WTO Public Symposium 2003: Session VIII- Investment in the WTO

Third World Network report on this session

Organized by CIEL, TWN, IATP, WWF, PSI, OXFAM, IGTN

When the WTO added investment to the Doha Development Agenda, it sparked a contentious and complex debate. Members who welcomed a multilateral agreement on investment asserted the benefits of greater transparency and well-defined investor rights, while opponents voiced concerns that an agreement would curtail a country’s ability to implement national development and environment policies. Developing countries are split into three camps: some, like India, have vigorously protested investment negotiations, others, like many Latin American countries, welcome a multilateral framework for foreign investment, meanwhile others are still grappling with the complicated issues and deciding how an investment agreement would affect them. NGOs have been particularly vehement in their opinion that an investment agreement through the WTO would be inappropriate and damaging to developing countries.

At the Geneva Symposium, a panel of NGOs voiced their concerns and attempted to dispel ‘myths’ about a multilateral investment agreement promoted most rigorously by the EU. Going into the Fifth Ministerial Meeting in Cancun, WTO members must give explicit consent to a set of modalities for negotiations to begin. Therefore, the next month and a half represent a critical period for developed and developing countries alike. According to the warnings of the panelists, not only would a multilateral investment agreement be detrimental to developing countries, but investment should not even be discussed as a WTO issue. However, some fear that the demandeurs for such an agreement will find a way to coerce opposing countries into agreeing on modalities and beginning negotiations. Once negotiations begin, panelists predict a similarly distressing outcome as they saw in GATS and TRIPS. Their chief concerns are that a multilateral trade agreement will circumscribe domestic policy space, demand inflexible liberalization, and grant multinational enterprises national status and non-discrimination inappropriately.

Panelists and Viewpoints:

Martin Khor, Third World Network, “A development perspective on WTO investment negotiations”

An investment agreement does not belong in the WTO. If the WTO principles of national treatment and non-discrimination are applied to investment, countries will lose their ability to enforce domestic policies designed to protect the health and safety of their citizens and environment, such as regulating establishment of MNEs and requiring performance reports. Limiting policy space would also make it impossible for developing countries to follow policies of development. Furthermore, there is no proof that an investment agreement would increase investment flows or benefit developing countries. Firms invest abroad based on stability, policy predictability, and profit – an investment agreement does not guarantee any of those. In fact, an investment agreement could cause instability in so far as citizens are angered by foreign-firm domination of the market share, regardless of economic justification. It seems unlikely that negotiations will be able to proceed since there is no consensus on modalities, both procedural and substantive. However, developed countries could attempt to push the issue forward using closed-door meetings that exclude participation of many WTO members, or by trying to foist a general, procedural set of modalities on developing countries using agricultural reforms as a bargaining chip.

Tom Crompton, World Wide Fund for Nature, “What is the EU’s real agenda on investment at the WTO: Transparency or Market Access?”

An investment agreement in the WTO would be inappropriate, particularly because there has yet to be a proposal that allows for investor obligations as well as rights. The proposals thus far have created a sense of flexibility that is pure illusion. The suggested GATS-style approach shows the inconsistencies in a supposedly flexible agreement. Flexibility is allowed so long as it does not lead to “discrimination” – this is a dangerously general statement as seen by the multitude of cases investors have brought against host countries for discrimination through environmental laws and labor laws. Also, the GATS approach does not prevent developing countries from being bullied into opening sectors they are not prepared to open. Despite the EU’s attempt to dress their proposals in ‘development’ clothes, their proposals have yet to reflect the specific concerns and needs of developing countries.

Peter Hardstaff, “Myths of the GATS-type flexibility approach”

Looking more closely at the GATS-style approach to liberalization, there are five main reasons why flexibility is mythical. First, GATS rules are poorly defined and countries are subject to uncertain terms. Second, GATS positive-list approach requires countries to be able to see into the future to see what their needs and policies will be. Third, countries become locked-in to their commitments because they must compensate firms if they choose to change policies. Fourth, GATS progressive liberalization places constant pressure on developing countries to continue to open up, even if they are not ready yet. Lastly, GATS negotiations are bilateral while the decision is binding multilaterally. Thus, developing countries face a great deal of direct pressure to liberalize without the benefit of using their collective bargaining power.

Mike Waghorne, Public Services International, “The labor perspective on WTO investment negotiations”

The unions reject a multilateral investment agreement at this time because no appropriate proposal has yet to be presented. PSI also agrees that the WTO is perhaps not the right forum for an investment agreement. This is because applying the principle of non-discrimination would mean that foreign firms would get treatment no less favorable than domestic firms. In many cases, foreign firms would get treatment that is more favorable than domestic firms. For example, export processing zones allow MNEs to produce without any taxes, environmental compliance, or adherence to domestic labor laws. Especially in countries where labor unions are not allowed, an investment agreement could have a devastating effect on host country’s citizens.

Shefali Sharma, “Investing at the WTO? The decision-making process and the single undertaking”

The critical question at this stage is: how are decisions made in the WTO? As members decide whether or not to negotiate on investment, it is crucial that decision-making processes are fair and transparent. Unfortunately, this is not the case. Powerful WTO members have been known to circumvent the consensus-building process of writing an agreement from the ground up by presenting a pre-written complete document. In this “reverse consensus” process, opposing members must try to unravel the agreement and reconstruct it while undergoing significant pressure to just accept it. This eliminates the possibility for developing countries to draft proposals that take their needs into consideration. Often these pre-written agreements come out of closed-door Green Room meetings that exclude many WTO members from participating. The WTO has yet to pass an agreement on how to make decision-making more fair and transparent because countries like the US reject proposals that call for simple reforms: no late night marathon meetings, notification of meetings a few days in advance, minutes of each meeting, and appointment of delegation heads prior to arriving at the conference. Without amending decision-making processes, it will be impossible for developing countries to play a fully participatory role in the WTO.

Further Comments by Panelists and Delegates

If not in the WTO, where?

Many delegations wondered where the panelist thought an investment agreement belonged, if not in the WTO. The panelists ranged in opinion, some saying no agreement was necessary, some suggesting the UN, and others proposing an international investment organization that could tailor an agreement to fit the needs of developing countries and satisfy the qualms of international investors. They all seemed to agree that as long as the WTO’s main principle is liberalization, investment does not belong on the agenda. Peter Hardstaff pointed out that the very regulations that Chile employed that protected it from capital flight in the recent Latin American downturn would not be allowed under a WTO agreement.

Bilateral Investment Treaties (BITs)

Some representative from the EU voiced their opinions in favor of a multilateral investment agreement. One of their reasons was to bring law and order to the myriad bilateral investment treaties. They pointed out that developing countries could turn a multilateral agreement to their advantage by having better bargaining strength than they do in bilateral settings. The panelists reiterated that the GATS-style approach would eliminate any bargaining power developing countries might have. A delegate from India also mentioned that as with regional trade agreements, multilateral frameworks have never substituted for regional ones and that an investment agreement would not make the complex web of BITs disappear.

EU Arguments

Another EU delegate commented that the panel was not balanced as only NGOs perspectives were represented. He then presented a quick summary of his arguments in favor of an agreement. His main points were that an investment agreement would increase investment flows to developing countries, some minimum rules will help bring order to international investment, and negotiations should proceed so that developing countries can strike compromises and shape proposals.

Is an investment agreement needed at all?

In a more in depth conversation after the meeting, Mike Waghorne pointed out that the question of whether the WTO is the appropriate forum for an investment agreement begs the question of where one is needed in the first place. Most of the countries that pose any risk to investors are developing countries that are heavily dependent on the IMF and World Bank. As such, these countries are already under the thumb of regulatory agencies that make sure MNEs are protected and that domestic policies do not infringe on investor rights. Other protections exist in wealthy countries, such as a form of insurance that the government guarantees its investors when becoming involved in countries with some risk. If the government has to pay an investor back for seized capital, it can turn to the IMF or World Bank to exact compensation eventually from the offending country. These agreements between investor and government are usually done in secret and it is hard to find out exactly what the terms of the agreement are. Thus, the argument of investor risk is exaggerated.