CONFIDENTIAL DAFFE/MAI(97) 1/REV2

III. TREATMENT OF INVESTORS AND INVESTMENTS

NATIONAL TREATMENT AND MOST FAVOURED NATION TREATMENT

1. Each Contracting Party shall accord to investors of another Contracting-Party and to their investments, treatment no less favourable than the treatment it accords [in like circumstances] to its own investors and their investments with respect to the establishment, acquisition, expansion, operation, management, maintenance, use, enjoyment and sale or other disposition of investments.

2. Each Contracting Party shall accord to investors of another Contracting Party and to their investments, treatment no less favourable than the treatment it accords [in like circumstances] to investors of any other Contracting Party or of a non-Contracting Party, and to the investments of investors of any other Contracting Party or of a non-Contracting Party, with respect to the establishment, acquisition, expansion, operation, management, maintenance, use, enjoyment, and sale or other disposition of investments.

3. Each Contracting Party shall accord to investors of another Contracting Party and to their investments the better of the treatment required by Articles 1.1 and 1.2, whichever is the more favourable to those investors or investments.

TRANSPARENCY

1. Each Contracting Party shall promptly publish, or otherwise make publicly available, its laws,

regulations, procedures and administrative rulings and judicial decisions of general application as well as international agreements which may affect the operation of the AGREEMENT. Where a Contracting Party establishes policies which are not expressed in laws or regulations or by other means listed in this paragraph but which may affect the operation of the AGREEMENT, that Contracting Party shall promptly publish them or otherwise make them publicly available.⁽¹⁾

2. Each Contracting Party shall promptly respond to specific questions and provide, upon request, information to other Contracting Parties on matters referred to in Article 2.1.

3. Nothing in this AGREEMENT shall prevent a Contracting Party from requiring an investor of

another Contracting Party, or its investment, to provide routine information concerning that investment solely for information or statistical purposes. No Contracting Party shall be required to furnish or allow access to information concerning particular investors or investments the disclosure of which would impede law enforcement or would be contrary to its laws [policies, or practices]⁽²⁾ protecting confidentiality.

14

CONFIDENTIAL DAFE;E/MAI(9;7)1tREV2

SPECIAL TOPICS

TEMPORARY ENTRY, STAY AND WORK OF INVESTORS AND KEY PERSONNEL⁽³⁾

1. Subject to the application of Contracting Parties' national laws, regulations and procedures

affecting the entry, stay and work of natural persons:

(a) Each Contracting Party shall grant temporary entry, stay and authorization to work⁽⁴⁾ and

provide any necessary confirming documentation to a natural person of another Contracting

Party who is:

(i) an investor who seeks to establish, develop, administer or provide advice or essential

technical services to the operation of an enterprise⁽⁵⁾ to which the investor has committed,

or is in the process of committing, a substantial amount of capital, or

(ii) an employee employed by an enterprise referred to in (i) above, or by an investor, [for a I

period of not less than one year,] in a capacity of executive, manager or specialist and who is essential to the enterprise;

so long as that person continues to meet the requirements of this Article;⁽⁶⁾

(b) (i) Each Contracting Party shall grant temporary entry and stay and provide any necessary

confirming documentation to the spouse and minor children of a natural person who has

been granted temporary entry, stay and authorization to work in accordance with this

Article. The spouse and minor children shall be admitted for the period of the stay of

that person.

(ii) Each Contracting Party is encouraged⁽⁷⁾ to grant authorization to work to the spouse of the

person who has been granted temporary entry, stay, and authorization to work in

accordance with this Article.

2. No Contracting Party may deny entry and stay as provided for by this Article, or authorization to

work as provided for icy paragraph l(a) of this Article, for reasons relating to labour market or other

economic needs tests or numerical restrictions in national laws, regulations. and procedures.

3. For the purposes of this Article:

Natural person of another Contracting Party means a natural person having the nationality of [or who is permanently residing in another Contracting Party in accordance with its applicable law; ⁽⁸⁾

Executive means a natural person who primarily directs the management of an enterprise or establishes

goals and policies for the enterprise or a major component or function of the enterprise, exercises wide

latitude in decision-making and receives only general supervision or direction from higher-level

executives, the board of directors, or stockholders of the enterprise;

Manager means a natural person who directs the management of an enterprise, or department, or

subdivision of the enterprise, supervises and controls the work of other supervisory, professional or

managerial employees, has the authority to hire and fire or recommend hiring, firing, or other personnel

actions and exercises discretionary authority over day-to-day operations at a senior level; and

Specialist means a natural person who possesses knowledge at an advanced level of expertise and who

may be required to possess specific or proprietary knowledge of the enterprise's product, service, research

equipment, techniques, or management.

16

CONFIDENTIAL DAFE;E/MAI(97) 1/REV2

SENIOR MANAGEMENT {AND MEMBERSHIP ON BOARDS OF DMECTORS⁽⁹⁾]

No Party may require that an enterprise of that Party that is an investment of an investor of another Party appoint to senior management positions [and membership on boards of directors]⁽¹⁰⁾ individuals of any particular nationality.

EMPLOYMENT REQUIREMENTS⁽¹¹⁾

A Contracting Party shall permit investors of another Contracting Party and their investments to

employ any natural person of the investor's or the investment's choice regardless of nationality and

citizenship provided that such person is holding a valid permit of sejour and work delivered by the

competent authorities of the former Contracting Party and that the employment concerned conforms to the

terms, conditions and time limits of the permission granted to such person.

CONFIDENTIAL OAFFE/MAI(97)1/REV2

PERFORMANCE REQUIREMENTS⁽¹²⁾

1. A Contracting Party shall not, in connection with the establishment, acquisition, expansion,

management, operation or conduct⁽¹³⁾ of an investment in its territory of an investor of a Contracting Party

or of a non-Contracting Party, impose. enforce or maintain any of the following requirements, or enforce

any commitment or undertaking⁽¹⁴⁾:

(a) to export a given level or percentage of goods or services;

(b)to achieve a given level or percentage of domestic content;

(c) to purchase, use or accord a preference to goods produced or services⁽¹⁵⁾ provided in its territory, or to purchase goods or services from persons in its territory; ,'

(d) to relate in any way the volume or value of imports to the volume or value of exports or to

the amount of foreign exchange inflows associated with such investment;

(e) to restrict sales of goods or services in its territory that such investment produces or

provides by relating such sales to the volume or value of its exports or foreign exchange

earnings;

18

CONFIDENTIAL DAFFEIMAI(97)1/REV2

(f) to transfer technology, a production process or other proprietary knowledge to a natural or

legal person in its territory, except when the requirement is imposed or the commitment or

undertaking is enforced by a court, administrative tribunal or competition authority to

remedy an alleged violation of competition laws⁽¹⁶⁾ [or to act in a manner not inconsistent

with articles ... of the TRIPS AGREEMENT];

(g) to locate its headquarters for a specific region or the world market in the territory of that

Contracting Party;⁽¹⁷⁾

(h) to supply one or more of the goods that it produces or the services that it provides to a

specific region or the world market exclusively from the territory of that Contracting Party;

[(I) to achieve a given level or value of production, investment. sales, employment, or research and development in its territory;]⁽¹⁸⁾

19

CONFIDENTIAL DAFFE/MAI(97) 1/REV2

[(i) to hire a given level of [local personnel] [nationals];⁽¹⁹⁾ ]

(k) to establish a joint venture;⁽²⁰⁾ or

[(1) to achieve a minimum level of local equity participation.]

2. A Contracting Party is not precluded by paragraph I from conditioning the receipt or continued

receipt of an advantage, in connection with an investment in its territory of a Contracting Party or of a

non-Contracting Party, on compliance with any of the requirements, commitments or undertakings set

forth in paragraphs [I(a) and] I(f) through 1(1).⁽²¹⁾

20

CONFIDENTIAL DAE:FE/MAI(97) 1/REV2

3. Nothing in paragraphs [l(a),] l(b), l(c), l(d), and l(e)⁽²²⁾ shall be construed to prevent a Contracting Party from conditioning the receipt or continued receipt of an 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, commitment or undertaking to locate production, provide particular services, train or employ [workers] [employees]⁽²³⁾, construct or expand particular facilities, or carry out research and development in its territory.

4. [Provided that such measures are not applied in an arbitrary or unjustifiable manner, or do not

constitute a disguised restriction on investment, nothing in paragraphs l(b) and l(c) shall be construed to

prevent any Contracting Party from adopting or maintaining measures, including environmental

measures:

(a) necessary to secure compliance with laws and regulations that are not inconsistent with the provisions of this AGREEMENT;

(b) necessary to protect human, animal or plant life or health;

(c)necessary for the conservation of living or non-living exhaustible natural resources.

21

CONFIDENTIAL DAFFE/MAI(97) 1/REV2

5.⁽²⁵⁾ (a)Paragraphs l(a), I(b). and l(c) do not apply to qualification requirements for goods or

services with respect to export promotion [and foreign aid ] programmes⁽²⁶⁾;

[(b)paragraphs l(b), l(c), l(f), and l(h) do not apply to procurement by a Contracting Party or a state enterprise⁽²⁷⁾; and

22

CONFIDENTIAL DAFFEIMAI(97) 1/REV2

(c) paragraphs l(b) and l(c) do not apply to requirements imposed by an importing Party relating to the content of goods necessary to qualify for preferential tariffs or preferential quotas;⁽²⁹⁾

[(d)paragraph l(i) does not apply to requirements imposed by a Contracting Party as a part of

[privatization operations.]⁽³⁰⁾

23

CONFIDENTIAL DAFFEIMAI(97) 1/REV2

PRIVATIZATION⁽³¹⁾

Paragraph 1 (Application of National Treatment/MFN)

1. The obligation on a Contracting Party to accord National Treatment and MFN treatment as

defined in Paragraph XX (NT/MFN) applies to:

a) all kinds of privatization, irrespective of the method of privatization (whether by public

offering, direct sale or other method)⁽³²⁾; and

b) subsequent transactions involving a privatised asset⁽³³⁾ .

[Paragraph la (voucher schemes)

2. Notwithstanding paragraph 1, arrangements under which natural persons of a Contracting Party are granted exclusive rights as regards the initial privatization are acceptable as a method of privatization under this AGREEMENT provided that the exclusive right as regards the initial privatization is limited to natural persons only and provided that there is no restriction on subsequent sales]⁽³⁴⁾.

Paragraph 2 (Right to privatise)

3. Nothing in this AGREEMENT shall be construed as imposing an obligation on a Contracting Party

to privatise⁽³⁵⁾.

24

CONFIDENTIAL DAFFE/MAI(97) 1/REV2

Paragraph 3 (Special share arrangements)⁽³⁶⁾

Alternative I

4. Contracting Parties acknowledge that special share arrangements are compatible with

Paragraph 1, unless they explicitly or intentionally favour investors or investments of a Contracting Party

or discriminate against investors or investments of another Contracting Party on the grounds of their

nationality or permanent residency.⁽³⁷⁾

Alternative 2⁽³⁸⁾

5. [Special share holding arrangements including, inter alia, a) the retention of "golden shares" by

Contracting Parties, b) stable shareholder groups assembled by a Contracting Party,

c) management employee buyouts, and d) voucher schemes for members of the public, hold strong

potential for discrimination against foreign investors and are, in fact, inconsistent with National Treatment

and MFN treatment obligations in many instances.]

Alternative 3⁽³⁹⁾

Footnote to paragraph 1

6. Special share arrangements which explicitly discriminate (i.e. de jure) against foreign investors

and their investment are contrary to obligations on National Treatment/MFN treatment. It is also

understood that when, in their application, special share arrangements lead to de facto discrimination they

are also contrary to National Treatment/MFN treatment.

25

CONFIDENTIAL DAFFElMAI(97)1/REV2

[Alternative 4⁽⁴⁰⁾

7. Nothing in this AGREEMENT shall prevent Contracting Parties from using special methods of

privatization or having special rules as regards ownership, management or control of privatised assets such

as:

-- a Contracting Party or any person designated by the Contracting Party maintaining special

shareholder rights to influence or veto any decision concerning such assets after the

privatization,

-- arrangements under which managers or other employees of an enterprise are granted special

treatment as regards the acquisition of shares of that enterprise,

-- arrangements under which shareholders are required to maintain their share in the capital of

the enterprise during a certain period of time,

-- arrangements under which locals of a certain community are granted special treatment as .

regards the acquisition of this community's property,

unless they explicitly or intentionally favour investors or investments of a Contracting Party or

discriminate against investors or investments of another Contracting Party on the grounds of their

nationality or permanent residency.]

26

CONFIDENTIAL DAI:E:E/MAI(97)1/REV2

Paragraph 4 (Transparency)

8. For the purposes of this Article, each Contracting Party⁽⁴¹⁾ or its designated agency shall promptly

publish or otherwise make publicly available the essential features and procedures for participation in each

prospective privatization⁽⁴²⁾. *

27

CONFIDENTIAL DAFFE/MAI(97) 1/REV2

Footnote

*Alternative 1

This footnote confirms the application of the Transparency Article YY. Specifically, the

obligations to accord National Treatment and MEN Treatment prohibit discrimination against

investors and investments of other Contracting Parties with respect to all arrangements for

making public information about a privatisation operation. [A Contracting Party that gives to its

investors and investments access to information concerning the fact of privatisation must at the

same time give that access to investors and investments of other Contracting Parties. Any

information relevant to the privatisation available to investors of a Contracting Party must be

available to investors and investments of other Contracting Parties, e.g. a Contracting Party must

provide financial statements on request. A Contracting Party would violate National Treatment

if, in order to benefit its investors and their investments, it refrains from making information

publicly available, either about the fact of privatisation or about the enterprise or entity to be

privatised.]⁽⁴³⁾ [It is understood that in the case of small scale privatisations, there can be some

variance in the methods used to make information available.]

*Alternative 2⁽⁴⁴⁾

This footnote confirms the application of the Transparency Article YY. Specifically, the

obligations to accord National Treatment and MEN Treatment prohibit discrimination against

investors and investments of other Contracting Parties with respect to all arrangements for

malting public information about a privatisation operation. [A Contracting Party that gives to its

domestic investors access to information concerning the fact of privatisation, the enterprise or

entity to be privatised, and details of the privatisation process must at the same time give that

access to foreign investors. A Contracting Party would violate National Treatment if it refrains

from making information publicly available, either about the fact of privatisation, the entity to be

privatised, or the details of the privatisation. It is understood that in the case of small scale

privatisations, there can be some variance in the methods used to make information available.]

28

CONFIDENTIAL DAFFE/MAI(97)1/REV2

Paragraph 5 (Definition)

9. "Privatisation means the sale or other disposal by a Contracting Party, in part or in full, of its

equity interest in, or the assets of, a [state] enterprise or government entity.*

** This article is not meant to cover transactions between different levels or entities of the same

Contracting Party.

29

CONFIDENTIAL DAFFE/MAI(97)1/REV2

MONOPOLIES/STATE ENTERPRISES/CONCESSIONS⁽⁴⁶⁾

A. Article on Monopolies⁽⁴⁷⁾

[1. Nothing in this Agreement shall be construed to prevent a Contracting Party from maintaining,

designating or eliminating a monopoly.]⁽⁴⁸⁾

2. Each Contracting Party shall [endeavour to]⁽⁴⁹⁾ accord non-discriminatory treatment when

designating a monopoly.

30

CONFIDENTIAL DAFFEIMAI(97) 1/REV2

Paragraph 3, chapeau:

3. Each Contracting Party shall erisure that any privately-owned monopoly that its national [or

subnational] governments [maintain]⁽⁵⁰⁾ or designate and any public monopoly that its national [or

subnational] governments maintain or designate:
31

CONFIDENTIAL DAFFE/MAI(97) 1/REV2

Subparagraph a)⁽⁵¹⁾

a) acts in a manner that is not inconsistent with the Contracting Party's obligations under this Agreement wherever such a monopoly exercises any regulatory, administrative or other governmental authority that the Contracting Party has delegated to it in connection with the monopoly good or service;

Subparagraph b)

b) provides non-discriminatory treatment to investments of investors of another Contracting Party in its sale of the monopoly good or service [in the relevant market];

Subparagraph c)

c) provides non-discriminatory treatment to investments of investors of another Contracting

Party in its purchase of the monopoly good or service [in the relevant market]. This

paragraph does not apply to procurement by governmental agencies of goods or services for

government purposes and not with a view to commercial resale or with a view to use in the

production of goods or services for commercial Sale;⁽⁵²⁾

32

CONFIDENTIAL DAFFE/MAI(97) :/REV2

Subparagraph d)

Alternative 1⁽⁵³⁾

[d)does not use its monopoly position, in a non-monopolised market in its territory, to engage,

either directly or indirectly. including through its dealing with its parent company, its

subsidiary or other enterprise with common ownership, in anti-competitive practices that

[might]⁽⁵⁴⁾ adversely affect an investment by an investor of another Contracting Party,

including through the discriminatory provision of the monopoly good or service, cross-

subsidisation or predatory conducted]⁽⁵⁵⁾;

Alternative 2⁽⁵⁶⁾

[d) which competes, either directly or indirectly, or through an affiliated company, in an

economic activity outside the scope of its monopoly rights does not abuse its monopoly

position in that activity to act in a manner inconsistent with the obligations of this

Agreement;]

Alternative 3: zero option⁽⁵⁷⁾
33

CONFIDENTIAL DAFFE/MAI(97) 1/REV2

[Subparagraph e)⁽⁵⁸⁾

e) Except to comply with any terms of its designation that are not inconsistent with subparagraph

(b) (c) or (d), acts solely in accordance with commercial considerations in its purchase or sale

of the monopoly good or service in the relevant market, including with regard to price,

quality, availability, marketability, transportation and other terms and conditions of purchase

or sale.

Nothing in Article A shall be construed to prevent a monopoly from charging different prices in

different geographic markets, where such differences are based on normal commercial considerations, such

as taking account of supply and demand conditions in those markets.

Article A, paragraph 3 (e) differences in pricing between classes of customers, between affiliated

and non-affiliated fimns, and cross-subsidisation are not in themselves inconsistent with this provision;

rather, they are subject to this subparagraph when they are used as instruments of anti-competitive

behaviour by the monopoly firm].

34

CONFIDENTIAL DAFFE/MAI(97) 1/REV2

[Paragraph 4 ⁽⁵⁹⁾

4. Each Contracting Party is allowed to lodge reservation to the Agreement concerning an activity

previously monopolised at the moment of the elimination of the monopoly.]

35

CONFIDENTIAL DAFFE/MAI(97) l/REV2

Paragraph 5

5. Each Contracting Party shall notify⁽⁶⁰⁾ to the Parties Group any existing designated monopoly

within [60]⁽⁶¹⁾ days after the entry into force of the Agreement, any newly designated monopoly within [60]

days after its creation, and any elimination of a designated monopoly [and related new reservation to the

Agreement]⁽⁶²⁾ within [60] days after its elimination.

36

CONFIDENTIAL DAFFE/MAI(97) 1/REV2

Paragraph 6

[6. Neither investors of another Contracting Party nor their investments may have recourse to

investor-state arbitration for any matter arising out of paragraph 3 (b), (c), (d) or (e) of this Article.]⁽⁶³⁾

37

CONFlDENTlAL DAFFE/MAI(97) 1/REV2

[B. Article on [state enterprises][entities with which a Government has a specific relationship]

Option 1: zero option⁽⁶⁴⁾

Option 2

i) Draft text for an anti-circumvention clause⁽⁶⁵⁾

Alternative 1

1. Each Contracting Party shall ensure that any state enterprise that it maintains or establishes acts in a manner that is not inconsistent with the Contracting Party's obligations under this Agreement wherever such enterprise exercises any regulatory, administrative or other governmental authority that the Contracting Party has delegated to it.

Alternative 2

1. Each Contracting Party shall ensure that any entity to which a national or subnational government authority has delegated a regulatory, administrative or other governmental authority acts in a manner that is not inconsistent with the Contracting Party's obligations under this Agreement wherever such entity exercises that authority.

38

CONFIDENTIAL DAFFE/MAI(97) 1/REV2

ii) Additional provisions

a. No additional provisions.

b. Proposal by Canada and the United States⁽⁶⁶⁾

[2. Each Contracting Party shall ensure that any state enterprise that it maintains or establishes

accords non-discriminatory treatment in the sale, in the Contracting Party's territory, of its goods or

services to investors of another Contracting Party and their investments.

3. Neither investors of another Contracting Party nor their investments may have recourse to

investor-state arbitration for any matter arising out of paragraph 2 of this Article.⁽⁶⁷⁾ ]

c. Proposal by France⁽⁶⁸⁾

[a. Each Contracting Party shall ensure that any entity that a national or a subnational government

owns or controls through ownership interest or which a national or subnational governments authority has

a relationship with through any specific legislative, regulatory or administrative act, any contracts, or any

practices related to some of its activities acts in a manner that is not inconsistent with the Contracting

Party's obligations under this Agreement.]

39

CONFIDENTIALAFFE/MAI<97) l/REV2

C. Definitions Related to Articles on Monopolies [and State Enterprises]

Paragraph l

1. "Delegation" means a legislative grant, and a government order, directive or other act

transferring to the monopoly or state enterprise, or authorising the exercise by the monopoly or state

enterprise of, governmental authority.

Paragraph 2

Alternative 1

[2. "Designate" means to establish, designate or authorise, or to expand the scope of a monopoly to cover an additional good or service, after the date of entry into force of this agreement.]

Alternative 2

2. "Designate a monopoly" means to establish or authorise a monopoly, or to expand the scope of a

monopoly.

Paragraph 3

Alternative 1

3. ['Monopoly" means an entity, including a consortium or government agency, that in any

relevant market in the territory of a Contracting Party is designated as the sole provider or purchaser of a

good or service, but does not include an entity that has been granted an exclusive intellectual property

right solely by reason of such gMnt.]⁽⁶⁹⁾

Alternative 2

3. "Monopoly" means any person or group of persons, public or private, whatever its legal nature,

designated by a national [or local] government authority as the sole supplier or buyer of a commercial

good or service in a market in the territory or part of the territory of a Contracting party, [for an indefinite

period of time.]⁽⁷⁰⁾ [possible carve out for IPR]

40

CONFIDENTIAL DAFFE/MAI(97)1/REV2

Alternative 3⁽⁷¹⁾

[3. "Monopoly" means any person [or entity], public or private, including a consortium or

government agency, designated by a national [or local] government authority as the sole supplier or buyer

of a good or service in a relevant [economic] market in the territory of a Contracting Party, but does not

include a person or entity that has been granted an exclusive intellectual property right solely by reason of

such grant.]

Paragraph 4

Alternative 1

[4. "Relevant market" means the geographic and commercial market for a good or service.]

Alternative 2

[4."Relevant [economic] market" means the geographic and product market for a good or service in

the territory of the Contracting Party.]

Paragraph 5

5. "Non-discriminatory treatment" means the better of national treatment and most favoured nation

treatment, as set out in the relevant provisions of this Agreement.⁽⁷²⁾

Paragraph 6

[6. "State enterprises" means, [subject to Annex ...., ] an enterprise owned, or controlled through

ownership interest, by a Contracting Party.]⁽⁷³⁾

41

CONFIDENTIAL DAFFE/MAI(97) 1/REV2

[D. Article on Concessions⁽⁷⁴⁾,⁽⁷⁵⁾

Transparency

1. Any concession shall abide by the following principles:

a) the conditions of participation in awarding procedures shall be published in due time so as to

enable the candidates to engage and, in so far as it remains compatible with an efficient

operation of the mechanism of attribution of concessions, to accomplish the formalities

required by qualifying evaluations ;⁽⁷⁶⁾

b) the procedures of awarding are written, at least, in one of the official languages of the OECD. If, for an awarding procedure, any entity authorises propositions to be submitted in more than one language, one of them shall be one of the two of ficial languages of the OECD.⁽⁷⁷⁾

2. This article applies to the delegations covering an amount equal or superior to XX (amount to be

decided).

3. This article does not apply to delegations which confer a monopoly as defined in A to the

beneficiary of this delegation.

42

CONFIDENTIAL DAFE:E/MAI(97) 1/REV2

Definition⁽⁷⁸⁾

1. A concession is any delegation, direct or indirect, which entails a transferring of operation of

activities, carried out by a governmental authority, national or subnational, or any public or paragraph-

public authority.

2. The delegation shall be realised either by any laws, regulations, administrative rulings, or

established policies, or by any private or public contract. The aim of the delegation is to entrust to a

distinct legal body with the operation of networks or infrastructures, or the exploitation of natural

resources, and if needed with the construction of all or part of networks or infrastructures.

3. [if necessary: The legal act of delegation includes the modes of payment to the investor. These

modes of payment can consist of any price paid by consumers, any royalty, tax licence, subsidy or

contribution from the delegatory authority. or any combination of these modes.]

43

CONFIDENTIAL DAFE:E/MAI(97)1/REV2 CON

INVESTMENT INCENTIVES⁽⁷⁹⁾

Provisions

Alternative 1

Several delegations believe that no additional text is necessary. They consider that the current draft articles in the MAI are sufficient to cover investment incentives at this time.

Alternative 2

Many delegations, however, would favour specific provisions on incentives in the MAI although they hold different views as to their nature and scope. Some proposed a built-in agenda for future work. Discussion of possible provisions focused on the following draft article which is regarded as a compromise text by those who wbuld still prefer more far-reaching disciplines.

44

CONFIDENTIAL DAFFE/MAI(97) 1/REV2

Article⁽⁸⁰⁾

The Contracting Patties confirm that Article XX (on NT and Mew) and Article XX

(Transparency) applies to [the granting of]⁽⁸¹⁾ investment incentives.⁽⁸²⁾

2. [The Contracting Parties acknowledge that [, in certain circumstances,] even if applied on a non-

discriminatory basis, investment incentives may have distorting effects on the flow of capital and

investment decisions.⁽⁸³⁾ [Any Contracting Party which considers that its investors or their investments are

adversely affected by an investment incentive adopted by another Contracting Party and having a

distorting effect, may request consultations with that Contracting Party.] [The former Contracting Party

may also bring the incentive before the Parties Group for its consideration.]]⁽⁸⁴⁾,⁽⁸⁵⁾

45

CONFIDENTL4L DAFFE/MAI(97) 1/REV2

3.⁽⁸⁶⁾ [In order to further avoid and minimise such distorting effects and to avoid undue competition

between Contracting Patties in order to attract or retain investments, the Contracting Parties [shall] enter

into negotiations with a view to establishing additional MAI disciplines [within three years] after the

signature of this Agreement.⁽⁸⁷⁾ These negotiations shall recognise the role of investment incentives with

regard to the aims of policies, such as regional, structural, social, environmental or R&D policies of the

Contracting Parties, and other work of a similar nature undertaken in other fore. These negotiations shall,

in particular, address the issues of positive discrimination,⁽⁸⁸⁾ [transparency⁽⁸⁹⁾], standstill and rollbacks.⁽⁹⁰⁾]

4. [For the purpose of this Article, an "investment incentive" means:

The grant of a specific advantage arising from public expenditure [a financial contribution] in

connection with the establishment, acquisition, expansion, management, operation or conduct of an

investment of a Contracting Party or a non-Contracting Party in its territory].

46

CONFIDENTIALDAFE7E/MAI(97) 1/REV2

CORPORATE PRACTICES⁽⁹¹⁾

TECHNOLOGY R&D⁽⁹²⁾

INTELLECTUAL PROPERTY⁽⁹³⁾

PUBLIC DEBT⁽⁹⁴⁾

The [rescheduling] of the debts [loans] of a Contracting Party or its appropriate institutions

[owed to another Contracting Party or its appropriate institutions and the related

[rescheduling] of its debts [loans] owed to [private] investors] Will not be subject to [the

provisions of this Agreement].

47

CONFIDENTIAL DAFFEIMAI(97 ) 1/REV2

NOT LOWERING STANDARD⁽⁹⁵⁾

[Alternative 1

The Parties recognise that it is inappropriate to encourage investment by lowering [domestic]

health, safety or environmental [standards] [measures]⁽⁹⁶⁾ or relaxing [domestic] [core]⁽⁹⁷⁾ labour standards.⁽⁹⁸⁾

Accordingly, a Party should not waive or otherwise derogate from, or offer to waive or otherwise derogate

from, such [standards] [measures] as an encouragement for the establishment, acquisition, expansion or

retention of an investment in its territory of an investment or an investor. If a Party considers that another

Party has offered such an encouragement, it may request consultations with the other Party and the two

Parties shall consult with a view to avoiding any such encouragement.

48

CONFIDENTIAL DAF:FE/MAI(97) 1/REV2

Alternative 2

A Contracting Patty [shall] [should]⁽⁹⁹⁾ not waive or otherwise derogate from, or offer to waive or otherwise derogate from [domestic] health, safety or environmental [measures] [standards] or [domestic][core] labour standards as an encouragement for the establishment, acquisition, expansion or retention of an investment or an investor.]

49

1. The Chairman of the Negotiating Group proposed to keep this sentence without brackets, noting that several delegations could go along with this proposal provided that there was a satisfactory explanatory statement in the commentary [DAFFE/MAI/M(96)4].

2. Proposed by the Australian delegation.

3. Whether there should be an anti-abuse clause, its precise wording`7, as well as its specific placement is to be decided.

4. Interpretative note: "The granting of an "authorization to work" may imply that a natural person may have to meet specific professional qualifications required in order to carry out particular activities. Professional qualification criteria that may be applicable are outside the scope of this Article."

5. Enterprise under this Article would have the same meaning as under the definition of Investment.

6. Interpretative note: "It is understood that the national authorities may periodically verify continued eligibility under this paragraph".

7. Some countries prefer "shall endeavor' and may need to refer to capitals before agreeing to deletion.

8. Several delegations have concerns with extending the benefits of the MAI Key Personnel provisions to permanent residents of another Contracting Party. As a result of the Negotiating Group discussion on 23-25 April 1997, the Chairman proposed that at least for the purposes of investors, nationals and permanent residents should be covered. Delegations should reflect further on the inclusion of permanent residents as concerns the categories of executive, manager, or specialist.

9. Canada, Mexico, and the United States maintained a reservation on the coverage of the article concerning membership on boards of directors.

10. It was pointed out that there may be a need to define "senior management positions" and "membership on boards of directors"

11. It is understood that this article would not interfere with national anti-discrimination and labour laws.

12. Australia reserved its position on all obligations on performance requirements that go beyond those in the TRIMS AGREEMENT and the Energy Charter Treaty.

13. This listing of investment operations omits the following terms "maintenance, use, enjoyment, sale or other disposition of investments" which appear in the National Treatment/MFN articles. Some delegations reserve on the inclusion of the word ' conduct".

14. Canada proposes that the following phrase be added at the end of the chapeau of this paragraph: "or condition the receipt or continued receipt of an advantage on compliance with any of the following requirements". This addition is intended to make clear that the performance requirements article applies in two basic circumstances: I) when linked to the establishment, expansion, etc. of an investment; and ii) when linked to the granting of an advantage.

Unless expressly stated (as proposed) in paragraph 1, there could always be some uncertainty as to whether the article would apply in cases of granting an advantage. Canada considers this addition necessary for legal reasons as well as to provide investors with greater certainty. As was the intention in the development of a ' one list" approach, the proposed addition would, in the second case (linked to an advantage), limit prohibitions to "requirements" imposed by governments. Extending the prohibitions to only certain (but not all) "commitments and undertakings' would unduly interfere with government practices regarding "voluntary" commitments in exchange for an advantage and could result in a significant burden on Contracting Parties on lodging reservations for government-firm agreements containing "prohibited" voluntary undertakings.

15. Austria and Hungary proposed an interpretative note which could read: "It is understood that this provision does not extend commitments on cross-border provision of services under the OATS." A number of delegations felt that this concern should be addressed in the context of a general provision on the relationship between the MAI and the WTO obligations. Canada reserved its position on the inclusion of "services" in l(c) with respect to requirements associated with the granting of an advantage.

16. A large number of delegations indicated that they can agree to a final version of this paragraph only if a clear exception is made for the possibility of enforcing competition laws and for the transfer of intellectual property rights, as long as the latter is not contrary to the TRIPS AGREEMENT. The exact wording of this paragraph remains to be determined in consultation with competition and intellectual property experts, to reflect the comments made in paragraph 7 of the Report to the Negotiating Group on Intellectual Property [DAFFE/MAl/(97)131. In this context questions were raised concerning the meaning of "proprietary knowledge" and the reference to the relevant authorities.

17. Canada reserves its position on paragraph (g) and notes that the inclusion of (g) may inadvertently oblige Contracting Parties to lodge reservations in respect of basic business incorporation laws in so far as such laws oblige the establishment and or maintenance of representative or head of rices for legal purposes.

18. It was recognised that paragraph i) is not intended to interfere with legitimate government employment programmes or employment discrimination laws. A number of delegations conditioned their acceptance of this provision on the elaboration of appropriate language to give greater precision to the obligation and ensure consistency with the article on Key Personnel. Many delegations supported the deletion of this paragraph.

19. This item is meant to cover specific performance requirements expressed in terms of given numbers or

percentages of employees while the article on employment requirements addresses problems of discrimination among natural persons holding a valid permit of sejour and work in a given Contracting Party. Some delegations felt that the prohibition in (j) should apply to the hiring of national, as opposed (a local personnel. Some delegations maintained a reserve on this latter proposal. France wondered whether this provision should apply to residency requirements. Austria recalled that the Chairman of the Negotiating Group suggested that residency requirements should not be considered to be inconsistent with the obligations of the MAI [DAFFE/MA1(97)14].

20. At the Negotiating Group meeting in April 1997, the Chairman noted that a large majority was in favour

of including (k) and (1) in the list of prohibited performance requirements. It would not be necessary to have an interpretative note regarding the application of national treatment and MEN. Canada reserved its position concerning the inclusion of (k) and (1) noting with respect to (1) the requirement to have provisions for nominal qualifying shares. One delegation suggested that items (k) and (1) could be combined into one provision since in their view they achieve the same result. Sweden felt that these items should, for the time being, be kept separate.

21. The term "commitments or undertakings" would be deleted if the Canadian proposal for the chapeau of paragraph I was agreed to. Canada and Hungary supported the inclusion of item l(a). This would appear necessary to cover inter alia, agricultural export support and trade-marketing support programmer. Hungary referred to their concerns on the coverage of services. The United Kingdom, on the other hand, felt that the inclusion of I (a) would be incompatible with the provisions of the WTO AGREEMENT on Subsidies and Countervailing Measures. The European Commission felt that there might be questions about export credits or export promotion, which would be better addressed in paragraph 5. Italy pointed to the difficulty of distinguishing in many instances between export promotion and foreign aid programmer. As regards items (g), (h), (k) and (1), several delegations failed to see the link between these items and the receipt of an advantage and suggested that they not be listed in paragraph 2. Japan also supported the deletion of the reference to l(f).

22. The listing of the subparagraphs would depend on the coverage of paragraph 2. Several delegations expressed concerns about the scope of the envisaged carve-out. Questions were raised in particular with regard to the reference to the provision of "particular" services and the construction and expansion of particular facilities (which could be assimilated to investment operations). Germany, the United Kingdom and the European Commission considered paragraph 3 to be redundant given the content of paragraph 2.

23. Denmark suggested the use of the term "employee" rather than "worker".

24. Several delegations shared the view that issues relating to the environment and protection of human,

animal or plant life or health would be more appropriately treated in the context of a more general article of the MAI. A number of delegations also remained concerned about the wide coverage of subparagraph (a). Many delegations were willing to consider replacing paragraph 4 with the following interpretative note proposed by Japan [DAF] E/MAI/STtRD(97)11:

"Nothing in paragraphs l(b) and l© shall be construed to prevent any Contracting Party from adopting or maintaining measures necessary to secure compliance with environmental [laws and regulations] that are not otherwise inconsistent with the provisions of this AGREEMENT and that are necessary for the conservation of living or non-living exhaustible natural resources, or [that are necessary to protect human, animal or plant life or health.]"

The United States considered that the phrase "that are not inconsistent with the provisions of this AGREEMENT" did not fit well in this proposal.

25. Japan proposed the following interpretative note as an alternative for paragraph 5:

"Nothing in paragraph l(a), (b) and © shall be construed to prevent any Contracting Party from

conditioning the receipt or continued receipt of an advantage, in connection with an investment in its

territory of a Contracting Party or of a non-Contracting Party, on compliance with qualification

requirements tor goods or services with respect to export promotion Land foreign aid] programmes.

Nothing in subparagraph l(b) [or l(c)] shall be construed to prevent any Contracting Party from

applying the WTO rule of Origin of Goods to the qualification for procurement by the Contracting

Party or its state enterprise."

26. Many delegations continued to support the inclusion of foreign aid programmes in paragraph (a). Other delegations felt that this reference should be deleted. Several delegations failed to see the link between export promotion (or export credits for that matter) or foreign aid programmes and investment operations. Italy noted that it is very difficult in many instances to distinguish between export promotion and foreign aid programmer. The United States observed that export promotion covers a much narrower field than export credits or subsidies. It also noted that foreign aid programmes are not always given directly to states, but sometimes proceed through private entities such as Non-Governmental Organizations (NGOs). Domestic sourcing requirements imposed on such organizations might result in preferential treatment to domestically-controlled firms over foreign-controlled ones. The European Commission felt that these special situations would be better addressed in an interpretative note.

27. The term ..state enterprise" would need to be defined.

28. Delegations confirmed that the performance requirements article should not interfere with the Contracting Party's rights and obligations under the WTO Government Procurement AGREEMENT. Several delegations questioned however whether the proposed carve-out afforded by subparagraph 5(b) would achieve that result or might be construed instead to be in conflict with commitments under the WTO AGREEMENT on Government Procurement. Other delegations believe that the proposed language does not achieve this objective and consider it necessary given that the WTO disciplines do not apply in the same way to all countries and government entities and that it would be desirable to preserve the delicate balance reached under the WTO Government Procurement AGREEMENT. It was generally recognised that the matter needs to be examined further to ensure that consistency is achieved between the MAI and the WTO provisions. There was greater support, nevertheless, for the inclusion of l(b) and 1(c) than for the inclusion of l(f) and l(h).

Norway and the United States proposed consideration of the following interpretative note to clarify the relationship with the WTO Government Procurement AGREEMENT:

"The Performance Requirements article does not affect any obligations that my exist under the WTO Government Procurement AGREEMENT."

This suggestion was not discussed.

29. Japan suggested that this paragraph could be the subject of an interpretative note.

30. Several delegations supported the inclusion of paragraph 5(d) to avoid any potential conflicts between paragraph l(i) and privatization operations. The problems could also be solved if paragraph l(I) was deleted. The United Kingdom and the United States opposed the inclusion of this provision.

31. Mexico and Poland reserve their position on all privatization obligations. Canada considers that dedicated

MAI provisions on privatization are unnecessary, since the basic NT/MFN obligations would apply to privatization, and thus Eats position on all such provisions.

32. Korea reserves its position.

33. Canada, Hungary, Japan and Spain reserve their position on sub-paragraph (b) as it goes beyond the scope of a privatization article. Delegations agree that this provision does not apply to the behaviour of private entities (corporate practices). It is understood that the meaning of that provision is to prevent Contracting Parties from imposing rules on such secondary transactions which are inconsistent with NT/MFN. In the light of this, some delegations proposed to include language along the lines of "b) measures governing subsequent ...". It is felt useful that legal experts examine the ultimate formulation of this provision on the basis of this understanding.

34. The Czech Republic is ready to withdraw this proposal if reference to vouchers schemes under paragraph 3, alternative 2, letter d, is deleted.

35. Norway and Japan propose to insert "prejudice Contracting. Parties' rules governing the system of

property ownership or" between the words "shall" and "be".

36. Work on paragraph 3 was based on alternative 1, which was supported by a large number of delegations. However, the United States maintained its preference for alternative 2. It cannot accept the phrase "are compatible with paragraph 1" (Alternative 1, paragraph 3) on the grounds of the implication that such special rules, regardless of how they are exercised, necessarily conform with NT/MFN. The use, application or exercise of such relevant measures under the tirets (alternative I ) may in fact not conform with NT/MFN. Canada shares this view. Canada and the United Kingdom propose the deletion of paragraph 3.

37. Japan would still prefer the inclusion of an illustrative list, such as contained in Room Document 11 or in DAFFE/MAI(97) 1.

38. United States' proposal, together with the following note: "As with other measures contrary to obligations on National Treatment and MEN treatment, use of special share arrangements should be subject to listing as reservations. Recognising that Contracting Parties may privatise assets in the future, Contracting Parties will be permitted to take precautionary reservations for the use of special share arrangements in those sectors where Contracting Parties generally have state-owned enterprises or government restrictions." This proposal was not discussed by the delegations.

39. This language is put forward as a compromise. A number of delegations supporting alternative I state

their willingness to accept this compromise pending the outcome of the discussions in the Negotiating Group on how to handle de facto discrimination in the context of lodging country specific reservations. Japan suggested the insertion, after "investments" on the second line, of the words "on the ground of nationality"; of the word "intentionally" after "arrangements" on the third line; and, "on the ground of nationality", after..discrimination" on the same line. Japan also suggested the inclusion of an illustrative list.

40. This proposal by Hungary has not been discussed by the delegations.

41. France proposed that the obligation should apply to all levels of government.

42. It is understood that the obligation of this anicic will be met wherever the information on a privatisation operation is made available.

43. The United States and France support the insertion of the sentences in the bracket. The other delegations see no need for such text.

44. This alternative was proposed by the United States following bilateral consultations. It was not discussed by the experts.

45. Canada and Austria reserve their position on the definition. Several delegations considered that the teens

"state enterprise" and Government entity" would have to be defined in the Agreement. In addition, the inclusion of "state" in the definition would make necessary additional text in order to ensure that in case of sales by several tranches all transactions would be covered even if the company ceased to be a state enterprise.

46. This note assembles proposals made at various stages on the subject of monopolies/State enterprises/concessions, namely those contained in the Consolidated Text [DAFFE/MAI(97) 1 ] of 13 January 1997 and in DAFFEIMAI/ST(97)6 of 21 March 1997.

47. Australia reserves its position on all obligations on monopolies that go b yond those of the GATT and OATS.

48. The right of governments to designate or maintain a monopoly is not disputed. Some delegations considered, nevertheless, that this right should be made explicit for the sake of clarity and certainty. This right could also be the subject of a footnote or interpretative note on this paragraph. Other delegations continued, however, to favour the deletion of the paragraph, notably on the grounds that it could give rise to questions regarding the obligations on expropriation and compensation and possible market access provisions in the MAI.

49. Delegations remain divided on the desirability of removing these brackets. The issue is linked to the

inclusion of provisions in the Agreement on concessions. Some delegations are willing to drop the contents of the brackets if there would be satisfactory provisions in the MAI on concessions.

50. Canada has difficulties with the inclusion of the term "maintains" since this could create disciplines with respect to existing contracts between the government and such privately-owned monopolies and have general ramifications on the rights of existing shareholders. The United States is of the view that this problem could be increased by the coverage of sub-national entities. Other delegations consider it essential that monopolies designated by sub-national authorities should be covered by the disciplines. They recognised that the reference to national and supranational governments might not be necessary in light of the solution found for the general treatment of sub-national entities under the MAI.

51. There is broad agreement that the issue of delegated regulatory powers of monopolies should be the subject of an anti-circumvention clause. Many delegations felt that the matter could be addressed in the context of a general anti-circumvention clause for the MAI.

52. Japan raised the issue of the treatment of sub-contracting of monopoly activities. New Zealand remains concerned about the broad scope of carve-out implied by the second sentence and favours its deletion, noting that much, if not all, of the core business of government is not involved in producing goods and services for commercial sale.

53. Canada, France, Switzerland and the United States supported this alternative on the basis of it being broader and more precise than alternative 2.

54. France felt that the inclusion of this term would be necessary to cover damages incurred by foreign investors in the pre-establishment phase.

55. France could agree to the deletion of the phrase "in particular through the abusive use of prices" on the understanding that this practice was covered by the terms "predatory conduct". Mexico considered that the term "abusive use of prices" has a broader coverage than the concept of anti-competitive practices.

56. This proposal, based on Article VIII of the OATS, was supported by Denmark, Finland Germany, New Zealand and the European Commission. These delegations considered that this provision would be useful in dealing with the activities of monopolies outside the scope of their monopoly rights, without getting too deeply into competition policy. The United States wondered what abuses of monopoly positions would be 'inconsistent" with the obligations of the MAI.

57. Some delegations considered that alternatives I and 2 involve too great of an intrusion into competition

policy and supported their deletion. Austria and the Czech Republic supported alternative 2 as a fallback in view of its more limited implications for competition policy. Korea supported alternative 3 on the ground that abuses of dominant positions should be dealt with under competition policy.

58. This is a proposal by Canada and the United States. Many delegates questioned, however, the feasibility and desirability of requiring monopolies to act in accordance with "commercial considerations". Canada provided a number of explanations in favour of the inclusion of subparagraph e):

Sub-paragraph (e) would present the advantage of increasing transparency: non-commercial considerations must be both non-discriminatory [as indicated in (b), (c) and (d)] and must be clearly stated in terms of its designation. (Note, however, that if a government wants to continue to pursue social and other non-economic objectives, it can still do so through the designation.) Sub-paragraph (e) would also clarify that outside the terms of a monopoly's designation, a monopoly should act in accordance with commercial considerations just like any other enterprise (i.e. that it not use its monopoly power to influence the market). This is, in the view of Canada, particularly important given the potential power of monopolies over markets in the context of accession. Fmally, the proposed language in the two notes would make it clear that charging different prices to different customers, for example, might be justified on the basis of commercial considerations. Consideration could be given to a definition of "commercial considerations" along the lines of accepted wording in GATE Article XVII. Many delegations questioned, however, the feasibility and desirability of requiring monopolies to act in accordance with "commercial considerations".

59. Proposal by France. Some delegations were opposed to the principle of lodging reservations after the entry into force of the MAI. Japan proposed that such reservations be made the subject of scrutiny by the "Parties Group" to ensure that they do not negatively affect the level at liberalization under the MAI.

60. Japan suggested that the concept of prior notification found in Article V111.4 of the GATS should also be

examined and that the Parties Group should have a role in examining all notifications resulting from this article.

61. It was suggested that the period of three months, which is the notification period for monopolies under

paragraph V111.4 of the OATS, could be an alternative. However, it was felt that the length of the notification period could usefully be decided in light of other notification requirements that might arise under the Agreement.

62. The issue of lodging new reservations for monopolies is linked to the question dealt with under paragraph 4 of this Article.

63. Some delegations explained that paragraph 3(a), unlike paragraphs 3(b), 3(c), 3(d) and 3(e), would

discipline. circumventions of a Contracting Party's obligations -- including non-discriminatory treatment. The same dispute settlement alternatives should therefore be made available as those for when a Contracting Party's own actions are challenged. Canada, Japan and the United States also pointed to the novelty and complexity of the proposed provisions on monopolies, which argue in favour of limiting the dispute settlement procedures to state-to-state disputes apart from paragraph 3(a). They also believed that most governments do not even allow private "anti-trust" actions in their own courts by their citizens; thus it would be a leap to suggest that there be privately-initiated scrutiny of monopolies' anticompetitive actions pursuant to 3(d). These delegations considered that state-to-state dispute settlement should provide a useful procedural compromise. Many delegations considered, however, this paragraph should be deleted as they believe that Contracting Parties should only sign up to commitments that they would be prepared to defend against individual investors.

64. Several delegations supported this option. Some of them were willing, however, to consider the coverage of state enterprises in the context of an anti-circumvention clause which would cover all enterprises, i.e. both state and private enterprises to which authority has been granted by any level of government. The Netherlands could not support any of the options presented and will submit an alternative option.

65. Both alternatives address the issue of anti-circumvention of the M, I obligations through the delegation of regulatory, administrative and other governmental authority to entities not covered by the anti- circumvention clause for monopolies found in paragraph 3, subparagraph (a) of the Article on monopolies (see Section A above). The first alternative is limited to state enterprises wherever they exercise regulatory, administrative or other governmental authority. The second alternative covers all entities wherever they exercise regulatory, administrative or other governmental authority without distinction of being privately or publicly owned. Some delegations considered this alternative goes too far in the domain of corporate practices. Other delegations were of the view, however, that it would be both possible and appropriate, in order to ensure the purpose of the anti-circumvention clause, to cover all entities as far as they have been given governmental authority. As with the anti-circumvention clause for monopolies, many delegations argued, however, that these matters could be addressed in the context of a general anti-circumvention clause for the MAI.

66. Canada and the United States believe that the need for such provisions is predicated by the fact that state

enterprises are different from private enterprises because of the links with governmental authorities. Italy pointed Out that when an enterprise is under civil law and the state is a shareholder, the state does not have any special privilege in comparison with any other shareholder. Therefore the government does not have any special authority to influence the behaviour of enterprises.

67. Some delegations pointed out that this paragraph would be needed whichever alternative was chosen. Mexico would like this paragraph to apply to both paragraphs I and 2.

68. This proposal was offered as a compromise by France, which favours, nevertheless, option (a) (i.c. no additional provisions) as its first option.

69. Spain proposes the exclusion of concessions with exclusive rights from the definition of monopolies [see DAFFE/MAI/EG3/RD(96) 1 41]

70. While it is recognised that the MAI would need to draw a line between monopolies and concessions, serious doubts were expressed about the use of an ";.;definite period of time" as possible criterion for the demarcation.

71. Belgium considers alternative 3 to be acceptable provided that Article A, paragraph 1 is accepted. In that case, it would perhaps be better to replace in paragraph 1 the term "designating" by the term "establishing".

72. Germany, Netherlands and the United Kingdom questioned the need for this definition.

73. A number of delegations questioned the need for a definition of state enterprises.

74. Proposal by France. It was recognised that there is a link between the issue of concessions and monopolies [paragraph 2 of the article on monopolies (see Section A)]. Those delegations favouring the inclusion of provisions on concessions into the MAI are ready to drop their opposition to the inclusion of "best endeavour" in paragraph 2 if the suggested provision on concessions are included in the MAI. Many delegations question the need for this article. Some delegations felt that further work was required to clarify the issues.

75. Norway provided a background note on natural resources and concessions in the context of the MAI [DAFFE/MAUST~D(97)2].

76. A number of delegations consider that the issue of transparency is particularly important for concessions

and that special provisions should be developed on this topic under the MAI. Other delegations wondered why similar provisions have not been proposed for monopolies.

77. Spain proposed to replace the reference to the official languages of the OECD by the official languages

of the United Nations. Italy and Japan questioned the need to impose a language requirement for the publication of awarding procedures.

78. This proposal needs funkier consideration. Norway favours the deletion of the reference to natural resources in the proposed text. With respect to mineral resources, including hydrocarbons resources, Norway also proposes to replace paragraph (vii) of the current definition of "investment" in the MAI, with the following language:

-- Rights conferred pursuant to law or contract regarding property ownership over mineral resources, including hydrocarbon resources;

-- rights conferred pursuant to any law, regulation, administrative or contractual provision or

instrument issued thereunder by which the competent authorities of a Contracting Party entitle an

investor or a group of investors, on its own behalf and at its own risk, the exclusive right to prospect

tor or explore for or produce minerals, including hydrocarbons, in a geographical area."

79. This text reproduces the contents of DAFFEIMAI/ST(97)3.

80. The Group proceeded on the basis of report of EG2 with respect to the treatment of tax incentives [DAFFE/MAI/EG2(97) 1 ].

81. Some delegations favoured the deletion of "the granting of'."

82. While it is agreed that investment incentives should be subject to NT and MFN obligations, there are different views on the desirability of making this explicit. Consequently, some delegations consider this paragraph to be unnecessary. Ireland maintains a pre-scrutiny reservation on the text of this drain article. The dispute settlement mechanism would, in particular, apply to this article. One delegation raises the possibility of taking reservations with regard to NT.

83. Several delegations point out that not all investment incentives are bad -- the problem arises in drawing a line between good and bad incentives. It is suggested that the distorting effects of investment incentives on investment decisions and capital Rows should be balanced against their possible benefits in achieving legitimate social objectives. Other delegations note that these concerns were addressed in paragraph 3 of the draft article.

84. Some Delegations remain unconvinced by the need for special consultation procedures for non discriminatory investment incentives as defined in paragraph 2, although final judgement would need to await the decisions taken on the coverage of the MAI. The presumption is that, as with other agreements, consultations would be the first procedural step of the dispute settlement mechanism of the MAI. It should be possible to revisit the adequacy of the provisions on dispute settlement and the role of the Parties Group when their configuration is better known. One delegation questions whether the dispute settlement mechanism of the MAI could apply to investment distorting investment incentives or to investment incentives granted illegally. These questions would also deserve further attention. Some delegations questioned the role of the parties group in any consultation process.

85. One delegation suggested the first sentence of paragraph 3 could be added to paragraph 4, and the rest of paragraph 3 deleted.