TWN Info Service on UN Sustainable Development (Apr17/01)
4 April 2017
Third World Network

MAI at WTO under new avatar of MIF?
Published in SUNS #8436 dated 4 April 2017

Geneva, 3 Apr (D. Ravi Kanth) - 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 meeting in Buenos Aires later this year, several trade envoys told SUNS.

Almost 20 years ago, negotiations for the MAI (Multilateral Agreement on Investment) which were launched by the United States and other dominant members of the Paris-based Organization for Economic Cooperation and Development (OECD), collapsed in the face of worldwide protests from non-governmental organizations spearheaded by Third World Network, as per several studies, including Wikipedia.

Despite intense opposition to the investment facilitation initiative from India and South Africa at the G20 sherpas meeting in Berlin last month (see SUNS #8409 dated 24 February 2017 and #8420 dated 13 March 2017), Russia, China, and Brazil have now decided to break ranks on this issue with the other two members of the BRICS.

Clearly, the three BRICS members seem to have used India's proposal for starting negotiations on Trade Facilitation for Services 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 what they call Multilateral Investment Facilitation 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 (Job/GC/120) titled "Investment Policy Discussion Group" to the General Council on Friday (31 March).

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

It says "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 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 (MIF) rules in the WTO rulebook to improve the "investment climate."

Such rules for MIF, according to Russia and China, 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 (GATT), traded services (GATS) or IPRs (TRIPS)" for investments.

The objectives for MIF rules, according to Russia, must aim at accomplishing "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, WTO rules become a handle for powerful members such as the United States, the European Union, and others to exert pressure through the backdoor to accomplish their goals as demonstrated in the implementation of the TRIPS agreement and GATS, several trade envoys said.

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

As part of transparency, Russia wants members to ensure the rules for MIF must 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 for 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 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 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 for special and differential treatment by taking the level of development, and development-needs into consideration.

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

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

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

(iii) Explore possibilities to strengthening WTO disciplines.

In short, trade and investment has staged a comeback at the WTO ostensibly to help the investors.

After several setbacks it has come back due to the sustained attempts by industrialized countries and their new partners such as Russia, China, and Brazil.

The chequered history of trade and investment started with the European Union and several other countries which brought investment as part of the controversial Singapore issues at the WTO's first ministerial meeting in 1996, in Singapore.

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

The four issues, despite massive opposition from developing countries, found their way into the Doha Work Program in 2001, in Doha, Qatar.

However, developing countries managed to ensure that the negotiations on the four issues will only commence at the WTO's fifth ministerial meeting in 2003, in Cancun, Mexico, subject to "explicit consensus" among all members.

The former EU trade commissioner Pascal Lamy faced intense opposition from a coalition of developing countries led by Malaysia and India at the Cancun meeting when the green room discussion commenced on the Singapore issues.

In the face of sustained opposition, Lamy started withdrawing one issue after the other of the four Singapore issues.

He finally encountered opposition even on the fourth issue of trade facilitation by when the meeting was abruptly terminated by the Mexican host.

However, Lamy and his counterpart from Washington, USTR Ambassador Robert B. 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 Program based on the development dimension in return for bringing trade facilitation back into the overall negotiations.

During the negotiations on all issues of the Doha work program between 2005 and 2008, the US created several roadblocks to paralyze the DDA negotiations but succeeded in managing that negotiations on trade facilitation continued uninterrupted.

With effective assistance from successive directors-general, particularly the current head Roberto Azevedo, the US along with the EU and other industrialized countries achieved their goal of a binding agreement on trade facilitation at the WTO's ninth ministerial conference in Bali, Indonesia, in 2013, according to trade ministers and envoys.

After bagging the TFA, the US simply walked away from addressing the remaining core developmental issues in the Doha Work Program and eventually atrophied the DDA negotiations, with its supporters, once and for all in 2015 at the WTO's tenth ministerial conference in Nairobi, Kenya, 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 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 United States proposes to do on investment facilitation rules, particularly given the Trump administration's aversion to multilateral agreements, trade envoys said.