8.1 Introduction
At the 11th WTO Ministerial Conference (MC11) in December 2017, several so-called joint statement initiatives (JSIs) were launched. These JSIs are a result of the stalemate in the Doha Round negotiations, which came to the fore at the 10th WTO Ministerial Conference (MC10) in December 2015. The Ministerial Declaration adopted at MC10 acknowledged that WTO members were divided as regards the Doha mandate and approach to these negotiations, while also expressing a strong commitment to advance the negotiations on the remaining Doha issues.Footnote 1 As those negotiations did not make any substantial progress until MC11, however, various groups of WTO members decided at MC11 to begin plurilateral negotiations and structured discussions, respectively, including on Services Domestic RegulationFootnote 2 (SDR) and Investment Facilitation for Development (IFD).Footnote 3 The plurilateral negotiations on SDR were wrapped up by the end of 2021 and resulted in a “Reference Paper” on SDR,Footnote 4 whereas the negotiations of the plurilateral IFD Agreement have been concluded in July 2023.
Although a considerable number of WTO members participate or have participated in both initiatives, their backgrounds differ quite significantly. The SDR initiative was borne out of the negotiations on disciplines for domestic regulation of services, which were conducted until 2011 before being paused and then revived again in 2016.Footnote 5 Since no breakthrough was achieved in these negotiations in the run-up to MC11, interested WTO members then decided to start the SDR initiative at MC11. In contrast, the IFD initiative is not as firmly anchored in a previous WTO negotiating process as the SDR initiative. While the Doha work program stated that negotiations on trade and investment would take place after the 5th Ministerial Conference,Footnote 6 WTO members were unable to find the required “explicit consensus” on the negotiating modalities at that conference.Footnote 7 But in 2017, a group of WTO members started an informal process to advance discussions on that subject.Footnote 8 This informal process eventually led to the decision at MC11 to commence “structured discussions” with the aim of developing a multilateral framework on investment facilitation.Footnote 9 These discussions have moved into a formal negotiating mode in September 2020.Footnote 10 Last but not least, it should be noted that developed and developing country members play or have played somewhat different roles in both initiatives: Whereas developed country members were the driving force behind the SDR initiative, the opposite is true in the IFD initiative. This may help to explain the starkly different stance taken by both initiatives on the issue of special and differential treatment for developing country and least developed country (LDC) members.
Irrespective of their distinct origins, both JSIs overlap in two important respects: First, services are strongly interrelated with foreign direct investment (FDI), given that services sectors account for approximately two-thirds of the global FDI stock.Footnote 11 GATS mode 3 is an important vehicle for enabling FDI.Footnote 12 Second, both JSIs address regulatory procedures and requirements at WTO members’ domestic level, albeit to varying degrees. The SDR initiative focuses exclusively on “domestic regulation” by seeking to develop certain regulatory disciplines for administrative procedures governing the authorization of the supply of services in all modes.Footnote 13 In contrast, the focus of the IFD initiative goes beyond domestic regulation, but the streamlining and speeding up of administrative procedures constitutes a key element of that initiative.Footnote 14 This particular element of the IFD initiative would also cover administrative procedures pertaining to the supply of services through mode 3, that is, FDI in services.Footnote 15 In other words, insofar as regulatory procedures and requirements affecting FDI in services are concerned, both initiatives cover, in principle, a similar, if not the same, subject matter.
In view of this partial but significant overlap of these two JSIs, it appears appropriate to compare their respective approaches. Since both JSIs are or were pursued in different negotiating groups with partially different memberships and policy goals, it cannot be excluded that both initiatives adopt or have adopted different approaches. This could present a risk for the security and predictability of the WTO legal frameworkFootnote 16 and create confusion among WTO members as to the correct and sound implementation of the outcomes of both JSIs.Footnote 17 That risk appears all the more likely in view of the fact that the disciplines set out in the Reference Paper on SDR have to be inscribed in WTO members’ GATS schedules of specific commitments (GATS schedules) to become legally effective,Footnote 18 whereas the IFD initiative seeks to come up with a stand-alone agreement, which would have to be included in one of the annexes to the WTO Agreement as a condition for its entry into force.Footnote 19
Against this backdrop, the remainder of this article is structured as follows: The second section looks into the objective pursued by the SDR and IFD initiatives (see Section 8.2.), while the third section provides a comparative overview of the regulatory disciplines that were agreed upon under the SDR initiative and are currently discussed under the IFD initiative (see Section 8.3.). The final section offers some conclusions (see Section 8.4.).
8.2 Common Objective Pursued by the JSIs on SDR and IFD
Both JSIs pursue a common objective, namely that of facilitating services trade, in the case of SDR,Footnote 20 and facilitating investment, in particular FDI, in the case of IFD.Footnote 21 This “facilitation” objective is not entirely new in the WTO context, as is demonstrated by the Trade Facilitation Agreement (TFA) in particular.Footnote 22 The reason for choosing this particular objective is motivated by the fact that both initiatives do not address market access as such; in fact, the IFD initiative explicitly excludes market access from its scope.Footnote 23 Rather, they seek to create an “enabling environment” that would make it easier for service suppliers and foreign investors to engage in economic activities in WTO members’ markets.Footnote 24 Thereby, both initiatives intend to increase the contestability of those markets.Footnote 25
The said objective is to be achieved by enhancing the quality of WTO members’ regulatory governance: regulatory quality – or “better regulation”Footnote 26 – is a crucial element of both initiatives.Footnote 27 The main tool for improving WTO members’ regulatory governance is the systematic adoption and application of good regulatory principles, often referred to as good regulatory practices.Footnote 28 Good regulatory principles are not a novel feature in the WTO legal system: The GATT, as well as the TBT, SPS, and TFA, contains rules that seek to foster the application of good regulatory principles in relation to goods trade,Footnote 29 whereas the GATS includes rules – partially modeled on the GATT – that seek to contribute to the systematic application of good regulatory principles in connection with services trade.Footnote 30 The JSIs on SDR and IFD draw upon those rules as well as on corresponding international guidelines, recommendations, and indicators with a view to developing similar disciplines that would provide a basis for systematically adopting and applying good regulatory principles in relation to services trade and investment.Footnote 31
8.3 Good Regulatory Principles as a Means for Facilitating Services Trade and Investment
8.3.1 Good Regulatory Principles in Services Trade
8.3.1.1 GATS Article VI:4 as a Starting Point
The JSI on SDR has to be seen in light of GATS article VI, in particular the negotiating mandate enshrined in paragraph 4 of that provision. The Reference Paper on SDR makes the link to GATS article VI:4 crystal clear by stating that its disciplines pursue the objective of elaborating upon the GATS provisions, “pursuant to paragraph 4 of Article VI of the Agreement”.Footnote 32
GATS article VI is about domestic regulation of services trade and imposes a number of general disciplines on WTO members. These disciplines affect neither WTO members’ right to regulate, which is expressly acknowledged in the GATS preamble, nor the public policy objectives for the attainment of which they choose to regulate.Footnote 33 Moreover, the regulation’s substantive content remains outside of the disciplines’ scope.Footnote 34 These disciplines represent a “minimum standard” and reflect the fact that services trade is subject to a higher regulatory intensity than goods trade, which leads to significantly higher (compliance) costs in services trade than in goods trade.Footnote 35 They are primarily meant to ensure that WTO members’ regulatory measures do not have an adverse effect on the potential benefits deriving from specific commitments on market access and national treatment.Footnote 36 The same reasoning applies to the disciplines set forth in the Reference Paper on SDR.Footnote 37
Given the limited ambit of the aforementioned disciplines, GATS article VI:4 mandates the Council on Trade for Services to develop any necessary disciplines concerning measures relating to requirements and procedures regarding the qualification and licensing of service suppliers as well as technical standards.Footnote 38 Such disciplines should ensure that said measures “do not constitute unnecessary barriers to trade in services”.Footnote 39 This sentence embodies the overall rationale of future disciplines developed according to GATS article VI:4: ensuring that said regulatory measures do not restrict services trade beyond what is necessary to achieve the public policy objective pursued by those measures.Footnote 40 It follows that those disciplines should strike an appropriate balance between WTO members’ right to regulate and the public policy objectives pursued, on the one hand, and their specific commitments on market access and national treatment in the service sector concerned, on the other. Although GATS article VI:4 does not explicitly link the disciplines to be developed to WTO members’ specific commitments,Footnote 41 the standstill obligation pursuant to GATS article VI:5, which applies pending the entry into force of future disciplines,Footnote 42 only extends to sectors where specific commitments have been undertaken. The same logic should prevail once such disciplines have been developed. Otherwise, the relationship between liberalization and regulation under the GATS, as expressed by its preamble, would become unbalanced.Footnote 43
8.3.1.2 Negotiations on Good Regulatory Principles in Services Trade
At MC11, 59 WTO members issued a “Joint Ministerial Statement on Services Domestic Regulation”, which marked the start for plurilateral negotiations on SDR disciplines. This was followed by a second joint statement on SDR in 2019. It is noteworthy that both joint statements refer to “the mandate” in GATS article VI:4. This reference confirms that the disciplines under discussion target the regulatory measures set out in GATS article VI:4 and pursue the objective of improving the “regulatory environment for trade in services globally”.Footnote 44
At the same time, the developmental perspective is conspicuously absent from both joint statements. This stands in stark contrast to the joint statements on IFD. More importantly, it contravenes the necessity to strengthen developing countries’ regulatory capacity through appropriate technical assistance and capacity building to enable them to undertake domestic regulatory reforms.Footnote 45
8.3.1.3 Reference Paper on SDR
The negotiations on SDR were successfully concluded by the end of 2021. The declaration on the conclusion of these negotiations explicitly recognizes the “importance of good regulatory practice in facilitating trade in services”,Footnote 46 thereby capturing both the main objective, that is, facilitating services trade, and the key tool, that is, good regulatory practice, for achieving this objective. The Reference Paper on SDR, which represents the outcome of said negotiations,Footnote 47 notes at the outset that its disciplines on SDR reflect the intention of negotiating WTO members to elaborate upon the GATS provisions “pursuant to paragraph 4 of Article VI of the Agreement”.Footnote 48
8.3.1.3.1 Regulatory Requirements and Procedures
The disciplines on SDR in the Reference Paper’s section II apply to measures by WTO members relating to the regulatory requirements and procedures listed in GATS article VI:4,Footnote 49 provided that those regulatory measures affect trade in servicesFootnote 50 in sectors where the WTO members concerned have undertaken specific commitments.Footnote 51
The regulatory measures in question share a common characteristic: They are relevant for obtaining an authorization to supply a service. Accordingly, most of the Reference Paper’s disciplines apply where WTO members require an authorization for the supply of a service. Authorization is understood by the Reference Paper as a procedure to which an applicant must adhere to demonstrate compliance with the applicable regulatory measures.Footnote 52 Accordingly, most of the Reference Paper’s disciplines are of a procedural nature.Footnote 53
8.3.1.3.2 Disciplines
Broadly speaking, the Reference Paper’s disciplines in section II fall into three categories:Footnote 54 (i) The first category of disciplines aims at guaranteeing that “due process”Footnote 55 is observed in authorization procedures; (ii) the second category of disciplines is concerned with the development of regulatory measures relating to authorization procedures; (iii) and the third category of disciplines seeks to ensure the transparency of regulatory measures and the laws and regulations of general application affecting such measures. The thrust of these disciplines is the application of good regulatory principles, such as legal certainty and predictability, to regulatory measures by WTO members affecting services trade.Footnote 56
The first set of disciplines concerns various issues in relation to authorization procedures, namely the submission of applications to competent authorities, the relevant time frames for submitting applications, the acceptance by competent authorities of electronic submissions of applications and copies, the processing of applications by competent authorities, authorization fees charged by competent authorities, and the independence of competent authorities in reaching and administering their decisions authorizing the supply of a service.Footnote 57 These disciplines considerably expand GATS article VI:3 regarding the application process for an authorization to supply a service and seek to give meaning to GATS article VI:4, lit. (c), pursuant to which licensing procedures should not in themselves restrict the supply of a service.
Next, two disciplines pertain to the assessment and recognition of professional qualifications.Footnote 58 These disciplines complement GATS article VI:6 concerning the verification of the competence of professional service suppliers and GATS article VII, in particular its paragraph 5 on the establishment and adoption of common international standards and criteria for recognition, in cooperation with relevant intergovernmental and nongovernmental organizations.
The second set of disciplines consists of one discipline of an overarching nature regarding the development of regulatory measures relating to the authorization for the supply of a service.Footnote 59 This discipline is of a different nature than the aforementioned disciplines in that it influences the substance of regulatory measures by requiring that they be developed in conformity with good regulatory principles, in particular the principles of objectivity and impartialityFootnote 60 and the equality of men and women.Footnote 61 To this end, the discipline incorporates the criteria set out by GATS article VI:4 (a) and (c) but does not include a “necessity test” in terms of GATS article VI:4 (b).Footnote 62 The absence of a necessity test means that the discipline does not address the trade restrictiveness of the regulatory measures at issue.Footnote 63
The third set of disciplines relates to transparency of regulatory measures. These transparency disciplines complement GATS articles III and IV and deal with the publication of relevant information on regulatory measures regarding authorization procedures, the publication in advance of and the opportunity to comment on proposed laws and regulations of general application, and the establishment or maintenance of enquiry points.Footnote 64
8.3.1.3.3 Regulatory Policy Space
The Reference Paper’s disciplines are mindful of WTO members’ regulatory sovereignty and seek to preserve their regulatory policy space.Footnote 65 This is not only apparent from the mostly procedural nature of these disciplines but also reflected by the provisions in Reference Paper’s section I regarding the right to regulate and the implementation of the disciplines, on the one hand, and the wording of the disciplines in section II, on the other.
8.3.1.3.3.1 Right to Regulate
The Reference Paper on SDR recognizes WTO members’ right to regulate and introduce new regulations,Footnote 66 on the supply of services, to meet their policy objectives, thereby restating recital four of the GATS preamble. WTO members are thus free to choose the policy objectives they wish to achieve and adopt regulatory measures they deem appropriate and necessary for achieving those policy objectives. The Reference Paper on SDR does not interfere with this right to regulate. It neither includes disciplines that would somehow restrict WTO members’ choice of policy objectives that they wish to pursue nor does it prescribe the substantive content of the regulatory measures adopted by WTO members in pursuit of the chosen policy objectives. That being said, one discipline has an impact on the substantive content of WTO members’ regulatory measures, namely the discipline concerning the development of regulatory measures. Moreover, while not impinging on WTO members’ right to regulate, the Reference Paper’s procedural disciplines determine how regulatory measures related to an authorization for the supply of a service ought to be exercised for the sake of “due process”.
Furthermore, the Reference Paper on SDR further reinforces WTO members’ right to regulate by not curtailing their freedom as to how they implement the Reference Paper’s disciplines. Indeed, the Reference Paper underscores that the disciplines are not to be construed to prescribe or impose any particular regulatory provisions regarding their implementation.Footnote 67 WTO members thus retain unfettered discretion how they transpose the disciplines in their domestic legal systems as long as their regulatory measures, authorization procedures, and laws and regulations of general application affecting such measures and procedures comply with the Reference Paper’s disciplines and do not diminish WTO members’ rights and obligations under the GATS.Footnote 68
8.3.1.3.3.2 Regulatory Flexibility
Many of the Reference Paper’s disciplines provide for a large degree of flexibility. This flexibility is conveyed by formulations such as “to the extent practicable”, “to the extent possible”, and “endeavor to”. The flexibility conferred by such wording is not unlimited, however, since the disciplines often combine it with the word “shall”. Even more flexibility is conferred by formulations such as “are encouraged to” or “should”, which are not combined with the word “shall”. This flexibility is intended to preserve WTO members’ regulatory policy space and take account of their differing regulatory systems and capacities.Footnote 69 This “hybrid” approach, which combines mandatory and hortatory language, that is, hard and soft law, reflects WTO members’ desire to improve their regulatory governance while maintaining the regulatory policy space.Footnote 70
While it is comprehensible that WTO members wish to preserve their regulatory policy space, too much flexibility would undermine the effectiveness of the Reference Paper’s disciplines and thus fail to achieve the ultimate objective of facilitating services trade. It should also be borne in mind that the disciplines have, for the most part, a procedural character and affect neither the policy objectives pursued nor regulatory measures’ substantive content. Therefore, WTO members will need to strike a careful balance between safeguarding their regulatory policy space and ensuring the effectiveness of the Reference Paper’s disciplines when implementing the latter in their domestic legal system. Otherwise, the economic benefits that are expected from a full implementation of the Reference Paper on SDR, in particular an estimated significant reduction of costs in services trade,Footnote 71 will not (fully) materialize.
8.3.1.3.4 Special and Differential Treatment
The Reference Paper’s disciplines devote a subsection to the topic of development, that is, special and differential treatment for developing country and LDC members.Footnote 72 The disciplines differentiate between developing country members and LDC members. The former may avail themselves of a transitional period of seven years for implementing “specific” disciplines.Footnote 73 In contrast, LDC members are exempt from the disciplines but are encouraged to apply them, consistent with their individual implementation capacity.Footnote 74 Once LDC members graduate, they may designate a transitional period of seven years for specific disciplines.Footnote 75 In view of LDC members’ limited institutional and regulatory capacities, it appears rather unlikely that they would be able to apply the disciplines before graduating from LDC status, unless they could count on receiving appropriate technical assistance and capacity building.Footnote 76 However, developed and developing country members, in a position to do so, are simply “encouraged” to provide technical assistance and capacity building to developing country and LDC members, upon their request and on mutually agreed terms and conditions.Footnote 77 Such assistance should, among others, aim at developing and strengthening the institutional and regulatory capacities to regulate the supply of services and to implement the disciplines.Footnote 78
As can be gleaned from the foregoing, the Reference Paper’s disciplines adopt a rather traditional approach to special and differential treatment, which does not mirror the enhanced framework for special and differential treatment established by the TFA. Apart from the fact that the negotiations on SDR were largely driven by developed countries, this is possibly due to two factors: One factor may be the flexibility provided for by many disciplines. A second factor may be the “Reference Paper” approach according to which the disciplines will become legally binding on a WTO member only once they are inscribed in that member’s GATS schedule.Footnote 79 Whether and when to do so is a decision left to WTO members’ unfettered discretion.
Yet stronger rules on special and differential treatment in the Reference Paper might have positively influenced developing country and LDC members’ willingness to inscribe the disciplines in their GATS schedules. This appears to be a missed chance. Against this backdrop, it is an open question whether developing country and LDC members will be eager to inscribe the Reference Paper’s disciplines in their GATS schedules. Their willingness could be enhanced by the provision of adequate technical assistance and capacity building. Given that the IFD Agreement takes a much more forceful approach to special and differential treatment by linking implementation with the acquisition of implementation capacity, developing country and LDC members may be well advised to await the conclusion of the IFD negotiations and avail themselves of technical assistance and capacity building, which will become available under a future IFD Agreement, to also implement the disciplines of the Reference Paper on SDR.
8.3.1.3.5 Outlook for the Reference Paper on SDR
Sixty-seven WTO members, representing 90 percent of world trade in services,Footnote 80 have signed the declaration and committed to inscribe the Reference Paper’s disciplines on SDR as additional commitments in their GATS schedules.Footnote 81 The modified GATS schedules are to be submitted for certification.Footnote 82 Fifty-nine WTO members have done so on December 20, 2022, thereby triggering the certification process.Footnote 83 The certification process allows for a technical verification of the modified GATS schedules within forty-five days following their submission.Footnote 84 Accordingly, any WTO member making an objection to the certification of the modified GATS schedules should identify the specific elements of the modification that give rise to the objection.Footnote 85 Despite the purely technical nature of the certification process, some WTO members might object to the certification of the modified GATS schedules on the grounds that outcomes of plurilateral initiatives, such as the Reference Paper on SDR, should be added to the WTO rule book through the amendment procedure according to article X WTO Agreement.Footnote 86 If this were the case, it would risk to delay the entry into force of the modified GATS schedules, that is, the Reference Paper’s disciplines on SDR.Footnote 87
Once the certification process of the modified GATS schedules has been completed, these modified schedules – and hence their additional commitments incorporating the Reference Paper’s disciplines on SDR – will take legal effect.Footnote 88 The Reference Paper’s disciplines on SDR will then be binding on those WTO members that have submitted their modified GATS schedules. However, the Reference Paper’s disciplines on SDR will benefit all WTO members and their services and service suppliers by virtue of the most-favored-nation treatment obligation, established by GATS article II:1.Footnote 89 There is nothing in the Reference Paper on SDR that would suggest that its disciplines and, by extension, additional commitments incorporating these disciplines would not be subject to the unconditional MFN obligation.
The implementation of the additional commitments incorporating the Reference Paper’s disciplines on SDR is thought to generate economic benefits, including annual cost savings on services trade, an increase in services trade, and enhanced participation in global value chains.Footnote 90 Most of these economic benefits will accrue to those WTO members that implement the Reference Paper’s disciplines on SDR, but due to the most-favored-nation nature of the SDR disciplines, services exports from other WTO members will also benefit from cost savings, albeit to a much lesser extent.Footnote 91
8.3.2 Good Regulatory Principles in Investment Facilitation
8.3.2.1 A New Instrument in International Investment Policy
There are several reasons why negotiations on the IFD Agreement took longer than the SDR negotiations. To start with, negotiations on IFD have a broader scope than those on SDR. Moreover, negotiations on IFD are politically more sensitive than those on SDR because of the nexus between investment facilitation, on the one hand, and investment liberalization (market access), investment protection, and investor–state dispute settlement, on the other, even though the latter subject matters are specifically excluded from the scope of negotiations on IFD.Footnote 92 Additionally, the explicit objective of the negotiations on IFD to devise rules that would contribute to a greater participation of developing countries in global investment flowsFootnote 93 adds an additional layer of complexity since it requires elaborating appropriate rules in this regard. It is no wonder, therefore, that the JSI on IFD is critically scrutinized: Apart from questions regarding its interaction with international investment agreements, investor–state dispute settlement and contribution to sustainable investment,Footnote 94 its overlap with the Reference Paper on SDR has raised concerns that the rules under both initiatives could be incoherent or even inconsistent.Footnote 95
The JSI on IFD is based on the general understanding that trade, investment, and development are interlinked and that a more transparent, efficient, and predictable environment is needed to facilitate cross-border investment.Footnote 96 Facilitating cross-border investment is considered crucial for increasing FDI flows, in particular to developing countries and LDCs, as a precondition for achieving the SDGs.Footnote 97 However, until recently, investment facilitation has received relatively little attention and been identified as a “systemic gap” in national and international investment policies.Footnote 98 Therefore, the JSI on IFD could contribute to closing this gap and “add value” by developing – potentially multilateral – rules on investment facilitation that would provide a baseline for WTO members’ investment facilitation policies.Footnote 99
8.3.2.2 Scope of IFD Disciplines Regarding FDI in Services
The IFD disciplines are meant to apply to services and non-services sectors while excluding from their scope investment liberalization in terms of market access and the right to establish, investment protection, and investor–state dispute settlement.Footnote 100 As mentioned in the Introduction, the nexus with FDI in services is common to both the IFD and SDR disciplines and creates an overlap between these two sets of disciplines. Nonetheless, this overlap is a partial one, for two reasons: First, the IFD disciplines would apply, in principle, to all services sectors, irrespective of WTO members’ specific commitments.Footnote 101 In contrast, the SDR disciplines apply only to committed services sectors of a WTO member who inscribes those disciplines in its GATS schedule.Footnote 102 In this respect, the SDR disciplines’ scope will be more limited than that of the IFD disciplines. This would be particularly true in the case of developing country and LDC members which have, on average, undertaken considerably fewer specific commitments under GATS than developed countries.Footnote 103
Second, the IFD and SDR disciplines entertain different understandings of FDI in services. According to the IFD disciplines’ current working definition of FDI, ownership of 10 percent of the ordinary shares or voting stock is decisive for determining the existence of a direct investment relationship.Footnote 104 The criterion of “ownership of 10 percent of ordinary shares or voting stock” is apparently linked to an entity constituted as a juridical person in the jurisdiction where the investment is made. That criterion may be said to be roughly equivalent to the usual criterion for defining FDI, namely a lasting and direct link between a foreign investor and an undertaking to which the investment is made available.Footnote 105 By comparison, the GATS does not contain the notion of FDI but speaks of “commercial presence”, which is broadly defined as “any type of business or professional establishment”.Footnote 106 This includes not only the constitution, acquisition, or maintenance of a juridical person but also the creation or maintenance of a branch or a representative office. It follows that commercial presence, as defined by the GATS, is both wider and narrower than the IFD disciplines’ working definition of FDI: It is wider insofar as it does not presuppose a juridical person since a branch or a representative office is not incorporated as a juridical person in the host state.Footnote 107 At the same time, it is narrower since the wording “constitution, acquisition or maintenance of a juridical person” implies ownership or control by the service supplier concerned over the juridical person.Footnote 108 Given that FDI is usually made through a legal entity incorporated in a host state, the IFD disciplines would have a more far-reaching understanding of FDI than the GATS because they would not require the investor’s control or ownership of the juridical person to which the investment is made available.Footnote 109
In sum, the IFD disciplines’ scope goes further than that of the SDR disciplines, in two respects: First, the sectoral scope of the IFD disciplines is wider in that they would apply, in principle, to all services sectors and not only those covered by a WTO member’s specific commitments. Second, the IFD disciplines would cover a larger spectrum of economic activities in services sectors than the SDR disciplines.
8.3.2.3 Streamlining and Speeding up Administrative Procedures
8.3.2.3.1 Scope of Disciplines
The IFD disciplines on transparency of investment measures, on the one hand, and those on streamlining and speeding up administrative procedures, on the other, address by and large the same subject matter as the disciplines on SDR. In the following, only the IFD disciplines on streamlining and speeding up administrative procedures (IFD disciplines on administrative procedures) are considered. These disciplines are a key element of the IFD disciplines since they are paramount for establishing a fair, predictable, and efficient regulatory environment conducive to making cross-border investments.Footnote 110 Therefore, these disciplines are critical for reducing regulatory risk, which constitutes one of the major causes for the cancellation or withdrawal of FDI.Footnote 111
The IFD disciplines do not yet contain a definition of the term “administrative procedures”. But as in the case of the SDR disciplines, most of the IFD disciplines on administrative procedures are linked to “authorization procedures” or an “authorization for an investment”. Yet, the IFD disciplines do not define the term authorization. In analogy to the definition of authorization in the Reference Paper on SDR,Footnote 112 one may assume that an authorization in the IFD context would mean the permission to make an investment resulting from a procedure, that is, an authorization procedure, to which an applicant (foreign investor) must adhere to demonstrate compliance with applicable requirements.Footnote 113 The fact that most IFD disciplines on administrative procedures are closely related to authorization procedures demonstrates their procedural nature. Consequently, the vast majority of IFD disciplines on administrative procedures are not concerned with the substantive requirements underlying an authorization procedure.Footnote 114
8.3.2.3.2 Types of Disciplines
The IFD disciplines on administrative procedures fall into three broad categories: (i) The first category of disciplines seeks to ensure that “due process” is respected in authorization procedures; (ii) the second category of disciplines aims at making sure that measures regarding an authorization for an investment are based on certain general principles and administrative decisions affecting investment can be reviewed in objective and impartial procedures; and (iii) the third category of disciplines concerns the administration of measures of general application and their periodic review. The common theme of all these disciplines is to guarantee the application of and compliance with good regulatory principles, in particular legal certainty and predictability, with the aim of reducing regulatory uncertainty, minimizing transaction costs, and, more generally, making it easier for foreign investors to invest.Footnote 115
The first and largest category of disciplines deals with different aspects of authorization procedures, such as application periods, acceptance of authenticated copies, processing of applications, treatment of incomplete applications, rejection of applications, multiple applications, authorization fees, the use of ICT, and the independence of competent authorities.Footnote 116 These disciplines have a purely procedural character and closely resemble the corresponding disciplines in the Reference Paper on SDR. For the most part, and similar to the corresponding SDR disciplines, their wording provides for a certain degree of flexibility by combining mandatory language (“shall”) with hortatory language (“to the extent practicable”, “endeavor”), thus preserving some regulatory policy space for WTO members when they implement and apply these IFD disciplines.
The second category of disciplines is different from the disciplines in the first category, in three respects. First, one discipline has an impact on the substance of measures relating to an authorization for an investment because it mandates that those measures as well as the authorization procedures conform to certain requirements. Second, the other discipline calls on WTO members to have mechanisms in place that provide for the prompt, impartial, and objective review of administrative decisions affecting investment. Third, the disciplines’ wording is exclusively mandatory (“shall ensure”, “shall be made”, “shall maintain or institute”), thus leaving no flexibility for WTO members as to the implementation of these disciplines in their domestic legal systems.Footnote 117
One of the disciplines requires that (i) measures relating to an authorization for an investment be based on objective and transparent criteria, (ii) the authorization procedures for demonstrating applicants’ compliance with relevant requirements be impartial, and (iii) those procedures do not in themselves prevent the fulfillment of said requirements.Footnote 118 This discipline is almost identical to the discipline on the development of measures in the Reference Paper on SDR, except for the requirement not to discriminate between men and women. The other discipline has no counterpart in the Reference Paper on SDR but corresponds to article VI:2 GATS. It obliges WTO members to maintain or institute judicial, arbitral, or administrative tribunals or procedures that provide for the prompt, objective, and impartial review of administrative decisions affecting investment.Footnote 119 Such a review must provide for appropriate remedies, where justified. This discipline allows investors affected by administrative decisions adopted in authorization procedures to challenge those decisions by claiming that they did not conform to the IFD disciplines on administrative procedures or the domestic rules implementing these disciplines.
The third category of disciplines deals with measures of general application and addresses two aspects: their administration and periodic review. These disciplines deviate from the rest of the IFD disciplines on administrative procedures in that they are not confined to authorization procedures for an investment or measures relating to such procedures.Footnote 120 Rather, the term “measures of general application”, used by both disciplines in this category, refers to all types of measures covered by the IFD disciplines since that term is qualified by the words “within the scope of this Agreement”. This qualification would have been unnecessary if the term only comprised measures relating to authorization procedures. Moreover, the measures must apply generally, that is, to an a priori unlimited number of situations or cases rather than to a single situation or case. Consequently, measures pertaining to a single situation or case, such as an administrative decision concerning an application by a foreign investor for an authorization for an investment, do not amount to “measures of general application”. This reading is corroborated by article VI:1 GATS, which also refers to “measures of general application” and covers all measures coming under the scope of GATS that apply to an unspecified number of situations or cases.Footnote 121 Furthermore, the disciplines under this category employ different wordings: The wording of the discipline on the administration of measures of general application is mandatory (“shall ensure”), thus leaving no flexibility as to its implementation in WTO members’ domestic laws, whereas the wording of the discipline on the periodic review of measures of general application is merely hortatory (“is encouraged”), thus leaving considerable flexibility to WTO members as regards its implementation in domestic law.
The discipline regarding the administration of measures of general application requires that such measures be administered in a “reasonable, objective and impartial manner”.Footnote 122 The discipline addresses the application of measures of general application,Footnote 123 such as to applications by foreign investors for an authorization for an investment. There is no corresponding provision in the Reference Paper on SDR because article VI:1 GATS already contains such an obligation. The discipline concerning the periodic review of measures of general application seeks to encourage WTO members to carry out periodic reviews of such measures with a view to rendering their investment facilitation regimes more effective.Footnote 124 This discipline has no counterpart in the Reference Paper on SDR or the GATS, which may be one reason for its hortatory language.
8.3.2.4 Special and Differential Treatment
The approach of the IFD disciplines to special and differential treatment for developing country and LDC members differs substantially from that of the Reference Paper on SDR. While the latter devotes only three paragraphs to SDT, which are rather traditional in their approach,Footnote 125 the IFD disciplines include an entire section on special and differential treatment, which encompasses five provisions, spanning over ten pages.Footnote 126 The approach of the IFD disciplines to special and differential treatment is progressive and mirrors the approach adopted by the TFA.Footnote 127 Among others, the section on special and differential treatment provides for three categories of provisions, the possibility for developing country and LDC members to self-designate the provisions they wish to include under each of the categories, the possibility to shift between different categories, and the possibility to extend implementation periods, a grace period for the application of the WTO dispute settlement understanding as well as technical assistance and capacity building. Importantly, developing country and LDC members would be able, under one of the categories, to link the implementation of provisions in that category to the prior acquisition of implementation capacity through the provision of assistance and support for capacity building.
The emphasis put on special and differential treatment by the IFD disciplines reflects the need of developing country and LDC members for technical assistance and capacity building in implementing the IFD disciplines;Footnote 128 otherwise, the IFD disciplines risk becoming “dead letter”.
8.4 Conclusion
The foregoing review of the disciplines on SDR and IFD, respectively, has focused on a comparison between the SDR disciplines and the IFD disciplines on streamlining and speeding up administrative procedures. This comparison has shown that these two sets of disciplines are largely similar in substance and mostly of a procedural character. They address primarily authorization procedures, either for the supply of a service or an investment, and their wording leaves WTO members a certain degree of flexibility as to their implementation in domestic law. Even though the disciplines predominantly lay down obligations for authorization procedures, they also address the content of regulatory measures related to authorization procedures. They do so by requiring WTO members to respect certain general principles when devising such measures and procedures. Importantly, both the SDR and IFD disciplines use mandatory wording in that respect, thereby leaving no flexibility as to the implementation in WTO members’ domestic laws. In terms of substance, these content-related disciplines are again very similar and safe for the obligation not to discriminate between men and women, which has not yet found its way into the IFD disciplines. In areas where the Reference Paper on SDR does not contain provisions corresponding to the IFD disciplines – that is, review mechanisms and administration of measures of general application – equivalent provisions are found in the GATS. The only IFD discipline that has no counterpart in either the Reference Paper on SDR or the GATS is the discipline on the periodic review of measures of general application within the scope of the IFD disciplines. It is not surprising that the discipline employs hortatory language, thus granting a large discretion to WTO members as to its implementation in their domestic legal systems. The substantive similarity of the SDR and IFD disciplines may be explained by the fact that they share a common objective: facilitating services trade and cross-border investment through disciplines that foster the implementation and application of good regulatory principles.
Notwithstanding the largely similar character of the SDR and IFD disciplines, their scope is somewhat different. Leaving aside their different understanding of FDI, the SDR disciplines only apply to services sectors, whereas the IFD disciplines will apply to both services and non-services sectors. In addition, the SDR disciplines apply only to those services sectors where WTO members have undertaken specific commitments, but WTO members may voluntarily apply them also to noncommitted services sectors. In contrast, no restriction in terms of sectors is foreseen by the IFD disciplines, but it seems possible that WTO members will be able to exclude certain (services and non-services) sectors from the scope of application of the IFD disciplines. These differences are amplified by the fact that the SDR disciplines have domestic regulation within the meaning of article VI:4 GATS as their sole focus. In contrast, the IFD disciplines cover a much larger spectrum; the streamlining and speeding up of administrative procedures is but one, albeit crucial, element of the IFD disciplines. These differences reflect the distinct origins of both sets of disciplines: The SDR disciplines are anchored in and circumscribed by the negotiating mandate of article VI:4 GATS, whereas the IFD disciplines are the fruit of a relatively recent initiative that did not need to heed any treaty-imposed negotiating mandate on that subject matter.
Another difference between the two initiatives is related to the way in which they address special and differential treatment for developing country and LDC members. The SDR disciplines provide for SDT in a rather limited fashion. This may have to do with the fact that developed country members were the main driving force behind the development of these disciplines. Nonetheless, this somewhat meagre result is likely to stifle the readiness of developing country and LDC members to inscribe the SDR disciplines in their GATS schedules. The same cannot be said of the IFD disciplines. They copy the “modern” approach of the TFA to special and differential treatment and transpose it to the IFD context. This openness to strong SDT rules is possibly a consequence of a different negotiating dynamic: Developing country members are driving this negotiating process forward. Moreover, without adequate technical assistance and capacity building, the implementation of the IFD disciplines will get stuck as developing country and LDC members have to shoulder the highest implementation burden.Footnote 129
Regardless of the aforementioned differences, the SDR and IFD disciplines face a somewhat uncertain future. This is because of their plurilateral nature. India and South Africa have been vocal in their opposition to all JSIs, including those on SDR and IFD. They might be tempted to object to WTO members’ modified GATS schedules, which incorporate the disciplines of the Reference Paper on SDR as additional commitments, in the certification process of those schedules, irrespective of the purely technical nature of that process. Similarly, India and South Africa may also oppose the integration of the IFD Agreement into the WTO legal architecture. For the sake of the multilateral trading system and sustainable development, it is to be hoped that these concerns are unfounded.
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