US opposed to investment facilitation discussions at G20

The US has come out against moves in the G20 major economies forum to draw up guidelines on “investment facilitation” – guidelines which could then presage discussions on the subject at the WTO.

by D. Ravi Kanth

GENEVA: Attempts to finalize a non-binding outcome on investment facilitation at a meeting of G20 officials in Berlin in May suffered a major setback after the United States vehemently opposed any discussion on investment at this juncture, trade envoys told the South-North Development Monitor (SUNS).

The US decision on the G20’s efforts to finalize the outcome is expected to severely undermine the ongoing attempts of eight G20 countries – Russia, Mexico, Indonesia, Turkey, Korea, Australia, China and Brazil – to start immediate discussion on investment facilitation at the World Trade Organization (WTO).

The eight countries, supported by major industrialized and some developing countries as well as the WTO secretariat, remain determined to launch negotiations on investment facilitation at the WTO’s eleventh Ministerial Conference, which will be held in Buenos Aires this December, several trade envoys told SUNS.

But, in an unexpected and sudden development, the US has dealt a blow to the G20’s efforts by issuing a terse communication to Germany on 11 April saying categorically that Germany must avoid discussing investment or any issue concerning investment at the meeting of the G20’s Trade and Investment Working Group (TIWG) in Berlin beginning on 4 May.

Germany, which will host the G20 leaders’ summit in early July, is currently preparing the draft deliverables, in which investment facilitation is a major issue along with digital trade.

In March, when the G20 sherpas discussed digital trade, India and South Africa opposed attempts by Canada and Australia to direct the WTO to discuss rules concerning electronic commerce.

Draft package

Ahead of the TIWG meeting on investment facilitation, Germany has issued a “draft investment facilitation package – G20 Investment Priorities.” The draft package, circulated on 29 March, says: “We reaffirm the Principles for Global Investment Policymaking endorsed in the Hangzhou communique and encourage policymakers to use them as reference and guidance.”

It maintains that “investment plays a central role in promoting inclusive economic growth and sustainable development through the creation of jobs and the dissemination of skills and technology.

“However, FDI [foreign direct investment] flows are volatile and not as strong as necessary to induce sufficient growth and achieve the United Nations Sustainable Development Goals by 2030.

“Therefore, we underline our continued determination to facilitate investment. We agree that investment policies should be transparent, efficient, predictable and consistent – also with international obligations.

“To maximize the beneficial impact of investment, we are committed to encouraging investment that is sustainable from an economic, social and environmental perspective and to promoting good corporate governance as well as responsible business conduct.”

In the German draft, endorsement of the “non-binding G20 Investment Facilitation Package” is sought as part of efforts “to complement the G20 Guiding Principles for Global Investment Policymaking and facilitate their implementation.” The package would include the following objectives:

(i) reaffirming and complementing the G20 Guiding Principles for Global Investment Policymaking;

(ii) fostering open and transparent business climates that are conducive to investment;

(iii) promoting inclusive economic growth, sustainable development and a level playing field for all investors, including small and medium-sized enterprises (SMEs).

To achieve these objectives, the draft has listed four actions for investment facilitation: (a) transparency; (b) predictability and consistency; (c) efficiency; and (d) stakeholder relations.

As part of transparency, the draft has suggested the need to promote accessibility and transparency of policies, regulations and procedures relevant to investors. Other elements of transparency include making “publicly available clear and up-to-date information on the investment regime including timely and relevant notice of changes in applicable standards, procedures, technical regulations and conformance requirements.”

It also calls for establishing enquiry or contact points for enquiries concerning investment policies and applications to invest and publishing outcomes of periodic reviews of the investment regime where they are undertaken.

As regards predictability and consistency, the German draft suggested elements as to how governments must “enhance predictability and consistency in the application of investment policies and other policies that have an impact on investment.”

Other elements include systematizing and institutionalizing common application of investment laws and regulations and bringing consistency of national policies with international obligations. It has also suggested harmonization of investment policies for providing “equal treatment in the application of laws and regulations on investment, and avoid[ing] discriminatory use of bureaucratic discretion.”

The draft raises the need for establishing clear and transparent procedures for administrative decisions affecting investments and also ensuring “access to effective, fair, open and transparent mechanisms for prevention and settlement of disputes.”

In relation to efficiency, the German draft has called for improving the efficiency and effectiveness of administrative procedures such as streamlining the process and shortening the processing time for application, registration, licensing and other investment-related administrative procedures, including, where appropriate, through the promotion of time-bound approval processes or no objections processes within defined time limits.

It has suggested the need to keep “costs to the investor relating to administrative procedures to a minimum” and also to simplify the process for connecting to essential services infrastructure.

Finally, it suggested building “constructive stakeholder relationships and engag[ing] the private sector in assessing de jure and de facto barriers to investment.”

The draft has also asked for establishing and maintaining “mechanisms for regular consultation and effective dialogue with investment stakeholders throughout the life-cycle of investments, including approval, impact assessment, operation and expansion stages, to identify and address issues encountered by investors and affected stakeholders.”

Germany maintained that “this investment facilitation package can serve as a reference for investment policymaking, in accordance with respective international commitments.”

More important, “it should also be considered in the context of the G20 development agenda and is without prejudice to government’s right to regulate for legitimate public policy purposes. It can serve as an inspiration for future – even more far-reaching – work on investment facilitation on a multi-, pluri- and bilateral level,” Germany argued.

US opposition

The broad coverage of objectives in the German draft went beyond the failed Multilateral Agreement on Investment in several aspects, said a trade envoy after reviewing the objectives. Perhaps in response to these wide-ranging and across-the-board objectives, the US issued its stern communication to Germany, the trade envoy said.

The US told Germany: “Regarding investment, the United States does not support moving forward with the draft deliverable or any alternative package on investment facilitation.”

Further, said the US, it “does not believe that G20 TIWG negotiation of detailed policy prescriptions in this area is necessary or helpful at this time, nor that the TIWG should seek to prioritize policy actions in certain areas of investment over others, including with respect to which issues should be on the agenda of separate bilateral, plurilateral, and multilateral negotiations.”

G20 guidelines, which remain non-binding on members, have often been sought to be used as a launching board for negotiations at the WTO.

Prior to the German draft, the WTO secretariat had made a “contribution” on investment facilitation at a TIWG meeting in February. The secretariat’s contribution included such points as “improving regulatory transparency,” “streamlining and speeding up administrative procedures,” and “encouraging international information sharing and cooperation.”

The secretariat had urged the G20 to identify “core investment facilitation principles” based on the G20 leaders’ communique from the Hangzhou summit last year on Guiding Principles for Global Investment Policymaking.

“Encourage a dialogue on trade and investment policy coherence among WTO Members – with a particular focus on how the multilateral trading system can contribute to facilitating investment flows,” the WTO secretariat emphasized.

The Hangzhou leaders’ communique includes the following non-binding principles for investment policymaking:

(i) Recognizing the critical role of investment as an engine of economic growth in the global economy, governments should avoid protectionism in relation to cross-border investment.

(ii) Investment policies should establish open, non-discriminatory, transparent and predictable conditions for investment.

(iii) Investment policies should provide legal certainty and strong protection to investors and investments, tangible and intangible, including access to effective mechanisms for the prevention and settlement of disputes, as well as to enforcement procedures.

(iv) Dispute settlement procedures should be fair, open and transparent, with appropriate safeguards to prevent abuse.

(v) Regulation relating to investment should be developed in a transparent manner with the opportunity for all stakeholders to participate, and embedded in an institutional framework based on the rule of law.

(vi) Investment policies and other policies that impact on investment should be coherent at both the national and international levels and aimed at fostering investment, consistent with the objectives of sustainable development and inclusive growth.

(vii) Governments reaffirm the right to regulate investment for legitimate public policy purposes.

(viii) Policies for investment promotion should, to maximize economic benefit, be effective and efficient, aimed at attracting and retaining investment.

(ix) Investment policies should promote and facilitate the observance by investors of international best practices and applicable instruments of responsible business conduct and corporate governance.

(x) The international community should continue to cooperate and engage in dialogue with a view to maintaining an open and conducive policy environment for investment, and to address shared investment policy challenges.

Against this backdrop, Russia and a group of five G20 countries – Mexico, Indonesia, Korea, Turkey and Australia (MIKTA) – circulated their respective proposals for discussing investment facilitation at the WTO without further delay. China and Brazil also shared their separate proposals on investment facilitation with selected countries. All four proposals include the elements outlined by the WTO secretariat.

Now, with the US having stated its position against discussing investment facilitation at the TIWG meeting in Berlin, it remains to be seen how Washington will respond to the Russian and MIKTA proposals when they come up for discussion at the WTO’s General Council in May. (SUNS8444)              

Third World Economics, Issue No. 637, 16-31 March 2017, pp2-4