Large majority of South nations opposed to investment facilitation

Proposals for launching investment facilitation talks in the WTO have met with strong resistance from many developing countries.

by D. Ravi Kanth

GENEVA: A large majority of developing and least-developed countries, including India and South Africa, remain firmly opposed to attempts by Russia, China, Brazil and five members of the MIKTA – Mexico, Indonesia, Korea, Turkey and Australia – group to start discussions on investment facilitation at the WTO, trade envoys told the South-North Development Monitor (SUNS).

Russia, China, Brazil and the MIKTA coalition, along with the traditional supporters of investment such as the European Union, Japan, Switzerland, Norway, Canada, Singapore, New Zealand and Hong Kong-China, want to target investment and electronic commerce as two major deliverables for the WTO’s Ministerial Conference in Buenos Aires later this year, according to several trade envoys who asked not to be quoted.

Significantly, the push for investment – which follows failed efforts in previous years to craft a Multilateral Agreement on Investment (MAI) and to include investment in the ambit of the WTO’s Doha Work Programme – is not spearheaded by the traditional proponents such as the EU, Japan, South Korea, Switzerland and Canada.

Instead, ironically, the latest move for investment facilitation – which is a softer version of the MAI that was sought to be finalized at the Paris-based Organization for Economic Cooperation and Development (OECD) in 1995-98 – is coming from countries such as China and Brazil.

These two major developing countries had aligned with other developing countries at the WTO’s fifth Ministerial Conference in Cancun in 2003 to call for a developmental negotiating agenda in which agriculture was at the core of the outcomes as opposed to investment and the other so-called Singapore issues – competition policy, government procurement and trade facilitation.

Almost 14 years after the failed Cancun meeting that pronounced the death knell for investment and the other Singapore issues, China and Brazil have now become demandeurs for investment even though a large majority of developing and poorest countries remain as opposed now as they were at Cancun, according to trade envoys who asked not to be quoted.

Director-General’s backing

To complement the sustained pressure from China, Brazil, Russia and the MIKTA group on investment facilitation, WTO Director-General Roberto Azevedo has joined the bandwagon of cheerleaders for investment.

Azevedo said on 20 March that the “MIKTA initiative” is “a testament to how much can be accomplished when developing and developed members find common ground and decide to work together.”

In effect, the WTO Director-General and the eight countries are working jointly to produce almost identical proposals on investment facilitation.

While Russia and the MIKTA members came into the open by tabling their proposals in April, China and Brazil have shared their submissions informally. All the four proposals, reviewed by SUNS, are modelled on the lines of India’s proposal on trade facilitation in services and include language as proposed by India.

The four papers on investment facilitation carry nearly identical features as well as language – with the underlying intention of launching negotiations on investment facilitation at the Buenos Aires meeting.

The hand of the WTO secretariat is visible for all to see in the four proposals and it is unprecedented that the effort on investment is an aggressive drive to rope in as many developing countries as possible, said a trade envoy who asked not to be quoted.

“We are witnessing a concerted attempt to ratchet up pressure on developing and least-developed countries to agree to a comprehensive discussion on investment at the WTO on grounds that it is good for them,” the envoy said.

Close on the heels of the Russian proposal for starting discussions on multilateral investment facilitation (MIF) rules (see TWE No. 636), the five MIKTA members circulated their own proposal, which was based on a seminar they held in March.

Azevedo congratulated the MIKTA group for “taking the initiative to organize this workshop. Indeed, I think that MIKTA itself is a testament to how much can be accomplished when developing and developed members find common ground and decide to work together.”

Without offering concrete evidence, Azevedo said “trade and investment are now important development issues – and their expansion is of growing interest to all WTO members, not just advanced ones.”

It is somewhat disingenuous for the Director-General to say trade and investment is a developmental issue when a large majority of developing and poorest countries had shot it down at Cancun in 2003, a trade envoy pointed out.

At the Cancun meeting, Brazil’s then foreign minister Celso Amorim, who led the G20 developing-country coalition, described agriculture and issues such as harmonization of rules of origin – a major bottleneck for exporters from the least-developed and developing countries – as the real “developmental” issues, unlike “fake developmental issues such as trade and investment” as now promoted by Azevedo, said a trade envoy who asked not to be quoted.

Azevedo has also pointed to “the way trade and investment are increasingly interlinked in the real economy.” He went on to extol how trade and investment will strengthen global value chains as was the case with the WTO’s Trade Facilitation Agreement.

“The Director-General’s statements on trade and investment are misleading and false as there is no evidence to show that a multilateral/bilateral investment agreement will enhance the flow of foreign direct investment, as an investor will always go to a country with a large market and purchasing power and low wages,” the trade envoy said.

Instead of focusing on areas where developing and least-developed countries will benefit most, like the harmonization of non-preferential rules of origin, which is also critical for global value chains, the Director-General wants WTO members to enter into negotiations on trade and investment that will not only impose extraordinary conditions but also impede economic development in developing and the poorest countries, the trade envoy said.

MIKTA proposal

The MIKTA proposal says “the WTO has an important role to play in discussions on investment given its broad membership and as the only global international organization dealing with the rules of trade.”

Like the Russian proposal, the MIKTA paper argues that “investment is covered in a piecemeal way across the WTO agreements,” specifically referring to Mode 3 in the General Agreement on Trade in Services (GATS).

The MIKTA group says that the recent trends in foreign direct investment (FDI) flows to developing countries would make investment a strong candidate for further discussions at the WTO.

It emphasizes that discussions in the WTO could contribute to: (i) strengthening trade and investment policy coherence; (ii) facilitating trade and investment flows; (iii) mobilizing trade and investment for development; and (iv) exploring where multilateral rules could be usefully strengthened or expanded to support these objectives.

Without credible evidence, the group says that “there is a high level of interest and willingness among some WTO Members to engage in open and inclusive discussions on investment” provided the proponents avoid known sensitivities, particularly around investor dispute settlement and investment protections.

To bolster its case for investment facilitation, the group says that it is “a good starting point for discussions to complement the recently concluded Trade Facilitation Agreement and current discussions on trade facilitation for services.”

Elements involving investment facilitation, according to the MIKTA countries, would include transparency, predictability and non-discrimination in investment policies; efficiency and streamlining of administrative procedures to minimize investment barriers; and international cooperation, capacity-building and technical assistance.

Chinese proposal

Much of the language and elements in the MIKTA proposal was repeated in the Chinese proposal called “Possible elements of investment facilitation” that was recently shared with selected countries.

The two-page proposal from China contained almost the same elements as in the MIKTA proposal, such as “enhancing transparency of investment policy framework,” “improving the efficiency of administrative procedures relating to investment,” and “responding to the actual needs of developing members and least developed members.”

With regard to “enhancing transparency of investment policy framework”, China has proposed the following elements:

(i)    Make publicly available all laws and regulations relating to investment to stakeholders, including through electronic means.

(ii)   Establish one or more points for enquiry to respond to reasonable enquiries regarding investment policies and applications to invest.

(iii) Provide regular notification of any new laws and regulations relating to investment, or any substantial changes to existing ones.

(iv)  Formulate generally applicable screening guidelines and clearly defined criteria for investment assessment.

(v)   To the extent practicable and in a manner consistent with members’ respective domestic laws and regulations, provide stakeholders with proper opportunities to comment on the drafts or amendments of any laws and regulations relating to investment.

For “improving the efficiency of administrative procedures relating to investment”, China has listed the following elements:

(i)    Encourage establishing clear and consistent criteria and procedures for investment screening, appraisal and approval, specify the materials to be submitted.

(ii)   Streamline licensing and qualification requirements and procedures relating to investment, specify the reasonable timeframe for screening and decision of investment applications by the relevant regulatory authorities, and provide timely notice of the screening decisions to the applicants.

(iii) Specify, according to members’ respective domestic laws and regulations in the case of incomplete applications, additional information needed to complete the application and provide the opportunity to make up.

(iv)  Encourage and foster institutional cooperation and coordination among members’ domestic regulatory authorities, establish “one-stop” approval institution where possible. Clarify roles and accountabilities of different levels of government, and of various agencies, where more than one agency is involved in the investment screening process.

(v)   To the extent possible, keep costs for the investor in the investment approval process to a minimum, and make fees charged commensurate with the administrative cost of processing an application.

(vi)  Facilitate the entry and sojourn of personnel relating to investment.

(vii)                Endeavour to accord investors with easy access to basic public infrastructure.

Finally, for “responding to the actual needs of developing members and least developed members”, China has suggested the following elements:

(i)    Safeguard the special and differential treatment for developing members, and enable developing members flexibility commensurate with their development circumstances as regards investment facilitation.

(ii)   Provide more technical assistance and capacity building to strengthen developing members’ domestic services capability, efficiency and competitiveness, including technical support and assistance in organizing investment promotion fora, commercial activities and business-government networking events.

(iii)  Encourage improving the efficiency of outward investment screening and approval, provide policy support in proper ways to outward investment, including investment insurance and guarantee, political risk coverage and investment promotion services.

(iv)  Encourage investors to perform corporate social responsibilities.

(v)   Give priority consideration to the special economic situation and development needs of least developed members.

Brazilian proposal

Finally, Brazil, which abandoned the G20 developing-country coalition long ago, has now taken the mantle of championing investment facilitation.

Unlike the MIKTA group and China, Brazil has delivered a comprehensive proposal calling for a “WTO instrument on investment facilitation.”

“From a public policy perspective,” says Brazil, “there seems to be no reason for Members to adopt or adjust institutional and regulatory measures to facilitate investment in services and not investments in general.” Therefore, serious consideration should be given to the establishment of a common framework encompassing facilitation of investment in general, that is, in both services and goods, it argues.

Without credible headcount and evidence, Brazil says that “there seems to be a very solid majority of Members, including Brazil, that firmly believe that any WTO discussion or negotiation on investment will only succeed if it avoids well known contentious issues, such as protection rules (rights to establishment/market access, compensation for expropriation, etc) and dispute settlement clauses, in particular Investor-State Dispute Settlement – ISDS. In other words, if any multilateral effort in this area is to succeed, it must be strictly circumscribed to facilitation.”

In effect, the Brazilian proposal is a repeat of the Russian, MIKTA and Chinese proposals but with different sentences; the underlying elements and structure are almost the same.

The Brazilian proposal says that a “WTO instrument on investment facilitation” must include the following elements:

1.     Scope: A WTO instrument on investment facilitation would apply to measures taken by members to facilitate investment. It would cover FDI and, as indicated above, would not include investment protection rules and dispute settlement disciplines. Government procurement and public concessions would not be covered by the instrument.

2.     Transparency: Members shall notify to the WTO all laws relating to investment policy issues of general application and regulatory issues of a cross-cutting nature. Members could also be called to provide, whenever possible, opportunities for investors and stakeholders to comment on existing or proposed investment-related measures.

3.     Formalities and documentation requirements: Members would periodically review formalities and documentation requirements applicable to foreign investors and their investments and ensure, as appropriate, that such formalities and documentation requirements are, for example: (i) not in themselves a barrier to admission and establishment as per domestic legislation (the instrument would not rule on admission and establishment; rather, it would seek to ensure that formalities are not misused); (ii) adopted or applied so as to ensure that the time and cost of establishing an investment are as low as possible; and (iii) not maintained, including parts thereof, if no longer required.

4.     Acceptance of copies: Members would commit to make their best efforts to facilitate documentation requirements, such as accepting paper or electronic copies of supporting documentation required for the expansion, management, conduct, operation, and sale or other disposition of investments in their respective territories.

5.     Processing of applications: Establishing a common set of principles regarding processing of applications for investment screening and licensing would significantly contribute to creating a stable framework for investors.

6.     Single electronic window: There would be a single electronic entry point to competent authorities (single electronic window). The single window would unify electronic procedures for the admission of investments, establishment of an enterprise, licensing and qualification procedures for an investment. Documents submitted to the single window would be accepted by all national agencies or regulatory bodies.

7.     National institutional arrangements: A National Focal Point/Ombudsperson (nomenclature to be decided by each member) would be established and given practical responsibilities such as providing information/clarifying doubts on investment policies and other regulatory issues of a cross-cutting nature; to the extent possible and without prejudice to specific competencies of pertinent national agencies, assisting investors in resolving specific government-related difficulties. The Focal Point/Ombudsperson would seek to prevent disputes between members.

8.     Cooperation among National Focal Points/Ombudspersons: Cooperation among competent authorities of members is quite important in facilitating investment. The areas for cooperation under this provision could include exchange of information on procedural requirements and associated formalities and documentation. Other areas of cooperation could address the sharing of experiences regarding implementation, best practices for collection and compilation of data relating to investment, exchange of statistics as well as technical guidance or assistance and support for capacity building for small and medium enterprises.

9.     Multilateral institutional arrangements: A Committee for Investment Facilitation would be set up and be given basic mandates: a. follow the implementation of a WTO instrument on investment facilitation; b. discuss issues related to investment facilitation of general interest; c. propose new cooperation and facilitation agendas; d. exchange experiences in investment facilitation; and e. compile and disseminate international best practices.

10.  Corporate social responsibility: Members could be called to advocate for the voluntary adoption by investors of principles and standards for responsible business conduct.

11.  Implementation: Following the example of the Trade Facilitation Agreement, obligations under a WTO instrument on investment facilitation could be divided into three categories, one for immediate implementation (Category A) and two others (B and C Categories) with different schedules of implementation.

12.  Special and differential treatment: The WTO instrument would contain special provisions for developing countries and least-developed countries (LDCs) pertaining to the entry into force of this agreement due to their special economic and developmental situation as well as trade and financial needs. While LDCs would not be required to implement any obligations, they would be encouraged to do so.

13.  Technical assistance: Technical assistance would be provided to developing countries and LDCs in order to advance and strengthen their institutional and regulatory capacities in investment facilitation. The provision would entail obligations that help build the supply capacity of developing countries and LDCs.

Until now, there has been no formal or informal discussion on these proposals at the WTO. The first test will come when the Russian proposal on multilateral investment facilitation rules comes up for discussion at the WTO General Council. China and Brazil are yet to submit their proposals formally to the WTO.

In reality, the proposals on investment facilitation will garner support from the traditional investment proponents, which are largely major industrialized and some developing countries, as well as from the new evangelical spreaders of the investment gospel such as Russia, China, Brazil, Indonesia and Turkey.

During an informal discussion among selected trade envoys outside the WTO in the week of 3 April, India and South Africa questioned the need for investment facilitation. They told Japan, Canada and the European Union that “rules that you are proposing here will reduce our policy space and that policy space is what we need to develop what you had done in the past and today you want to tie our hands.”

India said there is no evidence that multilateral investment facilitation rules will contribute to enhanced investment flows. Without any bilateral/multilateral investment facilitation agreements, India is easily able to secure investments from the US.

“If anything, investment agreements will only become millstones of commitments for poor countries,” India argued.

In a nutshell, the Buenos Aires WTO meeting could represent the watershed moment for the developing and poorest countries as not only might their developmental agenda be drowned forever but they could also be forced to deal with investment facilitation, electronic commerce and disciplines for micro, small and medium enterprises, several trade envoys said. (SUNS8442)                      

Third World Economics, Issue No. 637, 16-31 March 2017, pp4-7