CONFIDENTIAL DAFFEtMAI(97) 1/REV2

ANNEX:

COUNTRY SPECIFIC PROPOSALS FOR DRAFT TEXTS

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CONFIDENTIAL DAFFE/MAI(97)1/REV2

GEOGRAPHICAL SCOPE

(Paper Contributed from Turkey)

I. Introduction

The main objective of the multilateral international agreements must be to assist governments in

their efforts to maintain the international peace and security, since no international agreement can be

drafted in a way to disregard the existing international peace and security.

No agreement can include provisions which may violate the rights and interests of a party or

parties, or upset the sensitive balance of international order.

This delegation would like to highlight the fact that there was a broad acceptance, during MAI

negotiations of the principle that international peace and security shall be respected.

II. Perspective of MAI

The aim of MAI should be to provide a comprehensive protection for investors and investments.

However if it diverges from the existing definition of territory under international law this may raise legal

complications. On this Delegation's view, it is not the intention of the OECD members to raise new

international legal complications.

III. Some Comments on the Draft Provision on Geographical Scope-DAFFE/MAI(97)I

Regarding the draft article MAI shall apply not only in the land territory, the internal waters and

the territorial sea of each party, (the definition of "territory" already comprises with respect to international

law), but also in the maritime areas beyond the territorial sea as well as the archipelagic waters.

None of the OECD members is an archipelagic State. In addition to this fact, it has not been

taken into consideration that without contemplating all maritime issues between archipelagic states and

their views on draft article, such a provision may produce contingencies between the relevant states as well

as on investors and investments.

It should be recalled that not every state has ratified the 1982 UNCLOS. Furthermore, this

Convention does not include any specific investment-related provisions. In the light of these facts,

establishment of a relationship between MAI and the UNCLOS should be avoided. Consequently if a

reference to the UNCLOS is going to be preferred, it is our view that a broader view should be followed in

order to avoid discrepancies.

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It should not be overlooked that there are many jurisdictional issues between the opposite or

adjacent coastal states, even regarding the air territory above maritime areas, arising from the claims to

extend the air territory beyond the frontiers of territorial sea. Therefore the area of application of MAI

should be deemed in a way so as not to produce negative effects on the nature and extent of already

existing maritime issues and increase the number of countries involved to such cases. Extending the scope

to the maritime areas to which a new international agreement shall apply will certainly aggravate the

already existing disputes. This will also be a risk for the third countries and investors into which they

never wanted to be involved.

IV. Conclusion

The Turkish Delegation should like to reiterate their opposition to the extension of the scope of

MAI to cover maritime areas and offer the following text:

'This Agreement shall apply in the land territory, internal waters and the territorial sea of a

Contracting Party."

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CONFIDENTIAL DAFFE/MAI(97) 1/REV2

CLAUSE FOR REGIONAL ECONOMIC INTEGRATION

ORGANISATIONS (REIO-CLAUSE)

(Contribution from the European Community)

The European Community has presented the principle reasons for the inclusion of a clause for Regional

Economic Integration Organisations in the Multilateral Agreement on Investment at the April meeting of

the Negotiating Group (DAFFE/MAI/RD(96) 21).

Building on this contribution, the Community herewith submits its proposal for such a REIO-clause.

Article X

on

Regional Economic Integration Organisations (REIOs)

1. For the purpose of this Agreement. a REIO is an organization of sovereign States which have

committed themselves to abolish in substance all barriers to investment among themselves and to

which these States have transferred competence on a range of matters within the purview of this

Agreement, including the authority to adopt legislation and to make decisions binding on them in

respect of those matters.

2. Article (MFN clause) shall not prevent a Contracting Party which is a Member State of a REIO

from according more favourable treatment to investors and their investments from other Member

States of the organization as a result of the measures applied within the framework of that

organization than it accords to investors and their investments from other Contracting Parties.

3. Nothing in this Agreement shall prevent a REIO and its Member States from applying, consistent

with the objectives of this Agreement, new harmonised measures adopted within the framework of

such organization and which replace the measures previously applied by these States.

4. A Contracting Party which joins a REIO shall not be prevented from applying in place of its

previous national legislation the corresponding legislation of the said organization from the day of

its accession to it. If a Contracting Party has concluded an agreement with a REIO and its Member

States in preparation for its accession to it, nothing in this Agreement shall prevent it from aligning

its national legislation to the measures applied in the framework of such organization, nor shall this

Agreement prevent Member States of a REIO from extending to the investors and their investments

of such a Contracting Party more favourable treatment as referred to in paragraph 2.

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CONFIDENTIAL DAE1:E/MAI(97) 1/REV2

DRAFT ARTICLE ON CONFLICTING REQUIREMENTS

(Amendment of the proposal introduced by Canada)⁽¹⁾

(Contribution from the European Community)

Paragraph 1. A Contracting Party shall not prohibit outside its territory, directly or indirectly, or cause

to refrain, an investor from another Contracting Party from acting in accordance with the

latter Contracting Party's laws, regulations or express policies unless those laws,

regulations or express policy are contrary to international law (conflicting requirement).

"Express policy" means a situation in which the conduct of an investor is not explicitly

regulated but allowed on the basis of general principles of law or general policy in the

relevant country

REASONS FOR REFORMULATING PARAGRAPH 1 OF THE CANADIAN PROPOSAL

1. It appears to be necessary to cover not only cases where a contracting party is (directly) requiring

an investor to behave in a certain way but also cases where the Contracting Party enjoins sanctions on

investors when they behave in that way (e.g. loss of rights or advantages that would otherwise be granted).

2. The wording proposed by Canada "to act in conflict" seems to be unduly narrow as it implies

that there is an open conflict between two legal orders, one imposing to do X, the other to do Y in the

same situation. Those cases exist, but are extremely rare (e.g. a Saudi Arabian law imposes on investors

not to export to or invest in Israel/a US law imposes on American investors abroad not to accept boycott

against Israel). The normal situation is, however, that the legal order of a Contracting Party simply allows

certain activities (e.g. Norway permits whaling) whilst the legal order of another Contracting Party

prohibits investors such activities, even abroad (e.g. the UK would not allow its investors at home and

abroad to invest in whaling).

In this case there would be no real conflict according to the Canadian proposal as the investor can abide by

the UK rule without entering in conflict with the Norwegian laws.

Thus, there is a choice to make between the two concepts. The "open conflict" rule does in the EC view

not serve much purpose.

Moreover, a "conflict" in the meaning of requirements that are really opposed to one another is not

possible between a law on the one hand and a "policy" on the other as a pure policy measure is not

mandatory. If one would choose the narrow approach (open conflict), the reference to such policy measure

would have to be deleted

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3. It seems to be useful to require that the measures of the Contracting party concerned are not

contrary to international law otherwise they do not merit protection (e.g. a country exploits unlawfully the

continental shelf of another country; measures against investors contributing to such behaviour can be

sanctioned).

4. As the term "conflicting requirement" reappears more often in the text it is preferable to give it

the form of a definition.

5. The term "express policy" is new and it seems useful, for reasons of legal clarity, to define it.

Paragraph 2. The Parties Group may receive notice of conflicting requirements from:

a) A Contracting Party which considers that [.......] another Contracting Party imposes or

enforces, or intends to do so, conflicting requirements on investors or investments of

investors in respect of conduct within its territory;

b) A Contracting Party which is considering imposing or enforcing or which has imposed or

enforced conflicting requirements on investors or investments of investors in respect of

conduct within the territory of another Contracting Party.

Commentary

Simple streamlining of the text.

Paragraph 3. A Contracting Party may at any time advise the Parties Group that it does not regard a

conflicting requirement that has been notified by another Contracting Party pursuant to

paragraph 2 as objectionable. In such cases, paragraph 1 [...] does not apply to such

requirements in the relation between the Contracting Parties concerned.

Commentary

Some amendments are necessary to align the wording to the amended paragraph 1.

In addition, it should be made clear that the non-objection of one Contracting Party to the measure has no

legal effect for other Contracting Parties.

Paragraph 4 (Unchanged).

Paragraph 5 (Unchanged until the third stroke; the third stroke contains a full concept in itself and

should become a new paragraph 6).

Paragraph 6 If the conflicting requirements have been imposed consistent with international law in

order to minimise or avoid substantial effects within a Contracting Party of actions

outside that Contracting Party, the waiver shall be granted unless the Contracting Party

in whose territory the conduct occurs has taken reasonable measures to ensure that such

effects do not recur.

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Commentary

Paragraph 6 introduces a useful concept of legitimate "self defence", applicable e.g. in case a Contracting

Party would allow drug production or far reaching and serious pollution of the environment; there may be

however also cases where the decision is not so easy to find (e.g. advertising directed from one country to

the other using methods not allowed in the latter; investment in border shops selling articles which are not

authorised in a contracting party etc.).

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1. Original proposal by Canada included in DAFFE/MAI/RD(96)23 is reproduced at the end of this contribution.