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MAI DRAFT TEXT OF 1997: III. TREATMENT OF INVESTORS AND INVESTMENTS

CONFIDENTIAL DAFFE/MAI(97)1/REV2

III. TREATMENT OF INVESTORS AND INVESTMENTS

General

It was understood that the drafting of articles I and 2 was without prejudice to other aspects of the Agreement, including definitions, reservations, exceptions, standstill and rollback, and the role of the Parties Group.

NATIONAL TREATMENT AND MOST FAVOURED NATION TREATMENT

1. While some delegations would have preferred separate articles on pre- and post-establishment, the majority of delegations felt that a single text would better capture the intended coverage of the agreement and avoid the difficult task of defining the boundary between pre- and post establishment. It was agreed, as a starting point, to work on the basis of a single text. Some delegations pointed to the links between a single text covering treatment of investors both pre- and post-establishment and the issues of definitions and the scope of the Agreement. Two delegations reserved their position pending the outcome of the discussion on these issues. The Drafting Group also felt that the scope of the commitments by individual countries could be identified by using precise language in any agreed reservations to National Treatment/MFN and perhaps by including references to relevant laws or regulations. The Group agreed that all diversification activities are covered by the references to "establishment, acquisition and expansion".

2. Including the words "in its territory" in Articles 1.1 and 1.2 was suggested for two reasons: i) to define the scope of application of national treatment and MFN; and ii) to provide an appropriate benchmark for assessing national treatment and MFN. Adding these words would make it clear that the Contracting Parties do not have obligations with regard to investors of another Contracting Party in a third country. One delegation suggested that a third reason for including "in its territory" would be to underline the need to avoid conflicting requirements on multinational enterprises. At the same time, however, it was important not to unduly limit the scope of the agreement, for example by excluding the international activities of established foreign investors and their investments. The place of this term in these paragraphs is still to be determined. It was also suggested that a solution might be found, as in NAFTA, in the article dealing with the scope of the Agreement. Whatever should be decided on this matter, it should be treated consistently throughout the Agreement.

3. Some delegations proposed the "same" or"comparable" treatment as the appropriate standard rather than "no less favourable" treatment. The purpose would be to prevent unlimited competition for international investment funds with consequential costs and distortions to investment flows. However, most delegations considered that this would unacceptably weaken the standard of treatment from the investor's viewpoint.

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4. Different views were expressed on the value of a ''closed" or ''open" list of investment activities to be covered by the National Treatment and MFN provisions, before and/or after establishment. A closed list had the advantage of certainty, but risked omitting elements that could be important to the investor. An open list would cover all possible investment activities, including new activities. But it could also create uncertainties as to the scope of the Agreement and might have adverse effects on the operation of existing bilateral and other investment agreements using a closed list. Several Delegations believed that the list "establishment, acquisition, expansion, operation, management, maintenance, use, enjoyment and sale or other disposition of investments" should be considered a comprehensive one whose terms were intended to cover all activities of investors and their investments for both the pre- and post-establishment phases. In their view, this was the preferable approach. It was also suggested that the term "sale or other disposition" should replace "disposal" in Article 1.2 of the draft articles on selected topics on Investment Protection.

5. National treatment and MFN treatment are comparative terms. Some delegations believed that the terms for national treatment and MFN treatment implicitly provide the comparative context for determining whether a measure discriminates against foreign investors and their investments; they considered that the words "in like circumstances" were unnecessary and open to abuse. Other delegations believed that the comparative context should be spelled out and thus inclusion of the phrase "in like circumstances". Examples of the inclusion of a specific reference are found in the NTI, some BlTs and NAFTA. Examples of no specific reference are found in some other BITS and the ECT (although the United States and Canada made a Declaration concerning the term "in like circumstances").

6. DG3 considered two options: "In like circumstances" deleted (option A) and: "In like circumstances" included (option B).

Regarding Option A. National treatment and MFN treatment are comparative terms. They permit fair and equitable difference in treatment justified by relevant differences of circumstances. In this context, nationality is not relevant. Some delegations may wish to modify this text in the light of the Commentary on Option B below which was not discussed.

Regarding Option B. The U.S. delegation provided the following commentary: "National treatment and most favoured nation treatment are relative standards requiring a comparison between treatment of a foreign investor and on investment and treatment of domestic or third country investors and investments. The goal of both standards is to prevent discrimination in fact or in law compared with domestic investors or investments or those of a third country. At the same time, however, governments may have legitimate policy reasons to accord differential treatment to different types of investments. "In like circumstances" ensures that comparisons are made between investors and investments on the basis of characteristics that are relevant for the purposes of the comparison. The objective is to permit the consideration of all relevant circumstances, including those relating to a foreign investor and its investment, in deciding to which domestic or third country investors and investments they should appropriately be compared, while excluding from consideration those characteristics that are not germane to such a comparison."

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CONFIDENTIAL DAFFE/MAI(97)1/REV2

7. The question was asked whether the treatment accorded to foreign investors by a sub-federal state or province would meet the national treatment test only if it were no less favourable than the treatment accorded to the investors of the same state or province, or whether it would be sufficient to accord treatment no less favourable than that accorded to the investors from any other state or province. The question will need to be answered by the Negotiating Group in due course.

8. Switzerland made a written proposal to refer, in the treatment of investors/investments article, to the concept of "equivalent competitive opportunities" analogous to that of GATS (Article XVII) [DAFFE/MAI/DG2/RD(96)1]. This was presented as a means of strengthening the national treatment provision by requiring that foreign investors and their investments have the opportunity to compete on terms equivalent to those enjoyed by domestic investors. This proposal was considered by some delegations to have positive elements particularly with respect to the treatment of branches of foreign financial institutions. ''Equivalent treatment" was the basis of comparison, in the OECD Code of Liberalisation of Current Invisible Operations, between domestic financial institutions and branches, agencies, etc., of foreign financial institutions. Several delegations considered, however, that the introduction of the concept of "equivalent competitive opportunities" into Article 1 might create confusion on how to apply the national treatment and MFN obligations, and might even go beyond what these obligations were intended to cover. Other delegations suggested that issues concerning branches might be solved in the definition of "investments".

9. As indicated by the Negotiating Group 1DAFFE/MAI/M(95)2], Article I is intended to address any problem of de facto as well as de jure discrimination.

10. Switzerland also suggested the addition of a distinct provision on "market access", modelled on the GATS (Article XVI), to deal with situations where the same restrictions apply to both domestic and foreign investors. Such measures may include both quantitative restrictions (e.g. economic need tests or numerical quotas) and qualitative measures (e.g. restrictions on the legal form of the activities permitted in a given sector). It was considered that this subject raised issues outside the traditional domain of National Treatment and MFN and required prior discussion in the Negotiating Group.

11. Some delegations expressed the view that Article 1.3 was not strictly necessary since it does not add any substantive obligation to Articles 1.1 and 1.2. Article 1.3 underlines, however, that, taken together, the purpose of Articles 1.1 and 1.2 is to give the investors and their investments the better of National Treatment and MFN.

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CONFIDENTIAL DAFFE/MAi(97)1/REV2

TRANSPARENCY


l. Public dissemination of measures affecting foreign investment was considered essential to the operation of the MAI. Nevertheless a balance should be struck between this objective and the administrative burden of implementing it.

2. When sub-national, local or other authorities publish or otherwise make publicly available information on matters under their jurisdiction, this would be considered sufficient to meet the obligation of Article 2.1. There would be no obligation to duplicate this information at the federal or central government level.

3. The second sentence of Article 2.1 refers to situations in some countries where governments choose to establish policies that are not expressed in laws, regulations or other measures listed in this paragraph. However, as the legal standing and recourse to these policies varies among Member countries, it was agreed that they should be subject to transparency obligations only for governments which use this approach.

4. Regarding Article 2.2, a majority of delegations considered the establishment of specific enquiry points to be unnecessary. Other delegations considered that these enquiry points could contribute to the effective functioning of the MAI. They could also be useful to foreign investors by making available information of interest to them.

5. Article 2.3 addresses the concerns that may arise with respect to the disclosure of information in the context of law enforcement or laws protecting confidentiality. Such concerns are addressed in other international agreements GATS, Energy Charter, NAFTA). It was felt unnecessary, however, to add a reference to national security and public order since this issue would be addressed in the general exception article.

6. Mexico, supported by other delegations, proposed to add an additional sentence to article 2.3 and an additional paragraph on Special Formalities and Information Requirements as follows:

(a) [Nothing in this paragraph shall be construed to prevent a Contracting Party from otherwise obtaining or disclosing information in connection with the equitable and good faith application of its law.]

(b) ["Nothing in Article 1.1(1) shall be construed to prevent a Contracting Party from adopting or maintaining a measure that prescribes special formalities in connection with the establishment of investments by investors of another Contracting Party, such as a requirement that investors be residents of the Contracting Party, or that investments be legally constituted under the laws or regulations of the Contracting Party, provided that such formalities do not materially impair the protections afforded by a Contracting Party to investors of another Contracting Party and investments of investors of another Contracting Party pursuant to this Agreement."]

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7. Some delegations expressed concern that the additional texts could be used to circumvent the non-discrimination obligations of the Agreement. There were serious concerns as to the substantive implications of the paragraph, in particular relating to the residency requirements(2).

8.DG3 considered including a notification obligation along the following lines; "Each Contracting Parry shall notify the ("Parties Group") promptly, and in any case no later than 60 days after their entry into force, of any new measures or any changes to existing measures which significantly affect the performance of its obligations under the Agreement. "

9.Such a provision could play a role in support of the possible activities of the Parties Group in connection with non-conforming measures subject to review and rollback, and general exceptions or any temporary derogations. It was agreed that this matter could be revisited once the MAI obligations in these areas had been clearly defined.

10. DG3 noted the suggestion that any Contracting Party should be entitled to notify to the Contracting Parties Group any measure taken by any other Contracting Party which it considers affects the operations of the Agreement. This too may be relevant to the functions of the Parties Group.

11. Japan suggested that consideration be given to an article based on Article 5 ("Controls and Formalities") of the OECD Codes of Liberalisation.

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CONFIDENTIAL DAFFE/MAI(97)1/REV2

SPECIAL TOPICS

TEMPORARY ENTRY, STAY AND WORK OF INVESTORS AND KEY PERSONNEL


Paragraph 1

1. While several delegations supported including a requirement of a "substantial amount of capital" in paragraph 1, others considered it would create uncertainties and could represent an important barrier to certain forms of investment. It was noted that Drafting Group 3 has developed a provision on Denial of Benefits in the context of indirect ownership or control using the concept of "substantial business activity". DG3 decided that it was not necessary to define this term.

2. Some delegations do not think it necessary to include "essential" in this paragraph and emphasise the difficulties associated with defining this term.

3. There are different views on whether to include a prior employment requirement. Some delegations think this requirement can distort the investment process by impacting unfairly on new investors and small/medium enterprises without any corresponding benefit to the "admitting" country. Furthermore, these delegations believe that it may not correspond to the real needs of an investment and should not be used as a measure of whether an individual is essential to an investment. Several delegations thought it necessary to retain such a requirement if only because there is a corresponding requirement in their national immigration laws. One delegation thought it might be necessary to specify that the prior employment relation must be continuous and should immediately precede entry. Another delegation questioned whether the use of prior employment requirements to avoid circumvention of national immigration laws was effective.

Paragraph 3

Natural person of another Contracting Party
(3)

Executive, Manager, Specialist

The Expert Group thought the definition of the categories of executive and manager were generally appropriate, except that there might be some overlap between the two. The category of "Specialist" will need some further reflection and may need to refer to the possibility of verifying professional qualifications. One delegation would like to include "trainers" in this category.

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CONFIDENTIAL DAFFE/MAI(97) 1/REV2

PRIVATISATION(4)

General

Some delegations questioned the need for a separate article confirming the application of the National Treatment/MFN obligations to privatisation operations. Other delegations felt, on the contrary, that it was worthwhile to underline this important addition to OECD obligations. Privatisation can be a complex and politically sensitive matter. There is thus a need to specify how the MAI obligations would interrelate to particular privatization transactions or schemes. Foreign investors attached particular importance to transparency.

Paragraph 3

One EG3 delegation doubted whether the provision was fully consistent with the National Treatment/MFN Treatment obligations. Another delegation considered there is a lack of balance, and thus discrimination, inherent in special share arrangements in that they would allow a Contracting Party to retain control while devolving business risks to private investors. Some delegations considered that special share arrangements will remain a feature of individual privatization schemes and that the MAI should provide some flexibility in this area. A large majority shared the view that these special schemes should not be considered to be inconsistent with the National Treatment and MFN Treatment obligations unless they explicitly or intentionally discriminate against foreign investors. There might be a need, for instance, to set aside a proportion of initial sales to private persons or institutes. As in the case of monopolies, there is also a link with the room of manoeuvre the Contracting Parties would have in regard to the lodging of country specific reservations/exceptions: precautionary reservations would be necessary. Some delegations expressed reservations about the idea of special consultation procedures in this area in addition to those that might be contemplated under the consultation/dispute settlement provisions of the MAI.

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CONFIDENTIAL DAFFE/MAI(97)1/REV2

MONOPOLIES/STATE ENTERPRISES/CONCESSIONS(5)

A. Article on Monopolies

Paragraph 1

There is consensus in EG3 that the right of governments to create, allow or maintain monopolies could not be challenged under the MAI. But there is no consensus on the need to make it explicit in the MAI. Several delegations supported the language confirming the right of governments to designate new monopolies, although this could also be done through an interpretative note. One delegation was of the view that, without such a provision, there would be uncertainties about the scope of application of the MAI in this field. Some delegations remained unconvinced, however, of the need to mention this right explicitly in the Agreement. One delegation noted that government prerogatives on monopolies also apply to their elimination; inclusion of the word "eliminating" at the end of the phrase would make this clear and produce a more balanced provision. Some delegations noted the link between the designation of new monopolies and the MAI article on Expropriation and Compensation. One delegation pointed out that the need for paragraph I would be enhanced by the inclusion of market access disciplines in the MAI.

Paragraph 2

A large majority of EG3 delegations considered that the National Treatment and MFN Treatment obligations should apply to the designation of new monopolies. Several delegations pointed out the difficulty of applying such obligations to every situation that may arise in the future, notably in the context of the introduction of new technologies and felt that a "best endeavour" undertaking would be more appropriate. Delegations also noted the link with the demonopolisation issue and, in particular, that of the lodging of country-specific reservations or exceptions.

Paragraph 3

1. A large majority of delegations considered that the provisions of the Monopolies article should apply to government-designated monopolies at all levels of government and not be limited to those designated by central governments. One delegation suggested that in the case of privately-owned monopolies, the obligations should apply only to those created after the entry into force of the MAI and not to existing ones. This delegation argued that would be difficult to apply the obligations retroactively to existing privately-owned monopolies while such practical difficulties would not arise with respect to existing government monopolies.

2. Concerning subparagraph d), it was recognised in EG3 that monopolies have the capacity to introduce market distortions, notably by cross-subsidising their business activities in competitive sectors. It was also acknowledged that abuse of dominant position was a competition policy issue. Further thought will also need to be given to the meaning of the "abusive use of prices".

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CONFIDENTIAL DAFFE/MAl(97)1/REV2

Paragraph 4

1. EG3 was of the view that demonopolisation operations are generally favourable to liberalization since they open up new investment activities. Demonopolisation operation would have the effect, however, of extending the obligations of the MAI to a new area. Several delegations felt therefore that the MAI should provide the Contracting Parties with the possibility to lodge new country-specific reservations/exceptions when this situation occurs. This would not be contrary to standstill since country-specific reservations/exceptions introduced at the time of demonopolisation, would, in principle, be subject to standstill. These delegations welcomed, as a result, the flexibility in paragraph 4. An alternative to this approach would be precautionary country-specific reservations/exceptions lodged at the time of the entry into force of the Agreement. This problem clearly belongs to the broader issue of liberalization and balance of commitments.

2. Some other delegations considered that the possibility of lodging country specific reservations or exceptions should be limited to the time a Contracting Party adheres to the MAI. In the absence of such reservations or exceptions, the National Treatment/MFN obligations would apply to demonopolisation operations. One delegation thought that the combined ability to designate new monopolies and to cover by reservations or exceptions new non-conforming measures could be used to evade MAI obligations.

Paragraph 5

The desirability of introducing a notification requirement for existing and new monopolies was found by some EG3 delegations to be closely related to the issue of country-specific reservations/exceptions and to a MAI article on Market Access. One delegation wondered what use the Parties Group could make of this infommation and feared the administrative burden. One delegation suggested that a best endeavour undertaking to provide, wherever possible, prior notification of any newly designated monopoly, along the lines of article 1502(a) of NAFTA, might offer a more palatable approach.

Another delegation recalled the proposal made in the context of the negotiations of the Supplementary Treaty to the Energy Charter Treaty which limits reporting requirements for govemment-designated monopolies at the sub-national level to classes of monopolies as opposed to individual monopolies.

Paragraph 6

A few EG3 delegations proposed to exclude from investor-state arbitration matters arising out of paragraphs 3(b), 3(c), 3(d) or 3(e) of this Article. Other delegations felt that this could set a dangerous precedent for other MAI obligations. One delegation suggested that governments should keep control over the dispute settlement process because the disputes that may arise between government-designated monopolies and foreign investors are most likely be a function of the manner in which these monopolies are regulated than to their own behaviour.

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CONFIDENTIAL DAFFE/MAI(97)1/REV2

B. Article on [State enterprises] [entities with which a Government has a specific relationship]


Several EG3 delegations questioned the need for specific provisions on state enterprises. The problem of anti-circumvention of the MAI obligations could be addressed in the context of a general article on the subject or in the context of corporate practices. State enterprises operating in the competitive sector should be treated no differently than private enterprises. One delegation considered, however, that it is not always certain that governments can divorce themselves from the activities of their state enterprises.

Foreign investors may, in any case, entertain this suspicion, particularly where such enterprises play a significant role. A balance should be struck between their rights under the MAI as investors and their obligations as suppliers of goods or services to domestic and foreign investors. One delegation felt that the best way to ensure this balance is to submit state enterprises to the same rights and obligations than private enterprises.

C. Definitions related to Articles on Monopolies [and State Enterprises]


1. One delegation suggested brackets around the word "local". A number of EG3 delegations considered that the concept of government-designated "monopolies" should also cover that of "exclusive suppliers" as in the case of Article VIII of the GATS. One delegation suggested that it be discussed whether enterprises with special concessions, for example banks, should be included or not. It was also noted that the possibility of having a GATT article XVII-type definition relating to "any enterprise" to which a party "formally or in effect" has given exclusive or special privileges", could be considered. Finally, it was recalled that Article 22 of the ECT covers state as well as "privileged enterprises".

2. One delegation suggested the insertion of the words "subject to Annex..."to allow, as in NAFTA, that country specific characteristics be taken into account.

113

CONFIDENTIAL DAFFE/MAI(97)1/REV2

INVESTMENT INCENTIVES(6)

1. The discussion on investment incentives in EG3 was based on a Note, including a proposal for draft provision, by the New Zealand [DAFFE/MAI/EG3/RD(96)7] and a proposal by the European Commission [section 6 of DAFFE/MAI/EG3/RD(96)10].

2. Many delegations believed that disciplines on investment incentives would be important for the overall credibility of the MAI while at the same time recognising the role of investment incentives with regard to the aims of policies, such as regional, structural, social, environmental or R&D policies.

3. New Zealand argued that a definition of investment incentives is a necessary prerequisite for increased transparency and disciplines regarding such measures. It suggested a definition of investment incentives based largely on the definitions of subsidies and "specificity" found in the WTO Agreement on Subsidies and Countervailing Measures (ASCM). New Zealand also provided text for a specific transparency provision.

4. Several delegations, however, considered the nature and scope of the disciplines proposed by New Zealand and others to be too ambitious. Since WTO members were still grappling with related issues, it would be premature to include disciplines in the MAI that could duplicate or detract from WTO obligations. They also took the view that there has been insufficient analysis of the nature and impact of incentives and of the nature and extent of any disciplines which would be required given the objectives of the MAI. One delegation believed more work was necessary to identify fully the degree of the negative effect of individual incentives in relation to the policy goals, often beneficial, implemented through those incentives. Problems need to be clearly identified prior to drafting disciplines aimed at addressing those problems.

5. Several delegations also questioned the viability of creating, at this stage, standstill and rollback provisions on non-discriminatory investment incentives. Subjecting investment incentives to the NT and MFN obligations would already constitute a major step forward. One delegation felt that this would also imply submitting investment incentives to transparency obligations and subjecting non-conforming measures to standstill and rollback.

6. Most delegations believed that any plans for disciplines on tax incentives should be taken up by EG2. Some delegations thought that tax measures should be excluded.

7. Some delegations expressed concern that any additional disciplines on investment incentives in the MAI could divert foreign investment to non-Members and place MA1 Contracting Parties at a disadvantage relative to non-Members in their ability to retain or attract investment. Such disciplines could also constitute an obstacle to accession to the MAI by non-Members. On the other hand, some delegations noted that it was always envisaged that the MAI, as a high standards agreement, would mandate more liberal FDI regimes among Parties than typically maintained by non-Members, and disputed claims that disciplines on incentives presented any special problems in this regard.

114

CONFIDENTIAL DAFFE/MAI(97) 1/REV2

TECHNOLOGY R&D

(Proposal by Canada)(7)

On the topic of Technology R&D, Canada has proposed the following text:

"Contracting Party funding prerogatives relating to R&D consortia and other activities shall not preclude national treatment for membership in such activities, provided that prospective foreign participants contribute funding commensurate with their role in the consortium and the level of funding contributed by other consortium participants.8"

CONFIDENTIAL DAFFE/MAI(97) 1/REV2

INTELLECTUAL PROPERTY

The Definition of Investment


Virtually all delegations recognised the need for further examination of the concept of intellectual property in the definition. Delegations stressed that decisions on definition are closely linked to the resolution of the substantive problems discussed below. Delegations had varying views on whether the MAI should have an open or closed definition of intellectual property. Of those delegations that proposed a closed definition, some thought that the definition should cover only those rights specified in the TRIPS agreement and others thought that other existing rights should also be covered. Several delegations thought that the definition should exclude copyright and neighbouring rights and databases. In addition, delegations had varying views on whether the definition should cover future as well as existing intellectual property rights. Some delegations thought that it would be important to reflect footnote 2 of the Chair's text on the Definitions of Investment and Investor [DAFFE/MAI(97)7]. That footnote contemplates that an asset, to qualify as an investment, must have the characteristics of an investment, such as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk.

National Treatment, Most Favoured Nation Treatment and General Treatment

1. All delegations agreed that the current formulation of National Treatment and Most Favoured Nation Treatment in the MAI goes beyond existing national and international practice for intellectual property. Delegations formulated three possible approaches. The MAI could provide that National Treatment and MFN:

(a) would apply to intellectual property without qualification (derogations would be addressed through country-specific reservations);

(b) would have no application to intellectual property; or

(c) would apply to intellectual property, but a MAI Party could derogate from NT and MFN in a manner consistent with the TRIPS Agreement and, perhaps, other intellectual property agreements.

2. Virtually all delegations that expressed an opinion supported either approach (b) or (c). Of those delegations, many want to consider whether the approach should also be applied to the MAI provision on General Treatment. In addition, some delegations thought that the concepts of "use" and "enjoyment" in the NT, MFN and General Treatment provisions should not apply to intellectual property.

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CONFIDENTIAL DAFFE/MAI(97)1/REV2

Expropriation and Transfers

1. Delegations thought that the MAI could significantly improve the existing international law on intellectual property through its investment protection provisions - in particular, the expropriation provisions - although some delegations thought that additional clarification on the actual value added would be helpful. In addition, some delegations expressed the view that the concepts of direct and indirect expropriation and the concept of a measure having an equivalent effect to expropriation should not cover certain intellectual property practices, such as the issuance of compulsory licenses or the revocation, limitation or creation of intellectual property rights, that are permissible under TRIPS and, perhaps, other intellectual property agreements. Delegations identified three approaches protecting these practices:

(a) make no specific provision in the MAI on the assumption that the 1dAI provision on expropriation would not be interpreted so as to cover these practices;

(b) refine the concepts at "equivalent effect" and "indirect expropriation" to ensure that they do not apply to these practices; or

(c) draft a provision stating that the concepts of expropriation and measure having equivalent effect shall not apply to practices consistent with TRIPS and, perhaps, with other international agreements.

2. Some delegations thought that the provisions of the MAI on Transfers will have no adverse impact on intellectual property practices. However, other delegations expressed concern that these provisions may force some MAI Parties to ensure that certain payments are freely transferable in a manner inconsistent with their intellectual property regimes. Particular concern was expressed about the possible impact of the Transfer provisions on collective management regimes. Delegations considered that this issue will require further study to determine whether there is a problem and, if so, how the problem might be solved.

Performance Requirements

Delegations agreed that restrictions on performance requirements should not cover a requirement that is imposed, or a commitment or undertaking that is enforced, by a court, administrative tribunal or competition authority to remedy an alleged violation of competition laws regarding intellectual property rights or to act in a manner not inconsistent with other provisions of the MAI. Currently, there is a square- bracketed text to this effect in the draft MAI text. One delegation proposed that the words "court, administrative tribunal, competition authority" be followed by "or other competent authorities". A large number of delegations also believed that restrictions on performance requirements should also not cover use of intellectual property rights without the authorization of the rights holder, to the extent that such use is consistent with the TRIPS Agreement. Finally, one delegation had concerns about the meaning of the phrase "proprietary knowledge".

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Monopolies

Delegations agreed that the definition of monopolies should continue to include bracketed text that would exclude from the definition an entity that has been granted an exclusive intellectual property right solely by reason of such grant. Delegations thought that this issue will require further study to determine whether there is a problem and, if so, how the problem might be solved.

Dispute Settlement

Delegations noted that Expert Group No. 1 is addressing issues arising from the relationship between dispute settlement under the MAI and under other international agreements. Some delegations doubt that overlap between dispute settlement systems gives rise to issues that are unique to the field of intellectual property. Other delegations are concerned that intellectual property may indeed require special attention. In particular, the concerns that were expressed included conflicting panel decisions on TRIPS provisions, the applicability of investor to state dispute settlement to intellectual property and possible problems with forum shopping. These Delegations want to consider the issue of dispute settlement further.

Other Issues

During the discussion, delegations identified a number of issues that are new and that require further consideration:

(a) does the definition of investor as applied to the holder of a right in intellectual property give rise to any issues that need to be addressed;

(b) when does an intellectual property right take on the characteristics of an investment;

(c) does the status of a rights holder give rise to any issues that must be addressed with respect to the MAI provisions on key personnel;

(d) will the MAI contain provisions on corporate practices that might give rise to intellectual property concerns; and

(e) will the MEN provision of TRIPS be triggered by any substantive or procedural provisions of the MAI and, if so, what is the impact?

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PUBLIC DEBT V(8)

1. It was agreed that the issue of trade insurance and export credit guarantees still needs to be addressed.

2. A footnote could be added to explain the meaning of "appropriate institutions".

3. The Czech Republic considered that the obligation of MFN treatment needs to be preserved in the context of public debt rescheduling.

4. Some delegations wished to review whether the carve-out should apply to rescheduling of all public debt, or only to debts owed to other Contracting Parties and to private creditors whose claims were linked to the rescheduling of state-to-state debt.

5. Some delegations continued to reserve their position on the inclusion of public debt within the scope of MAI disciplines.

6. Most delegations remained of the view that, with the exception of the proposed carve-out for debt re-scheduling, public debt should be fully covered by the MAI disciplines. Situations where country public debt management policies may not be consistent with the MAI provisions can be covered by country-specific reservations. A few delegations, however, expressed concern over this approach and considered that public debt management should be totally excluded from the scope of the MAI.

119

1. General Treatment Article.

2. Paragraphs 6-7 reflect the discussions in the Drafting Group. When this matter was discussed by the Negotiating Group in December 1996, the Chairman concluded "that an additional sentence, based on the sentence in paragraph (a), should be added to Article 2.3 provided that an acceptable formulation was found. He concluded that there was not sufficient support for the inclusion in that article of an additional paragraph (b) which would cover certain residence requirements as part of formalities in connection with the establishment of investments" [DAFFE/MAI(97)2].

3. See footnone 8 in Consolidated Text.

4. These comments reflect the state of the discussion at the end of December 1996 [DAFFE/MAI/EG3(96)21].

5. These comments reflect the state of the discussion at the end of December 1996 [DAFFE/MAI/EG3(96)22].

6. These comments reflect the state of the discussion at the end of December 1996 [DAFFE/MAI/EG3(96)22].

7. Extract from DAFFE/MAI/ST(97)1.

A Spanish proposal has also been proposed, but was not discussed. It reads as follows: "The participation in, or treatment of, any combination, consortium, research programme, joint or other enterprise activity, including measures affecting technology, shall be regulated by existing international or bilateral S&T co-operation agreements."

8. Comments made during the informal consultations on financial matters on 14-15 April.

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