49. Memorandum From the Assistant Secretary of the Treasury for International Affairs (Bergsten) to Secretary of the Treasury Blumenthal1


  • GATT for Investment

Per your urging at the EPG meeting on July 18,2 I have already met with Cooper and others from State to consider a GATT for investment. I will subsequently convene a meeting of my EPG Deputies Group, to develop a paper on the subject over the next few weeks for policy consideration in September.

Because of your interest in the subject I attach an early but well-done draft on the subject (Tab B),3 and a summary thereof (Tab A). It was prepared by my staff, and has only now been floated outside Treasury. However, any reaction from you even at this early stage would be of great value to our work.

On the substance, there is already underway the rudimentary beginning of a sort of “GATT for Investment” through efforts on different parts of the issue in different forums: discrimination in the “national treatment” section of the OECD code, international arbitration in ICSID,4 multilateral insurance via cooperation among the national OPICs, transfer pricing via an OECD working group, tax harmonization via a series of bilateral treaties, antitrust via bilateral understandings between the United States and several other industrial countries, corrupt practices in the ECOSOC negotiations, etc. But these are only a very tentative start:

—Some issues are not covered at all (e.g., tax incentives to foreign investors and “performance requirements”).

—Many which are covered have no enforcement teeth.

—There is no coordination among the many parts of the overall issue.

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Hence there is clearly room for a major initiative, or series of initiatives, in this area. I will forward further material to you next month.

Tab A

Paper Prepared in the Department of the Treasury5

A GATT For Investment


Despite the fact that it has become a major vehicle for the transfer of resources between countries, international investment is not effectively governed by multilateral rules. As a consequence, national governments intervene to tilt the benefits of investment in their favor, thus producing harmful competition and a progressive erosion of the free market system.

Against this background, it is useful to review the possibilities for international cooperation through a “GATT for Investment.”

Current Situation

There are a few international agreements aimed at regulating government intervention in the investment process. The U.S. has a wide network of treaties of friendship, commerce, and navigation (FCN treaties) which prohibit discrimination against American investors and have been negotiated principally with developed countries. The effectiveness of the few multilateral agreements such as the OECD Code of Capital Movements, the International Center for the Settlement of International Disputes, and the OECD Declaration on International Investment and MNEs, is quite limited.

U.S. Interests

The U.S. has traditionally not taken an active role with respect to foreign investment, in accordance with our general free market philosophy. This philosophy is not shared, however, by other governments which often intervene in investment to and from the United States. The interventions which have the most conspicuous effect on our national interests are the performance requirements imposed on firms by host governments, including quantitative and qualitative job quotas, minimum export quotas, “local content” requirements, and limitation of [Page 175] capital and local ownership. The United States is not necessarily worse off as a result of such intervention than it would be in the absence of foreign investment, but it is very likely worse off with foreign intervention than without it.

Interests of Other Governments

Cooperation of other governments in pursuing a GATT for Investment would depend on the specific contents of our proposal and the force with which we pursued our objective. Our case should be based on the general proposition that unregulated competition among governments in the investment area is just as detrimental as it would be with respect to trade, and on the proposition that we will no longer passively accept the interventionist policies of other nations. No explicit threats would be necessary, but we would have to make it clear that we are ready to take measures such as regulating the outflow of investment and technology in accordance with our national interests.6

Substance of Negotiations

The various possibilities for topics which could be included in the GATT for Investment fall into three general categories: investor protection, government intervention, and regulation of MNE activities. The specific topics include the following:

1. Investor Protection

—A judicial remedies convention could be negotiated which would be designed to ensure that goods produced from expropriated mines and factories can be judicially seized if shipped to the markets of the signatory countries.

—We can strengthen the International Center for the Settlement of Investment Disputes or other similar panels.

—We would face the question of to what extent and in what form we should press for inclusion of the principles of national and most favored nation treatment and treatment according to the minimum standards of international law. These are sticking points particularly with the IDCs [LDCs?], who argue that only local remedies should be available to a foreign investor.

—Consideration could be given to several possible approaches for establishing investment insurance on a multilateral basis, but the history of negotiations on such proposals does not give grounds for optimism.

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2. Government Intervention

—The United States managed to get only a weak agreement with respect to incentives and disincentives for investment in the OECD. However, a binding agreement might conceivably be negotiated in this area that was similar to the GATT arrangements with respect to trade.

GATT-type remedies might also be appropriately applied to performance requirements placed on foreign investors by governments.

—In the tax area we might negotiate a multilateral tax treaty or agreements to extend the range of issues addressed in bilateral treaties.

—The United States might have to respond to demands by other countries that we refrain from imposing requirements on the foreign affiliates of U.S. corporations to further our political goals.

3. Regulation of MNE Activities

—The developing countries are particularly anxious to require subsidiaries to act independently of parental direction on such questions as pricing, market sharing, and sourcing of inputs. The United States and other developed countries have argued that restrictive business practice limitations should not be extended to intracompany affairs.

—Tax avoidance problems have been met by the extensive international network of bilateral treaties. A GATT for Investment could be useful to national governments in providing a centralized pool of information for national tax authorities.

—Increased disclosure of information by MNEs concerning their activities would be a basic objective of host governments in negotiation of any new agreements.

—In the event that the U.N. negotiations on an anti-bribery agreement are unsuccessful, we could tackle the issue again in the new forum.

Forum of Negotiations

The five basic questions we should have to address in making the complex decision as to which forum or forums we should use to pursue our investment objectives are as follows:

1. Should we rely on a single forum or pursue our objectives in a coordinated fashion in several forums at one time? A single new or existing forum would focus public attention on the negotiating process and facilitate bargaining across issues; multiple forums would result in less politicized negotiations.

2. Should we propose establishment of a new organization for the purpose of negotiating and eventually administering the proposed agreement or rely on existing institution or institutions? Creation of a large new organization would give investment issues a greater prominence in international economic affairs approaching that of the mone [Page 177] tary, trade, and development areas. On the other hand, we could expect to encounter resistance from other countries on the grounds that a new initiative in the investment area would undermine ongoing codes of conduct negotiations in the U.N. and in the OECD. The relationship between these exercises and the new initiative might be handled either by keeping them separate or by folding both into a new forum.

3. Should participation in the agreement be universal or limited to a core group of like-minded countries? Universal participation would result in greater coverage of the agreement but might produce a tendency for the negotiations to become politicized and for the agreements to reflect the least common denominator. A “core group” of countries would probably be able to arrive at a stronger agreement, but a number of host countries would be excluded. Under either option agreement would have to be reached on the basis for decision-making, with the two principal models being the OECD procedures under which each country has an equal voice and all decisions must be unanimous, or the IMF, which has weighted representation.

4. If we decide to use an existing forum, which should we choose? If we propose the establishment of a new organization, what form should it take? The OECD has a staff with experience in the investment area, but its membership is limited and its procedures are slow. The United Nations also has some expertise in investment matters and wide membership, but it is highly political. The GATT has a heterogeneous membership and existing mechanisms and procedures which we might use as a model; however, it has not dealt extensively with investment issues.

5. Should we fall back from the bilateral treaty vehicle, rather than rely exclusively on lengthy multilateral negotiations? The United States and other developing countries have a number of FCN treaties and other countries have actively pursued narrower bilateral investment treaties. The major advantage is that they can be concluded with a minimum of difficulty; their fundamental disadvantage is that the public visibility of the effort will be low. Two options we have within the bilateral framework would be to negotiate narrow treaties with LDCs or to negotiate comprehensive treaties which would have the contents of and lay the groundwork for the GATT for Investment.


Sanctions could be used to enforce new agreements in this area which could range from moral opprobrium to private legal action to state retaliation. The appropriate kind of sanction would differ as between the offender and the offense. MNEs would be subject to the local law and sanctions in host countries, but home governments would also play a role, as could some recognized international body. Among the options for enforcing standards on governments are withholding eco [Page 178] nomic benefits, imposing countervailing duties, discrimination by host governments against investors of a violating country, and discrimination by home governments against investments in a violating country.

  1. Source: National Archives, RG 56, Records of Assistant Secretary of the Treasury for International Affairs C. Fred Bergsten, 1977–1979, Box 1, FT–6 Boards, Committees, Organizations, Panels, Working Groups 1977. No classification marking. Sent for information. Reviewed by Hessler on August 8. A typed notation reads: “Noted by W.M.B.”
  2. No minutes of this meeting were found.
  3. Tab B, attached but not printed, is a July 26 paper entitled “A GATT for Investment.”
  4. The International Center for the Settlement of Investment Disputes (ICSID), founded in 1966 as a part of the World Bank Group, provides a forum in which disputes between member states and private investors can be settled by arbitration or conciliation.
  5. No classification marking.
  6. An unknown hand placed checkmarks adjacent to the second and third sentences of this paragraph and wrote “Necessary?” at the end of the paragraph.