WTO Public Symposium 2003: Investment Negotiations in the WTO

Background

Previously, WTO commitments on investments have been limited to the Trade Related Investment Measures (TRIMS) and the General Agreement on Trade in Services (GATS), neither of which establishes an overarching multilateral framework for international investment. Thus many countries still retain regulations on foreign direct investment (FDI) such as content screening, joint venture requirements, and performance monitoring. To liberalize international investment, many countries have formed bilateral investment agreements. The effectiveness of these agreements in stimulating investment is debated, as they have not "increased flows of investment to signatory developing countries," according to a recent World Bank study.

Investment in the WTO

The Doha Development Round will be the first WTO round to address investment. While the EU, as the main demandeur, succeeded in adding investment to the agenda, negotiations will only begin after all WTO members give their express consent. Leading up to the conference, the members will give their 'consent' to launch negotiations by agreeing on a set of negotiating modalities. To assist developing countries, the WTO placed the UN Conference on Trade and Development (UNCTAD) in charge of holding capacity- building workshops. The agreement to put investment on the table at Cancun was a tenuous consensus at best. Developing countries have always been ambivalent about investment as a WTO trade issue and recently, some countries have voiced their categorical opposition to including investment in the Doha Development Round.

Position of Developing Countries

Those countries that are most vocal on their opposition seem to paint investment a question that divides the WTO into North vs. South, or rich vs. poor countries. India has been particularly adamant against negotiating on investment. It has denounced developed countries attempts to push the issue onto the Doha agenda as coercion . Similarly, NGOs such as Oxfam and the Third World Network have created a petition to ban investment from negotiations . However, because the views of India and NGOs have received most of the press's attention, it is unclear whether this is the position of all developing countries.

In fact, it has been difficult to figure out the position of Latin American, Asian, or African countries on a WTO crafted agreement on investment. Factors that influence their positions include their countries' ability to attract FDI, the status of its regulatory institutions that oversee the conduct of Multi-National Enterprises (MNEs), the extent to which their economy depends on investment, and their stance on intellectual property rights. For example, because countries in East Asia and Latin America are currently members of a number of bilateral and regional investment agreements, they may resist having a multilateral agreement foisted on them especially if a WTO agreement requires them to make costly changes. However, since their economies are highly dependent of FDI, they may welcome an opportunity to make their countries more attractive to foreign investors. Moreover, because a major component of a multilateral investment agreement would strengthen the rights of intellectual property owners, Latin American, Caribbean, Asian, and African countries alike are concerned that such an agreement would have an effect on public health. Strengthening intellectual property rights would make it even more difficult to produce cheap, generic versions of patented pharmaceuticals that are in great demand in disease plagued countries.

Not only do developing countries need to protect their public health, they also wish to maintain some regulatory control over international investment so that they can proceed with development policy and conserve their natural resources. If there is one consensus among developing countries, it is that a multi-lateral investment agreement might constrain their ability to establish sustainable development by mandating national treatment and non-discrimination. Because developing countries lack the institutional capabilities to monitor the activities of MNEs and enforce their national policies, a multilateral investment agreement may leave them vulnerable to exploitation by foreign investors.

Rights v. Obligations of Investors

Any discussion of an investment agreement in the WTO has been restricted to the rights of investors, with no mention of investor obligations. The proposals on the table for a WTO agreement only focus on ways of protecting the investor from the host country. This focus concerns developing countries because as host countries, they often take on as much if not more risk than the investor. Unfortunately, developing countries have found UNCTAD's efforts to help build institutional capacity ineffective and disappointing. It will be interesting to see if developing countries remedy this bias in their own proposals if negotiations proceed.

Investment as a Doha Agenda Item: Why? or Why Not?

The debate on whether investment should be negotiated as part of the Doha Development Round contains two key issues. First, is the WTO the right forum for an investment agreement? Second, should developing countries make obligations regarding investment at this time?

On the European Commission's website, Commissioner Lamy adamantly supports the WTO as the appropriate forum for a multilateral agreement on investment and insists that it is in the best interest of developing countries to proceed with negotiations. An investment agreement, he asserts, will stimulate the economies of all WTO members by spurring investment flows to developing countries, and making international investment easier and more transparent. To read more about the EU's arguments in favor of negotiations on investment, see thewebsite for the European Commission.

In a statement given at UNCTAD conference on trade, investment, and development held in New Delhi, May 18-20 2003, the Indian Minister of Commerce and Industry Arun Jaitley spoke out against a WTO investment agreement . He first denounced what he described as undue pressure on developing countries to negotiate on an issue that they feel under-prepared to discuss. He insisted that developing countries are just beginning to understand the issues involved in an investment agreements and the impact on their countries, much less begin to create the kind of institutional capacity they would need to be able to handle free flowing international investment. Additionally, Mr. Jaitley questioned whether the WTO was in fact the right forum for an investment agreement, or if the vast differences in political stability, market size, and economic policies amongst WTO members make a multilateral agreement inappropriate. To read more about Mr. Jaitley's position, see an article by Third World Network on the UNCTAD conference.

In newspapers, India's strong position has come to stand for the rest of the developing countries. While undoubtedly many countries share the same fears that India has, it is important to note that no other developing country has been as vocal or received as much attention from the press. One important question is exactly how well represented are developing countries? As can be seen in the debate surrounding the environment as a new issue on the Doha agenda, international organizations and NGOs that claim to be advocating for developing countries may not be fully in line with their actual positions. Also, some developing countries do not share India's stance against an investment agreement at all. For example, while Brazil was not a demandeur of an investment agreement, it is pleased that the Doha Round will address FDI and technological transfer and perhaps result in a multilateral agreement.

Will Investment be Negotiated?

For the launch of negotiations on investment, WTO members will have to come to a consensus on modalities for the negotiations. This may be the major stumbling block for an investment agreement. Primarily, if a bloc of developing countries has decided to categorically block investment as an agenda item, they will not agree on any modalities as a way of expressing their dissent. Secondly, amongst the bloc of WTO members that is interested in negotiating an agreement, there is debate over the content of the modalities. Some countries, such as major demandeurs like the US and the EU, want the modalities to be strictly procedural. Perhaps this is because procedurally oriented modalities ought to be less controversial than substantive ones. However, other countries demand that the modalities treat substantive questions such as whether pre- and post-establishment should be covered under the agreement or not . Because of the incredibly disparate and contentious opinions on investment as a WTO agenda item, it seems doubtful that members will be able to come to any kind of agreement in time for Cancun. The Public Symposium in Geneva should shed light on the specific positions involved, and the likelihood that countries with strong feelings against an investment agreement could be convinced otherwise.