RESTRICTED
WORLD TRADE GPA/IC/W/15
9March 1995
ORGANIZATION
(95-0528)
Interim Committee onGovernment Procurement
Working Group onStatistical Reporting
THE DEFINITION OFNATIONALITY INCERTAIN WTO AGREEMENTS
Note bytheSecretariat
I. INTRODUCTION
1. Article XIX:5 oftheAgreement onGovernment Procurement requires, totheextent thatsuch
information isavailable, eachParty toprovide statistics onthecountry oforigin ofproducts andservices
purchasedbyitsentities.AtthefirstmeetingoftheWorkingGrouponStatisticalReporting,thequestion
ofhowtodefine thecountry oforigin ofservices forthepurposes ofstatistical reporting wasdiscussed.
Theviewwasexpressedthatthe"nationality",i.e.thecountryof,theservicesuppliermightbeemployed
asabasis fordefining theorigin ofaservice forstatistical reporting purposes.1TheSecretariat was
requested toprepare ashort paper onthewayinwhich thequestion of"nationality" wasdefined in
thevarious WTO Agreements and,totheextent possible, inother international economic agreements.
Thisnoteisanattempt torespond tothisrequest.
2. Thenoteexamines thoseWTO Agreements where obligations relate tothewayinwhich persons
ofother Members should betreated andlooks athowsuchpersons ofother Members aredefined.
Thenotealsoconsiders howthismatter hasbeentreated under other public international commercial
law. Themain question thatarises inthese contexts isnothowtodefine thenationality of"natural
persons", buthowtodefine thenationality of"legal persons", especially companies. Thisissue is
often referred toasthatof"corporate nationality", which canbeunderstood asashorthand wayof
referring tosituations where companies aredeemed tohaveasufficiently close linktoother Member
States tobeeligible tobenefit from thetreatment required bytheinternational lawinquestion tobe
given tothepersons, or"nationals", ofthose Member States. Thisissue arises intheGATS andthe
TRIPS Agreement oftheWTO, butalsoinmany otherfields ofinternational commercial law,including
investment treaties, treaties offriendship, commerce andnavigation, diplomatic protection andregional
arrangements -infactinanytreaty orother arrangement where thebenefits accrue tothelegalpersons
ofMember States.
1Thepoint wasalsomade thatthequestion ofthedefinition ofthesupplier ofanother Party wasofasignificance broader
thanthatofstatistical reporting only, since theobligations intheAgreement require certain treatment tobegiven tothesuppliers
ofother Parties, whether ofgoods orofservices. Itmight alsobenoted thattheuseof"national ownership" ofthewinning
supplier asaproxy fordetermining theorigin ofgoods hasbeendiscussed inapaper submitted bytheEuropean Communities
(GPR/W/125 dated 1April 1993).GPA/IC/W/15
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II. THE GENERAL AGREEMENT ONTRADE INSERVICES (GATS)
3. TheGATS setsoutthetreatment thatmust begiven byWTO Members totheservices and
service suppliers ofother WTO Members. Theneedtodefine whatistheservice supplier ofanother
Member arises notonlybecause suchpersons aredirect beneficiaries oftheAgreement butalsobecause,
incertain situations, theservices ofanother Member aredefined interms ofthe"nationality" ofthe
service supplier. Subparagraph (f)(ii) ofArticle XXVIII oftheGATS defines, inthecaseofthesupply
ofaservice through commercial presence2orthrough thepresence ofnatural persons, aservice of
another Member asbeing aservice which issupplied byaservice supplier ofthatother Member.
Whoisaservice supplier ofanother Member?
4. TheGATS contains detailed rulesonhowtodetermine whoistheservice supplier ofanother
Member. Asregards companies, theessential criteria usedintheGATS fordetermining when a
company istobeconsidered acompany ofanother Member appear tobethecriteria ofplace oflegal
constitution (combined withsubstantive business operations), or(incaseofsupply through commercial
presence) ownership orcontrol. Therelevant specific rules oftheGATS aresummarized below.
5. Firstofall,theServices Agreement defines asaservice supplier anyperson, natural orjuridical,
thatsupplies aservice (subparagraphs (g)and(j)ofArticle XXVIII).
Natural person ofanother Member
6. Subparagraph (k)defines asa"natural person ofanother Member" ,anatural person whoresides
intheterritory ofthatother Member oranyother Member andwhounder thelawofthatother Member
either:
- isanational ofthatother Member; or
- inthecaseofcertain Members, hastheright ofpermanent residence inthatother
Member.
Thecomplete textofsubparagraph (k)ofArticle XXVIII iscontained inAnnex 1.
Juridical persons ofanother Member
7. Subparagraph (l)ofArticle XXVIII determines thata"juridical person" means anylegalentity
dulyconstituted orotherwise organized under applicable law,whether forprofit orotherwise, and
whether privately-owned orgovernment-owned, including anycorporation, trust, partnership, joint
venture, soleproprietorship orassociation.
8. UnderSubparagraph(m)ofArticleXXVIII,ajuridicalpersonisconsidered"of"anotherMember
ifitiseither:
(i) constituted orotherwise organized under thelawofthatother Member andengaged
insubstantive business operations intheterritory ofthatMember oranyotherMember;
or
2Commercial presence isdefined intheGATS asanytypeofbusiness orprofessional establishment including through
(i)theconstitution, acquisition ormaintenance ofajuridical person, or(ii)thecreation ormaintenance ofabranch ora
representative office, within theterritory ofaMember ofthepurpose ofsupplying aservice.GPA/IC/W/15
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(ii) incaseofsupply ofaservice through commercial presence, owned orcontrolled by
natural orjuridical persons ofthatother Member asdefined under (i)above.
9. Subparagraph (n)defines ajuridical person asbeing onethatis:
- "owned" bypersons ofaMember ifmore than50percentoftheequity interest in
itisbeneficially owned bypersons ofthatMember;
- "controlled" bypersons ofaMember ifsuchpersons havethepower toname amajority
ofitsdirectors orotherwise tolegally direct itsactions.3
Thecomplete textofsubparagraphs (m)and(n)ofArticle XXVIII arecontained inAnnex 1.
III. THEAGREEMENT ONTRADE-RELATED ASPECTS OFINTELLECTUAL PROPERTY
RIGHTS (TRIPS AGREEMENT)
10. TheTRIPSAgreementrequirescertaintreatmenttobegiventothe"nationals"ofotherMembers.
Theterm"nationals" isunderstood toinclude notonlypersons whohavethenationality ofTRIPS
MembersbutalsocertainotherpersonswhohaveacloseattachmenttoTRIPSMembersandaretherefore
assimilated to"nationals". Thepersons whoaretobeconsidered nationals ofTRIPS Members and
therefore beneficiaries oftheTRIPS Agreement aredefined inArticle 1.3oftheAgreement. This
isdonebyreference tothecriteria thathavebeendeveloped fordetermining eligibility forprotection
inthedifferent areas ofintellectual property inthepre-existing international conventions. Article 1.3
oftheAgreement stipulates asfollows:
"...thenationals ofother Members shallbeunderstood asthose natural orlegalpersons that
would meetthecriteria foreligibility forprotection provided forintheParisConvention (1967),
theBerne Convention (1971), theRome Convention andtheTreaty onIntellectual Property
inrespectofIntegratedCircuits,wereallMembersoftheWTOmembersofthoseConventions".
11. Thecriteria usedunder theTRIPS Agreement forthepurposes ofdetermining which persons
should beconsidered beneficiaries, aresetoutinAnnex 2ofthisnote.
IV. OTHER INTERNATIONAL ECONOMIC AGREEMENTS
General situation
12. Asmentioned intheIntroduction, thequestion ofcorporate nationality arises inmany areas
ofinternational public commercial law,aswellasinnational ormunicipal law.Thefollowing summary
3Itisalsoofinterest thatsubparagraph (n)ofArticle XXVIII oftheGATS contains adefinition ofwhen twopersons
canbeconsidered "affiliated" witheachother since theconcept ofaffiliation isalsousedinArticle III:2(a) oftheAgreement
onGovernment Procurement: "With respect toalllaws, regulations, procedures andpractices regarding government
procurement covered bythisAgreement, eachParty shallensure (a)thatitsentities shallnottreatalocally-established supplier
lessfavourable thatanother locally-established supplier onthebasis ofdegree offoreign affiliation orownership." Under
subpar agraph(n)oftheGATS ajuridicalpersonisconsidered"affiliated"withanotherpersonwhen itcontrols,oriscontrolled
by,thatother person; orwhen itandtheother person arebothcontrolled bythesame person.GPA/IC/W/15
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ofthepresent situation regarding thecriteria fordetermining corporate nationality isreproduced from
anarticle byProfessor Fatouros intheEncyclopedia ofInternational Public Law4:
"Inmunicipal aswellasininternational law,threeprincipal criteria havebeen
usedtodetermine thenationality ofcorporations. Acorporation isdeemed tohave
thenationality of:(a)Theplace ofitsincorporation, i.e.theState according tothe
lawsofwhich thecorporation isformed. Thistestisapplied bycountries where the
Anglo-American common lawsystem prevails andbyafewothers. (b)Theplace of
itsseat(siège social), i.e.theState where thecentre ofitsmanagement islocated.
Thistestisapplied bythecivillawcountries incontinental Europe andelsewhere.
Emphasis ontheformal aspect ofthistest,viz.onthecorporation 'sstatutory seat,
brings itinoperation closer totheincorporation testsince acorporation 'sstatutory
seatisfrequently located intheStateofincorporation. Inmany cases, however, where
thestatutory seatisseenasnotcorresponding totheactual location ofcorporate
administration, the"real" seat(siège social réel)isusedasthecriterion ofnationality.
Withrespect totransnational enterprises orgroups ofcompanies, ithasbeensuggested
thattheenterprise 'scentre ofdecision-making provides amoreappropriate test.(c)The
Stateofnationalityofcontrollingshareholders.Thistestwasintroducedduringwartime
todetermine theenemy character ofproperty. Firstapplied during World WarI,it
waslargely abandoned intheinter-war period andthenrevived during World WarII.
Thetestwasoriginally based solely onshare ownership, buthasbeenextended tocover
thenationality ofprincipal corporate officers, theexercise ofcontrolling influence
through means other thanshareholding andthepresence ofsubstantial though not
necessarily controlling interests. After thewar,thetestwasretained inmany countries
inspecific legislative measures involving theeconomic regulation offoreign tradeand
investment forpolitical oreconomic purposes.
"Singly orincombination, thethree testsarecommon ininternational treaty
practice. There isaninfinite number ofvariations informulation, corresponding to
particular circumstances andneeds asperceived bythecontracting parties. Treaties
dealing generally withtrade andinvestment, particularly treaties ofestablishment or
treaties offriendship, commerce andnavigation, tendtoadopt thetestsofincorporation
andseat,while instruments orprovisions directed attheprotection ofnationals usually
addsome version ofthecontrol test. Inpost-war treaties offriendship, commerce
andnavigation oftheUnited States, forexample, thegeneral definition ofthecompanies
considered as"companies oftheParties" utilizes theincorporation test,butthe
contracting parties areallowed todenytheadvantages ofthetreaty tosuchcompanies
when theyarecontrolled bythird-country nationals, while thecontrol testisexplicitly
usedinother provisions."
North American FreeTrade Agreement (NAFTA)
13. Inanumber ofPartsoftheNAFTA, rights andobligations relate tothenationality ofpersons
(juridical ornatural) ofotherParties. These include thePartsonGovernment Procurement, Investment,
Services andIntellectual Property. Eachpartincludes anArticle ondefinitions. There isalsoaGeneral
Chapter onDefinitions.
14. IntheGeneral Chapter ondefinitions,
- "person ofaParty" isdefined asanational, oranenterprise ofaParty;
4A.A. Fatouros,"NationalLegal PersonsinInternationalLaw",inR.Bernhardt(ed),Encycl opediaofPublicInternational
Law, Volume 10(1987), pages 299-306, published by"North Holland"GPA/IC/W/15
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- "national" isdefined asanatural person whoisacitizen orpermanent resident ofa
Party andanyother natural person referred toinAnnex 201.1 oftheNAFTA (Annex
201.1 gives further specifications of"national" under Mexican andUnited States
legislation);
- "enterprise ofaParty" means anenterprise constituted ororganized under thelawof
aParty. IntheChapter onInvestments itismade clearthat"abranch located inthe
territory ofaParty andcarrying outbusiness activities there" would alsobeconsidered
anenterprise ofaParty.
IntheChapter onFinancial Services
- "person ofaParty" means anational, oranenterprise ofaParty but"forgreater
certainty, clarifies that[this] doesnotinclude abranch ofanenterprise ofanon-Party".
InthePartonIntellectual Property
- "nationals ofanother Party" means, inrespect oftherelevant intellectual property right,
persons whowould meetthecriteria foreligibility forprotection provided forinthe
ParisConvention (1967), theBerne Convention (1971), theGeneva Convention (1971),
theInternationalConventionfortheProtectionofPerformers,ProducersofPhonograms
andBroadcasting Organizations (1961), theUPOV Convention (1978), theUPOV
Convention (1991) ortheTreaty onIntellectual Property inRespect ofIntegrated
Circuits, asifeachParty were aparty tothose Conventions, andwithrespect to
intellectual property rights thatarenotthesubject ofthese Conventions, "national of
another Party" shall beunderstood tobeatleastindividuals whoarecitizens or
permanent residents ofthatParty andalsoincludes anyother natural person referred
toinAnnex 201.1 (Country-Specific Definitions).
European Economic Community
15. Article58oftheTreatyofRomedealswiththetreatmentanddefinitionofcompaniesofMember
States. Itreads asfollows:
"Companies orfirms formed inaccordance withthelawofaMember State
andhaving theirregistered office, central administration orprincipal place ofbusiness
within theCommunity shall, forthepurposes ofthisChapter, betreated inthesame
wayasnatural persons whoarenationals ofMember States.
""Companies orfirms" means companies orfirms constituted under civilor
commercial law,including cooperative societies, andother legalpersons governed by
public orprivate law,saveforthose which arenon-profit-making."GPA/IC/W/15
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ANNEX 1
Texts ofCertain Provisions oftheGeneral Agreement onTrade inServices (GATS)
Natural person ofanother Member
1. Thetextofsubparagraph (k)ofArticle XXVIII reads asfollows:
(k) Natural person ofanother Member" means anatural person whoresides intheterritory of
thatother Member oranyother Member, andwhounder thelawofthatother Member:
1. isanational ofthatother Member; or
2. hastherightofpermanent residence inthatother Member, inthecaseofamember
which:
(a) doesnothavenationals; or
(b) accords substantially thesame treatment toitspermanent residents asitdoes
toitsnationals inrespect ofmeasures affecting trade inservices, asnotified
initsacceptance oforaccession totheWTO Agreement, provided thatno
Member isobligated toaccord tosuchpermanent residents treatment more
favourable thanwould beaccorded bythatother Member tosuchpermanent
resident. Such notification shallinclude theassurance, withrespect tothose
permanent residents, inaccordance withitslawsandregulations, thesame
responsibilities thatother Member bears withrespect toitsnationals."
Juridical persons ofanother Member
2. Thetextofsubparagraph (m)ofArticle XXVIII reads asfollows:
"Ajuridical person ofanother Member is:
ajuridical person which iseither:
1. constituted orotherwise organized under thelawofthatother Member, and
isengaged insubstantive business operations intheterritory ofthatMember,
oranyother Member; or
2. inthecaseofthesupply ofaservice through commercial presence, owned
orcontrolled by:
(a) natural persons ofthatMember; or
(b) juridical persons ofthat other Member identified under
subparagraph (1)."GPA/IC/W/15
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3. Thetextofsubparagraph (n)ofArticle XXVIII reads asfollows:
"Ajuridical person is:
1. "owned" bypersons ofaMember ifmore than50percentoftheequity interest
initisbeneficially owned bypersons ofthatMember;
2. "controlled" bypersons ofaMember ifsuchpersons havethepower toname
amajority ofitsdirectors orotherwise tolegally direct itsactions;
3. "affiliated" withanother person when itcontrols, oriscontrolled by,thatother
person; orwhen itandtheother person arebothcontrolled bythesame
person."GPA/IC/W/15
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ANNEX 2
Nationals andPersons Assimilated toNationals under theTRIPS Agreement
IntheareaofIndustrial Property, aswellasintheareaoftheLayout-Design forIntegrated
Circuits:
Natural orlegalpersons who:
- arenationals ofaTRIPS Member; or
- aredomiciled inaTRIPS member; or
- haverealandeffective industrial orcommercial establishment inaTRIPS
member.
IntheareaofCopyright andRelated Rights:
Authors ofliterary orartistic works who:
- arenationals ofaTRIPS Member; or
- havetheirhabitual residence inaTRIPS Member; or
- whose works arefirst(orsimultaneously) published inaTRIPS Member; or
- areauthors ofcinematographic works, themaker ofwhich hashisheadquarters
orhabitual residence inaTRIPS Member; or
- areauthors ofworks ofarchitecture erected inaTRIPS Member orofother
artistic works incorporated inabuilding orother structure located inaTRIPS
Member.
(Artistic) performers whose:
- performance takes place inanother TRIPS Member; or
- performance isincorporated inaphonogram asdefined below; or
- performance iscovered byabroadcast asdefined below.
Producers ofphonograms:
- which arenationals ofanother TRIPS Member (criterion ofnationality); or
- ifthephonogram wasfirstfixed inanother TRIPS Member (criterion of
fixation); or
- ifthephonogram wasfirstpublished inanother Member (criterion of
publication).GPA/IC/W/15
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Broadcasting Organizations:
- whose headquarters aresituated inanother TRIPS Member; or[and]
- ifthebroadcast wastransmitted fromatransmitter inanother TRIPS Member.