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TWN Info Service on Finance and Development (May17/05)
24 May 2017
Third World Network

       
Investment Facilitation and links to China's OBOR
Published in SUNS #8467 dated 22 May 2017


Geneva, 19 May (Chakravarthi Raghavan*) - The stalemate over the agenda at the General Council last week, resolved on 18 May with a compromise of sorts by the statement from the GC Chair, Amb. Xavier Carim of South Africa, has nevertheless brought to the fore many questionable practices of the secretariat and major systemic issues that, if left unresolved, may soon result in causing irreparable damage to the WTO multilateral trading system.

While the compromise has enabled the GC to proceed with other items on the draft agenda, including decisions on some house-keeping chores for the December Ministerial, some trade diplomats, and past negotiators, feel that it may still leave the door open for the proponents to keep on bringing up the issue under different formulations at future meetings, and/or attempt to inject it with a new nomenclature into the Ministerial Conference at "green room" and similar, smaller consultations (as at Nairobi MC), and try to secure a decision.

Reacting to the GC Chair's compromise statement and modified agenda (SUNS #8466 dated 19 May 2017), Mr. B. K. Zutshi, former Indian ambassador to GATT 1947 (who negotiated the final stages of the Uruguay Round negotiations and its conclusion, at official level in December 1993, in the draft treaty and its annexed accords, and the signing of the Marrakesh Treaty in 1994), said that the best option would have been to drop the item altogether from the agenda.

However, it now looks like an "information" item and should therefore have been shifted to the agenda item "Other Business", which under the GC Rules calls for no decision or discussion beyond explanations of the proponents.

As agreed now, in the GC Chair's statement, proponents may however have got a toe-hold, unless it is ensured that it does not appear on the agenda again without a consensus. On this last, they need to guard against and be vigilant, not only vis-a-vis China and other sponsors, but the WTO secretariat too, Zutshi says.

The secretariat's role and performance on this, he says, "is a new low for the systemic health of the organization: the Secretariat, the custodians of the institutional memory, put the item on the draft agenda of the GC meeting in the face of a subsisting decision on the subject!"

This entire episode requires India and others to remain ever alert and vigilant, objecting at official and Ministerial levels, to ensure that neither proponents nor the secretariat manage to sneak it in at some restricted consultation meetings, Mr. Zutshi adds in an email communication.

Other trade observers said that perhaps it is time for key developing countries like India to devise ways, including through the Budget Committee, to put restraints on the DG and the secretariat, making it clear that the DG is just an international civil servant, with no powers or authority beyond implementing in letter and spirit consensus decisions of Members.

The compromise achieved via the GC Chair's statement, over the Indian objections to the draft agenda and initial reports of hardline stance of some proponents like China to keep it on the agenda, have made some trade diplomats, past negotiators and trade observers to speculate whether the Chinese stance is linked to its "One-Belt-One-Road" (OBOR) initiative and plans, and whether at some future point, China will make renewed efforts.

In Chinese history, old and more recent, this has been its style - bringing up the same issue again and again in different ways, to wear down opposition.

At a time when the US-conceived post-war world order, in particular the trade and economic order, is in a state of flux and uncertainty, with the United States, hitherto its hegemon, under the Trump administration, functioning in a chaotic way but seemingly intent on wielding a wrecking ball to that order, the impasse at the WTO on completing the DDR agenda/Single Undertaking, and the Chinese hard-line stance on Investment Facilitation (IF) raise many troubling questions.

Among these last is whether the Chinese initiative and ideas, whether intended or not, may result in a Chinese "Middle Kingdom" version of the 20th century US-led "globalisation" (that former US Secretary of State Henry Kissinger, in a 1999 lecture at Trinity College, Dublin, called "just another name for US domination"*), with China emerging as a 21st century hegemon and colonial power of sorts. [* cited in Chakravarhi Raghavan (2014), 'The Third World in the Third Millennium CE,', TWN Penang, Vol 1, pp 227, 230-232.]

The OBOR initiative and its broad contours were unveiled at the two-day forum in Beijing that opened on 14 May, Sunday and concluded Monday. The attending (some 28) Heads of State/Government at the forum, according to Chinese media reports, signed on to the communique. These reports also said that the forum will meet again in two years' time.

Related to the OBOR forum meet in Beijing, Pakistan's leading English daily, "The Dawn", on 16 May, published, in great detail, what is purported to be Chinese plans or at least detailed ideas, on the Pakistan leg of its OBOR, the "China-Pakistan-Economic-Corridor or CPEC". (https://www.dawn.com/news/1333101/exclusive-cpec-master-plan-revealed)

While CPEC and Chinese promises of aid, loans and investment have received wide support and acclaim in Pakistan, the details brought out in the Dawn article have also raised some disquiet in Pakistan, with some opposition parties demanding full and open discussion on its benefits and future obligations, before Pakistan signs any accords.

Coupled with the OBOR, and the kind of ideas that China has in terms of investment (and loans) in other countries, in projects generating/expanding China's world trade share, by use of Chinese resources (manpower/ skills/export capacity etc), with those countries, the Investment Facilitation (IF) proposals and their "transparency" requirements for rule-making at the WTO could lead to "pre-establishment" investment market access rights for foreign investors, and corresponding obligations for host countries, all subject to the rules of the WTO's dispute settlement processes.

The various Chinese, and other proposals at the WTO (see SUNS #8466 dated 19 May 2017) suggest extremely detailed transparency requirements that would entail spelling out all criteria used in licensing requirements and the appraisal of potential investors. If criteria are not spelt out in full, the highly elaborated procedural mechanisms would make it difficult for a country to prevent investors from entering its market.

[Ironically, while the proposals (including that of China) at the WTO envisage under the rubric of "transparency", some rules and disciplines involving pre-investment rights for investors, according to a report in the British daily "The Guardian", EU member countries (represented at the Forum at Ministerial or other equivalent levels), unanimously declined on Monday to endorse the trade statement prepared by the hosts, on the ground that "it did not include commitments to social and environmental sustainability and transparency." (https://www.theguardian.com/world/2017/may/15/eu-china-summit-bejing-xi-jinping-belt-and-road?CMP=share_btn_fb)]

Some of these proposals (Chinese, Brazil-Argentina and Russian) at the WTO General Council have an uncanny resemblance to initial ideas that the United States unveiled, when in 1982-86, it began outlining its proposals for a "services agreement" under GATT, via the Uruguay Round. The US had then envisaged "investment" rights for its service providers, to establish facilities and supply services in other GATT Contracting Parties, and for such establishments to be able to diversify, once "established".

After very difficult negotiations over the period 1986-1994, it resulted in a less free-wheeling "trade in services" accord, with four modes of supply, incorporated in the General Agreement on Trade in Services (GATS).

The current proposals (now mere "Communications") in Job documents before the WTO General Council effectively mean that markets in any WTO Member will be open to investors without conditions, unless adequate criteria and conditions have already been put in place by potential host countries.

They are therefore "pre-establishment" investment market access rules, subject to the WTO's fundamental Most-Favoured-Nation (MFN) principle and the enforceable rules of the WTO's dispute settlement process.

At a time when the large majority of the developing countries, Members of the WTO, are still struggling to secure the completion of the unfinished agenda of the Doha Work Programme (DWP) or Doha Development Round (DDR), including ensuring Food Security, a Special Safeguard Mechanism (SSM), policy space and other basic development requirements, if the Membership is faced with the stalemate over "investment facilitation" in the run-up to the eleventh Ministerial Conference in Buenos Aires, Argentina later this year, and the law of unforeseen consequences to Members and the system prevails, it will be largely due to the failure of the Secretariat under its current free-wheeling Director-General to follow the Marrakesh Treaty (WTO Treaty) and past GATT practices, as enjoined in the Treaty.

In terms of the WTO treaty, the Rules of the General Council provide that:

* Meetings of the General Council shall be convened by the Director-General by a notice issued not less than ten calendar days prior to the date set for the meeting. (Rule 2)

* A list of the items proposed for the agenda of the meeting shall be communicated to Members together with the convening notice for the meeting. It shall be open to any Member to suggest items for inclusion in the proposed agenda up to, and not including, the day on which the notice of the meeting is to be issued. (Rule 3)

* Requests for items to be placed on the agenda of a forthcoming meeting shall be communicated to the Secretariat in writing, together with the accompanying documentation to be issued in connection with that item. Documentation for consideration at a meeting shall be circulated not later than the day on which the notice of the meeting is to be issued. (Rule 4)

* A proposed agenda shall be circulated by the Secretariat one or two days before the meeting (Rule 5).

* The first item of business at each meeting shall be the consideration and approval of the agenda. Representatives may suggest amendments to the proposed agenda, or additions to the agenda under "Other Business". Representatives shall provide the Chairperson or the Secretariat, and the other Members directly concerned, whenever possible, advance notice of items intended to be raised under "Other Business". (Rule 6)

* The General Council may amend the agenda or give priority to certain items at any time in the course of the meeting. (Rule 7)

When the terms (and text) of the Marrakesh Treaty were being negotiated in Oct-Nov 1993 at official level in Geneva, and the negotiations were amongst some key delegations outside the Centre William Rappard (GATT building), one of the key issues was in respect of powers and authority of the DG. These were settled, on the explicit understanding that there would be no change in that regard from the position under the GATT 1947.

At that time, the then GATT Director-General, Peter Sutherland, went before this group twice, pleading and arguing for some powers akin to that of heads of other international organisations and UN specialised agencies, including the ability and right to bring issues to the attention of Members for their decision. As Mr. Sutherland himself told this writer at that time, it was not accepted but turned down near-unanimously within that group, on the ground that the Treaty and agreements involved a delicate balance of rights and obligations of Members, and no Secretariat official should be enabled to suggest something that could upset this delicate balance.

As a result, it was understood that under the WTO the DG would carry out such functions and responsibilities as the Ministerial Conference (and in between the Conference sessions, the General Council) may stipulate from time to time and, except as provided in the WTO Agreement or Multilateral Trade agreements, "the WTO shall be guided by decisions, procedures and customary practices" of the GATT 1947. This meant that the DG would have no role, either in agenda setting or in subsequent negotiations, except as a facilitator.

Also, under GATT 1947, the chairman of the GATT Council did not have any independent authority. He had to consult members and obtain a consensus before proposing an agenda item, particularly if the issue was a substantive one like in the present case of "investment facilitation."

For example, in 1992, when the Uruguay Round negotiations were taking place, according to Mr. B. K. Zutshi, India's then GATT ambassador who was chair of the GATT Council in 1992, two rather controversial issues came up for consideration, namely (i) the demand by some contracting parties to expel the then Yugoslavia from the membership and, (ii) applications for accession of the Peoples Republic of China (PRC) and Taiwan for membership.

Both issues, Zutshi says, were highly contentious, and he had held consultations on both issues, and obtained a consensus on both.

In the case of Yugoslavia, the consensus was for a temporary suspension of their membership - which entailed the Yugoslav delegation being able to attend meetings only as observers, but had the right to receive all documents (a compromise approach that was subsequently adopted by the UN also in dealing with Yugoslav membership of that body).

In the case of the two accession applications, the text of the decision was also negotiated with major participants. One of the elements of the compromise was to give precedence to PRC's application in the agenda and, after negotiations, not to grant membership to Taiwan (involving too, negotiations on the name to be given to the territory for which Taiwan was seeking accession) ahead of the PRC.

[Both acceded at Doha in 2001, with the PRC accession approved first, and that of Taiwan to be known at WTO by its capital Taipei, after the PRC. SUNS]

In neither instance, Zutshi added, was there any active involvement of the then GATT DG, the late Arthur Dunkel, in these negotiations.

In the present instance, when the draft agenda was issued (and including the investment facilitation item), DG Roberto Azevedo was aware of its controversial nature and lack of consensus and opposition to the idea from key delegations. He had tried to promote it at the meeting of sherpas for this year's G-20 summit in Germany, and there it had met with clear opposition from the US, as well as from India and South Africa. As a result, Germany as host-chair had to remove it from the draft texts being prepared by the sherpas for the G-20 summit.

As far as the WTO is concerned, "investment" has been a controversial issue, with a long history, dating back almost to the WTO's inception. It had met with considerable opposition even at Marrakesh, when the European Community (EC) had raised it as an item for the future agenda, and most developing countries were opposed, viewing it rightly as an attempt by the EC to raise issues extraneous to trade in order to avoid or dilute future focus on the EC's farm policies. The item was mentioned, along with various others raised by other GATT Members at that meeting, in the final statement of the Uruguayan chair of that meeting, as subjects that the GATT and/or future WTO might consider.

At the WTO, "investment" proved controversial ab initio, and was resisted by India and others at every stage, with a decision at Doha (para 20 of the Doha Ministerial Declaration), that the subject, after study in a working group, would be taken up for negotiations, after MC5, "ONLY ON THE BASIS OF EXPLICIT CONSENSUS" (emphasis added).

After the collapse of MC5 at Cancun (2003), and with it the Doha Work Programme, the negotiations were relaunched at the General Council in July 2004 in Geneva, through what became known as the Framework Agreement (WT/L/579). That says, in its para 1g: "Relationship between Trade and Investment, Interaction between Trade and Competition Policy and Transparency in Government Procurement: the Council agrees that these issues, mentioned in the Doha Ministerial Declaration in paragraphs 20-22, 23-25 and 26 respectively, will not form part of the Work Programme set out in that Declaration and therefore NO WORK TOWARDS NEGOTIATIONS ON ANY OF THESE ISSUES WILL TAKE PLACE WITHIN THE WTO DURING THE DOHA ROUND" (emphasis added).

It is not clear, whether before issuing the draft agenda for the General Council (GC) meeting, DG Azevedo had "consulted" the Chairman of the GC; if not, it was a violation of past GATT practices. Even if he had consulted, it suggests poor judgement, on the part of all involved, to have included the item in the draft agenda without prior consultations with the membership, and finding a consensus.

At the GC, apart from India and others who openly objected to the item on the draft agenda, the US (which had opposed it in relation to the G20 Sherpas meeting) had viewed the inclusion as "inappropriate", but nevertheless, was somewhat equivocal in its stand. At the resumed GC meeting, however, the US has expressed its scepticism over the issue, and possible WTO rule-making, and said that experience has shown that getting a multilateral agreement on something like this may be a daunting task.

As Mr. Zutshi, in a communication to this writer, notes, while under the Rules, Members can propose an item for consideration at the GC, a distinction has to be drawn between purely routine and implementation issues under the covered agreements and substantive issues of interpretation/clarification of the provisions of those agreements and new issues, both within and outside the remit of the WTO.

While the GC procedural rules envisage freedom to propose agenda items, they have to be those pertinent to the implementation of covered agreements; there is no freedom to members to propose items outside the remit of the WTO. And even in respect of covered agreements, the issue has to be first brought before the relevant Council (Council for Goods, GATS Council or TRIPS Council) and brought before the GC only with the reports/ recommendations of the relevant Council.

When one talks of agenda setting and subsequent negotiations as the "members' business", one is talking about substantive issues, as outlined above and not routine and implementation issues pertaining to the covered items.

If a member or members, Zutshi adds, propose any agenda item outside the scope of the covered agreements, or a controversial one within the WTO remit also, it is the responsibility of the Secretariat (DG) to advise the member(s) suitably and bring the matter to the notice of the chairperson. It is then for the chairperson on his own or at the behest of the DG to drop the issue and inform concerned members accordingly or undertake consultations with a view to exploring further possibilities. In any case, for an issue outside the remit of the WTO, the question of its inclusion in the agenda of a GC meeting is just out of the question without a prior consensus (see SUNS #8466, on key points of the investment facilitation proposals of various Members, and text of India's intervention at the GC withholding consensus).

Under the GATT 1947, Zutshi says, the chairperson of the GATT Council, on the request of interested members, or a request from the DG, would undertake consultations. It did not necessarily involve the DG's approval.

And while the DWP did set up a study group on Trade and Investment (as argued by some Members at the GC to make the questionable claim that investment is within the WTO remit), in terms of the Doha Declaration itself, and the July 2004 Framework, it is clear that no work on this subject can take place at the WTO before the conclusion of the Doha Work Programme (as modified by the July Framework) as a Single Undertaking.

And at the Nairobi MC in December 2015, it was China (to safeguard its own interests), that got inserted into para 30 of the Nairobi Ministerial Declaration (in the context of the DDA), the words "... Members have different views on how to address the negotiations. WE ACKNOWLEDGE THE STRONG LEGAL STRUCTURE OF THIS ORGANIZATION" (emphasis added).

The insertion alludes to the need to respect DDA mandates, and that decisions are based on consensus (Art. IX of Marrakesh Agreement) and therefore cannot be imposed by some without agreement of all.

It is clear that those proposing (in the Job documents) discussion of Investment Facilitation at the GC, and those objecting and refusing to join consensus, do not stand on the same footing. In terms of the Nairobi Ministerial Conference decision, IF is a new issue, and it is for those who propose it to convince others and get their consensus.

And as India said at the resumed GC meeting of 18 May, discussions at WTO do not occur without a context and that context is setting enforceable multilateral disciplines or rules.

[* Chakravarthi Raghavan, the Editor Emeritus of the SUNS, contributed this comment.]

 


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