WTO symposium debates investment issue

During the WTO symposium, developing-country and NGO representatives denounced continued attempts to draw up a WTO investment agreement, countering claims of its purported benefits and warning of the grave harm it could inflict on developing economies.

by Cecilia Oh

GENEVA: The WTO public symposium on 17 June saw a wide-ranging debate on investment, with many speakers questioning the arguments put forward by the proponents of a WTO investment agreement and warning against the use of non-transparent processes to impose a decision at the Cancun Ministerial Conference for starting negotiations thereon.

Several NGO representatives analyzed what they called the “myths” surrounding the proposed investment agreement in the WTO, and called for Ministers to decide against negotiating an agreement.

EU and Japanese delegates, backed by European business representatives, reiterated their support for a WTO agreement, but delegates and Members of Parliament from some developing countries signalled opposition to negotiations.

The discussion took place at a session on “Investment in the WTO? Myths and Realities”. The session was organized by seven NGOs (Center for International Environmental Law, Third World Network, Institute for Agriculture and Trade Policy (IATP), World Wide Fund for Nature, Public Services International, Oxfam, and International Gender and Trade Network) as part of the three-day WTO-organized symposium on “Challenges ahead on the road to Cancun”.

Serious harm

Starting the session, Martin Khor of the Third World Network said many studies had now shown that the type of investment agreement being proposed at the WTO would seriously harm developing countries’ interests as their policy space to regulate and challenge investments would be severely restricted.  They would be exposed to financial instability from free capital flows and balance-of-payments deficits, their ability to place performance requirements on firms and to have industrial policy would be curbed, and governments were likely to face huge compensation claims for policy measures that could be considered “expropriation.”

He added the WTO was the wrong venue for an investment agreement as its competence was in trade issues and the principles governing trade were not suitable for investment. In particular, the application of non-discrimination and national treatment was inappropriate and would damage development.  An investor rights’ treaty would also be against the WTO principle of reciprocal benefits as it would overwhelmingly benefit developed countries which were the exporters of investment whilst developing countries would suffer the costs, and thus the WTO would become even more imbalanced.

Khor said the WTO investment working group had now finished its work and it was clear there was no agreement on any of the issues and thus there was no way an explicit consensus on modalities (for investment negotiations) could be established by Cancun.  Many developing countries are against starting negotiations.  He warned against attempts made by proponents to artificially create a “consensus”, for example by defining “modalities” in merely procedural rather than substantive terms, by producing draft decisions that do not reflect developing countries’ positions, or by holding “Green Room” processes that exclude many countries.

As the issue had seriously split the WTO membership and damaged the WTO’s reputation, the Cancun conference should drop investment from the WTO agenda altogether, or at most mandate further study of the issue and not start negotiations.

Tom Crompton of WWF International said his organization had fundamental disagreements with investment being brought into the WTO due to systemic concerns. Any investment-related treaty should stress investor obligations and must be consistent with environment interests, but the proponents’ proposals did not meet these needs.  “An investment agreement should not be pursued by an organization like the WTO which has liberalization as its raison d’etre,” he added.

Whilst the EC assured that governments would have policy flexibility, yet it also stated that non-discrimination is the treaty’s lynchpin.  “Why say that flexibility is allowed but only up to this limited point because non-discrimination and national treatment is required?” he asked.

He said that the EC has now put its aims in a philanthropic light, redubbing the treaty as an “investment for development framework”. “This is blatant double-speak especially since the EC has admitted a WTO treaty will not necessarily increase investment flows.”

Myth of policy flexibility

Peter Hardstaff of World Development Movement said there were five reasons why it was a myth that a GATS-type approach promoted by the EC could provide flexibility and policy space for developing countries in an investment agreement. (GATS is the WTO’s General Agreement on Trade in Services.)

Firstly, there was uncertainty over the interpretation of many GATS rules. So if the GATS approach were transposed to an investment treaty, the same uncertainties would be transferred.  Secondly, for countries to properly use exceptions in GATS requires that they can foretell in advance what their future needs and policies will be. Thirdly, commitments made in GATS become “locked-in” as countries cannot backtrack unless they compensate.  Real flexibility allows governments to change policies but GATS denies this.

Fourthly, the GATS “progressive liberalization” principle means there is no end to deregulation and liberalization, and regulations that developing countries retain will be targeted for elimination in a future negotiating round, as is evident from how developing countries are now pressurized by the EC in the ongoing GATS negotiations.  Finally, developing countries are placed in an unequal position in the WTO as the GATS negotiations are bilateral in nature but the commitments made are then multilateralized.  An investment treaty using the GATS approach would place developing countries under more pressure to get rid of investment-related regulations.

“The GATS-style approach does not guarantee the flexibility developing countries need; in fact it guarantees a reduction in policy flexibility over time,” said Hardstaff. “Transposing this system to investment would be a mistake, and the EC and other proponents should abandon their efforts for an investment agreement, whether it is of a GATS-type or not.”

John Hilary of ActionAid said his organization’s new study showed that an investment agreement would make poor communities in developing countries more vulnerable to the negative aspects of foreign investment as it would threaten the key policy space these countries need to manage investment.  The EU has now admitted that its priority is to offer more protection to European companies and increase their market access.

“Thus this treaty would cause serious unbalancing of the WTO system. It should be rejected in Cancun.  Moreover, countries should reject any trade-off of investment for agriculture as the EU cannot give any agriculture concession, due to internal processes to which it has already committed itself.”

Audo Faleiro of the Brazil Mission said developing countries appreciated the sophisticated research done by the NGOs.  He encouraged them to research more into revisiting existing WTO agreements so that developing countries could get back the policy space already lost.  For example, the implementation of the Agreement on Trade-Related Investment Measures (TRIMs) showed the need to take back the right of developing countries to use presently forbidden policy tools.

Christopher Roberts from the European Services Forum said there was a case for a WTO investment treaty as investment is already in the WTO through the TRIMs Agreement and GATS.  Since there were over 2,000 bilateral investment treaties (BITs), an investment treaty in the WTO would help put developing countries in a better negotiating position.

A European Communities delegate said investment negotiations would be an opportunity to inject multilateralism into the law of the jungle.  There were 2,000 BITs.  He added we should not underestimate that investors face problems of transparency and wanted predictability through a WTO treaty.  Since developing countries need investment, they have an interest in opening their markets and a clear set of rules.  He asked the NGOs not to be simplistic as there was a win-win situation in having a treaty.

Ambassador K.M. Chandrasekhar of India said it was a mistake to assume that a WTO investment treaty would cause the 2,000 BITs to disappear, as a WTO treaty would not be a substitute for BITs.  No one can guarantee that BITs would stop existing just because a WTO treaty came into force.  In the trade field, the multilateral system coexists with bilateral and regional treaties, and one does not substitute for the others.

Chandrasekhar challenged the notion that lack of transparency is the main problem faced by investors.  Foreign investments worldwide had risen dramatically without an international investment treaty, so this notion was unconvincing, and it was clear investments flow to countries with more attractive conditions. There was also no guarantee that foreign investment will flow to developing countries as a result of a multilateral treaty.

On the present state of negotiations, Amb. Chandrasekhar said there is no agreement on the issues.  Even on scope and definition, it is not clear whether only foreign investment that leads to more trade should be covered or whether portfolio investment should also be included.

“In no single issue is there unanimity of views, nor do we understand what we are going in for,” he added. “The Doha exercise is aimed at clarifying seven issues and besides this we have the issue of obligations of investors and home states.  We must know what kind of agreement is being thought about.  Clarity of views (does) not exist on these issues.  I do not see the possibility of negotiations beginning.”

Family matters

Responding to questions, Khor said the non-discrimination and national-treatment principles were unsuitable for an investment agreement and thus the WTO should not deal with investment.  The developed countries had taken the principles, which were created to deal in a certain way with trade, and elevated them to a sacred status, attempting to apply them in an absolute way to non-trade issues of their choice such as investment.

Using the analogy of a family, Khor said the parents had a legal responsibility to take care of the interests of the children. They may invite guests for dinner but it is up to them to choose whom to invite, those invited would have limited rights as guests and they would not be granted “non-discriminatory national treatment.”  Moreover the family has the right to bar entry to outsiders and to impose conditions on those that enter the house.

Similarly, governments have a legal responsibility to promote and protect the interests of citizens and local investors and workers.  This was a larger principle than granting “national treatment” to foreign investors.  “Non-discrimination” in the WTO sense is thus inappropriate and damaging.  Therefore it would be damaging to locate an investment agreement in the WTO.

Panellist Kevin Watkins of Oxfam, in response to this, said:  “They do not just want the right to dinner, they want to take over your house.”  He said that the NGOs in Europe and developing countries were against an investment treaty, and the vast majority of developing countries also say that the WTO is not the place for investment.  The EU therefore is not working on behalf of European citizens when they advocate such a treaty.

“In effect the EU is saying governments in developing countries do not understand what is in the interests of their countries,” said Watkins. “The implication is that Pascal Lamy knows better than Lula what is in the best interests of Brazilians. This is paternalistic.  In fact what the EU is doing is to foist a corporate agenda on to the WTO, and in the process damage multilateralism.”

Watkins added it was embarrassing to hear European Union representatives trying to justify their position.  The EU argues that a treaty would unleash a new wave of investments.  But the World Bank has concluded there is no evidence that BITs or regional agreements generate more investments. He challenged the EU to come up with information to prove their point.  “If it cannot be done, then why do we risk so much in jeopardizing the WTO’s Doha programme?”

Watkins also countered the EU claim that a treaty would promote good-quality foreign investment.  This, he said, was not true.  Countries like Taiwan and Korea successfully used foreign investment by having performance requirements that would be outlawed by a multilateral treaty.  The kind of unregulated investment that the EU is promoting would result in weak domestic linkages and few development benefits.

He added that a WTO treaty would be unable to avoid capital market liberalization and policy inflexibility, despite EU claims to the contrary.  The EU has not come up with any paper on how to overcome the difficulties in separating in practice the different kinds of investment (portfolio, direct, etc).  Moreover, the EU under GATS had demanded that Brazil remove regulations on profit repatriation and ownership limits.  Thus, said Watkins, the EU’s aim in an investment treaty was to expand the GATS agenda and not to guarantee flexibility.

“The WTO lacks credibility and this agreement will not restore confidence.  It is deeply unbalanced, it is aimed at helping TNCs (transnational corporations) and not address development issues, and it is the result of a corporate agenda driven by investors.  This won’t restore the WTO’s credibility if its rules are drawn by corporations and then pushed by industrial countries’ governments.”

Luke Peterson of the International Institute for Sustainable Development (IISD) said that the BITs had already led to many cases being brought by investors against developing countries.  WTO Members should get to know the problems already caused by investment agreements before venturing into yet more obligations through a WTO treaty.

Mike Waghorne of Public Services International said that the global unions were opposed to negotiating an investment treaty in the WTO as the proposals put forward fell far short of the criteria set by the unions.

“To deny the South the right to follow the development path the North took contradicts the claim that the treaty is to help developing countries or allows them flexibility,” he said.

The unions were also against the non-discrimination and national-treatment principles whether at the pre- or post-establishment phase.  “As things stand, we cannot support trade ministers commencing negotiations on investment at the WTO.”

Shefali Sharma of IATP said it was very unclear what process was going to be adopted to decide on the “Singapore issues” (viz., investment, competition, transparency in government procurement and trade facilitation) before and at Cancun.  She warned that the process was becoming more and more non-transparent as negotiations moved into informal heads-of-delegations meetings where minutes are not kept and there is a danger of non-inclusive meetings.

She added that the trend of negotiations being based on clean “chairmen’s texts” instead of drafts reflecting the various positions of different delegations was dangerous.  It would force countries to undergo a process of “reverse consensus” if they wanted changes to be made to the “clean” chairmen’s texts.  This process would be dominated by the major developed countries.

She warned that any attempt to have a fast-track process to get “modalities” for negotiating investment and other Singapore issues would endanger the WTO system.

A Member of Parliament from Algeria said the objectives of foreign investors and the home countries were not the same and he wondered whether the WTO could do anything to reconcile the differences.  “Our feeling, coming to the WTO, is just to see if we can do damage limitation.  Weaker members will be eaten up, the question is only with which sauce we will be eaten.”

A representative from the European Services Forum (a coalition of corporations) said the position taken by the NGOs would make it difficult for trade and investment to be regulated, and thus the law of the jungle would prevail.  In the BITs, the weak are bullied by the strong, but in a multilateral forum small countries could put their view across together.

A Member of Parliament from Finland responded to this argument as follows:  “In Finland, the law of the jungle means the strongest one always wins.  The WTO is about the law of the jungle.  At the end, the strongest one always wins.” (SUNS5365)