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TWN Info Service on WTO Issues  (June03/4)

Third World Network

Geneva 12 June 2003

Dear friends and colleagues

INVESTMENT WORKING GROUP MEETING (10-11 JUNE):

MANY DEVELOPING COUNTRIES DON’T WANT TO START INVESTMENT NEGOTIATIONS

The WTO’s Working Group on Trade and Investment (WGTI) met on 10-11 June for the scheduled last time before the Cancun Ministerial Conference.

The highlight of the meeting was the presentation of a paper by Canada, South Korea and Costa Rica, advocating that a decision be taken to start negotiations on an investment agreement

However, several developing countries responded that there were many issues that were unresolved and that they did not agree that negotiations should begin.

Thus the WTO members split on the issue of whether the Cancun Conference should launch negotiations on investment.

Another major development is the establishment of a new process in which the Chair of the General Council hold “informal consultations” on the Singapore issues.  He will be assisted by “Friends of the Chair” comprising the chairpersons of the working groups for the four Singapore issues, including investment.  This development was announced to the WGTI by its chairperson, the Brazilian Ambassador, at the end of the meeting.  The aim of the consultations is to determine whether the General Council can make recommendations to the Fifth Ministerial Conference regarding the Singapore issues.

Some developing country delegates have already expressed concern that taking the process out of the WGTI could result in a neat sidestepping of the problem of divergent views that would be reflected in the draft report of the WGTI.

Below is a report by Cecilia Oh on the WGTI meeting.  We hope it is useful to you.  More information can be found on www.twnside.org.sg.

With best wishes

Martin Khor

Third World Network

MANY DEVELOPING COUNTRIES DON’T WANT

TO START INVESTMENT NEGOTIATIONS

Report by Cecilia Oh, Third World Network

Geneva 11 June 2003

1.   Introduction

Developing countries remain unconvinced that an investment agreement in the WTO will bring benefits for them. At the last scheduled meeting of the Working Group on the Relationship between Trade and Investment (WGTI) held on 10-11 June, a number of developing countries said they were not ready for negotiations to begin on a multilateral agreement on investment.

The developing countries were responding to a paper submitted to the WGTI by Canada, Costa Rica and Korea, which called on WTO Members to agree at Cancun to move on to the next phase; namely, negotiations for a WTO agreement on investment.

Although stating that “a multilateral framework for investment in the WTO would not guarantee greater investment flows”, the paper went on to say that failure to negotiate such an agreement would mean a missed opportunity to “shape the multilateral environment in which international investment can contribute to the development prospects of all our citizens”.

In response, it was reported that at least two developing countries in the WGTI asked the question: “If a multilateral agreement on investment does not guarantee greater investment flow, why should we agree to one?”

This is a question that has often been put forward by developing countries for an answer from the proponents of a multilateral agreement on investment in the WTO.  It seems they have yet to be given a satisfactory answer. As Kenya said in the WGTI, “we are not convinced with the explanations given”.

2.   Clarification process not over, say developing countries

Many developing countries at the WGTI meeting also said they could not agree with the proposition that the clarification process in the WGTI is complete.

Canada, in introducing the paper, said that after seven years of work, the preparatory work in the WGTI was complete, and that “the negotiation of comprehensive investment rules in the WTO was overdue”.

According to Canada, the WGTI has considered and discussed well over fifty submissions from Members, international organizations, and the Secretariat (including reports to Council), amounting to many hundreds of pages of documentation which covered not only all the issues that the Group had been asked to cover, but additional issues as well.  Thus, the sponsors of the paper said that they now find themselves ready to proceed to the next phase of work:  negotiations on a multilateral framework for investment within the WTO. The sponsors also envisaged that such negotiations would ultimately be part of a single undertaking associated with WTO agreements as a whole.

The paper further said that a WTO investment framework should reflect in a balanced manner the interests of home and host countries, and take due account of the development policies and objectives of host governments as well as their right to regulate in the public interest.  The special development, trade and financial needs of developing and least-developed countries should be taken into account as an integral part of any framework, which should enable Members to undertake any obligations and commitments commensurate with their individual needs and circumstances.  In its response, China said that the paper made a number of bold assumptions and hasty generalizations. China maintained its view that the work of the WGTI was far from complete, since there was still no agreement on definition, scope and many other issues. India supported China’s position that the work in the WGTI was far from complete.

Kenya also shared this view, stating that, “the clarification of elements contained in paragraph 22 of Doha Declaration should lead to a convergence in understanding of the issues”. As far as his delegation was concerned, this convergence had not been achieved, he added.  The Kenya delegate also said that investment was a new issue and there was a need for full understanding of the development implications before negotiations began.  “We do not believe that the many questions that so far remain unanswered can be done so in a negotiating mode”, he said.

[The least-developed countries in the recently concluded Trade Ministers’ Meeting (May 31 - June 2, 2003) in Dhaka have also come to the same conclusion. The Dhaka Declaration makes it clear that the LDC group of countries does not envisage the start of negotiations on the investment issue at Cancun. Paragraph 29 of the Dhaka Declaration states as follows:

“Progress in the work in the WGTI clearly indicates that there would be no agreement between now and Cancun on any of the elements outlined in the Doha Declaration”. Paragraph 30 then recommends that “the WGTI should continue work on the issues referred to in Paragraph 22 of the Doha Ministerial Declaration, including studies on whether and how any multilateral investment agreement would facilitate flows of FDI or improve its quality in LDCs”.]

India also challenged the assumption made in the paper that negotiations will be launched at Cancun. India said this was not a correct assumption, reminding the WGTI that at Doha, the Chairman set the precondition of “explicit consensus” for negotiations to begin.

Indonesia said that the WGTI discussions have brought to the fore the fact that there were many divergent views on this issue. Thus, it would not be proper to begin negotiations. The Indonesian delegate said, “time is not ripe to begin negotiations”. He also said the investment issue was a complex one, which would require more study, especially with regard to its implications for developing countries.

Both Indonesia and India in their statements also stressed the point that there were still divergences of view even on the fundamental point of whether the investment issue should be located in the WTO. Indonesia said that the investment issue was beyond the scope of the WTO, while the Indian delegate said that he did not think that investment was part of the core competence of the WTO.

In its response, Malaysia said that active discussions in the WGTI did not mean that Members were ready for negotiations. The Malaysian delegate reiterated the importance of policy space in the area of investment for many developing countries, and said that the costs would outweigh the benefits for developing countries in a multilateral investment agreement.

Developing countries were also not convinced that their concerns and special needs would be adequately addressed in an investment agreement. Thailand said that while it kept an open mind about the negotiations, it was very disappointed with proposals on the table. Technical assistance is not enough, Thailand said, special provisions for developing countries should also be built into any agreement. It said developing countries should be allowed to attach conditions to investments.

The Kenyan delegate said that statements of good intention are often heard, for example, on provision of technical assistance and capacity building; appropriate flexibility for developing and least developing countries and that the development interests of developing and least developed countries will be fully taken into account as an inducement to start negotiations in this area. However, for Kenya, technical assistance and capacity building should be aimed at achieving sufficient convergence in understanding of the issues involved before we enter into negotiations. He added:  “We also need to clearly know how the interests of developing and least developed countries will be taken into account before we start negotiations and not just statements of good intention”.

3.   Advocates’ view on the purpose of a WTO investment agreement

In their paper, Canada, Costa Rica and Korea said that a WTO agreement on investment could complement the already existing large network of bilateral investment agreements. While the relationship investment agreements and investment flows, or investment agreements and trade flows is arguably more complex than that of trade rules and trade flows, it cannot be denied that these relationships exist, or that they would not benefit from clear rules at the multilateral level.

Furthermore, the three countries argue, as countries seek to diversify their sources of, and destinations for, international investment, a multilateral framework is best suited to complement the large but less than universal network of bilateral and regional agreements that already exists.

The paper received support from the major developed countries in terms of the principal message: that negotiations should be launched on investment at Cancun. The US, EC and Japan were in favour of launching negotiations on the investment.

The US supported this proposition, and also agreed with the paper in saying that failure to negotiate an investment agreement would mean that WTO will miss out on the opportunity to shape the international environment for investment. For the US, an investment agreement that will translate bilateral agreements into the multilateral context, will reassure investors, leading to more investment and greater industrial growth.

The EU also said it was in agreement with much of the paper’s content. It said that the mandate of the Group is to clarify issues, not agree on them.  Japan said that divergent views and concerns should be addressed in the negotiations, and looked forward to active participation of developing countries.

Chile was also of the view that negotiations should be launched in Cancun under the single undertaking. Although it has investment provisions in its bilateral agreements, Chile said this was not enough. Multilateral rules, it said, would mean all members would benefit. Other Members speaking in support of launching negotiations at Cancun were Hungary, Norway, Chinese Taipei, Switzerland, Australia and Hong Kong.

4.   New development:  “Friends of the Chair” to help process

The WGTI was to meet on Tuesday 11 June to discuss the draft report of the WGTI, in preparation for the Cancun Conference. However, the consideration of the draft report of the working group was brief.  It was decided that Members should provide their comments on the draft to the Chair by June 18, so that a final draft could be prepared for adoption by the end of the month. If there was need for further clarification or changes, a final meeting of the Working Group could be held to discuss them.

In his concluding remarks, the WGTI Chair, Ambassador Luiz Felipe de Seixas Corrêa of Brazil, also said that an informal meeting of heads of delegations on 6 June had agreed that the Chair of the General Council is to hold informal consultations on the Singapore issues. In this process of consultations, he will be assisted by “Friends of the Chair”; namely the chairpersons of the four Singapore working groups. The aim of the consultation is to determine whether the General Council can make recommendations to the Fifth Ministerial Conference regarding the Singapore issues. Ambassador Seixas Correa stressed that this process is completely outside the WGTI.

It is understood that each of the four chairs of the Working Groups will hold consultations with Members on an “open” mandate, meaning that they would not be bound by the clarification mandate of the Working Groups.

Some developing country delegates have expressed concern that taking the process out of the WGTI could result in a neat sidestepping of the problem of divergent views that would be reflected in the draft report. As one negotiator put it, “they will start discussing modalities in the General Council process and we will have to start all over again to make our views known”.

 


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