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TWN Info Service on Free Trade Agreements 16 June 2008
Geneva, 13 Jun (Kanaga Raja)
-- With some exceptions, foreign investment has fallen far short of
stimulating broad-based economic growth and environmental protection
in Latin America, according to a report by the Working Group on Development
and Environment in the Americas. The report recommended that
national and regional policies aimed at improving national firms' capabilities
should be implemented and that the "policy space" for such
policies should be accommodated in bilateral, regional, and global trade
and investment treaties. The report by the Working
Group, which reviewed the impacts of foreign investment liberalization
and related economic reforms in the region, is expected to be released
on 19 June at the Carnegie Endowment for International Peace in The report, "Foreign
Investment and Sustainable Development: Lessons from the Drawing on case studies from
across the region - Argentina, Brazil, Bolivia, Chile, Costa Rica, Ecuador,
Mexico, Uruguay, and Venezuela - the Working Group examined how foreign
investment during the reform period has affected economic growth, environmental
policy and performance, and the political economy of countries. The Working Group on Development
and Environment in the Among its members are Manuel
R Agosin, Professor of Economics, University of Chile; Andres Lopez,
Director of CENIT and Associate Professor at the University of Buenos
Aires; Jose Cordero, Professor of Economics at the University of Costa
Rica; Celio Hiratuka, Assistant Professor at the Institute of Economics
of State University of Campinas in Brazil; Eva Paus, Director of the
McCulloch Center for Global Initiatives; Martina Chidiak, Assistant
Professor of Environmental Economics at the School of Economics, Universidad
de Buenos Aires; and Kevin P Gallagher, Assistant Professor of international
relations at Boston University and the Global Development and Environment
Institute at Tufts University. Working Group co-chair Prof
Gallagher said: "The story of foreign investment in According to the Working
Group's report, beginning in the early 1990s, nations in the Moreover, such reforms alter
the nature of settling disputes over foreign investment. Whereas trade
agreements have traditionally relied on states to settle disputes among
themselves in international fora, newer trade and investor agreements
have "investor-state" dispute systems where foreign firms
can directly sue a national or local government without host government
oversight, said the report. These policies were advocated
by the They have become enshrined
in the 1994 North American Free Trade Agreement "Investment liberalization
of course, has been part of a larger effort broadly referred to as the
Washington Consensus," said the report. The broader reforms include
a package of economic policies that promote economic development by
opening national economies to global market forces. Over the last twenty
years, governments throughout The promise, among others,
of following these policies is that FDI by multinational corporations
will flow to and be a source of dynamic growth in host countries. Beyond
boosting income and employment, the hope was that manufacturing FDI
would bring knowledge spillovers that would build the skill and technological
capacities of local firms, catalysing broad-based economic growth; and
environmental spillovers that would mitigate the domestic ecological
impacts of industrial transformation, said the report. "These policies and
agreements have raised concerns, in part because they have shown poor
results. Economic growth in per capita terms in the region was slower "A major finding is
that slow growth is in part explained by the fact that FDI failed to
crowd in more total investment into Latin American economies,"
said the report. According to the Working
Group, among the main findings of the report are: -- FDI was concentrated in
a small handful of countries in the region. Indeed, -- Foreign firms by-and-large
located in Mexico and the Caribbean tended to serve as export platforms
to the United States, whereas those located in South America did so
to sell to domestic markets in that region; -- FDI was attracted by traditional
determinants, not necessarily whether a nation has a regional or bi-lateral
trade and/or investment treaty or if it can serve as a pollution haven
for foreign firms; -- When FDI did come, foreign
firms tend to have higher levels of productivity and higher wages and
were likely to increase trade in the region; yet FDI fell far short
of generating "spillovers" and backward linkages that help
countries develop, and in many cases wiped out locally competing firms
thereby "crowding out" domestic investment; -- The environmental performance
of foreign firms was mixed, sometimes leading to upgrading of environmental
performance, and in others performing the same or worse than domestic
counterparts. The Working Group studies
documented and analysed the track record in specific countries and sectors. In Brazil, Argentina, Mexico
(three countries that have received the lion's share of FDI in the region)
and Costa Rica, it was found that foreign firms have higher wages, productivity
and trade vis-a-vis domestic firms; linkages with national firms and
the domestic economy in general are weak, especially in Mexico and Costa
Rica; although foreign firms may bring the technologies generated in
their headquarters, they do not contribute to an increase in R&D
expenditures in the host economies. Moreover, in -- Virtually all foreign
firms transferred environmental management systems to host countries; -- However, it is not clear
that such firms were actually in compliance with host country laws and
in Brazil there is little indication that foreign firms were more likely
to be in compliance than domestic firms were; -- There is little evidence
that foreign firms are greening their supply chains (given that so many
supply chains were wiped out from FDI in the first place); -- In some instances such
as the forestry sector in Chile, foreign firms that exported through
fair trade certification schemes were "upgrading" to higher
levels of environmental standards; and -- In others, such as in
Mexico's electronics sector, foreign firms were not exporting to meet
strong standards in Europe given that their chief export market, the
United States, does not have such standards. In Venezuela, Bolivia, Ecuador,
and in Uruguay, it was found that a Uruguayan BIT constrained the set
of policies available to solve a conflict over foreign investment and
trans-boundary environmental problems with Argentina; whereas BITs in
Bolivia, Ecuador, and Venezuela were reneged by government who were
able to renegotiate the terms of contracts with foreign hydrocarbon
firms. The Working Group, in agreement
with the broader literature on the subject, found that investment regime
liberalization-led FDI has had at best a limited success in Latin American
countries. The report said that it comes
as no surprise to find that virtually all newly elected governments
in The Working Group argued
that what the report makes clear is that new policies are needed. It
said that three broad lessons can be drawn out as principles for policy-making
in this field: 1. FDI is not an end but
a means to sustainable development. Simply attracting FDI is not enough
to generate economic growth in an environmentally sustainable manner. The report showed that even
in the nations that received the lion's share of FDI in the region -
2. FDI policy needs to be
conducted in parallel with significant and targeted domestic policies
that upgrade the capabilities of national firms and provide a benchmark
of environmental protection. There are numerous country-specific
policies that are either being implemented or debated regarding ways
in which LAC (Latin American and Caribbean) nations can overcome information
and coordination externalities, access to credit problems, and competitiveness
issues on the part of their domestic firms. In this regard, parallels
or lessons from 3. International agreements,
whether at the WTO or at the level of regional or bi-lateral trade and/or
investment treaties (RBTIAs), need to leave developing nations the "policy
space" to pursue the domestic policies necessary to foster sustainable
development through FDI. "The emerging international
regime of international investment rules is restricting the ability
of developing nations to pursue some of the policy instruments that
have been successful at channelling FDI for development in When acting collectively
under the auspices of the WTO, developing nations have largely succeeded
in blocking proposals that would further restrict such policy space.
However, said the report, slower movement in global trade talks has
led to a proliferation of RBTIAs between developed and developing countries
where developing countries have much less bargaining power and end up
exchanging policy space for market access. The Working Group said that
the studies in this report highlight the economic, social and environmental
costs of the present approach. "Hopefully, they also point to some
of the ways in which national policies and international trade agreements
can be transformed to better meet societies' goals." +
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