Multilateral Agreement on Investment
Draft, Distributed January 13, 1997

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3. The Expert Group reviewed the issues of multiple proceedings and forum shopping that could arise by virtue of substantive overlap between the MAI and other agreements. The following results were reached:

a. A provision should be considered for the MAI along the lines of NAFTA Article 20051. This would require MAI parties to choose among their state-state dispute settlement options for

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1NAFTA Article 2005: GATT Dispute Settlement

"1. Subject to paragraphs 2, 3 and 4, disputes regarding any matter arising under both this Agreement and the General Agreement on Tariffs and Trade, any agreement negotiated thereunder, or any successor agreement (GATT), may be settled in either forum at the discretion of the complaining Party.

2. Before a Party initiates a dispute settlement proceeding in the GATT against another Party on grounds that are substantially equivalent to those available to that Party under this Agreement. that Party shall notify any third Party of its intention. If a third Party wishes to have recourse to dispute settlement procedures under this Agreement regarding the matter, it shall inform promptly the notifying Party and those Parties shall consult with a view to agreement on a single forum. If those Parties cannot agree, the dispute normally shall be settled under this Agreement.

3. In any dispute referred to in paragraph 1 where the responding Party claims that its action is subject to Article 104 (Relation to Environmental and Conservation Agreements) and requests in writing that the matter be considered under this Agreement, the complaining Party may, in respect of that matter, thereafter have recourse to dispute settlement procedures solely under this Agreement.

4. In any dispute referred to in paragraph 1 that arises under Section B of Chapter Seven (Sanitary and Phytosanitary Measures) or Chapter Nine (Standards-Related Measures):

(a) concerning a measure adopted or maintained by a Party to protect its human, animal or plant life or health, or to protect its environment, and

(b) that raises factual issues concerning the environment, health, safety or conservation, including directly related scientific matters,

where the responding Party requests in writing that the matter be considered under this Agreement, the complaining Party may, in respect of that matter, thereafter have recourse to dispute settlement procedures solely under this Agreement.

5. The responding Party shall deliver a copy of a request made pursuant to paragraph 3 or 4 to the other Parties and to its Section of the Secretariat. Where the complaining Party has initiated dispute settlement proceedings regarding any matter subject to paragraph 3 or 4, the responding Party shall deliver its request no later than 15 days thereafter. On receipt of such request, the complaining Party shall promptly withdraw from participation in those proceedings and may initiate dispute settlement procedures under Article 2007.

6. Once dispute settlement procedures have been initiated under Article 2007 or dispute settlement proceedings have been initiated under the GATT, the forum selected shall be used to the exclusion of the other, unless a Party makes a request pursuant to paragraph 3 or 4.

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cases involving "substantially the same right". Some delegations took the view that this concept involves resolution of a number of technical difficulties.

b. There was no support for a provision which would seek to guide the MAI parties on which forum to use in particular circumstances, though one delegation wished to review this regarding GATS in the WTO and the MAI at a later stage.

c. There was agreement on most aspects of the relationship between investor-state proceedings and state-state proceedings. State-state proceedings and investor-state proceedings should be independent of each other, except that states should be barred from espousing under the MAI the same claim which an investor has submitted or consented to submit to arbitration. In the case where an investor had available investor-state arbitration under the MAI and other agreements, e.g. BITS, delegates considered that further reflection was necessary about the need to require the investor to make a choice and not bring successive arbitrations on substantially the same claim.

2. Other matters under this heading have not yet been discussed: i) the relationship of GATS Article II (MFN) with investor-state dispute settlement under the MAI; ii) the relationship between possible counter measures under MAI and obligations under other agreements.

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7For purposes of this Article, dispute settlement proceedings under the GATT are deemed to be initiated by a Party's request for a panel, such as under Article XXIII:2 of the General Agreement on Tariffs and Trade 1947, or for a committee investigation, such as under Article 20.1 of the Customs Valuation Code.

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Paragraph 1

1. It has been proposed that the general exceptions provisions not be applicable to all of the obligations under the agreement. The ECT (Article 24(1)) is an example of a multilateral agreement that does not allow for general exceptions to be taken with regard to specific obligations concerning compensation for losses or expropriation. Bilateral treaty practice differs on this matter. Some delegations thought that a reference to paragraph 2(c) would be necessary to clarify that actions pursuant to a UN Charter obligation would in any case prevail over the MAI (see paragraph 9, below). The Austrian delegation submitted a proposal which would have the same effect by changing the order of the paragraphs.

2. The question is whether certain obligations of the agreement are considered so central to investor protection, for example compensation in case of expropriation, that a provision should limit the right of a Contracting Party to invoke this Article for actions that would be inconsistent with its obligation to pay compensation in the case of an expropriation.

3. The majority view was that the MAI should provide an absolute guarantee that an investor will be compensated for an expropriated investment. This was questioned by the United States delegation which doubted that in time of war whether a country would be able to pay compensation, in all cases, to an investor of a party with which it is in conflict. In the case that general exceptions would be permitted to override MAI obligations, delegations might further consider whether this should be limited to only essential security interests.

4. One delegation raised the issue of the need to ensure that this provision would not apply retroactively. Delegations pointed to customary international law rules limiting retroactive application of treaties. They agreed this was a valid point, but that it applied more generally to the entire agreement and should be addressed elsewhere.

Paragraph 2

-- subparagraph a

5. Canada, supported by other delegations, requested square brackets be put around the phrase "which it considers" in the chapeau, as well as brackets around the phrase "or other emergency in international relations" at the end of (i). In the opinion of these delegations, these proposals would help safeguard against potential abuse by constraining the self-judging nature of the provision and by limiting its scope. One delegation believes that, based on an ICJ decision, such a change would eliminate the self-judging nature of the provision.

6. There were different views on whether to delete the phrase "including those" in the chapeau, which would make the list a closed one. Recent agreements like the NAFTA, the ECT, the GATS, and the Shipbuilding agreement do not define essential security interests but provide elements clarifying the purpose of the provision. The Austrian Delegation thought that in a closed list it would also be necessary to amend element (ii) (by inserting the phrase inter alia" after the word "non-proliferation") to cover international non-proliferation agreements, other than those relating to nuclear weapons for example agreements concerning chemical weapons. Denmark, supported by other delegations, proposed the inclusion of an additional element (iii).

-- subparagraph b

7. This provision is found in recent agreements (NAFTA, ECT, GATS, Shipbuilding). Canada, supported by other delegations, requested that square brackets be put around the phrase "it considers" (to be replaced by "would be") to help safeguard against potential abuse by constraining the self-judging nature of the provision. One delegation believes that, based on an ICJ decision, such a change would eliminate the self-judging nature of the provision.

8. Several delegations noted that this issue also arose in the context of the discussion on transparency in the National Treatment chapter. Japan pointed out that in its opinion this paragraph would also apply to concerns relating to public order.

-- subparagraph c

9. Agreements such as the NAFTA, GATS, and the Shipbuilding agreement include a general exception provision relating to obligations for the maintenance of international peace and security. These provisions refer specifically to obligations under the UN Charter. Some delegations thought it unnecessary to refer to this obligation because the supremacy of the UN Charter over international treaties is not disputed, but they agreed not to insist on its deletion if others wanted to make this explicit. Others were of the opinion that this reference was too restrictive because it might not cover actions taken pursuant to regional security arrangements. To address this point, the Canadian delegation proposed including, after the words "UN Charter", the phrase "or equivalent arrangements authorised by a competent international organisation". The United States saw this as an issue of clarification rather than one of restrictiveness and suggested including, after the word "under", the phrase "or consistent with".

Paragraph 3

10. Some countries believe that a reference to public order is necessary to allow countries to take exceptional measures based on this principle. France indicated in a written submission [DAFFE/MAI/DG2/RD(96)2] that a public order clause was meant to ensure certain objectives, including the non-discriminatory application of its laws and the prevention of disturbances to the public order that could be posed by certain foreign investments. It thought that given the different circumstances of foreign and domestic investors as concerns the protection of public order, it would not be possible, in all cases, to accord equivalent treatment to these different types of investors. Delegations recognised the interest of a state in ensuring the application of its criminal laws, anti-terrorist measures, and money laundering regulations, for example. But not all delegations were convinced that it is necessary to discriminate between foreign and domestic investors in order to protect public order. Austria remarked that if the MAI went beyond national treatment obligations to include the concept of market access, then the broader interpretation of public order would be necessary.

11. Several delegations were of the opinion that provision might need to be made for cases where information requirements or other formalities might be required of foreign investors because they are not in the same situation as domestic investors. This question also arose in the context of the discussion of the transfer provisions in the investment protection chapter where the host state would want to preserve its right to require certain reports without being in contradiction of the absolute right of free transfer otherwise provided by the agreement. Article 1111 of the NAFTA was cited as a possible model to take account of these situations. The question arose whether in fact this was not a matter of "equivalent treatment" which could be included in the context of national treatment.

12. In situations where the state needs to ensure that all investors conform to its laws and regulations which are not in contradiction with the provisions of the agreement, a provision of more general application might also be needed, as in Article 5 of the Capital Movements Code. The Group could consider a provision similar to that in the Code which would apply to the whole of the agreement. If this were the preferred solution, it might obviate the need for a special provision in the transfer article or elsewhere in the agreement where there might be similar concerns.

13. Several proposals were made with the intent to narrow the scope of a public order exception. The German delegation proposed limiting the public order concept to exceptions to the national treatment principle and to make the MAI dispute settlement mechanism applicable. Japan remarked, however, that if the MAI went beyond national treatment obligations to include the concept of market access, then the broader interpretation of public order would still be necessary. The European Commission suggested a reference to the ECJ principles of proportionality and the exclusion of economic purposes as additional limitative qualifications to public order.

14. Delegations in favour of including a public order exception agreed that its use should be strictly controlled. These delegations felt that the actions relating to public order would not be self-judging and would be subject to the limitation in paragraph 4 and to the procedures in paragraph 6. France, supported by Spain, stated that these limitations and procedures should apply in the same way to other general exceptions and that all general exceptions should be treated in the same way in relation to the applicability of the dispute settlement mechanism.

Paragraph 4

15. Paragraph 4 would apply to all exceptions in this article. It is another way of formulating the obligation that parties must be in good faith when invoking this article and cannot avail themselves of it as a pretext for not complying with their obligations under the agreement. A good faith obligation already exists in international law and the United States has concerns that by restating it in the agreement, we may create a different standard. Some delegations thought it might be useful to follow the ECT (Article 24)and GATS (Article XIV) provisos that public order or other general exceptions must not constitute a disguised restriction or that they are invoked without proper justification. This paragraph could be considered to have the effect of allowing a party which had reason to believe that another party had made improper use of this article to challenge such use as contrary to the objectives of the article. A decision on paragraph 4, in the opinion of several delegations, would have to wait until such time that consideration of paragraphs 2 and 3 had been completed.

Paragraph 5

16. The content of this paragraph would need to await a discussion of the role of a "Parties Group". The requirement to notify measures is intended to facilitate transparency and to promote consistency in the manner that MAI Parties might apply the general exceptions provisions. Some delegations thought that the 1991 clarification by the CIME that "measures taken for economic, cultural or other reasons should be identified as such and should not be shielded by an excessively broad interpretation of public order and essential security interests...", might also assist the Parties in applying these provisions.

Paragraph 6

17. Most delegations were in favour of providing for a mechanism for consultation/dispute settlement. It would be understood that entering into consultations would not prejudice the right of either Party to invoke the other procedures of the agreement to which it might be entitled. The question remains whether paragraph 4 provides an objective standard which, if violated, can give rise to an actionable cause.

18. Paragraph 6 could be adapted depending on how parties wish to proceed. There are several options which can be considered:

a) actions relating to any of the provisions of this article could be subject to consultations (as provided for in the article or by reference to the consultations procedures of the agreement), and to the dispute settlement provisions of the agreement to the extent that the provisions are not entirely self-judging;

b) actions relating to any of the provisions of this article could be subject to consultations (as provided for in this article or by reference to the consultations procedures of the agreement), to the exclusion of recourse to the dispute settlement provisions of the agreement;

c) actions relating to the public order provisions of paragraph 3, could be subject to consultations (as provided for in this article or by reference to the consultations procedures of the agreement), and to the dispute settlement provisions of the agreement.

1. In the view of the United States, any dispute settlement mechanism provided in the MAI would be rendered superfluous by the self-judging nature of the general exception provisions. This delegation also questioned whether it would be necessary to provide a specific consultation mechanism in this article separate from the general consultation mechanism of the MAI.

20. Whatever the procedure agreed for general exceptions, it will have to be considered in the context of the MAI provisions on the role of the Parties Group and the dispute settlement procedures.



1.1. The MAI aims to ensure a high minimum standard of treatment for investors and their investments, including National Treatment and MFN treatment. Standstill would result from the prohibition of new or more restrictive exceptions to this minimum standard of treatment. From this perspective, a violation of standstill would be a violation of the underlying MAI obligations (e.g. of National Treatment and MFN), and the dispute settlement provisions would apply to such breaches of the MAI obligations.

1.2. Standstill would not apply, however, to any general exceptions (e.g. national security) or to any temporary derogations (e.g. balance of payments) that might be allowed under the MAI.

1.3. For those matters where Contracting Parties are ready to commit to standstill, the Drafting Group considered that

a) each Contracting Party should list all non-conforming measures in an Annex of the Agreement;

b) the reservations should describe, in the most precise terms possible, the nature and scope of the non-conforming measures. This would ensure that the scope of the reservations is not broader than these measures and, thus, that the reservations are not of a "precautionary" nature;

c) no additional non-conforming measures could be introduced; and

d) an amendment to a non-conforming measure would be permitted provided it did not decrease the conformity of the measure.

Of course, if the MAI obligations were expanded, Article 1.5 (a) - (d) would come into play again with respect to the new or enlarged obligations.

1.4. The Drafting Group considered that further discussion is needed on the question of country specific reservations in certain sensitive sectors and new economic activities that may emerge in the future. Some delegations suggested flexibility could be achieved by separate annexes to the Agreement for the listing of country specific reservations in these areas.

1.5. The Drafting Group also considered that a standard presentation of the non-conforming measures listed in Contracting Parties' specific reservations would enhance transparency and facilitate the operation of the Agreement. The Drafting Group felt that specific reservations listed in the schedules of the Contracting Parties should include the following elements:

a) the obligation or MAI article in respect of which the reservation is taken;

b) the sector(s)or sub-sector(s) covered by the reservation;

c) the level of government which maintains the non-conforming measure;

d) the legal source or authority of the non-conforming measure;

e) the description of the non-conforming measure; and

f) the purpose of the non-conforming measure.

1.6. For practical reasons, however, the amount of information to be provided should be limited to the minimum necessary to describe the non-conforming measures. This may be particularly relevant to sub-national (e.g. state and local) measures, not all of which may merit listing.


2.1 Rollback is the liberalisation process by which the reduction and eventual elimination of non-conforming measures to the MAI would take place. It is a dynamic element linked with standstill, which provides its starting point. Combined with standstill, it would produce a "ratchet effect", where any new liberalisation measures would be "locked in" so they could not be rescinded or nullified over time.

2.2 There are a number of ways for achieving rollback. The most commonly known in the trade field is that of successive rounds of negotiations where rollback results from the trade-offs or exchange of trade concessions. Peer pressure through periodic examinations of Member countries' restrictions has been the approach of the OECD liberalisation instruments. Rollback commitments may also be inscribed in schedules of commitments or list of reservations. While this has not been a generalised practice, it has been done in some cases under the OECD instruments.

2.3. Rollback might be achieved through:

a) liberalisation commitments by the Contracting Parties effective on the date of entry into force of the MAI. This would imply that not all restrictions currently maintained would be included in the list of reservations of the Contracting Parties;

b) rollback commitments inscribed in a country reservation or description of a non-conforming measure by means of a "phase-out" or a "sunset clause" specifying a future date when the non-conforming measure would be removed or made more limited in the future. Phase-out or sunset provisions could not be envisaged for all non-conforming measures. They might be useful, however, where the phase-out of a non-conforming measure is inscribed in domestic legislation or where a Contracting Party is able to commit itself to future liberalisation by a specified date.

2.4. Rollback after the entry into force of the MAI could result from:

a) an obligation for a Contracting Party to adjust its reservations to reflect any new liberalisation measure (the "ratchet" effect).

b) periodic examinations of non-conforming measures. These examinations could lead to recommendations in favour of the removal or limitations of specific measures. These reviews could be conducted on a country-by-country basis, or on an horizontal or sectoral basis, taking into account the degree of liberalisation already achieved; and

c) future rounds of negotiations designed to remove non-conforming measures. The decision to launch future negotiations could be taken at the conclusion of the MAI negotiations or the MAI could provide a specific date for the first round of such negotiations.

2.5 The "Parties Group" could have the role of monitoring the adjustment of country reservations, conducting periodic examinations of non-conforming measures or launching future rounds of negotiations.




1. The Group agreed to carve in taxes though the text needs to be refined and a few delegations maintain a reservation pending clarification and finalisation of the text.

2. The Group reconfirmed that taxes as such are not expropriatory. It then developed a clarifying text providing elements to be considered when determining whether a specific measure should be considered expropriatory. The form in which the text would appear remains open. The following text might be included in the MAI as an interpretative note1:

Taxation Measures and Expropriation: Clarifying Text

"MAI Parties understand that no taxation measures of the Parties effective at the time of signature of the Agreement could be considered as expropriatory or having the equivalent effect of expropriation."

The Group agreed that the following text should be included in some manner such as an interpretative note to the MAI.2

"When considering the issue of whether a tax measure effects an expropriation, the following elements should be borne in mind:

a) The imposition of taxes does not generally constitute expropriation. A claim of excessive burden imposed by a tax measure is not in itself indicative of an expropriation.

b) A tax measure will not be considered to constitute expropriation where it is generally within the bounds of internationally recognised tax policies and practices. When considering whether a tax measure satisfies this principle, an analysis should include whether and to what extent tax measures of a similar type and level are used around the world.

c) While expropriation may be constituted even by measures applying generally (e.g, to all taxpayers), such a general application is in practice less likely to suggest an expropriation than more specific measures aimed at particular nationalities or individual taxpayers. A tax measure would not be expropriatory if it was in force and was transparent when the investment was undertaken.

begin footnote

1The European Commission considers that such a statement is, at the least, premature.

2The U.K. did not regard an interpretative note as essential.

end footnote

d) Tax measures may constitute an outright expropriation, or while not directly expropriatory they may have the equivalent effect of an expropriation (so-called "creeping expropriation"). Where a tax measure by itself does not constitute expropriation it would be extremely unlikely to be an element of a creeping expropriation."

3. Different views were expressed on the appropriate period of time to be inserted in paragraph 2 a) and b) of the draft Article. It was agreed however that the clock should start running only when the competent Tax Authorities of both Parties to the dispute had received all the information necessary to making a judgement on whether the measure concerned amounted to expropriation. It was also agreed that the period should not be too long so as not to delay unreasonably the tine when the issue could be brought to dispute settlement under the MAI.

4. The term "competent Tax Authorities" needs to be defined, possibly by reference to the Energy Charter Treaty (ECT). Most delegations emphasised the need to define "tax measure" for purposes of the MAI3.

5. The Expert Group agreed that the Tax Authorities of only two countries should be involved in the procedure described in paragraph 2 and both should be MAI Parties. One of the Parties would certainly be the host country to the investment, but the other might need to be defined taking into account the extent to which indirect investments will be covered by the MAI [see Commentary on the Definition of Investment].

6. The procedure set out in paragraph 2 addresses only investor-state disputes. The Group considered that in the case of state-to-state disputes, the competent tax authorities should automatically be involved.

The role of Tax Authorities in any MAI dispute settlement procedure involving taxes is taken up elsewhere in this Commentary. The remedies in the case of expropriation would be those defined in the expropriation Article itself, namely compensation.


7. The Expert Group agreed to carve in transparency.

8. The Expert Group also agreed that the general Article on Transparency (paragraphs 2.1, 2.2 and 2.3) should apply to taxes. However the Group considers the term "policies or practices" in paragraph 2.3 of the general Article on Transparency to be necessary for tax purposes, and additional text needs to be included in the Taxation Article to protect the confidentiality of certain types of information specific to tax matters, including information shared between the Authorities of different countries on a confidential basis. The Expert Group developed a text for this purpose (paragraph 3 of the Draft Article on Taxation), subject to further refinement.

begin footnote

3France does not consider it useful to define tax measures.

end footnote

National Treatment

9. A large majority of delegations supported Alternative 1 which provides no carve-in for taxes with respect to National Treatment. These delegations emphasised the need to see tax measures affecting National Treatment in the context of international treaty obligations and tax policy as a whole, and the need of governments to preserve the freedom to introduce new measures especially in the light of economic and technological developments. These delegations also emphasised the extent to which tax treaties, including the obligation of non-discrimination, provide comprehensive protection to investors. Moreover these delegations emphasised that, as double taxation Agreements cover most OECD countries, subjecting taxes to the national treatment obligation would undermine both tax Agreements (through forum shopping) and the MAI. This problem could be aggravated by the accession to the MAI of Non-OECD Members, particularly certain countries with which OECD Members have decided not to conclude tax treaties. Problems of legal interpretation were also mentioned as creating uncertainty and exposing Tax Authorities to unjustified dispute settlement claims. One delegation indicated that under its legal interpretative framework, Alternative 2 would not allow the effective operation of its anti-avoidance measures and tax treaty network.

10. Some delegations favoured Alternative 2 which would carve in taxes to the National Treatment obligation subject to safeguards specific to taxation. These delegations considered that the MAI would lack credibility if taxes were excluded from this core obligation given the importance of taxation in investment decisions. The tax treaty network, though extensive, does not cover all likely signatories to the MAI (nor even all OECD countries). Some treaties do not contain a sufficiently comprehensive non-discrimination provision. Incorporating the National Treatment obligation in the body of the text would strengthen the accession criteria from a tax policy viewpoint. These delegations also felt that the tax policy concerns that had been identified were adequately covered by the text in alternative 2.

11. A few delegations indicated that they had not yet decided between Alternatives 1 and 2.

12. One delegation wondered whether a National Treatment provision limited to procedural aspects might be acceptable in regard to tax matters.

An Alternative Approach

13. The French delegation put forward an alternative approach under which a broader carve-in of tax measures could be accommodated by designing a text for dealing with tax matters under the MAI based on elements of the non-discrimination article in the OECD Model Convention. This alternative would cover both National Treatment and tax incentive questions.

Most Favoured Nation Treatment

14. The Group agreed that direct taxes and social security contributions/taxes should definitely not be carved into the MFN provision of the MAI.

15. The Group also agreed to proceed on the working assumption that indirect taxes would not be carved-in either for this purpose. However a few delegations expressed support for including indirect taxes within the MFN provision, provided Agreement could be reached on a suitable definition of indirect taxes and provided unnecessary overlap with WTO obligations could be avoided. Value-added taxes and transfer taxes for immovable property were mentioned as possible candidates for coverage because they were both important for investors and there would usually be no need for different treatment on the basis of nationality.

Performance Requirements

16. The Expert Group noted that paragraph 3 of the Article on performance requirements prepared by EG3 would prohibit specific performance requirements linked to receipt of an "advantage". In the absence of further clarification, the term "advantage" could be understood to include a tax advantage.

17. The issue of "carving in" taxes with respect to performance requirements needs further consideration to ensure that all appropriate policy objectives of governments are taken into account and to take into account any changes in the text on performance requirements, which has not been finalised.

18. Hungary emphasised the need to take into consideration the current transition periods available to economies in transition for export subsidies under the WTO Subsidies Agreement.

19. One delegation put forward the following text:

"Article ... (Performance Requirements) shall apply to tax measures, but nothing in that Article shall be construed to prevent a Contracting Party from conditioning the receipt or continued receipt of a tax advantage, in connection with an investment in its territory of an investor of a Contracting Party or of a non-Contracting Party, on compliance with a requirement to locate production, provide a service, train or employ workers, construct or expand particular facilities, or carry out research and development, in its territory."


20. One delegation proposed the following text:

"Article ... (Transfers) shall apply to taxes. For the avoidance of doubt that article shall not limit the right of a Contracting Party to impose or collect a tax by withholding or other means."

21. This suggestion was not further discussed. However, in its earlier work the Expert Group had agreed that the general transfer obligation should not prevent the imposition of withholding taxes, jeopardy assessments or taking other measures to ensure the proper determination, assessment or collection of taxes or the satisfaction of tax obligations. EG2 also took into account the views of expressed by DG3 that the free transfer obligation applies to earnings and other remuneration net after deduction of any withholding for tax or social security purposes [see Commentary on "Transfers"]. Therefore, most delegations saw no need to carve in taxation with respect to the transfer obligation. A difference of view remained on whether it is necessary or desirable to provide an explicit general or limited exclusion of taxes from the transfer article. Bilateral investment treaty practice was suggested as a possible guide in this regard.

Investment Incentives

22. The Expert Group noted that in EG3 there had been broad agreement that investment incentives should be subject to NT and MFN obligations and that proposals to establish an agenda for future work on additional disciplines were under consideration.

23. Different views were expressed concerning the desirability of subjecting tax incentives to NT and MFN obligations, or to any additional disciplines. Most delegations believed there is no difference in treatment issues between tax measures and tax incentives.

24. Most delegations considered that it would be difficult not only to clearly define "tax incentives", but also to distinguish between desirable and undesirable incentives. They also considered that it would be important to avoid any duplication or conflict with other agreements, particularly the ASCM and GATS.

25. Some delegations felt that tax and non-tax incentives should be considered in an integrated fashion under the MAI. It was pointed out that insofar as investment incentives are subject to MAI obligations, notably NT and MFN, if such obligations do not extend to tax incentives then countries could be induced to substitute tax incentives for non-tax incentives.

26. Many delegations felt that agreements in other fora concerning disciplines on tax and non-tax incentives should be taken into account in deciding the extent to which tax incentives should be covered by MAI obligations. In this regard, specific reference was made to WTO Agreements, particularly the Agreement on Subsidies and Countervailing Measures (ASCM) and ongoing developments under the auspices of the GATS, as well as OECD activities, in particular the CFA project on unfair tax competition and the Industry Committee project. One delegation considered that developments in these other fora are not in competition with the MAI.

27. One delegation expressed interest in a provision that would prohibit positive discrimination based on the nationality or residence of investors. However, another delegation suggested that instances of tax incentives embodying positive discrimination based on nationality were rare, if not non-existent, in OECD Member countries.

Dispute Settlement

28. EG2 considered that dispute settlement would not only arise for taxation to the extent that taxation matters were carved back into the MAI, but also for the purpose of determining what constitutes a tax measure for the purpose of the carve-out.

29. It was not clear at this stage how the tax carve-out will interact with the MAI dispute settlement resolution proposals. To the extent that tax matters are covered, the Expert Group agreed that primacy should be given to mutual agreement procedures under tax treaties and tax authorities should have the necessary flexibility to settle tax related disputes. Tax expertise should be required at all stages of MAI dispute settlement including consultations and arbitration procedures although this might not need to be explicit in the case of state-to-state disputes. One suggestion was that an independent tax expert (independent of the parties to the dispute) should be automatically involved in investor to state disputes.

30. Some delegations reserved their position on whether the MAI dispute resolution provisions should or could apply in respect of tax measures. One of these delegations raised constitutional concerns in relation to taxation, and others raised concerns over the lack of specific detail on what the MAI dispute resolution procedures would look like and how they would operate.

31. This lack of specific details made it difficult to make progress on this matter and the Group noted that there is considerably more work to be undertaken on tax issues in this area.

32. This further work should include consideration of the form which the primacy of the mutual agreement procedures should take for example, absolute primacy or subject to a time limit after which an unresolved dispute would be referred to a dispute settlement panel under the MAI.

Relationship between the MAI and International Tax Agreements

33. The Expert Group noted that EG4 had drafted a "non-derogation" clause designed to ensure that investors would not lose the benefit of more favourable treatment available under laws or international agreements containing obligations to them by MAI Parties. The Expert Group needs to consider further the potential implications of such a provision, depending on its final text.


34. Two broad aspects were considered: what might to be done to ensure that non-Member countries wishing to accede to the MAI meet minimum standards in terms of their tax systems and how to treat the application of MAI provisions to overseas territories from the tax standpoint.

35. The argument was made that, so far as non-Member countries are concerned, a very broad carve-out of tax issues from relevant MAI obligations would leave open the possibility of introducing discriminatory measures through the tax code. Where there is no bilateral DTA in force, there may be no other investor protection available.

36. Another argument was that the greater the extent to which tax measures were carved into the MAI, the greater the importance of having strict accession requirements. For example, if taxes were carved into NT, the problems identified earlier would arise, and, in addition, the Expert Group would need to look more closely at accession requirements, such as the existence of extensive tax treaty networks and bank secrecy laws.

37. It was noted that the Negotiating Group has determined that all accession criteria should apply equally to Member and non-Member countries. The Expert Group considered that the tax authorities should be involved in the process by which accession candidates are judged. One delegation considered that, in addition to the MAI obligations in the tax area, broader tax policy considerations should be taken into account.

Definition of Tax Measures

38. Different views were expressed concerning the need for a definition of "tax measures". Most delegations considered that a definition would be necessary in order to distinguish between those measures that would be subject to the taxation "carve-out" and those which would not. Some delegations felt that it would be difficult to define such measures, and that no definition was necessary.

39. Some delegations believed that the definition should include social security contributions/taxes. The question was also raised as to whether the definition should encompass tax procedures, including accounting requirements.

40. The United Kingdom delegation suggested the following definition:

"-- Taxation measures include any administrative practices of the Contracting Party relating to taxes, or provision relating to taxes of the law of the Contracting Party or of a political subdivision thereof or a local authority therein; and any provision relating to taxes of any convention for the avoidance of double taxation or of any other international agreement or arrangement by which the Contracting Party is bound.

-- Taxation shall be taken for this purpose to include all taxes set out in ... (see Annex) or any identical or substantially similar taxes which are imposed after the entry into force of the MAI in addition to, or in place of, existing taxes".


Recognition arrangements

One delegation suggested adding these provisions to the proposed article on prudential measures.


1. Some delegations felt that no transparency provisions specific to the financial services sector are necessary. They also suggested that any additional text on transparency should be considered at the general level.

2. Some delegations considered that the considerations dealt with in paragraph 4 in particular are already covered by the general MAI provision on transparency (in paragraph III.2.3 of the Consolidated Texts). However, at least one delegation did not consider that paragraph 2.3 of the general MAI article on transparency adequately addresses all concerns, such as coverage of other confidential information not directly concerning particular investors or investments. Accordingly, that delegation suggested amending this paragraph 2.3 by deleting the language "concerning particular investors or investments" and by deleting the brackets around "policies, or practices" in that paragraph.

3. The Expert Group also considered a provision calling for advance notification, to the extent practicable, to all interested persons of any measure of general application that the Contracting Party proposes to adopt which may affect the operation of the agreement, in order to allow an opportunity for such persons to comment on the measure. The text reads as follows:

"Each Contracting Party shall, to the extent practicable, provide in advance to all interested persons any measure of general application that the Contracting Party proposes to adopt which may affect the operation of the Agreement, in order to allow an opportunity for such persons to comment on the measure. Such measure shall be provided:

a) by means of official publication;

b) in other written form; or

c) in such other form as permits an interested person to make informed comments on the proposed measure."

While delegations agree to the value of prior consultation, a majority of delegations expressed concerns that the above proposed provision may be unduly burdensome, and would not be practical.

New financial services

4. Option l is drawn from the WTO Understanding on Commitments in Financial Services (with minimum change necessary for the purpose of an investment agreement). Option 2 is based on NAFTA.

5. Several delegations noted that owing to the rapid pace of innovation in the financial services sector, it is important to ensure that an investor in the host country can introduce a new service to that market and that, as there are not adequate points of comparison relying on the National Treatment principle alone could effectively exclude new financial services. Therefore these delegations favoured the preparation of specific text.

6. Other delegations questioned the need for specific provision and preferred to rely on the National Treatment provision of the MAI, possibly accompanied by an interpretative note.

7. It was also noted that the issue relating to new financial services may be considered in the more general context of "market access".

8. The Expert Group agreed that further consideration on these matters is required.

Information transfer and data processing

9. It was understood that this provision would not in any way affect the ability of a Contracting Party to regulate activities within its jurisdiction.

10. A number of delegations questioned the need for such specific provisions in the MAI. The Expert Group agreed that further consideration on this proposed provision was necessary before EG5 could make a firm determination on this matter.

Membership of self-regulatory bodies and associations

11. Several delegations considered that a provision along the above lines may be relevant to other sectors.

12. Some delegations noted that this issue is related to considerations relating to "corporate practices" and delegated authority.

13. It is generally understood that this provision does not to apply to enterprises of a Contracting Party which provide financial services on a cross-border basis and which are not established in the territory of the other Contracting Party. The Expert Group agreed that further consideration should be given to refining the text.

14. It was agreed that an interpretative note should be added to provide: "Contracting Parties may meet their obligations on access to clearing systems for branches of financial services enterprises by providing indirect access, for example, through an enterprise incorporated in the territory of the Contracting Party concerned". One delegation suggested adding: "provided that such access provides equal opportunities". The Expert Group agreed that further consideration on this matter is required.

15. The Expert Group also considered an additional provision proposed by one delegation which provides for a "best endeavour" commitment to National Treatment in situations where membership in such organisations is not legally required in order to provide a financial service, but is "necessary" as a practical matter in order to engage in financial services on an equal basis with domestic enterprises. It was noted that a provision of this kind has been accepted in the OECD Code of Liberalisation of Current Invisible Operations. However, no agreement was reached on the necessity of such a text in the MAI. The text reads as follows:

"When membership or participation in, or access to, any self-regulatory body, securities or futures exchange or market, clearing agency, or any similar organisation or association is necessary in order for financial services enterprises of any other Contracting Party to provide financial services on an equal basis with financial services enterprises of the Contracting Party, the Contracting Party shall endeavor to ensure that such entities accord national treatment to investors of any other Contracting Party, or the investments or such investors, in a financial services enterprise resident in the territory of the Contracting Party."

Payments and clearing systems/Lender of last resort

16. Some delegations suggested that a provision related to payments and clearing systems as outlined above should be accompanied by a carve-out for the activities of central banks and other monetary authorities along the lines of paragraph l.b) of the GATS Annex on the Financial Services. Otherwise, aspects of the above provision could be considered redundant.

17. This subject needs further consideration.

18. It was agreed that an interpretative note should be added to provide: "Contracting Parties may meet their obligations on access to clearing systems for branches of financial services enterprises by providing indirect access, for example, through an enterprise incorporated in the territory of the Contracting Party concerned". One delegation suggested adding: "provided that such access provides equal opportunities". The Group agreed that further consideration on this matter is required.

Other Issues

19. The Group held a preliminary exchange of views on a number of other issues that are important for financial services. Text was put forward on some of these issues and may be suggested for other items.

20. It remains to be determined whether these issues need to be covered in the MAI, either specifically for financial services or more generally.

Right of Establishment

21. When the right of establishment is subject to a national treatment text without further elaboration, foreign investors may be disadvantaged compared to domestic investors in certain situations. For example, a moratorium on banking licences may meet the de jure national treatment test but deny market access to foreign entrants. Such situations could be addressed by provisions modelled on the GATS (Article XVI(2)) or NAFTA (Article 1403.4).

Equality of Competitive Opportunity

22. To avoid the possibility of an overly narrow interpretation of the national treatment standard in the MAI, it was suggested that an additional text on "equal competitive opportunities" be adopted, based on NAFTA (Articles 1405.5 and 1405.6). The text would make clear that national treatment requires that the investor of another Contracting Party and its investment in a financial services enterprise should not be "disadvantaged" in competitive opportunities compared to domestic investors.

Sub-national Units of Government

23. A proposal was made to specify how the national treatment standard should apply to matters within the jurisdiction of sub-national units of government.

Other issues

24. The following additional issues were suggested by some delegations as being possible candidates for inclusion in the MAI:

a. Restrictions based on dotation capital of branches of financial services enterprises.

b. Restriction on transfers for enforcement purposes by financial regulatory agencies.

c. The need for a balance of payments safeguards clause and the role of the IMF.

d. The need for a carve-out for the activities of central banks and other monetary authorities.

e. Standstill ("acquired rights") and the lodging of country specific reservations in the financial services sector.

25. Before taking a definitive position on text which draws on GATS provisions, two delegations wished to examine further the question of how the proposed MAI and the GATS obligations on financial services operate together.



(Contribution from the European Community)

The European Community has presented the principle reasons for the inclusion of a clause for Regional Economic Integration Organisations in the Multilateral Agreement on Investment at the April meeting of the Negotiating Group (DAFFE/MAI/RD(96) 21).

Building on this contribution, the Community herewith submits its proposal for such a REIO-clause.

Article X on Regional Economic Integration Organisations (REIOs)

1. For the purpose of this Agreement, a REIO is an organisation of sovereign States which have committed themselves to abolish in substance all barriers to investment among themselves and to which these States have transferred competence on a range of matters within the purview of this Agreement, including the authority to adopt legislation and to make decisions binding on them in respect of those matters.

2. Article .... (MFN clause) shall not prevent a Contracting Party which is a Member State of a REIO from according more favourable treatment to investors and their investments from other Member States of the organisation as a result of the measures applied within the framework of that organisation than it accords to investors and their investments from other Contracting Parties.

3. Nothing in this Agreement shall prevent a REIO and its Member States from applying, consistent with the objectives of this Agreement, new harmonised measures adopted within the framework of such organisation and which replace the measures previously applied by these States.

4. A Contracting Party which joins a REIO shall not be prevented from applying in place of its previous national legislation the corresponding legislation of the said organisation from the day of its accession to it. If a Contracting Party has concluded an agreement with a REIO and its Member States in preparation for its accession to it, nothing in this Agreement shall prevent it from aligning its national legislation to the measures applied in the framework of such organisation, nor shall this Agreement prevent Member States of a REIO from extending to the investors and their investments of such a Contracting Party more favourable treatment as referred to in paragraph 2.



(Based on the Canadian proposal,1 drafting changes are indicated and explained in the footnotes)

(Contribution from the European Community)

No Contracting Party may take measures that

i) either2 impose or may be used to impose liability on investors or investments of investors of another Contracting Party;

ii) or prohibit, or impose sanctions3 for, dealing with investors or investment of investors of another Contracting Party;

because of investments an investor of another Contracting Party makes, owns or controls, directly or indirectly, in a third country in accordance with [international law4 and] regulations of such third country.

begin footnote

1Original proposal by Canada included in DAFFE/MAI/RD(96)24 is reproduced as follows:

"Draft Article on Secondary Investment Boycotts

No Contracting Party may take measures that

(i) impose or may be used to impose liability on investors or investments of investors of another Contracting Party: or

(ii) prohibit dealing with investors or investments of investors of another Contracting Party

because of investments they own or control, directly or indirectly, in a third country in accordance with the laws and regulations of such third country."

2Purely a drafting amendment.

3Broader wording is suggested because in some cases a sanction can be applied without explicit prohibition. There is a danger of circumvention.

4Consistency with international law should be required because a measure merits protection by an international agreement only if this measure is consistent with international law.

end footnote



(Amendment of the proposal introduced by Canada)1

(Contribution from the European Community)

Paragraph 1. A Contracting Party shall not prohibit outside its territory, directly or indirectly, or cause to refrain, an investor from another Contracting Party from acting in accordance with the latter Contracting Party's laws, regulations or express policies unless those laws, regulations or express policy are contrary to international law (conflicting requirement).

"Express policy" means a situation in which the conduct of an investor is not explicitly regulated but allowed on the basis of general principles of law or general policy in the relevant country.


1. It appears to be necessary to cover not only cases where a contracting party is (directly) requiring an investor to behave in a certain way but also cases where the Contracting Party enjoins sanctions on investors when they behave in that way (e.g. loss of rights or advantages that would otherwise be granted).

2. The wording proposed by Canada "to act in conflict seems to be unduly narrow as it implies that there is an open conflict between two legal orders, one imposing to do X, the other to do Y in the same situation. Those cases exist, but are extremely rare (e.g. a Saudi Arabian law imposes on investors not to export to or invest in Israel/a US law imposes on American investors abroad not to accept boycott against Israel). The normal situation is, however, that the legal order of a Contracting Party simply allows certain activities (e.g. Norway permits whaling3 whilst the legal order of another Contracting Party prohibits investors such activities, even abroad (e.g. the UK would not allow its investors at home and abroad to invest in whaling).

In this case there would be no real conflict according to the Canadian proposal as the investor can abide by the UK rule without entering in conflict with the Norwegian laws.

Thus, there is a choice to make between the two concepts. The "open conflict" rule does in the EC view not serve much purpose.

Moreover, a "conflict" in the meaning of requirements that are really opposed to one another is not possible between a law on the one hand and a "policy" on the other as a pure policy measure is not mandatory. If one would choose the narrow approach (open conflict), the reference to such policy measure would have to be deleted.

begin footnote

1Original proposal by Canada included in DAFFE/MAI/RD(96)23 is reproduced at the end of this contribution.

end footnote

3. It seems to be useful to require that the measures of the Contracting party concerned are not contrary to international law otherwise they do not merit protection (e.g. a country exploits unlawfully the continental shelf of another country; measures against investors contributing to such behaviour can be sanctioned).

4. As the term "conflicting requirement" reappears more often in the text it is preferable to give it the form of a definition.

5. The term "express policy " is new and it seems useful, for reasons of legal clarity, to define it.

Paragraph 2. The Parties Group may receive notice of conflicting requirements from:

a) A Contracting Party which considers that [....] another Contracting Party imposes or enforces, or intends to do so, conflicting requirements on investors or investments of investors in respect of conduct within its territory;

b) A Contracting Party which is considering imposing or enforcing or which has imposed or enforced conflicting requirements on investors or investments of investors in respect of conduct within the territory of another Contracting Party.


Simple streamlining of the text.

Paragraph 3. A Contracting Party may at any time advise the Parties Group that it does not regard a conflicting requirement that has been notified by another Contracting Party pursuant to paragraph 2 as objectionable. In such cases, paragraph l [...] does not apply to such requirements in the relation between the Contracting Parties concerned.


Some amendments are necessary to align the wording to the amended paragraph 1.

In addition, it should be made clear that the non-objection of one Contracting Party to the measure has no legal effect for other Contracting Parties.

Paragraph 4 (Unchanged) .

Paragraph 5 (Unchanged until the third stroke; the third stroke contains a full concept in itself and should become a new paragraph 6).

Paragraph 6 If the conflicting requirements have been imposed consistent with international law in order to minimise or avoid substantial effects within a Contracting Party of actions outside that Contracting Party, the waiver shall be granted unless the Contracting Party in whose territory the conduct occurs has taken reasonable measures to ensure that such effects do not recur.


Paragraph 6 introduces a useful concept of legitimate "self defence", applicable e.g. in case a Contracting Party would allow drug production or far reaching and serious pollution of the environment; there may be however also cases where the decision is not so easy to find (e.g. advertising directed from one country to the other using methods not allowed in the latter; investment in border shops selling articles which are not authorised in a contracting party etc.).

Draft Article on Conflicting Requirements 1

1. A Contracting Party shall not impose or enforce measures that require an investor or an investment of an investor to act in conflict with the laws, regulations or express policies of another Contracting Party in whose territory such acts occur.

2. The MAI Parties Group may receive notice of conflicting requirements from:

a) A Contracting Party which considers that measures or proposed measures of another Contracting Party impose or enforce conflicting requirements on investors or investments of investors in respect of conduct within its territory;

b) A Contracting Party which is considering imposing or enforcing, or which has imposed or enforced conflicting requirements on investors or investments of investors in respect of conduct within the territory of another Contracting Party.

3. A Contracting Party in whose territory conduct occurs may at any time advise the Parties Group that it does not regard a requirement that has been notified pursuant to paragraph 2 as objectionable. In such cases, paragraph 1 of this Article does not apply to such requirements.

4. If a conflicting requirement has been notified to the Parties Group, and the Contracting Party in whose territory the conduct occurs has not provided the notification provided for by paragraph 3, the Parties Group may, at the request of the state which exercises jurisdiction outside its territory, consider whether a waiver should be granted from the prohibition on conflicting requirements set out in paragraph 1.

5. In considering whether to grant a waiver from paragraph 1, the Parties Group shall have regard to the following considerations:

- The results of consultations between the affected states regarding the manner in which the conflict could be minimized or avoided.

- Whether, as a result of the conflicting requirement any investor or investment of an investor has been or may be subjected to treatment that is unfair or inequitable.

- If the conflicting requirement has been imposed consistent with international law in order to minimize or avoid substantial effects within a Contracting Party of actions outside that Contracting Party, the waiver shall be granted unless the Contracting Party in whose territory the conduct occurs has taken reasonable measures to ensure that such effects do not recur.

begin footnote

1Taken from DAFFE/MAI/RD(9(;)23, Contribution by Canada.

end footnote

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