The internationalization of production has been one of the major features of the world economy since the mid nineteen-eighties. It is estimated that there are now 65 000 multinational enterprises (MNEs) worldwide, 90 per cent of which have their headquarters in Organisation for Economic Co-operation and Development (OECD) countries. They have established more than 850 000 foreign affiliates, more than half of which operate in non-OECD countries. Foreign affiliates now account for about one-third of world exports, and another one-third of world trade flows are between MNEs. Trade policy and investment policy have had a strong mutual influence with a substantial impact on trade, investment and economic growth.

There are more than 2500 bilateral investment treaties (BITs) and more than 230 regional trade agreements (RTAs) governing much of the direct investment flow between countries. Yet, although foreign direct investment (FDI) is clearly global, it is not covered by comprehensive multilateral rules.

Although many of these agreements are similar, this situation has nevertheless resulted in an increasingly complex international setting for international investment in which governments have to ensure consistency between differing sets of obligations. Furthermore, many investment agreements promote closely-related concepts but use different wording. This has resulted in divergent interpretation of the rules and fragmentation poses a very real problem.

At present, economic agents and governments lack a comprehensive instrument to deal with the main principles of the World Trade Organization (WTO) such as transparency, the most-favoured-nation principle and non-discrimination both in the pre-establishment and post-establishment phases of MNEs.