TWN Info Service on WTO Issues (May03/3)
25 May 2003
Dear friends and colleagues
SEMINAR ON INVESTMENT CALLS ON DEVELOPING COUNTRIES NOT TO BE COERCED INTO WTO INVESTMENT NEGOTIATIONS
On 18-20 May, an international seminar was held in Delhi, India, to discuss trade, investment and development. It was organized by the Indian Commerce Ministry and UNCTAD. Senior officials from 16 countries participated, as well as experts, UN and WTO staff.
The discussions focused on the proposals by major countries to establish a multilateral investment agreement in the WTO.
At a concluding discussion session, most participants expressed their concerns about the effects that a multilateral agreement could have on their economies.
At the closing ceremony, the Indian Commerce Minister Mr Arun Jaitley called on developing countries not to be coerced or compelled to decide on a multilateral investment agreement in the WTO.
Below is a report of the Delhi seminar.
You can find more information on WTO issues in the Third World Network website: www.twnside.org.sg.
With best wishes
DEVELOPING COUNTRIES SHOULD NOT BE COERCED INTO INVESTMENT NEGOTIATIONS, SAYS INDIAN TRADE MINISTER
Report of the international conference on trade, investment and development, held in Delhi 18-20 May 2003
The Indian Minister of Commerce and Industry today said that developing countries should not be coerced or compelled to take decisions on a multilateral investment agreement in the WTO unless they are fully convinced it is in their interests.
Mr Arun Jaitley added that developing countries had heightened concerns that multilateral investment rules would constrain their development policy choices now and in future. “They should not foreclose for developing countries such development options that the developed countries themselves had utilized at earlier stages of their development.”
He was speaking at the concluding session of an International Conference on Trade, Investment and Development organized by the Ministry of Commerce and Industry and UNCTAD, which was attended by senior trade, finance and investment officials from 16 developing countries (i.e.Argentina, Bangladesh, Brazil, China, Egypt, Indonesia, India, Jamaica, Kenya, Malaysia, Morocco, Nigeria, Philippines, Tanzania, Zambia and Zimbabwe) as well as independent experts, and officials from UNCTAD, WTO and UNDP.
Most of the officials who participated expressed the view that a multilateral investment framework, if it came into being, would not guarantee or result in increased investment flows. They were concerned however that such a framework would restrict and erode the ability to regulate investments and many expressed they would not be ready by the time of Cancun to decide in favour of starting negotiations.
The aim of the seminar was to assist developing countries to understand the policy implications of a possible multilateral framework on investment, an issue being discussed by a working group at the WTO. The Cancun Ministerial Conference in September will decide whether to launch negotiations on a multilateral framework on investment, as well as on competition and on transparency in government procurement. According to the Doha mandate, a decision to begin negotiations would require an explicit consensus on modalities of negotiations.
“What is of utmost importance is that the developing countries should not be coerced or feel compelled to take decisions in these areas unless they are fully convinced that it is in their interest to do so,” said Mr Jaitley. “This, in my view, is the essential meaning of the principle of explict consensus.”
He said that through the discussions in the Working Group, developing countries today have a better understanding on a number of issues. But, he added, “ this greater understanding has also at the same time heightened the developing countries’ concern about possible implications, particularly where they appear to constrain development policy choices, now or in the future.”
Mr Jaitley called on strengthened cooperation among developing countries, particularly as moves are made prior to Cancun to consider the issue of modalities. “We need to be clear whether a multilateral framework in this area is at all necessary before we embark on any discussion about the modalities themselves. We also need to be particularly cautious about moves that may try to suggest that modalities can be limited to procedural matters. In fact if we arrive at a conclusion that further study and clarification is required before any decision can be taken, then we should not be hurried into any decision making now.”
Elaborating further, the Minister said that on the Singapore issues, it was important for developing countries to have a full appreciation of the implications of possible multilateral frameworks in these areas before a decision is taken at Cancun whether negotiations should be held and what should be the modalities.
“I do not have to underline here the reason why we have regarded it as important to insist on a decision by explicit consensus. Any decision on negotiations would require very careful and considered decision particularly on issues which have a strong development dimension.”
Mr Jaitley added it was important to address two basic questions: is there a need for a multilateral framework on investment and whether the WTO is the appropriate forum for this purpose? To answer this requires details of possible elements of such frameworks and what value addition would disciplines on tghem bring about, as against the curtailing of the policy space that any such rule making will necessarily involve. Similarly, we need also to evaluate the comparative advantages or otherwise of WTO in this regard.
Stating that these issues are very complex, Mr Jaitley said that international movement of capital has become so sophisticated and takes such different forms and shapes that it is often difficult to track them down completely. On the other hand, the Doha mandate is to look at long term cross border investment, particularly foreign direct investment which contributes to expansion of international trade. He asked whether we have definite answers on how this linkage can be determined.
“Similarly, national treatment is a very sensitive issue not only at the pre-establishment but also at the post establishment stage,” he said. “Rules based on principles like non-discrimination or the comfort of predictability and stability are essential in trade policy. Are they necessary for promoting foreign investment, particularly when autonomous liberalization is progressing well?
“Would they not foreclose for developing countries, such development options that the developed countries themselves utilized at earlier stages of their development?”
Mr Jaitley also remarked that issues such as the obligations of the obligations of investors and the right of host countries to take policy measures are of vital importance to developing countries, even though they have not figured high on the list of priorities of the proponents of a multilateral framework.
Earlier, at the last substantive session of the seminar, participants summed up their views on the the positive and negative aspects of a possible investment framework, whether they were ready to begin negotiations, whether modalities to be agreed on should be of a procedural or a substantive nature, and what further work needs to be done by the Working Group.
Most of the participants expressed doubts whether a framework would result in greater investment flows (which for them would be the most important benefit). Many said there would be no guarantee that increased flows would arise from a multilateral agreement. Foreign investments are attracted more to factors such as political stability and market size, and the existence of an investment agreement made little difference. Thus the value addition or benefit of a multilateral framework could be questioned.
Many participants expressed concerns that a multilateral agreement would restrict their governments’ ability to regulate the entry and establishment of foreign firms, and some said they were not convinced a GATS-type approach would be able to provide adequate policy flexibility needed at the pre-establishment stage.
Most of the officials were also concerned that the host country’s right to make use of performance requirements could be curtailed by a multilateral investment framework. Several participants cited the problems already caused by the TRIMS agreement. If the requests by developing countries to solve the TRIMS implementation problem could not even be resolved before Cancun, then why should we agree to embark on negotiating an investment agreement, asked one participant. Another delegate agreed that performance requirements have played a big development role, and the request of developing countries to resolve their difficulty in implementing TRIMS first is legitimate.
Several participants expressed concern that the sovereignty and policy space of developing countries would be adversely affected. One participant said developing countries would be significantly constrained in their ability to assert their sovereignty and there are many areas in our national domain that we should retain. Meanwhile, a multilateral agreement is not needed to attract investment.
On why the developed countries are advocating a WTO framework, several participants were of the opinion it was really about these countries’ companies wanting greater market access to the developing countries. One delegate said behind all the language used by the proponents to promote an investment agreement, the real aim is all about market access for the rich countries’ corporations, and the agreement would be used as a crow-bar to enter our countries. The case has not been made that investment belongs to the WTO, and to ask developing countries to undertake obligations with no guarantee of more investment flows is an exercise in futility.
Another participant said what the industrial countries want is unfettered access to developing countries’ markets. There was clearly a North-South divide, and the expansion of TNC activities and rights would benefit the industrial countries which are home states to most foreign investors. These countries had successfully opposed a different kind of investment agreement (the Code of Conduct on TNCs). They introduced the imbalanced TRIPS agreement, which developing countries realized was a big mistake only after they had agreed. This time on investment, developing countries should not make another mistake in agreeing to negotiate an agreement and then having to fight for reforms to it again.
Many delegates expressed their countries were not ready at Cancun to take a decision to begin negotiations. Given the anxiety caused by the prospect of such rules and their impact on the developing countries’ rights to development, we are not ready to discuss negotiations at Cancun, said one participant. Another said that his country was against a multilateral investment framework because it was not clear where we would be reaching at the end of the road; our hands have been burnt in the past (when starting negotiations without knowing before hand what the elements and obligations entailed). It was very important to know the substance and the path before deciding on whether to negotiate.
One participant said his country had already undergone a lot of liberalization and privatization with the belief that FDI is important to development, and an investment agreement is needed, but it should be development-oriented and take into account all the considerations and concerns mentioned.
Another participant also said his country had privatized and liberalized extensively. However the country had nevertheless plunged into a severe economic crisis and there was now a need to rethink the policies. As for priorities in the WTO, there are implementation problems that have to be resolved before thinking about negotiating new issues. It would not be able to support negotiations if the agriculture issue is not resolved.
On the issue of modalities, one participant said after studying the Doha text carefully, he concluded that the modalities to be agreed upon had to be substantive in nature and not merely procedural, and thus the contents had to be clarified first. The use of language as a tactic should not be the subject of a game in WTO.
On technical assistance, some participants expressed disappointment that the seminars held were inadequate to the task. One delegate said it had not resulted in LDCs gaininhg a better understanding of the Singapore issues, and the workshops fell short of building capacity of what we need, i.e. to understand the issues deeply enough.
Several participants also stressed that discussions on any possible framework should be balanced, with the obligations of investors and home states being important aspects.