6 July 1999 |
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(99-2816) |
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General Council |
Original: English |
Preparations for the 1999 Ministerial Conference
Agreement on Investment
Communication from Japan
The following communication, dated 6 July 1999, has been received from the Permanent Mission of Japan.
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Proposal
Background
(a) While there are various types of foreign investment, it is the foreign direct investment that makes the most direct contribution to the economic development of host countries through employment creation and technology transfer, as well as making investors commit to the host country's economy on the long term. Investment rules in the WTO should, therefore, aim at providing the necessary disciplines for governmental measures on foreign direct investment. They should, in principle, exclude both the short-term investment that does not aim at establishing a long-term economic relationship, and the equity investment below a certain level of participation. With regard to portfolio investment, in particular, it is important to carefully consider the wide range of ongoing discussions as to ensuring financial integrity.
(b) Transparency and stability in the legal systems of host countries enable investors to make stable investment on a mid- to long-term perspective. It is also necessary to prevent a situation where investment-related applications are not processed in a prompt and fair manner, particularly due to the lack of transparency in the administrative procedures of host countries. It is therefore necessary to develop rules, taking note of the relevant existing provisions, including those on publications and domestic procedures in the GATT and GATS.
(c) National treatment and the most-favoured-nation treatment are the basic principles of the WTO Agreement, and thus should be included in the future investment rules of the WTO. In particular, once a foreign company is established in a host country, it should, in principle, be treated in a manner equal to that of domestic companies, as there are in most cases no rationales for discriminatory treatment. On the other hand, national treatment for foreign companies in a pre-establishment phase, which in effect provides the liberalization of investment, should be introduced in a progressive manner, striking a balance with the development policies of Members. It is thus desirable to adopt a so-called "positive-list" approach. In addition, in order to enhance transparency in the investment environment, it is necessary to consider the way to draw up a list of as many investment restriction measures as possible in sectors where commitments are not undertaken. Providing investment protection is also one of the basic needs of investors, and appropriate rules should be developed based on the existing international investment rules.
(d) Performance requirements, which developing countries have adopted as a tool for economic development policies, may not only restrict or distort trade, but may make it difficult for investors to develop their own international business operations in an efficient manner and to respond flexibly to changes in the economic environment. On the other hand, due consideration must be given to the development perspectives of developing countries when formulating investment rules in the WTO; thus, the contents of such rules should be carefully considered in regard to performance requirements. It is also necessary to carefully consider rules on investment incentives by taking into account the importance of incentives for the economic development of developing countries.
(e) Regarding dispute settlement, the existing system in the WTO has basically been functioning effectively, thereby allowing for a prompt settlements of disputes. The existing WTO dispute settlement mechanism should, therefore, be used for disputes under future investment rules in the WTO, thereby excluding introduction of a new state-investor dispute settlement mechanism. It should further be noted that allowing invocation of the dispute settlement mechanism by investors may not only cause significant burdens to the host country governments, but also may transform the primary nature of the WTO as an intergovernmental organization.
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