MAI at WTO under new avatar of MIF?

Proposals have been hatched to launch discussions at the WTO on framing multilateral investment facilitation (MIF) rules, sparking concerns that the controversial Multilateral Agreement on Investment (MAI) could make a comeback in a different guise.

by D. Ravi Kanth

GENEVA: Russia, China and Brazil appear to have intensified efforts to resurrect the failed Multilateral Agreement on Investment (MAI) under a new avatar called multilateral investment facilitation (MIF) rules at the World Trade Organization.

The three are preparing the stage for launching negotiations at the WTO’s eleventh Ministerial Conference, which is to be held in Buenos Aires in December, several trade envoys told the South-North Development Monitor (SUNS).

Almost 20 years ago, negotiations on the MAI, which were launched by the United States and other dominant members of the rich-country grouping Organization for Economic Cooperation and Development (OECD), collapsed in the face of worldwide protests from non-governmental organizations spearheaded by, among others, Third World Network.

Despite intense opposition to the investment facilitation initiative from India and South Africa at the G20 sherpas meeting in Berlin in March, their fellow members of the BRICS grouping Russia, China and Brazil have now decided to break ranks on this issue.

Clearly, the three BRICS members seem to have used India’s proposal for starting WTO negotiations on trade facilitation in services (TFS) as a basis for their own proposals on MIF.

Significantly, Russia, China and Brazil took the mantle from their industrialized-country counterparts at the WTO to set the stage for robust discussions on MIF rules.

China and Brazil are yet to formally submit their proposals on MIF rules but they shared informally with several countries their proposed elements for discussion, according to trade envoys who reviewed the two proposals.

Russia, however, fired the first salvo by tabling a three-page restricted proposal titled “Investment Policy Discussion Group” to the WTO General Council on 31 March.

Russian proposal

The Russian proposal, almost modelled on the lines of the Indian TFS proposal, argues that WTO members have already undertaken commitments concerning foreign investment under Mode 3 of the General Agreement on Trade in Services (GATS).

It says that “as a general rule, national legal frameworks of WTO members do not differentiate between treatment of investments in services or non-service sectors” – suggesting that “basic laws governing establishment or activity of a juridical person do not depend on the specific sectors of economy where such establishment or activity takes place.”

Citing the OECD Code of Liberalization of Capital Movement which “established a single set of basic rules for FDI [foreign direct investment] irrespective of the sector of economy they were made in,” Russia says WTO members have used the OECD code in their bilateral investment agreements and free trade agreements that include disciplines for different aspects of investment facilitation.

Therefore, Russia argues, the time has come for incorporating multilateral investment facilitation rules in the WTO rulebook to improve the “investment climate.” Such rules, it is claimed, will increase “efficiency for both investors and recipient economies.”

Russia has, however, adopted the ruse that the proposed discussions on MIF rules “are not intended to cover such issues as market access and treatment of investments, as well as expropriation and investor-state dispute settlement.”

However, everyone knows that such negotiations, once they start at the WTO, assume a life of their own down a slippery slope, said a developing-country trade envoy who asked not to be quoted.

Against this backdrop, Russia wants members to discuss several issues that would pave the way for “multilateral disciplines” on investment facilitation. It says the MIF rules must remain “comprehensive” in scope, covering a priori all types of goods, traded services or intellectual property rights for investments.

The MIF rules, according to Russia, must aim at bringing about “a transparent, stable and predictable regulatory and administrative framework for investors, without questioning the rights of the members to regulate and without interfering with their policies of protection of investments, including issues of nationalization, expropriation and compensation for losses.”

In reality though, WTO rules become a handle for powerful members such as the US, the European Union and others to exert pressure through the backdoor to accomplish their goals, as demonstrated in the implementation of the WTO agreements on services and intellectual property, several trade envoys said.

“Major elements”

Russia has outlined two “major elements” relating to “transparency” and “domestic regulation” that must remain as the scaffolding for “future investment-related arrangements.”

With regard to transparency, Russia wants members to ensure that the MIF rules include “provisions that provide for transparency for relevant regulations concerning investments, as well as elements that ensure that such regulations provide a stable and predictable environment for investments.”

The elements for domestic regulation of investments, according to the Russian proposal, must lead to “streamlining and simplification of procedures.”

It calls on members to discuss the following procedures:

(i)    Procedures and requirements for obtaining necessary permits: The rules should ensure that procedures and requirements for obtaining necessary permits are reasonable and that all relevant information, including exhaustive lists of requirements, is publicly accessible;

(ii)   Fees and charges: The rules should ensure that information on fees and charges is publicly available, including information on the reason for such fees and charges, the responsible authority and when and how payment is made; and that such fees and charges are commensurate with the costs of services rendered by such authority;

(iii)   Timeframe for administrative actions: The rules should ensure that information on timeframes for administrative actions is publicly available and that such timeframes are reasonable and predictable;

(iv)   Dispute prevention and resolution: The rules should include provisions that are aimed at the prevention and amicable resolution of investment-related disputes by availing the investor to refer to judicial, arbitral or administrative tribunals or procedures existing within a member jurisdiction;

(v)     Disclosure of confidential information: Members should reserve the right to refrain from disclosing sensitive information;

(vi)   Single window mechanisms: The rules should encourage the creation of single window mechanisms for investments and include provisions prohibiting authorities from requesting information already submitted by an investor through a single window mechanism;

(vii)  Electronic procedures and online services: The rules should include provisions for adopting or maintaining electronic procedures and online services;

(viii) Penalties: The rules should include disciplines on the imposition of penalties for a breach of regulation concerning investment.

In addition to these particular procedures, Russia wants “government-investor feedback elements” such as mechanisms that enable investors to provide feedback to governments, and “self-assessment mechanisms for members to self-assess their ability to implement the rules.”

Finally, the Russian proposal brings in the issue of market access somewhat surreptitiously as “basis for future market access and treatment disciplines.” “The rules should include elements for their future development and expansion to regulating market access and treatment for investments,” Russia has emphasized.

To appease the developing countries, Russia has also included elements of special and differential treatment by taking the level of development and development needs into consideration.

It has called on members to discuss the following three issues:

(i)      Examine relevant recent international investment-related disciplines and share experience regarding national policies and legal frameworks;

(ii)    Examine the relation between the WTO legal framework and national legislation as well as international arrangements among members;

(iii)   Explore possibilities to strengthen WTO disciplines.

The investment issue in the WTO

In short, the issue of trade and investment has staged a comeback at the WTO, ostensibly to help investors. The return, following several setbacks, is due to sustained attempts by industrialized countries and their new partners such as Russia, China and Brazil.

The chequered history of the issue started when the EU and several other countries brought in investment as part of the controversial “Singapore issues” at the WTO’s first Ministerial Conference, held in Singapore in 1996.

The other three Singapore issues were trade and competition policy, government procurement, and trade facilitation.

The four issues, despite massive opposition from developing countries, found their way into the WTO’s Doha Work Programme launched at the Doha Ministerial Conference in 2001. However, developing countries managed to ensure that negotiations on the four issues would only commence at the WTO’s 2003 Ministerial Conference subject to “explicit consensus” among all members.

At the 2003 meeting, which took place in Cancun, Mexico, the then EU Trade Commissioner Pascal Lamy faced intense opposition from a coalition of developing countries led by Malaysia and India when discussion commenced on the Singapore issues. In the face of sustained opposition, Lamy started withdrawing one after another of the four issues. He encountered opposition even on the fourth issue of trade facilitation, by when the meeting was abruptly terminated by the Mexican host.

Subsequently, Lamy and his counterpart from Washington, US Trade Representative Robert Zoellick, managed to retrieve one issue – trade facilitation – at the meeting of trade ministers who finalized the 2004 July Framework agreement. The US and the EU promised that they would address all the issues in the Doha Work Programme based on the development dimension in return for bringing trade facilitation back into the overall negotiations.

However, during the negotiations on all issues of the Doha Work Programme between 2005 and 2008, the US created several roadblocks to paralyze the talks while ensuring that negotiations on trade facilitation continued uninterrupted.

With effective assistance from successive Directors-General of the WTO, particularly the current head Roberto Azevedo, according to trade ministers and envoys, the US along with the EU and other industrialized countries achieved their goal of a binding agreement on trade facilitation at the WTO’s Ministerial Conference in Bali, Indonesia, in 2013.

After bagging the trade facilitation agreement, the US simply walked away from addressing the remaining core developmental issues in the Doha Work Programme and eventually, with its supporters, atrophied the Doha Development Agenda (DDA) negotiations in 2015 at the WTO’s tenth Ministerial Conference in Nairobi, according to people who took part in the meeting.

In a nutshell, the developing countries, which seem fragmented and splintered, will find it difficult to stop the onward march of investment facilitation rules at the coming Buenos Aires meeting, unless they remain solidly united behind their DDA issues, several trade envoys said.

Of course, much would also depend on what the US proposes to do in relation to investment facilitation rules, particularly given the Trump administration’s aversion to multilateral agreements, trade envoys said. (SUNS8436)                                           

Third World Economics, Issue No. 636, 1-15 March 2017, pp2-3, 16