WTO trade/investment group produces list of issues to study

The important first meeting of the WTO's new working group on Trade and Investment was held on 9-10 June 1998. After interventions and proposals from some 20 countries, the group's Chairman produced a check-list containing three clusters of issues which the group will examine. The following three articles report on and analyse this meeting.

by Chakravarthi Raghavan

GENEVA: The WTO Working Group on the Relationship between Trade and Investment held its first meeting here on 9-10 June and identified a preliminary check-list of issues to be studied. It also agreed to hold two other meetings this year - one in September and the other, in November.

The group, at its meeting, heard presentations from some of the international and inter-governmental organizations (the OECD, the World Bank and UNCTAD's Investment Division) on their activities in the area of investment.

There were also initial presentations and oral interventions from over a score of delegations on how they saw the study process, and the issues that need to be looked into.

In the light of the discussions and comments of delegations, the Chairman, Ambassador Krirk-Krat Jirapaet of Thailand, has drawn up a check-list of issues.

The draft check-list remains a "non-paper" of the Chair, and is to be revised.

The non-paper identifies three clusters of issues to be studied.

The Chair's non-paper said that it was widely recognized that the Working Group's Work Programme should be "open, non- prejudicial and capable of evolution" as the world proceeds and that all elements, and not only those in the first cluster of issues, should be permeated by the development dimension.

First cluster of issues

The first cluster of issues in the Chair's initial check- list, and changes proposed by several delegations, calls for study of:

* implications of the relationship between trade and investment for development, economic growth and macro-economic stability, including for economic variables such as domestic savings, fiscal position and the balance of payments.

The other issues identified under this cluster also include the implications of trade and investment relations to industrialization and the new phenomenon of deindustrialization, denationalization and decapitalization associated with foreign direct investment (FDI); income and wealth distribution, competitiveness, transfer of managerial skills, and domestic conditions of competition and market structures.

In studying these issues, the working group is to seek experiences of Members at different stages of development, and take into account the relationships between different kinds of foreign investment.

Second cluster of issues

Another cluster of issues identified involve the economic relationship between trade and investment, such as:

* the degree of correlation between trade and investment flows;

* the impact of trade policies and measures on investment flows;

* the impact of investment policies and measures on trade flows;

* the determinants of the relationship between trade and investment flows including the efforts of industrial countries to promote investments abroad of their corporations;

* the impact on business strategies, practices and decision- making, and on trade flows;

* country-experiences of national investment policies, including through the use of investment incentives;

* the relationship between the mobility of capital and mobility of labour;

* the relationship between trade and investment and competition at national and international levels.

Third cluster of issues

A third cluster involves what is described as "stocktaking of existing international instruments and activities regarding trade and investment.":

* existing WTO provisions;

* bilateral, regional, plurilateral and multilateral agreements and initiatives;

* implications for trade and investment flows of existing international instruments.

The WTO Secretariat has been promoting the trade-investment issue and rules for it in the WTO, on the ground that several of the existing rules already cover investment and property rights and rights of foreigners for national treatment. In the Secretariat's view - promoted often in public speeches of its officials - this justifies writing multilateral rules covering the whole area.

However, several trade experts (and developing country delegations) have said that if there are WTO rules on particular aspects of trade and investment, the issue of either further tightening or expanding the rules have to be addressed as amendments to those rules.

"It is inappropriate, and perhaps strictly illegal," one trade expert said "to allow a process by which a 'new' agreement will be evolved, that will then indirectly change the other provisions. We have already enough confusion because of the conflicts between general subsidy and agricultural subsidy provisions, between national treatment and rules of origin and so on. Developing countries and their negotiators would be at a disadvantage in this type of negotiations."

The Chair's non-paper also suggests that on the basis of the work and studies, there should be an examination of proposals for:

* identifying common features, differences and possible gaps in existing international instruments;

* respective advantages and disadvantages of national autonomy and bilateral, regional and multilateral rules on investment, in particular from a development perspective;

* the rights and obligations of home countries and of investors and host countries; and

* the relationship between international cooperation on investment policy and international cooperation on competition policy.

While a number of issues have been thus identified for study, it is not clear how the study would be undertaken, and who would be doing it.

Several Third World delegations have privately said, and some of their oral presentations made the point indirectly, that judged by last year's WTO Secretariat's annual report (where the issue of investment has been addressed), they had no confidence that the Secretariat would undertake any objective or unbiased study.

They noted that the WTO report had even failed to identify in the bibliography, writings of eminent economists who questioned the kind of linkages, and a win-win benefit situation, painted by the protagonists of the foreign investment theology.

In some of the informal consultations, the idea of asking UNCTAD to do this also appeared to have come up, but with several Third World delegations having privately voiced their reservations about the Investment Division of the Secretariat undertaking studies involving development policy and the whole range of interdependent issues going beyond narrow interpretations of "trade" or "investment".

Need for objective studies

The Division though has offered, at the UNCTAD expert group meeting, to provide "technical assistance" to help developing countries to negotiate, and to hold seminars for this purpose.

But several Third World delegations privately said, what is needed at this point are objective studies on these interdependent issues, without any preconceived notions on need for bilateral treaties, or plurilateral or multilateral ones.

"We need a developing-country demand-driven process, not one of international secretariats and their donor-driven dynamics," one delegate said.

In the consultations, the EC appears to have sought to have a parallel process to draw conclusions, to be taken on hand now, rather than to wait for the conclusion of the studies of various issues.

The EC is pressing for, and hoping to steer the working group's process in the direction of the WTO taking a decision to launch negotiations, arguing that the Singapore Declaration requires the working group to report to the WTO in 1998.

There has been some talk that, with the WTO planning a Ministerial meeting early in 1998 to observe the 50th anniversary, these issues and moves could be smuggled in by the majors (just as they did with information technology at Singapore) and put into a Declaration.

But the Singapore Declaration has not set any time limit to the group to complete its work. The relevant portion of the decision of Ministers to set up the two study processes (on trade and investment, and trade and competition policy) merely says:

"The General Council will keep the work of each body under review, and will determine after two years how the work of each body should proceed. It is clearly understood that future negotiations, if any, regarding multilateral disciplines in these areas, will take place only after an explicit consensus decision is taken among WTO Members regarding such negotiations."

No conclusions have been reached

One Third World participant said that no conclusions have been reached, beyond agreeing to hold two more sessions of the group this year.

Another said that it was apparent that some OECD countries like Canada and Japan, as also, the EU's Executive Commission, want to push the WTO process further along the road to slow down the OECD process, where the US is calling the shots for a "high-quality" agreement.

One trade expert said that whether developing countries should allow themselves to be used, or adopt a "panic scenario" (of a multilateral agreement being inevitable and hence trying to find exceptions and special rules for themselves) is a serious issue that needs to be addressed - in capitals and by developing country negotiators, with cool heads and perhaps some iron nerves. (TWE No. 163, 16-30 June 1997)

Chakravarthi Raghavan is the Chief Editor of the South-North Development Monitor (SUNS) from which the above article first appeared.