consolidation without the investor's
consent. The United Kingdom considers that this provision is not consistent
with accepted jurisprudence under which an arbitral tribunal has jurisdiction
only if and to the extent it is given it by consent of the parties. The
delegate of Sweden suggested that an investor should be allowed to withdraw
from arbitration if it does not wish to participate in the consolidated
proceedings; it should then still and have available recourse to domestic
courts or the diplomatic protection of its government.
60The United States delegation, while willing to consider
this approach, requested that the NAFTA approach be shown as an alternative.
That approach, which would result from deleting the words in these and
the next set of brackets. provides directly for the establishment of an
arbitral Panel under the UNCITRAL rules, and for the Panel to be named
by the appointing authority, with no opportunity for investor choice. (See
Appendix)
It has been suggested that, even if the investors are to be given an opportunity to select, the UNCITRAL rules, rather than an institutional arbitration, be chosen as the default mechanism.
end footnote
e. At the request of the Contracting Party, the arbitral tribunal established
under this paragraph may decide, on the same basis and with the same effect
as under paragraph 8.d, whether to assume jurisdiction over all or part
of a dispute falling with the scope of paragraph 8.a which is submitted
to arbitration after the initiation of consolidation proceedings.
9. Indemnification
A Contracting Party shall not assert as a defence, counter-claim, right
of set-off or for any other reason, that indemnification or other compensation
for all or part of the alleged damages has been received or will be received
pursuant to an indemnity, guarantee or insurance contract.
10. Third Party Rights
[The arbitral tribunal may, after hearing the views of the parties on
doing so, give to any Contracting Party requesting it an opportunity to
present views on the legal issues in dispute.]61
11. Applicable law
A tribunal established under this Article shall decide the issues in dispute in accordance with this Agreement[, interpreted and applied in accordance with the applicable rules of international law].62
begin footnote
61Some delegations question allowing other Contracting Parties,
not party to the dispute, to submit views to an investor-state arbitral
tribunal on the grounds that this could interfere with the investor's conduct
of its claim or bring pressure on governments to intervene, thus politicising
a dispute. Others believed that the MAI Contracting Parties all have sufficient
interest in the proper interpretation and application of the agreement
to warrant allowing them to submit views on legal issues in dispute. One
delegation expressed the view that the need for this possibility would
be eliminated if the Parties' Group were to have a role in interpreting
the agreement.
62Some delegations prefer the approach of ICSID article 42, which provides that a Tribunal, absent agreement of the parties, "shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable." Some others prefer to adopt the same standard as in state-state arbitration and suggest that there may need to be some reference to national laws only if disputes under an investor-state agreement or an investment authorisation are brought within the scope of the investor-state mechanism.
end footnote
12. Interim measures of relief
a. An arbitral tribunal established under this Article may [order or]63
recommend an interim measure of protection to preserve the rights of a
disputing party or to ensure that the Tribunal's jurisdiction is made fully
effective, including an order to preserve evidence in the possession or
control of a disputing Party. A Tribunal may recommend the non-application
of the measure alleged to constitute the breach of obligation subject to
the dispute.64
b. The seeking, by a party to a dispute submitted to arbitration under this article, of interim relief not involving the payment of damages, from judicial or administrative tribunals, for the preservation of its rights and interests pending resolution of the dispute, is not deemed a submission of the dispute for resolution for purposes of a Contracting Party's limitation of consent under paragraph 3.b, and is permissible in arbitration under any of the provisions of paragraph 2.c.65
begin footnote
63A few delegations wish to study this further.
64ICSID arbitral rules appear to contemplate recommended
interim measures only. UNCITRAL rules provide for interim measures without
characterising them as recommendations. ICC rules do not provide expressly
for interim measures. This provision would theoretically give all MAI arbitral
tribunals the same right to order certain interim relief, while restricting
that them all to recommendations for injunction. However, an interim order
may not constitute an enforceable award under the Parties' applicable arbitral
award enforcement arrangements. Some authorities believe that the arbitrator's
general powers make even non-binding interim measures significant.
65This last phrase, which would permit a party to ICSID Convention arbitration to seek interim relief where available in domestic tribunals, has been included to meet a technical problem raised by the ICSID observer and is subject to further review.
end footnote
13.66 Final awards
a. An arbitration award may provide the following forms of relief:
i. a declaration [of the legal rights and obligations of the parties]
[that the Contracting Party has failed to comply with its obligations under
the MAI];
ii. compensatory monetary damages, which shall include interest from
the time [of the award] [the loss or damage was incurred] until time of
payment;
iii. restitution in kind in appropriate cases, provided that the Contracting
Party may pay monetary damages in lieu thereof where restitution is not
practicable; and
iv. with the Agreement of the parties to the dispute, any other form
of relief67
b. An arbitration award shall be final and binding between the parties
to the dispute and shall be carried out without delay by the party against
whom it is issued, subject to its post-award rights.68
c. The award shall be drafted consistently with the requirements of paragraph 14 and shall be a publicly available document.69 A copy of the award shall be delivered to the Parties Group by the Secretary-General of ICSID, for an award under the ICSID Convention or the Rules of the ICSID Additional Facility; by the Secretary-General of the ICC International Court of Arbitration, for an award under its rules; and by the tribunal, for an award under the IJNCITRAL rules.
begin footnote
66Two additional provisions have been suggested for Article
D, which would precede the section on Final Awards.
The United States suggests a provision giving the parties to the dispute the freedom to agree on modifications of the rules.
Japan suggests the inclusion of a provision on preliminary objections.
While some provision on this is made in the ICSID rules, this is not the
case for the UNCITRAL or ICC rules. Japan suggests the following provision:
"a. Any objection by the Contracting Party to the jurisdiction
of the Tribunal or to the admissibility of the application, or other objection
the decision upon which is requested before any further proceedings on
the merits, shall be made in writing within fifteen days after the appointment
of the Tribunal.
b. Upon receipt by the Tribunal of a preliminary objection, the proceedings
on the merits shall be suspended.
c. After hearing the parties, the Tribunal shall give its decision, by which it shall either uphold the objection or reject it. The decision should be given within 60 days after the date on which the objection was made."
67This final possibility may provide a means for the parties
to work out an award of relief, tailored to the circumstances of the case,
which will have legally binding force.
68The post-award rights include Section 5 of the ICSID Convention
on interpretation, revision and annulment, and the rights of a party regarding
enforcement of awards in national courts.
69The United States has a reserve on the drafting of this provision and the related paragraph 14.
end footnote
14. Confidential and Proprietary Information
Parties and other participants in proceedings shall protect any confidential
or proprietary information which may be revealed in the course of the proceedings
and which is designated as such by the party providing the information.
They shall not reveal such information without written authorisation from
the party which provided it.
15. Place of Arbitration and Enforceability of Awards
Any arbitration under this article shall be held in a state that is party to the New York Convention. Claims submitted to arbitration under this article shall be considered to arise out of a commercial relationship or transaction70 for purposes of Article 1 of that Convention. [Each Contracting Party shall recognise an award rendered pursuant to this Agreement as binding and shall enforce the pecuniary obligations imposed by that award as if it were a final judgement of its courts.]71
begin footnote
70Norway questioned whether it would be correct to characterise
a dispute concerning a concession as one arising out of a commercial relationship
and suggested that the paragraph on scope of investor-state dispute settlement
be limited to disputes arising out of a commercial relationship or transaction.
71Norway and Iceland questioned whether Contracting Parties could constitutionally meet an unqualified obligation to enforce all MAI awards domestically. Norway suggested that consideration be given to making awards binding only under international law. The question was raised as to what this would mean for an investor.
Some delegations question the utility of this sentence, given the provisions for enforcement under the ICSID and New York Conventions. However, this sentence, based on the ICSID article 54, would make the limitation of enforcement obligations to pecuniary awards applicable under New York Convention enforcement too. The sentence would also serve to counter potential loopholes under the New York Convention, e.g., it would preclude a Contracting Party from denying enforcement based on limitations in its acceptance of the New York Convention, or on a claim that the subject matter was incapable of settlement by arbitration or that enforcement of the award would be contrary to its public policy.
end footnote
16. Tribunal member fees
Fees and expenses payable to a member of an arbitral tribunal established under these Articles will be subject to schedules established by the Parties Group and in force at the time of the constitution of the tribunal.
VI. EXCEPTIONS
[1. This Article shall not apply to Articles -- (on expropriation and
compensation and protection from strife).]
2. Nothing in this Agreement shall be construed:
a. to prevent any Contracting Party from taking any action [which it
considers] necessary for the protection of its essential security interests
[including those:]
(i) taken in time of war, [or] armed conflict, [or other emergency in
international relationsl:
(ii) relating to the implementation of national policies or international
agreements respecting the non-proliferation [inter alia] of nuclear weapons
or other nuclear explosive devices;
[(iii) relating to the production of arms and ammunition;]
b. to require any Contracting Party to furnish or allow access to any
information the disclosure of which [it considers] [would be] contrary
to its essential security interests;
c. to prevent any Contracting Party from taking any action in pursuance
of its obligations under the United Nations Charter for the maintenance
of international peace and security.
[3. Nothing in this Agreement shall be construed to prevent any Contracting
Party from taking any action necessary for the maintenance of public order.]
[4. Paragraphs 2 and 3 may not be invoked by a Contracting Party as
a means to evade its obligations under this Agreement.]
[5. Actions taken pursuant to this Article shall be notified to the
Parties Group in accordance with Article -- of this Agreement.]
[6. If a Contracting Party (the "requesting Party") has reason to believe that actions taken by another Contracting Party (the "other Party") are not in conformity with [Article] [paragraphs --], it may request consultations with that other Party. That other Party shall promptly enter into consultations with the requesting Party and shall provide information to the requesting Party regarding the actions taken and the reasons therefor.]
VII. RELATIONSHIP TO OTHER INTERNATIONAL AGREEMENTS l
If the provisions of law of a Contracting Party or obligation of a Contracting Party under an international agreement or customary international law, existing at present or established hereafter, contain a rule, whether general or specific, entitling investors of other Contracting Parties or their investments to a treatment more favourable than is provided for by the present agreement, nothing in this agreement shall be construed to derogate therefrom to the extent that it is more favourable.]1
begin footnote
1Some delegations think that this provision is unnecessary and believe that it might create legal uncertainty. Other delegations agree that the provision is not legally necessary, but stress its political value, in that it makes it clear to investors that they will have the benefit of the most favourable provision.
end footnote
VIII. IMPLEMENTATION AND OPERATION
1. There shall be a Preparatory Group comprised of the Signatories to
[this Final Act] [the Agreement].
2. The Preparatory Group shall:
(a) prepare for entry into force of the Agreement and the establishment
of the Parties Group;
(b) conduct discussions with non-signatories to the Final Act;
(c) conduct negotiations with interested non-signatories to the Final
Act and make decisions on their eligibility to become a Contracting Party;
and
(d) ...2
3. The Preparatory Group shall elect a Chair, who shall serve in a personal
capacity. Meetings shall be held at intervals to be determined by the Preparatory
Group. The Preparatory Group shall establish its rules and procedures.
4. [Subject to paragraph 5,] the Preparatory Group shall make decisions
by consensus. Such decisions may include a decision to adopt a different
voting rule for a particular question or category of questions. A Signatory
may abstain and express a differing view without barring consensus.
5. [However, where a decision cannot be reached by consensus, the decision
shall be made by a majority comprising [two-thirds] of the Signatories.]3
1. There shall be a Parties Group comprised of the Contracting Parties.
begin footnote
1The Preparatory Group text would be contained in the Final
Act.
2This and any subsequent subparagraphs would be necessary
only if there is business that remains unfinished at the conclusion of
the negotiations that the negotiators consider should be completed by the
Preparatory Group; the further subparagraphs would itemise the clean-up
tasks to be undertaken by the Preparatory Group.
3See footnote 7.
end footnote
2. The Parties Group shall facilitate the operation of this Agreement.
To this end, it shall:
(a) carry out the functions assigned to it under this Agreement;4
(b) [at the request of a Contracting Party, clarify the interpretation
or application of this Agreement]5;
(c) consider any matter that may affect the operation of this Agreement;
and
(d) take such other actions as it deems necessary to fulfil its mandate.
3. In carrying out the functions specified in paragraph 2, the Parties
Group may consult governmental and non-governmental organisations or persons.
4. The Parties Group shall elect a Chair, who shall serve in a personal
capacity. Meetings shall be held at intervals to be determined by the Parties
Group. The Parties Group shall establish its rules and procedures.
5. [Subject to paragraph 6,] the Parties Group shall make decisions
by consensus. Such decisions may include a decision to adopt a different
voting rule for a particular question or category of questions. A Contracting
Party may abstain and express a differing view without barring consensus.6
6. [However, where a decision cannot be reached by consensus:
(a) [decisions on budgetary matters shall be made by a [two-thirds]
majority of Contracting Parties whose assessed contributions represent,
in combination, at least [two-thirds] of the total assessed contributions
specified therein]; and
(b) [decisions on accession and other matters shall be made by a [two-thirds]
majority of the Contracting Parties.]7
7. The Parties Group shall be assisted by a Secretariat.
begin footnote
4This subparagraph refers to any operational functions and
any future work as may be specified elsewhere in the MAI.
5Expert Group 1 is considering the role of the Parties Group
with respect to Dispute Settlement; this sub-paragraph would address clarification
of interpretation and application outside the Dispute Settlement context.
Within Expert Group 4, there is a debate on the question of whether it
is appropriate that the Parties Group expressly be given a formal role
in clarifying the interpretation or application of the MAI. On a point
of detail. one delegation has expressed the view that the Parties Group
should have such authority, but only if more than one Contracting Party
makes a request.
6Consideration needs to be given to the question of whether
failure to pay budgetary contributions should lead to suspension of the
right of a Contracting Party to participate in making decisions.
7Further work needs to be done on paragraph 6. This work would include consideration of whether the MAI should draw a line between substantive and procedural questions and whether it should include an appropriate rule for voting by the European Communities. If all decisions were required to be made by consensus, paragraph 6 would be deleted.
end footnote
8. [Parties Group and Secretariat costs shall be borne by the Contracting Parties as approved and apportioned by the Parties Group.]8
begin footnote
8Further work is required on paragraphs 7 and 8. If it is decided that the MAI itself should contain provisions on the initial budgetary principles and formula and on the structure and functions of a Secretariat, it is proposed that Expert Group 4 or another Group be invited to make proposals, including proposals for text where appropriate, on these matters.
end footnote
SIGNATURE
This Agreement shall be open for signature at the Depositary, until
[date], by Signatories of the Final Act1 and thereafter until
entry into force by any State, or separate customs territory which possesses
full autonomy on the matters covered by this Agreement, which is willing
and able to take on its obligations on terms agreed between it and the
Signatories of [the Final Act] [this Agreement] acting through the Preparatory
Group.
RATIFICATION AND ENTRY INTO FORCE
Option 12
This Agreement shall enter into force on [date] or on the deposit of
the [xxth] instrument of ratification by a Signatory to the Agreement,
whichever is later.
Option 23
1. The Signatories to this Final Act agree to submit the Agreement for
the consideration of their respective competent authorities with a view
to seeking approval of the Agreement in accordance with their procedures.
2. The Signatories to this Final Act agree on the desirability of acceptance
of the Agreement by all signatories with a view to its entry into force
by [date] or as early as possible thereafter.
3. Not later than [date], the Signatories to this Agreement will meet
to determine the date for entry into force and related matters. Decisions
shall be made by [consensus] [a [two-thirds] majority of the Signatories].
4. This Agreement shall enter into force on the date determined by the
Signatories to this Agreement in accordance with paragraph 3.
1. This Agreement shall be open for accession by any State, regional economic integration organisation4, and any separate customs territory which possesses full autonomy in the conduct of matters covered by this agreement, which is willing and able to undertake its obligations on terms agreed between it and the Parties acting through the Parties Group.
begin footnote
1Belgium is considering whether there will need to be a provision in the MAI contemplating that the MAI would be signed, for Belgium. by representatives of its various regions and communities.
2The text of this option would be contained in the MAI.
3Paragraphs 1 and 2 would be contained in the Final Act;
paragraphs 3 and 4 would be in the MAI.
4This term may need to be defined, here or elsewhere in the Agreement.
end footnote
2. Decisions on accession shall be taken by the Parties Group.5
3. Accession shall take effect thirty days from the date of deposit
of the instruments of accession with the Depositary.
This Agreement shall not apply as between any Contracting Party and
any acceding Party or group of countries if, at the time of accession,
either does not consent to such application.]6
1. The Parties Group may review this Agreement as and when it determines.7
2. Any Contracting Party may propose to the Parties Group an amendment
to this Agreement. Any amendment adopted by the Parties Groups8
shall enter into force on the deposit of an instrument of ratification
by all of the Contracting Parties9, or at such later date as
may be specified by the Parties Group at the time of adoption of the amendment.
1. At any time after five years from the date on which this Agreement
has entered into force for a Contracting Party, that Contracting Party
may give written notice to the Depositary of its withdrawal from this Agreement.
2. Any such withdrawal shall take effect on the expiry of [six months]
from the date of the receipt of the notice by the Depositary, or on such
later date as may be specified in the notice of withdrawal. If a Contracting
Party withdraws, the Agreement shall remain in force for the remaining
Contracting Parties.
3. The provisions of this Agreement shall continue to apply for a period
of [fifteen years] from the date of notification of withdrawal to an investment
existing at that date.
DEPOSITARY
The [.....] shall be the Depositary of this Agreement.
begin footnote
5The decision on accession would be taken in accordance with
the voting provision for the Parties Group set out in paragraphs I. C.
5 and I. C. 6 above.
6Some delegations wish to reflect further on this provision.
If the MAI provides that consensus of all the Contracting Parties is necessary
for accession, this provision could facilitate accession where there is
a particular problem between a Contracting Party and an acceding state.
One delegation expressed the view that a non-application clause would be
essential if consensus were not required for accession.
7Some delegations wish to study this paragraph further.
8There may be a need for a provision that would enable a
Contracting Party to take a reservation to an amendment adopted by the
Parties Group.
9One delegation wants to consider whether an amendment should come into force upon ratification by fewer than all of the Contracting Parties. In that case, it may be necessary to provide that an amendment shall be in force only as between those Contracting Parties that have ratified the amendment.
end footnote
STATUS OF ANNEXES
The Annexes to this Agreement are [an integral part of the Agreement].10
The English and French [and....] texts of this Agreement are equally
authentic.11
a. [Subject to prior notification to and consultation with the Contracting
Party of the investor,] a Contracting Party may deny the benefits of the
Agreement to an investor [as defined in 1 (ii)] and to its investments
if investors of a non-Party own or control the first mentioned investor
and that investor has no substantial business activities in the territory
of the Contracting Party under whose law it is constituted or organised.
or
b. [Subject to prior notification and consultation in accordance with Articles XXX (Transparency) and XXX (Consultations), a Contracting Party may deny the benefits of this Agreement to an investor of another Contracting Party that is an enterprise of such Contracting Party and to investments of such investors if investors of a non-Contracting Party own or control the enterprise and the enterprise has no substantial business activities in the territory of the Contracting Party under whose law it is constituted or organised.]12
begin footnote
10This provision will need to be revisited when the content
of the Annexes is known.
11The question arises as to whether the MAI text should be
in a language or languages additional to English and French. It should
be noted that this question has budgetary implications.
12Possible additional text not discussed by DG3
[A Contracting Party may deny the benefits of the Agreement to an investor
of another Contracting Party that is an enterprise of such Contracting
Party and to investment of such investor if investors of a non-Contracting
Party own or control the enterprise and the denying Contracting Party:
(a) does not maintain diplomatic relations with the non-Contracting
Party; or
(b) adopts or maintains measures with respect to the non-Contracting
Party that prohibit transactions with the enterprise or that would be violated
or circumvented if the benefits of this Chapter were accorded to the enterprise
or to its investments.]
Some delegations also proposed a wider denial of benefits clause, in particular, to allow denial in cases where the parent was a national or enterprise of a country with which the investment host state lacked diplomatic relations. DG3 agreed that this matter should be considered in the wider context of "general exceptions".
end footnote
TAXATION
1. Nothing in this Agreement shall apply to taxation measures except
as expressly provided in paragraphs 2 to ... below:
2. Article ... (Expropriation) shall apply to taxation measures, except
that no claim that a tax measure involves an expropriation shall be submitted
to dispute settlement by an investor of a contracting party pursuant to
Article ... (Investor-State Dispute Settlement)1:
a) Unless the investor concerned has first referred to the Competent Tax Authorities of both Contracting Parties involved in the dispute the issue of whether the tax measure involves an expropriation, nor shall the claim be submitted to dispute settlement within the [24] month period immediately following such referral; and
b) If, within [24] months of the date of referral, the Competent Tax Authorities of both Contracting Parties concerned determine that the tax measure does not involve an expropriation.
3.Article ... (Transparency) shall apply to taxation measures2, except that nothing in this Agreement shall require a Contracting Party to furnish or allow access to information covered by tax secrecy or any other domestic laws protecting confidentiality, in particular and including:
a) any agreement or arrangement between a tax authority and an investor;
b) any agreement with a foreign government concerning the application or interpretation of a tax treaty in the case of an individual investor;
c) information concerning the identity of an investor or other information
which would disclose any trade, business, industrial, commercial or professional
secret or trade process;
d) information pertaining to individual taxpayers received from another
government; or
e) information the disclosure of which would impede the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, taxation, or any information the disclosure of which would aid or assist in the avoidance or evasion of taxes.
begin footnote
1Australia reserves its position on MAI dispute settlement
procedures.
2The United States would have preferred a separate article on transparency for taxes.
end footnote
4. National Treatment
Alternative 1
No carve-in provision on National Treatment with respect to taxation
measures.
Alternative 2
Article XX paragraph 1.1 (National Treatment) shall apply to taxation
measures [if a convention for the avoidance of double taxation is not in
effect between the Contracting Parties concerned.] However, nothing in
the above-mentioned Article shall:
1. prevent the adoption or enforcement by the Contracting Parties of
any measure which:
a) differentiates treatment between taxpayers who are not in the same
circumstances, in particular with respect to residence; or
b) is aimed at ensuring the equitable or effective imposition, payment
or collection of taxes; or
c) is aimed at preventing the avoidance or evasion of taxes;
provided that the measure does not arbitrarily discriminate between
investors or investments of Contracting Parties or arbitrarily restrict
benefits accorded under the provisions of this Agreement.
[2. have the effect of extending fiscal advantages granted by any Party
on the basis of any international agreement or arrangement by which it
is or may become bound, or its membership of any Regional Economic Integration
Organisation.]
Alternative Approach
France put forward the following text:
"Nothing in this Agreement shall impose any obligation on any Party,
or create rights, with respect to taxation measures, provided that the
existing or future differences of treatment operated by a Party for tax
purposes, which are established between a foreign investor and an investor
of this Party, or between an investment performed abroad and investment
performed on its territory, are justified on one of the following grounds:
- a difference between investors with respect or their tax residence;
- differences between investors or investments with respect to their
tax compliance situations:
- differences between investors or investments with respect to the capacity
of the tax administration to perform effective tax control and measures
aimed at combating tax fraud and evasion and tax competition, and tax collection;
- a provision in a tax Treaty concluded between two Parties.
It is understood that the term "foreign investor" includes an enterprise of a Party the capital of which is partly or totally owned by a national of another Party, or a permanent establishment of an enterprise of another Party; the term "investment performed abroad" includes an investment made in relation with an enterprise of a Party the capital of which is owned partly or totally by a national of another Party, or with a permanent establishment of an enterprise of another Party."
The following extract from pages 27-30 of the OECD publication entitled Revenue statistics of OECD Member Countries (1965-1994) is relevant for the definition of taxes in the MAI. The definitions found therein have been agreed to by the OECD, International Monetary Fund and the United Nations System of National Accounts (SNA).
I. General criteria
1. In the OECD classification, the term "taxes" is confined
to compulsory, unrequited payments to general government. Taxes are unrequited
in the sense that benefits provided by government to taxpayers are not
normally in proportion to their payments.
2. The term "tax" does not include fines unrelated to tax
offences and compulsory loans paid to government. Borderline cases between
tax and non-taxes revenues in relation to certain fees and charges are
discussed in paragraphs 9 and 13.
3. General government consists of supra-national authorities, the central
administration and the agencies whose operations are under its effective
control, state and local governments and their administrations, social
security schemes and autonomous governmental entities, excluding public
enterprises. Apart from the reference to supra-national authorities, this
definition of government follows that of the "System of National Accounts"
(SNA), United Nations 1968 (page 79, Table 54.1)1.
4. Compulsory payments to supra-national bodies, such as the Commission of the European Communities and their agencies are included as taxes and are treated as part of the tax revenues of the country in which they are collected. They are separately identified in the data on subsectors of government. In countries where the church forms part of general government church taxes are included, provided they meet the criteria set out in paragraph 1 above. As the data refer to receipts of general government, levies paid to non-government bodies, welfare agencies or social insurance schemes outside general government, trade unions or trade associations, even where such levies are compulsory, are excluded. Compulsory payments to general government earmarked for such bodies are, however, included provided that the government is not simply acting in an agency capacity2. Profits from fiscal monopolies are distinguished from those of other public enterprises and are treated as taxes because they reflect the exercise of the taxing power of the state by the use of monopoly powers (see paragraphs 63-65), as are profits received by the government from the purchase and sale of foreign exchange at different rates (see paragraph 71).
begin footnote
1All references to the SNA are to the 1968 edition.
2See Annex 1 for a discussion of the concept of agency capacity.
end footnote
5. Taxes paid by governments (e.g., social security contributions and
payroll taxes paid by governments in their capacity as an employer, consumption
taxes on their purchases or taxes on their property) are not excluded from
the data provided. However, where it is possible to identify the amounts
of revenue involved3, they are shown in a memorandum item.
6. The relationship between this classification and that of SNA is set
out in Section E. Because of the differences between the two classifications,
the data shown in national accounts are sometimes calculated or classified
differently from the practice set out in this guide. These and other differences
are mentioned where appropriate (e.g. paragraph 17) but it is not possible
to refer to all of them. There may also be some differences between this
classification and that employed domestically by certain national administrations
(e.g., see paragraph 9 below), so that OECD and national statistics data
may not always be consistent; any such differences, however, are likely
to be very slight in terms of amounts of revenues involved.
II. Social security contributions
7. Compulsory social security contributions, as defined in paragraph
36, paid to general government are treated as tax revenues. Being compulsory
payments to general government they clearly resemble taxes. They may, however,
differ from taxes in that the receipt of social security benefits depends,
in most countries, upon appropriate contributions having been made, although
the size of the benefits is not necessarily related to the amount of the
contributions. Better comparability between countries is obtained by treating
social security contributions as taxes, but they are listed under a separate
heading so that they can be distinguished in any analysis.
8. Social security contributions which are either voluntary or not payable
to general government (see paragraph 1) are not treated as taxes, though
in some countries, as indicated in the country footnotes, there are difficulties
in eliminating voluntary contributions and compulsory payments to the private
sector.
III. Fees, user charges and licence fees
9. Apart from vehicle licence fees, which are universally regarded as
taxes, it is not easy to distinguish between those fees and user charges
which are to be treated as taxes and those which are not, since, whilst
a fee or charge is levied in connection with a specific service or activity,
the strength of the link between the fee and the service provided may vary
considerably, as may the relation between the amount of levy and the cost
of providing the service. Where the recipient of a service pays a fee clearly
related to the cost of providing the service, the levy may be regarded
as requited and under the definition of paragraph 1 would not be considered
as a tax. In the following cases, however, a levy could be considered as
"unrequited":
a) Where the charge greatly exceeds the cost of providing the service;
b) where the payer of the levy is not the receiver of the benefit (e.g., a fee collected from slaughterhouses to finance a service which is provided to farmers);
begin footnote
3It is usually possible to identify amount of social security contributions and payroll taxes, but not other taxes paid by government.
end footnote
c) where the government is not providing a specific service in return
for the levy which it receives even though a licence may be issued to the
payer (e.g., where the government grants a hunting, fishing or shooting
licence which is not accompanied by the right to use a specific area of
government land);
d) where benefits are received only by those paying the levy but the
benefits received by each individual are not necessary in proportion to
his payments (e.g., a milk marketing levy paid by dairy farmers and used
to promote the consumption of milk).
10. In marginal cases, however, the application of the criteria set
out in paragraph 1 can be particularly difficult. The solution adopted
-- given the desirability of international uniformity and the relatively
small amounts of revenue usually involved -- is to follow the predominant
practice among tax administrations rather than to allow each country to
adopt its own view as to whether such levies are regarded as taxes or as
non-tax revenue.4
11. A list of the main fees and charges in question and their normal5
treatment in this bulletin is as follows:
Non-tax revenues: court fees; driving licence fees; harbour fees: passport
fees: radio and television licence fees where public authorities provide
the service.
Taxes of 5200: permission to perform such activities as distributing
fllms; hunting, fishing and shooting; providing entertainment or gambling
facilities; selling alcohol or tobacco; permission to own dogs or to use
or own motor vehicles or guns; severance taxes.
12. In practice it may not always be possible to isolate tax receipts
from non-tax revenue receipts when they are recorded together. If it is
estimated that the bulk of the receipts derive from non-tax revenues, the
whole is treated as a non-tax revenue; otherwise they are included and
classified according to the rules provided in paragraph 28.
13. Two differences between the OECD classification and SNA regarding
the borderline between tax and non-tax revenues are:
a) SNA classifies a number of levies as indirect taxes if paid by enterprises, but as non-tax revenues if paid by households, a distinction which is regarded as irrelevant in this classification for distinguishing between tax and non-tax revenues6.
begin footnote
4If, however, a levy which is considered as non-tax revenue
by most countries is regarded as a tax, or raises substantial revenue,
in one or more countries, the amounts collected are footnoted at the end
of the relevant country tables, even though the amounts are not included
in total tax revenues.
5Names, however, can frequently be misleading. For example,
though a passport fee would normally be considered a non-tax revenue if
a supplementary levy on passports (as is the case in Portugal) were imposed
in order to raise substantial amounts of revenue relative to the cost of
providing the passport, the levy would be regarded as a tax of 5200.
6There are often practical difficulties in operating the distinction made by SNA.
end footnote
b) Predominant practice among most OECD tax administrations, which is
occasionally used in this classification for distinguishing between tax
and non-tax revenues, is not a relevant criterion for SNA purposes.
Royalties
14. Royalty payments for the right to extract oil and gas or to exploit
other mineral resources are normally regarded as non-tax revenues since
they are property income from government-owned land or resources.
Fines and penalties
15. Receipts from fines and penalties paid for infringement of regulations identified as relating to a particular tax and interest on payments overdue in respect of a particular tax are recorded together with receipts from that tax. Other kinds of fines identifiable as relating to tax offences are classified in the residual heading 6000. Fines not relating to tax offences (e.g., for parking offences), or not identifiable as relating to tax offences, are not treated as taxes.
Recognition arrangements3
1. A Contracting Party may recognise prudential measures of any other
Contracting Party or non-Contracting Party in determining how the Contracting
Party's measures relating to financial services shall be applied. Such
recognition, which may be achieved through harmonisation or otherwise,
may be based on an agreement or arrangement with the other Contracting
Party or non-Contracting Party concerned or may be accorded autonomously.
2. A Contracting Party that is a party to such an agreement or arrangement
referred to in paragraph 1, whether future or existing, shall afford adequate
opportunity for other interested Contracting Parties to negotiate their
accession to such agreements or arrangements, or to negotiate comparable
ones with it, under circumstances in which there would be equivalent regulation,
oversight, implementation of such regulation, and, if appropriate, procedures
concerning the sharing of information between the parties to the agreement
or arrangement. Where a Contracting Party accords recognition autonomously,
it shall afford adequate opportunity for any other Contracting Party to
demonstrate that such circumstances exist.
Transparency
The Group considered the following text as a basis for discussion:
"1. Each Contracting Party's regulatory authorities shall make
available to interested persons their requirements for completing applications
relating to the provision of financial services.
2. On the request of an applicant, the regulatory authority shall inform the applicant of the status of its application. If,such authority requires additional information from the applicant, it shall notify the applicant without undue delay.
begin footnote
1Placement of Financial Services Texts is to be decided.
See also Commentary on the status of text in each case.
2It was agreed that the financial services sector, which
is highly regulated for prudential reasons, is unique in some respects
and to some extent calls for specific treatment. However, a number of delegations
considered that the general provisions of the MAI are sufficient to meet
the needs of the financial services sector in a number of potential areas.
In some cases, proposals for text on financial services were considered
to have more general application in the MAI. It was suggested that such
text could be useful in the development of general disciplines in the MAI.
3Austria reserved its position on this provision.
end footnote
3. A regulatory authority shall make an administrative decision on a
completed application of an investor in a financial services enterprise
or a financial services enterprise that is an investment of an investor
of another Contracting Party relating to the provision of a financial service
within [120][180] days, and shall promptly notify the applicant of the
decision. An application shall not be considered complete until (all relevant
hearings are held and) all necessary information is received. Where it
is not practicable for a decision to be made within [120][180] days, the
regulatory authority shall notify the applicant without undue delay and
shall endeavour to make the decision within a reasonable time thereafter.
[4. Nothing in this Agreement requires a Contracting Party to furnish
or allow access to:
a) information related to the financial affairs and accounts of individual
customers of financial services enterprises; or
b) any confidential or proprietary information, the disclosure of which
would impede law enforcement or otherwise be contrary to the public interest
or prejudice legitimate commercial interests of particular enterprises.]"
New financial services
EG5 considered two options for text:
Option 1:
"A Contracting Party shall permit financial services enterprises
of any other Contracting Party established in its territory to offer any
new financial services."
Option 2:
"A Contracting Party shall permit a financial services enterprise
that is an investment of an investor of any other Contracting Party to
offer in its territory any financial service that is not offered in the
territory of the Contracting Party but which is offered in the territory
of another Contracting Party, and which is of a type similar to those services
that the Contracting Party permits, or would permit if requested, its own
financial services enterprises, in like circumstances, to provide under
its domestic law. A Contracting Party may determine the institutional and
juridical form through which the service may be provided and may require
authorisation for the provision of the service. Where such authorisation
is required, a decision shall be made within a reasonable time and the
authorisation may only be refused for prudential reasons."
Information transfer and data processing
Some delegations considered that limitations on the ability of investors to transfer and processing financial information can in certain circumstances act as a deterrent to foreign investors and favored preparation of specific text The following text was proposed, based on language drawing on the GATS:
"1. No Contracting Party shall take measures that prevent transfers
of information or the processing of financial information outside the territory
of a Contracting Party, including transfers of data by electronic means,
where such transfer of information or processing of financial information
is:
a) necessary for the conduct of the ordinary business of a financial
services enterprise located in a Contracting Party that is the investment
of an investor of another Contracting Party; or
b) in connection with the purchase or sale by a financial services enterprise
located in a Contracting Party that is the investment of an investor of
another Contracting Party of:
i) financial data processing services; or
ii) financial information, including information provided to or by third
parties.
2. Nothing in paragraph 1:
a) affects the financial service enterprise's obligation to comply with
any record keeping and reporting requirements; or
b) restricts the right of a Contracting Party to protect personal data,
personal privacy, and the confidentiality of individual records and accounts
so long as such right is not used to circumvent the provisions of the Agreement."
Membership of self-regulatory bodies and associations
The Group agreed to recommend that, in the absence of a broader provision
in the MAI, the following text along the lines of the WTO Understanding
on Commitments in Financial Services be adopted4:
"When membership or participation in, or access to, any self-regulatory body, securities or futures exchange or market, clearing agency, or any other organisation or association is required by a Contracting Party in order for financial services enterprises of any other Contracting Party to provide financial services on an equal basis with financial services enterprises of the Contracting Party, or when the Contracting Party provides directly or indirectly such entities, privileges or advantages in providing financial services, the Contracting Party shall ensure that such entities accord national treatment to investors of any other Contracting Party, or the investments of such investors, in a financial services enterprise resident in the territory of the Contracting Party."
begin footnote
1Australia reserved its position on this provision.
end footnote
Payments and clearing systems/Lender of last resort
The following text was proposed for consideration by EG5:
"Under terms and conditions that accord national treatment, each Contracting Party shall grant to financial services enterprises that are investments of investors of any other Contracting Party established in its territory access to payment and clearing systems operated by public entities, and to official funding and refinancing facilities available in the normal course of ordinary business. This paragraph is not intended to confer access to the Contracting Party's lender of last resort facilities."
DEFINITION OF FINANCIAL SERVICES
I. Text
"Financial services include all insurance and insurance-related
services, and all banking and other financial services (excluding insurance).
Financial services include the following activities:
Insurance and insurance-related services
(i) Direct insurance (including co-insurance):
(A) life
(B) non-life
(ii) Reinsurance and retrocession;
(iii) Insurance intermediation, such as brokerage and agency;
(iv) Services auxiliary to insurance, such as consultancy, actuarial,
risk assessment and claim settlement services.
Banking and other financial services (excluding insurance)
(v) Acceptance of deposits and other repayable funds from the public;
(vi) Lending of all types, including consumer credit, mortgage credit,
factoring and financing of commercial transaction;
(vii) Financial leasing;
(viii) All payment and money transmission services, including credit,
charge and debit cards, travellers cheques and bankers drafts;
(ix) Guarantees and commitments;
(x) Trading for own account or for account of customers, whether on
an exchange, in an over-the-counter market or otherwise, the following:
(A) money market instruments (including cheques, bills, certificates
of deposits);
(B) foreign exchange;
(C) derivative products including, but not limited to, futures and options;
(D) exchange rate and interest rate instruments, including products
such as swaps, forward rate agreements;
(E) transferable securities;
(F) other negotiable instruments and financial assets, including bullion.
(xi) Participation in issues of all kinds of securities, including underwriting
and placement as agent (whether publicly or privately) and provision of
services related to such issues;
(xii) Money broking;
(xiii) Asset management, such as cash or portfolio management, all forms
of collective investment management, pension fund management, custodial,
depository and trust services;
(xiv) Settlement and clearing services for financial assets, including
securities, derivative products, and other negotiable instruments:
(xv) Provision and transfer of financial information, and financial
data processing and related software by suppliers of other financial services;
(xvi) Advisory, intermediation and other auxiliary financial services
on all the activities listed in subparagraphs (v) through (xv), including
credit reference and analysis, investment and portfolio research and advice,
advice on acquisitions and on corporate restructuring and strategy.
II. Commentary
1. This definition is the same as that used in the GATS.
2. One delegation asked whether transfer of credit risks (for instance, credit swaps) and the provision of stored value cards were considered as financial services. The Group understood the proposed list of financial services as an open-ended one. Therefore, it was considered that, unless otherwise specified, the services in question should be regarded as financial services.
NAFTA Texts on standing of investments and consolidation
Article 1117: Claim by an Investor of a Party on Behalf of an Enterprise
1. As investor of a Party, on behalf of an enterprise of another Party
that is a juridical person that the investor owns or controls directly
or indirectly, may submit to arbitration under this Section a claim that
the other Party has breached an obligation under:
a. Section A or Article 1503(2) (State Enterprises), or
b. Article 1502(3)(a) (Monopolies and State Enterprises) where the monopoly
has acted manner inconsistent with the Party's obligations under Section
A,
and that the enterprise has incurred loss or damage by reason of, or
arising out of, that breach.
2. An investor may not make a claim on behalf of an enterprise described
in paragraph 1 if more than three years have elapsed from the date on which
the enterprise first acquired, or should have first acquired, knowledge
of the alleged breach and knowledge that the enterprise has incurred loss
or damage.
3. Where an investor makes a claim under this Article and the investor
or a non-controlling investor in the enterprise makes a claim under Article
1116 arising out of the same events that gave rise to the claim under this
Article, and two or more of the claims are submitted to arbitration under
Article 1120, the claims should be heard together by a Tribunal established
under Article 1126, unless the Tribunal finds that the interests of a disputing
party would be prejudiced thereby.
4. An investment may not make a claim under this Section.
Article 1121: Conditions Precedent to Submission of a Claim to Arbitration
2. A disputing investor may submit a claim under Article 1117 to arbitration
only if both the investor and the enterprise:
a. consent to arbitration in accordance with the procedures set out
in this Agreement; and
b. waive their right to initiate or continue before any administrative tribunal or court under the law of any Party, or other dispute settlement procedures, any proceedings with respect to the measure of the disputing Party that is alleged to be a breach referred to in Article 1117, except for proceedings for injunctive, declaratory or other extraordinary relief, not involving the payment of damages, before an administrative tribunal or court under the law of the disputing Party.
Article 1126: Consolidation
1. A Tribunal established under this Article shall be established under
the UNCITRAL Arbitration Rules and shall conduct its proceedings in accordance
with those Rules, except as modified by this Section.
2. Where a Tribunal established under this Article is satisfied that
claims have been submitted to arbitration under Article 1120 that have
a question of law of fact in common, the Tribunal may, in the interests
of fair and efficient resolution of the claims. and after hearing the disputing
parties, by order:
a. assume jurisdiction over, and hear and determine together, all or
part of the claims; or
b. assume jurisdiction over, and hear and determine one or more of the
claims, the determination of which it believes would assist in the resolution
of the others.
3. A disputing party that seeks an order under paragraph 2 shall request
the Secretary-General to establish a Tribunal and shall specify in the
request:
a. the name of the disputing Party or disputing investors against which
the order is sought;
b. the nature of the order sought; and
c. the grounds on which the order is sought.
4. The disputing party shall deliver to the disputing Party or disputing
investors against which the order is sought a copy of the request.
5. Within 60 days of receipt of the request, the Secretary-General shall
establish a Tribunal comprising three arbitrators. The Secretary-General
shall appoint the presiding arbitrator from the roster referred to in Article
1124(4). In the event that no such presiding arbitrator is available to
serve, the Secretary-General shall appoint, from the ICSID Panel of Arbitrators,
a presiding arbitrator who is not a national of any of the Parties. The
Secretary-General shall appoint the two other members from the roster referred
to in Article 1124(4) and to the extent not available from that roster,
from the ICSID Panel of Arbitrators, and to the extent not available from
that Panel, in the discretion of the Secretary-General. One member shall
be a national of the disputing Party and one member shall be a national
of a Party of the disputing investors.
6. Where a Tribunal has been established under this Article, a disputing
investor that has submitted a claim to arbitration under Article 1116 or
1117 and that has not been named in a request made under paragraph 3 may
make a written request to the Tribunal that it be included in an order
made under paragraph 2, and shall specify in the request:
a. the name and address of the disputing investor;
b. the nature of the order sought; and
c. the grounds on which the order is sought.
7. A disputing investor referred to in paragraph 6 shall deliver a copy of its request to the disputing parties named in a request made under paragraph 3.
8. A Tribunal established under Article 1120 shall not have jurisdiction
to decide a claim, or a part of a claim, over which a Tribunal established
under this Article has assumed jurisdiction.
9. On application of a disputing party, a Tribunal established under
this Article, pending its decision under paragraph 2, may order that the
proceedings of a Tribunal established under Article 1120 be stayed, unless
the latter Tribunal has already adjourned its proceedings.
10. A disputing Party shall deliver to the Secretariat, within 15 days
of receipt by the disputing Party, a copy of:
a. a request for arbitration made under paragraph (1) of Article 36
of the ICSID Convention;
b. a notice of arbitration made under Article 2 of the Schedule C of
the ICSID Additional Facility Rules; or
c. a notice of arbitration given under the UNCITRAL Arbitration Rules.
11. A disputing Party shall deliver to the Secretariat a copy of a request
made under paragraph 3:
a. within 15 days of receipt of the request, in the case of a request
made by a disputing investor;
b. within 15 days of making the request, in the case of a request made
by the disputing Party.
12. A disputing Party shall deliver to the Secretariat a copy of a request
made under paragraph 6 within 15 days of receipt of the request.
13. The Secretariat shall maintain a public register of the documents
referred to in paragraphs 10, 11 and 12.
Article 1135: Final Award
2. Subject to paragraph 1, where a claim is made under Article 1117(1):
a. an award of restitution of property shall provide that restitution
be made to the enterprise;
b. an award of monetary damages and any applicable interest shall provide
that the sum be paid to the enterprise; and
c. the award shall provide that it is made without prejudice to any right that any person may have in the relief under applicable domestic law.
PART II
PART TWO:
CONSOLIDATED COMMENTARY
II. SCOPE AND APPLICATION
DEFINITIONS
1. 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
2. Some delegations expressed concerns relating to the inclusion of
permanent residents in the definition of investor. If permanent residents
are included, it would be necessary to specify that permanent residents
would be those that are recognised as such under the applicable law of
each Contracting Party. Concerns relating to their standing for purposes
of dispute settlement could be addressed in the MAI provisions dealing
with dispute settlement.
3. It was noted that branches in Switzerland 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.
4. Some delegations called attention to the Belgian 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.
5. 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.
6. The Czech Republic 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 the Czech 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 that seat
to the Czech Republic 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 Czech resident. 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 the Czech 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 the Czech Republic is covered by the definition
as currently drafted.
7. Austria suggests adding to the definition of investor the words "who acquires, owns or controls an investment in another Contracting Party" and some elements presently addressed by the definition of investment.
Investment
8. Drafting Group No3 examined a definition of investment on the assumption
that the MAI would contain a single, broad definition covering all forms
of assets, including tangible and intangible assets. The consideration
of such a definition does not prejudge the scope of its application to
the various MAI rights and obligations.
9. While the question of the scope and application of the MAI
is still to be resolved, the Drafting Group made the following observations.
There was consensus in favour of applying a broad definition with respect
to the MAI obligations to protect existing investments; however, several
delegations expressed concern over how the MAI obligation concerning national
treatment would apply in the pre-establishment phase. Some delegations
consider that an unqualified application of this obligation to a broad
range of assets could interfere with regulations of financial markets and
other operations which are not meant to be covered by the MAI. Japan also
considered that an unqualified application would cause confusion with respect
to the precise contents of obligations in the pre-establishment phase.
10. To address this concern while maintaining a broad and single definition
under the MAI, specific reservations could be lodged wherever a country
is not in a position to fully accord national treatment or other MAI obligations.
11. 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.
12. DG3 agreed on the structure of the article on the definition of
investment, i.e. a broad positive list and a limited negative
list.
13. Some delegations are concerned that a broad definition of investment
might result in a proliferation of dispute settlement claims. If necessary,
this concern can be addressed by limiting access to the MAI dispute settlement
mechanism, either through a provision in the dispute settlement article
or through limitations in the definition itself.
14. 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:
(a) investment by an investor established in another MAI Party, but
owned or controlled by a non-MAI investor
(Example: an investment in Austria by a Belgian subsidiary of a non-MAI
parent)
(b) investment by an investor established in a non-MAI Party, but owned
or controlled by a MAI Party investor
(Example: an investment in Canada by a non-MAI subsidiary of a Danish parent);
(c) investment by an investor established in another MAI Party, but
owned or controlled by an investor of a third MAI Party
(Example: an investment in France by a German subsidiary of a Hungarian
parent); and
(d) investment in a MAI Party by an investment there covered by the
MAI
(Example: an investment in Italy by an Italian subsidiary of a Japanese
parent).
15. 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).
16. 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.
17. Related to it was the question of standing for MAI dispute settlement
on which the Negotiating Group might provide guidance to Expert Group Nol.
Under investor-state proceedings, most delegations considered that only
the parent MAI investor would have standing, but some delegations were
open to allowing the intermediary entity to have standing as well. Under
state-to-state proceedings, all delegations suggested, as a matter of principle,
giving no standing to the non-MAI government of the intermediary.
18. There was consensus that case (c) and case (d) investments would
be covered by the MAI. There was no further debate on the legal implications.
19. Related to each of these cases was the question of which entities
and states have standing for MAI dispute settlement, an issue for consideration
by Expert Group No1. This includes which tier or tiers of investors have
standing in investor-state dispute settlement and which MAI Party (state
or states) have standing in state-to-state dispute settlement.
20. The European Commission considered that the inclusion of indirectly controlled investments might pose serious problems to the EU Members states as far as their present level of liberalisation is concerned as this normally also applies to companies established in the EU, but under control of a non-EU country. The European Commission suggested that such problems could eventually be effectively addressed by a general MAI provision on measures taken within Regional Economic Integration Agreements.
Item (i)
An enterprise (being a legal person or any entity constituted or organised
under the applicable law of a Contracting Party, whether or not for profit,
and whether private or government owned or controlled, and includes a corporation,
trust, partnership, sole proprietorship, branch, joint venture, association
or organisation).
21. 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".
Item (ii)
Shares, stocks or other forms of equity participation in an enterprise,
and rights derived therefrom:
22. This item, 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. The extent to which the substantive obligations of the
agreement will apply to this item and to item (iii), in particular portfolio
investment and foreign exchange operations, will need further examination
in the light of concerns expressed by some delegations.
Item(iii)
Bonds, debentures, loans to and other forms of debt [of an enterprise]
and rights derived therefrom;
23. This item would cover loans of all maturities and debt securities
of a state enterprise.
24. DG3 noted that the relation between this obligation and national
legislation may need to be considered further. Mexico wishes to exclude
loans of less than three years, other than loans between affiliates of
an enterprise. Many delegations considered, however, that such an exclusion
would be contrary to the objective of a broad definition. If there is no
consensus on this issue it will have to be referred to the Negotiating
Group.
Item (iv)
rights under contracts, including turnkey, construction, management,
production or revenue-sharing contracts:
25. Some delegations wish to retain, for further consideration, a previous
text for item (iv) which would read as follows:
"an interest arising from the commitment of capital or other resources in the territory of a Contracting Party to economic activity in such territory, such as under
-- contracts involving the presence of an investor's property in the
territory of a Party, including turnkey or construction contracts, or concessions,
or
-- contracts where remuneration depends substantially on the production,
revenues or profits of an enterprise."
Item (v)
claims to money and claims to performance
26. "Claims to money" includes bank deposits. Most delegations
consider that this item covers derivatives which are not covered elsewhere
in the list of assets.
27. Claims to money may also arise as a result of a sale of goods or
services. These claims are not generally considered as investments. The
NAFTA excludes such claims unless they are associated with the investment
interests which are set out in its definition. The ECT also requires that
these claims be associated with an investment. Similar questions arise
with respect to "rights under contracts" (item iv).
28. Some delegations supported the following alternative text:
"Claims to money and claims to performance pursuant to a contract
[associated with an investment] having an economic value, with the exception
of:
(a) Commercial contracts for the sale of goods or services by a national
or enterprise in the territory of a Contracting Party to an enterprise
in the territory of another Contracting Party;
(b) the extension of credit in connection with a commercial transaction,
such as trade financing, other than a loan covered by item (iii); or
(c) any other claims to money that do not involve the kinds of interests
set out in items (i) through (ix)"
Item (vi)
Intellectual property rights;
29. 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. Mexico wishes to cover intellectual property rights under
the MAI only when acquired in the expectation of economic benefit or other
business purposes.
30. 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.
Item (vii)
rights conferred pursuant to law or contract [such as] or [by virtue
of] concessions, licenses, authorisations, and permits
31. 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. Switzerland considered
that this item covers public law contracts.
32. 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.
33. Some delegations indicated that certain aspects of concessions raised
issues related to monopolies in general and to cross-border government
procurement, which might require some special provision or clarification
in the MAI. France submitted a note on this matter [DAFFE/MAI/RD(96)55]
34. 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.
35. Norway 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
Norway, these issues fall outside the mandate for the negotiation of the
MAI.
Item (viii)
any other tangible and intangible, moveable and immovable property,
and any related property rights, such as leases, mortgages, liens and pledges.
Negative List
Item [(i) public debt;] [debt securities of and loans to a state enterprise
or Contracting Party;]
36. Some delegations consider that sovereign debt should not be part of the definition of investment, while others believe that including sovereign debt (which includes state-owned enterprise debt) requires further consideration. One element to be considered in this respect would be the sovereign liquidity issue. Some delegations pointed out that confiscatory measures by a debtor state entail international responsibility which should be dealt with in the MAI.
Item [(ii) financial assets;]
[unless the transactions [to which such debt or other assets relate]
otherwise have the characteristics of an investment; or]
[unless the respective claims are assets of an enterprise mentioned
in paragraph (a) (i); - or]
[unless such assets are acquired for the purpose of establishing lasting
economic relations with an enterprise; or]
Item [(iii) derivatives where the underlying asset is not regarded as
an investment],
37. These items are under review by EG5.
Item [(iv) real estate or other property, tangible or intangible, not
acquired in the expectation or used for the purpose of economic benefit
or other business purpose]
Item [(v) movable or immovable property, and any related rights acquired
for personal use];
38. 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
which is reflected in item [iv].
-- Other Elements
39. Some delegations consider that the MAI should include "returns,
or "reinvested returns" as part of the definition of investment
as in the ECT.
GEOGRAPHICAL SCOPE OF APPLICATION
40. 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.
41. 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.
42. 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.
III. TREATMENT OF INVESTORS AND INVESTMENTS
General
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.
NATIONAL TREATMENT AND MOST FAVOURED NATION
TREATMENT
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 the United States and Canada 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 A. National treatment and MFN treatment are comparative
terms. They permit fair and equitable difference in treatment justified
by relevant differences of circumstances. In this context, nationality
is not relevant. Some delegations may wish to modify this text in the light
of the commentary on Option B below which was not discussed.
Regarding Option B. The U.S. 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 my other state or province. The question will need to be answered
by the Negotiating Group in due course.
8. Switzerland 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) [DAFFE/MAI/DG2/RD(96)1].
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 [DAFFE/MAI/M(95)2], Article
1 is intended to address any problem of de facto as well as de jure discrimination.
10. Switzerland 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. The proposed Article applies to measures taken with respect to financial
services. Given the coverage of the MAI, the Article will apply to measures
affecting investors and their investments in the financial services area
and not all aspects of international trade in financial services. The Expert
Group considered that there was no need to make this point explicit in
the proposed Article.
2. The proposed text recognises the right of a Party to take prudential measures which do not conform with National Treatment, MFN and the other provisions of the Agreement, provided that the measures are not used as a means of avoiding Party's commitments and obligations. One delegation suggested that a requirement that prudential measures be not more restrictive than necessary to meet the prudential objective might be included in the proposed Article.
3. One delegation asked whether restrictions on transfers taken in connection
with orders or judgements related to civil, administrative and criminal
proceedings, etc. would be covered by paragraph 1 of the proposed article,
subject to the anti-abuse provision of paragraph 2. This question may be
related to paragraph 4.6 in the "Transfers" Article of the Agreement.
4. In paragraph 1 of the proposed Article, the Expert Group opted for
the term "enterprise". This term was understood to be broader
than "institution" which is generally only an entity expressly
authorised to do business and regulated or supervised under the law of
the party in whose territory it is located.
5. Except for one delegation (Australia), EG5 took the view that the
exercise of a Party's right to take prudential measures which do not conform
with the provisions of the Agreement should in principle be subject to
the dispute settlement mechanism of the MAI. Most delegations were of the
view that financial services expertise should be required for any arbitration
panel for disputes on issues relevant to "financial services."
6. EG5 felt it would be desirable that the Agreement define certain terms including the term "measure".
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. Mexico, supported by other delegations, proposed to add an additional
sentence to article 2.3 and an additional paragraph on Special Formalities
and Information Requirements as follows:
[Nothing in this paragraph shall be construed to prevent a Contracting
Party from otherwise obtaining or disclosing information in connection
with the equitable and good faith application of its law.]
["Nothing in Article 1.11 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 non-discrimination obligations of the Agreement.
There were serious concerns as to the substantive implications of the paragraph,
in particular relating to the residency requirements.
8. DG3 considered including a notification obligation along the following
lines:
"Each Contracting Party shall notify the ("Parties Group ")
promptly, and in any case no later than 60 days after their entry into
force, of any new measures or any changes to existing measures which significantly
affect the performance of its obligations under the Agreement."
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. Japan suggested that consideration be given to an article based on Article 5 ("Controls and Formalities") of the OECD Codes of Liberalisation.
begin footnote
1General Treatment Article.
end footnote
A. Temporary entry and stay of investors and key personnel
Paragraph I
1. While several delegations supported including a requirement of a
"substantial amount of capital" in this paragraph, 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. Delegations are considering whether subparagraphs a) and b) should
refer to an "enterprise" or more broadly to "investment".
4. There are alternative texts proposed for subparagraph b). The first
alternative is the approach submitted by the US. The second alternative
includes a prior employment requirement. Some delegations think this requirement
can distort the investment process by impacting unfairly on new investors
and small/medium 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 as a measure of whether
an individual is essential to an investment.
5. While there were different views as to the length of a prior employment
requirement, if included, 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 2
6. This paragraph is in brackets pending consideration of its relation
to the chapeau clause.
Paragraph 4
7. Some delegations believe this issue to represent a de facto barrier to the movement of key personnel and would be willing to grant temporary entry and stay to spouses and minor children. Some countries would go further and grant the right for spouses to work under the MAI. A difficulty would be to agree on what is meant by "spouse" and by "minor" children.
8. Other delegations might consider a best efforts provision as concerns
the temporary entry and stay of spouses and minor children but would have
strong objections to authorising work permits. They are of the opinion
that an MAI provision to grant work permits to spouses to work anywhere
in the economy would create a "common labour market for MAI spouses"
and give rights to the spouse that go beyond what the agreement grants
to the investor. One delegation pointed to the need to ensure subsistence
for spouses and children in order to grant temporary entry and stay. Some
delegations expressed concern that not authorising work permits for spouses
might reduce significantly the effectiveness of the Article.
Paragraph 6 Natural person of another Contracting Party
9. There are different views as to whether, for the purposes of these
provisions, natural persons covered should be restricted to nationals or
permanent residents of another MAI Contracting Party. There was a discussion
that for key personnel, nationality should not be a criteria as long as
the key personnel is an employee of an MAI investment. Some delegations
do not think it necessary to define this term here since it would be covered
by the definition of investor elsewhere in the agreement. One delegation
clarified that it could not accept the inclusion of permanent residents
as concerns the provisions for temporary entry and stay although it agrees
with the inclusion of residents for the purpose of the general definition
of "investor" in the agreement.
10. The United States Delegation made a proposal for consideration which
would multilateralise their bilateral treaty practice, as follows:
"Investors who are nationals of countries with whom we have certain
treaty obligations (including our bilateral investment treaty partners)
may, if they meet certain criteria regarding the nature of the investment,
obtain visas to the United States that permit them, and certain of their
key employees who are also citizens of the same country, to enter and remain
in the United States while they are actively involved with the investment.
There are known as E-2, or "treaty investor", visas.
In the context of the Multilateral Agreement on Investment, it would
seem inconsistent with its liberalising goals to require that key personnel
of an investor be of the same nationality as the investor in order to qualify
for a "treaty investor" visa. One approach we would be prepared
to explore would be to permit issuance of a "treaty investor"
visa to any key employee of a qualified MAI-country investor who was himself
or herself a national of an MAI-country, whether or not an employee has
the same nationality as the investor. Thus, assuming that Germany, France
and the United States all join the MAI, a French key employee of a German
company would be eligible for a "treaty investor" visa if the
German company were to make a qualifying investment in the United States.
We do not propose expanding the criteria for eligibility for a "treaty investor" visa, either in terms of the nature of the investment requires, or in terms of the types of personnel who qualify. We merely are suggesting that nationality not be a limiting factor, provided that the investor, and the key employee seeking the visa, are both nationals of MAI-member countries. Nevertheless, such a change in the "treaty investor" programme would require an amendment to the legislation that authorises such visas."
Enterprise
11. Most delegations did not think that these provisions should include
a definition of the "enterprise" of another Contracting Party
since it is already defined in the general definitions of the agreement.
Executive, Manager, Specialist
12. 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.
B. Employment requirements
13. This provision would permit an investor to hire persons without regard to nationality. While the MAI should prevent the application of national employment quotas or labour market (economic needs) tests, it should not be used by a foreign investor to circumvent the application of certain national laws such as anti-discrimination laws. It should also not prevent a Party from ensuring compliance with its laws as concerns the conditions it attaches to the granting of sejour and work permits. However, any administrative practices necessary for purposes of verification should not be used to undermine or nullify the provision.
General
14. Some delegations question the need for a separate article confirming
the application of the National Treatment/MFN obligations to privatisation
operations. Other delegations feel, 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 attach particular importance
to transparency. While acknowledging differences of opinion over the best
approach to this issue and leaving its options open, the Expert Group agreed
to work on the basis of the proposed text.
Paragraph 2
15. Some delegations questioned how this provision would interrelate
with the MAI provisions on expropriation and compensation.
Paragraph 3
16. One delegation doubted whether the provision was fully consistent with the National Treatment/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.
Paragraph 5
17. The proposed definition was considered to be a good starting point
for discussion. However, as it stands, the definition would cover sales
from one government to another or between a government and a state enterprise.
These sales do not result in increased participation from the private sector
and may thus not be compatible with the concept of privatisation. The expression
"transfer of control" may not be appropriate for partial sales.
Account should be taken of the definition by the Expert Group:
"Privatisation was generally understood to mean the transfer of the partial or complete control2 of publicly-owned assets to an investor or investors3. Privatisation may concern a public monopoly or a public enterprise. It may take effect in one single operation or spread over time in tranches. Methods of privatisation include: public offering in domestic and international markets, direct sale to investors, management and employee buyout and mass privatisation through distribution of vouchers to the population."
begin footnote
2The concept will require further consideration.
3The question of how to capture the privatisation of service activities remains to be determined. A number of delegations suggested that the word "private" be added before "investor" or "investors".
end footnote
18. The discussion on investment incentives was based on a Note, including
a proposal for draft provision, by the New Zealand [DAFFE/MAI/EG3/RD(96)7]
and a proposal by the European Commission [section 6 of DAFFE/MAI/EG3/RD(96)
10].
19. 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.
20. New Zealand 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). New
Zealand also provided text for a specific transparency provision.
21. Several delegations, however, considered the nature and scope of
the disciplines proposed by New Zealand 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.
22. 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 non-conforming measures to standstill and rollback.
23. 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.
24. 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.
Paragraph 1
25. There is consensus 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
26. A large majority of 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
27. 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.
28. Several delegations considered desirable to confirm in subparagraph
(a) the application of the MAI obligations, notably that of National Treatment
and MFN, to the delegation of regulatory powers. Some delegations felt
this problem could be addressed in the context of a general anti-circumvention
clause covering all provisions of the MAI. One delegation wondered if the
language not being "inconsistent with the Contracting Parties obligations"
was precise enough to avoid different interpretations. A few delegations
questioned the need altogether for an anti-circumvention clause in the
Agreement.
29. There was general agreement in favour of an obligation along the lines of subparagraph b) requiring government-designated monopolies to provide non-discriminatory treatment in their sales of monopoly goods or services. This obligation would not apply, however, to the sale of goods or services produced in competition with private operators.
30. Concerning the coverage of purchases of monopoly goods and services
in paragraph c), the desirability of excluding procurement transactions
covered by the GATT Agreement on Government Procurement (GPA) was not disputed,
but it remained unclear what remaining procurement practices would be captured
by the MAI as a result of this exclusion. One clear-cut example was marketing
boards with monopsony powers over particular commodities. It was also noted
that GPA covers the monopsony purchases of government-agencies but not
those of government-designated privately-owned monopolies. This matter
would need to be discussed further. One delegation mentioned that the plurilateral
character of this GPA could give rise to a free-rider problem. One delegation
suggested the term "monopsony" should be used when referring
to the purchase of "a monopoly good or service". Some delegations
felt that this was an intrusion of the MAI in the area of competition policy
giving cause for concern.
31. Concerning subparagraph d), it was recognised 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
32. 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, an avenue resisted by the Negotiating Group. This problem clearly
belongs to the broader issue of liberalisation and balance of commitments.
33. 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/MFN 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
34. The desirability of introducing a notification requirement for existing and new monopolies was found by some 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
35. A few 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. State enterprises
36. Several 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
37. The Expert Group agreed to pursue its discussion of the definition
of "Monopolies" on the basis of the proposed text. One delegation
suggested brackets around the word "local". A number of delegations
considered that the concept of government-designated "monopolies"
should also cover that of "exclusive suppliers" as in the case
of Article VIII 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 XVII-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".
38. While the concept of "relevant market" was considered
to be more appropriate than that of "given market", some delegations
felt that the term "commercial market" needed to be discussed
further.
39. One delegation suggested the insertion of the words "subject to Annex..." to allow, as in NAFTA, that country specific characteristics be taken into account.
CORPORATE PRACTICES AND SENIOR MANAGEMENT AND BOARD OF DIRECTORS
A. Corporate Practices
Option A
Paragraph 1
40. A number of delegations expressed a clear preference for the first
option which would limit the obligation of a Contracting Party to that
of not encouraging or requiring a company to engage in certain practices.
A difference could be introduced between shares traded in the stock exchange
and other types of shares. Other delegations felt, however, that this provision
amounts to an anti-circumvention clause, an article under consideration
for the MAI as a whole. One delegation suggested that the term "other
government measures" would need to be defined.
41. Some delegations specifically questioned the merits of including
an illustrative list of corporate practices. Other delegations expressed
reservations to the inclusion of some of the practices listed (such as
residency requirements and issuance of different classes of shares). One
delegation warned that "negative pledges" are common practices
in certain countries and limiting their use could negatively affect the
commercial interests of those which make use of them.
Paragraph 2
42. Delegations recognised that corporate practices can constitute an
impediment to international investment. It was also felt that the MAI should
not fall behind the GATS.
Paragraph 3, Alternative 1
43. Several delegations considered that the prohibition of discriminatory
provisions in company statutes, articles of association and by-laws proposed
in alternative 1 goes too far in limiting the freedom to contract and infringing
upon the autonomy of the business sector. It would require legislative
action in all OECD countries on a politically delicate subject. A best
endeavour provision in this area would appear to be more realistic approach.
Paragraph 3, Alternative 3
44. With regard to the "best endeavour" provision, contained in this alternative, a number of delegations considered that it would intrude too much into the private sector domain and should not be pursued. Some delegations wondered how the "de facto" concept would be interpreted.
1. GENERAL TREATMENT
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 Swedish proposal
is reflected in a footnote and calls for no additional standards with respect
to which a government'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
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. Sweden subsequently submitted
a new proposal to help resolve article 1.2 [DAFFE/MAI/DG3/RD(96)9].
2. EXPROPRIATION AND COMPENSATION
1. The terms "public purpose" and "public interest" derive from different legal traditions but have very similar meanings. The term chosen "for a purpose which is in the public interest" is considered consistent with both legal traditions; it was previously agreed in the Energy Charter Treaty (ECT).
2. The Drafting Group understands that the violation of criminal laws
could result in the loss of an investment (or part thereof which would
not be deemed expropriation, provided those laws and their application
are non-discriminatory and otherwise consistent with the standards of this
agreement.
3. In cases where the investment consists in total or in part of shares,
the rights of the shareholders, if an expropriation takes place, have to
be defined. This should derive from the definition of investments in the
MAI, if not, a special provision may be needed in Article 2.
4. Expropriation in cases where the investment consists in total or
in part of intellectual property rights was seen as critical. It was decided
not to suggest specific language on this issue and that it would need to
be further revisited in a global context.
5. "Creeping expropriation" in general is covered by the words
of Article 2: "measures or measures having equivalent effect".
"Creeping expropriation" through tax measures were mentioned
but no specific wording was suggested (see Commentary on "Taxation").
6. Austria proposed additional text on blocking, freezing, sequestration
or any similar measures having expropriatory effect [DAFFE/MAI/DG1/RD(95)4].
After discussion, it was agreed that these concerns were already addressed:
temporary actions, when ended, would result in restitution of the property,
and, any unlawful aspects of the temporary measure could give rise to damages
for breach of other articles, such as Article 1. Should the measures take
on a permanent or expropriatory character, they would, (i) if lawful, be
subject to Article 2, or (ii) if unlawful, give rise to a right to restitution
under customary international law.
7. The Drafting Group considered the problem of exchange rate risk only
in the case of delay in the payment of compensation for expropriation to
the exclusion of other exchange rate risks to which the investor may be
exposed.
8. It identified four options for calculating compensation in order
to protect the investor against losses from currency fluctuations before
date of payment. In each case, the text would replace the text currently
shown in article 2.5
Option A - Investor's Choice
The compensation to be paid shall be calculated by summing:
(a) the fair market value of the expropriated investment on the date
of expropriation, expressed, at the option of the investor on the date
of expropriation, in either:
(i) the currency of the host state;
(ii) the currency of the investor's home state;
(iii) a freely usable currency; or
(iv) any other currency acceptable to the host government
at the market rate of exchange prevailing on that date, plus
(b) interest, at a commercial rate established on a market basis for the currency of valuation, from the date of expropriation until the date of actual payment.
That sum shall be expressed in the currency of payment at the market
rate of exchange prevailing on the date of payment for the currency of
valuation.
Option B - Government Choice: Multiple currency option
The compensation to be paid shall be calculated by summing:
(a) the fair market value of the expropriated investment on the date
of expropriation, expressed, at the option of the host government on the
date of expropriation, in either:
(i) a freely usable currency,
(ii) the ECU, or
(iii) any other currency acceptable to the investor
at the market rate of exchange prevailing on that date, plus
(b) interest, at a commercial rate established on a market basis for
the currency of valuation, from the date of expropriation until the date
of actual payment.
That sum shall be expressed in the currency of payment at the market
rate of exchange prevailing on the date of payment for the currency of
valuation.
Option C - Government Choice - Freely Convertible Currency specially
defined1
The compensation to be paid shall be calculated by summing:
(a) the fair market value of the expropriated investment on the date
of expropriation expressed in a Freely Convertible Currency chosen by the
host government on the date of expropriation at the market rate of exchange
prevailing on that date, plus....
(b) interest, at a commercial rate established on a market basis for
the currency of valuation, from the date of expropriation until the date
of actual payment.
That sum shall be expressed in the currency of payment at the market
rate of exchange prevailing on the date of payment for the currency of
valuation.
The following would be inserted in the definitions article: "A
Freely Convertible Currency is a currency which is, in fact, widely used
to make payments for international transactions and is widely traded in
the principal exchange markets".
Option D - No Explicit Coverage of Exchange Loss Provision
Compensation shall include interest at a commercially reasonable rate established on a market basis for the currency of payment from the date of expropriation until the date of actual payment.
begin footnote
1The definition of "Freely Convertible Currency" would need to be the same as that adopted for the "Transfers" provision (article 4.2).
end footnote
9. A majority of delegations favoured Option D. Some delegations considered
that the international law standard of compensation, set out in Article
2, which requires payment of full market value in fully realisable form
and without delay, has implicit within it the requirement of offsetting
declines in the currency of valuation between the valuation date and the
payment, where there was a delay. Others considered this approach to be
too vague or to leave the issue open for later dispute. They therefore
favoured an explicit provision on the method to be used in calculating
expropriation compensation including the choice of reference currency.
10. A number of delegations favoured giving the investor a choice of
currency. Some favoured limiting the choice to the currencies of the home
or host government. Others favoured broadening that choice somewhat. There
was a consensus among them that the choice could not be unlimited. Option
A illustrates their approach.
11. A number of other delegations considered that the choice of currency
should be with the host government. Several of those delegations supported
Option C. One delegation preferred Option B and requested its inclusion
in this report.
12. One delegation noted that it could only accept an option which did
not allow its currency to be used for calculation if the same limitation
were imposed on all MAI parties. It suggested the inclusion of the words
"other than its own" after the words "a freely usable currency"
in Option B. The same delegation mentioned that another option would be
to calculate exchange rate changes on the basis of a basket of currencies.
13. It will need to be borne in mind, when considering the accession
of non-OECD Members, that the convertibility of the national currency will
be important with respect to the transfer obligations of the agreement,
including transfers of compensation for expropriation.
14. The Austrian delegation asked whether the drafting of Article 2
was adequate to avoid excessive scope, raising as an example the case of
an investor which had received a permit or authorisation for an investment
but then ceased to meet the necessary conditions for it. The Drafting Group
was of the opinion that this should pose no problem under Article 2 as
drafted: cancellation or withdrawal of the permit or authorisation in these
circumstances by the Government would not constitute a direct or indirect
expropriation or nationalisation of the investment. Comment 2 to Article
2, on loss of an investment through proper application of criminal laws,
was not exclusive.
15. The Mexican delegation, supported by the United States delegation,
believes it is important to provide guidance to arbitrators on how to determine
the "fair market value". This paragraph could read as follows:
"Valuation criteria shall include going concern value, asset value including declared tax value of tangible property, and other criteria, as appropriate, to determine the fair market value."
1. All delegations agreed that the free transfer of returns was a critical
element of the protection of the investors. Therefore a clear preference
was voiced for listing the main categories of returns in Article 4.1(b)
and in particular: "profits, interest, dividends, capital gains, royalties,
fees and return in kind". However it was finally agreed not to lengthen
the text of Article 4.1 (b) provided that these categories are explicitly
listed in the definition of returns in the article on definitions of the
MAI.
2. The free transfer obligation applies to earnings and other remuneration
net after deduction of any withholding for tax or social security purposes.
Dispute resolution would be available to investors but not their personnel.
3. The Drafting Group heard a presentation on transfers by an expert
from the International Monetary Fund regarding the rights and obligations
of countries under the Fund Agreement. It recommended that the Negotiating
Group deal with this matter, for example, under general provisions concerning
the relationship of the MAI to other international agreements.
4. Delegates wished to see no "balance of payments" clause
in Article 4. The Negotiating Group will nevertheless need to address the
question of general exceptions and temporary derogations for reasons such
as balance of payments, public order and preservation of monetary union,
including their possible relation to this article. However, it was mentioned
that any such provision should not apply to payment of compensation under
Article 2.
5. Articles 4.2 and 4.3 ensure -- without imposing it -- the freedom
to make transfers in a freely [convertible] currency at a market rate.
The reference to the exchange rate in Article 4.3 pertains only to cases
where the conversion of funds occurs on the date of transfer.
6. Most delegations considered that the draft Article 4.4 would provide
greater investor protection in extreme circumstances. Others thought the
provision should not rule out a different solution mutually agreed by the
Parties.
7. Conversely, a few delegations considered that it would not be useful
or necessary to include such a text because: a) the extreme circumstances
envisaged were very unlikely to arise in OECD countries; b) it is unlikely
that a country without a functioning foreign exchange market would want
to join or be able to meet the criteria for joining the MAI; and c) if
a provision were included for these cases, the SDR rate may not be the
most appropriate or most advantageous rate for the investor.
8. It was broadly agreed that this specific matter was independent of the general issues linked to the accession of non-Members to the MAI, although the conditions of non-Member accession to the MAI could possibly include a requirement that all MAI countries should meet the requirements of Article VIII of the IMF Agreement and should maintain functioning foreign exchange markets.
9. In order to emphasise the freedom of transfer, Japan proposed the
following text for the first sentence of Article 4.5: "The freedom
of transfer of returns in kind under Article 4.1(b) does not derogate from
the rights of a Contracting Party under the Agreement established by the
World Trade Organisation to restrict or prohibit the export or the sale
for export of what constitutes the return in kind".
10. Article 4.6 is indirectly but closely linked with the issue of free
transfer. It allows satisfaction of two important objectives. It is comparable
to the language in the Energy Charter Treaty (ECT). Some delegations would
include additional specific objectives, such as bankruptcy, insolvency
or the protection of the rights of creditors; issuing, trading or dealing
in securities; and records of transfers.
11. Other delegations questioned the need and desirability of Article
4.6. To help bridge these different views, Canada proposed the following
language: "Nothing in Article 4 shall be construed to prevent a Contracting
Party from the equitable, non-discriminatory and good faith application
of measures to protect the rights of creditors, ensure compliance with
laws on the issuing, trading and dealing in securities, reports or records
of currency transfers and the satisfaction of judgements in civil, administrative
and criminal proceedings, provided that such measures and their application
shall be consistent with the provisions of Article l".
12. The United States proposed: "Notwithstanding articles 4.1 to
4.5, a Contracting Party may prevent a transfer through the equitable,
non-discriminatory and good faith application of its laws relating to:
(a) bankruptcy, insolvency, or the protection of the rights of creditors;
(b) issuing, trading, or dealing in securities;
(c) criminal or penal offences;
(d) reports or records of transfers; or
(e) ensuring compliance with orders or judgements in adjudicatory proceedings."
13. Another important objective concerns taxation but this matter will
need to be considered in the context of the general treatment of taxes
in the MAI (see Commentary on "Taxation").
14. One delegation suggested adding the following text on forced transfers:
"A Contracting Party shall not require the transfer of, or penalise
the failure to transfer, the income, earnings, profits or other amounts
derived from, or attributable to, an investment in the territory of another
Contracting Party by one of its investors." This proposal did not
attract a consensus.
1. It was discussed whether to include reference to private insurance
companies in the recognition given in Article 5. A special provision to
this effect was considered unnecessary since a Contracting Party may designate
its "designated agency" regardless of its private or public status.
2. The question of subrogation is very directly linked to the settlement of disputes: it will have to be borne in mind as discussions on the latter subject take place. In particular, a key question will be the respective rights of the investor and the Contracting Party or its designated agency subrogated in the rights of this investor.
3. The second paragraph of Article 5 could be placed elsewhere in the
agreement, possibly in the dispute settlement section.
6. PROTECTING EXISTING INVESTMENTS
1. There was broad support for inclusion in the MAI of a provision stipulating
that the MAI would apply to pre-MAI investments. The debate was not conclusive
as to whether to restrict the coverage to investments that were "consistent
with the legislation" of the host state.
2. Some delegations wish to specify that the Agreement would not apply
to claims arising out of past events or which had already been settled.
This is reflected in Option A in the draft text. Another delegation questioned
the need for the second sentence in view of Article 28 of the Vienna Convention
on the Law of Treaties and proposed the text in Option B, which avoids
implying retroactive effect.
7. PROTECTING INVESTOR RIGHTS FROM OTHER AGREEMENTS
1. Expert Group 1 reviewed this issue and found that a number of delegations
continued to support the inclusion of a "respect" clause, a number
continued to support the so called "zero option" and one delegation
supported a middle ground "procedural option" of including investment
agreement and authorisations expressly within the scope of the investor-state
dispute settlement mechanism. Some delegations noted that, even under the
"zero" option, as far as contracts and authorisations are concerned,
those were in the asset based definition of investment and covered by the
investment protection standards of general treatment, including the international
law standards, and expropriation and, therefore, to that extent also covered
by dispute settlement.
2. There were differing views in the Expert Group as to whether the general protection standards of the MAI would be sufficient to cover their concern. The Expert Group agreed, without prejudice to other possible solutions, that it would be useful to explore a compromise based on the "procedural option" with the terms "investment agreement" and "authorisation" to be defined, together with a review of the general standard of treatment in relation to the international law on respect for a state's investment commitments.