TWN Info Service on WTO Issues (August03/14)

23 August 2003

Third World Network

Dear friends and colleagues



The EC, Japan and South Korea presented a paper proposing text on investment for the Cancun Declaration.

They first presented it at a meeting on 20 August.  They again presented it at a meeting on 22 August.  By then, Switzerland and Chinese Taipeh had also joined the paper.

Below is a TWN report, providing a brief critique of the paper, as well as on the responses by developing countries when it was first presented on 20 August.

The report also touches briefly on other Singapore issues.

With best wishes

Martin Khor

Third World Network



Japan-EC-Korea investment draft meets hostile response

TWN Report:  Geneva 21 August (by Martin Khor)

Discussions on the Singapore issues became even more contentious in the WTO as only a few days remained before a second draft of the Cancun Ministerial Text is produced.

On 20 August, the European Commission, Japan and South Korea presented a new proposal on modalities of negotiations on investment.  It met a hostile reaction from several developing countries. Also, the US had concerns with the paper and said it was not helpful.

The joint paper was introduced from the floor at an afternoon meeting of the heads of delegation (HOD) even though investment was not on the agenda.  

This was because the so-called “Friend of the General Council Chair” on investment, Brazil Ambassador Seixas Correa, had decided not to hold informal small consultations (or “Green Room meetings”) on the issue.

The “Friends” of other Singapore issues (competition, transparency in government procurement, trade facilitation) had held consultations and they gave verbal reports to the HOD meeting on Monday (competition) or Wednesday (the other two issues).

After briefings by the chairs of consultations on trade facilitation and procurement transparency, Japan took the floor to introduce the joint investment paper.

After the presentations, many developing countries criticized the proponents of the Singapore issues for continuing to push for a decision to launch negotiations.  They said there was clearly no convergence of views and thus no basis for reaching a consensus on modalities and thus no basis for launching negotiations on these issues.

Moreover, these issues are not a priority, especially since it was so vital to get an agreement going on core negotiating issues such as agriculture and NAMA, and time for doing that was running out, said these countries.

Even the US criticized the Japan-EC-Korea paper, saying it had concerns with it and that it was not helpful to achieviung a consensus on modalities.

The Japan-EC-Korea investment draft says Ministers “adopt by explicit consensus the decision on modalities of negotiations set out in document A.”

The proposed modalities are in five paragraphs.  Para 1 says the objective is to establish an agreement to secure transparent, stable and predictable conditions for [long term cross-border investment, particularly FDI] [foreign direct investment].  It will reflect home and host country interests, take account of development policies and their right to regulate in the public interest.

The placing of two options in square brackets is interesting as the EC and Japan had earlier made known the framework would only cover FDI.  Observers said the new option of also covering non-FDI long-term investment is to appease the US, which has made known it can only accept a WTO investment agreement if it also covers portfolio investment.

Forms of “long term investment” other than FDI could involve portfolio investment, loans, contracts, IPRs, etc. as long as they are “long term.”

Para 2 says that paras 45 through 51 of the Doha Declaration shall apply to the negotiations. This means the negotiations and the outcome will be part of the single undertaking, and abide by the dateline of conclusion by end-2004.

Para 3 says the negotiating group on investment will have its first meeting within a month of the decision, and the Chair will conduct negotiations with a view to presenting a draft text by [30 June 2004].   

This is a programme for a rushed negotiation agenda with hardly nine months to produce a draft.  The wording also implies that the Chair will present a draft, rather than the Members.  This would continue the recent WTO practice, convenient for the majors, of having Chairs drafting and presenting texts “on their own responsibility.”

Para 4 states the framework shall include the following elements:  (a) scope and definition (with the two options on long-term investment versus FDI as in para 1);  (b) transparency, (c) non-discrimination (MFN and National Treatment with limited exceptions), (d) pre-establishment commitments based on a GATS-type, positive list approach , (e) exceptions and BOP safeguards, (f) consultations and dispute settlement between Members (investor to state dispute settlement mechanisms shall not be included), (g) S and D, including flexibility regarding transparency obligations, commitments (NT, MFN and pre-establishment commitments)  and transition periods as necessary;  (h) provisions as necessary to clarify this agreement’s relation with relevant WTO provisions; (i) provisions to clarify this agreement’s relation with existing bilateral and regional investment arrangements;  (j) other issues participants wish to put forward.

The above is a listing of issues (rather like chapter headings to a book) and not the substance of modalities.  The exercise merely listing of issues has already been put forward as “modalities” in an EC paper earlier this year, and it has been strongly rejected in a counter-paper by many developing countries as not constituting substantive modalities, as understood in WTO negotiations, for example in agriculture or NAMA.

The list above reproduces elements that many developing countries have objected to, found inappropriate or have concerns about, and have voiced their views at the Working Group on Trade and Investment, or at informal meetings. These problematic items include scope and definition (the great majority cannot accept anything other than FDI to be covered), the non-discrimination principle (many countries have said this principle is inappropriate when applied to investment),  pre-establishment commitments (most countries object to this), dispute settlement (many countries do not want the WTO’s dispute settlement system to apply).

How an investment agreement will treat other existing WTO rules and existing bilateral or regional investment treaties are also very contentious issues that have not been properly discussed, let alone sorted out.

Thus, on the above list of issues, there is no convergence of views, even on the meaning of some of the issues, let alone on whether to have disciplines and if so what disciplines.

Para 5 is on the need to provide “strengthened and adequately resourced” technical assistance and capacity building to meet developing countries’ needs during and after the negotiations.

Before the Japan presentation on investment, the “friend of the Chair” on trade facilitation (Czech Ambassador Milan Hovorka) and on procurement transparency (Costa Rican Ambassador Ronald Saborio Soto) briefed the meeting on their consultations.

There were responses from several developing countries expressing discontent with the proposal and with the process on Singapore Issues.  These included India, Malaysia, Kenya, Philippines, Cuba. 

The developing countries were critical of the whole approach taken by the developed countries on these issues.  It was clear there was no consensus on the issues and on the modalities and the Ministerial text should reflect this fundamental reality.  Unfortunately, they said, the proponents keep pushing their pieces of paper with their notion of modalities. 

There have also been criticisms, inside and outside the meeting hall, of the process by which the small consultations were conducted on transparency in government procurement.  The EC had put forward a modalities paper, which was heavily criticized by many developing countries present.  Yet the following day, the Friend of the Chair had put forward his own version of modalities which contained a decision to launch negotiations, provisions on coverage, and domestic review mechanisms, and with language to place the negotiations within the single undertaking put in brackets.

Some developing countries at the small-group consultation reportedly refused to discuss this “modality papers” either of the EC or the Chair, arguing that there was no convergence of views in the Working Group and there was no basis for a discussion on finding consensus on modalities.

At the HOD meetings, some developing countries complained that there was no transparency in the process on transparency in government procurement.

There have now been “Green Room” small consultations on three of the Singapore issues, and briefings given on these consultations by the Friends of the Chair to the HOD meetings.  And on investment, where no consultations were held by the Friend of the Chair, Japan has directly intervened to present its joint paper to the HOD. 

[Eeventually, a HOD meeting was held on Friday 22 August, during which the Chairman of the Investment Working Group made his conclusion that there was no consensus on how to proceed with this issue, as there were some proponents of starting negotiations whilst a majority of members do not want to start negotiations but want the process of clarifying issues to continue.  There is a seperate TWN report on this meeting].