RESTRICTEDWORLD TRADE
ORGANIZATIONWT/WGTI/W/36
8 April 1998
(98-1411)
Working Group on the Relationship
between Trade and InvestmentOriginal:  English
COMMUNICATION FROM CANADA
The following communication, dated 31 March 1998, was received from the Permanent
Mission of Canada with the request that it be circulated to Members.
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Introduction
Last October we suggested this Working Group carry out an extensive stocktaking and
analysis of existing bilateral, regional and plurilat eral investment agreements (item III of the Chair's
4 June 1997 "Checklist").  This will assist us in efforts to identify gaps in international investmentrules.
The WTO Secretariat has provided us with an excellent paper (WT/WGTI/W/22) on this topic
which should serve as the basis for discussion unde r item III and under the first indent of item IV
(identifying common features and differences and possi ble gaps in existing international instruments).
It is clear that international investment rulemaking is taking place among countries from all levels ofdevelopment, in a wide variety of economic arrangements which are either bilateral or regional in
scope.
Stocktaking of existing agreements on investment
The Secretariat paper covers many aspects of existing agreements.  Three points deserve
emphasis:
First, the Secretariat paper shows there are already a number of sets of investment rules
existing at three levels, i.e., at the multilateral, the regional and plurilateral, and bilateral levels.  These
different sets of rules emphasize different aspects related to investment.  We noted in our previous
submission (WT/WGTI/W/19) that hundreds of bilateral investment agreements have been negotiated
among WTO Members, a significant number since the conclusion of the Uruguay Round.  These
usually focus on the treatment and protection of foreign investors.  The Secretariat paper confirms
that, though standards vary, there is a remarkable similarity on key principles, such as non-discrimination, which are also cornerstone principles of the WTO.
The Secretariat paper also reviews a number of important regional investment agreements.
Clearly, there is significant activity at this level, covering most regions of the world.  The OECD
Codes and OECD efforts to build a broader invest ment framework, the two investment Protocols of
MERCOSUR, the North American Free Trade Agreement, the Treaty Establishing the EuropeanCommunity and EEA Agreement, the ASEAN investment protection treaty, the APEC agreement on
non-binding investment principles, and the invest ment protection agreement of the Organization of
the Islamic Conference all provide for regional investment rules.  WTO Members from the Americas
are expected to initiate a comprehensive trade and investment negotiation in the coming months,
possibly prior to the next WGTI meeting.WT/WGTI/W/36
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Clearly, no comprehensive, binding set of rules exist at the multilateral level.  The WTO only
covers certain aspects of investment, as discussed in previous meetings.  A set of World Bank
Guidelines exists which incorporate important principles to promote FDI such rights of admission and
fair treatment, but they are not binding.  Several multilateral dispute settlement fora exist (ICSID,
UNCITRAL and UN Arbitration and Conciliation Ru les), but these deal with procedures for
conciliation, arbitration proceedings and the enforcement of rewards, not with principles of admissionand treatment.  The MIGA Convention provides insurance for investors against losses,
complementary to national and private insurance schemes, but there is more to a comprehensive
investment agreement than insurance.
Our second observation is with respect to existing regional agreements, which not only cover
diverse geographical areas, but differ in approach and substantive scope.  Paragraph 18 of the
Secretariat paper raises an important distinction between regional investment agreements that are part
of broader trade and economic agreements, and those that are dedicated to the treatment of investmentmatters in an exclusive manner.
Paragraphs 19 and 20 of the Secretariat's paper observe that certain arrangements such as the
Treaty Establishing the European Community approach the subject of investment rules from the
perspective of "right of establishment and free movement of capital".  Other agreements, including the
NAFTA, the ASEAN agreement and the MERCOSUR Protocols, build on the principles of protectionin bilateral investment treaties.
We would agree with these observations, though it is important to po int out that the NAFTA
and perhaps a number of other agreements incorporate principles similar to BITs within a broader
trade agreement.  They are not "stand-alone" in the manner of a BIT or the OECD Codes.
This latter distinction is important for policy makers and for international business
decision makers, who often link their trade and investment decisions.  It makes sense to integrate
commitments on both trade and investment in the same agreement from the perspective of the
operations of international business decision makers and policy coherence.
A trade agreement which includes rights and obligations with respect to international
investment, such as the NAFTA or the Canada/Chile bilateral trade agreement, deepens that tradeagreement.  These trade and investment agreements provide not only for treatment of traded goods
and services, but also for the treatment of the owners of the assets which produce goods and services.
They provide a more integrated, or unified, set of rules for businesses operating internationally.
Our third point is on the extent to which there are "commonalities" on substantive subjects
covered by existing investment agreements at the regional and bilateral levels.  Principles on theadmission of foreign investment, national treatment,  MFN, free transfer of funds and expropriation,
for example, are incorporated in some form in most of these agreements.  The rights and obligations
in these agreements, however, vary.
Paragraph 7 of the Secretariat paper provides an important example of this variance.  Two
different approaches are taken by BITs on the admission of foreign investment.  The majority of these
instruments contain provisions requiring parties to create favourable conditions for investors of the
other party, subject to domestic laws, policies and regulations.  These treaties do not limit the parties'ability to apply existing and future measures.
In contrast, recent BITs concluded by Canada and the United States require the application of
the better of MFN or national treatment with respect to the establishment and treatment of the
investments.  These standards are subject to clearly specified exceptions.WT/WGTI/W/36
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This structure provides flexibility for signat ories with respect to their existing investment
regimes.  It also limits the application of restrictions to specified areas and therefore increases
transparency and predictability for investors.
Why multilateral rules?
Our mandate requires us to address the central question "why rules"?The WTO Secretariat paper on existing arrangements makes it clear WTO Members have
embarked on extensive rulemaking at the bilateral and regional levels.  Both net capital importing and
net capital exporting countries, as well as countries like Canada whose inward and outward FDI
stocks are roughly equal, have signed agreements on investment with their important trade and
investment partners.
This means WTO Members have decided to make their investment relationships rules-based.
Rules on establishment, treatment after establishmen t and transparency, and fora to deal with alleged
mistreatment, ultimately enhance investment flows.   WTO Members from Asia, Europe, the Americas
and Africa are all signing agreements on investment rules to increase the benefits of investment flows.
We would argue that the real question is "why multilateral rules"?
Any decision to embark on building a multilateral system will be based on the benefits and
advantages in going beyond the bilateral and regional approaches.  A comprehensive set of consistent
rules among all WTO Members would allow for a stable, transparent and consistent environment forfirms operating in the global market, whatever thei r ownership structure or place of incorporation.
A multilateral approach should also provide benefits to governments and the peoples they
represent.  The complexity for governments of ad ministering a multitude of investment agreements,
possibly with different standards for investors fro m different investment partners, and many with
MFN commitments incorporated into them, is another strong argument for multilateralizing rules.Implementing the central WTO principle of non-discrimination in international economic relations
provides yet another argument.
Conclusion
The Secretariat should be congratulated on their paper, which provides much food for
thought.  It provides an excellent starting point for further discussion both on "gaps" in international
investment rules and on building a multilateral framework for investment.
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