Examination, Negotiation, Agreement

The author, a former Director of UNCTAD's Trade Programmes, provides an analysis of why a decision to begin an examination of the investment issue in the WTO is likely to lead to negotiations and finally, result in a multilateral investment agreement (MIA). This could hinder the rights of developing countries to guide foreign investment to specific areas for national development. This paper was widely distributed as a TWN Briefing paper during the WTO Ministerial Conference in Singapore.

by Bhagirath Lal Das

Suggestions are being made that the subject of Investment should be taken up for examination in the WTO. The countries which see great danger in the proposed multilateral investment agreement (MIA or MAI) curtailing their discretion to guide and control the foreign investment, are being persuaded that they should at least agree to have some study and examination of this subject in WTO.

But a study or examination in the WTO has some serious implications which must be considered by governments, particularly the governments of developing countries, before they decide to initiate it. GATT/WTO is a serious body. It does not take up an issue for examination without a definite final objective or without a clear prior indication of the existence of the problems which have to be studied.

Several times in the past, working parties or groups have been established in GATT to study and examine specific issues relating to the operation and implementation of the agreement. In practice, these exercises have been a joint consideration and examination by governments.

To a great extent, this exercise involves negotiations among the interested governments on the identification of issues involving differing interests and on the possible compromises. By its very nature, the study or examination has been on the subjects which are well founded in GATT.

It will be quite a unique example to initiate the examination of the relationship between investment and trade.

Of course, any subject can be shown to have relationship with trade by stretching the argument. For example, the internal taxation of governments can be shown to have some relationship with trade, as it affects the disposable income of the people, and thereby their purchasing capacity for foreign goods.

Even health and nutrition can be shown to have some links with trade by a further stretching of logic. These affect the physical and mental capacity of the workers to work, and thereby affecting their output, which may have a link with the cost and quality of production, thus having an impact on competitiveness.

All these linkages cannot hide the fact that these subjects, including investment, are in reality external to trade. And initiating the examination in the WTO may in fact prejudice the debate on whether or not a relationship exists.

An examination of an issue in the WTO has to come within its functions which are prescribed in Article III of the Marrakesh Agreement Establishing The World Trade Organization. According to this provision, the functions of the WTO are to:

" facilitate the implementation, administration and operation...of this Agreement and of the Multilateral Trade Agreements, ... `further the objectives of' these Agreements, ..'provide the forum for negotiations among its Members concerning their multilateral trade relations in matters dealt with under' the existing various WTO Agreements", and "also provide a forum for further negotiations among its Members concerning their multilateral trade relations, ..."

The functions are all related to the existing Agreements or to the multilateral trade relations among the Members. Hence any subject taken up for examination in the WTO should be related to these subjects. An initiation of the examination of investment in the WTO will therefore presume beforehand that the relationship exists.

One may argue that through the subject of Trade-Related Investment Measures (TRIMS), investment is already included in the WTO. But it is not really true. The Agreement on TRIMS has "investment" only in the name; in fact, it is an agreement clarifying and further enforcing some existing provisions on the trade of goods.

It is no more an agreement on investment than the Agreement on TRIPS can be said to be an agreement on trade. The existence of the word "trade" there does not hide the fact that this agreement is simply an agreement on intellectual property rights protection.

Apart from prejudicing the Members that do not want entry of investment in the WTO, the very process of examination will bind them down to the process of negotiation, once the process of examination starts in any WTO forum.

Process of examination on investment

Let us consider how this matter will be examined in the WTO, if the Ministers decide on initiating an examination.

It will first come for consideration in the General Council, which will have three options before it, viz: (i) examine it in this body, (ii) establish a Committee of the Whole of itself to examine it, or (iii) establish a working party or an expert group to undertake the examination.

These subsidiary bodies will then report to the General Council about the results of examination. What is to be clearly understood is that it is not an examination by the WTO secretariat, but by a political organ of the WTO. The secretariat may, of course, be asked to make its own technical contribution to the process of examination in these bodies.

Once the subject is taken up in any of the organs of the WTO, it becomes a political process, in which the questions of rights and obligations come in. And thus it is a full process of negotiation, howsoever one may try to hide it by giving it different names. Hence it has to be understood that initiating an examination of investment in the WTO actually amounts to undertaking an obligation to start negotiation on this subject in the WTO. And the experience in the past has shown that a beginning of the negotiation, particularly at the initiative of major developed countries, finally results in a full- fledged agreement.

It may be relevant to draw on specific experiences of the past. In 1982, strong pressures were built up on developing countries to start negotiations on the subject of Services. It was strongly opposed. The final agreement was that countries would take up national examination of services, exchange information among themselves and then consider whether a multilateral framework was necessary and appropriate. This process later led to negotiations in the Uruguay Round and to a final Agreement.

When the subjects of Services and Intellectual Property Rights were proposed in the Uruguay Round, the developing countries opposed these issues. However, they thereafter agreed on negotiations, but insisted that when there was an agreement, that these subjects would be kept outside the coverage of GATT and there would be no linkage with the trade in goods.

The final result is that goods, services and intellectual property rights have all been integrated in the expanded system of the WTO. And instead of keeping services and intellectual property rights organically separated from goods, now there is a close integration through the provision of cross-sector retaliation in the Dispute Settlement Understanding.

Multilateral Investment Agreement

Countries may, of course, decide whether it is in their interest to have a multilateral agreement on investment. Perhaps it may be useful among countries which are almost at similar levels of economic development. But it may be dangerous if such an agreement covers countries with a wide range of economic levels and widely varying strategies for national development.

For example, an economically mature and strong country may consider that free flow of investment is good for its economic operators; whereas a country striving for industrial upgradation, technological development and infrastructure development may consider it necessary to direct the investments to specific areas.

Any constraint on the rights of the host country to channelize the investment in desirable directions can cause more harm than help the process of development. Hence countries have to take a view on the multilateral investment agreement in the context of their own specific development objectives and priorities.

But the issue at present in the Singapore Ministerial Conference is not whether there should be an agreement on investment; but simply to have an examination of the relationship between investment and trade in the WTO.

And as explained above, such an examination in the WTO will be ab initio prejudicial, and also, as the past experience has shown, the dynamics of this process in the WTO is likely to lead to a negotiation and finally to an agreement.

(The author was formerly India's Ambassador and Permanent Representative to GATT. Subsequently, he was Director of International Trade Programmes in UNCTAD).