NGOs critical of UNCTAD's investment and pro-business approach

A recent UNCTAD-NGO meeting on a possible Multilateral Framework on Investment (MFI) has led NGOs to wonder aloud whether the UN agency has lost sight of its raison d'etre - of championing the development principle, due to its promotion of a MAI-type MFI and its collaboration with big business.

by Tetteh Hormeku

GENEVA: A two-day consultation meeting with NGOs and trade unions organized by UNCTAD in the second week of June (and which ended on 12 June) was marked by frank and sharp criticisms by NGO representatives over some aspects of UNCTAD's approach and activities.

UNCTAD officials responded to these criticisms, but as the meeting ended, the replies did not remove all the doubts of the NGOs, or answer the questions raised. Several NGO representatives were apprehensive that UNCTAD was losing its direction and spirit as guardian and defender of the development principle and perspective, and was trying to "mature" into an agency seeking "consensus."

"Since the prevailing consensus is the free-market liberalization model that is promoted by the Bretton Woods institutions and the WTO, UNCTAD seems to be seeking a role to be relevant to this model and to be accepted, for instance, by the WTO and the International Chamber of Commerce (ICC), rather than to challenge or provide alternatives to the model," said an NGO leader.

During sessions with senior UNCTAD officials, some NGOs were critical of what one of them termed the "UNCTAD ideology of pragmatism", its increasing collaboration with big business, and what was seen as the Secretariat's promotion of an MAI-type investment liberalization framework in developing countries.

But in a concluding session, the UNCTAD Deputy Secretary- General Carlos Fortin, said the issue of foreign direct investment (FDI) was more complicated, and the arguments about its benefits and detrimental effects went back to the 1950s. The question of what kind of investments promote development, particularly in a globalized economy where investments take many forms, was different from that of whether a multilateral agreement on investment (MAI) is needed. There were many countries like China which attracted investment without an MAI, and others with agreements and lavish incentives but which got no investment.

UNCTAD, Fortin said, did not favour an MAI, and, if asked, would not advise countries to accede to the OECD-MAI. UNCTAD favoured a multilateral framework on investment (MFI), and one based on the "positive list" approach of the General Agreement on Trade in Services (GATS).

But whether a different type of agreement (from an MAI) should be negotiated was an issue for governments to decide.

Forthcoming UNCTAD conference

UNCTAD, he added, took the dialogue with NGOs seriously, and would take into account their concerns and views in the Secretariat's discussions and in the studies it would be undertaking on this investment issue.

One of the controversial activities of UNCTAD that was discussed at the NGO consultations was the forthcoming UNCTAD conference, "Partners in Development" to be held in Lyon in November. This had been proclaimed by the Secretariat as an initiative by UNCTAD to "reach out to civil society" and the NGOs had been invited to help design and participate in it.

However, during a session where the concerned UNCTAD staff explained this programme, several NGOs said although the event was presented as an opportunity to involve "civil society" in UNCTAD's activities, it actually seemed to be a means to promote the business and interests of big corporations.

Roberto Bissio, director of ITeM (Third World Institute) in Uruguay, said he was "very worried" about how UNCTAD was taking sides, for example, and was one-sidedly viewing foreign investment in the debate on an MFI.

He was also critical of several UNCTAD projects in the "Partners for Development" programme. For example, he said, the project on Biotrade was facilitating transnational corporations' making deals on access to biodiversity resources with developing countries.

This was a highly controversial issue in Latin America, where the leaders of indigenous peoples' organizations had called for a halt to such deals. "UNCTAD will face a lot of antagonism from Latin American indigenous people if it promotes this biotrade," he said.

Bissio also said that the UNCTAD project on electronic commerce (trade points and such programmes) might run into problems. In Africa, there was a lot of debate going on over the World Bank project promoting Internet services. This was being challenged by local African Internet Service providers - mostly NGOs that have been working in this area for over a decade, trying to help African countries to link up. These NGOs said they were being killed off by the World Bank-supported promotion. The local African providers were upset that their operations were being driven out by unfairly subsidized programmes of development agencies.

Bissio said although the UNCTAD Secretary-General had told the NGOs that the Lyon conference was an open proposal that NGOs could help design, in reality, there was hardly any space for meaningful NGO participation as the programme was already highly advanced and the NGOs in the room could not support it.

Taoufik ben Abdallah from the Senegal-based ENDA, a regional NGO, said the programme as explained seemed to be giving a role to foreign investors as the panacea to solve every problem. He said that from an African perspective, this was a very dangerous idea to promote and even a high-level regional meeting involving African economic ministers had concluded that FDI was not a panacea. He criticized UNCTAD for promoting the idea through this programme that foreign investment is the solver of problems when this was not true.

A representative from a European NGO said that UNCTAD was pushing the ideology of pragmatism. In the present international context, this meant supporting the intense international competition for markets in which states could have little control over their own economies. Due to this liberal model, there was going to be global deflation.

The UNCTAD Director coordinating the Lyon conference and programme, Mr. Jean Gurunlian, in responding to the NGOs, said they were right about the ideology of pragmatism. Governments today seemed to have a single vision, people believed in the private economy and its ideology was driving the world economy. UNCTAD, Gurunlian said, has no ideology at all. He agreed that limits have to be set on excessive liberalization. He also agreed FDI is not a panacea and that certainly some foreign investments had led to difficulties for host countries, but when investments are carried out, taking account of social concerns, they are a driving force for development.

UNCTAD, he said, was aware of the difficulties in the issue of biotrade as companies pillage the resources of indigenous communities, but felt the UNCTAD project could go ahead whilst avoiding past mistakes.

MFI programme criticized

In a final session, NGOs held a frank dialogue with Fortin - with most of it centred on UNCTAD's role in relation to the MFI.

Presenting the views of NGOs in the previous day's session on an MFI, Martin Khor of the Third World Network said the NGOs had been critical of the UNCTAD approach to implementing its Midrand Mandate.

Instead of first examining the positive and negative effects of investment liberalization on development, using historical experiences and formulating policy conclusions, the Secretariat seemed to have taken the MAI model and attempted to look at development dimensions.

Khor said the NGOs had concluded, on the basis of the UNCTAD work programme on an MFI, including its publications, the structure and content of its outreach seminars and expert group meetings, that the Secretariat was promoting an MAI-type liberalization policy, and trying to influence developing countries to accept negotiations for an agreement.

Whilst senior UNCTAD officials had justified this approach by saying that developing countries wanted to be prepared for negotiations, the NGOs believed this was not an adequate justification because several developing countries had made it clear they were not in favour of negotiations of an investment treaty in the WTO (including at the UNCTAD-organized dialogue among Ambassadors and NGOs).

Khor said the WTO working group on trade and investment had an agenda made up mainly of topics to clarify the relationship between foreign investment and macroeconomic variables, and if UNCTAD were serious about helping developing countries, it should have helped conduct research on those macroeconomic and development issues and make policy conclusions.

Instead, the MFI work programme had been strongly promoting the MAI- type approach and continuously initiating discussions on elements of the OECD's MAI such as national treatment and investors' rights when it had not even set out the development context and framework within which conclusions could be drawn about policy effects and implications. Khor said that many of the NGOs present urged the UNCTAD Secretariat to carry out an overall review of its approach.

Pradeep Mehta of the consumer group CUTS (India), citing the need to regulate FDI, said UNCTAD should strengthen the domestic regulatory capacity of developing countries. He said what was disturbing was the drive of global business to have influence over UNCTAD.

As an example, he cited the draft UNCTAD paper on its relations with civil society.

The paper said "UNCTAD also intends to work with the ICC to develop joint initiatives in trade facilitation measures. Studies and reports on competition law and policy and consumer protection are made available to interested parties, including NGOs and the private sector, through the ICC. There is close cooperation with the ICC in helping countries to formulate competition and consumer protection law and policy, and in institution-building."

It was alarming, said Mehta, to see that UNCTAD would work with the ICC to formulate competition and consumer protection law and policy for countries to adopt.

This he found "absolutely shocking." He asked whether UNCTAD intended to replace Consumers International (which also has an agreement with UNCTAD) with the ICC on competition policy.

Alejandro Villamar of the Mexican Action Network of Free Trade said that NGOs are concerned about the MAI approach as investment liberalization had destroyed economies, starting with Mexico and spreading to East Asia. There was no mechanism to ensure that other countries would not be damaged.

Instead of the MAI approach, he urged UNCTAD to take an alternative positive approach, that is, to help establish a mechanism to control speculative capital and "prevent future destruction of our economies." UNCTAD, he said, must prevent such terrible destruction in which the national savings of several decades can be lost in a few days.

"Good and bad investments"

Responding to the comments, Fortin said UNCTAD was taking the views of civil society very seriously and not in a token way, and would very seriously include in the Secretariat's discussions what they were hearing and try to meet the criticisms.

He said of the many issues brought up by NGOs, the most fundamental was what UNCTAD can do or say about international investment, whether it was conducive to development or not. On that issue, the governments were clear as they were all trying to attract foreign investment.

He added that having said that, there was the issue of what kinds of investment there were and what kinds of impact they would have. There was a difference between short-term financial flows and FDI, as financial flows were volatile in a way FDI was not. This view has been put forward by UNCTAD. Financial flows have to be monitored and regulated, and the next Trade and Development Board meeting would discuss how to prevent financial flows from becoming damaging. UNCTAD, he said, had also argued for a Tobin tax to dissuade speculators. Although it is an old proposal, UNCTAD was clear about this.

On FDI, the issue was more complicated, he said. "We know FDI can do good but for this, certain requirements are needed. The quality of investments is important and studies are underway on the differential impact of good and bad investment."

On the detrimental effects of FDI, Fortin said this was an old issue going back to the 1950s. The work of the former UN Centre on Transnational Corporations (UNCTC) was based on this, looking at the effects of foreign investment on the balance of payments, consumption patterns and so on.

But to go on in that way was "not so good", said Fortin. In a globalized economy where investment takes many forms and is mobile, "how can we pose the developmental impact of foreign investment?"

MAI not a prerequisite

This question, he said, was different from that of whether a multilateral agreement is needed. UNCTAD, he added, does not advocate the MAI as a prerequisite for the kind of investment that is needed. UNCTAD recognizes the matter is on the table, and intends to do further work on the relationship between these arrangements and the flow of investment.

Studies on the MAI were at present purely theoretical, without any empirical evidence, for example, that if there is an MAI, more investors would come. The case of China had shown investment could be attracted without such an arrangement, whilst there are also many countries with lavish incentives but no investment.

"Perhaps the answer is you don't need it (an MAI) to attract investments."

Fortin said another issue is the limitations this kind of agreement would lead to. It would impose limits on domestic policy instruments, for example, by prohibiting performance requirements. These requirements are forbidden in the MAI.

Another element UNCTAD would look into is dispute settlement. The present proposal is highly elaborate. The problem with an elaborate system can be seen, for example, in anti-dumping procedures where the mechanism to resolve disputes is so complex that it prevents a Third World exporter from selling even if it wins the case. The mere act of initiating an anti-dumping procedure is enough to discourage an exporter, the UNCTAD Deputy Secretary-General added.

Fortin asked: "What can we do to illuminate the issues raised? What kind of flow of investment is conducive to development and what kind is not? UNCTAD would do studies on this."

He also said "we don't believe developing countries should accede to the MAI in the OECD." He added if they seek advice, he would advise them not to accede. One does not accede to something one did not negotiate.

But on the question of whether they should negotiate a new agreement, this was an issue for governments to decide. This question revolved around whether they should be involved in a negotiation and if so, under what kind of parameters, and so on.

On the ICC, Fortin said UNCTAD's relations with it were closer now than in the past. The ICC felt it represents business and wants to respond to social concerns such as employment.

In another round of questions, Kibre Dawit of the Africa Village Academy (Ethiopia) said her country was going through structural adjustment and had not yet joined the WTO. She asked how UNCTAD helps these countries, not just in terms of "how to join the WTO" but also with respect to reshaping their development. She asked how UNCTAD is rethinking development.

How could countries like hers benefit from joining the WTO or the MAI or take part in dispute settlement cases "when we don't even have enough lawyers to serve the domestic needs of the population?" Is UNCTAD also interested in developing alternative development strategies together with NGOs concerned with this issue, she asked?

Charles Arden-Clarke of WWF International said in the past four to five months, the thinking on globalization had changed considerably. Would UNCTAD do different things in the next four to five months in view of this?

Myriam Vander Stichele of Transnational Institute (Netherlands) said the NGOs were "shocked" by the way UNCTAD had organized preparations for the Partners in Development conference in Lyon.

Tony Tujan from the IBON research institution, Philippines, said in response to Fortin's explanation, that NGOs believed that FDI has a role and understood that nations wanted investment in a world of declining aid. But this was not the issue of contention. "The real issue is that a model of wholesale investment and trade liberalization is being peddled and indeed imposed, and its extreme form is the MAI," he said.

He added that the strong reaction from the NGOs was due to the fact that the UNCTAD work programme on an MFI is carried out in the framework of preparing nations for negotiating an investment agreement.

"What we NGOs expect from UNCTAD is for it to look into development experiences and possibilities in the context of a fast-changing world where there is the reality of crisis in many countries," Tujan said.

"This is the leadership and vision we expect from UNCTAD. We don't want a continuation of discussions on the MAI, and especially we don't want it in the WTO. UNCTAD has to seriously review its work on an MFI."

Miloon Kothari of Habitat International said that many human rights groups were against the MAI approach to investment. He said it would help if UNCTAD were to study and show how the prescriptions of the MAI run contrary to human rights instruments and to environment agreements. UNCTAD should also study how conflicts are, and will be, created by the MAI.

In response, Fortin said that in its document for UNCTAD-IX in Midrand, the Secretariat had warned that globalization offered opportunities but also had its dangers, including creating financial instability and greater marginalization.

On the Lyon conference, the Secretariat would see what could be done. Perhaps there could be another event, instead of the Lyon conference, for civil society.

On the MAI model, Fortin said UNCTAD's work is not on an MAI but a possible MFI. If anything, it might take the "GATS approach" of a positive list (of commitments), in discussions on an MFI.

Representatives of diversity

Tony Hill, director of the UN-NGLS (Non-governmental Liaison Service) which co-sponsored the meeting, said he had been to all eight UNCTAD-NGO consultation meetings. In the early years, UNCTAD staff had conducted lectures and the NGOs would mainly learn from them. But it was evident that now, the NGOs were coming to the meeting with well thought-out views and that the relation was maturing.

He added that with governments seeming to have a consensus of views in the macroeconomic field, NGOs are now the main representatives of diversity in the world as everyone else conforms. There is more scope for NGOs to generate debates in international institutions.

As the meeting ended, many NGO participants wondered whether UNCTAD would take up their concerns seriously, and whether there would be any change in UNCTAD's approach of promoting big business, and, in particular, in its overall approach towards the MFI issue.

Some NGO representatives said they had been disillusioned with what they had learnt about the UNCTAD approach, as the reason for its establishment and existence was to champion and advocate the perspective of development and of the South, and not to be a consensus-seeking agency with a niche of being "relevant" to the agenda of donor countries or to be an appendant to the more powerful WTO.  (Third World Economics No. 187/188, 16 June-15 July 1998)

Tetteh Hormeku is a Programme Officer with Third World Network's Africa Secretariat in Accra, Ghana.