WORLD TRADE
ORGANIZATIONWT/WGTI/W/114
15 April 2002
(02-2053)
Working Group on the Relationship
between Trade and InvestmentOriginal:  English
COMMUNICATION FROM KOREA
The following communication, dated 12 April 2002, has been received from the Permanent
Mission of the Republic of Korea.
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SCOPE AND DEFINITIONS OF "INVESTMENT"
I. INTRODUCTION
1. Defining "investment" and clarifying its scope is the primary task in building a multilateral
framework, for the definition of "investment" determines the limits of our future work.
2. Contributions to this Working Group by Members, inter-governmental organizations, and the
WTO Secretariat in the past have helped Members understand the current practice of defining
investment by each Member in the domestic laws and in the regional or bilateral agreements to which
each Member is a party.  Based on this understanding, we now need to identify how the current
practices can be transformed at the multilateral level.
3. The purpose of this paper is to provide Korea's thoughts on the issue.  Our main aim is to
generate further discussion.
II. THE CURRENT PRACTICE
4. The Note by the Secretariat (WT/WGTI/W/108) has examined how investment and investor
are defined today, and noted that there are in genera l two ways to define investment:  an asset-based
definition and an enterprise-based definition (both, of course, allow for a variation in scope through
specific provisions in individual investment agreements).
5. These two ways of defining investment are not mutually exclusive.  Rather, they coexist
under the same system, but are simply used for different objectives.  In order to incorporate different
objectives, sometimes it may be necessary to combine the above two approaches, to limit their scope,
to provide exceptions, or even sometimes to apply different definitions for different situations.
III. THE PURPOSE OF THE MULTILATERAL INVESTMENT FRAMEWORK
6. The definition of investment is not fixed, but something that varies and evolves, reflecting the
specific purposes of the investment agreements and investment practices of the time.  Some focus on
the liberalization of investment.  Some others fo cus on investment protection.  Yet others focus on
both. Their purposes define the scope of the definition of investment.WT/WGTI/W/114
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7. However, such examples, even though they are a good guide and a starting-point for
developing a definition, should be differentiated from  what we are trying to develop in the Working
Party.
8. According to Paragraph 20 of the Doha Mini sterial Declaration, Ministers recognized:
"a case for a multilateral investment framework to secure transparent, stable and
predictable conditions for long-term cross-border investment, particularly foreign
direct investment, that will contribute to the expansion of trade …"
9. First, we are here to build a multilateral in vestment framework under the WTO that is binding
in nature.
10. Second, we are here to develop a framework on "long-term, cross-border investment,
particularly foreign direct investment, that will contribute to the expansion of trade".  This limits our
scope of investment.  The investment should have a long duration.  A short-term financial transaction
with a speculative nature should definitely be excluded in this sense.  While the mandate would not
exclude the review of portfolio investment, we should focus "primarily" on "foreign direct
investment".
11. Third, this framework is to serve the purposes of securing transparency, stability and
predictability of international investment activities.  This may include all kinds of activities, whetherit is an entry into or operation within a country.  Therefore, we need to take into consideration how we
should define "investment" for ensuring transparency, stability and predictability in all aspects of
investment.
12. Finally, we also need to take into consideration two all-encompassing objectives of the Doha
Declaration.  First, we should be able to meet the development needs of developing countries.Second, we need to be able to effectively produce a framework that is achievable and deliverable
within three years.
IV. AREAS FOR FURTHER REVIEW
13. With such broad objectives as provided by the Ministers, we still have many questions to
answer.  The foremost concern, before giving specific answers to the outstanding issues prepared bythe Secretariat, is how we can fully incorporate the two all-encompassing objectives in our definition
of investment.  We may additionally need to consider the possibility of setting a priority between the
various objectives.
14. First, a multilateral framework demands flexibility in order to incorporate the interests of all
the Members, developed or developing, home and host countries, while at the same time incorporating
the development of various bilateral and regional agreements and giving room for future development
of the rules.  How can we ensure such "flexibility" with the definition?  Can we achieve this goal byusing either one of the two – asset-based and enterprise-based – definitions?   Can they be combined?
How can substantial provisions be used?  Or, is it appropriate to use the asset-based approach, and
narrow down in order to represent only the foreign direct investment for the purpose of liberalization?
15. Second, how can we develop a definition that pr imarily defines foreign direct investment,
while still preserving a place for considering portfolio investment that contributes to trade expansion?Given the sophisticated, complex and developed skills of providing capital for investment, it is
becoming difficult to draw a fine line between FD I and FPI.  How can the two be distinguished?  The
short-term financial transaction with a speculative nature must be excluded, but how can we achieve
this through the definition?WT/WGTI/W/114
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− Under Korean law, investment is defined both in the form of equity investment, and in the
form of long-term loans.  But can we pick a certain benchmark equity ratio or a certainbenchmark loan period to define investment?  In short, we need to think about an appropriate
qualitative criteria as well as a more delicate quantitative criteria.
16. Third, how should we incorporate the protection aspect?  Even when we are primarily
focusing on liberalizing foreign direct investment, we need to address from the outset how we will
incorporate the current practices of investment protection provided by the Members.  In this sense,
how should the current practice of defining investment differently under the bilateral and regional
agreements be incorporated?`
17. Concerning the treatment of protection, there may be at least three different approaches:
− Exclude it from the multilateral agreement.
− Introduce a basic framework incorporating the current bilateral agreements and the level of
protection based on the least common denominator, and allow an MFN exception list for ahigher level of protection provided bilaterally.
− Introduce a general obligation of protection.
18. Fourth, is it necessary to define "investor"?  If it is necessary, what would be the difference
with the definition of investor in bilateral agreements?  Can it be solved by simply replacing the
"Party" or the "other Party" to the "Member".
V. CONCLUDING REMARKS
19. The scope and definition of investment is the element that will determine the coverage of the
multilateral framework on investment, and thus determines the scope of our future negotiations.
However, the scope and definition are also determined by the objectives we are pursuing for creating
a multilateral framework.  Therefore, we must first clarify what our specific objectives should be.
This we should bear in mind when we go through every element that is mandated in the WorkingGroup.
20. Finally, this exploration leads us to suggest that we try to achieve as much common
understanding on the definition of investment as possible at this early phase and that we revisit the
issue of definition at a latter phase of our work to  reflect what would have by then been discussed.
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