RESTRICTEDWORLD TRADE
ORGANIZATIONWT/WGTI/M/10
14 October 1999
(99-4392)
Working Group on the Relationship
between Trade and Investment
REPORT ON THE MEETING OF 24 SEPTEMBER 1999
Note by the Secretariat
1. The Working Group on the Relationship between Trade and Investment held its tenth meeting
on 24 September 1999 under the Chairmanship of Ambassador Man Soon Chang (Korea).  The
Working Group adopted the agenda as proposed in WTO/AIR/1149.
A. IMPLICATIONS OF THE RELATIONSHIP BETWEEN TRADE AND INVESTMENT
FOR DEVELOPMENT AND ECONOMIC GROWTH (ITEM I OF THE CHECKLIST OF
ISSUES SUGGESTED FOR STUDY)
2. The representative of Australia drew attention to a recent study on "Foreign Direct
Investment:  Benefits for Australia," copies of which had been made available informally to
delegations.
3. The representative of the World Bank introduced studies on the screening of foreign direct
investment ("FDI") projects and on backward linkages between multinational enterprises and
domestic suppliers which had been prepared by the Foreign Investment Advisory Service (FIAS), a
joint service of the International Finance Corporation and the World Bank.  Copies of these studies
had been distributed informally.  The study on screening and approval of FDI projects discussed the
rationale for screening certain kinds of investment and the method of implementing a screening
mechanism.  With respect to the first issue, the study analyzed various possible economic and politicalreasons for screening FDI.  Two general conclusions emerging from the analysis were first, that such
screening should be based on the intrinsic nature of the activity and not on factors such as the
percentage of foreign ownership, except in case of concerns related to national sovereignty, or the size
of a project, and, second, that screening FDI generally was not a first best-approach for addressing
prudential issues or concerns relating to the ef fects of FDI on competition or on the environment.
Regarding the method of screening FDI projects, th e study highlighted the need for a careful and
precise definition of the kinds of investment subject to screening and for transparency in the
application of the screening process.
4. With respect to the FIAS study on backward linkages, which could be defined as business
activities established between multinational corporations acting as buyers in a host country and thedomestic firms of that country acting as suppliers, the representative of the World Bank stated that the
growing interest of governments in the promotion of such linkages was explained by the fact that they
considerably enhanced the benefits of FDI to host countries.  Policies that had been pursued by many
countries in the past in an inward-oriented economic policy environment to secure such benefits
through legislation imposing local content requirements and the use of certain technologies hadgenerally failed to achieve their objectives.  Recently, a small number of countries had demonstrated
that backward linkages could be generated through market-oriented mechanisms in an outward-
oriented policy environment, combined with measur es to stimulate such linkages.  Based on researchWT/WGTI/M/10
Page 2
done by FIAS of a sample of successful linkage programmes and on the experience it had acquired in
advising governments on this matter, the study analyzed how backward linkages could be promoted
through market mechanisms.  While the design of a backward linkage promotion programme
necessarily varied between countries in light of historical, political, institutional and other factors,
certain basic common elements of successful programmes could be discerned.  For example, suchprogrammes needed to be demand-driven by focusing on where there was a need for supplies to the
multinational enterprises and on the needs of potential domestic suppliers.  Thus, the role of the
private sector, both foreign buyers and domestic suppliers, was essential in the design,
implementation and governance of the programme.
5. The representative of Japan stated that a recent survey of overseas activities of Japanese firms
in fiscal year 1998 showed that sales of Japanese subsidiaries in the Philippines, Malaysia, Thailand
and Indonesia had declined significantly in the wake of the Asian financial crisis but that the level ofemployment at these subsidiaries had remained stable or had even increased in certain sectors, such as
electronics.  This contrast between the trends in sales and employment illustrated the positive effects
of FDI for host economies resulting from the long-term perspective adopted by foreign direct
investors.
6. The Working Group took note of the statements.
B. THE ECONOMIC RELATIONSHIP BETWEEN TRADE AND INVESTMENT (ITEM II
OF THE CHECKLIST OF ISSUES SUGGESTED FOR STUDY)
7. No statements were made under this item.
C. STOCKTAKING AND ANALYSIS OF EXISTING INTERNATIONAL INSTRUMENTS
AND ACTIVITIES REGARDING TRADE AND INVESTMENT (ITEM III OF THECHECKLIST OF ISSUES SUGGESTED FOR STUDY)
8. No statements were made under this item.
D. ITEM IV OF THE CHECKLIST OF ISSUES SUGGESTED FOR STUDY
9. The representative of the European Communities introduced a communication
(WT/WGTI/W/81) on international instruments concerning responsibilities of foreign investors, on
the one hand, and corporate codes of conduct, on the other.  He recalled that a number of delegations
had raised the issue of the responsibilities of investors as an important subject for consideration in this
Working Group.  As his delegation had stated on several occasions, foreign investment was a
complex, multifaceted matter that needed to be addressed in different fora and through different
instruments.  With respect to in ternational instruments on investors' responsibilities, the contribution
in WT/WGTI/W/81 focused on the OECD Guidelines for Multinational Enterprises adopted in 1976
and the ILO Tripartite Declaration adopted in 1977.  The OECD Guidelines had proven to be a veryuseful instrument and were currently being review ed by OECD member countries to bring them up to
date.  Aside from these international instruments, a significant recent development was the
widespread adoption of company-specific codes of conduct.  Characteristic of the most recent codes
of conduct was that they not only defined principles for corporate behaviour but also in many cases
provided for external monitoring of their implemen tation.  In regard to this recent proliferation of
company-specific codes of conduct, the question arose as to whether some kind of guidance should be
provided by governments.  This underlined the im portance of the current work to update the OECD
Guidelines.  The communication did not draw conc lusions but raised certain questions on issues
meriting further consideration.  He stressed that these questions were of a general nature and did not
relate specifically to the work of this Working Group or to possible negotiations on investment rulesin the WTO.WT/WGTI/M/10
Page 3
10. The representative of Brazil agreed with the observation made in paragraph 2 of
WT/WGTI/W/81 regarding the need to strike a balance between national treatment for foreign
investors and the power of host countries to regulate the activities of foreign investors in their
territories.  He recalled that his delegation had consistently taken the view that work in the WTO on
investment should acknowledge the importance of this ba lance.  The need to consider rights of foreign
investors in conjunction with their responsibilities was evidenced in the negotiations that had taken
place on the draft United Nations Code of Conduct for Transnational Corporations and in the linkage
established in the TRIMs Agreement between investment policy and competition policy as subjects
for future consideration in the WTO.  It was inte resting that already in 1976 OECD member countries
had considered that an instrument containing norms on investors' responsibilities was necessary as
part of a balanced approach to foreign investment and that, in light of recent developments, there
appeared to be renewed interest in this matter among OECD member countries.
11. The representative of India stated that the obligations of foreign investors as commonly
understood in the context of the relationship between trade and investment concerned problems of
restrictive business practices, transfer pricing, cartels and monopolies and issues relating to transfer of
technology.  However, the communication in WT/WGTI/W/81 also covered social and human rights
issues which, in the view of his delegation, were not relevant to discussions in the WTO and were notwithin the scope of the mandate of this Work ing Group.  Notwithstanding the statement of the
representative of the European Communities that this contribution was not related to possible future
negotiations on investment in the WTO, paragraph 36 of the contribution explicitly raised the question
of how instruments dealing with  the responsibilities of foreign investors should relate to, and interact
with, existing or future rules on investment.  In this regard, he noted that the proposal made by theEuropean Communities on investment as a subject for new negotiations in the WTO also mentioned
the issue of investors' responsibilities.
12. The representative of Korea stated that the contribution in WT/WGTI/W/81 was important
given that discussions thus far had focused on the rights of investors rather than on their
responsibilities.  The issue of the balance between the rights and obligations of foreign investors, in
particular multinational enterprises, was of special in terest to developing countries.  He noted in this
connection that the responsibility of foreign investors had been emphasized by India in
WT/W/WGTI/74 as one of the key elements of international investment arrangements.  While the
contribution addressed sensitive issues such as labour standards, human rights and environmental
protection, it did not advocate the inclusion of a social dimension in multilateral rules per se but
provided factual information on relevant existing international instruments.  It was noteworthy that
these instruments addressed social issues in terms of norms addressed to investors and not in terms ofobligations of states.  The development dimension should be an integral part of any future multilateral
framework on investment, including with respect to th e issue of investors' responsibilities.  In this
connection, the provisions of the OECD Guidelines for Multinational Enterprises on the responsibility
of foreign investors with regard to the technological development of host countries were particularly
relevant to a consideration of how the developm ent dimension should be addressed in a possible
multilateral framework on investment.
13. The representative of Pakistan made the following observations on WT/WGTI/W/81.  First,
there was perhaps an inconsistency between, on the one hand, the statement in paragraph 1 of the
contribution that the European Communities did not advocate the development of new instruments
with regard to corporate behaviour and, on the other, the questions raised in the concluding
paragraphs which seemed to suggest that there might be room for improvements to existing
international instruments and corporate codes of conduct.  Second, the assertion in paragraph 4 that
international agreements cannot impose direct obligations on citizens or companies was too sweeping,
especially in light of developments in the field of  international humanitarian law.  Third, in regard to
the statement in paragraph 5 that in the past there had been successful and less successful attempts tocreate international instruments addressed to multin ational enterprises, a key question was whether theWT/WGTI/M/10
Page 4
instruments that were considered successful because they had been accepted by governments had
actually resulted in any significant change in the behaviour of multinational corporations, in particular
in areas of interest to developing countries, such as competition and the transfer of technology.  It
would also be necessary to discuss further the reasons why certain attempts at the international level
had failed, notably the negotiations on the draft United Nations Code of Conduct for TransnationalCorporations.  This was especially relevant given that the OECD Guidelines for Multinational
Enterprises were limited to a small number of countries.  Fourth, the contribution underlined the
problem of lack of effective monitoring mechanisms  both in relation to international instruments, such
as the OECD Guidelines for Multin ational Enterprises, and corporate codes of conduct.  The fact that
existing international investment agreements reflec ted a lower level of scrutiny of corporate behaviour
as compared with the behaviour of governments could be seen as substantiating the views of some
non-governmental organizations that these investment agreements were driven by corporate interests.Finally, the questions raised at the end of the cont ribution illustrated the point made by his delegation
that the Working Group still had many complex issues to consider.
14. The representative of Egypt asked for an explanation of how the voluntary character of the
international instruments and corporate codes of conduct discussed in WT/WGTI/W/81 had affected
their effectiveness.  In regard to the statement in paragraph 4 that international agreements cannot
impose direct obligations on citizens or companies, he noted that some international agreements, such
as bilateral investment treaties, did confer certain rights on companies.  This underlined the need for a
balance to be struck between rights and obligations of investors.  Some of the instruments mentioned
in paragraph 6 should be the subject of further analysis in the Working Group, notably the UNCTAD
Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive BusinessPractices.
15. The representative of the Philippines, speaking on behalf of ASEAN WTO Members, stated
that, given that the survey of existing international instruments contained in WT/WGTI/W/81
revealed that corporate responsibility was essentially addressed on a voluntary basis, it would be
interesting to learn more about the experience with the implementation of such instruments, forexample with regard to the provisions of the OECD Guidelines for Multinational Enterprises on the
role of multinational enterprises in the technologica l development of host countries.  The trend toward
adoption of codes of conduct by companies and industries was to be welcomed in principle, but it was
also important to note that some private-sector initiatives did not deal with the behaviour of the
company in question in host countries but imposed conditions on related domestic firms and sub-
contractors in the host countries, for example in the field of labour standards.  He noted that the
contribution did not pay much attention to the draft United Nations Code of Conduct forTransnational Corporations.  In response to the questions raised in paragraph 36 of the
communication, he observed that, in the absence of objective and verifiable data and of monitoring
mechanisms, it was difficult to determine whether or not the behaviour of multinational enterprises
had improved as a result of the adoption of guidelines for corporate conduct.  His delegation
considered that the further development of codes of  conduct should be left to the initiative of the
private sector and that the role of governments was limited to encouraging the private sector to adopt
such codes.  Consumer organizations and the media also played a role in the development of corporate
codes of conduct.  With respect to the ques tion of how instruments dealing with company
responsibility should relate to, and interact with, existing or future rules on investment, his delegation
was of the view that corporate codes of conduct would always remain voluntary in nature, whileinvestment rules, including access commitments, if any, would necessarily have to be mandatory and
legally enforceable.  Thus, there inevitably was an asymmetry between voluntary corporate codes of
conduct and mandatory investment rules.
16. The representative of Norway agreed with the observations made in paragraph 2 of
WT/WGTI/W/81 that the issue of investor responsibility merited attention because of a concern of
constituencies in developed countries about the behaviour of multinational enterprises in thirdWT/WGTI/M/10
Page 5
countries and a concern of developing countries that multinational enterprise should behave in a
manner enabling these countries to reap the most benefits from FDI.  The question of how the
instruments dealing with the responsibility of investors should relate to, and interact with, existing or
future rules of investment was highly relevant.
17. The representative of Costa Rica welcomed the concept of a balance between the
responsibilities of investors and host countries and shared the views expressed by Korea.  The
contribution was a very useful comprehensive survey of existing instruments and codes of conduct.
While it dealt with some issues that were not within the mandate of the WTO, it should be borne in
mind that these issues were addressed from the perspective of the responsibilities of investors, not
governments.
18. The representative of Japan noted that paragraph 6 of WT/WGTI/W/81 referred to Guidelines
for Overseas Direct Investment adopted in 1973 by  the Japan Federation of Employers' Organization.
He explained that these Guidelines had been adopted when, in the early 1970s, Japanese companies
started to invest abroad, particularly in developing countries in Asia, following the sharp appreciation
of the Japanese yen against the US dollar.  Their aim was to avoid friction between Japanese
companies and host country governments.  In 1987, following a significant increase of Japanese
outward direct investment in developed countries, the Guidelines had been amended to make themapplicable to foreign investment in both developing and developed countries.  In addition to these
Guidelines, a government organization had developed a guideline specifically for outward investment
by small and medium sized firms.
19. The representative of Hong Kong, China shared the view that it was important for all foreign
investors to understand their obligations and responsibilities to host economies as well as their rights,
and that not all issues arising from globalization could be resolved through trade and investment rules.
His delegation did not see a fundamental need for a change in the existing approach to corporate
responsibility which was based on voluntary commitments by investors through international
instruments and corporate codes of conduct.  This approach appeared to have been working well
although the points made about the lack of effective monitoring procedures were valid.  Nor did hisdelegation envisage any possible means through which the WTO could significantly contribute to the
further development of many of these areas, bearing in mind that the WTO was not the competent
body to deal with the wide spectrum of issues involved.  With respect to the question as to the
whether or not the proliferation of company codes of  conduct was desirable, he observed that this was
something that certainly might be useful for some organizations to consider, but that a uniform,
multilateral model would be too rigid.
20. The representative of Venezuela recalled that developing countries had long spoken of the
need to establish in the WTO a balance of obligations of host countries and foreign investors and she
therefore welcomed the contribution in WT/WGTI/W/81.  The contribution raised many important
issues that her delegation would have liked to see included in proposals for multilateral negotiations
on investment in the WTO in order to ensure this desired balance.  She emphasized the points made in
paragraph 17 on competition and in paragraph 22 concerning the need for foreign investors tocontribute to the development of the technological capacity of host countries.  A key question was
whether provisions on these issues in the existing, voluntary instruments could be incorporated into a
binding legal framework for investment.
21. The representative of Kenya welcomed the observation in WT/WGTI/W/81 that the issue of
the responsibilities of foreign investors deserved atte ntion in order to ensure that host countries could
reap the benefits of FDI.  Regarding the comments made on the references in this contribution to the
work of the ILO on labour standards, his delegation considered that the contribution was a good
illustration of the experience and expertise acquired by the ILO and clearly demonstrated that the ILO
had a comparative advantage over the WTO in these matters.  The questions posed at the end of theirWT/WGTI/M/10
Page 6
document were complex and interesting and thus illustrated the need for a continuation of the study
process in this Working Group.
22. The representative of Mexico noted that the contribution in WT/WGTI/W/81 was intended
only to be of a factual nature and that the European Communities did not advocate the development of
new instruments in the area of responsibility of investors.  The contribution was useful in that itprovided a summary of the different aspects covered by existing international instruments on
corporate responsibility, although more information was necessary on the instruments mentioned in
paragraph 6.  A broad range of issues was covered by existing international instruments, including
competition, protection of the environment and the pr otection of human rights and of workers' rights.
These issues went far beyond the mandate of this forum.  Thus, while it was useful to have this
information,  these various aspects could be addressed more appropriately in other fora or through
initiatives taken by the private sector.  In this regard, she agreed with the comment made by theEuropean Communities that investment was a rather complex matter which should be approached
from different angles, in different for a, and through different instruments.
23. The representative of the United States observed that the issues raised in WT/WGTI/W/81
required careful consideration, given the attention that recent investment negotiations had brought to
the question of obligations of investors.  OECD member countries had undertaken an extensiveexamination of the instruments described in this c ontribution in the context of their review of the
OECD Guidelines for Multinational Enterprises and had found that further study was necessary.  The
world had moved forward in a very positive way since these Guidelines had been developed.
Corporate and associate codes were abundant and hi ghly variable.  Many corporate codes set higher
standards than the OECD Guidelines.  In addition, th e role of the press, together with the advance
stage of global communications, had had an enorm ous impact on corporate behaviour.  Corporations
were now subject to public scrutiny world-wide in a way they never were before.  Their behaviour in
far corners of the globe could have serious negative repercussions with consumers in home markets.
Certainly, corporate codes had contributed to enhancing self-awareness on the part of firms and to
providing yard-sticks by which they could compare their standards to others.  Firms had not failed tosee that meeting the highest standards was also good business.  His delegation doubted that
governments had a role to play in developing internal corporate standards, but governments could
foster their development.  There was perhaps a ro le for governments in developing guidelines and
recommendations, but further thought needed to be given as to whether the WTO, which addressed
government actions, was the appropriate forum for this.
24. The representative of Canada stated that the contribution in WT/WGTI/W/81 provided a very
useful overview of the scope and objectives of existing international instruments relating to corporate
responsibility and of corporate codes of conduct and raised important questions regarding their role
and operation.  In its consideration of these issues, the Working Group could benefit from ongoing
work in the OECD with respect to similar issues.
25. In response to the comments made, the representative of the European Communities reiterated
that his delegation did not consider that the issues raised in WT/WGTI/W/81 regarding corporate
responsibility should necessarily be addressed as part of an investment negotiation in the WTO.  With
respect to the concept used by some delegations of a balance between the rights and obligations of
investors, he explained that the contribution focu sed on the balance between the rights of investors
and the right of host countries to regulate economic activities in their territories.  The reason for this
was that responsibilities of investors were primarily, if not exclusively, a matter for domestic law andthat the role of international instruments and guidelines on corporate responsibility was to facilitate
the implementation of domestic laws.  In addition, it was difficult to see how the concept of a balance
between rights and obligations of foreign investors could in practice be translated into international
rules.  Thus, the approach that had evolved over the years was to rely on instruments of a voluntary
nature which were complementary to the basic obligation of firms to respect the rules and regulationsWT/WGTI/M/10
Page 7
of host countries.  With respect to the point that the issues covered by the contribution included
matters not within the competence of the WTO, he stated that the contribution provided an overview
of the issues covered by existing instruments,  including social and environmental issues, anti-
competitive practices, technological development of host countries, labour, and reiterated that the role
of such instruments was to complement domestic laws in such areas.  All these issues were relevant to
an evaluation of investors behaviour.  With regard to Pakistan's comment about the need to look into
the reasons for the failure of past attempts at international regulation of corporate behaviour, he
observed that there had been much debate on this matter and that in the view of his delegation a more
productive approach was to focus on those attempts that had been proven to work.  Regarding the
comments made on the problem of monitoring of compliance with existing instruments, he noted that
there were initiatives to improve the monitori ng mechanisms under the OECD Guidelines for
Multinational Enterprises.  He emphasized that his delegation did not necessarily see a role for theWTO in the development of  codes of conduct.  In this respect, the reference to existing or future rules
on investment in paragraph 36 of the contribution was not intended to cover primarily possible WTO
rules on investment.
26. The Working Group took note of the statements
F. OBSERVER STATUS FOR INTERNATIONAL INTERGOVERNMENTAL
ORGANIZATIONS
27. In light of ongoing consultations in the framework of the General Council, the Working
Group agreed to maintain the status quo .
G.  ANNUAL REPORT (1999) TO THE GENERAL COUNCIL
28. The Working Group had before it a draft of its annual report to the General Council (Job No.
5248) which had been prepared by the Secretariat  as requested by the Working Group at its previous
meeting.
29. The Working Group adopted its report (1999) subject to some minor changes that were
agreed by delegations and on the understanding that the Secretariat would update the draft report to
reflect the discussions at the present meeting.1
__________
                                                     
1 See document WT/WGTI/3.