CONFIDENTIAL DAFFE/MAI(97)1/REV2
III. TREATMENT OF INVESTORS AND INVESTMENTS
General
It was understood that the drafting of articles I and 2 was without prejudice to other aspects of
the Agreement, including definitions, reservations, exceptions, standstill and rollback, and the role of the
Parties Group.
NATIONAL TREATMENTAND MOST FAVOURED NATION TREATMENT
1. While some delegations would have preferred separate articles on pre- and post-establishment,
the majority of delegations felt that a single text would better capture the intended coverage of the
agreement and avoid the difficult task of defining the boundary between pre- and post establishment. It
was agreed, as a starting point, to work on the basis of a single text. Some delegations pointed to the links
between a single text covering treatment of investors both pre- and post-establishment and the issues of
definitions and the scope of the Agreement. Two delegations reserved their position pending the outcome
of the discussion on these issues. The Drafting Group also felt that the scope of the commitments by
individual countries could be identified by using precise language in any agreed reservations to National
Treatment/MFN and perhaps by including references to relevant laws or regulations. The Group agreed
that all diversification activities are covered by the references to "establishment, acquisition and
expansion".
2. Including the words "in its territory" in Articles 1.1 and 1.2 was suggested for two reasons: i) to
define the scope of application of national treatment and MFN; and ii) to provide an appropriate
benchmark for assessing national treatment and MFN. Adding these words would make it clear that the
Contracting Parties do not have obligations with regard to investors of another Contracting Party in a third
country. One delegation suggested that a third reason for including "in its territory" would be to underline
the need to avoid conflicting requirements on multinational enterprises. At the same time, however, it was
important not to unduly limit the scope of the agreement, for example by excluding the international
activities of established foreign investors and their investments. The place of this term in these paragraphs
is still to be determined. It was also suggested that a solution might be found, as in NAFTA, in the article
dealing with the scope of the Agreement. Whatever should be decided on this matter, it should be treated
consistently throughout the Agreement.
3. Some delegations proposed the "same" or"comparable" treatment as the appropriate standard
rather than "no less favourable" treatment. The purpose would be to prevent unlimited competition for
international investment funds with consequential costs and distortions to investment flows. However,
most delegations considered that this would unacceptably weaken the standard of treatment from the
investor's viewpoint.
104
CONFIDENTIAL DAFFE/MAI(97) 1/KEV2
4. Different views were expressed on the value of a ''closed" or ''open" list of investment activities
to be covered by the National Treatment and MFN provisions, before and/or after establishment. A closed
list had the advantage of certainty, but risked omitting elements that could be important to the investor. An
open list would cover all possible investment activities, including new activities. But it could also create
uncertainties as to the scope of the Agreement and might have adverse effects on the operation of existing
bilateral and other investment agreements using a closed list. Several Delegations believed that the list
"establishment, acquisition, expansion, operation, management, maintenance, use, enjoyment and sale or
other disposition of investments" should be considered a comprehensive one whose terms were intended to
cover all activities of investors and their investments for both the pre- and post-establishment phases. In
their view, this was the preferable approach. It was also suggested that the term "sale or other disposition"
should replace "disposal" in Article 1.2 of the draft articles on selected topics on Investment Protection.
5. National treatment and MFN treatment are comparative terms. Some delegations believed that
the terms for national treatment and MFN treatment implicitly provide the comparative context for
determining whether a measure discriminates against foreign investors and their investments; they
considered that the words "in like circumstances" were unnecessary and open to abuse. Other delegations
believed that the comparative context should be spelled out and thus inclusion of the phrase "in like
circumstances". Examples of the inclusion of a specific reference are found in the NTI, some BlTs and
NAFTA. Examples of no specific reference are found in some other BITS and the ECT (although the
United States and Canada made a Declaration concerning the term "in like circumstances").
6. DG3 considered two options: "In like circumstances" deleted (option A) and: "In like circumstances"
included (option B).
Regarding Option A. National treatment and MFN treatment are comparative terms. They permit
fair and equitable difference in treatment justified by relevant differences of circumstances. In
this context, nationality is not relevant. Some delegations may wish to modify this text in the
light of the Commentary on Option B below which was not discussed.
Regarding Option B. The U.S. delegation provided the following commentary:
"National treatment and most favoured nation treatment are relative standards requiring a
comparison between treatment of a foreign investor and on investment and treatment of domestic
or third country investors and investments. The goal of both standards is to prevent
discrimination in fact or in law compared with domestic investors or investments or those of a
third country. At the same time, however, governments may have legitimate policy reasons to
accord differential treatment to different types of investments.
"In like circumstances" ensures that comparisons are made between investors and investments on
the basis of characteristics that are relevant for the purposes of the comparison. The objective is
to permit the consideration of all relevant circumstances, including those relating to a foreign
investor and its investment, in deciding to which domestic or third country investors and
investments they should appropriately be compared, while excluding from consideration those
characteristics that are not germane to such a comparison."
105
CONFIDENTIAL DAFFE/MAI(97) 1/REV2
7. The question vas asked whether the treatment accorded to foreign investors by a sub-federal
state or province would meet the national treatment test only if it were no less favourable than the
treatment accorded to the investors of the same state or province, or whether it would be sufficient to
accord treatment no less favourable than that accorded to the investors from any other state or province.
The question will need to be answered by the Negotiating Group in due course.
8. Switzerland made a written proposal to refer, in the treatment of investors/investments article, to
the concept of "equivalent competitive opportunities" analogous to that of GATS (Article XVII)
[DAFFE/MAI/DG2/RD(96)1]. This was presented as a means of strengthening the national treatment
provision by requiring that foreign investors and their investments have the opportunity to compete on
terms equivalent to those enjoyed by domestic investors. This proposal was considered by some
delegations to have positive elements particularly with respect to the treatment of branches of foreign
financial institutions. ''Equivalent treatment" was the basis of comparison, in the OECD Code of
Liberalisation of Current Invisible Operations, between domestic financial institutions and branches,
agencies, etc., of foreign financial institutions. Several delegations considered, however, that the
introduction of the concept of "equivalent competitive opportunities" into Article 1 might create confusion
on how to apply the national treatment and MFN obligations, and might even go beyond what these
obligations were intended to cover. Other delegations suggested that issues concerning branches might be
solved in the definition of "investments".
9. As indicated by the Negotiating Group 1DAFFE/MAI/M(95)2], Article I is intended to address
any problem of de facto as well as de jure discrimination.
10. Switzerland also suggested the addition of a distinct provision on "market access", modelled on
the GATS (Article XVI), to deal with situations where the same restrictions apply to both domestic and
foreign investors. Such measures may include both quantitative restrictions (e.g. economic need tests or
numerical quotas) and qualitative measures (e.g. restrictions on the legal form of the activities permitted in
a given sector). It was considered that this subject raised issues outside the traditional domain of National
Treatment and MFN and required prior discussion in the Negotiating Group.
11. Some delegations expressed the view that Article 1.3 was not strictly necessary since it does not
add any substantive obligation to Articles 1.1 and 1.2. Article 1.3 underlines, however, that, taken
together, the purpose of Articles 1.1 and 1.2 is to give the investors and their investments the better of
National Treatment and MFN.
106
CONFIDENTIAL DAFFE/MAi(97) 1/REV2
TRANSPARENCY
l. Public dissemination of measures affecting foreign investment was considered essential to the
operation of the MAI. Nevertheless a balance should be struck between this objective and the
administrative burden of implementing it.
2. When sub-national, local or other authorities publish or otherwise make publicly available
information on matters under their jurisdiction, this would be considered sufficient to meet the obligation
of Article 2.1. There would be no obligation to duplicate this information at the federal or central
government level.
3. The second sentence of Article 2.1 refers to situations in some countries where governments
choose to establish policies that are not expressed in laws, regulations or other measures listed in this
paragraph. However, as the legal standing and recourse to these policies varies among Member countries,
it was agreed that they should be subject to transparency obligations only for governments which use this
approach.
4. Regarding Article 2.2, a majority of delegations considered the establishment of specific enquiry
points to be unnecessary. Other delegations considered that these enquiry points could contribute to the
effective functioning of the MAI. They could also be useful to foreign investors by making available
information of interest to them.
5. Article 2.3 addresses the concerns that may arise with respect to the disclosure of information in
the context of law enforcement or laws protecting confidentiality. Such concerns are addressed in other
international agreements GATS, Energy Charter, NAFTA). It was felt unnecessary, however, to add a
reference to national security and public order since this issue would be addressed in the general exception
article.
6. Mexico, supported by other delegations, proposed to add an additional sentence to article 2.3 and
an additional paragraph on Special Formalities and Information Requirements as follows:
(a) [Nothing in this paragraph shall be construed to prevent a Contracting Party from otherwise
obtaining or disclosing information in connection with the equitable and good faith
application of its law.]
(b) ["Nothing in Article 1.1(1) shall be construed to prevent a Contracting Party from adopting or
maintaining a measure that prescribes special formalities in connection with the establishment
of investments by investors of another Contracting Party, such as a requirement that investors
be residents of the Contracting Party, or that investments be legally constituted under the laws
or regulations of the Contracting Party, provided that such formalities do not materially
impair the protections afforded by a Contracting Party to investors of another Contracting
Party and investments of investors of another Contracting
Party pursuant to this Agreement."]
107
CONFIDENTIAL DAFFE/MA1(97) 1 /REV2
7. Some delegations expressed concern that the additional texts could be used to circumvent the non-
discrimination obligations of the Agreement. There were serious concerns as to the substantive
implications of the paragraph, in particular relating to the residency requirements(2).
8.DG3 considered including a notification obligation along the following lines;
"Each Contracting Parry shall notify the ("Parties Group") promptly, and in any case no later
than 60 days after their entry into force, of any new measures or any changes to existing
measures which significantly affect the performance of its obligations under the Agreement. "
9.Such a provision could play a role in support of the possible activities of the Parties Group in
connection with non-conforming measures subject to review and rollback, and general exceptions or any
temporary derogations. It was agreed that this matter could be revisited once the MAI obligations in these
areas had been clearly defined.
10. DG3 noted the suggestion that any Contracting Party should be entitled to notify to the
Contracting Parties Group any measure taken by any other Contracting Party which it considers affects the
operations of the Agreement. This too may be relevant to the functions of the Parties Group.
11. Japan suggested that consideration be given to an article based on Article 5 ("Controls and
Formalities") of the OECD Codes of Liberalisation.
108
CONFIDENTIAL DAFFE/MAI(97) 1/REV2
SPECIAL TOPICS
TEMPORARY ENTRY, STA Y AND WORK OF INVESTORS AND KEY
PERSONNEL
Paragraph 1
1. While several delegations supported including a requirement of a "substantial amount of capital"
in paragraph 1, others considered it would create uncertainties and could represent an important barrier to
certain forms of investment. It was noted that Drafting Group 3 has developed a provision on Denial of
Benefits in the context of indirect ownership or control using the concept of "substantial business
activity". DG3 decided that it was not necessary to define this term.
2. Some delegations do not think it necessary to include "essential" in this paragraph and emphasise
the difficulties associated with defining this term.
3. There are different views on whether to include a prior employment requirement. Some
delegations think this requirement can distort the investment process by impacting unfairly on new
investors and small/medium enterprises without any corresponding benefit to the "admitting" country.
Furthermore, these delegations believe that it may not correspond to the real needs of an investment and
should not be used as a measure of whether an individual is essential to an investment. Several delegations
thought it necessary to retain such a requirement if only because there is a corresponding requirement in
their national immigration laws. One delegation thought it might be necessary to specify that the prior
employment relation must be continuous and should immediately precede entry. Another delegation
questioned whether the use of prior employment requirements to avoid circumvention of national
immigration laws was effective.
Paragraph 3
Natural person of another Contracting Party(3)
Executive, Manager, Specialist
The Expert Group thought the definition of the categories of executive and manager were
generally appropriate, except that there might be some overlap between the two. The category of
"Specialist" will need some further reflection and may need to refer to the possibility of verifying
professional qualifications. One delegation would like to include "trainers" in this category.
109
CONFIDENTIAL DAFFE/MAI(97) 1/REV2
PRIVATISATION(4)
General
Some delegations questioned the need for a separate article confirming the application of the
National Treatment/MFN obligations to privatisation operations. Other delegations felt, on the contrary,
that it was worthwhile to underline this important addition to OECD obligations. Privatisation can be a
complex and politically sensitive matter. There is thus a need to specify how the MAI obligations would
interrelate to particular privatization transactions or schemes. Foreign investors attached particular
importance to transparency.
Paragraph 3
One EG3 delegation doubted whether the provision was fully consistent with the National
Treatment/MFN Treatment obligations. Another delegation considered there is a lack of balance, and thus
discrimination, inherent in special share arrangements in that they would allow a Contracting Party to
retain control while devolving business risks to private investors. Some delegations considered that
special share arrangements will remain a feature of individual privatization schemes and that the MAI
should provide some flexibility in this area. A large majority shared the view that these special schemes
should not be considered to be inconsistent with the National Treatment and MFN Treatment obligations
unless they explicitly or intentionally discriminate against foreign investors. There might be a need, for
instance, to set aside a proportion of initial sales to private persons or institutes. As in the case of
monopolies, there is also a link with the room of manoeuvre the Contracting Parties would have in regard
to the lodging of country specific reservations/exceptions: precautionary reservations would be necessary.
Some delegations expressed reservations about the idea of special consultation procedures in this area in
addition to those that might be contemplated under the consultation/dispute settlement provisions of the
MAI.
110
CONFIDENTIAL DAFFE/MAI(97) 1/REV2
MONOPOLIES/STATE ENTERPRISES/CONCESSIONS(5)
A. Article on Monopolies
Paragraph 1
There is consensus in EG3 that the right of governments to create, allow or maintain monopolies
could not be challenged under the MAI. But there is no consensus on the need to make it explicit in the
MAI. Several delegations supported the language confirming the right of governments to designate new
monopolies, although this could also be done through an interpretative note. One delegation was of the
view that, without such a provision, there would be uncertainties about the scope of application of the
MAI in this field. Some delegations remained unconvinced, however, of the need to mention this right
explicitly in the Agreement. One delegation noted that government prerogatives on monopolies also apply
to their elimination; inclusion of the word "eliminating" at the end of the phrase would make this clear
and produce a more balanced provision. Some delegations noted the link between the designation of new
monopolies and the MAI article on Expropriation and Compensation. One delegation pointed out that the
need for paragraph I would be enhanced by the inclusion of market access disciplines in the MAI.
Paragraph 2
A large majority of EG3 delegations considered that the National Treatment and MFN Treatment
obligations should apply to the designation of new monopolies. Several delegations pointed out the
difficulty of applying such obligations to every situation that may arise in the future, notably in the context
of the introduction of new technologies and felt that a "best endeavour" undertaking would be more
appropriate. Delegations also noted the link with the demonopolisation issue and, in particular, that of the
lodging of country-specific reservations or exceptions.
Paragraph 3
1. A large majority of delegations considered that the provisions of the Monopolies article should
apply to government-designated monopolies at all levels of government and not be limited to those
designated by central governments. One delegation suggested that in the case of privately-owned
monopolies, the obligations should apply only to those created after the entry into force of the MAI and
not to existing ones. This delegation argued that would be difficult to apply the obligations retroactively to
existing privately-owned monopolies while such practical difficulties would not arise with respect to
existing government monopolies.
2. Concerning subparagraph d), it was recognised in EG3 that monopolies have the capacity to
introduce market distortions, notably by cross-subsidising their business activities in competitive sectors.
It was also acknowledged that abuse of dominant position was a competition policy issue. Further thought
will also need to be given to the meaning of the "abusive use of prices".
111
CONFIDENTIAL DAE:FE/MAl(97) 1/REV2
Paragraph 4
1. EG3 was of the view that demonopolisation operations are generally favourable to liberalization
since they open up new investment activities. Demonopolisation operation would have the effect,
however, of extending the obligations of the MAI to a new area. Several delegations felt therefore that the
MAI should provide the Contracting Parties with the possibility to lodge new country-specific
reservations/exceptions when this situation occurs. This would not be contrary to standstill since country-
specific reservations/exceptions introduced at the time of demonopolisation, would, in principle, be
subject to standstill. These delegations welcomed, as a result, the flexibility in paragraph 4. An alternative
to this approach would be precautionary country-specific reservations/exceptions lodged at the time of the
entry into force of the Agreement. This problem clearly belongs to the broader issue of liberalization and
balance of commitments.
2. Some other delegations considered that the possibility of lodging country specific reservations or
exceptions should be limited to the time a Contracting Party adheres to the MAI. In the absence of such
reservations or exceptions, the National Treatment/MFN obligations would apply to demonopolisation
operations. One delegation thought that the combined ability to designate new monopolies and to cover by
reservations or exceptions new non-conforming measures could be used to evade MAI obligations.
Paragraph 5
The desirability of introducing a notification requirement for existing and new monopolies was
found by some EG3 delegations to be closely related to the issue of country-specific
reservations/exceptions and to a MAI article on Market Access. One delegation wondered what use the
Parties Group could make of this infommation and feared the administrative burden. One delegation
suggested that a best endeavour undertaking to provide, wherever possible, prior notification of any newly
designated monopoly, along the lines of article 1502(a) of NAFTA, might offer a more palatable approach.
Another delegation recalled the proposal made in the context of the negotiations of the Supplementary
Treaty to the Energy Charter Treaty which limits reporting requirements for govemment-designated
monopolies at the sub-national level to classes of monopolies as opposed to individual monopolies.
Paragraph 6
A few EG3 delegations proposed to exclude from investor-state arbitration matters arising out of
paragraphs 3(b), 3(c), 3(d) or 3(e) of this Article. Other delegations felt that this could set a dangerous
precedent for other MAI obligations. One delegation suggested that governments should keep control over
the dispute settlement process because the disputes that may arise between government-designated
monopolies and foreign investors are most likely be a function of the manner in which these monopolies
are regulated than to their own behaviour.
112
CONFIDENTIAL DAFFE/MAI(97) 1/REV2
B. Article on [State enterprises] [entities with which a Government has a specific relationship]
Several EG3 delegations questioned the need for specific provisions on state enterprises. The
problem of anti-circumvention of the MAI obligations could be addressed in the context of a general
article on the subject or in the context of corporate practices. State enterprises operating in the competitive
sector should be treated no differently than private enterprises. One delegation considered, however, that it
is not always certain that governments can divorce themselves from the activities of their state enterprises.
Foreign investors may, in any case, entertain this suspicion, particularly where such enterprises play a
significant role. A balance should be struck between their rights under the MAI as investors and their
obligations as suppliers of goods or services to domestic and foreign investors. One delegation felt that the
best way to ensure this balance is to submit state enterprises to the same rights and obligations than private
enterprises.
C. Definitions related to Articles on Monopolies [and State Enterprises]
1. One delegation suggested brackets around the word "local". A number of EG3 delegations
considered that the concept of government-designated "monopolies" should also cover that of "exclusive
suppliers" as in the case of Article VIII of the GATS. One delegation suggested that it be discussed
whether enterprises with special concessions, for example banks, should be included or not. It was also
noted that the possibility of having a GATT article XVII-type definition relating to "any enterprise" to
which a party "formally or in effect" has given exclusive or special privileges", could be considered.
Finally, it was recalled that Article 22 of the ECT covers state as well as "privileged enterprises".
2. One delegation suggested the insertion of the words "subject to Annex..."to allow, as in NAFTA,
that country specific characteristics be taken into account.
113
CONFIDENTIAL DAFFE/MAI(97) 1/REV2
INVESTMENT INCENTIVES(6)
1. The discussion on investment incentives in EG3 was based on a Note, including a proposal for
draft provision, by the New Zealand [DAFFE/MAI/EG3/RD(96)7] and a proposal by the European
Commission [section 6 of DAFFE/MAI/EG3/RD(96)10].
2. Many delegations believed that disciplines on investment incentives would be important for the
overall credibility of the MAI while at the same time recognising the role of investment incentives with
regard to the aims of policies, such as regional, structural, social, environmental or R&D policies.
3. New Zealand argued that a definition of investment incentives is a necessary prerequisite for
increased transparency and disciplines regarding such measures. It suggested a definition of investment
incentives based largely on the definitions of subsidies and "specificity" found in the WTO Agreement on
Subsidies and Countervailing Measures (ASCM). New Zealand also provided text for a specific
transparency provision.
4. Several delegations, however, considered the nature and scope of the disciplines proposed by
New Zealand and others to be too ambitious. Since WTO members were still grappling with related issues,
it would be premature to include disciplines in the MAI that could duplicate or detract from WTO
obligations. They also took the view that there has been insufficient analysis of the nature and impact of
incentives and of the nature and extent of any disciplines which would be required given the objectives of
the MAI. One delegation believed more work was necessary to identify fully the degree of the negative
effect of individual incentives in relation to the policy goals, often beneficial, implemented through those
incentives. Problems need to be clearly identified prior to drafting disciplines aimed at addressing those
problems.
5. Several delegations also questioned the viability of creating, at this stage, standstill and rollback
provisions on non-discriminatory investment incentives. Subjecting investment incentives to the NT and
MFN obligations would already constitute a major step forward. One delegation felt that this would also
imply submitting investment incentives to transparency obligations and subjecting non-conforming
measures to standstill and rollback.
6. Most delegations believed that any plans for disciplines on tax incentives should be taken up by
EG2. Some delegations thought that tax measures should be excluded.
7. Some delegations expressed concern that any additional disciplines on investment incentives in
the MAI could divert foreign investment to non-Members and place MA1 Contracting Parties at a
disadvantage relative to non-Members in their ability to retain or attract investment. Such disciplines could
also constitute an obstacle to accession to the MAI by non-Members. On the other hand, some delegations
noted that it was always envisaged that the MAI, as a high standards agreement, would mandate more
liberal FDI regimes among Parties than typically maintained by non-Members, and disputed claims that
disciplines on incentives presented any special problems in this regard.
114
CONFIDENTIAL DAFFE/MAI(97) 1/REV2
TECHNOLOGY R&D
(Proposal by Canada)(7)
On the topic of Technology R&D, Canada has proposed the following text:
"Contracting Party funding prerogatives relating to R&D consortia and other activities shall not
preclude national treatment for membership in such activities, provided that prospective foreign
participants contribute funding commensurate with their role in the consortium and the level of
funding contributed by other consortium participants.8"
CONFIDENTIAL DAFFE/MAI(97) 1/REV2
INTELLECTUAL PROPERTY
The Definition of Investment
Virtually all delegations recognised the need for further examination of the concept of
intellectual property in the definition. Delegations stressed that decisions on definition are closely linked
to the resolution of the substantive problems discussed below. Delegations had varying views on whether
the MAI should have an open or closed definition of intellectual property. Of those delegations that
proposed a closed definition, some thought that the definition should cover only those rights specified in
the TRIPS agreement and others thought that other existing rights should also be covered. Several
delegations thought that the definition should exclude copyright and neighbouring rights and databases. In
addition, delegations had varying views on whether the definition should cover future as well as existing
intellectual property rights. Some delegations thought that it would be important to reflect footnote 2 of
the Chair's text on the Definitions of Investment and Investor [DAFFE/MAI(97)7]. That footnote
contemplates that an asset, to qualify as an investment, must have the characteristics of an investment,
such as the commitment of capital or other resources, the expectation of gain or profit, or the assumption
of risk.
National Treatment, Most Favoured Nation Treatment and General Treatment
1. All delegations agreed that the current formulation of National Treatment and Most Favoured
Nation Treatment in the MAI goes beyond existing national and international practice for intellectual
property. Delegations formulated three possible approaches. The MAI could provide that National
Treatment and MFN:
(a) would apply to intellectual property without qualification (derogations would be addressed
through country-specific reservations);
(b) would have no application to intellectual property; or
(c) would apply to intellectual property, but a MAI Party could derogate from NT and MFN
in a manner consistent with the TRIPS Agreement and, perhaps, other intellectual property
agreements.
2. Virtually all delegations that expressed an opinion supported either approach (b) or (c). Of those
delegations, many want to consider whether the approach should also be applied to the MAI provision on
General Treatment. In addition, some delegations thought that the concepts of "use" and "enjoyment" in
the NT, MFN and General Treatment provisions should not apply to intellectual property.
116
CONFIDENTIAL DAFFE/MAI(97) 1/REV2
Expropriation and Transfers
1. Delegations thought that the MAI could significantly improve the existing international law on
intellectual property through its investment protection provisions - in particular, the expropriation
provisions - although some delegations thought that additional clarification on the actual value added
would be helpful. In addition, some delegations expressed the view that the concepts of direct and indirect
expropriation and the concept of a measure having an equivalent effect to expropriation should not cover
certain intellectual property practices, such as the issuance of compulsory licenses or the revocation,
limitation or creation of intellectual property rights, that are permissible under TRIPS and, perhaps, other
intellectual property agreements. Delegations identified three approaches protecting these practices:
(a) make no specific provision in the MAI on the assumption that the 1dAI provision on
expropriation would not be interpreted so as to cover these practices;
(b) refine the concepts at "equivalent effect" and "indirect expropriation" to ensure that they
do not apply to these practices; or
(c) draft a provision stating that the concepts of expropriation and measure having equivalent
effect shall not apply to practices consistent with TRIPS and, perhaps, with other
international agreements.
2. Some delegations thought that the provisions of the MAI on Transfers will have no adverse
impact on intellectual property practices. However, other delegations expressed concern that these
provisions may force some MAI Parties to ensure that certain payments are freely transferable in a manner
inconsistent with their intellectual property regimes. Particular concern was expressed about the possible
impact of the Transfer provisions on collective management regimes. Delegations considered that this
issue will require further study to determine whether there is a problem and, if so, how the problem might
be solved.
Performance Requirements
Delegations agreed that restrictions on performance requirements should not cover a requirement
that is imposed, or a commitment or undertaking that is enforced, by a court, administrative tribunal or
competition authority to remedy an alleged violation of competition laws regarding intellectual property
rights or to act in a manner not inconsistent with other provisions of the MAI. Currently, there is a square-
bracketed text to this effect in the draft MAI text. One delegation proposed that the words "court,
administrative tribunal, competition authority" be followed by "or other competent authorities". A large
number of delegations also believed that restrictions on performance requirements should also not cover
use of intellectual property rights without the authorization of the rights holder, to the extent that such use
is consistent with the TRIPS Agreement. Finally, one delegation had concerns about the meaning of the
phrase "proprietary knowledge".
117
CONFIDENTIAL DAFFE/MAI(97) 1/REV2
Monopolies
Delegations agreed that the definition of monopolies should continue to include bracketed text
that would exclude from the definition an entity that has been granted an exclusive intellectual property
right solely by reason of such grant. Delegations thought that this issue will require further study to
determine whether there is a problem and, if so, how the
problem might be solved.
Dispute Settlement
Delegations noted that Expert Group No. 1 is addressing issues arising from the relationship
between dispute settlement under the MAI and under other international agreements. Some delegations
doubt that overlap between dispute settlement systems gives rise to issues that are unique to the field of
intellectual property. Other delegations are concerned that intellectual property may indeed require special
attention. In particular, the concerns that were expressed included conflicting panel decisions on TRIPS
provisions, the applicability of investor to state dispute settlement to intellectual property and possible
problems with forum shopping. These Delegations want to consider the issue of dispute settlement further.
Other Issues
During the discussion, delegations identified a number of issues that are new and that require
further consideration:
(a) does the definition of investor as applied to the holder of a right in intellectual property
give rise to any issues that need to be addressed;
(b) when does an intellectual property right take on the characteristics of an investment;
(c) does the status of a rights holder give rise to any issues that must be addressed with
respect to the MAI provisions on key personnel;
(d) will the MAI contain provisions on corporate practices that might give rise to intellectual
property concerns; and
(e) will the MEN provision of TRIPS be triggered by any substantive or procedural provisions
of the MAI and, if so, what is the impact?
118
CONFIDENTIAL DAFFE/MAI(97) 1/REV2
PUBLIC DEBT V(8)
1. It was agreed that the issue of trade insurance and export credit guarantees still needs to be
addressed.
2. A footnote could be added to explain the meaning of "appropriate institutions".
3. The Czech Republic considered that the obligation of MFN treatment needs to be preserved in
the context of public debt rescheduling.
4. Some delegations wished to review whether the carve-out should apply to rescheduling of all
public debt, or only to debts owed to other Contracting Parties and to private creditors whose claims were
linked to the rescheduling of state-to-state debt.
5. Some delegations continued to reserve their position on the inclusion of public debt within the
scope of MAI disciplines.
6. Most delegations remained of the view that, with the exception of the proposed carve-out for
debt re-scheduling, public debt should be fully covered by the MAI disciplines. Situations where country
public debt management policies may not be consistent with the MAI provisions can be covered by
country-specific reservations. A few delegations, however, expressed concern over this approach and
considered that public debt management should be totally excluded from the scope of the MAI.
119
1. General Treatment Article.
2. Paragraphs 6-7 reflect the discussions in the Drafting Group. When this matter was discussed by the Negotiating Group in December 1996, the Chairman concluded "that an additional sentence, based on the sentence in paragraph (a), should be added to Article 2.3 provided that an acceptable formulation was found. He concluded that there was not sufficient support for the inclusion in that article of an additional paragraph (b) which would cover certain residence requirements as part of formalities in connection with the establishment of investments" [DAFFE/MAI(97)2].
3. See footnone 8 in Consolidated Text.
4. These comments reflect the state of the discussion at the end of December 1996 [DAFFE/MAI/EG3(96)21].
5. These comments reflect the state of the discussion at the end of December 1996 [DAFFE/MAI/EG3(96)22].
6. These comments reflect the state of the discussion at the end of December 1996 [DAFFE/MAI/EG3(96)22].
7. Extract from DAFFE/MAI/ST(97)1.
A Spanish proposal has also been proposed, but was not discussed. It reads as follows: "The participation in, or treatment of, any combination, consortium, research programme, joint or other enterprise activity, including measures affecting technology, shall be regulated by existing international or bilateral S&T co-operation agreements."
8. Comments made during the informal consultations on financial matters on 14-15 April.