TWN Info Service on WTO Issues (June 03/5)

13 June 2003

Dear friends and collegues,


A media conference was held in Geneva on 10 June, during which four NGO representatives voiced their concerns and opposition to proposals to begin negotiations for an investment agreement in the WTO.

Actionaid released its new report “Unlimited Companies”.  Three other organisations—International Union of Foodworkers, CIEL and TWN—also spoke.

The media conference took place just as the WTO Working Group on Trade and Investment were convening for the its last meeting before the Cancun Ministerial conference.

Below is a report by Kanaga Raja on the media conference.  The report was published in the South-North Development Minitor (SUNS) of 11 June 2003.

With best wishes

Martin Khor

Third World Network




A new global investment agreement proposed for negotiations at the WTO could inflict lasting damage on the livelihoods of poor people in developing countries, says a new report by the UK-based development agency ActionAid.

In its report “Unlimited Companies” released here Tuesday, ActionAid said that an investment agreement at the WTO would carry huge risks for the world’s poorest people and called on the EU to drop its insistence on such an agreement.

It also recommended that in the run-up to the Cancun Ministerial, developed countries should not attempt to persuade developing countries to trade off their interests with regards to investment in the hope of gaining in other areas such as agriculture.

Instead of a WTO investment agreement,  the international community should support the establishment of a binding international regulatory framework on multinational corporations, outside the WTO, that will strengthen the ability of developing countries to manage foreign investment to benefit the poor.

The ActionAid report was released just as the WTO Working Group on the Relationship between Trade and Investment (WGTI) is holding its final meeting here on 10-12 June before the 5th Ministerial in Cancun.

At a press briefing on 10 June, three other other non-governmental organizations   Third World Network, the Center for International Environmental Law (CIEL) and the International Union of Foodworkers joined ActionAid in calling for a stop to efforts and pressures towards a WTO investment agreement.

According to the NGOs, the WTO members have been divided in their views on virtually every issue that has been discussed at the WGTI.  They said that it was clear that no consensus exists on if or how to approach the issueof whether to begin negotiations on investment.

Steve Porter, lead attorney for CIEL, said, “At the beginning of the final scheduled meeting of the WGTI, we are of the view that in moving towards Cancun, there does not appear to be any consensus, let alone an explicit consensus, on how to move forward on investment negotiations at the WTO.”

Peter Rossman of the International Union of Foodworkers, representing 12 million workers in 142 countries, said that in the international labour movement there is a divergence of views on the inclusion of an investment agreement at the WTO but a consensus exists that the current proposals within the current framework at the WTO must be opposed.

Rossman explained that many global trade unions under the Global Unions Group, had taken a joint position that investment agreements should exclude provisions on expropriation and national treatment as they limit the scope to pursue development strategies.  “The current proposals at WTO fall far short.  As things stand, we cannot support trade ministers in Cancun giving a green light to commencement of negotiations on investment at the WTO.”

Goh Chien Yen of the Malaysia-based Third World Network said that NGOs around the world have been voicing their demand that negotiations on investment not begin in the WTO.  He said that at the discussions in the WGTI, it was clear that there has not been agreement among the WTO members, nor has the “clarification of issues” mandated at Doha been adequately carried out.

This lack of agreement applies to all the issues, including on scope and definition of investment;  whether the non-discrimination principle should apply in investment, development considerations; and how disputes should be settled.

Since this is the final meeting of the WGTI before Cancun, it is important to recognise that there is a lack of convergence of views on these different elements of a potential investment agreement and  that insufficient work has been done on the implications for developing countries.

He highlighted a divergence of opinion even on the most crucial issues of scope and definition.  Some developed countries have been asking for a very broad definition that includes not only FDI but also portfolio investment, whereas the developing countries have been demanding that the definition be kept narrow.  Given the experience of developing countries with financial instability, a very broad definition of foreign investment could lead to financial difficulties in these economies.

Many countries have questioned whether the WTO is an appropriate forum for an investment agreement.  They have argued that the application of the WTO principles of  national treatment and MFN may be useful for trade in goods, but is inappropriate and should not be extended to investment which is a different entity altogether.

He pointed out another area of disagreement:  some countries like India, Pakistan, Kenya, and China have proposed that the discussions should cover the obligations of foreign investors and their  home governments, but this has been rejected by developed countries on the basis that this is not part of the clarification process.

Given the present state of disagreements, there is simply no basis for a decision to be taken by explicit consensus in  Cancun to start negotiations on a prospective investment agreement” Goh maintained.

John Hilary of ActionAid,  the author of “Unlimited Companies”, said that the report is based on new case studies from a range of countries around the world, including Uganda, Haiti, Thailand, Mozambique, South Africa, India and Brazil.

He said foreign investment can be a powerful force for good, citing clothing factories in Bangladesh, China, Cambodia and Lesotho where investment has created meaningful developmental change by providing jobs, particularly for poor women.

On the other side however, Hilary said, “we are equally struck from research around the world of examples where foreign investment had not been a force for development or a force for good.”

The ActionAid report says that the case studies examined demonstrate that foreign investment can also cause great damage to the rights and livelihoods of vulnerable communities, for example, in Brazil, Uganda, Haiti, Thailand and India.

In Thailand, a Udon Thani concession to mine potash in a 85,000 hectare area that was granted to a Canadian-based company Asia Pacific Resources has raised fears among villagers and experts over the local environment (the mine is expected to generate about 20 million tonnes of salt waste) and on the rice crop on which 32,000 people depend.

In Plachimada, in Kerala state, India, a Coca-Cola bottling plant was set up in 1998. Coca-Cola’s average extraction of 350,000 litres of water per day from its new deep wells has severely depleted the local communities’ water table, leaving villagers with acute water shortages and environmental contamination, the report points out.

In Brazil, meanwhile, 90% of the corn seed market has been taken over by 4 multinationals, with 60% of the market controlled by Monsanto alone.  Similarly, in its dairy sector, Nestle and Parmalat control more than 50% of the market in the late 1990s. In Minas Gerais state, prices fell by 50% and 70,000 poor producers had to stop supplying the largest companies between 1996 and 2002.

Hilary said that these examples are “on top of what we already know of the economic risks of foreign investment particularly where you have local producers who are exposed to competition from far greater multinationals.”

“At the macroeconomic level, if China is taken out of the equation, over half of all foreign investment to developing countries is not ‘greenfield’ investment i.e. most productive new plants, but are in the form of mergers and acquisitions.”

“We believe that the multilateral investment agreement that is proposed by the EU, Japan, Korea and others threatens developing countries, particularly the poorest communities in those countries, because it risks having further liberalization of investment in the same way we have seen in the damaging case studies in the report.”

Hilary highlighted two threats arising from this agreement.  Firstly, it threatens to open up the sensitive sectors of the economy that have been deliberately kept closed such as agriculture in Thailand, India and Ethiopia, and particularly in terms of food security.

The second threat comes in areas that are already open to foreign investment because the policies that developing countries use to maximize the development benefits of investment could well come  under attack, as has been seen in services liberalisation under the GATS.

Pro-development policies taken by developing countries such as joint venture requirements or equity caps on investors coming into the country as well as performance requirements can come under thereat at the WTO.

The ActionAid report reiterates that one lesson from the GATS negotiations is that developing countries can indeed be pressurised to open up new markets to foreign investors, even when it is not in their interest to do so.

Another lesson from the GATS is that even though key WTO members may try to protect key development policies by registering them as limitations to their liberalization commitments, those policies are targeted for removal by other countries in negotiations at the WTO.

Developing countries have had their key development policies targeted for removal by other countries in the current round of GATS negotiations, including joint venture requirements and equity caps in countries such as Indonesia, Pakistan, and Thailand, among others.

The report also counters the EU claim that an investment agreement at the WTO will be in the best interests of developing countries.  This claim does not stand up to examination, as the proposed agreement will not increase investment flows; the WTO principle of non-discrimination or national treatment is not development friendly; developing countries will be overburdened with another set of complex negotiations on top of the Doha work programme; and the proposed agreement does not address the needs of poor communities.

Note:  This article was published in the South-North Development Monitor (SUNS), 11 June 2003.