III. TREATMENT OF INVESTORS AND INVESTMENTS
NATIONAL TREATMENT AND MOST FAVOURED NATION TREATMENT
1.1. Each Contracting Party shall accord to investors of another Contracting Party and to their investments, treatment no less favourable than the treatment it accords [in like circumstances] to its own investors and their investments with respect to the establishment, acquisition, expansion, operation, management, maintenance; use, enjoyment and sale or other disposition of investments.
1.2. Each Contracting Party shall accord to investors of another Contracting Party and to their investments, treatment no less favourable than the treatment it accords [in like circumstances] to investors of any other Contracting Party or of a non-Contracting Party, and to the investments of investors of any other Contracting Party or of a non-Contracting Party, with respect to the establishment, acquisition, expansion, operation, management, maintenance, use, enjoyment, and sale or other disposition of investments.
1.3. Each Contracting Party shall accord to investors of another Contracting Party and to their investments the better of the treatment required by Articles 1.1 and 1.2, whichever is the more favourable to those investors or investments.
l. Notwithstanding any other provisions of the Agreement, a Contracting Party shall not be prevented from taking prudential measures with respect to financial services, including measures for the protection of investors, depositors, policy holders or persons to whom a fiduciary duty is owed by an enterprise providing financial services, or to ensure the integrity and stability of its financial system.
2. Where such measures do not conform with the provisions of the Agreement, they shall not be used as a means of avoiding the Contracting Party's commitments or obligations under the Agreement.
2.1. Each Contracting Party shall promptly publish, or otherwise make publicly available, its laws, regulations, procedures and administrative rulings and judicial decisions of general application as well as international agreements which may affect the operation of the Agreement. Where a Contracting Party establishes policies which are not expressed in laws or regulations or by other means listed in this paragraph but which may affect the operation of the Agreement, that Contracting Party shall promptly publish them or otherwise make them publicly available.1
2.2. Each Contracting Party shall promptly respond to specific questions and provide, upon request, information to other Contracting Parties on matters referred to in Article 2.1.
1The Chairman of the Negotiating Group proposed to keep this sentence without brackets, noting that several delegations could go along with this proposal provided that there was a satisfactory explanatory statement in the commentary [DAFFE/MAI/M(96)4].
2.3 Nothing in this Agreement shall prevent a Contracting Party from requiring an investor of another Contracting Party, or its investment, to provide routine information concerning that investment solely for information or statistical purposes. No Contracting Party shall be required to furnish or allow access to information concerning particular investors or investments the disclosure of which would impede law enforcement or would be contrary to its laws [policies, or practices]2 protecting confidentiality.
A. Temporary entry and stay of investors and key personnel3
Except as explicitly provided for in [paragraph 5 of] this Article, nothing in this Agreement shall prevent the application of Contracting Parties' national laws relating to immigration and labour. [These shall not be invoked by a Contracting Party as a means of evading its obligations under this Article.]4,5,6
1. Each Contracting Party shall grant temporary entry and stay and provide any necessary confirming documentation to a natural person of another Contracting Party who is:
(a) an investor who seeks to establish, develop, administer7 or provide advice or essential technical services to the operation of an [enterprise] [investment] to which the investor has committed, or is in the process of committing, a substantial amount of capital8, or
2Proposed by the Australian delegation.
3Japan reserves its position on this article except for paragraph
4The chapeau clause would carve out labour and immigration laws from the coverage of the other substantive articles of the Agreement. The bracketed options in the chapeau reflect a difference of view as to the extent to which the provisions of this article would prevail in the event of conflict with national immigration and labour laws. There are three main options: first, all of this article would prevail, except paragraph 4b) which is drafted as a best endeavours obligation; the second option is that only paragraph 5 would prevail. The third option, which is a variant of the second, adds an "anti-abuse" clause shown in square brackets.
5Australia suggests referring here to "regulations and policies" as well as "laws".
6Austria proposes that the chapeau should also include the application of general wage and working conditions based on laws, regulations and collective agreements.
7This term is understood to include liquidation of an investment.
8"Substantial amount of capital" is a relative test which would be met if capital were substantial with respect to the size of the investor or the size of the investor's share in an investment, taking into account the field of activity of the investor and the investment. Some delegations question the use of this term.
[(b) an employee employed by an [enterprise] [investment]9 referred to in (a) above, in a capacity of executive, manager or specialist and who is essential10 to such [enterprise] [investment]]11
[(b) an employee of an [enterprise] [investment] of another Contracting Party for a period of not less than one year, seeking to:
(i) establish a subsidiary or affiliate of that [enterprise] [investment] to which the [enterprise] [investment] has committed, or is in the process of committing, a substantial amount of capital, or
(ii) render services to a subsidiary or affiliate of that [enterprise] [investment]12 provided that the employee is employed in a capacity of executive, manager or specialist [and that such employee is essential to the present investment.]]
[2. To be eligible for temporary entry and stay pursuant to subparagraph (a) or (b), a natural person must comply with applicable measures relating to public health and safety13, criminal law, and national security.]14
3. Temporary entry and stay shall be granted to a person for [a period not exceeding 1-3 years] so long as that person continues to meet the requirements of this Article.15
4. (a) Each Contracting Party shall grant temporary entry and stay and provide any necessary confirming documentation to the spouse and minor children of a person who has been granted temporary entry and stay in accordance with this Article. The spouse and minor children shall be admitted [under the conditions] and for the same duration16 as that person.
9It is proposed to replace "investment" by "investor" in this subparagraph as well as in the alternative paragraph lb).
10One delegation proposes that the essentiality test apply only to specialists.
11Several delegations support inclusion in this subparagraph of a prior employment requirement of at least one year.
12In Austria's opinion, this does not include direct sales or services rendered to unaffiliated enterprises.
13Two delegations propose to replace "public safety" by "public order".
14There is a proposal to delete paragraph 2 with the understanding that the article would be governed by the chapeau clause and that the General Exceptions provisions of the Agreement would also be applicable. One delegation considers that the chapeau and paragraph 2 serve complementary but distinct functions.
15It is understood that the national authorities may periodically verify continued eligibility under this paragraph.
16One delegation suggests replacing "for the same duration as that person" by "for a period not longer than the stay of that person".
(b) Each Contracting Party shall endeavour to grant authorisation to work to the spouse of the person who has been granted temporary entry and stay in accordance with this Article.17
5. No Contracting Party may:
(a) as a condition for temporary entry and stay in accordance with this Article, require labour market or other economic needs tests or procedures;18 or
(b)impose or maintain any numerical restriction relating to temporary entry and stay in accordance with this Article.19
6. For the purposes of these paragraphs:
[Natural person of another Contracting Party means a natural person having the nationality of [or who is permanently residing in] another Contracting Party in accordance with its applicable law;]
[Enterprise of another Contracting Party means a legal person or any other entity constituted or organised under the applicable law of another Contracting Party, whether or not for profit, and whether private or government owned or controlled, and includes a corporation, trust, partnership, sole proprietorship, joint venture, association or organisation, and a branch of an enterprise;]
Executive means a natural person-who primarily directs the management of an [enterprise] [investment] or establishes goals and policies for the enterprise or a major component or function of the enterprise, exercises wide latitude in decision-making and receives only general supervision or direction from higher- level executives, the board of directors, or stockholders of the enterprise;
Manager means a natural person who directs the management of an enterprise, or department, or subdivision of the enterprise, supervises and controls the work of other supervisory, professional or managerial employees, has the authority to hire and fire or recommend hiring, firing, or other personnel actions and exercises discretionary authority over day-to-day operations at a senior level; and
Specialist means a natural person [who possesses knowledge at an advanced level of expertise and who possesses proprietary knowledge of the enterprise's product, service, research equipment, techniques, or management.]
17Some delegations prefer that this undertaking be a binding obligation. Others do not want any provision of this kind in the MAI.
18Norway reserves on paragraph 5a.
19Regarding paragraph 5 a) and b), some delegations explain that for political reasons their countries would wish to continue to maintain economic needs tests and numerical restrictions. These countries would have to take a reservation if the MAI were to have a legally binding obligation not to impose labour market or economic needs tests or numerical restrictions. An alternative is proposed which would allow those countries to maintain labour market tests or numerical restrictions as long as they are not applied to deny temporary entry and stay to investors or key personnel of an MAI Party. Such an alternative could read:
"No Contracting Party may deny temporary entry and stay in accordance with this Article for reasons relating to labour market or other economic needs tests or numerical restrictions in national laws."
B. Employment Requirements
[A Contracting Party shall permit investors of another Contracting Party and their investments to employ any natural person of the investor's or the investment's choice regardless of nationality and citizenship provided that such person is holding a valid permit of sejour and work delivered by the competent authorities of the former Contracting Party [and that the employment concerned conforms to the terms, conditions and time limits of the permission granted to such person.] ] (Based on ECT, article 11 (2)).
[No Contracting Party may apply national employment quotas relating to the employment of a natural person by an investor or an investment of another Contracting Party provided the person is holding a valid permit of sejour and work delivered by the competent authorities of the former Contracting Party.]
PERFORMANCE REQUIREMENTS 20,21
No Contracting Party may impose, enforce or maintain any of the following requirements, or enforce any commitment or undertaking, in connection with the establishment, acquisition, expansion, management, operation, or conduct of an investment of an investor of a Contracting Party or of a non-Contracting Party
in its territory22:
(a) to export a given level or percentage of goods or services23;
(b) to achieve a given level or percentage of domestic content;
(c) to purchase, use or accord a preference to goods produced or services provided in its territory, or to purchase goods or services from persons in its territory;
(d) to relate in any way the volume or value of imports to the volume or value of exports or to the amount of foreign exchange inflows associated with such investment;
(e) to restrict sales of goods or services in its territory that such investment produces or provides by relating such sales in any way to the volume or value of its exports or foreign exchange earnings;
20Particular concerns of some delegations in relation to this article could be covered by country-specific reservations.
21Australia reserves its position on all obligations on performance requirements in the MAI that go beyond those in the TRIMs Agreement And the Energy Charter Treaty. Hungary expresses concerns over the possible retroactive application of this article to performance requirements agreed in the context of privatisation operations.
22The place of the term "in its territory" is still to be determined in the National Treatment and Most Favoured Nation Treatment provisions [see DAFFE/MAI(96) 16/REV1].
23Hungary reserves its position on subparagraph (a). Spain reserves its position on the inclusion of services in subparagraphs (a), (c) and (e) pending clarification of its implications. It also wishes to maintain a scrutiny reservation on the coverage of "purchase" in subparagraph (c).
(f) to transfer technology, a production process or other proprietary knowledge to a natural or legal person in its territory [except when the requirement is imposed or the commitment or undertaking is enforced by a court, administrative tribunal or competition authority to remedy an alleged violation of competition laws or to act in a manner not inconsistent with other provisions of the Agreement]24;
(g) to locate its headquarters for a specific region or the world market in that Contracting Party25;
(h) to supply one or more of the goods that it produces or the services that it provides to a specific region or world market exclusively from the territory of that Contracting Party;
[(i) to achieve a given level or value of production, investment, manufacturing, sales26, employment, research and development in its territory;]27
[(j) to hire a given level or type of local personnel; ]
(k) to establish a joint venture28; or
24Norway reserves its position on the first part of subparagraph (f). France and Japan are concerned with the breadth of the derogation implied by the square bracketed text. Canada can accept subparagraph (f) only in its complete form. It was explained by those delegations favouring the full text that, as in the WTO "TRIPS" Agreement and NAFTA, the purpose of the exception for competition enforcement contained in the brackets is to clarify that normal administration of competition laws sometimes calls for limited licensing (or divestiture) of patents or "know-how" to remedy situations of monopoly or abuse, and that such individual applications of law do not constitute mandatory technology transfer. This exception is not likely to be used frequently. Delegations should further consult their competition authorities on this matter to determine its relevance to their own "antitrust" laws. Other delegations are of the view that further consideration needs to be given to the means of ensuring consistency with IPR provisions in existing international agreements (WIPO, TRIPS, ....) since these may allow certain compulsory performance requirements under certain conditions.
25Canada reserves its position on subparagraph(g).
26Some delegations consider that PR obligations should apply to minimum domestic sales requirements, for example in the event of a domestic shortage of oil. Other delegations express concern that such requirements should not be included because that might undermine the right of Contracting Parties to impose export bans in appropriate circumstances.
27Several delegations consider the language of this subparagraph to be too general and propose its deletion. Moreover, its key aspects are already covered in subparagraphs (a) to (h). The United Kingdom proposes deletion of the terms "investment" and "employment" while Spain proposes deletion of the word "employment". The European Commission suggests that the performance requirements listed in subparagraph (I) be discussed further before a decision is taken regarding their deletion.
28A few delegations prefer to delete this subparagraph and to rely instead on the National Treatment/MFN provisions, possibly supplemented by an explanatory note. Another approach would be to develop a separate provision on specific types of legal entity along the lines of GATS Article XV1 on market access.
[(l) to achieve a minimum level of local equity participation29.]
[A measure that requires an investment to use a technology to meet generally applicable health, safety or environmental requirements shall not be construed to be inconsistent with paragraph 1(f)30. For greater certainty, Articles XXX on National Treatment and MFN apply to the measure.]31
No Contracting Party may condition the receipt or continued receipt of an advantage, in connection with an investment in its territory of an investor of a Contracting Party or of a non-Contracting Party, on compliance with any of the following requirements:33
[(a) to export a given level or percentage of goods or services]34;
(b) to achieve a given level or percentage of domestic content;
(c) to purchase, use or accord a preference to goods and services35 produced in its territory;
29Several delegations prefer to delete this subparagraph and rely instead on the National Treatment and MFN provisions.
30Many delegations consider this provision to be unnecessary. No one questions the need for the MAI to allow Contracting Parties to take non-discriminatory measures necessary to ensure the respect of health, safety and environmental requirements. However, delegations doubt that such measures would run counter to the prohibition of performance requirements concerning the transfer of technology. They also suggest that such measures might better be addressed in an explanatory note, to paragraph 1, in paragraph 5 of this Article, or in the general exception provision of the Agreement.
31Several delegations consider that this sentence may be unnecessary or could be picked up in a more general provision dealing with the relationship between National Treatment/MFN and other provisions of the Agreement.
32The alternative texts for this paragraph offer different presentational options. They do not imply differences of substance.
33Japan proposed a simplified presentation of paragraph 3 which would read: "... on compliance with any of the requirements listed in paragraph 1 a) - e)." However, this approach could be adopted only if the same language of the subparagraphs applied in paragraphs 1 and 3. Ireland proposes that the list of requirements be an open-ended illustrative list.
34Several delegations wish to consider further the inclusion of services in paragraph 3. One concern related to the treatment of tax measures relating to services.
35It is yet to be determined how this provision would exclude contracted services. A related question is whether to include. as in subparagraph 1 (c), purchases from "persons in its territory".
(d) to relate in any way the volume or value of imports to the volume or value of exports or to the amount of foreign exchange inflows associated with such an investment;
(e) to restrict sales of goods or services in its territory that such investment produces or provides by relating such sales in any way to the volume or value of its exports or foreign exchange earnings; or
[(f) others to be defined36.]
Paragraph 1 shall not apply insofar as a Contracting Party conditions the receipt or continued receipt of an advantage on compliance with requirement other than those set out above.
Paragraph 137 (f) (g) (h) (i) (j) (k) (l) do not apply if the requirements described in one or more of these provisions are conditions for the receipt or continued receipt of an advantage in connection with the establishment, acquisition, expansion, management or operation, or conduct of an investment of an investor (of a Contracting Party or a non-Contracting Party, in its territory), [in particular if the requirements and the advantage are subject to a contractual obligation between the investor or investment on the one side and the host state or its sub-federal entities on the other].
Nothing in paragraph 3 shall be construed to prevent a Contracting Party from conditioning the receipt or continued receipt of an advantage, in connection with an investment in its territory of an investor of a Contracting Party or of a non-Contracting Party, on compliance with a requirement to locate production, provide a service, train or employ workers, construct or expand particular facilities, or carry out research and development, in its territory.]
Provided that such measures are not applied in an arbitrary or unjustifiable manner, or do not constitute a disguised restriction on international trade or investment, nothing in paragraph l(b) or (c) or 3(b) or (c) shall be construed to prevent any Contracting Party from adopting or maintaining measures, including environmental measures:
(a) necessary to secure compliance with laws and regulations that are not inconsistent with the provisions of this Agreement;
(b) necessary to protect human, animal or plant life or health; or
(c) necessary for the conservation of living or non-living exhaustible natural resources.]
36Japan suggests the addition of joint venture and local equity participation requirements.
37Hungary reserves its position on the inclusion of subparagraph (a).
The provision of:
a) Paragraphs (1) (a), (b) and c) and (3) [(a)], (b) and (c) do not apply to qualification requirements for goods or services with respect to export promotion and foreign aid programmes.
b) Paragraph (1)(b), (c), (f) and (i), and 3(b) and (c) do not apply to procurement by a Contracting Party or a state enterprise; and
c) Paragraphs (3)(b) and (c) do not apply to requirements imposed by an importing Party relating to the content of goods necessary to qualify for preferential tariffs or preferential quotas.]
[(d)Paragraph (l) (i) does not apply to requirements imposed by a Contracting Party as a part of privatisation operations.]
38 Proposal by the United States, supported by Canada, for paragraph 6 (a) - (c). Proposal by Hungary for subparagraph (d).
Paragraph 1 (National Treatment and Most-Favoured Nation Treatment)40
[Each Contracting Party shall accord treatment as defined in Paragraph XX (National Treatment/MFN Treatment) in case of a privatisation, both as regards the initial privatisation41 and as regards [subsequent transactions] [involving a privatised asset] [(secondary sales)] between investors or investments]42.
[The obligation to accord National Treatment and MFN treatment applies to all aspects of privatisation of a government-controlled enterprise, irrespective of the method of privatisation (whether by public offering, direct sale, or other method) or the timing of a particular sale (initial issue or subsequent sale).]43
Paragraph 2 (Right to privatise)
[Nothing in this Agreement shall [prejudice Contracting Parties' rules governing the system of property ownership or]44 be construed as imposing an obligation on a Contracting Party to privatise.]
39Hungary and Mexico reserve their position on all privatisation obligations.
40Some delegations suggest the text might alternatively be adopted as an "interpretative note". Canada does see any value added in reaffirming the application of NT/MFN obligations to privatisation.
41Several delegations, including Australia and Sweden, reserve on the inclusion of obligations on initial privatisation. Two delegations suggest exclusion of voucher system.
42Canada and Japan state that the obligations on subsequent transactions should not interfere with the normal business prerogatives of privatised enterprises. Sharing this view, Italy suggests dividing paragraph 1 into two parts as follows:
"a) Each Contracting Party shall accord treatment as defined in Paragraph XX (NT/MFN) in case of a privatisation.
b) Each Contracting Party shall not impose any obligation or condition incompatible with Paragraph XX (NT/MF) as regards subsequent transactions involving a privatised asset."
43Proposal by the United States.
44Most delegations favour the deletion of the text in square brackets. Norway and the European Commission reserve on this proposal.
Paragraph 3 (Special share arrangements)45
a. Contracting Parties acknowledge that [methods of privatisation and]46 special rules as regards the ownership, [management]47, or control of privatised assets [such as]:
-- a Contracting Party or any person designated by the Contracting Party maintaining special shareholder rights to influence or veto any decision concerning such assets after the privatisation,
-- arrangements under which managers or other employees of an enterprise are granted special treatment as regards the acquisition of shares of that enterprise,
[--arrangements under which shareholders are required to maintain their share in the capital of the enterprise during a certain period of time, or to guarantee the achievement or maintenance of a certain level or value of investment, manufacturing, production or employment of the enterprise,]48
[-- a Contracting Party being free to choose categories of buyers in a privatisation process]49
[-- arrangements under which locals of a certain community are granted special treatment as regards the acquisition of this community's property,]50
[are compatible with Paragraph 1, unless [in like circumstances]51 they explicitly or intentionally favour national investors or discriminate against foreign investors because of their nationality [or residence]].52
b. [Arrangements under which physical persons of a Contracting Party are granted exclusive rights as regards the initial privatisation are acceptable as a method of privatisation under this Agreement provided that the exclusive right as regards the initial privatisation is limited to physical persons only and provided that there is no restriction on subsequent sales.]53
45Canada, Germany and the United Kingdom support deletion of paragraph 3.
46Proposal by Sweden.
47Proposal by Spain.
48Proposal by Spain.
49Proposal by Sweden.
50Proposal by the Czech Republic.
51Proposed addition by Spain.
52Combination of proposals by France, Spain and Japan.
53Proposal by the Czech Republic.
[Contracting Parties acknowledge54, however, that such special rules may, in certain circumstances, adversely affect the rights of investors or investments of another Contracting Party.] A Contracting Party which considers that another Contracting Party has taken such measures, may request consultations with that Contracting Party55.
[Special share holding arrangements including, inter alia, a) the retention of "golden shares" by Contracting Parties, b) stable shareholder groups assembled by a Contracting Party, c) management/employee buyouts, and d) voucher schemes for members of the public, hold strong potential for discrimination against foreign investors and are, in fact, inconsistent with National Treatment and MFN treatment obligations in many instances.]56
Paragraph 4 (Transparency)57
Obligations pursuant to the Transparency Article YY apply to any privatisation in its territory and in particular to its conditions and timing.58
For the purposes of this Article, each Contracting Party shall publish promptly the essential features and procedures for participation in each privatisation that is undertaken.59
54Proposal by France.
55Italy and Japan reserve on the principle of consultations. It was noted that such consultations may have a different character from those foreseen under the normal dispute settlement procedures of the MAI.
56United States' proposal, together with the following note: "As with other measures contrary to obligations on National Treatment and MFN treatment, use of special share arrangements should be subject to listing as reservations. Recognising that Contracting Parties may privatise assets in the future, Contracting Parties will be permitted to take precautionary reservations for the use of special share arrangements in those sectors where Contracting Parties generally have state-owned enterprises or government restrictions."
57Some delegations feel no need for a specific transparency provision for privatisation unless it goes beyond the Transparency Article YY in the Consolidated Texts. However, any additional obligations would need to include appropriate protection of confidentiality.
58Proposal by the European Commission.
59Proposal by the United Kingdom.
This note confirms the application of the Transparency Article YY. Specifically, the obligations to accord National Treatment and MFN treatment will prohibit discrimination against a foreign investor in respect of all arrangements for making public information about the enterprise to be privatised. A government that gives, to domestic investors, access to information concerning the fact of privatisation must at the same time give that same access to foreign investors. For very small scale privatisations, that fact may be made known to local investments of foreign investors. Any business information available to domestic investors must be available to foreign investors, e.g., the government must provide financial statements on request. Governments would violate National Treatment if, in order to benefit domestic investors, they refrain from making information publicly and widely available, either about the fact of privatisation or about the privatising enterprise.60
Paragraph 5 (Definition)61
"Privatisation" means a partial or complete sale or other form of transfer of [the function of the government or]63 ownership or control of assets64 [of nationally owned enterprises]65 from a Contracting Party66 to [a private]67 [an investor or an investment] [the private sector].
60Proposal by the United States.
61It remains open whether the definition of privatisation should be "asset-based" or "entity-based". An asset-based definition, however, might be too broad and lead to a long list of assets to be excluded. An entity-based definition might be too narrow since it excludes such transactions as the sale of government buildings. It might also be open to abuse since an entity could be effectively privatised through the sale of its assets. Alternative 1 is an asset-based approach. Alternative 2 is a combination of entity- and asset-based approaches.
62A number of delegations have concerns about the coverage of real estate. The issue also raises the problem of de minimus rules.
63Proposed addition by Japan.
64Hungary would add: "which according to domestic laws and regulations may be privatised..."
65Proposed addition by Japan.
66The issue of subnationals is expected to be dealt with in another part of the Agreement. Otherwise one might insert: "or any subnational thereof."
67There is broad agreement that state enterprises should be able to participate in privatisation operations on an equal footing with private companies. Accordingly, many delegations consider that the word "private" should be deleted. There is also agreement that privatisation does not cover intra-government transfers: the European Commission noted that the text in the final tiret of the definition suggested in alternative 1 will take care of this concern.
However, for the purpose of this agreement privatisation does not mean the following transactions:68
-- the sale or other form of transfer of ownership or control of debt securities of the Contracting Party, unless they have attached preferred rights to acquired shares;
-- [the granting of concessions; ]
-- [the sale or other form of transfer of ownership or control of real estate [including arable land]69;]
-- [the sale or other form of transfer of ownership or control of assets to a non-private investor of the same Contracting Party];
"Privatisation" means the sale or other disposition of equity interests of a Contracting Party in a state enterprise70 or governmental entity, or the sale or other disposition of the assets of a state enterprise or governmental entity.71
Privatisation means a partial or complete sale or other form of transfer of the function of the government or ownership or control of assets of nationally owned enterprises from a Contracting Party to an [private] investor or an investment.
However, for the purpose of this agreement privatisation does not mean the following transactions:
-- the sale or other form of transfer of control of debt securities of the Contracting Party, unless they have attached preferred rights to acquired shares;
-- [the granting of concessions;]
-- [the sale or other form of transfer of control of real estate;]
68 Several delegations wish to exclude small transactions, especially in real estate. Australia suggests a de minimus exemption level of $US 50-100 million, below which privatisation transactions are exempted from obligations. However, Germany questions whether the range proposed qualifies as "de minimis", especially for real estate transactions.
69Proposal by Hungary.
70"State enterprise" would need to be defined.
71Proposal by Canada.
72Proposal by Japan.
[1. Nothing in this Agreement shall be construed to prevent a Contracting Party from maintaining, designating or eliminating a monopoly.]74
2. Each Contracting Party shall [endeavour to]75 accord non-discriminatory treatment when designating a monopoly.
3. Each Contracting Party shall ensure that [any monopoly that [its national or subnational governments]76 [its national government] maintains or designates] or [any privately-owned monopoly that it designates and any government monopoly that it maintains or designates]:
[a) acts in a manner that is not inconsistent with the Contracting Party's obligations under this Agreement wherever such a monopoly exercises any regulatory, administrative or other governmental authority that the Contracting Party has delegated to it in connection with [the purchase or sale of] the monopoly good or service;]77
73Australia reserves its position on all obligations on monopolies that go beyond those of the GATT and GATS.
74The right of governments to designate or maintain a monopoly is not disputed. A number of delegations favour, however, the deletion of the paragraph on the grounds that it could give rise to questions regarding the expropriation and compensation obligations of the MAI and prejudge the Negotiating Group's discussion on market access. Moreover, the MAI is not the proper context to state this right. Other delegations favour the inclusion of the paragraph for the sake of clarity and certainty.
75A number of delegations are prepared to delete "endeavour to". Other delegations wish to maintain a scrutiny reserve pending the definition of the monopoly concept and clarification of the intent of the paragraph. Some delegations suggest that the designation of a monopoly should not be based on nationality considerations.
76Most delegations consider that the obligations of the Article should apply to all levels of government.
77There is broad agreement that the issue of delegated regulatory powers of monopolies would be more adequately addressed in the context of a general anti-circumvention clause for the MAI. Sub-paragraph (a) can be kept in, nevertheless, as a marker. If the issue were to be addressed in paragraph 3, however, the text might be improved by ending the sentence after the words "delegated to it" or by harmonising it with the rest of the paragraph with the addition of the words "purchase and sale". France supports the deletion of sub-paragraph (a) on the ground that sub-paragraphs 3(b), (c), (d) would cover the concerns dealt with in sub-paragraph (a).
b) provides non-discriminatory treatment78 to investors of another Contracting Party79 and their investments in its sale80 of the monopoly good or service in the relevant market;
[c) provides non-discriminatory treatment to investors of another Contracting Party and their investments in its purchase of the monopoly good or service in the relevant market. This paragraph does not apply to procurement by governmental agencies of goods or services for government purposes and not with a view to commercial resale or with a view to use in the production of goods or services for commercial sale;]81
[d) does not use its monopoly position, in a non-monopolised market in its territory, to engage, either directly or indirectly, including through its dealing with its parent company, its subsidiary or other enterprise with common ownership, in anticompetitive practices that might adversely affect an investment by an investor of another Contracting Party, including through the discriminatory provision of the monopoly good or service, cross-subsidisation or predatory conduct [, in particular through the abusive use of prices]]82.
[e) Except to comply with any terms of its designation that are not inconsistent with subparagraph (b) (c) or (d), acts solely in accordance with commercial considerations in its purchase or sale of the monopoly good or service in the relevant market, including with regard to price, quality, availability, marketability, transportation and other terms and conditions of purchase or sale. ]83
[Nothing in Article A shall be construed to prevent a monopoly from charging different prices in different geographic markets, where such differences are based on normal commercial considerations, such as taking account of supply and demand conditions in those markets.]84
78United Kingdom wishes to maintain a scrutiny reserve pending clarification of the non-discriminatory obligation for sales by monopolies in which governments maintain golden shares. The United States notes that sub-paragraph (e) addresses this concern.
79Canada wishes to limit the obligations of sub-paragraph (b), (c), and (d) to "investments of investors of a Contracting Party in its territory".
80Germany and the European Commission wonder whether the coverage should not go beyond the sale and purchase of a monopoly good or service. New Zealand proposes to replace "sale" by "supply".
81A number of delegations want to study the implications of this sub-paragraph further, notably in relation to the GATT Agreement on Government Procurement. Sweden favours its deletion. Some delegations reserve their position on the second sentence.
82While France, Canada, New Zealand and the United States support the general thrust of sub-paragraph (d), several delegations are concerned about its intrusion into the area of competition policy, notably through the reference to 'anti-competitive practices". Germany proposes to replace the term "anti- competitive" by "discriminatory". Ireland favours a simplification of sub-paragraphs (c) and (d).
83Proposal by Canada and the United States. A number of delegations question the feasibility and desirability of requiring monopolies to act in accordance with "commercial considerations".
84Proposal by Canada and the United States not discussed by the Expert Group.
[Article A, paragraph 3 (e) differences in pricing between classes of customers, between affiliated and non-affiliated firms, and cross-subsidisation are not in themselves inconsistent with this provision; rather, they are subject to this subparagraph when they are used as instruments of anticompetitive behaviour by the monopoly firm].
[4. In case of a demonopolisation which has the effect of extending the obligations under the Agreement to a new area, the principle of standstill does not intend to prevent any Contracting Party from lodging any reservation to the Agreement for this new area.]
[5. Each Contracting Party shall notify to the Parties Group any existing monopoly within  days after the entry into force of the Agreement and any newly created monopoly within  days after its creation.]86
[6. Neither investors of another Contracting Party nor their investments may have recourse to investor-state arbitration for any matter arising out of paragraph 3 (b), (c), (d) or (e) of this Article.]87
[B. [State Enterprises88]
1. Each Contracting Party shall ensure that any state enterprise that it maintains or establishes acts in a manner that is not inconsistent with the Contracting Party's obligations under this Agreement wherever such enterprise exercises any regulatory, administrative or other governmental authority that the Contracting Party has delegated to it.
2. Each Contracting Party shall ensure that any state enterprise that it maintains or establishes accords non-discriminatory treatment in the sale, in the Contracting Party's territory, of its goods or services to investors of another Contracting Party and their investments.
3. Neither investors of another Contracting Party nor their investments may have recourse to investor-state arbitration for any matter arising out of paragraph 2 of this Article.]
C. Definitions Related to Monopolies [and State Enterprises]
1. "Delegation" means a legislative grant, and a government order, directive or other act transferring to the monopoly or state enterprise, or authorising the exercise by the monopoly or state enterprise of, governmental authority.
85Proposal by Canada and the United States not discussed by the Expert Group.
86Japan proposes that the concept of "prior notification" for newly designated-monopolies be examined in this paragraph. Other delegations feel that the notification period of 60 days may be too short. Ireland reserves its position on the whole paragraph.
87The United States explains that paragraph 3(a), unlike paragraphs 3(b), 3(c), 3(d) and 3(e), would discipline circumventions of a Contracting Party's obligations -- including non-discriminatory treatment. The same dispute settlement alternatives should therefore be made available as those for when a Contracting Party's own actions are challenged.
88Australia reserves its position on all obligations on state enterprises that go beyond those of the GATT and the GATS. France considers that state enterprises should not be treated differently from private enterprises and that the MAI obligations on corporate practices should apply to both situations. Hungary would delete article B.
[2. "Designate" means to establish, designate or authorise, or to expand the scope of a monopoly to cover an additional good or service, after the date of entry into force of this agreement.]
3. ["Monopoly" means an entity, including a consortium or government agency, that in any relevant market in the territory of a Contracting Party is designated as the sole provider or purchaser of a good or service, but does not include an entity that has been granted an exclusive intellectual property right solely by reason of such grant] or ["Monopoly" means any person, public and private, designated by a national [or local] government authority as the sole supplier or buyer of a good or service in a given market in the territory of a Contracting Party.]89
[4. "Relevant market" means the geographic and commercial market for a good or service.]90
5. "Non-discriminatory treatment" means the better of national treatment and most favoured nation treatment. as set out in the relevant Provisions of this Agreement.
[6. "State enterprises" means, [subject to Annex ...., ] an enterprise owned, or controlled through ownership interest, by a Contracting Party.]
89Spain proposes the exclusion of concessions from government-designated monopolies [see DAFFE/MAI/EG3/RD(96)14]. France and Norway consider that further work on concessions is needed in the broader context of the MAI.
90The United States suggests adding "in the territory of the Contracting Party" at the end of the sentence.
Several delegations believe that no additional text is necessary. They consider that the current draft articles in the MAI are sufficient to cover investment incentives at this time.
Many delegations, however, would favour specific provisions on incentives in the MAI although they hold different views as to their nature and scope. Some proposed a built-in agenda for future work. Discussion of possible provisions focused on the following draft article which is regarded as a compromise text by those who would still prefer more far-reaching disciplines.
1. The Contracting Parties confirm that Article XX (on NT and MFN) applies to the granting of investment incentives.92
2. The Contracting Parties acknowledge that[, in certain circumstances,] even if applied on a non-discriminatory basis, investment incentives may have distorting effects on the flow of capital and investment decisions.93 Any Contracting Party which considers that its investors or their investments are adversely affected by an investment incentive adopted by another Contracting Party and having a distorting effect, may request consultations with that Contracting Party.94 The former Contracting Party may also bring the incentive before the Parties Group for its consideration.
91Some delegations feel that tax measures should not be covered by this Article.
92While it is agreed that investment incentives should be subject to NT and MFN obligations, there are different views on the desirability of making this explicit. Consequently, some delegations consider this paragraph to be unnecessary. Ireland maintains a pre-scrutiny reservation on the text of this draft article. The dispute settlement mechanism would, in particular, apply to this article. One delegation raises the possibility of taking reservations with regard to NT.
93Several delegations point out that not all investment incentives are bad -- the problem arises in drawing a line between good and bad incentives. It is suggested that the distorting effects of investment incentives on investment decisions and capital flows should be balanced against their possible benefits in achieving legitimate social objectives. Other delegations note that these concerns were addressed in paragraph 3 of the draft article.
94Some Delegations remain unconvinced by the need for special consultation procedures for non-discriminatory investment incentives as defined in paragraph 2, although final judgement would need to await the decisions taken on the coverage of the MAI. The presumption is that, as with other agreements, consultations would be the first procedural step of the dispute settlement mechanism of the MAI. It should be possible to revisit the adequacy of the provisions on dispute settlement and the role of the Parties Group when their configuration is better known. One delegation questions whether the dispute settlement mechanism of the MAI could apply to investment distorting investment incentives or to investment incentives granted illegally. These questions would also deserve further attention.
3.95 In order to further avoid and minimise such distorting effects and to avoid undue competition between Contracting Parties in order to attract or retain investments, the Contracting Parties [shall] enter into negotiations with a view to establishing additional MAI disciplines [within three years] after the signature of this Agreement.96 These negotiations shall recognise the role of investment incentives with regard to the aims of policies, such as regional, structural, social, environmental or R&D policies of the Contracting Parties, and other work of a similar nature undertaken in other fora. These negotiations shall, in particular, address the issues of positive discrimination,97 [transparency98], standstill and rollback99.
4. For the purpose of this Article, an "investment incentive" means:
The grant of a specific advantage arising from public expenditure100 in connection with the establishment, acquisition, expansion, management, operation or conduct of an investment of a Contracting Party or a non-Contracting Party in its territory.
The definition proposed by New-Zealand (see attachment).
95The form and placement of this text would have to be decided.
96Some delegations feel that the MAI should include additional disciplines on investment incentives from the time it enters into force. Another delegation cautions that additional disciplines could have far reaching implications for other multilateral agreements as well as for national tax laws and regulatory regimes.
97Some delegations express the view that positive discrimination should be prohibited.
98One delegation considers the transparency Article of the MAI would already be sufficient.
99Some delegations consider it very difficult to recommend future negotiations without agreement on their nature and scope.
100The question of including tax measures needs to be considered in the light of work by EG2.
1.1 For the purpose of this Agreement, an investment incentive shall be deemed to exist if:
(a) there is a financial contribution by a government, i.e., where:
(i) a government provides a direct transfer of funds (e.g, grants, loans, and equity infusion), potential direct transfers of funds or liabilities (e.g., loan guarantees);
(ii) government revenue that is otherwise due is foregone or not collected (e.g. fiscal incentives such as tax credits);
(iii) a government provides goods or services other than general infrastructure, or purchases goods;
(iv) a government makes payments to a funding mechanism, or entrusts or directs a private body to carry out one or more of the type of functions illustrated in (i) to (iii) above which would normally be vested in the government and the practice, in no real sense, differs from practices normally followed by governments;
(b) benefit is thereby conferred;
(c) the financial contribution meets the requirements for specificity as defined in paragraph 2.1 below;
[(d) possible text defining regulatory incentives, or a subset thereof]
*Definition proposed by New Zealand. The term 'government' as used in this Article is intended to refer to all levels of government to which the MAI's obligations apply.
2.1 In order to determine whether a financial contribution, as defined in paragraph 1 of this Article, is specific to an enterprise or industry or group of enterprises or industries (referred to in this Agreement as 'certain enterprises') within the jurisdiction of the granting authority, the following principles shall apply:
(a) Where the granting authority, or the legislation pursuant to which the granting authority operates, explicitly limits access to a financial contribution to certain enterprises, such a financial contribution shall be specific.
(b) Where the granting authority, or the legislation pursuant to which the granting authority operates, establishes objective criteria or conditions** governing the eligibility for, and the amount of, a financial contribution, specificity shall not exist, provided that the eligibility is automatic and that such criteria and conditions are strictly adhered to. The criteria or conditions must be clearly spelled out in law, regulation, or other official document, so as to be capable of verification.
(c) If, notwithstanding any appearance of non-specificity resulting from the application of the principles laid down in subparagraphs (a) and (b), there are reasons to believe that the financial contribution may in fact be specific, other factors may be considered. Such factors are: use of a subsidy programme by a limited number of certain enterprises, predominant use by certain enterprises, the granting of disproportionately large amounts of financial contribution to certain enterprises, and the manner in which discretion has been exercised by the granting authority in the decision to grant a financial contribution.*** In applying this subparagraph, account shall be taken of the extent of diversification of economic activities within the jurisdiction of the granting authority, as well as of the length of time during which the financial contribution programme has been in operation.
2.2 A financial contribution which is limited to certain enterprises located within a designated geographical region within the jurisdiction of the granting authority shall be specific. It is understood that the setting or change of generally applicable tax rates by all levels of government entitled to do so shall not be deemed to be a specific financial contribution for the purposes of this Agreement.
2.3 Any determination of specificity under the provisions of this Article shall be clearly substantiated on the basis of positive evidence.
**Objective criteria or conditions, as used herein, mean criteria or conditions which are neutral, which do not favour certain enterprises over others, and which are economic in nature and horizontal in application such as number of employees or size of enterprise.
***In this regard, information on the frequency with which applications for a subsidy are refused or approved and the reasons for such decisions shall, in particular, be considered.
CORPORATE PRACTICES AND SENIOR MANAGEMENT AND BOARD OF DIRECTORS
A. Corporate practices1
Paragraph 1 (Obligations on government imposed corporate practices)2
Contracting Parties shall not [encourage] or [require] a company established in its territory, by law [or other government measures], to conduct its activities [in a manner inconsistent with the Contracting Party's obligations] pursuant to [any] provisions of this Agreement.
[Such [encouragement] or [requirement] inconsistent with the Contracting Party's obligations includes3:
-- limits to the acquisition of shares of the voting capital the company which distinguishes between investors or investments of that Contracting Party and investors or investments of other Contracting Parties;
-- rules on the nationality or residency of members of the company's board of directors;
-- the issuing of different classes of shares with different voting rights with provisions governing the right of foreigners;
-- [others to be defined].]
1Australia reserves its position on Option I, paragraph 1; paragraph 3, alternatives 2, 3 and 4; paragraph 4; and, Option II. France considers that if the behaviour of state enterprises were to be covered by this article, there would no need to have a specific article on state enterprises. The coverage of state enterprises in this article could be achieved by adding the words "public and private" before "company" in paragraph 1 and before "corporations" in paragraph 2.
2While several delegations favour the general thrust of paragraph 1, it is felt necessary to discuss further its content, notably that of the square brackets: for example, the word "require" could be replaced with "impose" and the word "any" with "National Treatment/MFN/Transparency". Some delegations wonder whether it is necessary to list specific examples of corporate practices. Denmark, Germany, Norway and Sweden, in particular, stress the problem of including residency provision for boards of directors which is a regulatory requirement in their countries. Some delegations noted a possible inconsistency between the second tiret and the draft article on senior management and board of directors presented below.
3Japan favours a closed list.
Paragraph 2 (Introduction to obligations on non-government imposed corporate practices)4
Contracting Parties recognise that corporate practices not imposed by Contracting Parties can involve discriminatory treatment of foreign investors [and their investments].5
Paragraph 3 (Obligations on non-government imposed corporate practices)6
Contracting Parties shall require that the statutes, articles of association and by-laws of their corporations shall not contain provisions providing for the discriminatory treatment of foreign investors [and their investments].
Contracting Parties shall require that the statutes, articles of association and by-laws of their corporations listed in security exchanges shall not contain provisions providing for the discriminatory treatment of foreign investors [and their investments].
Contracting Parties shall ensure that the articles of association of enterprises established under its law do not provide for the following types of rules:
-- limits to the acquisition of shares of the voting capital the company which distinguishes between investors or investments of that Contracting Party and investors or investments of other Contracting Parties;
-- rules on the nationality or residency of members of the company's board of directors;
-- the issuing of different classes of shares with different voting rights with provisions governing the right of foreigners;
4The text of this paragraph may need to be modified in accordance with the approach adopted for paragraph 3.
5Australia reserves its position on the inclusion of "and their investments" in paragraphs 2 and 3.
6Several delegations have serious reservations about creating obligations on corporate practices which are not mandated by governments since this would interfere with the freedom of business to contract and may be difficult to implement. New Zealand suggests the addition of the word "explicitly" between provisions" and "providing".
7Proposal by Australia.
8Proposal by Norway aiming at limiting the obligations to practices by corporations listed in security exchanges.
9Proposal by the European Commission.
-- [others to be defined].
Contracting Parties shall endeavour10 "to effectively limit the use of corporate practices which may [de facto discriminate against] [which may have distorting effects on]ll foreign investors [and their investments], including:
-- the designation of voting rights to shareholders which are not proportionate to the shareholder's stake in the company capital12;
-- the issue of preference shares without voting rights;
-- provisions in the articles of association which confer on the holders of a particular category of shares an exclusive right to put forward nominations for a majority of those members of the administrative organ whose appointment is a matter for the general meeting.
-- [others to be defined].
Paragraph 4 (Transparency)13
Contracting Parties shall provide at the request of another Contracting Party information on certain corporate practices of its own investors or investments, subject to its domestic law [and to the conclusion of satisfactory agreement concerning the safeguarding of its confidentiality by the requesting Contracting Party]. [At the request of the information-providing Contracting Party this information must be kept confidential by the requesting Contracting Party.]14
10Japan expresses concern about the relationship between a best endeavour clause and the dispute settlement mechanism of the MAI.
11It needs to be determined whether this best endeavour provision should be limited to cases of "discrimination" against foreign investment or measures that "may negatively affect" such investments.
12Sweden reserves its position on this indent.
13With a view of giving greater focus to the transparency provisions, the United Kingdom proposed the following alternative language: "Subject to confidentiality requirements, Contracting Parties shall make publicly available the articles of association of enterprises established in their territory."
14Proposal by the European Commission. It is suggested that legal experts verify if the version in the latter square bracket might overcome the conditionality of this provision-contained in the former square bracket (as in GATS).
Paragraph 5 (Consultations)15
Each Contracting Party shall, at the request of any other Contracting Party, enter into consultation with a view to eliminating corporate practices16 of the type not covered by paragraph 3, alternative 1. The Contracting Party addressed shall accord full and sympathetic consideration to such a request and shall co-operate through the supply of publicly available non-confidential information of relevance to the matter in question. The Contracting Party shall provide information available on corporate practices to the requesting Contracting Party, subject to its domestic laws and practices and to the conclusion of satisfactory agreement concerning the safeguarding of its confidentiality by the requesting Contracting Party17, 18
Paragraph 6 (Dispute settlement)19
Dispute settlement as provided for in the Agreement shall apply in relation to paragraphs 3, 4 and 5.20
A number of delegations believe that no text on corporate practices is necessary. The existing draft MAI provisions would be sufficient to cover government measures which mandate corporate practices which discriminate against foreign investors or their investments. They consider that the MAI should not get into the domain of private corporate practices.21
B. Senior management and board of directors22
No Party may require that an enterprise of that Party that is an investment of an investor of another Party appoint to senior management positions individuals of any particular nationality.
15Proposal by Australia. Japan reserves its position on this paragraph.
16New Zealand suggests the insertion of "not discriminatory effect" after "corporate practices".
17Proposal by Australia.
18Canada considers that the consultations should pertain to corporate practices referred to in paragraph 2.
19Proposal by Australia. Japan reserves its position on this paragraph.
20A number of delegations wish to study further the relationship between the proposed consultation procedures and the dispute settlement mechanism of the MAI. There are strong reservations about submitting corporate practices to investor-to-state dispute settlement.
21There are also reservations about using Article IX of the GATS as a precedent for disciplining corporate practices since this article relates to restrictive business practices in a competition policy context.
22Australia reserves its position on this article.
[A Party may require that a majority of the board of directors, or any committee thereof, of an enterprise of that Party that is an investment of an investor of another Party, be of a particular nationality, or resident in the territory of the Party, provided that the requirement does not materially impair the ability of the investor to exercise control over its investment.]23
23Most delegations reserve their position on paragraph 2.