MAI Draft Oct 6, 1997 ------------------------------------------------------------------------ Many thanks to Yves Bajard for his efforts (scanning, proofreading) that made the publication of this draft on the web possible! ------------------------------------------------------------------------ No guarantees for accuracy can be given: if you are in doubt about any aspect of this document, please consult the printed version. Correspondence can be directed to Hendrik Zimmermann . ------------------------------------------------------------------------ OECD Organisation for Economic Co-operation and Development NEGOTIATING GROUP ON THE MAI (MULTILATERAL AGREEMENT ON INVESTMENT) MULTILATERAL AGREEMENT ON INVESTMENT CONSOLIDATED TEXT AND COMMENTARY October 1997 This document consolidates the texts of the agreement considered in the course of the MAI negotiations so far. The texts reproduced here result mainly from the work of expert groups and have not been adopted by the Negotiating Group. They are presented with footnotes, commentary and proposals that are still under consideration. The final text will be accompanied by country specific reservations which will form an integral part of the overall agreement. TABLE OF CONTENTS CONSOLIDATED TEXT I. GENERAL PROVISIONS 8 Preamble 8 II. SCOPE AND APPLICATION 11 Definitions 11 Geographical Scope of Application 12 Application to Overseas Territories 13 III. TREATMENT OF INVESTORS AND INVESTMENTS 14 National Treatment and Most Favoured Nation Treatment 14 Transparency 14 Special Topics 15 Temporary entry, stay and work of Investors and Key Personnel 15 Senior Management [and Boards of Directors] 17 Employment Requirements 17 Performance Requirements 18 Privatisation 24 Monopolies/State Enterprises/Concessions 30 Investment Incentives 44 Corporate Practices 47 Technology R&D 47 Intellectual Property 47 Public Debt 47 Not Lowering Standards 48 IV. INVESTMENT PROTECTION 50 General Treatment 50 Expropriation and Compensation 50 Protection from Strife 51 Transfers 52 Subrogation 53 Protecting Existing Investments 53 V. DISPUTE SETTLEMENT 54 State-State Procedures 54 Investor-State Procedures 61 VI. EXCEPTIONS AND SAFEGUARDS 68 General Exceptions 68 Transactions in Pursuit of Monetary and Exchange Rate Policies 69 Temporary Safeguard 70 VII. FINANCIAL SERVICES 72 Prudential Measures 72 Recognition Arrangements 72 Authorisation Procedures 73 Transparency 73 Information Transfer and Data Processing 74 Membership of Self-regulatory Bodies and Associations 74 Payments and Clearing Systems/Lender of Last Resort 74 Dispute Settlement 75 Definition of Financial Services 77 VIII. TAXATION 79 IX. RESERVATIONS 84 Lodging of Country Specific Reservations 84 X. RELATIONSHIP TO OTHER INTERNATIONAL AGREEMENTS 86 Obligations under the Articles of Agreement of the International Monetary Fund 86 The OECD Guidelines for Multinational Enterprises 86 XI. IMPLEMENTATION AND OPERATION 88 The Preparatory Group 88 The Parties Group 90 XII. FINAL PROVISIONS 92 Signature 92 Acceptance and Entry Into Force 92 Accession 93 Non-Applicability 93 Review 93 Amendment 93 Withdrawal 94 Depositary 94 Status of Annexes 95 Authentic Texts 95 Denial of Benefits 96 4 COMMENTARY I. GENERAL PROVISIONS 98 Preamble 98 II. SCOPE AND APPLICATION 99 Definitions 99 Geographical Scope of Application 103 Ill. TREATMENT OF INVESTORS AND INVESTMENTS 104 General 104 National Treatment and Most Favoured Nation Treatment 104 Transparency 107 Special Topics 109 Temporary Entry, Stay and Work of Investors and Key Personnel 109 Privatisation 110 Monopolies/State Enterprises/Concessions 111 Investment Incentives 114 Technology R&D 115 Intellectual Property 116 Public Debt 119 IV. INVESTMENT PROTECTION 120 General Treatment 120 Expropriation and Compensation 121 Transfers 125 Subrogation 126 Protecting Existing Investments 126 V. DISPUTE SETTLEMENT 127 General 127 State-State Procedures 127 Investor-State Procedures 129 VI. EXCEPTIONS AND SAFEGUARDS 131 General Exceptions 131 Transactions in Pursuit of Monetary and Exchange Rate Policies 135 Temporary Safeguard 136 5 VIl. FINANCIAL SERVICES 137 Prudential Measures 137 Authorisation Procedures 137 Transparency 138 Information Transfer and Data Processing 138 Membership of Self-regulatory Bodies and Associations 139 Payments and Clearing System/Lender of Last Resort 140 Dispute Settlement 141 Definition of Financial Services 142 Other lssues 143 New Financial Services 143 "Acquired Rights 144 Right of Initial Establishment, Equality of Competitive Opportunity and Application of National Treatment in Sub-National Units of Governments 144 Restrictions Based on Dotation Capital of Branches of Financial Services Enterprises 145 Indirect Investment 145 VIII. TAXATION 146 Expropriation 146 Transparency 146 National Treatment 147 Most Favoured Nation Treatment 147 Performance Requirements 148 Transfers 148 Investment Incentives 148 Dispute Settlement 149 Relationship between the MAI and Other International Agreements 149 Accession 150 Definitions 150 IX. RESERVATIONS 151 Standstill and the Listing of Country Specific Reservations 151 Rollback 153 Lodging of Country Specific Reservations 154 6 ANNEX: COUNTRY SPECIFIC PROPOSALS FOR DRAFT TEXTS Geographical Scope 158 Regional Economic Integration Organisations 160 Conflicting Requirements 161 Secondary Investment Boycotts 165 Culture 167 Public Order 168 Subnational measures 169 Taxation 170 Social Security Contributions 171 The Svalbard Treaty 172 Labour Market Integration Agreements 173 Sami People 175 Technical Note: The drafting groups and expert groups contributing to this document were: - DGI Drafting Group No. I on "Investment Protection" - DG2 Drafting Group No. 2 on "Definition and Treatment of Investors and Investments" - DG3 Drafting Group No. 3 on "Definition, Treatment and Protection of Investors and Investments" - EGI Expert Group No. I on "Dispute Settlement and Geographical Scope" - EG2 Expert Group No. 2 on "Tax Measures" - EG3 Expert Group No. 3 on "Special Topics" - EG4 Expert Group No. 4 on "Institutional Matters" - EG5 Expert Group No. 5 on "Financial Services Matters" 7 CONSOLIDATED TEXT 8 I. GENERAL PROVISIONS PREAMBLE The Contracting Parties to this Agreement,1,2 Desiring to strengthen their ties of friendship and to promote greater economic co-operation between them; Considering that international investment has assumed great importance in the world economy and has considerably contributed to the development of their countries; Recognising that agreement upon the treatment to be accorded to investors and their investments will contribute to the efficient utilisation of economic resources, the creation of employment opportunities and the improvement of living standards; Emphasising that fair, transparent and predictable investment regimes complement and benefit the world trading system;3 [Wishing that this Agreement enhances international co-operation with respect to investment and the development of world-wide rules on foreign direct investment in the framework of the world trading system as embodied in the World Trade Organization;]4 Wishing to establish a broad multilateral framework for international investment with high standards for the liberalisation of investment regimes and investment protection and with effective dispute settlement procedures; [Resolved to implement this agreement in a manner consistent with environmental protection and conservation;] ------------------------------------------------------------------------ 1. One delegation proposed that the Preamble include the following language on taxation: "aware of the importance of taxation for investments and investors, emphasising that double taxation agreements cover most OECD countries in a satisfactory manner, and that tax policy considerations shall be taken into account in the process of accession of new Contracting Parties, in particular the existence of a network of bilateral tax treaties;" This proposal was not discussed. It may need to be revisited in the light of further consideration of taxation matters by the Negotiating Group. 2. Two delegations support including in the Preamble the following language on natural resources: "Reaffirming the sovereignty and sovereign rights of States over natural resources within the limits of national jurisdiction." 3 . Some delegations proposed an explicit reference to the World Trade Organisation. One delegation proposed the addition immediately after the words "world trading system" of: "encompassing multilateral and bilateral investment instruments as well as agreements of the World Trade Organisation". This proposal would need some refinement to ensure that it does not limit the scope of the phrase "world trading system" by excluding, for example, regional agreements. 4. One delegation proposed this language. Others oppose the inclusion of such language because they believe that it would prejudge, and be prejudicial to, future work on investment in the World Trade Organisation. ------------------------------------------------------------------------ 9 [Reaffirming their commitment to the Rio Declaration on Environment and Development and Agenda 21, including to sustainable development as reflected therein,]5 [and recognising that investment, as an engine of economic growth, can play a key role in ensuring that growth is sustainable, when accompanied by appropriate environmental policies to ensure it takes place in an environmentally sound manner]; [Renewing their commitment to the observance of internationally recognised core labour standards [, i.e. freedom of association, the right to organise and bargain collectively, prohibition of forced labour, the elimination of exploitative forms of child labour, and nondiscrimination in employment] [and noting that the International Labour Organisation is the competent body to set and promote core labour standards world-wide.]] ------------------------------------------------------------------------ 5. The square brackets in this tiret, the first set of brackets in the next tiret and the overall brackets on this and the next tiret were requested by some delegations which oppose inclusion of texts on the matter concerned in the Preamble. The brackets do not reflect a divergence on drafting at this stage, although some delegations have concerns with respect to the reference to "conservation". One delegation has put forward additional language on the environment and labour which is set out in the Commentary and which is supported by one delegation. ------------------------------------------------------------------------ 10 Affirming their decision to create a free-standing Agreement open to accession by all countries;6 [Noting] [Affirming their support for] the OECD Guidelines for Multinational Enterprises and emphasising that implementation of the Guidelines, which are non-binding and which are observed on a voluntary basis, will promote mutual confidence between enterprises and host countries and contribute to a favourable climate for investment;7 HAVE AGREED AS FOLLOWS ------------------------------------------------------------------------ 6. Some delegations proposed that the statement is open to accession by all countries be strengthened. 7. One delegation proposed that the Preamble state that the Guidelines include, in particular, recommendations on employment and industrial relations and environmental protection; other delegations were of the view that the text introducing the Guidelines as an annex should specify the eight subject areas, including those just mentioned, on which the Guidelines make recommendations (see Section III below). In addition, one delegation would like to add words to the effect that the Contracting Parties consider the Guidelines to be "a valuable part of the framework for the consideration of issues of investment and multilateral enterprises." The draft text on associating the Guidelines with the MAI, together with an accompanying footnote, is found on page 86. ------------------------------------------------------------------------ 11. II. SCOPE AND APPLICATION DEFINITIONS 1. Investor means: (i) a natural person having the nationality of, or who is permanently residing in, a Contracting Party in accordance with its applicable law; or (ii) a legal person or any other entity constituted or organised under the applicable law of a Contracting Party, whether or not for profit, and whether private or government owned or controlled, and includes a corporation, trust, partnership, sole proprietorship, joint venture, association or organisation. 2. Investment means: Every kind of asset owned or controlled, directly or indirectly, by an investor, including1,2: (i) an enterprise (being a legal person or any other entity constituted or organised under the applicable law of the Contracting Party, whether or not for profit, and whether private or government owned or controlled, and includes a corporation, trust, partnership, sole proprietorship, branch, joint venture, association or organisation); (ii) shares, stocks or other forms of equity participation in an enterprise, and rights derived therefrom; (iii) bonds, debentures, loans and other forms of debt, and rights derived therefrom; (iv) rights under contracts, including turnkey, construction, management, production or revenue-sharing contracts; (v) claims to money and claims to performance; (vi) intellectual property rights; (vii) rights conferred pursuant to law or contract such as concessions, licenses, authorisations, and permits; (viii) any other tangible and intangible, movable and immovable property, and any related property rights, such as leases, mortgages, liens and pledges. ------------------------------------------------------------------------ 1. The Negotiating Group agreed that this broad definition of investment calls for further work on appropriate safeguard provisions. In addition, the following issues require further work to determine their appropriate treatment in the MAI: indirect investment, intellectual property, concessions, public debt and real estate. 2. For greater certainty, an interpretative note will be required to indicate that, in order to qualify as an investment under the MAI, an asset 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. ------------------------------------------------------------------------ 12 GEOGRAPHICAL SCOPE OF APPLICATION 3 This Agreement shall apply in: (a) the land territory, internal waters, and the territorial sea of a Contracting Party, and, in the case of a Contracting Party which is an archipelagic state, its archipelagic waters; and (b) the maritime areas beyond the territorial sea with respect to which a Contracting Party exercises sovereign rights or jurisdiction in accordance with international law, as reflected particularly in the 1982 United Nations Convention on the Law of the Sea.4 ------------------------------------------------------------------------ 3. A number of EG1 delegations were of the view that rather than an article on geographical scope, an article should define the "territory" or "area" of a Contracting Party to which the MAI would be applicable and in that case, it could be included in a general definitions part of the agreement. Some delegations had serious misgivings about the feasibility of embarking on this approach. 4. EG1 agreed that an alternative text of subparagraph (b) illustrating the "functional' approach supported by some delegations should be included in order to preserve the approach for future consideration if the Negotiating Group were to decide to pursue that option further. An alternative subparagraph (b), could read: "................... investments beyond the territorial sea under the jurisdiction of a Contracting Party in accordance with international law as reflected in the 1982 United Nations Convention on the Law of the Sea." ------------------------------------------------------------------------ 13 APPLICATION TO OVERSEAS TERRITORIES 1. A State may at any time declare in writing to the Depositary that this Agreement shall apply to all or to one or more of the territories for the international relations of which it is responsible.5 Such declaration, made prior to or upon ratification, accession or acceptance, shall take effect upon entry into force of this Agreement for that State. A subsequent declaration shall take effect with respect to the territory or territories concerned on the ninetieth day following receipt of the declaration by the Depositary. 2. A Party may at any time declare in writing to the Depositary, that this Agreement shall cease to apply to all or to one or more of the territories for the international relations of which it is responsible. Such declaration shall take effect upon the expiry of one year from the date of receipt of the declaration by the Depositary, with the same effect regarding existing investment as withdrawal of a Party. ------------------------------------------------------------------------ 5. In case such a declaration of application were to be accompanied by reservations or exceptions beyond those of the declaring state, these would be subject to acceptance of the other Parties. ------------------------------------------------------------------------ 14 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 1.1I 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 fumish 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. ------------------------------------------------------------------------ 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. 2 . Proposed by one delegation. ------------------------------------------------------------------------ 15 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 Parry shall grant temporary entry, stay and authorisation to work4 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 enterprise5 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 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 authorisation 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 encouraged7 to grant authorisation to work to the spouse of the person who has been granted temporary entry, stay, and authorisation to work in accordance with this Article. ------------------------------------------------------------------------ 3. Whether there should be an anti-abuse clause, its precise wording, as well as its specific placement is to be decided. 4. Interpretative note: "The granting of an "authorisation 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 endeavour" and may need to refer to capitals before agreeing to deletion. ------------------------------------------------------------------------ 16 2. No Contracting Party may deny entry and stay as provided for by this Article, or authorisation to work as provided for by paragraph 1(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. ------------------------------------------------------------------------ 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. ------------------------------------------------------------------------ 17 SENIOR MANAGEMENT [AND MEMBERSHIP ON BOARDS OF DIRECTORS 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. ------------------------------------------------------------------------ 9. Three delegations 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 antidiscrimination and labour laws. ------------------------------------------------------------------------ 18 PERFORMANCE REQUIREMENTS 12 1. A Contracting Party shall not, in connection with the establishment, acquisition, expansion, management, operation or conduct13 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 undertaking14: (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 services15 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; ------------------------------------------------------------------------ 12. One delegation 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. One delegation 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. This delegation 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. Two delegations 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 GATS." 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. One delegation reserved its position on the inclusion of "services" in 1(c) with respect to requirements associated with the granting of an advantage. ------------------------------------------------------------------------ 19 (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 laws16 [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 ------------------------------------------------------------------------ 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. In this context questions were raised concerning the meaning of "proprietary knowledge" and the reference to the relevant authorities. 17. One delegation 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 incoporation laws in so far as such laws oblige the establishment and/or maintenance of representative or head offices 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. ------------------------------------------------------------------------ 20 [(j) to hire a given level of [local personnel] [nationals];19 (k) to establish a joint venture;20 or [(l) to achieve a minimum level of local equity participation.] 2. A Contracting Party is not precluded by paragraph 1 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 [1(a) and] 1(f) through 1(l).21 ------------------------------------------------------------------------ 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 to local personnel. Some delegations maintained a reserve on this latter proposal. One delegation wondered whether this provision should apply to residency requirements. Another delegation 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. 20. At the Negotiating Group meeting in April 1997, the Chairman noted that a large majority was in favour of including (k) and (l) in the list of prohibited performance requirements. It would not be necessary to have an interpretative note regarding the application of national treatment and MFN. One delegation reserved its position concerning the inclusion of (k) and (l) noting with respect to (l) the requirement to have provisions for nominal qualifying shares. One delegation suggested that items (k) and (l) could be combined into one provision since in their view they achieve the same result. One delegation felt that these items should, for the time being, be kept separate. 21. The term "commitments or undertakings" would be deleted if the above proposal for the chapeau of paragraph 1 was agreed to. Two delegations supported the inclusion of item 1(a). This would appear necessary to cover inter alia, agricultural export support and trade-marketing support programmes. One delegation referred to their concerns on the coverage of services. Another delegation, on the other hand, felt that the inclusion of 1(a) would be incompatible with the provisions of the WTO Agreement on Subsidies and Countervailing Measures. One delegation felt that there might be questions about export credits or export promotion, which would be better addressed in paragraph 5. One delegation pointed to the difficulty of distinguishing in many instances between export promotion and foreign aid programmes. As regards items (g), (h), (k) and (l), 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. One delegation also supported the deletion of the reference to 1(f). ------------------------------------------------------------------------ 21 3. Nothing in paragraphs [1(a),] 1(b), 1(c), 1(d), and 1(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 1(b) and 1(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.]24 ------------------------------------------------------------------------ 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). Some delegations considered paragraph 3 to be redundant given the content of paragraph 2. 23. One delegation 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 one delegation: "Nothing in paragraphs 1(b) and 1(c) 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.]" One delegation considered that the phrase "that are not inconsistent with the provisions of this Agreement" did not fit well in this proposal. ------------------------------------------------------------------------ 22 5.25 (a) Paragraphs 1(a), 1(b), and 1(c) do not apply to qualification requirements for goods or services with respect to export promotion [and foreign aid ] programmes26; [(b)paragraphs 1(b), 1(c), 1(f), and 1(h) do not apply to procurement by a Contracting Party or a state enterprise27; and]28 ------------------------------------------------------------------------ 25. One delegation proposed the following interpretative note as an alternative for paragraph 5: "Nothing in paragraph 1(a), (b) and (c) 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 for goods or services with respect to export promotion [and foreign aid] programmes. Nothing in subparagraph 1(b) [or 1(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. One delegation noted that it is very difficult in many instances to distinguish between export promotion and foreign aid programmes. Another delegation 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 Organisations (NGOs). Domestic sourcing requirements imposed on such organisations might result in preferential treatment to domestically-controlled firms over foreign-controlled ones. One delegation 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 1(b) and 1(c) than for the inclusion of 1(f) and 1(h). Two delegations 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. ------------------------------------------------------------------------ 23 (c) Paragraphs 1(b) and 1(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 1(i) does not apply to requirements imposed by a Contracting Party as a part of privatisation operations.]30 ------------------------------------------------------------------------ 29. One delegation 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 1(i) and privatisation operations. The problems could also be solved if paragraph 1(i) was deleted. Two delegations opposed the inclusion of this provision. ------------------------------------------------------------------------ 24 PRIVATISATION 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 privatisation, irrespective of the method of privatisation (whether by public offering, direct sale or other method)32; and b) subsequent transactions involving a privatised asset33. [Paragraph 1a (voucher schemes) 2. Notwithstanding paragraph 1, arrangements under which natural persons of a Contracting Party are granted exclusive rights as regards the initial privatisation are acceptable as a method of privatisation under this Agreement provided that the exclusive right as regards the initial privatisation 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 privatise35. ------------------------------------------------------------------------ 31. Two delegations reserve their position on all privatisation obligations. One considers that dedicated MAI provisions on privatisation are unnecessary, since the basic NT/MFN obligations would apply to privatisation, and thus reserves its position on all such provisions. 32. One delegation reserves its position. 33. Some delegations reserve their position on sub-paragraph (b) as it goes beyond the scope of a privatisation 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. One delegation is ready to withdraw this proposal if reference to vouchers schemes under paragraph 3, alternative 2, letter d, is deleted. 35. Two delegations propose to insert "prejudice Contracting Parties' rules governing the system of property ownership or" between the words "shall" and "be". ------------------------------------------------------------------------ 25 Paragraph 3 (Special share arrangements)36 Alternative 1 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. dejure) 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 defacto discrimination they are also contrary to National Treatment/MFN treatment. ------------------------------------------------------------------------ 36. Work on paragraph 3 was based on alternative 1, which was supported by a large number of delegations. However, one delegation 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 1) may in fact not conform with NT/MFN. Another delegation shares this view. These delegations propose the deletion of paragraph 3. 37. One delegation would still prefer the inclusion of an illustrative list. 38. One delegation proposed the following note: "As with other measures contrary to obligations on National Treatment and MFN 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 1 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. One delegation 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. That delegation also suggested the inclusion of an illustrative list. ------------------------------------------------------------------------ 26 [Alternative 4 40 7. Nothing in this Agreement shall prevent Contracting Parties from using special methods of privatisation 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 privatisation, -- 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.] ------------------------------------------------------------------------ 40. This proposal by a delegation has not been discussed. ------------------------------------------------------------------------ 27 Paragraph 4 (Transparency) 8. For the purposes of this Article, each Contracting Party41 or its designated agency shall promptly publish or otherwise make publicly available the essential features and procedures for participation in each prospective privatisation42.* ------------------------------------------------------------------------ 41. One delegation proposed that the obligation should apply to all levels of government. 42. It is understood that the obligation of this article will be met wherever the information on a privatisation operation is made available. ------------------------------------------------------------------------ 28 Footnote *Alternative 1 This footnote confirms the application of the Transparency Article YY. Specifically, the obligations to accord National Treatment and MFN 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 MFN 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 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.] ------------------------------------------------------------------------ 43. Two delegations support the insertion of the sentences in the bracket. The other delegations see no need for such text. 44. This alternative was proposed by one delegation following bilateral consultations. It was not discussed by the experts. ------------------------------------------------------------------------ 29 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.** 45 ** This article is not meant to cover transactions between different levels or entities of the same Contracting Party. ------------------------------------------------------------------------ 45. Two delegations reserve their position on the definition. Several delegations considered that the terms "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. ------------------------------------------------------------------------ 30 MONOPOLIES/STATE ENTERPRISES/CONCESSIONS 46 A. Article on Monopolies47 [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 nondiscriminatory treatment when designating a monopoly. ------------------------------------------------------------------------ 46. This note assembles proposals made at various stages on the subject of monopolies/State enterprises/concessions, namely those contained in previous texts. 47. One delegation reserves its position on all obligations on monopolies that go beyond those of the GATT and GATS. 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. ------------------------------------------------------------------------ 31 Paragraph 3, chapeau: 3. Each Contracting Party shall ensure 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: ------------------------------------------------------------------------ 50. One delegation 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. Another delegation 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 sub-national governments might not be necessary in light of the solution found for the general treatment of sub-national entities under the MAI. ------------------------------------------------------------------------ 32 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 nondiscriminatory 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 ------------------------------------------------------------------------ 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. One delegation raised the issue of the treatment of subcontracting of monopoly activities. Another delegation 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. ------------------------------------------------------------------------ 33 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 conduct]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 option57 ------------------------------------------------------------------------ 53. A few delegations supported this alternative on the basis of it being broader and more precise than alternative 2. 54. One delegation felt that the inclusion of this term would be necessary to cover damages incurred by foreign investors in the pre-establishment phase. 55. That delegation could not 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". Another delegation 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 Vlll of the GATS, was supported by several delegations. 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. One delegation wondered what abuses of monopoly positions would be "inconsistent" with the obligations of the MAI. 57. Some delegations considered that alternatives 1 and 2 involve too great of an intrusion into competition policy and supported their deletion. Two delegations supported alternative 2 as a fallback in view of its more limited implications for competition policy. One delegation supported alternative 3 on the ground that abuses of dominant positions should be dealt with under competition policy. ------------------------------------------------------------------------ 34 [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 firms, 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]. ------------------------------------------------------------------------ 58. This is a proposal by two delegations. Many delegates questioned, however, the feasibility and desirability of requiring monopolies to act in accordance with "commercial considerations". One delegation provided a number of explanations in favour of the inclusion of subparagraph e): Sub-paragraph (e) would present the advantage of increasing transparency: non-cormmercial 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 noneconomic 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 that delegation, particularly important given the potential power of monopolies over markets in the context of accession. Finally, 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 GATT Article XVII. Many delegations questioned, however, the feasibility and desirability of requiring monopolies to act in accordance with "commercial considerations". ------------------------------------------------------------------------ 35 [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.] ------------------------------------------------------------------------ 59. Proposal by one delegation. Some delegations were opposed to the principle of lodging reservations after the entry into force of the MAI. Another delegation proposed that such reservations be made the subject of scrutiny by the "Parties Group" to ensure that they do not negatively affect the level of liberalisation under the MAI. ------------------------------------------------------------------------ 36 Paragraph 5 5. Each Contracting Party shall notify60 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. ------------------------------------------------------------------------ 60. One delegation suggested that the concept of prior notification found in Article VIII.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 VIII.4 of the GATS, 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. ------------------------------------------------------------------------ 37 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 ------------------------------------------------------------------------ 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. Three delegations 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. ------------------------------------------------------------------------ 38 [B. Article on [state enterprises] [entities with which a Government has a specific relationship] Option 1: zero option64 Option 2 i) Draft text for an anti-circumvention clause65 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. ------------------------------------------------------------------------ 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. One delegation 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 MAI 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 MAl. ------------------------------------------------------------------------ 39 ii) Additional provisions a. No addidonal provisions. b. Proposal by two delegations66 [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 one delegation68 [2. 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 tmder this Agreement.] ------------------------------------------------------------------------ 66. Two delegations 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. One delegation 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. One delegation would like this paragraph to apply to both paragraphs 1 and 2. 68. This proposal was offered as a compromise by one delegation, which favours, nevertheless, option (a) (i.e. no additional provisions) as its first option. ------------------------------------------------------------------------ 40 C. Definitions Related to Articles on Monopolies [and State Enterprises] Paragraph 1 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 grant.]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] ------------------------------------------------------------------------ 69. One delegation proposes the exclusion of concessions with exclusive rights from the definition of monopolies. 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 "indefinite period of time" as possible criterion for the demarcation. ------------------------------------------------------------------------ 41 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 Parry.]73 ------------------------------------------------------------------------ 71. One delegation considers alternative 3 to be acceptable provided that Article A, paragraph 1 is accepted. ln that case, it would perhaps be better to replace in paragraph 1 the term "designating" by the term "establishing". 72. Three delegations questioned the need for this definition. 73. A number of delegations questioned the need for a definition of state enterprises. ------------------------------------------------------------------------ 42 [D. Article on Concessions74, 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 official 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. ------------------------------------------------------------------------ 74. Proposal by one delegation. 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. One delegation provided a background note on natural resources and concessions in the context of the MAI. 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. One delegation proposed to replace the reference to the official languages of the OECD by the official languages of the United Nations. Two delegations questioned the need to impose a language requirement for the publication of awarding procedures. ------------------------------------------------------------------------ 43 Definition78 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 rnodes 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.] ------------------------------------------------------------------------ 78. This proposal needs further consideration. One delegation favours the deletion of the reference to natural resources in the proposed text. With respect to mineral resources, including hydrocarbons resources, it 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 for or explore for or produce minerals, including hydrocarbons, in a geographical area." ------------------------------------------------------------------------ 44 INVESTMENT INCENTIVES 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 would still prefer more far-reaching disciplines. 45 Article79 1. The Contracting Parties confirm that Article XX (on NT and MFN) and Article XX (Transparency) applies to [the granting of]80 investment incentives.81 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.82 [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.]]83, 84 ------------------------------------------------------------------------ 79. The Group proceeded on the basis of report of EG2 with respect to the treatment of tax incentives. 80. Some delegations favoured the deletion of "the granting of". 81. 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. One delegation maintains a pre-scrutiny reservation on the text of this draft article. The dispute settlement mechanism would, in particular, apply to this article. One delegation raises the possibility of taking reservations with regard to NT. 82. 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 flows 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. 83. 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. 84. One delegation suggested the first sentence of paragraph 3 could be added to paragraph 4, and the rest of paragraph 3 deleted. ------------------------------------------------------------------------ 46 3.85 [In order to further avoid and minimise such distorting effects and to avoid undue competition between Contracting Parties 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.86 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 fora. These negotiations shall, in particular, address the issues of positive discrimination,87 [transparency88], standstill and rollback89.] 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]. ------------------------------------------------------------------------ 85. The form and placement of this text would have to be decided. 86. Some delegations feel that the MAI should include additional disciplines on investment incentives from the time it enters into force. Another delegation cautions that additional disciplines could have far-reaching implications for other multilateral agreements as well as for national tax laws and regulatory regimes. 87. Some delegations express the view that positive discrimination should be prohibited and this should be placed in the text. 88. One delegation considers the transparency Article of the MAI would already be sufficient. 89. Some delegations consider it very difficult to recommend future negotiations without agreement on their nature and scope. ------------------------------------------------------------------------ 47 CORPORATE PRACTICES 90 TECHNOLOGY R&D 91 INTELLECTUAL PROPERTY 92 PUBLIC DEBT 93 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]. ------------------------------------------------------------------------ 90. The Chairman concluded that there is full agreement that government-imposed discriminatory practices would be covered by the MAI. In view of the views expressed by a clear majority of delegations, the MAI should not contain disciplines on non-government imposed discriminatory corporate practices. However, Contracting Parties to the MAI should follow future developments in this area and could take up the matter again if the need arises. 91. See Commentary. 92. See Commentary. 93. There was general agreement that public debt rescheduling should fall outside the MAI disciplines. This present draft provision was submitted by one delegation and other delegations and considered by financial experts in informal consultations on 14-15 April, and not yet discussed by the Negotiating Group. Some delegations continued to reserve their position on the inclusion of public debt within the scope of MAl disciplines. ------------------------------------------------------------------------ 48 NOT LOWERING STANDARDS 94 [Alternative 1 The Parties recognise that it is inappropriate to encourage investment by lowering [domestic] health, safety or environmental [standards] [measures]95 or relaxing [domestic] [core]96 labour standards. 97 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. ------------------------------------------------------------------------ 94. Four delegations oppose any provision on these matters. One delegation could accept a provision covering health, safety, and the environment, but not labour. One other delegation could accept only a non-binding provision. 95. If "measure" is preferred, then the word "lowering" should be replaced by "relaxing". In either case, the term selected should be defined. For reference purposes, delegations mentioned the definition of "measure" in NA.FTA or to be found in the Transparency Article of the MAI and the definition of "standard" in NAFTA and in the WTO Agreement on Technical Barriers to Trade. 96. Delegations noted that no universally accepted definitions existed for "core" or "domestic" standards. Most delegations preferred "domestic" which was recognised to be wider in scope. 97. A major difference of view as between Alternative 1 and Alternative 2 concerns the first sentence of Alternative 1. This sentence is part of a difference of approach as to whether the provision should refer to respect for universal standards or only to the relaxation of domestic standards. Views differ on whether this sentence is useful or necessary. ------------------------------------------------------------------------ 49 Alternative 2 A Contracting Party [shall] [should]98 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.] ------------------------------------------------------------------------ 98. If "should" were preferred, it might be desirable to add the last sentence of Alternative 1. Those preferring "should'' argued that use of the word "shall" would prevent the authorities offering necessary waivers under domestic law, for example, to help resolve a specific case of damage to the environment and might prevent resolution of particular cases through consultations and persuasion. They also expressed concern that "shall" might expose the authorities to dispute settlement challenge. One delegation expressed concern over the use of the broader phrase "domestic labour" standards with recourse to dispute settlement in that it could create disputes under the MAI over changes in programmes relating to minimum wages or retirement qualifications; this delegation questioned if this was what was intended by this provision. Those preferring "shall" argued that the purpose of this Article is to prohibit a waiver or derogation only if used as an encouragement to an investment. ------------------------------------------------------------------------ 50 IV. INVESTMENT PROTECTION 1. GENERAL TREATMENT 1 1. 1. Each Contracting Party shall accord to investments in its territory of investors of another Contracting Party fair and equitable treatment and full and constant protection and security. In no case shall a Contracting Party accord treatment less favourable than that required by international law. 1.2. A Contracting Party shall not impair by [unreasonable or discriminatory] [unreasonable and discriminatory] measures the operation, management, maintenance, use, enjoyment or disposal of investments in its territory of investors of another Contracting Party. 2. EXPROPRIATION AND COMPENSATION 2.1. A Contracting Party shall not expropriate or nationalise directly or indirectly an investment in its territory of an investor of another Contracting Party or take any measure or measures having equivalent effect (hereinafter referred to as "expropriation") except: a) for a purpose which is in the public interest, b) on a non-discriminatory basis, c) in accordance with due process of law, and d) accompanied by payment of prompt, adequate and effective compensation in accordance with Articles 2.2 to 2.5 below. 2.2. Compensation shall be paid without delay. 2.3. Compensation shall be equivalent to the fair market value of the expropriated investment immediately before the expropriation occurred. The fair market value shall not reflect any change in value occurring because the expropriation had become publicly known earlier. 2.4. Compensation shall be fully realisable and freely transferable. ------------------------------------------------------------------------ 1. One delegation proposed to delete Article 1.2 and revise Article 1.1 as follows: "Each Contracting Party shall accord to investments in its territory of investors of another Contracting Party fair and equitable treatment and full and constant protection and security. Such treatment shall also apply to the operation, management, maintenance, use, enjoyment or disposal of such investments. In no such case shall a Contracting Parry accord treatment less favourable than that required by international law." ------------------------------------------------------------------------ 51 2.5. [Compensation shall include interest at a commercial rate established on a market basis for the currency of payment from the date of expropriation until the date of actual payment.]1 2.6. Due process of law includes, in particular, the right of an investor of a Contracting Party which claims to be affected by expropriation by another Contracting Party to prompt review of its case, including the valuation of its investment and the payment of compensation in accordance with the provisions of this article, by a judicial authority or another competent and independent authority of the latter Contracting Party. 3. PROTECTION FROM STRIFE 3.1. An investor of a Contracting Party which has suffered losses relating to its investment in the territory of another Contracting Party due to war or to other armed conflict, state of emergency, revolution, insurrection, civil disturbance, or any other similar event in the territory of the latter Contracting Party, shall be accorded by the latter Contracting Party, as regards restitution, indemnification, compensation or any other settlement, treatment no less favourable than that which it accords to its own investors or to investors of any third State, whichever is most favourable to the investor. 3.2. Notwithstanding Article 3.1, an investor of a Contracting Party which, in any of the situations referred to in that paragraph, suffers a loss in the territory of another Contracting Party resulting from (a) requisitioning of its investment or part thereof by the latter's forces or authorities, or (b) destruction of its investment or part thereof by the latter's forces or authorities, which was not required by the necessity of the situation, shall be accorded by the latter Contracting Party restitution or compensation which in either case shall be prompt, adequate and effective and, with respect to compensation, shall be in accordance with Articles 2.1 to 2.5. ------------------------------------------------------------------------ 2. DG 3 identified four options for calculating compensation which are set out in the commentary. The Negotiating Group Chairman noted that a large majority were in favour of having no explicit provision in the MAI addressing this issue. However, to respond to the concerns of some countries that this approach might lead to uncertainty, the MAI could contain an interpretative note providing that in the case of undue delay in the payment of compensation on the part of a Contracting Party, any exchange rate loss arising from this delay should be borne by the host country. ------------------------------------------------------------------------ 52 4. TRANSFERS 4.1. Each Contracting Party shall ensure that all payments relating to an investment in its territory of an investor of another Contracting Party may be freely transferred into and out of its territory without delay. Such transfers shall include, in particular, though not exclusively : a) the initial capital and additional amounts to maintain or increase an investment; b) returns;3 c) payments made under a contract including a loan agreement; d) proceeds from the sale or liquidation of all or any part of an investment; e) payments of compensation under Articles 2 and 3; f) payments arising out of the settlement of a dispute; g) earnings and other remuneration of personnel engaged from abroad in connection with an investment. 4.2. Each Contracting Party shall further ensure that such transfers may be made in a freely convertible4 currency. [Freely convertible currency means a currency which is widely traded in international foreign exchange markets and widely used in international transactions.] or [Freely convertible currency means a currency which is, in fact, widely used to make payments for international transactions and is widely traded in the principal exchange markets]. 4.3. Each Contracting Party shall also further ensure that such transfers may be made at the market rate of exchange prevailing on the date of transfer. [4.4. In the absence of a market for foreign exchange, the rate to be used shall be the most recent exchange rate for conversion of currencies into Special Drawing Rights.] 4.5. Notwithstanding Article 4.1(b) above, a Contracting Party may restrict the transfer of a return in kind in circumstances where the Contracting Party is permitted under the GATT 1994 to restrict or prohibit the exportation or the sale for export of the product constituting the return in kind. Nevertheless, a Contracting Party shall ensure that transfers of returns in kind may be effected as authorised or specified in an investment agreement, investment authorisation, or other written agreement between the Contracting Party and an investor or investment of another Contracting Party.5 ------------------------------------------------------------------------ 3. As defined in the Article on definitions. 4. The agreement of one delegation in Article 4.2 on the deletion of "usable" and acceptance of the word "convertible" supposes agreement on its definition and on Article 4.6. 5. One delegation has difficulties with the obligations referred to in the second sentence. ------------------------------------------------------------------------ 53 [4.6. Notwithstanding Articles 4.1 to 4.5, a Contracting Party may require reports of transfers of currency or other monetary instruments and ensure the satisfaction of judgements in civil, administrative and criminal proceedings through the equitable, nondiscriminatory, and good faith application of its laws and regulations. Such requirements shall not unreasonably impair or derogate from the free and undelayed transfer ensured by this Agreement.] or [4.6. Notwithstanding Articles 4.1 to 4.5, a Contracting Party may prevent a transfer through the equitable, non-discriminatory and good faith application of measures to protect the rights of creditors, relating to or ensuring compliance with laws and regulations on the issuing, trading and dealing in securities, futures and derivatives, reports or records of transfers, or in connection with criminal offences and orders or judgements in administrative and adjudicatory proceedings, provided that such measures and their application shall not be used as a means of avoiding the Contracting Party's commitments or obligations under the Agreement.]6 5. SUBROGATION If a Contracting Party or its designated agency makes a payment under an indemnity, guarantee or contract of insurance7 given in respect of an investment of an investor in the territory of another Contracting Party, the latter Contracting Party shall recognise the assignment of any right or claim of such investor to the former Contracting Party or its designated agency and the right of the former Contracting Party or its designated agency to exercise by virtue of subrogation any such right and claim to the same extent as its predecessor in title.8 6. PROTECTING EXISTING INVESTMENTS [This Agreement shall apply to investments made prior to its entry into force for the Contracting Parties concerned [consistent with the legislation of the Contracting Party in whose territory it was made] as well as investments made thereafter. This Agreement shall not apply to claims arising out of events which occurred, or to claims which had been settled, prior to its entry into force.] or [This Agreement shall apply to investments existing at the time of entry into force as well as to those established or acquired thereafter.] ------------------------------------------------------------------------ 6. Text recommended by most EG5 delegations. 7. Two delegations cannot agree to deletion of the words "non-commercial risks" at this stage. 8. One delegation has difficulties with the obligations in this paragraph. ------------------------------------------------------------------------ 54 V. DISPUTE SETTLEMENT 1 STATE-STATE PROCEDURES A. GENERAL PROVISIONS 1. The rules and procedures set out in Articles A-C shall apply to the avoidance of conflicts and the resolution of disputes between Contracting Parties regarding the interpretation or application of the Agreement unless the disputing parties agree to apply other rules or procedures. However, the disputing parties may not depart from any obligation regarding notification of the Parties Group and the right of Parties to present views, under Article B, paragraphs 1.a and 4.c, and Article C, paragraphs 1.a, 4, and 6.e. 2. Contracting Parties and other participants in proceedings shall protect any confidential or proprietary information which may be revealed in the course of proceedings under Articles B and C and which is designated as such by the Party providing the information. Contracting Parties and other participants in the proceedings may not reveal such information without written authorisation from the Party which provided it. 3. [EC or Contracting Party REIO text being developed for possible inclusion] B. CONSULTATION, CONCILIATION AND MEDIATION 1. Consultations a. One or more Contracting Parties may request any other Contracting Party to enter into consultations regarding any dispute between them about the interpretation or application of the Agreement. The request shall be submitted in writing and shall provide sufficient information to understand the basis for the request, including identification of any actions at issue. The requested Party shall enter into consultations within thirty days of receipt of the request. The requesting Contracting Party shall provide the Parties Group with a copy of the request for consultation, at the time it submits the request to the other Contracting Party. b. A Contracting Party may not initiate arbitration against another Contracting Party under Article C of this Agreement unless the former Contracting Party has requested consultation and has afforded that other Contracting Party a consultation period of no less than 60 days after the date of the receipt of the request. ------------------------------------------------------------------------ 1 . Note: It is understood that for a number of delegations further work is needed on dispute settlement. In particular, different options remain in the field of multilateral consultations and scope of dispute settlement. The present text has been prepared by the Chairman of the Expert Group on Dispute Settlement on the basis of the discussions in the group. It needs to be discussed by the Negotiating Group. ------------------------------------------------------------------------ 55 2. Multilateral Consultations a. In the event that consultations under paragraph 1 of this Article have failed to resolve the dispute within 60 days after the date of receipt of the request for those consultations, the Contracting Parties in dispute may, by agreement, request the Parties Group to consider the matter. b. Such request shall be submitted in writing and shall give the reason for it, including identification of any actions at issue, and shall indicate the legal basis for the complaint. c. The Parties Group may make recommendations to the Contracting Parties in dispute. The Parties Group shall conclude its deliberations within 60 days after the date of receipt of the request. 3. Mediation or Conciliation If the Parties are unable to reach a mutually satisfactory resolution of a matter through consultations, they may have recourse to good offices or to mediation or conciliation under such rules and procedures as they may agree. 4. Confidentiality of Proceedings, Notification of Results a. Proceedings involving consultations, mediation or conciliation shall be confidential. b. No Contracting Party may, in any binding legal proceedings, invoke or rely upon any statement made or position taken by another Contracting Party in consultations, conciliation or mediation proceedings initiated under this Agreement, with the exception of factual representations. c. The Parties to consultations, mediation, or conciliation under this Agreement shall infom the Parties Group of any mutually agreed solution. C. ARBITRATION Scope and Initiation of Proceedings a. Any dispute between Contracting Parties as to whether one of them has acted in contravention of this Agreement shall, at the request of any Contracting Party that is a party to the dispute and has complied with the consultations requirements of Article B, be submitted to an arbitral tribunal for decision. A request, identifying the matters in dispute, shall be delivered to the other Party through diplomatic channels, unless that Contracting Party has designated another channel for receipt of notification and so notified the Depositary, and a copy of the request shall be delivered to the Parties Group. 56 b. A Contracting Party may not initiate proceedings under this Article for a dispute which its investor has submitted, or consented to submit, to arbitration under Article D, unless the other Contracting Party has failed to abide by and comply with the award rendered in that dispute or those proceedings have terminated without resolution by an arbitral tribunal of the investor's claim. c. If a dispute arises between Contracting Parties as to whether one of them has acted in contravention of a substantially similar obligation of that Contracting Party under this Agreement and another agreement to which both are party, the complaining Contracting Party may submit it for decision under the agreement of its choice. In doing so, it waives its right to submit the matter for decision under the agreement not chosen. 2. Formation of the Tribunal a. Within 30 days after receipt of a request for arbitration, the Parties to the dispute shall appoint by agreement three members of the tribunal and designate one of them as Chairman. Except for compelling reasons, the members shall be persons proposed by the Secretary General ICSID. At the option of either party or, where there is more than one Party on the same side of the dispute, either side, two additional members may be appointed, one by each party or side. b. If the necessary appointments have not been made within the periods specified in subparagraph a, above, either Party or side to the dispute may, in the absence of any other agreement, invite the Secretary General of the Centre for the settlement of Investrnent Disputes to make the necessary appointments. The Secretary-General shall do so, to the extent feasible, in consultations with the Parties to the dispute and within thirty days after receipt of the request. c. Parties and the Secretary-General should consider appointment to the tribunal of members of the roster maintained pursuant to subparagraph f, below. If arbitration of a dispute is considered by either Contracting Party to the dispute or the Secretary-General to require special expertise on the tribunal, rather than solely through expert advice under the rules governing the arbitration, the appointment of individuals possessing expertise not found on the roster should be considered. d. Members of a particular arbitral tribunal shall be independent and impartial. e. Any vacancies which may arise in a tribunal shall be filled by the procedure by which the original appointment had been made. f. The Parties Group shall maintain a roster of highly qualified individuals willing and able to serve on arbitral tribunals under this Agreement. Each Contracting Party may nominate up to four persons who shall be included as members of the roster. Nominations are valid for five year terms. At the end of a term, the Contracting Party which nominated a member may renew the nomination or nominate a new member of the roster. A member shall withdraw from the roster if no longer willing or able to serve and the Contracting Party which nominated that member may nominate another member for a full term. 57 3. Consolidation a. Contracting Parties in dispute with the same Contracting Party over the same matter should act together as far as practicable for purposes of dispute settlement under this Article. Where more than one Contracting Party requests the submission to an arbitral tribunal of a dispute with the same Contracting Party relating to the same question, a single arbitral tribunal should be established to consider such disputes whenever feasible. b. To the extent feasible, if more than one arbitral tribunal is formed, the same persons shall be appointed as members of both and the timetables of the proceedings shall be harmonised. 4. Third Parties Any Contracting Party wishing to do so shall be given an opportunity to present its views orally or in writing to the arbitral tribunal on the issues of a legal nature in dispute. Such a Contracting Party shall be given access to the documents of the proceedings, other than confidential or proprietary information designated under Article A, paragraph 2. The tribunal shall establish the deadlines for such submissions in light of the schedule of the proceedings and shall notify such deadlines, at least thirty days in advance thereof, to the Parties Group. 5. Scientific and Technical Expertise a. On request of a disputing Contracting Party or, unless the disputing Contracting Parties disapprove, on its own initiative, the tribunal may request a written report of a scientific or technical review board on any factual issue concerning environmental, health, safety or other scientific or technical matters raised by a disputing Contracting Party in a proceeding, subject to such terms and conditions as such Parties may agree. b. The board shall be selected by the tribunal from among highly qualified, independent experts in the scientific or technical matters, after consultations with the disputing Parties and the scientific or technical bodies identified by those Parties. c. The disputing Contracting Parties shall be provided: i. advance notice of, and an opportunity to provide comments to the tribunal on, the proposed factual issues to be referred to the board; and ii. a copy of the board's report and an opportunity to provide comments on the report to the tribunal. d. The tribunal shall take the board's report and any comments by the disputing Contracting Parties on the report into account in the preparation of its award. 58 6. Proceedings and Awards a. The tribunal shall decide disputes in accordance with this Agreement, interpreted and applied in accordance with the applicable rules of international law. b. The tribunal may, at the request of a Party, recommend provisional measures which either Party should take to avoid serious prejudice to the other pending its final award. c. The tribunal, in its award, shall set out its findings of law and fact, together with the reasons therefore, and may, at the request of a Party, award the following forms of relief: i. a declaration that an action of a Party is in contravention of its obligations under this Agreement; ii. a recommendation that a Party bring its actions into conformity with its obligations under the Agreement; iii. pecuniary compensation for any loss or damage to the requesting Party's investor or its investment; and iv. any other form of relief to which the Party against whom the award is made consents, including restitution in kind to an investor. d. The tribunal shall draft its award consistently with the requirement of confidentiality set out in Article A, paragraph 2. It shall issue its award in provisional form to the Parties to the dispute on a confidential basis, as a general rule within 180 days after the date of formation of the tribunal. The parties to the dispute may, within 30 days thereafter, submit written comment upon any portion of it. The tribunal shall consider such submissions, may solicit additional written comments of the parties, and shall issue its final award within 15 days after closure of the comment period. e. Tne tribunal shall promptly transmit a copy of its final award to the Parties Group, which shall make it publicly available. f. Tribunal awards shall be final and binding between the parties to the dispute, subject to paragraph 7 below. g. Each party shall pay the cost of its representation in the proceedings. The costs of the tribunal shall be paid for equally by the Parties unless the tribunal directs that they be shared differently. Fees and expenses payable to tribunal members will be subject to schedules established by the Parties Group and in force at the time of the constitution of the tribunal. 59 7. Nullification a. Either party to the dispute may request the annulment of an award, in whole or in part, on one or more of the following grounds, that: i. the Tribunal was not properly constituted; ii. the Tribunal has manifestly exceeded its powers; iii. there was corruption on the part of a member of the Tribunal or on the part of a person providing decisive expertise or evidence; iv. there has been a serious departure from a fundamental rule of procedure; or v. the award has failed to state the reasons on which it is based. b. The request shall be submitted for decision by a tribunal which shall be constituted and operate under the rules applicable to a dispute submitted under paragraph 1 of this article . c. Such a request must be submitted within 120 days after the date on which the award was rendered or after the discovery of the facts relevant to nullification on the grounds of corruption, whichever is later and, in any event, within five years after the date on which the award was rendered. d. The tribunal may nullify the award in whole or in part. If the award is nullified, the fact of nullification shall be communicated to the Parties Group. In such a case, the dispute may be submitted for decision to a new tribunal constituted under this Article or to any other available forum, notwithstanding the Contracting Parties waiver under paragraph 1.c. of this article. 8. Default Rules The PCA Optional Rules for Arbitrating Disputes between Two States shall apply to supplement provisions of these Articles. The Parties Group may adopt supplemental provisions to ensure the smooth functioning of these rules, in particular to clarify the inter-relationship between these rules and the PCA Optional Rules. 60 9. Response to Non-compliance2 a. If a Contracting Party fails within a reasonable period of time to comply with its obligations as determined in the award, such Contracting Party shall, at the request of any Contracting Party in whose favour the award was rendered, enter into consultations with a view to reaching a mutually acceptable solution. If no satisfactory solution has been agreed within thirty days after the date of the request for consultations, any Contracting Party in whose favour the award was rendered, shall notify the other Contracting Party and the Parties Group if it intends to [take measures in response][suspend the application to the other Contracting Party of obligations under this agreement]. b. The effect of any such [responsive measures][suspension] must be proportionate to the effect of the other Party's non-compliance.3 Such measures may not include suspension of the application of Article[s _ (General Treatment) and] _ (Expropriation) [and should not include denial of other protections to established investment]. c. At the request of any Party to the award upon conclusion of the thirty day period for consultation, the Parties Group shall consider the matter. [Until twenty days after the receipt by the Parties Group Secretariat of the request, responsive measures shall not be taken.] The Parties Group may: i. make recommendations, by consensus minus the disputing Contracting Parties; ii. suspend the non-complying Party's right to participate in decisions of the Parties Group, by consensus minus the non-complying Contracting Party; and iii. [by consensus minus the Contracting Party which had intended to take responsive measures, decide that some or all of the responsive measures shall not be taken. The Contracting Party shall comply with that decision.] d. Any dispute concerning the alleged failure of a Contracting Party to comply with its obligations as determined in an award or the lawfulness of any responsive measures shall, at the request of any Contracting Party that is party to the dispute, be submitted for decision to the arbitral tribunal which rendered the award or, if the original tribunal is unavailable, to a single member or three member arbitral tribunal designated by the Secretary-General. The request shall be submitted in the same fashion, and the proceedings carried out in accordance with the same rules as are applicable to a request made under paragraph 1.a of this Article, with such modifications as the tribunal deems appropriate, and the final award shall be issued no later than 60 days after the date of the request, in case of the original tribunal, or after the date of its formation, in the case of a new tribunal. [No responsive measures may be taken from the time of submission of a dispute unless authorized by the tribunal as an interim measure or found lawful.] ------------------------------------------------------------------------ 2. Note: The text in paragraph 9 has been circulated separately. The Commentary indicates the general state of development on this issue in informal consultations at expert level. 3. As variant of this approach, one delegation suggests utilizing language based on the WTO agreements: "The level of the suspension of benefits ... shall be equivalent to the level of the nullification or impairment of benefits, which the aggrieved Party reasonably expected to accrue to it, resulting from the non-compliance." ------------------------------------------------------------------------ 61 INVESTOR-STATE PROCEDURES D. DISPUTES BETWEEN AN INVESTOR AND A CONTRACTING PARTY 1. Scope and Standing a. This article applies to disputes between a Contracting Party and an investor of another Contracting Party concerning an alleged breach of an obligation of the former under this Agreement which causes loss or damage to the investor or its investment. b. An investor of another Contracting Party may also submit to arbitration under this article any investment dispute concerning any obligation which the Contracting Party has entered into with regard to a specific investment of the investor through: i. An investment authorisation granted by its competent authorities specifically to the investor or investment, ii. a written agreement granting rights with respect to [categories of subject matters] on which the investor has relied in establishing acquiring, or significantly expanding an investment. 2. Means of Settlement Such a dispute should, if possible, be settled by negotiation or consultation. If it is not so settled, the investor may choose to submit it for resolution: a. to any competent courts or administrative tribunals of the Contracting Party to the dispute; b. in accordance with any dispute settlement procedure agreed upon prior to the dispute arising; or c. by arbitration in accordance with this Article under: i. the Convention on the Settlement of Investment Disputes between States and Nationals of other States (the "ICSID Convention"), if the ICSID Convention is available; ii. the Additional Facility Rules of the Centre for Settlement of Investment Disputes ("ICSID Additional Facility"), if the ICSID Additional Facility is available; iii. the Arbitration Rules of the United Nations Commission on International Trade Law ("UNCITRAL"); or iv. the Rules of Arbitration of the International Chamber of Commerce ("ICC"). 62 3. Contracting Party Consent a. Subject only to paragraph 3.b, each Contracting Party hereby gives its unconditional consent to the submission of a dispute to international arbitration in accordance with the provisions of this Article. b. A Contracting Party may, by notifying the Depositary upon deposit of its instrument of ratification or accession, provide that its consent given under paragraph 3.a only applies on the condition that the investor and the investment waive in writing the right to initiate any other dispute settlement procedure with respect to the same dispute and withdraw from any such procedure in progress before its conclusion. A Contracting Party may, at any time, reduce the scope of that limitation by notifying the Depositary. 4. Time periods and notification An investor may submit a dispute for resolution pursuant to paragraph 2.c of this Article after sixty days following the date on which notice of intent to do so was received by the Contracting Party in dispute, but no later than five years from the date the investor first acquired or should have acquired knowledge of the events which gave rise to the dispute. Notice of intent, a copy of which shall be delivered to the Parties Group, shall specify: a. the name and address of the disputing investor; b. the name and address, if any, of the investment; c. the provisions of this Agreement alleged to have been breached and any other relevant provisions; d. the issues and the factual basis for the claim; and e. the relief sought, including the approximate amount of any damages claimed. 5. Written Agreement of the Parties The consent given by a Contracting Party in subparagraph 3.a, together with either the written submission of the dispute to resolution by the investor pursuant to subparagraph 2.c or the investor's advance written consent to such submission, shall constitute the written consent and the written agreement of the parties to the dispute to its submission for settlement for the purposes of Chapter II of the ICSID Convention, the ICSID Additional Facility Rules, Article 1 of the UNCITRAL Arbitration Rules, the Rules of Arbitration of the ICC, and Article II of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention"). Neither party may withdraw its consent unilaterally, except as provided in paragraph 9.e of this Article. 6. [EC or Contracting Party REIO text being developed, for possible inclusion] 63 7. Appointments to Arbitral Tribunals a. Unless the parties to the dispute otherwise agree, the tribunal shall comprise three arbitrators, one appointed by each of the disputing parties and the third, who shall be the presiding arbitrator, appointed by agreement of the disputing parties. b. If a tribunal has not been constituted within 90 days after the date that a claim is submitted to arbitration, the arbitrator or arbitrators not yet appointed shall, on the request of either disputing party, be appointed by the appointing authority. For arbitration under paragraph 2, subparagraphs c.i, c.ii and c.iii, and paragraph 9, the appointing authority shall be the Secretary-General of ICSID. For arbitration under paragraph 2, subparagraph c.iv, the appointing authority shall be the International Court of Arbitration of the ICC. c. The parties