II. SCOPE AND APPLICATION
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".
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
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
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.
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
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
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
(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
(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
(Example: an investment in Italy by an Italian subsidiary of a
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
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.
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
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".
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.
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.
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."
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
(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)"
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.
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
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
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.
any other tangible and intangible, moveable and immovable
property, and any related property rights, such as leases,
mortgages, liens and pledges.
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
-- 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
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
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
"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
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
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
8. DG3 considered including a notification obligation along the
"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
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.
1General Treatment Article.
A. Temporary entry and stay of investors and key personnel
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.
6. This paragraph is in brackets pending consideration of its
relation to the chapeau clause.
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
"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."
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
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.
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.
15. Some delegations questioned how this provision would
interrelate with the MAI provisions on expropriation and
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.
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."
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".
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
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.
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.
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.
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
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".
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
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.
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
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
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
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.
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.
IV. INVESTMENT PROTECTION
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
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
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
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.
1The definition of "Freely Convertible Currency" would need to be the same as that adopted for the "Transfers" provision (article 4.2).
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
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
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
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
(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
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
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
7. PROTECTING INVESTOR RIGHTS FROM OTHER
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.