V. DISPUTE SETTLEMENT
DISPUTE SETTLEMENT ISSUES ARISING FROM THE RELATIONSHIP BETWEEN THE MAI AND OTHER AGREEMENTS
3. The Expert Group reviewed the issues of multiple proceedings and forum shopping that could arise by virtue of substantive overlap between the MAI and other agreements. The following results were reached:
a. A provision should be considered for the MAI along the lines of NAFTA Article 20051. This would require MAI parties to choose among their state-state dispute settlement options for
1NAFTA Article 2005: GATT Dispute Settlement
"1. Subject to paragraphs 2, 3 and 4, disputes regarding any
matter arising under both this Agreement and the General Agreement
on Tariffs and Trade, any agreement negotiated thereunder, or any
successor agreement (GATT), may be settled in either forum at the
discretion of the complaining Party.
2. Before a Party initiates a dispute settlement proceeding in the
GATT against another Party on grounds that are substantially
equivalent to those available to that Party under this Agreement.
that Party shall notify any third Party of its intention. If a
third Party wishes to have recourse to dispute settlement
procedures under this Agreement regarding the matter, it shall
inform promptly the notifying Party and those Parties shall
consult with a view to agreement on a single forum. If those
Parties cannot agree, the dispute normally shall be settled under
3. In any dispute referred to in paragraph 1 where the responding
Party claims that its action is subject to Article 104 (Relation
to Environmental and Conservation Agreements) and requests in
writing that the matter be considered under this Agreement, the
complaining Party may, in respect of that matter, thereafter have
recourse to dispute settlement procedures solely under this
4. In any dispute referred to in paragraph 1 that arises under
Section B of Chapter Seven (Sanitary and Phytosanitary Measures)
or Chapter Nine (Standards-Related Measures):
(a) concerning a measure adopted or maintained by a Party to
protect its human, animal or plant life or health, or to protect
its environment, and
(b) that raises factual issues concerning the environment, health,
safety or conservation, including directly related scientific
where the responding Party requests in writing that the matter be
considered under this Agreement, the complaining Party may, in
respect of that matter, thereafter have recourse to dispute
settlement procedures solely under this Agreement.
5. The responding Party shall deliver a copy of a request made
pursuant to paragraph 3 or 4 to the other Parties and to its
Section of the Secretariat. Where the complaining Party has
initiated dispute settlement proceedings regarding any matter
subject to paragraph 3 or 4, the responding Party shall deliver
its request no later than 15 days thereafter. On receipt of such
request, the complaining Party shall promptly withdraw from
participation in those proceedings and may initiate dispute
settlement procedures under Article 2007.
6. Once dispute settlement procedures have been initiated under Article 2007 or dispute settlement proceedings have been initiated under the GATT, the forum selected shall be used to the exclusion of the other, unless a Party makes a request pursuant to paragraph 3 or 4.
cases involving "substantially the same right". Some delegations
took the view that this concept involves resolution of a number of
b. There was no support for a provision which would seek to guide
the MAI parties on which forum to use in particular circumstances,
though one delegation wished to review this regarding GATS in the
WTO and the MAI at a later stage.
c. There was agreement on most aspects of the relationship between
investor-state proceedings and state-state proceedings.
State-state proceedings and investor-state proceedings should be
independent of each other, except that states should be barred
from espousing under the MAI the same claim which an investor has
submitted or consented to submit to arbitration. In the case where
an investor had available investor-state arbitration under the MAI
and other agreements, e.g. BITS, delegates considered that further
reflection was necessary about the need to require the investor to
make a choice and not bring successive arbitrations on
substantially the same claim.
2. Other matters under this heading have not yet been discussed: i) the relationship of GATS Article II (MFN) with investor-state dispute settlement under the MAI; ii) the relationship between possible counter measures under MAI and obligations under other agreements.
7For purposes of this Article, dispute settlement proceedings under the GATT are deemed to be initiated by a Party's request for a panel, such as under Article XXIII:2 of the General Agreement on Tariffs and Trade 1947, or for a committee investigation, such as under Article 20.1 of the Customs Valuation Code.
1. It has been proposed that the general exceptions provisions not
be applicable to all of the obligations under the agreement. The
ECT (Article 24(1)) is an example of a multilateral agreement that
does not allow for general exceptions to be taken with regard to
specific obligations concerning compensation for losses or
expropriation. Bilateral treaty practice differs on this matter.
Some delegations thought that a reference to paragraph 2(c) would
be necessary to clarify that actions pursuant to a UN Charter
obligation would in any case prevail over the MAI (see paragraph
9, below). The Austrian delegation submitted a proposal which
would have the same effect by changing the order of the
2. The question is whether certain obligations of the agreement
are considered so central to investor protection, for example
compensation in case of expropriation, that a provision should
limit the right of a Contracting Party to invoke this Article for
actions that would be inconsistent with its obligation to pay
compensation in the case of an expropriation.
3. The majority view was that the MAI should provide an absolute
guarantee that an investor will be compensated for an expropriated
investment. This was questioned by the United States delegation
which doubted that in time of war whether a country would be able
to pay compensation, in all cases, to an investor of a party with
which it is in conflict. In the case that general exceptions would
be permitted to override MAI obligations, delegations might
further consider whether this should be limited to only essential
4. One delegation raised the issue of the need to ensure that this
provision would not apply retroactively. Delegations pointed to
customary international law rules limiting retroactive application
of treaties. They agreed this was a valid point, but that it
applied more generally to the entire agreement and should be
-- subparagraph a
5. Canada, supported by other delegations, requested square brackets be put around the phrase "which it considers" in the chapeau, as well as brackets around the phrase "or other emergency in international relations" at the end of (i). In the opinion of these delegations, these proposals would help safeguard against potential abuse by constraining the self-judging nature of the provision and by limiting its scope. One delegation believes that, based on an ICJ decision, such a change would eliminate the self-judging nature of the provision.
6. There were different views on whether to delete the phrase
"including those" in the chapeau, which would make the list a
closed one. Recent agreements like the NAFTA, the ECT, the GATS,
and the Shipbuilding agreement do not define essential security
interests but provide elements clarifying the purpose of the
provision. The Austrian Delegation thought that in a closed list
it would also be necessary to amend element (ii) (by inserting the
phrase inter alia" after the word "non-proliferation") to cover
international non-proliferation agreements, other than those
relating to nuclear weapons for example agreements concerning
chemical weapons. Denmark, supported by other delegations,
proposed the inclusion of an additional element (iii).
-- subparagraph b
7. This provision is found in recent agreements (NAFTA, ECT, GATS,
Shipbuilding). Canada, supported by other delegations, requested
that square brackets be put around the phrase "it considers" (to
be replaced by "would be") to help safeguard against potential
abuse by constraining the self-judging nature of the provision.
One delegation believes that, based on an ICJ decision, such a
change would eliminate the self-judging nature of the provision.
8. Several delegations noted that this issue also arose in the
context of the discussion on transparency in the National
Treatment chapter. Japan pointed out that in its opinion this
paragraph would also apply to concerns relating to public order.
-- subparagraph c
9. Agreements such as the NAFTA, GATS, and the Shipbuilding
agreement include a general exception provision relating to
obligations for the maintenance of international peace and
security. These provisions refer specifically to obligations under
the UN Charter. Some delegations thought it unnecessary to refer
to this obligation because the supremacy of the UN Charter over
international treaties is not disputed, but they agreed not to
insist on its deletion if others wanted to make this explicit.
Others were of the opinion that this reference was too restrictive
because it might not cover actions taken pursuant to regional
security arrangements. To address this point, the Canadian
delegation proposed including, after the words "UN Charter", the
phrase "or equivalent arrangements authorised by a competent
international organisation". The United States saw this as an
issue of clarification rather than one of restrictiveness and
suggested including, after the word "under", the phrase "or
10. Some countries believe that a reference to public order is necessary to allow countries to take exceptional measures based on this principle. France indicated in a written submission [DAFFE/MAI/DG2/RD(96)2] that a public order clause was meant to ensure certain objectives, including the non-discriminatory application of its laws and the prevention of disturbances to the public order that could be posed by certain foreign investments. It thought that given the different circumstances of foreign and domestic investors as concerns the protection of public order, it would not be possible, in all cases, to accord equivalent treatment to these different types of investors. Delegations recognised the interest of a state in ensuring the application of its criminal laws, anti-terrorist measures, and money laundering regulations, for example. But not all delegations were convinced that it is necessary to discriminate between foreign and domestic investors in order to protect public order. Austria remarked that if the MAI went beyond national treatment obligations to include the concept of market access, then the broader interpretation of public order would be necessary.
11. Several delegations were of the opinion that provision might
need to be made for cases where information requirements or other
formalities might be required of foreign investors because they
are not in the same situation as domestic investors. This question
also arose in the context of the discussion of the transfer
provisions in the investment protection chapter where the host
state would want to preserve its right to require certain reports
without being in contradiction of the absolute right of free
transfer otherwise provided by the agreement. Article 1111 of the
NAFTA was cited as a possible model to take account of these
situations. The question arose whether in fact this was not a
matter of "equivalent treatment" which could be included in the
context of national treatment.
12. In situations where the state needs to ensure that all
investors conform to its laws and regulations which are not in
contradiction with the provisions of the agreement, a provision of
more general application might also be needed, as in Article 5 of
the Capital Movements Code. The Group could consider a provision
similar to that in the Code which would apply to the whole of the
agreement. If this were the preferred solution, it might obviate
the need for a special provision in the transfer article or
elsewhere in the agreement where there might be similar concerns.
13. Several proposals were made with the intent to narrow the
scope of a public order exception. The German delegation proposed
limiting the public order concept to exceptions to the national
treatment principle and to make the MAI dispute settlement
mechanism applicable. Japan remarked, however, that if the MAI
went beyond national treatment obligations to include the concept
of market access, then the broader interpretation of public order
would still be necessary. The European Commission suggested a
reference to the ECJ principles of proportionality and the
exclusion of economic purposes as additional limitative
qualifications to public order.
14. Delegations in favour of including a public order exception
agreed that its use should be strictly controlled. These
delegations felt that the actions relating to public order would
not be self-judging and would be subject to the limitation in
paragraph 4 and to the procedures in paragraph 6. France,
supported by Spain, stated that these limitations and procedures
should apply in the same way to other general exceptions and that
all general exceptions should be treated in the same way in
relation to the applicability of the dispute settlement mechanism.
15. Paragraph 4 would apply to all exceptions in this article. It is another way of formulating the obligation that parties must be in good faith when invoking this article and cannot avail themselves of it as a pretext for not complying with their obligations under the agreement. A good faith obligation already exists in international law and the United States has concerns that by restating it in the agreement, we may create a different standard. Some delegations thought it might be useful to follow the ECT (Article 24)and GATS (Article XIV) provisos that public order or other general exceptions must not constitute a disguised restriction or that they are invoked without proper justification. This paragraph could be considered to have the effect of allowing a party which had reason to believe that another party had made improper use of this article to challenge such use as contrary to the objectives of the article. A decision on paragraph 4, in the opinion of several delegations, would have to wait until such time that consideration of paragraphs 2 and 3 had been completed.
16. The content of this paragraph would need to await a discussion
of the role of a "Parties Group". The requirement to notify
measures is intended to facilitate transparency and to promote
consistency in the manner that MAI Parties might apply the general
exceptions provisions. Some delegations thought that the 1991
clarification by the CIME that "measures taken for economic,
cultural or other reasons should be identified as such and should
not be shielded by an excessively broad interpretation of public
order and essential security interests...", might also assist the
Parties in applying these provisions.
17. Most delegations were in favour of providing for a mechanism
for consultation/dispute settlement. It would be understood that
entering into consultations would not prejudice the right of
either Party to invoke the other procedures of the agreement to
which it might be entitled. The question remains whether paragraph
4 provides an objective standard which, if violated, can give rise
to an actionable cause.
18. Paragraph 6 could be adapted depending on how parties wish to
proceed. There are several options which can be considered:
a) actions relating to any of the provisions of this article could
be subject to consultations (as provided for in the article or by
reference to the consultations procedures of the agreement), and
to the dispute settlement provisions of the agreement to the
extent that the provisions are not entirely self-judging;
b) actions relating to any of the provisions of this article could
be subject to consultations (as provided for in this article or by
reference to the consultations procedures of the agreement), to
the exclusion of recourse to the dispute settlement provisions of
c) actions relating to the public order provisions of paragraph 3,
could be subject to consultations (as provided for in this article
or by reference to the consultations procedures of the agreement),
and to the dispute settlement provisions of the agreement.
1. In the view of the United States, any dispute settlement
mechanism provided in the MAI would be rendered superfluous by the
self-judging nature of the general exception provisions. This
delegation also questioned whether it would be necessary to
provide a specific consultation mechanism in this article separate
from the general consultation mechanism of the MAI.
20. Whatever the procedure agreed for general exceptions, it will have to be considered in the context of the MAI provisions on the role of the Parties Group and the dispute settlement procedures.
VIII. IMPLEMENTATION AND OPERATION
1. STANDSTILL AND THE LISTING OF COUNTRY SPECIFIC RESERVATIONS
1.1. The MAI aims to ensure a high minimum standard of treatment
for investors and their investments, including National Treatment
and MFN treatment. Standstill would result from the prohibition of
new or more restrictive exceptions to this minimum standard of
treatment. From this perspective, a violation of standstill would
be a violation of the underlying MAI obligations (e.g. of National
Treatment and MFN), and the dispute settlement provisions would
apply to such breaches of the MAI obligations.
1.2. Standstill would not apply, however, to any general
exceptions (e.g. national security) or to any temporary
derogations (e.g. balance of payments) that might be allowed under
1.3. For those matters where Contracting Parties are ready to
commit to standstill, the Drafting Group considered that
a) each Contracting Party should list all non-conforming measures
in an Annex of the Agreement;
b) the reservations should describe, in the most precise terms
possible, the nature and scope of the non-conforming measures.
This would ensure that the scope of the reservations is not
broader than these measures and, thus, that the reservations are
not of a "precautionary" nature;
c) no additional non-conforming measures could be introduced; and
d) an amendment to a non-conforming measure would be permitted
provided it did not decrease the conformity of the measure.
Of course, if the MAI obligations were expanded, Article 1.5 (a) -
(d) would come into play again with respect to the new or enlarged
1.4. The Drafting Group considered that further discussion is
needed on the question of country specific reservations in certain
sensitive sectors and new economic activities that may emerge in
the future. Some delegations suggested flexibility could be
achieved by separate annexes to the Agreement for the listing of
country specific reservations in these areas.
1.5. The Drafting Group also considered that a standard
presentation of the non-conforming measures listed in Contracting
Parties' specific reservations would enhance transparency and
facilitate the operation of the Agreement. The Drafting Group felt
that specific reservations listed in the schedules of the
Contracting Parties should include the following elements:
a) the obligation or MAI article in respect of which the
reservation is taken;
b) the sector(s)or sub-sector(s) covered by the reservation;
c) the level of government which maintains the non-conforming measure;
d) the legal source or authority of the non-conforming measure;
e) the description of the non-conforming measure; and
f) the purpose of the non-conforming measure.
1.6. For practical reasons, however, the amount of information to
be provided should be limited to the minimum necessary to describe
the non-conforming measures. This may be particularly relevant to
sub-national (e.g. state and local) measures, not all of which may
2.1 Rollback is the liberalisation process by which the reduction
and eventual elimination of non-conforming measures to the MAI
would take place. It is a dynamic element linked with standstill,
which provides its starting point. Combined with standstill, it
would produce a "ratchet effect", where any new liberalisation
measures would be "locked in" so they could not be rescinded or
nullified over time.
2.2 There are a number of ways for achieving rollback. The most
commonly known in the trade field is that of successive rounds of
negotiations where rollback results from the trade-offs or
exchange of trade concessions. Peer pressure through periodic
examinations of Member countries' restrictions has been the
approach of the OECD liberalisation instruments. Rollback
commitments may also be inscribed in schedules of commitments or
list of reservations. While this has not been a generalised
practice, it has been done in some cases under the OECD
2.3. Rollback might be achieved through:
a) liberalisation commitments by the Contracting Parties effective
on the date of entry into force of the MAI. This would imply that
not all restrictions currently maintained would be included in the
list of reservations of the Contracting Parties;
b) rollback commitments inscribed in a country reservation or
description of a non-conforming measure by means of a "phase-out"
or a "sunset clause" specifying a future date when the
non-conforming measure would be removed or made more limited in
the future. Phase-out or sunset provisions could not be envisaged
for all non-conforming measures. They might be useful, however,
where the phase-out of a non-conforming measure is inscribed in
domestic legislation or where a Contracting Party is able to
commit itself to future liberalisation by a specified date.
2.4. Rollback after the entry into force of the MAI could result
a) an obligation for a Contracting Party to adjust its
reservations to reflect any new liberalisation measure (the
b) periodic examinations of non-conforming measures. These examinations could lead to recommendations in favour of the removal or limitations of specific measures. These reviews could be conducted on a country-by-country basis, or on an horizontal or sectoral basis, taking into account the degree of liberalisation already achieved; and
c) future rounds of negotiations designed to remove non-conforming
measures. The decision to launch future negotiations could be
taken at the conclusion of the MAI negotiations or the MAI could
provide a specific date for the first round of such negotiations.
2.5 The "Parties Group" could have the role of monitoring the adjustment of country reservations, conducting periodic examinations of non-conforming measures or launching future rounds of negotiations.
X. OTHER PROVISIONS
1. The Group agreed to carve in taxes though the text needs to be
refined and a few delegations maintain a reservation pending
clarification and finalisation of the text.
2. The Group reconfirmed that taxes as such are not expropriatory.
It then developed a clarifying text providing elements to be
considered when determining whether a specific measure should be
considered expropriatory. The form in which the text would appear
remains open. The following text might be included in the MAI as
an interpretative note1:
Taxation Measures and Expropriation: Clarifying Text
"MAI Parties understand that no taxation measures of the Parties
effective at the time of signature of the Agreement could be
considered as expropriatory or having the equivalent effect of
The Group agreed that the following text should be included in
some manner such as an interpretative note to the MAI.2
"When considering the issue of whether a tax measure effects an
expropriation, the following elements should be borne in mind:
a) The imposition of taxes does not generally constitute
expropriation. A claim of excessive burden imposed by a tax
measure is not in itself indicative of an expropriation.
b) A tax measure will not be considered to constitute
expropriation where it is generally within the bounds of
internationally recognised tax policies and practices. When
considering whether a tax measure satisfies this principle, an
analysis should include whether and to what extent tax measures of
a similar type and level are used around the world.
c) While expropriation may be constituted even by measures applying generally (e.g, to all taxpayers), such a general application is in practice less likely to suggest an expropriation than more specific measures aimed at particular nationalities or individual taxpayers. A tax measure would not be expropriatory if it was in force and was transparent when the investment was undertaken.
1The European Commission considers that such a statement is, at the least, premature.
2The U.K. did not regard an interpretative note as essential.
d) Tax measures may constitute an outright expropriation, or while
not directly expropriatory they may have the equivalent effect of
an expropriation (so-called "creeping expropriation"). Where a tax
measure by itself does not constitute expropriation it would be
extremely unlikely to be an element of a creeping expropriation."
3. Different views were expressed on the appropriate period of
time to be inserted in paragraph 2 a) and b) of the draft Article.
It was agreed however that the clock should start running only
when the competent Tax Authorities of both Parties to the dispute
had received all the information necessary to making a judgement
on whether the measure concerned amounted to expropriation. It was
also agreed that the period should not be too long so as not to
delay unreasonably the tine when the issue could be brought to
dispute settlement under the MAI.
4. The term "competent Tax Authorities" needs to be defined,
possibly by reference to the Energy Charter Treaty (ECT). Most
delegations emphasised the need to define "tax measure" for
purposes of the MAI3.
5. The Expert Group agreed that the Tax Authorities of only two
countries should be involved in the procedure described in
paragraph 2 and both should be MAI Parties. One of the Parties
would certainly be the host country to the investment, but the
other might need to be defined taking into account the extent to
which indirect investments will be covered by the MAI [see
Commentary on the Definition of Investment].
6. The procedure set out in paragraph 2 addresses only
investor-state disputes. The Group considered that in the case of
state-to-state disputes, the competent tax authorities should
automatically be involved.
The role of Tax Authorities in any MAI dispute settlement
procedure involving taxes is taken up elsewhere in this
Commentary. The remedies in the case of expropriation would be
those defined in the expropriation Article itself, namely
7. The Expert Group agreed to carve in transparency.
8. The Expert Group also agreed that the general Article on Transparency (paragraphs 2.1, 2.2 and 2.3) should apply to taxes. However the Group considers the term "policies or practices" in paragraph 2.3 of the general Article on Transparency to be necessary for tax purposes, and additional text needs to be included in the Taxation Article to protect the confidentiality of certain types of information specific to tax matters, including information shared between the Authorities of different countries on a confidential basis. The Expert Group developed a text for this purpose (paragraph 3 of the Draft Article on Taxation), subject to further refinement.
3France does not consider it useful to define tax measures.
9. A large majority of delegations supported Alternative 1 which
provides no carve-in for taxes with respect to National Treatment.
These delegations emphasised the need to see tax measures
affecting National Treatment in the context of international
treaty obligations and tax policy as a whole, and the need of
governments to preserve the freedom to introduce new measures
especially in the light of economic and technological
developments. These delegations also emphasised the extent to
which tax treaties, including the obligation of
non-discrimination, provide comprehensive protection to investors.
Moreover these delegations emphasised that, as double taxation
Agreements cover most OECD countries, subjecting taxes to the
national treatment obligation would undermine both tax Agreements
(through forum shopping) and the MAI. This problem could be
aggravated by the accession to the MAI of Non-OECD Members,
particularly certain countries with which OECD Members have
decided not to conclude tax treaties. Problems of legal
interpretation were also mentioned as creating uncertainty and
exposing Tax Authorities to unjustified dispute settlement claims.
One delegation indicated that under its legal interpretative
framework, Alternative 2 would not allow the effective operation
of its anti-avoidance measures and tax treaty network.
10. Some delegations favoured Alternative 2 which would carve in
taxes to the National Treatment obligation subject to safeguards
specific to taxation. These delegations considered that the MAI
would lack credibility if taxes were excluded from this core
obligation given the importance of taxation in investment
decisions. The tax treaty network, though extensive, does not
cover all likely signatories to the MAI (nor even all OECD
countries). Some treaties do not contain a sufficiently
comprehensive non-discrimination provision. Incorporating the
National Treatment obligation in the body of the text would
strengthen the accession criteria from a tax policy viewpoint.
These delegations also felt that the tax policy concerns that had
been identified were adequately covered by the text in alternative
11. A few delegations indicated that they had not yet decided
between Alternatives 1 and 2.
12. One delegation wondered whether a National Treatment provision
limited to procedural aspects might be acceptable in regard to tax
An Alternative Approach
13. The French delegation put forward an alternative approach
under which a broader carve-in of tax measures could be
accommodated by designing a text for dealing with tax matters
under the MAI based on elements of the non-discrimination article
in the OECD Model Convention. This alternative would cover both
National Treatment and tax incentive questions.
Most Favoured Nation Treatment
14. The Group agreed that direct taxes and social security
contributions/taxes should definitely not be carved into the MFN
provision of the MAI.
15. The Group also agreed to proceed on the working assumption that indirect taxes would not be carved-in either for this purpose. However a few delegations expressed support for including indirect taxes within the MFN provision, provided Agreement could be reached on a suitable definition of indirect taxes and provided unnecessary overlap with WTO obligations could be avoided. Value-added taxes and transfer taxes for immovable property were mentioned as possible candidates for coverage because they were both important for investors and there would usually be no need for different treatment on the basis of nationality.
16. The Expert Group noted that paragraph 3 of the Article on
performance requirements prepared by EG3 would prohibit specific
performance requirements linked to receipt of an "advantage". In
the absence of further clarification, the term "advantage" could
be understood to include a tax advantage.
17. The issue of "carving in" taxes with respect to performance
requirements needs further consideration to ensure that all
appropriate policy objectives of governments are taken into
account and to take into account any changes in the text on
performance requirements, which has not been finalised.
18. Hungary emphasised the need to take into consideration the
current transition periods available to economies in transition
for export subsidies under the WTO Subsidies Agreement.
19. One delegation put forward the following text:
"Article ... (Performance Requirements) shall apply to tax
measures, but nothing in that Article shall be construed to
prevent a Contracting Party from conditioning the receipt or
continued receipt of a tax 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."
20. One delegation proposed the following text:
"Article ... (Transfers) shall apply to taxes. For the avoidance
of doubt that article shall not limit the right of a Contracting
Party to impose or collect a tax by withholding or other means."
21. This suggestion was not further discussed. However, in its
earlier work the Expert Group had agreed that the general transfer
obligation should not prevent the imposition of withholding taxes,
jeopardy assessments or taking other measures to ensure the proper
determination, assessment or collection of taxes or the
satisfaction of tax obligations. EG2 also took into account the
views of expressed by DG3 that the free transfer obligation
applies to earnings and other remuneration net after deduction of
any withholding for tax or social security purposes [see
Commentary on "Transfers"]. Therefore, most delegations saw no
need to carve in taxation with respect to the transfer obligation.
A difference of view remained on whether it is necessary or
desirable to provide an explicit general or limited exclusion of
taxes from the transfer article. Bilateral investment treaty
practice was suggested as a possible guide in this regard.
22. The Expert Group noted that in EG3 there had been broad
agreement that investment incentives should be subject to NT and
MFN obligations and that proposals to establish an agenda for
future work on additional disciplines were under consideration.
23. Different views were expressed concerning the desirability of subjecting tax incentives to NT and MFN obligations, or to any additional disciplines. Most delegations believed there is no difference in treatment issues between tax measures and tax incentives.
24. Most delegations considered that it would be difficult not
only to clearly define "tax incentives", but also to distinguish
between desirable and undesirable incentives. They also considered
that it would be important to avoid any duplication or conflict
with other agreements, particularly the ASCM and GATS.
25. Some delegations felt that tax and non-tax incentives should
be considered in an integrated fashion under the MAI. It was
pointed out that insofar as investment incentives are subject to
MAI obligations, notably NT and MFN, if such obligations do not
extend to tax incentives then countries could be induced to
substitute tax incentives for non-tax incentives.
26. Many delegations felt that agreements in other fora concerning
disciplines on tax and non-tax incentives should be taken into
account in deciding the extent to which tax incentives should be
covered by MAI obligations. In this regard, specific reference was
made to WTO Agreements, particularly the Agreement on Subsidies
and Countervailing Measures (ASCM) and ongoing developments under
the auspices of the GATS, as well as OECD activities, in
particular the CFA project on unfair tax competition and the
Industry Committee project. One delegation considered that
developments in these other fora are not in competition with the
27. One delegation expressed interest in a provision that would
prohibit positive discrimination based on the nationality or
residence of investors. However, another delegation suggested that
instances of tax incentives embodying positive discrimination
based on nationality were rare, if not non-existent, in OECD
28. EG2 considered that dispute settlement would not only arise
for taxation to the extent that taxation matters were carved back
into the MAI, but also for the purpose of determining what
constitutes a tax measure for the purpose of the carve-out.
29. It was not clear at this stage how the tax carve-out will
interact with the MAI dispute settlement resolution proposals. To
the extent that tax matters are covered, the Expert Group agreed
that primacy should be given to mutual agreement procedures under
tax treaties and tax authorities should have the necessary
flexibility to settle tax related disputes. Tax expertise should
be required at all stages of MAI dispute settlement including
consultations and arbitration procedures although this might not
need to be explicit in the case of state-to-state disputes. One
suggestion was that an independent tax expert (independent of the
parties to the dispute) should be automatically involved in
investor to state disputes.
30. Some delegations reserved their position on whether the MAI
dispute resolution provisions should or could apply in respect of
tax measures. One of these delegations raised constitutional
concerns in relation to taxation, and others raised concerns over
the lack of specific detail on what the MAI dispute resolution
procedures would look like and how they would operate.
31. This lack of specific details made it difficult to make
progress on this matter and the Group noted that there is
considerably more work to be undertaken on tax issues in this
32. This further work should include consideration of the form which the primacy of the mutual agreement procedures should take for example, absolute primacy or subject to a time limit after which an unresolved dispute would be referred to a dispute settlement panel under the MAI.
Relationship between the MAI and International Tax Agreements
33. The Expert Group noted that EG4 had drafted a "non-derogation"
clause designed to ensure that investors would not lose the
benefit of more favourable treatment available under laws or
international agreements containing obligations to them by MAI
Parties. The Expert Group needs to consider further the potential
implications of such a provision, depending on its final text.
34. Two broad aspects were considered: what might to be done to
ensure that non-Member countries wishing to accede to the MAI meet
minimum standards in terms of their tax systems and how to treat
the application of MAI provisions to overseas territories from the
35. The argument was made that, so far as non-Member countries are
concerned, a very broad carve-out of tax issues from relevant MAI
obligations would leave open the possibility of introducing
discriminatory measures through the tax code. Where there is no
bilateral DTA in force, there may be no other investor protection
36. Another argument was that the greater the extent to which tax
measures were carved into the MAI, the greater the importance of
having strict accession requirements. For example, if taxes were
carved into NT, the problems identified earlier would arise, and,
in addition, the Expert Group would need to look more closely at
accession requirements, such as the existence of extensive tax
treaty networks and bank secrecy laws.
37. It was noted that the Negotiating Group has determined that
all accession criteria should apply equally to Member and
non-Member countries. The Expert Group considered that the tax
authorities should be involved in the process by which accession
candidates are judged. One delegation considered that, in addition
to the MAI obligations in the tax area, broader tax policy
considerations should be taken into account.
Definition of Tax Measures
38. Different views were expressed concerning the need for a
definition of "tax measures". Most delegations considered that a
definition would be necessary in order to distinguish between
those measures that would be subject to the taxation "carve-out"
and those which would not. Some delegations felt that it would be
difficult to define such measures, and that no definition was
39. Some delegations believed that the definition should include
social security contributions/taxes. The question was also raised
as to whether the definition should encompass tax procedures,
including accounting requirements.
40. The United Kingdom delegation suggested the following
"-- Taxation measures include any administrative practices of the Contracting Party relating to taxes, or provision relating to taxes of the law of the Contracting Party or of a political subdivision thereof or a local authority therein; and any provision relating to taxes of any convention for the avoidance of double taxation or of any other international agreement or arrangement by which the Contracting Party is bound.
-- Taxation shall be taken for this purpose to include all taxes set out in ... (see Annex) or any identical or substantially similar taxes which are imposed after the entry into force of the MAI in addition to, or in place of, existing taxes".
One delegation suggested adding these provisions to the proposed article on prudential measures.
1. Some delegations felt that no transparency provisions specific
to the financial services sector are necessary. They also
suggested that any additional text on transparency should be
considered at the general level.
2. Some delegations considered that the considerations dealt with
in paragraph 4 in particular are already covered by the general
MAI provision on transparency (in paragraph III.2.3 of the
Consolidated Texts). However, at least one delegation did not
consider that paragraph 2.3 of the general MAI article on
transparency adequately addresses all concerns, such as coverage
of other confidential information not directly concerning
particular investors or investments. Accordingly, that delegation
suggested amending this paragraph 2.3 by deleting the language
"concerning particular investors or investments" and by deleting
the brackets around "policies, or practices" in that paragraph.
3. The Expert Group also considered a provision calling for
advance notification, to the extent practicable, to all interested
persons of any measure of general application that the Contracting
Party proposes to adopt which may affect the operation of the
agreement, in order to allow an opportunity for such persons to
comment on the measure. The text reads as follows:
"Each Contracting Party shall, to the extent practicable, provide
in advance to all interested persons any measure of general
application that the Contracting Party proposes to adopt which may
affect the operation of the Agreement, in order to allow an
opportunity for such persons to comment on the measure. Such
measure shall be provided:
a) by means of official publication;
b) in other written form; or
c) in such other form as permits an interested person to make
informed comments on the proposed measure."
While delegations agree to the value of prior consultation, a
majority of delegations expressed concerns that the above proposed
provision may be unduly burdensome, and would not be practical.
New financial services
4. Option l is drawn from the WTO Understanding on Commitments in
Financial Services (with minimum change necessary for the purpose
of an investment agreement). Option 2 is based on NAFTA.
5. Several delegations noted that owing to the rapid pace of innovation in the financial services sector, it is important to ensure that an investor in the host country can introduce a new service to that market and that, as there are not adequate points of comparison relying on the National Treatment principle alone could effectively exclude new financial services. Therefore these delegations favoured the preparation of specific text.
6. Other delegations questioned the need for specific provision
and preferred to rely on the National Treatment provision of the
MAI, possibly accompanied by an interpretative note.
7. It was also noted that the issue relating to new financial
services may be considered in the more general context of "market
8. The Expert Group agreed that further consideration on these
matters is required.
Information transfer and data processing
9. It was understood that this provision would not in any way
affect the ability of a Contracting Party to regulate activities
within its jurisdiction.
10. A number of delegations questioned the need for such specific
provisions in the MAI. The Expert Group agreed that further
consideration on this proposed provision was necessary before EG5
could make a firm determination on this matter.
Membership of self-regulatory bodies and associations
11. Several delegations considered that a provision along the
above lines may be relevant to other sectors.
12. Some delegations noted that this issue is related to
considerations relating to "corporate practices" and delegated
13. It is generally understood that this provision does not to
apply to enterprises of a Contracting Party which provide
financial services on a cross-border basis and which are not
established in the territory of the other Contracting Party. The
Expert Group agreed that further consideration should be given to
refining the text.
14. It was agreed that an interpretative note should be added to provide: "Contracting Parties may meet their obligations on access to clearing systems for branches of financial services enterprises by providing indirect access, for example, through an enterprise incorporated in the territory of the Contracting Party concerned". One delegation suggested adding: "provided that such access provides equal opportunities". The Expert Group agreed that further consideration on this matter is required.
15. The Expert Group also considered an additional provision
proposed by one delegation which provides for a "best endeavour"
commitment to National Treatment in situations where membership in
such organisations is not legally required in order to provide a
financial service, but is "necessary" as a practical matter in
order to engage in financial services on an equal basis with
domestic enterprises. It was noted that a provision of this kind
has been accepted in the OECD Code of Liberalisation of Current
Invisible Operations. However, no agreement was reached on the
necessity of such a text in the MAI. The text reads as follows:
"When membership or participation in, or access to, any
self-regulatory body, securities or futures exchange or market,
clearing agency, or any similar organisation or association is
necessary 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, the
Contracting Party shall endeavor to ensure that such entities
accord national treatment to investors of any other Contracting
Party, or the investments or such investors, in a financial
services enterprise resident in the territory of the Contracting
Payments and clearing systems/Lender of last resort
16. Some delegations suggested that a provision related to
payments and clearing systems as outlined above should be
accompanied by a carve-out for the activities of central banks and
other monetary authorities along the lines of paragraph l.b) of
the GATS Annex on the Financial Services. Otherwise, aspects of
the above provision could be considered redundant.
17. This subject needs further consideration.
18. It was agreed that an interpretative note should be added to
provide: "Contracting Parties may meet their obligations on access
to clearing systems for branches of financial services enterprises
by providing indirect access, for example, through an enterprise
incorporated in the territory of the Contracting Party concerned".
One delegation suggested adding: "provided that such access
provides equal opportunities". The Group agreed that further
consideration on this matter is required.
19. The Group held a preliminary exchange of views on a number of
other issues that are important for financial services. Text was
put forward on some of these issues and may be suggested for other
20. It remains to be determined whether these issues need to be
covered in the MAI, either specifically for financial services or
Right of Establishment
21. When the right of establishment is subject to a national treatment text without further elaboration, foreign investors may be disadvantaged compared to domestic investors in certain situations. For example, a moratorium on banking licences may meet the de jure national treatment test but deny market access to foreign entrants. Such situations could be addressed by provisions modelled on the GATS (Article XVI(2)) or NAFTA (Article 1403.4).
Equality of Competitive Opportunity
22. To avoid the possibility of an overly narrow interpretation of
the national treatment standard in the MAI, it was suggested that
an additional text on "equal competitive opportunities" be
adopted, based on NAFTA (Articles 1405.5 and 1405.6). The text
would make clear that national treatment requires that the
investor of another Contracting Party and its investment in a
financial services enterprise should not be "disadvantaged" in
competitive opportunities compared to domestic investors.
Sub-national Units of Government
23. A proposal was made to specify how the national treatment
standard should apply to matters within the jurisdiction of
sub-national units of government.
24. The following additional issues were suggested by some
delegations as being possible candidates for inclusion in the MAI:
a. Restrictions based on dotation capital of branches of financial
b. Restriction on transfers for enforcement purposes by financial
c. The need for a balance of payments safeguards clause and the
role of the IMF.
d. The need for a carve-out for the activities of central banks
and other monetary authorities.
e. Standstill ("acquired rights") and the lodging of country
specific reservations in the financial services sector.
25. Before taking a definitive position on text which draws on GATS provisions, two delegations wished to examine further the question of how the proposed MAI and the GATS obligations on financial services operate together.
CLAUSE FOR REGIONAL ECONOMIC INTEGRATION ORGANISATIONS
(Contribution from the European Community)
The European Community has presented the principle reasons for the
inclusion of a clause for Regional Economic Integration
Organisations in the Multilateral Agreement on Investment at the
April meeting of the Negotiating Group (DAFFE/MAI/RD(96) 21).
Building on this contribution, the Community herewith submits its
proposal for such a REIO-clause.
Article X on Regional Economic Integration Organisations (REIOs)
1. For the purpose of this Agreement, a REIO is an organisation of
sovereign States which have committed themselves to abolish in
substance all barriers to investment among themselves and to which
these States have transferred competence on a range of matters
within the purview of this Agreement, including the authority to
adopt legislation and to make decisions binding on them in respect
of those matters.
2. Article .... (MFN clause) shall not prevent a Contracting Party
which is a Member State of a REIO from according more favourable
treatment to investors and their investments from other Member
States of the organisation as a result of the measures applied
within the framework of that organisation than it accords to
investors and their investments from other Contracting Parties.
3. Nothing in this Agreement shall prevent a REIO and its Member
States from applying, consistent with the objectives of this
Agreement, new harmonised measures adopted within the framework of
such organisation and which replace the measures previously
applied by these States.
4. A Contracting Party which joins a REIO shall not be prevented from applying in place of its previous national legislation the corresponding legislation of the said organisation from the day of its accession to it. If a Contracting Party has concluded an agreement with a REIO and its Member States in preparation for its accession to it, nothing in this Agreement shall prevent it from aligning its national legislation to the measures applied in the framework of such organisation, nor shall this Agreement prevent Member States of a REIO from extending to the investors and their investments of such a Contracting Party more favourable treatment as referred to in paragraph 2.
DRAFT ARTICLE ON SECONDARY INVESTMENT BOYCOTTS
(Based on the Canadian proposal,1 drafting changes are indicated
and explained in the footnotes)
(Contribution from the European Community)
No Contracting Party may take measures that
i) either2 impose or may be used to impose liability on investors
or investments of investors of another Contracting Party;
ii) or prohibit, or impose sanctions3 for, dealing with investors
or investment of investors of another Contracting Party;
because of investments an investor of another Contracting Party makes, owns or controls, directly or indirectly, in a third country in accordance with [international law4 and] regulations of such third country.
1Original proposal by Canada included in DAFFE/MAI/RD(96)24 is
reproduced as follows:
"Draft Article on Secondary Investment Boycotts
No Contracting Party may take measures that
(i) impose or may be used to impose liability on investors or
investments of investors of another Contracting Party: or
(ii) prohibit dealing with investors or investments of investors
of another Contracting Party
because of investments they own or control, directly or
indirectly, in a third country in accordance with the laws and
regulations of such third country."
2Purely a drafting amendment.
3Broader wording is suggested because in some cases a sanction can
be applied without explicit prohibition. There is a danger of
4Consistency with international law should be required because a measure merits protection by an international agreement only if this measure is consistent with international law.
DRAFT ARTICLE ON CONFLICTING REQUIREMENTS
(Amendment of the proposal introduced by Canada)1
(Contribution from the European Community)
Paragraph 1. A Contracting Party shall not prohibit outside its
territory, directly or indirectly, or cause to refrain, an
investor from another Contracting Party from acting in accordance
with the latter Contracting Party's laws, regulations or express
policies unless those laws, regulations or express policy are
contrary to international law (conflicting requirement).
"Express policy" means a situation in which the conduct of an
investor is not explicitly regulated but allowed on the basis of
general principles of law or general policy in the relevant
REASONS FOR REFORMULATING PARAGRAPH 1 OF THE CANADIAN PROPOSAL
1. It appears to be necessary to cover not only cases where a
contracting party is (directly) requiring an investor to behave in
a certain way but also cases where the Contracting Party enjoins
sanctions on investors when they behave in that way (e.g. loss of
rights or advantages that would otherwise be granted).
2. The wording proposed by Canada "to act in conflict seems to be
unduly narrow as it implies that there is an open conflict between
two legal orders, one imposing to do X, the other to do Y in the
same situation. Those cases exist, but are extremely rare (e.g. a
Saudi Arabian law imposes on investors not to export to or invest
in Israel/a US law imposes on American investors abroad not to
accept boycott against Israel). The normal situation is, however,
that the legal order of a Contracting Party simply allows certain
activities (e.g. Norway permits whaling3 whilst the legal order of
another Contracting Party prohibits investors such activities,
even abroad (e.g. the UK would not allow its investors at home and
abroad to invest in whaling).
In this case there would be no real conflict according to the
Canadian proposal as the investor can abide by the UK rule without
entering in conflict with the Norwegian laws.
Thus, there is a choice to make between the two concepts. The
"open conflict" rule does in the EC view not serve much purpose.
Moreover, a "conflict" in the meaning of requirements that are really opposed to one another is not possible between a law on the one hand and a "policy" on the other as a pure policy measure is not mandatory. If one would choose the narrow approach (open conflict), the reference to such policy measure would have to be deleted.
1Original proposal by Canada included in DAFFE/MAI/RD(96)23 is reproduced at the end of this contribution.
3. It seems to be useful to require that the measures of the
Contracting party concerned are not contrary to international law
otherwise they do not merit protection (e.g. a country exploits
unlawfully the continental shelf of another country; measures
against investors contributing to such behaviour can be
4. As the term "conflicting requirement" reappears more often in
the text it is preferable to give it the form of a definition.
5. The term "express policy " is new and it seems useful, for
reasons of legal clarity, to define it.
Paragraph 2. The Parties Group may receive notice of conflicting
a) A Contracting Party which considers that [....] another
Contracting Party imposes or enforces, or intends to do so,
conflicting requirements on investors or investments of investors
in respect of conduct within its territory;
b) A Contracting Party which is considering imposing or enforcing
or which has imposed or enforced conflicting requirements on
investors or investments of investors in respect of conduct within
the territory of another Contracting Party.
Simple streamlining of the text.
Paragraph 3. A Contracting Party may at any time advise the
Parties Group that it does not regard a conflicting requirement
that has been notified by another Contracting Party pursuant to
paragraph 2 as objectionable. In such cases, paragraph l [...]
does not apply to such requirements in the relation between the
Contracting Parties concerned.
Some amendments are necessary to align the wording to the amended
In addition, it should be made clear that the non-objection of one
Contracting Party to the measure has no legal effect for other
Paragraph 4 (Unchanged) .
Paragraph 5 (Unchanged until the third stroke; the third stroke
contains a full concept in itself and should become a new
Paragraph 6 If the conflicting requirements have been imposed consistent with international law in order to minimise or avoid substantial effects within a Contracting Party of actions outside that Contracting Party, the waiver shall be granted unless the Contracting Party in whose territory the conduct occurs has taken reasonable measures to ensure that such effects do not recur.
Paragraph 6 introduces a useful concept of legitimate "self defence", applicable e.g. in case a Contracting Party would allow drug production or far reaching and serious pollution of the environment; there may be however also cases where the decision is not so easy to find (e.g. advertising directed from one country to the other using methods not allowed in the latter; investment in border shops selling articles which are not authorised in a contracting party etc.).
Draft Article on Conflicting
1. A Contracting Party shall not impose or enforce measures that
require an investor or an investment of an investor to act in
conflict with the laws, regulations or express policies of another
Contracting Party in whose territory such acts occur.
2. The MAI Parties Group may receive notice of conflicting
a) A Contracting Party which considers that measures or proposed
measures of another Contracting Party impose or enforce
conflicting requirements on investors or investments of investors
in respect of conduct within its territory;
b) A Contracting Party which is considering imposing or enforcing,
or which has imposed or enforced conflicting requirements on
investors or investments of investors in respect of conduct within
the territory of another Contracting Party.
3. A Contracting Party in whose territory conduct occurs may at
any time advise the Parties Group that it does not regard a
requirement that has been notified pursuant to paragraph 2 as
objectionable. In such cases, paragraph 1 of this Article does not
apply to such requirements.
4. If a conflicting requirement has been notified to the Parties
Group, and the Contracting Party in whose territory the conduct
occurs has not provided the notification provided for by paragraph
3, the Parties Group may, at the request of the state which
exercises jurisdiction outside its territory, consider whether a
waiver should be granted from the prohibition on conflicting
requirements set out in paragraph 1.
5. In considering whether to grant a waiver from paragraph 1, the
Parties Group shall have regard to the following considerations:
- The results of consultations between the affected states
regarding the manner in which the conflict could be minimized or
- Whether, as a result of the conflicting requirement any investor
or investment of an investor has been or may be subjected to
treatment that is unfair or inequitable.
- If the conflicting requirement has been imposed consistent with international law in order to minimize or avoid substantial effects within a Contracting Party of actions outside that Contracting Party, the waiver shall be granted unless the Contracting Party in whose territory the conduct occurs has taken reasonable measures to ensure that such effects do not recur.
1Taken from DAFFE/MAI/RD(9(;)23, Contribution by Canada.