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TWN Info Service on WTO Issues (Mar03/4)

Geneva 27 March 2003

Dear friends and colleagues

WTO IS WRONG VENUE FOR INVESTMENT NEGOTIATIONS: Report of Seminar of 20 March 2003

The WTO is the wrong institution for discussions or negotiations on a multilateral investment agreement or framework.  This was the main conclusion of the majority of participants at a seminar on the nature and implications of a WTO investment agreement, held on 20 March 2003 in Geneva.

The seminar was jointly organised by several NGOs, including TWN, Oxfam, WWF, CIEL, IATP and PSI and attended by over a hundred participants, including representatives of government delegations to the WTO, NGOs, international agencies and experts.

The seminar was part of a series of three events on investment and other new issues.  There was also a NGO workshop on 18-19 March and a visit to delegations and a follow-up session for NGOs on 21 March.

Below is a brief report on some highlights of the 20 March seminar, as well as the conclusions presented at the end of the seminar.

With best wishes

Martin Khor

Director, Third World Network

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WTO IS THE WRONG VENUE FOR INVESTMENT NEGOTIATIONS

Report of the Seminar on the Nature and Implications of a WTO Investment Agreement

Held in Geneva on 20 March 2003

A Third World Network Report

25 March 2003

The World Trade Organisation is the wrong venue for any negotiations on a multilateral investment framework (MIF) because the outcome would be imbalanced and against the interests of developing countries.

This was the conclusion of a majority of participants at a seminar held in Geneva last Thursday on the Nature and Implications of a WTO Investment Agreement.

The meeting heard presentations from Ambassadors from three developing countries (India, Kenya and Uganda), diplomats representing the European Communities and the United States, scholars and experts on investment issues, and representatives of a wide range of civil society organizations.

The seminar was jointly organized by the Third World Network, Oxfam International, Worldwide Fund for Nature, Public Services International, Centre for International Environmental Law (CIEL) and the Institute for Agriculture and Trade Policy.

Ambassador Mrs. Amina Mohamed of Kenya told the seminar that a large number of developing countries are opposed to starting negotiations on investment and other “new issues” in the WTO.  “There is a lack of capacity of developing countries to negotiate these issues, the Doha work programme is overwhelming, there is a lack of human resources.  It’s a majority of developing countries that are opposed to the new issues.”  When asked by a participant if her country was in favour of starting negotiations on investment and the other Singapore issues in Cancun, she replied:  “No. Absolutely no.”

Ambassador Mr. Nathan Irumba of Uganda said that instead of starting investment negotiations, the WTO should get back to work on its basic issue of trade and it should not expand its remit beyond trade.  As long as it tries to expand its remit, it will be controversial.   He added that if developing countries sign on to new agreements on the new issues, they would bind future generations and not allow them the flexibility to review and reverse the policies.

Ambassador Mr. K.M. Chadrasekhar of India said his country was not convinced that a WTO investment agreement would be positive for investment flows or beneficial for developing countries, nor that the latest proposals from the agreement’s advocates offer the required policy flexibility.  Commitments in such an agreement could prove disastrous for developing countries. Mr. Chandrasekhar added there were many areas of serious contention in the present discussions and no likelihood of consensus.  The WTO is the wrong forum to discuss investment issues, and at the Cancun Ministerial, the WTO should decide to drop further discussions on investment.

The EC representative, Mr. Fabien Delcroz, said the EC proposal was very modest and would not affect national policy space or prevent governments from regulating investments.  The EC’s emphasis, he said, was greater transparency.  The WTO, he added, is the only efficient forum for developing countries as the weak could protect themselves against the strong.  He agreed with many of the NGOs that there should be rules on corporate responsibility to frame the power of the TNCs, but he said the WTO is the wrong place for such rules.

The US representative, Mr. William Tagliani, argued against giving too much policy space to countries as such space can have negative effects such as corruption.  For example, if flexibilities are given by an investment agreement to countries to give subsidies or to allow some kinds of investment but not others, there would be a temptation to buy influence and this leads to corruption.   Governments also do not have the skills to “pick winners” in an industrial policy.  He said the US was not so keen on WTO negotiations in WTO as the outcome would be less impressive than in bilateral free trade agreements.

Several NGO representatives spoke on why they were against the WTO having negotiations on investment.   They spoke from various perspectives: development   (Tetteh Hormeku of African Trade Network and Marita Hutjes of Oxfam); gender (Mariama Williams of DAWN and IGTN); environment (Aimee Gonzales of WWF) human rights (Peter Prove of the Lutheran World Federation); labour rights (Peter Rossman of the IUF) and a European view (Peter Fuchs of WEED and S2B network).

NGO panel speakers also responded to the points made by the government delegates.  In particular, they countered the EC position that the proposed investment rules did not affect national policy space or flexibility.

Stephen Porter of CIEL said the proposed investment rules are designed to limit what governments can do.  The disciplines are imposed not on investors but governments and absolutely limit the policy space of governments to regulate.  The rules are designed to protect investors from governments. Just because the WTO has a strong dispute settlement system does not mean we should put investment and everything else in the WTO.

Peter Hardstaff of World Development Movement (UK) citicised the EC position that an approach to investment rules that were based on the model of GATS (the General Agreement on Trade in Services) would provide the needed policy space for developing countries.  That GATS provides flexibility is a myth. The agreement itself is riddled with uncertainty, and it is impossible to provide flexibility when it is unclear what the rules are.  Also, once a sectoral commitment is made, it cannot be reversed.  The Gats style approach actually reduces flexibility and does not guarantee what the developing countries need.

Cecilia Oh of Third World Network disagreed with the EC delegate that the EC proposals offered sufficient flexibility to developing countries.  The “minimal rules” proposed by the EC for liberalization based on most-favoured-nation and national treatment had already caused serious problems in non-trade areas such as intellectual property and services, and would similarly cause problems if applied to investment in the WTO and would erode the policy space needed by developing countries.  The EC’s motive seemed to be to promote the interests of the TNCs by removing barriers and giving them greater property rights.

Earlier, a panel of experts presented their views on the nature of foreign investment and the implications of an investment agreement in WTO.  The director of UNCTAD’s Division on Globalisation and Development Strategies, Dr. Yilmaz Akyuz, said investment is an area where there is asymmetry between developed and developing countries because of their different levels of development.  Unlike in trade where both are both exporters and importers, in investment the developing countries are mainly recipients.

Applying the national treatment principle to invcestment would create difficulties, including countries losing their policy space.  It is also hard to design a liberal regime for foreign investment without losing control also over other types of capital flows, including short-term flows and portfolio investment.

Prof. Ha-Joon Chang of Cambridge University’s Economics Faculty gave several examples of how the industrial countries had made use of several policy tools to restrict the entry and operation of foreign investors and investments when they were at the stage of development.  Such policies, including performance requirements, are needed by developing countries today just as they were once used by the now rich countries to develop.  He said the proposals by the industrial countries for an investment agreement in the WTO are highly problematic.  “By imposing conditions on governments it will damage the development prospects of developing countries and be lethal to economic development.”

According to independent consultant David Woodward, there is a serious danger and great possibility that foreign direct investment, if unregulated, would lead developing countries into a debt trap.  The high rate of return of FDI (much higher than on loans) and its high import content causes it to  have a significant negative balance of payments effect which can only be offset adequately if there are regulations that create enough counterbalancing positive effects.  He said that an investment agreement in the WTO would remove governments’s ability to have prudent management of FDI, and there is a likelihood this would lead to major financial crises.

CONCLUSIONS OF SEMINAR

In the closing session, Martin Khor, director of Third World Network summed up the seminar conclusions on behalf of the organizers.  His concluding statement is as follows:

Participants of the seminar were of the view that while foreign investment can contribute to growth, there is no automatic relation between foreign investment and growth, and its positive contribution depends on the quality of investment and conditions of the host country.

There can be many cases where foreign investment does not contribute but can damage growth and development, as when it contributes to balance of payments deficit, foreign exchange drain and financial crises.

The distinction between FDI and short-term flows and portfolio investment is not clear. Thus even a regime to liberalise only FDI can easily also cause capital account liberalization (ie of short term and portfolio flows).  It is thus hard to predict what happens when foreign investment is deregulated.

Given this, countries should regulate FDI within a strong and sophisticated framework of policies.  History shows that industrial countries and successful developing countries managed, regulated and controlled foreign investment regarding the treatment of different types of investment, entry and conditions for entry, limits to the extent of ownership and control, transfer of funds, the imposition of performance requirements, technology transfer, etc.

Developing countries today should be allowed the same freedom to choose policy instruments for regulating investment, in order to avoid problems and crises and to promote good results for FDI.

In discussing the proposals for a MIF, the seminar noted a long history of proponents promoting the same goals:  the foreign investor’s right to establishment, principles of non discrimination (MFN and national treatment), restrictions on performance requirements, rights of investors to free transfer of funds, and compensation for expropriation, with a strong dispute settlement system to enforce the rules.

There was a debate on the models being proposed and the scope they allowed for flexibility.  The EC stressed it had low ambition regarding the agreement’s standards (although it is noted they have very high ambitions for moving on to negotiations).  At the seminar it stressed mainly transparency aspects, and that countries have the absoluzte right to regulate and have policy space.

However there were many counter arguments in responses to this.   The Indian Ambassador said the GATS type model is still restricting policy space, while World Development Movement said the GATS experience shows how difficult it is to provide flexible space and how such space is also eroded.  It would set the scene for binding liberalization and market access with irreversibility.  TWN had also pointed out that the EC papers stressed non-discrimination applied to both pre and post establishment phases.

There are also proposals from the advocates for strengthening investors’ rights regarding transfer of funds, compensation for expropriation and standards for treatment, to be included in a MIF.

The US had stressed its preference for a high standard agreement, as seen in its paper on scope and definition, and in its statement at the seminar that it was against granting policy space or flexibility.

Many NGOs voiced their concerns. They felt that the core aspects of the old investment proposals regarding an MAI were still being advocated in the WTO, although sometimes in different terms or extent.  They were concerned from the viewpoints of development, poverty eradication, sovereignty, gender equity, labour rights, human rights and the environment.

In particular, participants were concerned that the WTO’s non-discrimination principle is problematic especially when applied to non trade issues like TRIPS and services, and now to investment and other new issues.  It was stressed during the seminar that non-discrimination in the human rights context meant that the weak has the right to be protected through positive discriminatory affirmative action measures, which is opposite to non-discrimination in WTO where the big foreign investor has to be given equal or better treatment vis-à-vis the weak local firms.

Regarding whether or not we are for global rules on investment, some participants said global rules are good generally and this should apply also to investment and in the WTO because of its enforcement capability.  However many others said global rules are good only when they are fair and lead to good outcomes.

An investment agreement can be good if it is aimed at regulating investments, obliging companies to be accountable, responsible and subjected to host country policies and sovereignty.  But the proposed investment agreement is the opposite as it intends to regulate governments, not investrors, and prevents the government regulation of investors.

If negotiations begin in the WTO, it would most likely lead to this kind of investment agreement because of the principles of liberalization, market access and national treatment.  Thus the WTO is the wrong venue for negotiations on investment.  And its dispute settlement system is a minus point, not a plus point, as it would strongly enforce imbalanced and damaging rules.

It can be seen that the WTO is also the wrong venue because of the unwillingness of the strong Members to accept a balanced agreement in the WTO.  This is evidenced by the statement during the seminar from the EC that although there is a case for global rules to hold companies accountable, the WTO is the wrong place for this.  This implies that it would not be possible to have a balanced agreement within the WTO, as the obligations of companies would not be considered there.

The seminar heard from developing country diplomats that although they welcome FDI. It is just as important to be able to regulate FDI.  They are skeptical of the value of a MIF.  More than that, they are worried of the damage that can result if commitments on liberalization and national treatment in the agreement lock countries into policies that are damaging to their development.

Finally, more than 50 NGOs have issued a joint statement calling for the explicit rejection of the launch of negotiations on investment and other Singapore issues at the WTO Ministerial conference in Cancun.

The seminar also heard strong calls for transparency in the WTO process towards and at Cancun, with clear rules for developing country Members to exercise their right to participate and take part in decision-making, especially on whether negotiations on investment and other new issues are to begin.

In conclusion, the seminar has been very useful for clarifying the issues, and for giving NGO representatives and government delegations the opportunity to dialogue and exchange views.  Thanks are due to the speakers, the participants and the staff and volunteer who have worked very hard.

 


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