## Facts

- Canada administered the Foreign Investment Review Act (FIRA), which required government approval of certain foreign acquisitions or new investments based on a “significant benefit to Canada” standard.
- To obtain approval, foreign investors commonly provided undertakings to the Canadian government.
- Challenged undertakings included (1) commitments to purchase goods of Canadian origin or from Canadian suppliers, sometimes absolute and sometimes conditioned on “competitive” or “reasonable” availability, and (2) export-performance commitments to export specified quantities or proportions of production.
- The United States did not challenge FIRA as investment legislation; it challenged the trade effects of Canada’s administration of FIRA through these undertakings affecting purchases in Canada and exports from Canada.
- Consultations failed, and a GATT panel was established under Article XXIII:2 with terms of reference confined to the purchase and/or export of goods by firms subject to FIRA.

## Issues

1. Whether FIRA-related local-purchase undertakings constituted “requirements” affecting internal purchase that accorded imports less favorable treatment than like domestic products under GATT Article III:4.
2. Whether purchase undertakings specifying amounts or proportions of domestic sourcing violated GATT Article III:5 as internal quantitative regulations.
3. Whether purchase undertakings or export-performance undertakings amounted to prohibited quantitative restrictions under GATT Article XI:1.
4. Whether export-performance undertakings violated obligations considered under GATT Article XVII.
5. Whether any inconsistency could be justified under GATT Article XX(d) as necessary to secure compliance with domestic law.

## Decision

- The panel found that certain local-purchase undertakings were inconsistent with Article III:4 because they required or favored purchases of Canadian goods in a manner that disadvantaged imports in competitive opportunities.
- The panel found no violation of Article III:5, concluding there were insufficient grounds to treat the purchase undertakings as internal quantitative regulations within that provision.
- The panel found no violation of Article XI:1, reasoning that the purchase undertakings did not restrict importation “as such” or operate as quantitative limits on imports.
- The panel did not find a separate GATT violation in the export-performance undertakings under the provisions examined, including its consideration of Article XVII.
- The panel rejected Canada’s reliance on Article XX(d) as inapplicable to justify the challenged undertakings.

## Legal Principles

- Investment-approval conditions can fall within GATT disciplines when they operate as governmental “requirements” affecting the internal purchase of goods.
- Under Article III:4, requiring or favoring purchases of domestic goods—whether absolute or conditioned on “competitive” or “reasonable” availability—can accord imported like products less favorable treatment by altering conditions of competition.
- Measures influencing sourcing decisions do not necessarily constitute quantitative restrictions under Article XI:1 absent restriction of importation itself or quantitative limitation on imports.
- Article III:5 is not automatically triggered by domestic-sourcing commitments expressed in amounts or proportions; classification depends on whether the measure is properly characterized as an internal quantitative regulation under that provision.
- Article XX(d) cannot justify trade-inconsistent requirements merely because they are used to administer or secure compliance with domestic legislation when the challenged requirements themselves conflict with GATT obligations.

## Conclusion

The panel held that Canada’s administration of FIRA through local-purchase undertakings violated the national treatment rule in Article III:4 by disadvantaging imported products in internal purchasing, while declining to find violations of Articles III:5 and XI:1 and rejecting an Article XX(d) defense.


Can.—Admin. of the Foreign Inv. Rev. Act, GATT B.I.S.D. (30th Supp.) 140 (Gatt Panel 1984)