CONFIDENTIAL DAFFE/MAI(97) 1/REV2
IX. RESERVATIONS(1)
STANDSTILL AND THE LISTING OF COUNTRY SPECIFIC RESERVATIONS
1. The MAI aims to ensure a high minimum standard of treatment for investors and their
investments, including National Treatment and MEN treatment. Standstill would result from the
prohibition of new or more restrictive exceptions to this minimum standard of treatment. From this
perspective, a violation of standstill would be a violation of the underlying MAI obligations (e.g. of
National Treatment and MFN), and the dispute settlement provisions would apply to such breaches of the
MAI obligations.
2. Standstill would not apply, however, to any general exceptions (e.g. national security) or to any
temporary derogations (e.g. balance of payments) that might be allowed under the MAI.
3. For those matters where Contracting Parties are ready to commit to standstill, the Drafting Group
considered that:
a) each Contracting Party should list all non-conforming measures in an Annex of the
Agreement;
b) the reservations should describe, in the most precise terms possible, the nature and scope of
the non-conforming measures. This would ensure that the scope of the reservations is not
broader than these measures and, thus, that the reservations are not of a "precautionary"
nature;
c) no additional non-conforming measures could be introduced; and
d) an amendment to a non-conforming measure would be permitted provided it did not decrease
the conformity of the measure.
Of course, if the MAI obligations were expanded, Article 1.5 (a) - (d) would come into play
again with respect to the new or enlarged obligations.
4. The Drafting Group considered that further discussion is needed on the question of country
specific reservations in certain sensitive sectors and new economic activities that may emerge in the future.
Some delegations suggested flexibility could be achieved by separate annexes to the Agreement for the
listing of country specific reservations in these areas.
The list of country specific reservations is in DAFFE/MAI/RES(97)31.
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5. The Drafting Group also considered that a standard presentation of the non-conforming measures
listed in Contracting Parties' specific reservations would enhance transparency and facilitate the operation
of the Agreement. The Drafting Group felt that specific reservations listed in the schedules of the
Contracting Parties should include the following elements:
a) the obligation or MAI article in respect of which the
reservation is taken;
b) the sector(s)or sub-sector(s) covered by the reservation;
c) the level of government which maintains the non-conforming
measure;
d) the legal source or authority of the non-conforming
measure;
e) the description of the non-conforming measure; and
f) the purpose of the non-conforming measure.
6. For practical reasons, however, the amount of information to be provided should be limited to
the minimum necessary to describe the non-conforming measures. This may be particularly relevant to
sub-national (e.g. state and local) measures, not all of which may merit listing.
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ROLLBACK
1. Rollback is the liberalisation process by which the reduction and eventual elimination of non-
conforming measures to the MAI would take place. It is a dynamic element linked with standstill, which
provides its starting point. Combined with standstill, it would produce a "ratchet effect", where any new
liberalisation measures would be "locked in" so they
could not be rescinded or nullified over time.
2. There are a number of ways for achieving rollback. The most commonly known in the trade field
is that of successive rounds of negotiations where rollback results from the trade-offs or exchange of trade
concessions. Peer pressure through periodic examinations of Member countries' restrictions has been the
approach of the OECD liberalisation instruments. Rollback commitments may also be inscribed in
schedules of commitments or list of reservations. While this has not been a generalised~practice, it has
been done in some cases under the OECD instruments.
3.Rollback might be achieved through:
a) liberalisation commitments by the Contracting Parties effective on the date of entry into
force of the MAI. This would imply that that not all restrictions currently maintained
would be included in the list of reservations of the Contracting Parties;
b) rollback commitments inscribed in a country reservation or description of a non-
conforming measure by means of a "phase-out" or a "sunset clause" specifying a future
date when the non-conforming measure would be removed or made more limited in the
future. Phase-out or sunset provisions could not be envisaged for all non-conforming
measures. They might be useful, however, where the phase-out of a non-conforming
measure is inscribed in domestic legislation or where a Contracting Party is able to
commit itself to future liberalisation by a specified date.
4. Rollback after the entry into force of the MAI could result from:
a) an obligation for a Contracting Party to adjust its reservations to reflect any new
liberalisation measure (the "ratchet" effect).
b) periodic examinations of non-conforming measures. These examinations could lead to
recommendations in favour of the removal or limitations of specific measures. These
reviews could be conducted on a country-by-country basis, or on an horizontal or
sectoral basis, taking into account the degree of liberalisation already achieved; and
c) future rounds of negotiations designed to remove non-conforming measures. The
decision to launch future negotiations could be taken at the conclusion of the MAI
negotiations or the MAI could provide a specific date for the first round of such
negotiations.
5. The "Parties Group" could have the role of monitoring the adjustment of country reservations,
conducting periodic examinations of non-conforming measures or launching future rounds of negotiations.
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LODGING OF COUNTRY SPECIFIC RESERVATIONS
1. The Drafting Group held a brief preliminary discussion of this matter on 26 March 1997 on the
basis of a Note by the Chair [DAFFE/MAI/DG3(97)6]. Following further discussion~on 24 April 1997, it
was agreed to put forward the Draft Article as set out above and to include as Commentary the following
observations which were initially developed as an Aide-Memoire to the discussion of 26 March
[DAFFE/MAI/DG3/M(97)3].
2. The Group agreed that its objective was to prepare the text of a draft article, together with any
necessary commentary. The Drafting Group did not need to resolve the important policy issues
outstanding in regard to the lodging of reservations as these were under discussion in the Negotiating
Group. The existing commentary in the Chairman's note should not be considered as a prst draft of the
commentary to be prepared by the Group.
3. It was agreed that part A of the draft article was needed as the core provision to "grandfather"
existing non-conforming measures and prevent the introduction of more restrictive measures ("standstill").
4. Different views were expressed with respect to part B of the draft article which would allow new
non-conforming measures to be introduced after the Agreement comes into force. One view was that such
a provision might undermine the MAI disciplines to which it applied. The opposite view was that part B
would make it easier to preserve high standards in the disciplines of the agreement by allowing flexibility
to countries in lodging their reservations.
5. Different views were also expressed regarding the disciplines against which reservations should
be permitted. While some favoured an open list, others argued for a limited closed list of disciplines
comprising National Treatment, MFN and new disciplines (special topics). It was suggested that the
disciplines listed in the chapeau text of parts A and B should remain incomplete for the time being
pending political decisions by the Negotiating Group.
6. In part A of the draft article, subparagraphs a) and c) seemed broadly acceptable to most
delegations on a first reading. Subparagraph b) also attracted support although some questioned the need
to provide for the possibility that parliaments might fail to renew laws immediately.
7. It was suggested that the term "measure" should be defined and reference was made to the
definitions used in NAFTA(2), GATS(3) and the transparency article in the MAI [DAFFE/MAI(97)1, page
11]. One delegation objected to the use of the transparency definition which was said to be unsuitable for
the purpose of lodging reservations.
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8. Another suggestion was that reservations should be lodged with respect to "treatment" as this
as the term used in the National Treatment and MFN articles. Others considered this approach
unsatisfactory.
9. The question was raised whether national law or the description of the measure in the reservation
would define the limits of Parties' obligations under the MAI. Delegations underlined the need for
certainty in this regard and reference was made to the four introductory paragraphs of Annex I to NAFTA.
This discussion drew attention to the important relationship between the Article itself and the form and
content of the country reservations (see Annex).
10. Questions were raised about whether the provisions of the draft article, especially part A, could
be applied uniformly to all levels of government and to regional economic integration organizations.
11. Finally, it was proposed to add a provision to protect existing investments in the event that those
investments had been established under conditions more favourable than those guaranteed by the
reservations of the country concerned(4).
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Annex
Standard presentation of individual country-specific
reservations
Sector:
Sub-Sector:
Obligation or MAI article in respect of which the
Reservation is taken:
Level of Government:
Legal source or authority of the Measure:
Succinct Description of the Measure:
Purpose or Motivation of the Measure:
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1. The list of country specific reservations is in DAFFE/MAI/RES(97)31.
2. NAFTA Article 201: Definitions:
"measure includes any law, regulation, procedure, requirement or practice";
3. GATS Article XXVIII:
"meaure means any measure by a Member, whether in the form of a law, regulation, rule, procedure, dicision, administrative action, or any other form",
4. NAFTA Article 1108 (4) (Reservations and Exceptions):
"No Party may, under any measure adopted after the date of entry into force of this Agreement and covered by its Schedule to Annex II, require an investor of another Party, by reason of its nationality, to sell or otherwise dispose of an investment existing at the time the measure becomes effective."