Agreementb.faloo.com

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12/223September2002Original:ENGLISHTRADEANDDEVELOPMENTBOARDCommissiononInvestment,TechnologyandRelatedFinancialIssuesExpertMeetingontheDevelopmentDimensionofFDI:PoliciestoEnhancetheRoleofFDIinSupportoftheCompetitivenessoftheEnterpriseSectorandtheEconomicPerformanceofHostEconomies,TakingintoAccounttheTrade/InvestmentInterface,intheNationalandInternationalContextGeneva,6–8November2002Item3oftheprovisionalagendaTHEDEVELOPMENTDIMENSIONOFFOREIGNDIRECTINVESTMENT:POLICIESTOENHANCETHEROLEOFFDI,INTHENATIONALANDINTERNATIONALCONTEXT–POLICYISSUESTOCONSIDERNotebytheUNCTADsecretariatExecutivesummaryThisnoteaddressesanon-exhaustivesetofissuesthatdeservecarefulconsiderationinexploringthedevelopmentdimensionofforeigndirectinvestment,especiallyinthecontextofnegotiatinginternationalinvestmentagreements.
Morespecifically,itfocusesonissuesrelatedto,first,theroleofFDI-relatedhostcountrypoliciesinencouragingsynergiesbetweeninwardFDIandthedomesticenterprisesector;second,thepotentialroleofhomecountrypolicymeasuresinthiscontext;and,third,howthedesignandimplementationofIIAscanreflectinabalancedmannertheinterestsofhomeandhostcountries,takingintoaccountthedevelopmentpoliciesandobjectivesofhostGovernmentsaswellastheirrighttoregulate.
GE.
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12/2Page2CONTENTSChapterPageIntroduction.
3I.
HostCountryPolicyMeasures5II.
HomeCountryPolicyMeasures.
9III.
TheRighttoRegulateandSafeguards13References20TD/B/COM.
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12/2Page3INTRODUCTION1.
TheCommissiononInvestment,TechnologyandRelatedFinancialIssues,atitssixthsessionon21–25January2002,decidedtoholdan"ExpertMeetingontheDevelopmentDimensionofFDI:PoliciestoEnhancetheRoleofFDIinSupportoftheCompetitivenessoftheEnterpriseSectorandtheEconomicPerformanceofHostEconomies,TakingintoAccounttheTrade/InvestmentInterface,intheNationalandInternationalContext".
2.
ThetopicchosenisparticularlyrelevantinlightofthecallforpolicyanalysisintheareaofinvestmentasstatedintheMinisterialDeclarationfromthemeetingoftheWorldTradeOrganizationinDoha,andgiventheneedforinputsintothediscussiononthe"developmentdimension"ofnegotiationsoninternationalinvestmentagreements(IIAs),regardlessatwhatlevel.
3.
Foreigndirectinvestment(FDI)canplayasignificantroleinthedevelopmentprocessofhosteconomies.
Inadditiontocapitalinflows,FDIcanbeavehicleforobtainingforeigntechnology,knowledge,managerialskills,andotherimportantinputs;integratingintointernationalmarketing,distributionandproductionnetworks;andimprovingtheinternationalcompetitivenessoffirmsandtheeconomicperformanceofcountries.
Atthesametime,neitherinflowsofFDInorthebenefitsfromsuchinflowsareautomatic.
4.
GovernmentsneedtoconsiderwhatroletheywantinwardFDItoplayinthedevelopmentprocessoftheireconomies,andthendesigntheirFDIpoliciesaccordingly.
Thus,thebroadpolicyobjectivesaretoattractespeciallyinvestmentthatisinlinewiththeidentifieddevelopmentobjectives;tomaximizethepotentialbenefitsderivedfromFDI;andtominimizenegativeeffects(e.
g.
balanceofpaymentsproblems,crowdingout,transferpricing,abuseofmarketpower,labourissuesandenvironmentaleffects).
Governmentintervention(byhostorhomecountries)maybemotivatedbytwoprimarytypesofmarketfailures:informationorcoordinationfailuresintheinvestmentprocess;andthedivergenceofprivateinterestsofinvestors(foreignand/ordomestic)fromtheeconomicandsocialinterestsofhosteconomies.
TooptimizetheimpactofinwardFDI(UNCTAD,1999),Governmentsneedtoaddressthefollowingfoursetsofissues:Informationandcoordinationfailuresintheinternationalinvestmentprocess;Infantindustryconsiderationsinthedevelopmentoflocalenterprises,whichcanbejeopardizedifinwardFDIcrowdsoutthoseenterprises;Thestaticnatureofadvantagestransferredbytransnationalcorporations(TNCs)insituationswheredomesticcapabilitiesarelowanddonotimproveovertime,orwhereTNCsfailtoinvestsufficientlyinimprovingtherelevantcapabilities(anissuethatisparticularlyrelevantinthecontextoflinkagesbetweenforeignaffiliatesandlocalfirms);andWeakbargainingandregulatorycapabilitiesonthepartofhostcountrygovernments,whichcanresultinanunfavourabledistributionofbenefitsfromtheperspectiveofthesociety(e.
g.
negativeeffectsoncompetitionortheenvironment).
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Ingeneral,developingcountriesandeconomiesintransitiondifferfromdevelopedcountrieswithregardtotheroleandimpactofFDIintheireconomies.
First,theformeraretypicallynetimportersofFDI,whereasdevelopedcountriesinmostcasespresentamorebalancedpatternofinwardandoutwardflowsofFDI.
1Thus,inthecontextofFDIandIIAs,theprimaryfocusformostdevelopingcountriesandeconomiesintransitionisonissuesrelatedtotheirabilitytoattractinwardFDIandbenefitfromit.
Incontrast,questionsrelatedtoimprovingaccesstoforeignmarketsforoutwardinvestmentareofsecondaryimportance,atleastforthevastmajorityofdevelopingcountries.
6.
Second,thetechnologicalgapbetweendomesticandforeignenterprisesisgenerallymoreaccentuatedindevelopingcountriesandeconomiesintransition.
Ontheonehand,thissuggeststhattheseeconomiesshouldbeparticularlyinterestedinattractingFDIthatcanbringmuch-neededcapital,technologyandknowledge.
Ontheotherhand,weakdomesticcapabilitieshampertheabilitytofullyreapthebenefitsofinwardFDI.
Similarly,whereasinwardFDIincountrieswithrelativelyunproductivedomesticenterprisesmayprovidevaluableexamplesofdesirablepractices,leadingtoariseinproductivity,itmayalsoriskcrowdingoutdomesticplayersandmayencourageanti-competitivebehaviourresultinginwelfarelosses.
7.
Internationalagreementsingeneralinvolvebindingcommitments,whichmayleadtotheconvergenceofnationalpoliciesandcanlimitthepolicyautonomyofthepartiestoanagreement.
Itisthereforeimportantfordevelopingcountriestodeepentheirunderstandingofwhatpoliciesandpolicytoolsaremostimportantfromadevelopmentperspective;howinternationalrulesintheareaofinvestmentwouldaffectthem;andwhatcommitmentscanbesoughtfromhomecountriestosupporttheirdevelopmentobjectives.
TheoverallquestionishowIIAscanhelpdevelopingcountriesandeconomiesintransitiontoattractFDI,whileallowingsufficientpolicyspaceforthesecountriestoregulateintheinterestofbenefitingasmuchaspossiblefromsuchinvestment.
8.
Inthiscontext,thetermsofreferenceoftheExpertMeetingidentifiedfourspecificquestions,namely:HowcanhostcountrypoliciesencouragesynergybetweenFDIanddomesticenterprises,tosupportthecompetitivenessofthelatter,inthenationalandinternationalcontextWhatmeasurescanhomecountriestaketocontributetosuchanoutcomeHowcantheinterestsofhomeandhostcountriesbebalanced,takingintoaccountthedevelopmentpoliciesandobjectivesofhostGovernmentsaswellastheirrighttoregulateinthepublicinterest1ThestockofoutwardFDIfromdevelopingcountriesincreasedrapidlyduringthelate1990sandstoodat$776billionin2001.
However,the10largestdeveloping-economysources–withHongKong(China),Singapore,TaiwanProvinceofChinaandtheRepublicofKoreainthetopfourpositions–accountedformorethan85percentoftheseinvestments.
Only15developingeconomiesandeconomiesintransitionreportedoutwardstocksofmorethan$10billionin2001.
In70countries,outwardFDIstockswerebelow$10million(UNCTAD,2002).
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12/2Page5Howcansafeguardsbeintroducedtoensurethatdomesticenterprisesarenotadverselyaffected9.
Thisnoteisabriefoverviewofanon-exhaustivesetofissuesthatdeserveconsiderationinexploringthedevelopmentdimensionofFDIinthecontextofnegotiatingIIAs.
ChapterIdiscussestheroleofFDI-relatedhostcountrypoliciesinencouragingsynergiesbetweeninwardFDIandthedomesticenterprisesector.
ChapterIIlooksatthepotentialroleofhomecountrypolicymeasuresinthiscontext.
ChapterIIIrecognizesthatIIAsdisciplinetheuseofpoliciesundertakenbythepartiesinvolvedandaddressestheroleofsafeguardsandtherightofhostgovernmentstoregulate.
I.
HOSTCOUNTRYPOLICYMEASURES10.
HostcountrieshavevariouspolicytoolsattheirdisposaltoenhancethedevelopmentalimpactofFDI.
Someareofageneralnatureandaimatenhancingtheattractivenessofthebusinessenvironment(policiesaimedatcreatingpoliticalandmacro-economicstabilityandimprovinginfrastructureandhumanresources;tradepolicy;scienceandtechnologypolicies;labourlaws;etc.
).
Suchpoliciescanbenationwideorspecifictosectorsorregions.
Anothersetofpoliciesisgearedtothedevelopmentofenterprisecapabilities,especiallysmallandmedium-sizeenterprises(SMEs).
Finally,therearepoliciesthatconsistofrulesandregulationsgoverningtheentryandoperationsofforeigninvestors,thestandardsoftreatmentaccordedtothemandthefunctioningofthemarketsinwhichtheyareactive(UNCTAD,1996a).
Whilethisnoteconcentratesonthelastsetofpolicies–sinceitismostdirectlyrelatedtoFDI–itisclearthatsuchpoliciesneedtobewellintegratedintotheoveralldevelopmentstrategyofacountry.
11.
CountriesarescalinguptheireffortstoattractFDI.
ThiscanbeseenfromtheongoingliberalizationofFDIpoliciesinvolvingtheopeningupofsectorsandindustries(UNCTAD,2002).
Countriesatalllevelsofdevelopmentarealsocontinuingtoenterintobilateralinvestmenttreaties(BITs)anddoubletaxationtreaties(DTTs).
Atthecloseof2001,atotalof2,099BITsand2,185DTTshadbeenconcluded(UNCTAD,2002).
WhilethegeneraltrendisinthedirectionofFDIliberalization,simplyopeningupaneconomyisoftennolongerenoughtoattractsustainedflowsofFDIandtoensurethatFDIbringstheexpecteddevelopmentalbenefits.
TNCs'investmentdecisionsareprimarilydrivenbyeconomicfundamentals(suchasmarketsize,thecostsandefficiencyofproduction,thequalityofinfrastructureandaccesstoskills).
InresponsetogrowingcompetitionforFDI,andtoovercomeinformationfailures,moreandmorecountriesareactivelypromotingtheirlocationstopotentialinvestors.
Inaddition,countriesareincreasinglyadoptingamoretargetedapproachtoFDIpromotion.
Suchanapproach,whilenotwithoutrisk,hasbeenfoundtoincreasethechancesofattractingthetypeofinvestmentthatcanadvanceacountry'sdevelopmentobjectives(UNCTAD,2002).
12.
Absentanenablingpolicyenvironment,TNCstendtofocusontheexistingcomparativeadvantagesofhostcountries,especiallylowlabourcostsandlogisticalTD/B/COM.
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12/2Page6considerations,whenlocatingtheirexport-orientedactivitiesindevelopingcountries.
Capitalizingfullyonstaticbenefitsandtransformingthemintodynamicandsustainableadvantagesthereforerequiresproactivegovernmentintervention.
ThedevelopmentofdomesticskillsandenterprisecapabilitiesisparticularlyimportantforattractingqualityFDIandensuringthatthenecessaryabsorptivecapacityispresenttobenefitfullyfromknowledgetransfers.
13.
IntermsofthecoreFDIpolicies,hostcountrieshaveimplemented,orareimplementing,various"hostcountryoperationalmeasures"(HCOMs)thataimatinfluencingtheoperationofforeignaffiliatesinsidetheirjurisdictions(UNCTAD,2001a).
HCOMscancoverallaspectsofinvestment(ownershipandcontrol,hiringofpersonnel,procurementofinputs,etc.
)andusuallytaketheformofeitherrestrictionsorperformancerequirements.
TheyareoftenadoptedtoinfluencethelocationandcharacterofFDIand,inparticular,toincreaseitsbenefits.
HCOMscanbedividedintothreecategories(table1):"red-light"HCOMs,whichareexplicitlyprohibitedbytheWTOAgreementonTrade-RelatedInvestmentMeasures(TRIMs)becauseoftheirdistortingeffectoninternationaltrade;"yellow-light"HCOMs,whichareexplicitlyprohibited,conditionedordiscouragedbyinterregional,regionalorbilateral(butnotbymultilateral)agreements;and"green-light"HCOMs,whicharenotsubjecttocontrolthroughanyIIAs.
Table1ThreecategoriesofHCOMsCategoryHCOMLocalcontentrequirementsTrade-balancingrequirementsForeignexchangerestrictionsrelatedtoforeignexchangeinflowsattributabletoanenterpriseRed-lightHCOMsExportcontrolsRequirementstoestablishajointventurewithdomesticparticipationRequirementsforaminimumlevelofdomesticequityparticipationRequirementstolocateheadquartersforaspecificregionEmploymentperformancerequirementsExportperformancerequirementsRestrictionsonsalesofgoodsorservicesintheterritorywheretheyareproducedorprovidedRequirementstosupplygoodsproducedorservicesprovidedtoaspecificregionexclusivelyfromagiventerritoryRequirementstoactasthesolesupplierofgoodsproducedorservicesprovidedRequirementstotransfertechnology,productionprocessesorotherproprietaryknowledgeResearchanddevelopmentrequirementsYellow-lightHCOMsMeasurescontrarytotheprincipleoffairandequitabletreatmentGreen-lightHCOMsAllotherHCOMsTD/B/COM.
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12/2Page7Source:UNCTAD,2001a,p.
3.
14.
Atthemultilaterallevel,theTRIMsAgreementprohibitsnotonlyTRIMsthataremandatoryinnaturebutalsothosethatarelinkedtothereceiptofanadvantage.
Itappliesonlytoinvestmentmeasuresrelatedtotradeingoodsandnottradeinservices.
2Whilesuchmeasuresfrequentlyariseinthecontextofforeigninvestmentpolicies,theAgreementappliesequallytomeasuresimposedondomesticenterprises.
Forexample,alocalcontentrequirementimposedinanondiscriminatorymannerondomesticandforeignenterprisesisinconsistentwiththeTRIMsAgreementbecauseitinvolvesdiscriminatorytreatmentofimportedproductsinfavourofdomesticproducts.
15.
Someregionalagreementsalsoaddresstheseandadditionalperformancerequirements.
TheNorthAmericanFreeTradeAgreement(NAFTA),forexample,forbidslocalequityrequirements(Art.
1102(4)).
Article1106(1)proscribestheimpositionorenforcementofmandatoryrequirementsandtheenforcementofanyundertakingsorcommitmentsto(a)exportagivenlevelorpercentageofgoodsorservices;(b)achieveagivenlevelorpercentageofdomesticcontent;(c)purchase,useoraccordapreferencetogoodsproducedorservicesprovidedintheterritoryofapartyortopurchasegoodsorservicesfrompersonsinitsterritory;(d)relatethevolumeorvalueofimportstothevolumeorvalueofexportsortotheamountofforeignexchangeinflowsassociatedwithinvestment;(e)restrictsalesofgoodsorservicesproducedorprovidedbyaninvestmentinaparty'sterritorybyrelatingsuchsalestothevolumeorvalueofexportsorforeignexchangeearningsoftheinvestment;(f)transfertechnology,aproductionprocessorotherproprietaryknowledge;or(g)actastheexclusivesupplierofthegoodsproducedorservicesprovidedbyaninvestmenttoaspecificregionorworldmarket.
316.
Similarprovisionsarealsofound,forexample,inthe1997Canada-ChileFreeTradeAgreement(ArticleG-06),the1997Mexico-NicaraguaFreeTradeAgreement(Article16-05),andthe2000FreeTradeAgreementbetweenMexicoandElSalvador,GuatemalaandHonduras(Article14-07).
Article13ofthe1985UnitedStates-IsraelFreeTradeAgreementforbidstheuseoflocalcontentandexportperformancerequirements.
Aprohibitionofawiderangeofperformancerequirementsisalsocontainedinthe2002AgreementbetweenSingaporeandJapanforaNewAgeEconomicPartnership.
Ontheotherhand,the1994TreatyonFreeTradebetweenColombia,VenezuelaandMexicoexplicitlyallowstheimpositionofrequirementstolocateproduction,generatejobs,trainworkersorcarryoutresearchanddevelopment(Article17-04).
2MeasuresconcerningserviceindustriesareaddressedbytheGeneralAgreementonTradeinServices(GATS),whichdoesnotcontainexplicitrulesdealingwithTRIMs,althoughthesemaybesubjecttospecificnegotiatedcommitments.
ArticleXIX.
2oftheGATSexplicitlygrantsappropriateflexibilitytodevelopingcountriestoattachconditionswhenmakingaccesstotheirmarketsavailabletoforeignservicesuppliers,providedtheseconditionsareaimedatachievingtheobjectivessetoutinArticleIVoftheGATS(increasingparticipationofdevelopingcountriesinworldtrade).
3Requirements(a)and(b)referonlytogoods,and(d)and(e)arealsoprohibitedifappliedasconditionsforthereceiptofanadvantage(Article1106(3)).
However,partiesarefreetomakereceiptofanadvantageconditionaloncompliancewithrequirements,inconnectionwithaninvestment,tolocateproduction,provideaservice,TD/B/COM.
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Theusefulnessofvariousperformancerequirementsremainsanareainneedofmoreresearch.
Whilesomestudiesquestiontheeffectivenessofperformancerequirements,othersarguethatcurrentIIAsgotoofarincurtailingtheabilityofhostgovernmentstoimprovethequalityofFDIinlinewiththeirdevelopmentobjectives.
4AsregardsfuturenegotiationsofIIAs,theremaybeaneedforfurtherassessmentsoftheimpactofexistingagreementsatthebilateral,regionalandmultilaterallevelsontheuseandimpactofperformancerequirements.
18.
ToavoiddeterringFDI,performancerequirementshavenormallybeentiedtosomekindofadvantage,oftenintheformofincentives.
Mostdevelopedcountriesofferlocationalincentivepackagestobothdomesticandinternationalinvestors.
Developingcountriesalsooffertaxbreaksandlocationalpackagestoattractforeigninvestors.
However,theirpackagesaremuchsmaller,andthesecountriestypicallyrelyrelativelymoreonfiscalmeasures,whereasfinancialincentivesaremorecommonindevelopedcountries(UNCTAD,1996b;UNCTAD,2000).
Indevelopingcountries,incentiveshavebeenusedespeciallytoattractexport-orientedFDI,ofteninthecontextofexportprocessingzones(EPZs).
InlightofrestrictionsundertheWTOAgreementonSubsidiesandCountervailingMeasures(theSCMAgreement),developing-countryWTOmembers(otherthanthosementionedinAnnexVIIoftheSCMAgreementandwiththeexceptionofthosethatobtainanextensionofthetransitionperiod)willhavetoeliminateexportsubsidies(relatedtogoods)asrequiredundertheSCMAgreementby1January2003.
Eventhoseobtaininganextensionofthetransitionperiodcannotincreasetheleveloftheirexportsubsidies,aresubjecttotheprohibitionwithrespecttoparticularproductsiftheyachieveexportcompetitivenessinsuchproducts,andwillneedtoconsiderwhattodooncethetransitionperiodexpires(UNCTAD,2002).
19.
Atthesametime,itisworthreflectingonthelegalregimefordevelopment-relatedsubsidies.
Forinstance,subsidiestoforeignaffiliatesand/ordomesticfirmsthatengageinlinkagedevelopmentactivitiesindevelopingcountries,involvingtheprovisionoftechnology,technicalassistanceandtrainingtolocalsuppliersandtheirpersonnel,maybeanimportantpolicytool.
Acasecouldbemadefor,underspecifiedconditions,makingcertaintypesofsuchdevelopment-orientedsubsidiestoforeignaffiliatesnon-actionableunderWTOrules(UNCTAD,2001b;UNCTAD,2002).
20.
Intermsofthefourprincipalissuesmentionedinparagraph4above,incentivesandperformancerequirementshavebeenusedincombinationwithotherpolicymeasurestooptimizetheimpactofFDI.
IncountriesinwhichsuchmeasureshaveplayedaroleineffortstopromoteinwardFDI,theyhavetypicallycomplementedarangeofothermeasuressuchasthoseaimedatenhancingthelevelofskills,technologyandinfrastructure.
Ifthebusinessenvironmentisnotmademoreconducivetoinvestment,upgradingandlinkages,theriskincreasesthatinvestorswillleaveonceanincentiveexpires.
trainoremployworkers,constructorexpandparticularfacilities,orcarryoutresearchanddevelopmentontheirterritories(Article1106(4)).
4See,forexample,Caves,1996;HackettandSrinivasan,1998;Moran,1998and2001;Kumar,2001;OECD,1998;UNCTC,1991;andWTO,1998foradiscussionoftheroleofperformancerequirements.
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Partlyasaresultoftheliberalizationofregulationsgoverningtheentryofforeigninvestors,regulatorypoliciestoensurethesmoothfunctioningofmarketsbecomemoreimportant.
Theymayinvolvetheadoptionofcompetitionrules,mergerreviews,environmentallawsandstricterfinancialaccountingstandards.
Formanydevelopingcountriesandeconomiesintransition,thetransitionfrommoreinterventionistpolicyapproaches(atthepointofFDIentry)totheregulationofmarketsisdifficultbecauseofalackoffinancialandhumanresources.
22.
Inlightoftheabove,expertsmaywishtoconsiderthefollowingquestions:(a)WhathostcountrygovernmentpoliciesareparticularlyimportantforenhancingtheabilityofdevelopingcountriesandeconomiesintransitiontoattractandbenefitfromFDIinlinewiththeirdevelopmentobjectives(b)Howdointernationalagreementsatthebilateral,regionalandmultilaterallevelsaffecttheabilityofcountriestousethesepolicies(c)Towhatextenthavevariousperformancerequirementshelpedcountriesmeettheirdevelopmentobjectives(d)What"yellow-light"HCOMshavebeenparticularlyusefulinthisregard(e)Howwoulddevelopingcountriesbenefitfrommakingtheuseofsuchrequirementsmore(orless)restrictiveII.
HOMECOUNTRYPOLICYMEASURES23.
Hostcountrypoliciescanbesupportedbyhomecountrymeasures(HCMs).
HomecountriesinfluenceFDIflowsinvariousways,includingthelikelihoodthattheirTNCswillselectcertainlocations.
5TheoverridingquestioninthissectionisthereforehowHCMs,inthecontextofIIAs,canhelpdevelopingcountriesandeconomiesintransitiontoattractandbenefitfromFDI.
ThisisofparticularrelevancegiventhenoteddiscrepancybetweendevelopedanddevelopingcountriesintermsofthebalancebetweeninwardandoutwardFDI.
24.
DevelopedcountrieshaveremovedmostnationalrestrictionsonoutwardFDI,butpolicydeclarationsaimedatencouragingoutwardFDIareseldomlinkedtoanyspecificcommitmentsinIIAs(UNCTAD,2001c).
Mostassistanceremainsatthediscretionofeachdevelopedcountryandiscommonlyshapedtoserveahomecountry'sownbusinessinterestsalongwithgeneraldevelopmentobjectives.
Thishomecountryperspectiveisespeciallyevidentinthedesignofmanyfinancialorfiscalassistanceprogrammesaswellaspreferentialmarketaccessmeasures.
TheweaklinkbetweentheexplicitneedsofdevelopingcountriesandthedesignandexecutionofHCMs,aswellastheoftenuncertaincommitmenttothe5AnUNCTADExpertMeetingonHomeCountryMeasureswasheldinGenevafrom8to10November2000.
Themeeting'soutcomeisoutlinedinUNCTAD,2001c.
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12/2Page10durationofassistance,maydiminishthebeneficialimpactsuchprogrammescanhaveondevelopment.
25.
RelevantHCMscan,forexample:Aimatimprovingtheeconomicfundamentalsofhostcountries–forexample,throughdevelopinghumanresources,buildinginstitutionalcapacityandassistinginthedesignandimplementationofadequateframeworkconditionsinrelevantpolicyareas;Helptoreducethetypesofinformationfailuresintheinvestmentprocessalludedtoabovebyassistinginthedisseminationofinvestmentopportunitiesindevelopingcountriesandeconomiesintransition;Improvemarketaccessandfacilitateexportflowsfromdevelopingcountries;Provideinvestmentguaranteesandinsurance;Provideriskandventurecapital;Supportlinkagepromotionprogrammes;andCommittotransfersoftechnology.
26.
Mostdevelopedcountries(andanumberofothercountries)engageinsomeoftheseactivities,albeitlargelyonanautonomousbasisandinaratheruncoordinatedfashion.
(Forexample,thereareatleast12Europeandevelopmentfinanceinstitutionsprovidinglong-termfinancingforprivate-sectordevelopmentindevelopingandtransitioneconomies;seee.
g.
http://www.
edfi.
be.
)OtherinstitutionsprovidingfinancialassistanceattheinternationallevelincludetheWorldBankGroup,regionalmultilateraldevelopmentbanks,theCommonwealthPrivateInvestmentInitiativeandvariousprivatelysponsoredinvestmentfunds(HughesandBrewster,2002).
AnexampleofaninternationallyagreedapproachistheCotonouAgreement(box1).
Box1Investmentandprivate-sectordevelopmentsupportintheCotonouAgreementArticle74"Cooperationshall,throughfinancialandtechnicalassistance,supportthepoliciesandstrategiesforinvestmentandprivate-sectordevelopmentassetoutinthisAgreement.
"Article75:Investmentpromotion"TheACPStates,theCommunityanditsMemberStates[…]shall:(a)implementmeasurestoencourageparticipationintheirdevelopmenteffortsbyprivateinvestors[…];(b)takemeasuresandactionswhichhelptocreateandmaintainapredictableandsecureinvestmentclimateaswellasenterintonegotiationsonagreementswhichwillimprovesuchclimate;(c)encouragetheEUprivatesectortoinvestandtoprovidespecificassistancetoitscounterpartsintheACPcountriesundermutualbusinesscooperationandpartnerships;TD/B/COM.
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12/2Page11(d)facilitatepartnershipsandjointventuresbyencouragingco-financing;(e)sponsorsectoralinvestmentforatopromotepartnershipsandexternalinvestment;(f)supporteffortsoftheACPStatestoattractfinancing,withparticularemphasisonprivatefinancing,forinfrastructureinvestmentsandrevenue-generatinginfrastructurecriticalfortheprivatesector;(g)supportcapacity-buildingfordomesticinvestmentpromotionagenciesandinstitutionsinvolvedinpromotingandfacilitatingforeigninvestment;(h)disseminateinformationoninvestmentopportunitiesandbusinessoperatingconditionsintheACPStates;(i)promote[…]private-sectorbusinessdialogue,cooperationandpartnerships[…].
"Article76:Investmentfinanceandsupport"1.
Cooperationshallprovidelong-termfinancialresources,includingriskcapital,toassistinpromotinggrowthintheprivatesectorandhelptomobilizedomesticandforeigncapitalforthispurpose.
Tothisend,cooperationshallprovide,inparticular:(a)grantsforfinancialandtechnicalassistancetosupportpolicyreforms,humanresourcedevelopment,institutionalcapacity-buildingorotherformsofinstitutionalsupportrelatedtoaspecificinvestment,measurestoincreasecompetitivenessofenterprisesandtostrengthenthecapacitiesoftheprivatefinancialandnon-financialintermediaries,investmentfacilitationandpromotionandcompetitivenessenhancementactivities;(b)advisoryandconsultativeservicesincreatingaresponsiveinvestmentclimateandinformationbasetoguideandencouragetheflowofcapital;(c)riskcapitalforequityorquasi-equityinvestments,guaranteesinsupportofdomesticandforeignprivateinvestmentandloansorlinesofcredit[…];(d)loansfromtheBank'sownresources.
[…].
"Article77:Investmentguarantees"[…]2.
Cooperationshallofferguaranteesandassistwithguaranteesfundscoveringtherisksforqualifiedinvestment.
Specifically,cooperationshallprovidesupportto:(a)reinsuranceschemestocoverforeigndirectinvestmenttoeligibleinvestors;againstlegaluncertaintiesandthemajorrisksofexpropriation,currencytransferrestriction,warandcivildisturbance,andbreachofcontract.
[…](b)guaranteeprogrammestocoverriskintheformofpartialguaranteesfordebtfinancing.
[…](c)nationalandregionalguaranteefunds,involving,inparticular,domesticfinancialinstitutionsorinvestorsforencouragingthedevelopmentofthefinancialsector.
3.
Cooperationshallalsoprovidesupporttocapacity-building,institutionalsupportandparticipationinthecorefundingofnationaland/orregionalinitiativestoreducethecommercialrisksforinvestors[…].
4.
[…]TheACPandtheECwillwithintheframeworkoftheACP-ECDevelopmentFinanceCooperationCommitteeundertakeajointstudyontheproposaltosetupanACP-ECGuaranteeAgencytoprovideandmanageinvestmentguaranteeprogrammes.
"Source:UNCTAD,2001d,pp.
452–54.
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AsthetransferoftechnologyisacentralelementinmanyIIAs,capacity-buildinghasoftenasitsobjectiveenablingdeveloping-countrypartiestocomplywiththeircommitmentsundertheinstrumentsaddressingtechnologyissues.
Manytechnology-relatedprovisionsrelyonHCMsfortheirimplementation.
6Forexample,Article66.
2oftheTRIPSAgreementstipulatesthatdevelopedcountries"shallprovideincentivestoenterprisesandinstitutionsintheirterritories"inordertopromoteandencouragetransferoftechnologytoLDCsto"enablethemtocreateasoundandviabletechnologicalbase".
ThoughthisprovisionleavesgreatleewaytomemberStatestodeterminewhatkindofincentivestoapply,itdoesrequiretheestablishmentofsomesystemencouragingtransferoftechnologytoLDCs.
Italsoprovidesageneralobjectivethatmayhelptoassesstheappropriatenessofsuchincentives,sincetheyshouldenableLDCs"tocreateasoundandviabletechnologicalbase".
728.
ThepracticaleffectivenessofHCMsislikelytoincreaseinproportiontothestrengthofthepolicycommitmentscontainedinIIAprovisions,runningalongacontinuumfromhortatorydeclarationstobindingobligationsaccompaniedbydetailedimplementationplans(backedbyfinancialresources)andmonitoringmechanisms.
SomeIIAsincludeforthispurposeaprovisionfortheestablishmentofa"SupervisoryCommittee"toensuretheproperimplementationofwhathasbeenagreed.
829.
Arelatedpolicyareaisthatofthesocialresponsibilityofcorporations.
9TheconceptofcorporatesocialresponsibilityispotentiallyverybroadandmayencompassmostmatterspertainingtotheeconomicandsocialimpactofTNCs.
Inamorenarrowsense,anumberofaspects–includingdevelopmentobligations,sociopoliticalobligationsandconsumerprotection–havereceivedsomeattention,andothers(suchascorporategovernance,ethicalbusinessstandardsandtheobservanceofhumanrights)areemerging.
IssuesrelatedtocorporatesocialresponsibilityaretypicallynotcoveredbyIIAsbutarereceivingincreasedattentioninvariousinternationalagreementsandforums.
10Thechallengeistobalancethepromotionandprotectionofliberalizedmarketconditionsforinvestorswiththeneedtopursuedevelopmentpolicies.
Socialresponsibilitystandardsmustbeappliedwithsensitivitytotherealitiesoflocalconditionsindevelopingcountriesandshouldnotbemisusedforprotectionistpurposes.
30.
Inlightoftheabovereview,expertsmaywishtoconsiderthefollowingquestions:6AnExpertMeetingonInternationalArrangementsforTransferofTechnology:BestPracticesforAccesstoandMeasurestoEncourageTransferofTechnologywithaViewtoCapacity-BuildinginDevelopingCountries,EspeciallyinLeastDevelopedCountries,washeldinGenevafrom27to29June2001.
ItsoutcomewasaninputforpolicyconsiderationsatthesixthsessionoftheCommissiononInvestment,TechnologyandRelatedFinancialIssues,heldfrom21to25January2002(TD/B/COM.
2/L.
16,29January2002).
7Foracompilationofprovisionsininternationalarrangementsforthetransferfortechnology,seeUNCTAD,2001e.
8Seee.
g.
Chapter1,Article8oftheAgreementbetweenJapanandtheRepublicofSingaporeforaNewAgePartnership.
9Foradiscussionofthisconcept,seee.
g.
UNCTAD,1999,pp.
345–70,andUNCTAD,2001f.
10ExamplesincludenonbindingrecommendationsintheOECDGuidelinesforMultinationalEnterprises,theILOTripartiteDeclarationofPrinciplesconcerningMultinationalEnterprisesandSocialPolicy,theUnitedNationsSetofMultilaterallyAgreedEquitablePrinciplesandRulesfortheControlofRestrictiveBusinessPracticesandtheGlobalCompactoftheUnitedNationsSecretary-General.
TD/B/COM.
2/EM.
12/2Page13(a)WhatHCMsareparticularlyimportantforenhancingtheabilityofdevelopingcountriesandeconomiesintransitiontoattractandbenefitfromFDIinlinewiththeirdevelopmentobjectives(b)Howdointernationalagreementsatthebilateral,regionalandmultilaterallevelsaffecttheuseofsuchmeasures(c)Whatarepastexperienceswiththeprovisionsrelatedtoinvestmentpromotion,investmentfinanceandsupport,investmentguarantees,andotherHCMsinIIAs(d)Towhatextenthaveintergovernmentalorganizationssofarbeenabletoaddresssatisfactorilytheissueofcorporatesocialresponsibility(e)WhataretheprosandconsofvariouspolicyoptionsrangingfrommakingnoreferencetosocialresponsibilityinIIAstotheinclusionofgenerallybindingsocialresponsibilityprovisions,withotherintermediaryoptionsinbetweenthesetwoextremesIII.
THERIGHTTOREGULATEANDSAFEGUARDS31.
TheDohaMinisterialDeclaration,inthecontextoftherelationshipbetweentradeandinvestment,statedinparagraph22:"Anyframeworkshouldreflectinabalancedmannertheinterestsofhomeandhostcountries,andtakedueaccountofthedevelopmentpoliciesandobjectivesofhostGovernments,aswellastheirrighttoregulateinthepublicinterest.
"32.
Internationalagreements,likeotherlegaltexts,arespecificationsoflegalobligations,whichassuchlimitthesovereignautonomyoftheparties.
Asinternationallegalobligationsgenerallyprevailoverdomesticrules,atensioniscreatedbetweenthewilltocooperateattheinternationallevelthroughbindingrulesandtheneedforGovernmentstodischargetheirdomesticregulatoryfunctions.
Suchtensionisgenerallycapturedbythenotionofthe"righttoregulate",whichiscentraltothequestionofpreservingthenationalpolicyspaceforGovernmentstopursuetheirdevelopmentobjectives.
1133.
Therearevariouswaystoaddresstheissueoftherighttoregulate.
Someofthese,withregardtobothtradeandinvestmentagreements,arereviewedbelow.
Inallcasestheabilityofsignatoriestoregulatethedomesticeconomyisagoverningconcern.
Insofarasthisconceptisrestatedinanagreement–forinstance,initspreambularlanguage–italsoservesaninterpretivefunctionvis-à-vistheprovisionsoftheagreement.
Furthermore,whenevercountriesenterintostandard-of-treatmentobligations,suchasfairandequitabletreatment,prohibitionofarbitraryanddiscriminatorymeasuresormost-favoured-nationtreatment(MFN)andnationaltreatment,variouskindsofexceptions,reservations,derogations,waiversortransitionalarrangementsensurethatsignatoriesretaintheirprerogativetoapplynonconformingdomesticregulationsincertainareas.
Thesecanbegeneral(e.
g.
forpublic11Theneedtobalancethepublicinterestpursuedthroughregulationandprivaterightsisalsocommonatthenationallevel.
TD/B/COM.
2/EM.
12/2Page14orderornationalsecurity),subject-specific(e.
g.
theso-called"culturalexception")orcountry-specific(e.
g.
asinthecaseofGATSschedulesofcommitments,withregardtocommercialpresence).
34.
Varioussafeguardsarealsousedtopreservetherighttoregulate,asinthecaseoftransfer-of-paymentsandbalance-of-paymentssafeguards.
Furthermore,time-boundsafeguardsareoftenallowedasameasuretoenableacountrytosafeguarditsdomesticproductionagainstasurgeofimports.
12Itisnecessarytoexaminetowhatextentsuchaconceptof"safeguards"couldalsobeusedintheareaofinvestment.
AsthetermsofreferenceforthisExpertMeetingsuggest,thisissuecould,forexample,berelevantinthecontextofensuringthatdomesticenterprisesarenotadverselyaffected.
35.
Theissueoftherighttoregulatehasbeendealtwithlargelyininternationalagreementsontrade,andusefulconceptsandapproachesthathavebeendefinedinthiscontexthavealsobeenusedinthecontextofIIA.
Intheareaoftrade,theissuehasbeendebatedandlitigatedatlengthintheGATT/WTOsystem,wherethedisputesettlementprocesshasbeenfrequentlyusedtopolicedomesticregulatorymeasuresthathaveanimpactontrade.
ThemaininstrumentforpolicingregulatoryactivitiesintheWTOcomesfromthe1947GATTandisfoundinArticleIII'snondiscrimination(nationaltreatment)obligationascomplementedbytheexceptionscontainedinArticleXX.
ThegeneralnationaltreatmentrulecontainedinArticleIIIprovidesthatinternaltaxesandregulationsmustnottreatimportslessfavourablythandomesticproducts.
Ifadomesticregulatorymeasureisfoundtodiscriminateagainstimports,theregulatinggovernmentmayattempttojustifythediscriminationbyprovingthatitisnecessarytoachievesomelegitimatepurpose.
ArticleXXofGATTdefinestheseexceptionstoincludethosenecessarytoprotectpublicmorals;toprotecthuman,animalandplantlifeorhealth;andrelatingtotheconservationofexhaustibleresources.
Itshouldbenotedthatthislistofpoliciesthatcanjustifymeasuresotherwiseconsideredinviolationofnationaltreatmentis"closed"andthusprovideslimitedscopeforclaiminganexceptioninmanyareaswherecountriesmaywanttopursueregulatoryaction.
36.
Ajustificationfordejurediscrimination(thatexplicitlydistinguishesgoodsbyorigin)isparticularlydemandingsincethecountryclaimingtheexceptionhastoprovethatthereisnolessburdensomealternativetothemeasureinquestion.
Inthecaseofdefactodiscrimination(notbasedontheoriginofthegoods),thecentralissueisthatimportsaretreatedlessfavourablythan"like"domesticproducts.
Foraregulationtoproduceadifferenceintreatment,itmustdivideproductsintotwoormorecategories.
ItisgenerallyassumedthatproductdistinctionsthatcanberecognizedunderArticleIIIrelatetothequalitiesandphysicalpropertiesoftheproductsthemselvesortocharacteristicsoftheproductionprocesses(e.
g.
hygiene)oroftheproducers(e.
g.
certificationthattheymeetcertainstandards)thatdirectlyaffectproductqualities.
Likenessisalsotraditionallydeterminedin12Forinstance,intheframeworkoftheWTOAgreementonSafeguards,ifaproductionsectorinacountrysuffersbecauseofincreasedimports,thecountryisauthorizedtorestrictimportstemporarilybyimposinghighertariffsorbydirectlylimitingimportquantitiesundercertainconditions("astocauseorthreatentocauseseriousinjurytothedomesticindustrythatproduceslikeorindirectlycompetitiveproducts").
Themainrationaleforthisprovisionisthattheparticularsectorinthecountryshouldbeallowedtimetoadjustitselftothenewsituationofcompetitionfromimports.
TD/B/COM.
2/EM.
12/2Page15lightoffactorssuchasphysicalsimilarity,tariffclassification,interchangeabilitybyconsumersandenduses.
Ingeneral,likenessindicatesthatproductsarecompetitiveandthusthatdiscriminatorytreatmenthasanadverseeffectonthecompetitivenessofthelessfavouredproduct.
37.
TheWTOAgreementonTechnicalBarrierstoTradeexplicitlycallsforanintegratedexaminationofthepurposeofthemeasuresinquestionanditstrade-restrictingeffects.
TheAgreementclearlyrequiresabalancingofthedegreeoftraderestrictionagainsttheregulatorypurposeofthedisputedmeasure.
Furthermore,theanalysisoftheregulatoryaimispartofthereviewofthelegalityofthemeasureitself,withanillustrative(notclosed)listoflegitimateobjectives.
Inthiscontext,thereisnoneedtofirstestablishaviolation(whichrequiresaconclusivedeterminationoflikeness),followedbyareviewoftheregulatoryjustificationbywayofexception.
Thebalancinganalysisalsocallsforanappreciationofthetradeeffectsinlightofexistinglessrestrictivealternativesandoftheriskofnonfulfilmentoftheregulatoryobjectives.
38.
TheGATSdealsextensivelywithcommercialpresenceofserviceproviders,andthusitsprovisionsareparticularlyrelevantintheareaofinvestment.
GATSinitspreamblerecognizes"therightofMemberstoregulate,andtointroducenewregulations,onthesupplyofserviceswithintheirterritoriesinordertomeetnationalpolicyobjectivesand,givenasymmetriesexistingwithrespecttothedegreeofdevelopmentofservicesregulationsindifferentcountries,theparticularneedofdevelopingcountriestoexercisethisright.
"39.
Theservicessectorishighlyregulatedinmanycountriesforthepurposeofconsumerprotection,security,protectionofpublicmoralsandprudentialmeasures.
WhiletheGATSrecognizesthesovereignrightofacountrytoregulateservicesforlegitimatepurposes,ArticleVIseekstopreventtheuseofadministrativedecisionstodisguiseprotectionistmeasures.
Generallyappliedmeasuresthataffecttradeinservicesectorsforwhichacountryhasmadecommitmentsmustbeappliedreasonably,objectivelyandimpartially.
Applicationstosupplyservicesundersuchcommitmentsmustreceiveadecisionwithinareasonableperiodoftime.
TheCouncilforTradeinServicesiscalledontodeveloprulestopreventrequirementsgoverningqualificationsforservicesuppliers,technicalstandardsorlicensingfrombeingunnecessarybarrierstotrade.
13Untilsuchmultilateralrulesareready,governmentsaretofollow(insectorsinwhichtheyhaveundertakenspecificcommitments)thesameprinciplesinapplyingtheirrequirementsandstandards,sothatthesedonotnullifyorimpairspecificcommitments(onmarketaccessandnationaltreatment)theyhavemade.
40.
TheGATS,inArticleXVIIonnationaltreatment,doesnotlimitthedistinctionbetweenservicesandserviceprovidersonlytothecharacteristicsoftheproduct,asisthecaseunderGATTArticleIII.
Otherregulatorydistinctionsofotherwise"like"servicesandserviceprovidersareavailable.
Obviously,origin-specificdiscriminationisforbidden.
Withregardtoorigin-neutralregulatorydistinctions,thesecancreateadisproportionateburdenfor13AseparateMinisterialDecisionhaslaunchedthisprogrammebyestablishingaGATSworkingpartytopreparerulesfortherequirementsthatgovernmentsimposeonprofessionalservicesuppliers.
Thefirstdisciplinestobedrawnupapplytotechnicalstandards,qualificationandlicensingrequirementsforaccountancyservices.
TD/B/COM.
2/EM.
12/2Page16foreignservicesandservicesuppliersandthusbechallengedasdefactodiscrimination.
Themarketeffectispartoftheanalysis,asArticleXXVII(3)statesthat"FormallyidenticalorformallydifferenttreatmentshallbeconsideredtobelessfavourableifitmodifiestheconditionsofcompetitioninfavourofservicesorservicesuppliersoftheMembercomparedtolikeservicesorservicesuppliersofanyotherMember.
"41.
ThedeterminationoflikenessdoesnotappeartobeeasierundertheGATSthanundertheGATT.
Probablythemostmeaningfulelementisthatof"enduse",alongwiththerelatedconceptsofdirectcompetitiveandsubstitutableservices.
Oncelikenessisdeterminedandlessfavourabletreatmentfound,then,ratheraswiththeGATT,ageneralexceptionunderArticleXIVcanbeinvoked.
ThekeyadditionalelementintheGATSisthatthenationaltreatmentobligationdoesnotapplyacrosstheboardbutonly"Inthesectorsinscribedin[theWTOMember's]Schedule,andsubjecttoanyconditionsandqualificationssetouttherein"(i.
e.
themember'sspecificcommitments).
Thus,eachmemberfirstdecideswhichservicessectorwillbesubjecttotheGATSnationaltreatmentdiscipline,andthenexemptsthosemeasuresthatitwishestokeepinplaceeventhoughtheyrepresentaviolationofnationaltreatment.
TheexactcontentofthenationaltreatmentobligationundertheGATSandanylimitationonregulatoryactionarethereforedeterminednotonlybytheinteractionofthenationaltreatmentprovisionandthegeneralexceptionsbut,andperhapsmoreimportantly,bytheextentofthelimitationsinscribedineachmember'sschedule.
42.
Issuesrelatedtotherighttoregulatefirstaroseinthecontextofinvestmentprotectionagreements,withregardtotheissuesofexpropriationandnationalization.
Someregionalagreementsandvirtuallyallbilateralinvestmenttreatiesincludebroadlanguagecoveringmeasures"tantamount"or"equivalent"toexpropriation.
Hence,theycanalsoapplytheexpropriationprovisionsto"indirectexpropriations"or"regulatorytakings",namely,whenahostcountrytakesanactionthatsubstantiallyimpairsthevalueofaninvestmentwithoutnecessarilyassumingownershipoftheinvestment.
Furthermore,anumberofBITsandregionalinvestmentagreementsarealsounderstoodtoapplytheexpropriationprovisionto"creepingexpropriations"–thatis,expropriationscarriedoutbyaseriesoflegitimateregulatoryactsoveraperiodoftime,whoseultimateeffectistodestroysubstantiallythevalueofaninvestment.
Theygenerallyimposecertainconditionsonexpropriationifitistobeconsideredlawful,byadoptingsomevariationofthetraditionalruleofinternationallawthataStatemaynotexpropriatethepropertyofanalienexceptforapublicpurpose,inanondiscriminatorymanner,inaccordancewithdueprocessoflawanduponpaymentofcompensation.
Concernshavebeenexpressedwithregardtotheimpactthatanexpansiveuseofexpropriationclaimsmayhaveonsovereigngovernments'righttoregulate.
InthecontextoftheNAFTA,thethreemembercountriesin2001adoptedsomeNotesofInterpretationofCertainProvisionsoftheinvestmentchaptertoclarifytheprovisiongoverningtheminimumstandardoftreatmenttobeaccordedtoforeigninvestors.
TheydeterminedthattheNAFTA'sstandardisthecustomaryinternationallawminimumstandardoftreatment.
43.
Movingtotheareaofnationaltreatment,theNAFTA,forexample,subsequentlyfollowedbyanumberofFTAs,tookanapproachsimilartothatoftheGATS.
EachPartyisrequiredtoaccordthebetterofnationaltreatment(andMFN)treatmenttoinvestorsofanotherParty,andtoinvestmentsofinvestorsofanotherParty"inlikecircumstances",withTD/B/COM.
2/EM.
12/2Page17respecttotheestablishment,acquisition,expansion,management,conduct,operation,andsaleorotherdispositionofinvestments(Articles1102–1104).
However,theAgreement'sinvestmentprovisions,includingthosegoverningnationaltreatment,aredeterminedbytheexceptionsandreservationsprovidedforinArticle1108andcontainedintheannexestotheAgreement.
Furthermore,theAgreementprovidesthatnothingintheInvestmentChaptershallbeconstruedtopreventaPartyfromadopting,maintainingorenforcinganymeasure,otherwiseconsistentwiththeChapter,"thatitconsidersappropriatetoensurethatinvestmentactivityinitsterritoryisundertakeninamannersensitivetoenvironmentalconcerns"(Article1114).
TheNAFTAalsoincorporatesbyreferencetheprovisionofGATTArticleXX(Article2101)andprovidesforageneralnationalsecurityexception(Article2102).
44.
BITssimilarlylimitthecoverageofnationaltreatmentbyincludingqualifications,exceptionsorderogations(UNCTAD,1998).
Asinthecontextoftrade,MFNornationaltreatmentprovisionsareoftenlimitedtoinvestmentsthatare"inthesamecircumstances"or"inlikesituations"orthataremadebya"similarenterprise".
Suchprovisions,however,donotidentifythecriteriabywhichsimilarityorlikenessistobeestablished.
Thedeterminationmightdepend,forexample,onwhetherthetwoinvestmentsareincompetitionwitheachother.
InOECDcountrypractice,forexample,thespecificcriteriatobetakenintoaccountincludewhetherthetwoenterprisesareinthesameindustry,theimpactofpolicyobjectivesofthehostcountryinparticularfieldsandthemotivationbehindthemeasureinvolved.
AnotherquestionthatarisesiswhethertheMFNornationaltreatmentobligationappliestospecialtreatmentgrantedtocertainindividualinvestorsortoallinvestorsofaparticularnationality(UNCTAD,1998).
45.
Generalexceptionsareoftenagreedforreasonsof"publicsecurityandorder,publichealthandmorality".
Exceptionscanalsoapplytothetreatmentaccordedunderinternationaltreatiesordomesticlegislationrelatingtotaxation.
Inotherwords,theexceptionpermitsacountrytoprovidefavourabletaxtreatmenttoinvestmentbynationalcompanieswithoutaccordingthesametreatmenttoinvestmentbyforeigncompanies,orviceversa.
Finally,afewBITsallowexceptionsfromnationaltreatmentonthebasisofdevelopmentprovisions.
AnexampleofsuchanexceptionisfoundinProtocolNo.
2oftheBITbetweenIndonesiaandSwitzerland,whichallowsderogationfromnationaltreatmentofSwissinvestors"inviewofthepresentstageofdevelopmentoftheIndonesianeconomy.
"14DevelopmentconsiderationsseemalsotoplayaroleinthecaseofGermany'sapproachinBITstonationaltreatment,insofarasthecountryhasacceptedcertainexceptionstothenationaltreatmentprincipleprovidedthattheseareundertakenfordevelopmentpurposesonly(e.
g.
todevelopsmall-scaleindustries)andthatthemeasuresdonotsubstantiallyimpairinvestmentsbyGermaninvestors(UNCTAD,1998).
46.
Concerningexceptionstotransferofpayments,thepossibilityforagovernmenttointerveneisgenerallyprovided,withanumberofqualifications.
Inaregionalcontext,forinstance,the2000FreetradeAgreementbetweenMexicoandElSalvador,GuatemalaandHondurasprovidesforthepossibilityofintroducingtemporaryexchangecontrolsintheevent14However,Indonesia,pursuanttothetermsofthetreaty,wouldgrant"identicalorcompensatingfacilitiestoinvestmentsandnationalsoftheSwissConfederationinsimilareconomicactivities.
"TD/B/COM.
2/EM.
12/2Page18ofaseriousbalance-of-paymentsdisequilibrium.
However,measureshavetobecompatiblewithinternationallyacceptedcriteria.
InthecontextoftheEconomicPartnershipAgreementbetweentheEuropeanUnionandMexico,thePartiesagreedthatincaseofseriousbalance-of-paymentdifficulties,restrictivemeasureswithregardtopayments,includingtransferofproceedsfromthetotalorpartialliquidationofdirectinvestment,couldbeadoptedonanondiscriminatoryandtime-boundfashion.
TheNAFTAprovidesforthepossibilityofadoptingmeasuresthatrestricttransfersincaseofseriousbalance-of-paymentdifficulties,subjecttoaseriesofconditions(suchasavoidingunnecessarydamagetothecommercial,economicandfinancialinterestsofanotherParty,notbeingmoreburdensomethannecessarytodealwiththedifficulties,andbeingtemporaryandnondiscriminatory).
47.
ManyBITsallowexceptionstotheobligationoffreetransferofpaymentsonlyduringperiodswhenforeigncurrencyreservesareatexceptionallylowlevels.
Suchclausesgenerallyallowthetransfertobedelayedtemporarily.
Sometimestheyaresubjecttooneormoreotherconditions.
Anotherapproachconferstherighttomakemonetarytransfers,butsubjecttotheexchangecontrollawsofthehostcountry.
SomeBITsguaranteetherighttotransferonlyafractionoftheearningsofwagesofnationalsoftheothercontractingpartytothathomecountry.
48.
Inconclusion,whileinternationalrulesobviouslyimplyameasureofrestrictionondomesticregulatoryautonomy,severaltechniqueshavebeenusedtostriketherightbalance.
TheGATT,theAgreementonTechnicalBarrierstoTrade(theTBTAgreement)andtheGATSallusedifferentapproachesandmayprovideusefulreferencemodelsforanyfuturerule-makingintheareaofinvestment.
WithregardtobothregionalandbilateralIIAs,itisnecessarytoexaminetowhatextenttherighttoregulategoesbeyond"regulatorytakings"andsimilarissuesofinvestmentprotectiontoencompassthewayotherareascoveredinIIAscanbereconciledwiththenecessarypreservationofpolicyspacefordevelopment.
1549.
Inlightoftheabovereview,expertsmaywishtoconsiderthefollowingquestions:(a)TowhatextentdoexistingagreementsprovideenoughpolicyspaceforGovernmentstoapplydomesticregulatorymeasuresinthepublicinterest,especiallyinpursuitofdevelopmentobjectives(b)WhatmightbethemostappropriateapproachtopreservingtherighttoregulateintheareaofinvestmentWhatroleshouldspecialanddifferentialtreatmentplayinthiscontext(c)Isanapproachbasedongeneralandspecificexceptionspreferabletoonethatwouldassesstheacceptabilityofaregulatorymeasurebybalancingtheinvestment'srestrictiveeffectwiththeregulatorypurposepursued15TheissuewasalsodiscussedattheUNCTADExpertMeetingonBilateralandRegionalApproachestoMultilateralCooperationintheAreaofLong-TermCross-BorderInvestment,ParticularlyForeignDirectInvestment.
TheReportoftheExpertMeetingnotes:"Finally,thequestionwasraisedwhethertherighttoregulatewouldgobeyondexpropriationissuesandcoverperformancerequirementsandotherconditionsimposedonforeigninvestors"(TD/B/COM.
2/EM.
11/3,para.
18(g)).
TD/B/COM.
2/EM.
12/2Page19(d)WhatspecificdevelopmentexceptionsandsafeguardscouldbeconsideredinthecontextofIIAs(e)Whatshouldbetheobjectivecriteriafortransitionperiodsanddevelopmentexceptions,inparticulartonationaltreatment(f)Inpractice,whathavetheexperiencesbeenintheapplicationofexceptionsandsafeguardsTD/B/COM.
2/EM.
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