International investment agreements

The interaction between investment and services chapters in selected Regional Trade Agreements: Key findings

 

The Investment Committee adopted the following key findings from the OECD report on "The interaction between investment and services chapters in selected Regional Trade Agreements". For further information, download the full text.

 

Key findings

This report analyses the interactions between the investment and services chapters of 20* Regional Trade Agreements (RTAs), in terms of the implications for levels of investment protection and liberalisation.

RTAs can generally be classified into two broad categories of NAFTA-inspired and GATS-inspired agreements. Investment disciplines in the former are lodged in the investment chapter and there is limited interaction with the services chapter. In GATS-inspired agreements, investment disciplines are divided between the services and the investment chapters and as a consequence interactions between them are more prevalent and are governed in either the investment or in the services chapter.

The level of investment protection is determined by the scope and coverage of the investment protection provisions and not by the type of interaction between the two chapters.  In both types of RTAs, investment in services industries may benefit from the protections provided by the investment chapter (such as on expropriation, transfers, compensation for losses or investor-to-state dispute settlement).  As investment provisions vary from one RTA to another, some countries have decided to maintain a former BIT alongside the more recently negotiated RTA.

Concerning the level of investment liberalisation, NAFTA-inspired agreements tend to have an advantage in terms of the number of sectors covered by non-discrimination disciplines and the degree of transparency and predictability through a “one-shot” liberalisation encompassing all sectors and a “ratchet” mechanism that locks in future reforms.  GATS-inspired agreements are often favoured by countries that want to preserve a certain flexibility and progressiveness in their liberalisation, while they reform and establish new regulatory frameworks.  But the differences between the two approaches should not be overstated. 

Provisions on future liberalisation and transparency can add transparency and predictability in the context of GATS-inspired agreements, while flexibility also exists in NAFTA-inspired agreements through reservations on existing and future non-conforming measures.

An ambitious level of investment liberalisation in a GATS-inspired agreement is possible by taking commitments in additional sectors or by increasing the transparency of schedules. Progressive liberalisation of investment can in principle also be pursued in NAFTA-inspired RTAs. Even more recently, some GATS-inspired agreements provide insights into the possibilities offered by a combination of positive and negative listing.

Several factors influence the choice of a GATS- or NAFTA-inspired approach: existing liberalisation of the negotiating partners’ regimes; their administrative capacity; past approaches; and the pace at which they wish to liberalise. Choosing between positive or negative listing (or a hybrid approach) is a matter for negotiation between partners.

Not all agreements include a most-favoured-nation clause (MFN). When they do, GATS-inspired agreements tend to prevent the MFN rule from applying to third parties through a regional economic integration organisation (REIO) exception clause. Nonetheless, new investment liberalisation in third party agreements may be extended to parties of earlier RTAs, following a review of commitments. A difference in NAFTA-inspired agreements tends to be that the MFN rule can apply as regards future agreements that might contain better treatment for investors. However some countries have listed reservations in specific sectors limiting the extension of any possible better treatment. In the light of this, one can question the effectiveness of the MFN rule with respect to investment liberalisation in creating a level playing field between investors from various Parties.

 * The list includes one North/North agreement (AUSFTA), 13 North/South agreements (NAFTA, US CAFTA-DR, US-Morocco, Japan-Singapore, Japan-Mexico, Japan-Malaysia, TAFTA, EC-Chile, EC Jordan, EFTA-Korea (EFTA-Singapore, TPSEP and ANZSCEP) and six South/South agreements (Chile-Korea, India-Singapore, ASEAN agreements, COMESA and Andean Community Decisions).

 

Related Documents

 

The interaction between investment and services chapters in selected regional trade agreements

 

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