WORLD TRADE WT/WGTI/W/29
25March 1998
ORGANIZATION(98-1207)
Original: English Working Group ontheRelationship
between Trade andInvestment
COMMUNICATION FROM THE UNITED STATES
Thefollowing communication, dated 24March 1998, wasreceived fromthePermanent Mission
oftheUnited States withtherequest thatitbecirculated toMembers.
_______________
ELEMENTS OFTRADITIONAL INVESTMENT AGREEMENTS
Injustoverthree decades, thebilateral investment treaty (BIT) hasbecome oneofthemost
important legalinstruments affecting private foreign investment, building uponthebaseofnineteenth
century treaties offriendship, commerce andnavigation (FCNs). Some 1,300 BITshavebeennegotiated
worldwide between over162countries. BITprovisions alsoserve asthebuilding blocks formultilateral
investmentagreementsincludingtheNorthAmericaFreeTradeAgreement(NAFTA)andtheMultilateral
Agreement onInvestment (MAI) under negotiation intheOrganisation forEconomic Development
andCooperation (OECD), andpossible future work oninvestment intheFreeTrade Area ofthe
Americas (FTAA).
While thespecifics ofthese investment agreements varyfrom country tocountry, thecore
principles arecommon. Investment agreements follow atop-down approach which stems from the
definition ofinvestment. Thegoalistoprovide fair,predictable andtransparent non-discriminatory
treatment forinvestment.
- Basic definitions. United States agreements define investment broadly, including
intellectual property andother assets, bothtangible andintangible. Ingeneral,
investment agreements cover bothgoods andservices. Allsectors andindustries are
assumed tobecovered under theagreement unless otherwise listed asanexemption
orreservation intheannex.
- National andmost-favoured-nation (MFN) treatment establishment andafterwards.
Investors receive thebetter ofnational ormost-favoured-nation treatment, subject to
limited reservations. TheUnited States BITs areunique intheir coverage of
establishment.
- Freetransfers offoreign exchange forallpayments associated withaninvestment.
Investors havetheright totransfer funds intoandoutofthecountry without delay
using amarket rateofexchange. Thiscovers alltransfers related toaninvestment,
including interest, proceeds from liquidation, repatriated profits andinfusions of
additional financial resources aftertheinitial investment hasbeenmade. Ensuring
therighttotransfer funds creates apredictable environment guided bymarket forces.
./.WT/WGTI/W/29
Page2
- Expropriation based oninternational lawstandards withprompt, adequate andeffective
compensation. Expropriation canoccur onlyinaccordance withinternational law
standards, thatis,forapublic purpose, inanon-discriminatory manner, under due
process oflaw,andaccompanied bypayment ofprompt, adequate, andeffective
compensation.
- Assured access tointernational arbitration. Investors maychoose between localcourts
orinternational arbitration when disputes between theinvestor andstateariseovertreaty
rights, investment authorizations, orinvestment agreements.
- Discipline overperformance requirements. TheUnited States BITprototype limits
theability ofhostgovernments torequire United States investors toadopt inefficient
andtrade-distorting practices. Inparticular, performance requirements suchaslocal
content, foreign exchange balance, orexport requirements, areprohibited along with
mandated technology transfer andresearch anddevelopment requirements. Elimination
ofperformance requirements canopennewmarkets andcanallow theimportation of
products fordistribution andsaleinlocalmarkets. Performance requirements may,
however, beacondition forthereceipt orcontinued receipt ofanadvantage.
- Therighttohiretopmanagement oftheinvestor 'schoice, regardless ofnationality.
Investors must havetherighttoengage topmanagerial personnel oftheirchoice.
- Protection forintellectual property rights. Inaddition, theUnited States recognizes
theimportance ofprotecting intellectual property rights ininternational investment.
Accordingly, prospective BITpartners oftheUnited States musttakestepstocomply
withTRIPS asnecessary.
- Transparency. Laws, regulations andjudicial rulings affecting covered investments
shallbepublished orreadily available.
- Exceptions. Limited exceptions tothenational treatment andmost-favoured-nation
provisions oftheagreement aretaken byeachparty. Depending ontheagreement,
exceptions havebeensectoral butareusually based onspecific, existing laws. Limiting
exceptions inthismanner avoids broad, ambiguous general exceptions.
__________