WORLD TRADE
ORGANIZATIONWT/WGTI/W/141
11 September 2002
(02-4799)
Working Group on the Relationship
between Trade and InvestmentOriginal:  English
COMMUNICATION FROM THE EUROPEAN COMMUNITY
AND ITS MEMBER STATES
The following communication, dated 10 September 2002, has been received from the
Permanent Delegation of the European Commission.
_______________
CONCEPT PAPER ON CONSULTATION AND THE SETTLEMENT
OF DISPUTES BETWEEN MEMBERS
Note by the Secretariat
1. Paragraph 22 of the Doha Ministerial Declaration mentions “consultation and the settlement
of disputes between Members” among the issues to be clarified by the Working Group on the
Relationship between Trade and Investment (WGTI), in the period until the Fifth Ministerial
Conference.
2. In line with all other WTO agreements, the EC believes that a future Multilateral Investment
Framework (MIF) should include the possibility for members to resort to the WTO dispute settlement
mechanism where they consider that other members have failed to observe their obligations under the
agreement.
3. This paper outlines the dispute settlement mechanisms included in most international
investment agreements and in the WTO system.
I. EXISTING DISPUTE SETTLEMENT MECHANISMS IN INTERNATIONAL
INVESTMENT AGREEMENTS
4. Foreign investors are subject to the laws of the countries in which they chose to operate, once
they have established their activities there. Unless agreed otherwise, local courts are competent to
decide on disputes involving the treatment of foreign investors. In addition to this normal domestic
jurisdiction, and in order to provide additional legal protection to foreign investors, most countries,
parties to bilateral investment treaties (BITs), ha ve agreed to include the possibility for private
investors to resort to international arbitrat ion in cases of disputes with a host State.This concept paper is intended as a suggestion on the consultation
and dispute settlement provisions that could be included in a
Multilateral Investment Framework. It should not be read as a tex t
proposal.WT/WGTI/W/141
Page 2
5. BITs include dispute settlement in order to minimise legal insecurity and political conflicts,
with a view to promote a generally favourable climate for investments among the parties. Most BITs
include both a dispute settlement mechanism involving investors vis-à-vis States, as well as
provisions on disputes between the contracting States. In both cases, BITs provide that the parties to a
dispute should first try to solve the matter amicably, through prior consultation and negotiations,before initiating formal proceedings.
6. In the case of investor-to-State dispute settlement provisions, most BITs do not set up new
mechanisms but allow private investors to resort, against the host country that violates the agreement,
to binding international arbitration under either the ICSID
1 Convention or to ad hoc  international
commercial arbitration set up in accordance with the rules of UNCITRAL2 or the International
Chamber of Commerce.
7. Individual investors are allowed to initiate an international arbitration against a host country
for a violation of its international obligations on investment, only when the host country has given its
consent. For instance, recourse to ICSID arbitration is only possible when the host government has
voluntarily given its written prior consent. This consent may be expressed in the investment law of thehost country, in the provisions of a BIT concluded with the State of origin of the foreign investor
3, or
in any other written form. Consent may not be unilaterally withdrawn and the decision of the
arbitration under ICSID is binding on the parties. It should be noted that the jurisdiction of ICSID
covers any legal dispute arising directly out of an investment, between a Contracting State of ICSID
and a national of another Contracting State, which the parties to the dispute consent in writing tosubmit to ICSID
4.
8. State-to-State disputes in BITs are usually subject to binding ad hoc arbitration, in accordance
with standard clauses. Either party to the agreem ent can launch the procedure, if the matter cannot be
settled through diplomatic means, in cases of disputes concerning the interpretation and/or applicationof the treaty. BITs may differ as to the appointment of arbitrators, the procedural rules, the applicable
law, the deadlines, the allocation of costs, and the relationship between the State-to-State and
investor-to-State arbitration.
II. CONSULTATION AND DISPUTE SETTLEMENT IN THE WTO SYSTEM
9. When a WTO member considers that another member is in breach of multilaterally agreed
trade rules, it may resort to the multilateral dispute settlement system instead of taking actionunilaterally. The Uruguay Round strengthened the Dispute Settlement mechanism (the Dispute
Settlement Understanding, DSU) and introduced clearly defined procedures and deadlines. The
system is first of all designed to encourage the resolution of disputes through consultations, which are
always possible throughout the proceedings, up to the final award.
                                                     
1 International Centre for Settlement of Investment Disputes, established under the Convention on the
Settlement of Investment Disputes between States and Nationals of Other States , promoted by the World Bank,
which came into force on October 14, 1966. Arbitration under the auspices of ICSID is also one of the main
mechanisms for the settlement of investment disputes under four recent multilateral trade and investmenttreaties (the North American Free Trade Agreement, the Energy Charter Treaty, the Cartagena Free Trade
Agreement and the Colonia Investment Protocol of Mercosur).
2 United Nations Commission on International Trade Law, established by the UN General Assembly in
1966 (Resolution 2205(XXI) of 17 December 1966.
3 “Provisions on ICSID arbitration are commonly found in investment contracts between governments
of member countries and investors from other member countries. Advance consents by governments to submitinvestment disputes to ICSID arbitration can also be found in about twenty investment laws and in over 900bilateral investment treaties”. www.worldbank.org/icsid/.
4 In accordance with Article 25 of the ICSID Convention.WT/WGTI/W/141
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10. It is important to note that this crucial element of the multilateral trading system, which
prevents the use of unilateral actions, represents an essential guarantee for the rights of all WTO
members, whatever their size or level of development. The DSU contains 11 provisions specifically
related to special and differential treatment5.
11. The DSU fully covers the Multilateral Agreement on Trade in Goods, the General Agreement
on Trade in Services and the Agreement on Trade-Related Aspects of Intellectual Property Rights, as
well as, under certain conditions, other plurilateral and multilateral WTO agreements.
12. For instance, GATS Article XXII requires each member to accord sympathetic consideration
and to allow other members to consult them, in accordance with the DSU procedures, on any matter
affecting the operation of the agreement. Moreover, GATS Article XXIII allows resort to the disputesettlement mechanism where a member considers that any other member fails to carry out its
obligations under the agreement or where it considers that possible benefits under the agreement have
been nullified or impaired.
III. CONCLUSION
13. The WTO system includes a strong and effective consultation and dispute settlement
mechanism which contributes to the fair management of disputes among Members. The GATS, which
already addresses around half of world FDI flows (under mode 3) is covered by the WTO DSU. For
the sake of consistency, any possible dispute concerning a future multilateral framework on FDI to be
negotiated and agreed in the WTO should also be fully covered by the WTO Dispute Settlementmechanism.
14. We believe that the appropriate forum to address possible disputes arising on the
interpretation and application of a future multilateral investment framework to be negotiated and
agreed in the WTO context should be the existing WTO Dispute Settlement mechanism. Therelationship between the DSU and the State-to-State dispute settlement provisions of bilateral or
regional investment Treaties may have to be addressed.
15. We look forward to hearing other members’ views on these and other possible options
available to address the question of consultation and dispute settlement in the context of a multilateral
investment framework.
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5 WT/COMTD/W/77 and Rev.1 and Add. 1-4.