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Investment facilitation and links to China’s BRI

Chakravarthi Raghavan considers whether China’s push for WTO talks on investment facilitation (IF) has to do with its much-touted Belt and Road Initiative, and questions the role of the WTO secretariat in appearing to promote the controversial IF agenda.

GENEVA: The stalemate over the inclusion of investment facilitation (IF) in the agenda of the 10 May WTO General Council (GC) meeting, which was resolved with a compromise of sorts in the form of a statement by the GC chair, has nevertheless brought to the fore many questionable practices of the WTO secretariat and major systemic issues that, if left unresolved, may cause irreparable damage to the multilateral trading system.

While the compromise has enabled the GC to proceed with other items on the agenda, some current and former trade diplomats feel that it may still leave the door open for the proponents of IF to keep bringing up the issue under different formulations at future meetings, and/or attempt to inject it with a new nomenclature into the upcoming WTO Ministerial Conference at “green room” and similar, smaller consultations in an attempt to secure a decision.

Reacting to the GC chair’s compromise statement and modified agenda (see TWE No. 638), B.K. Zutshi, former Indian ambassador to GATT 1947 (who negotiated the critical final stages of the Uruguay Round trade talks), said that the best option would have been to drop the IF 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, the IF proponents may have got a toehold, unless it is ensured that it does not appear on the agenda again without a consensus. There is thus a need to be vigilant, not only vis-a-vis China and other proponents 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 the IF issue in at some restricted consultation meetings, 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 WTO Budget Committee, to put restraints on the secretariat, making it clear that the WTO Director-General (the head of the secretariat) is just an international civil servant with no powers or authority beyond implementing in letter and spirit consensus decisions of member states.

Chinese stance

The compromise achieved via the GC chair’s statement, over the Indian objections to the draft agenda and initial reports of a hardline stance by some proponents like China to keep IF on the agenda, has led some trade diplomats, past negotiators and trade observers to speculate whether the Chinese stance is linked to its Belt and Road Initiative (BRI) 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 postwar world order, in particular the trade and economic order, is in a state of flux and uncertainty – with the US, hitherto its hegemon, functioning under the Trump administration in a chaotic way but seemingly intent on wielding a wrecking ball to that order – the impasse at the WTO on completing the Doha Development Agenda and the hardline Chinese stance on IF raise many troubling questions.

Among these 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 “globalization” (which former US Secretary of State Henry Kissinger, in a 1999 lecture, called “just another name for US domination”*), with China emerging as a 21st-century hegemon and colonial power of sorts. [* Cited in Chakravarthi Raghavan (2014), The Third World in the Third Millennium CE, Vol. 1 (Penang: Third World Network), pp. 227, 230-232.]

The BRI and its broad contours were unveiled at a 14-15 May forum in Beijing. Some 28 attending heads of state/government, according to Chinese media reports, signed on to the communique. These reports also said that the forum will meet again in two years’ time.

On 16 May, Pakistan’s leading English daily Dawn published in great detail what were purported to be Chinese plans or at least detailed ideas on the Pakistan leg of the BRI, the China-Pakistan Economic Corridor (CPEC) (https://www.dawn.com/news/1333101/exclusive-cpec-master-plan-revealed). While the 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 the country, with some opposition parties demanding full and open discussion on its benefits and future obligations before Pakistan signs any accords.

Coupled with the BRI and the kind of ideas that China has in terms of investments (and loans) in other countries – in projects expanding China’s world trade share by use of Chinese resources (manpower/skills/export capacity etc) in those countries – the IF proposals in 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 process.

The Chinese and other proposals on IF (see TWE No. 638) suggest extremely detailed transparency requirements that would entail spelling out all criteria used in licensing requirements and the appraisal of potential investors. If the 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 IF proposals at the WTO envisage some rules and disciplines involving pre-investment rights for investors under the rubric of “transparency”, EU member countries at the Beijing forum unanimously declined to endorse the trade statement prepared by the hosts, according to a report in the British daily The Guardian, 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 the IF proposals (by China, Brazil-Argentina and Russia) at the WTO have an uncanny resemblance to initial ideas that the US unveiled in 1982-86 when it began outlining its proposals for a “services agreement” under the General Agreement on Tariffs and Trade (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”. Very difficult Uruguay Round negotiations over the period 1986-94 eventually resulted in a less freewheeling “trade in services” accord incorporated in the General Agreement on Trade in Services (GATS).

The current proposals (now mere “communications”) in Job documents before the GC effectively mean that markets in any WTO member state would be open to investors without conditions, unless adequate criteria and conditions have already been put in place by potential host countries. They would therefore be “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.

Role of the secretariat

At a time when the large majority of the developing-country WTO members are still struggling to secure the completion of the Doha Development Agenda – including ensuring food security, a special safeguard mechanism in agriculture, policy space and other basic development requirements – if the membership is faced with a stalemate over IF in the run-up to the Ministerial Conference to be held in Buenos Aires in December, 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 freewheeling Director-General to follow the Marrakesh Agreement (WTO Agreement) and past GATT practices.

In terms of the WTO Agreement, the rules of the GC provide that:

l     Meetings of the GC shall be convened by the Director-General by a notice issued not less than 10 calendar days prior to the date set for the meeting (Rule 2).

l     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).

l     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).

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

l     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).

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

When the text of the WTO Agreement was being negotiated in October-November 1993 at official level in Geneva, and the negotiations were among some key delegations outside the GATT building, one of the key issues was in respect of powers and authority of the Director-General. This was eventually settled on the explicit understanding that there would be no change in that regard from the position under GATT 1947.

At that time, the then GATT Director-General, Peter Sutherland, had gone before this group and pleaded and argued for some powers akin to those of heads of other international organizations and UN specialized agencies, including the ability and right to bring issues to the attention of member states for their decision. As Sutherland himself told this writer at that time, this was turned down near-unanimously within the group, on the ground that the WTO Agreement involved a delicate balance of rights and obligations of members, and that 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 Director-General 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 GATT 1947. This meant that the Director-General would have no role either in agenda setting or in subsequent negotiations, except as a facilitator.

Also, under GATT 1947, the chair of the GATT Council did not have any independent authority. They 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 IF.

For example, in 1992, when the Uruguay Round negotiations were taking place, according to Zutshi, India’s GATT ambassador who was chair of the GATT Council at the time, two rather controversial issues came up for consideration: (i) the demand by some contracting parties to expel the then Yugoslavia from the membership; and (ii) applications for accession by the People’s Republic of China (PRC) and Taiwan. Both issues were highly contentious, Zutshi says, and he held consultations and obtained a consensus on both.

[In the case of Yugoslavia, the consensus was for a temporary suspension of its membership, which entailed the Yugoslav delegation being able to attend meetings only as observers but having the right to receive all documents (a compromise approach that was subsequently also adopted by the UN 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 the PRC’s application in the agenda and, after negotiations, not to grant membership to Taiwan (also involving negotiations on the name to be given to the territory for which Taiwan was seeking accession) ahead of the PRC. (Both eventually acceded to the WTO in 2001, with the PRC accession approved first, before that of Taiwan, which was to be known in the WTO by its capital Taipei.)]

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

Controversial issue

In the present instance, when the draft agenda was issued including the IF item, WTO Director-General Roberto Azevedo was aware of IF’s controversial nature and opposition to the idea from key delegations. He had tried to promote it at a meeting of sherpas in the run-up to this year’s G20 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 G20 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 then European Community (EC) 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 the meeting, as subjects that GATT and/or the 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 the fourth Ministerial Conference in Doha in 2001 that the subject, after study in a working group, would be taken up for negotiations after the fifth Ministerial Conference “only on the basis of explicit consensus”.

After the collapse of the fifth Ministerial Conference at Cancun in 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. That agreement stated that the issue of investment would not form part of the Doha Work Programme and that “no work towards negotiations on [investment] will take place within the WTO during the Doha Round”.

It is not clear whether, before issuing the draft agenda for the GC meeting, Director-General Azevedo had “consulted” the GC chair; 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 meeting on 10 May, apart from India and others which openly objected to the item on the draft agenda, the US (which had opposed it in relation to the G20 sherpas meeting) viewed the inclusion as “inappropriate” but nevertheless was somewhat equivocal in its stand. At the resumed GC meeting on 18 May, however, the US expressed its scepticism over the issue and said that experience has shown that getting a multilateral agreement on something like this may be a daunting task.

As Zutshi notes in a communication to this writer, members can under the rules propose an item for consideration at the GC, but a distinction has to be drawn between purely routine and implementation issues under the covered WTO 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 Trade in Goods, Council for Trade in Services 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 propose any agenda item outside the scope of the covered agreements, or a controversial one within the WTO remit also, Zutshi adds, it is the responsibility of the secretariat (Director-General) to advise the member(s) suitably and bring the matter to the notice of the chair. It is then for the chair on his/her own or at the behest of the Director-General 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, its inclusion in the agenda of a GC meeting is out of the question without a prior consensus.

Under GATT 1947, Zutshi says, the chair of the GATT Council, on the request of interested members or a request from the Director-General, would undertake consultations. It did not necessarily involve the Director-General’s approval.

And while the Doha Work Programme 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 2001 Doha Ministerial Declaration itself and the July 2004 Framework Agreement, 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 Framework Agreement) as a single undertaking.

And at the Nairobi Ministerial Conference in December 2015, it was China (to safeguard its own interests) that got inserted into the Nairobi Ministerial Declaration (in the context of the Doha Development Agenda) 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 the Doha Development Agenda mandates, and for decisions to be based on consensus (Article IX of the WTO Agreement) and not be imposed by some without the agreement of all.

It is clear that those proposing discussion of IF 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 the WTO do not occur without a context and that context is setting enforceable multilateral disciplines or rules. (SUNS8467)

Third World Economics, Issue No. 639, 16-30 April 2017, pp2-5


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