Africa, LDCs, India reject ‘opt-out’ and variations on investment talks

by Chakravarthi Raghavan

Geneva, 24 Oct 2001 - The Chairman of the General Council, Mr. Stuart Harbinson of Hong Kong China, in informal consultations Tuesday night, appears to have broached the ‘compromise’ on investment and competition policy negotiations - various options for start of negotiations through the so-called ‘Opt-In, Opt-Out’ or a two-stage negotiations involving ‘Deferred Opt-in, Opt-out’ approaches.

The compromise ideas to wear down opposition surfaced first at the Singapore conclave and since then in Geneva, and apparently broached Monday night by Harbinson here at the consultations. It was turned down by India, the African Group and Tanzania for the least developed countries, while Malaysia and Brazil asked some questions and sought clarifications, without making any commitments, according to trade diplomats.

In the consultations, Harbinson would also appear to have orally read out some new language for the paragraph in the draft declaration dealing with Environment which, while it is said to be going beyond what is now in the draft, was found unacceptable to the European Communities, who wanted this to be left for negotiations by the Ministers, trade diplomats said Wednesday morning.

The actual language or details of the proposals were not available.

However, trade observers said, the compromises being floated to inveigle the developing world into agreeing to negotiations, would be even more dangerous to their development options.

In the run-up to the Singapore ministerial meet in 1996, some of the developed countries like EU and Japan and some developing nations like Costa Rica, broached the idea of starting negotiations at the WTO for a multilateral investment agreement.

At Singapore, many developing countries opposed introduction of this new subject, and some ‘high-pressure’ talks among a few countries were conducted by the Singapore Chair. A compromise was then reached on investment, competition policy, government procurement and trade facilitation - calling for studies in working parties, but with a clear stipulation that none of these subjects would be taken up for negotiations except under an “explicit consensus” among the WTO members.

None of the WTO working groups have achieved any consensus.

However, the EC, Japan and other demandeurs have stepped up pressures for start of negotiations - presenting these ideas as part of a ‘development agenda’ and aimed at helping developing countries. They have also tried to make it appear that if these subjects are taken up, they would be in a position to provide market access to developing countries in agriculture and other products - a promise that was made at Punta del Este in 1986, but still remains to be fulfilled, 15 years later.

Though initially only a few countries had opposed any negotiations on investment, when the subject was formally broached in 1995, as the so-called study process has continued in the WTO, there is now much more awareness of the implications, and as a result opposition that not all the obfuscations and the pseudo-economic trade and development theory arguments of the EC, World Bank, IMF and sections of UNCTAD have been able to put to rest. In fact they have strengthened the opposition.

The opponents though are sought to be isolated or some questionable compromises are floated.

The opposition of those developing countries against investment negotiations have been well-articulated, even if they receive little attention in the western media or dealt with in derision.

The argument often thrown at the developing world is that all of them are seeking and promoting foreign investment, and thus there is no reason to oppose a multilateral regime. However, it is increasingly clear that there is no value-added for the hosts.

·        a multilateral investment agreement in the WTO will enhance protection and rights of foreign investors, and will deprive the host developing countries of several strategic policy options currently available to them;

·        an agreement will not bring developing host countries any value-added in the form assurances of enhanced investment flows.

·        most of the developing countries have found the current practices of negotiating bilateral agreements (with the country of origin) to be sufficient to assure protection to the investors, and without damage to the policy options of a host country.

·        an investment agreement at the WTO on the other hand would bind down the hands of these governments for all times in the future, and result in a permanent loss of flexibility to hosts to modify (as circumstances warrant) in accord with their development objectives and needs.

·        WTO itself is to be the forum for negotiations on their multilateral trade relations in matters dealt with under the WTO agreements annexed to the Marrakesh Agreement, and may be a forum for further negotiations on multilateral trade relations. Investment and competition policy do not fall under this rubric - howsoever much the WTO secretariat and the demandeurs may dress up their ideas to present it as within the ambit of the WTO.

·        Even though developing countries are taking ‘autonomous’ policy decisions on liberalisation in investment in the interests of the country concerned, binding such decisions at the WTO, and subjecting future policy and options to the WTO’s dispute settlement process, would result in providing a trade handle to their powerful developed country trade partners to retaliate.

Some of the theories being developed by corporate lawyers in the US and Europe, even if they are not being accepted at the moment by the majors including the US, is based on the so-called theory of private property rights and ‘regulatory takings’ of private property by sovereign states (a concept now being used by US lawyers, including former USTR Carla Hills to threaten other governments on behalf of their corporate clients and/or smuggle into trade agreements) would greatly jeopardise the developing world and its interests. The WTO’s dispute settlement system, and the concepts of ‘evolution of law’ that the appellate body has used or asserted would give considerable scope.

[The legal theory being promoted and tactics used are spelt out in a feature article by William Greider in the 15 October issue of the Washington weekly, ‘The Nation’ (]

The opposition to negotiations on investment and other new issues, that have been growing rather than abating, has clearly forced its proponents (and the partisan WTO secretariat) to change tactics.

The ideas and proposals being floated about plurilateral agreements in the WTO, or the ‘opt in, opt out’ approach - also painted by its proponents in the corridors of the WTO as a ‘deferred opt-in, two-stage negotiations’, some variation of which has been apparently put forward by the General Council Chair have to be viewed in this light. Among the suggestions for alternatives to a straightforward negotiations on investment are:

·        all members can participate in the negotiations for an investment agreement in the WTO, with the option at the end of the negotiations for each member to opt out of the final agreement.

This approach would appear to have been promoted as a compromise at the recent Singapore conclave (13-14 October), and it was presented there as different from the plurilateral approach in that all members would be allowed to participate in the negotiations.

Since Singapore, Harbinson appears to have been sounding out members on several of these approaches and variations, aimed at a two-stage negotiations. The proposals and ideas are more or less the same for both investment and competition policy talks.

The suggestions include the idea of the WTO members agreeing to negotiations on the subject of investment, dividing the work into two phases - a first phase of study wherein members would engage in clarifications of principles and elements relevant for the negotiations on the subject.

In the second phase of the negotiations, members would seek to establish a multilateral framework of rules and disciplines. One variation of this approach, in the second phase, is that only those members who ‘opt in’ would be involved in the negotiations.

The final results will be agreed upon among those who are party to the negotiations, and those who opt-in initially could also opt out at the final stage.

However, it would be part of the single undertaking.

Apart from the specific objections and problems it would create, in a sense the EC which is promoting this idea, is attempting to do what it managed in the Uruguay Round at Punta del Este by a compromise for negotiations in the area of trade in goods, a separate track on trade in services, and leaving the final disposition after all the negotiations are settled.

As soon as the key personalities from India and Brazil who had negotiated this compromise has left the Geneva scene (and the EC trade commissioner too changed at Brussels), the options began to be subtly changed in terms of the Punta del Este ‘single undertaking’ which applied only to the goods negotiations, first at the 1989 mid-term review when substantive IPR talks were brought in, and then in 1990, 1991 (through the Dunkel text) and in 1993 - through the idea of a multilateral trade organization (which later was made into a World Trade Organization) and everyone being forced to sign on to everything. The original idea of the India-Brazil-EC compromise of different institutional arrangements, and thus different options, were conveniently buried.

The current approach for investment (and the opt-in, opt-out and other variations) do not in fact answer the concerns of developing countries.

The developing countries, and more so the LDCs and Africans and others have been opposed to introducing new subjects on the ground that these new issues were not a priority area for them, overload the WTO agenda. As the LDCs have powerfully argued they don’t have the resources or the time and knowledge to bring to bear on these negotiations.

There is little doubt either that as in the past, these interests and agendas of the North will simply crowd out the issues and concerns of importance to the developing world.

Multilateral rules in this area would take away the flexibility that developing countries have through bilateral agreements and regional agreements which, while guaranteeing or protecting the property rights of the investors leave the host countries lee-way.

Whether as an opt-in, or a two-stage opt-out process, investment is not a subject within the purview of the functions of the WTO and if investment creeps in this way, there is nothing to prevent other subjects like macro-economic policies of a country or the domestic taxation policy cannot be brought into the WTO.

A plurilateral approach to negotiations and agreements will create considerable uncertainty as to whether the negotiations will result in agreement or not. In any event, it will hold hostage other negotiations of interest to the developing countries.

It will also run counter to the WTO concept itself and fragment the multilateral system. An important reason why developing countries wanted the post-Tokyo Round outcome of fragmentation of the multilateral system to end through the WTO, despite its asymmetries, was that they had the worst of all the worlds in the pre-WTO GATT.

If the plurilateral approach prevails, there will be two classes of WTO members, with one set of rights for developing countries, and another for the developed.

Other controversial issues like labour standards could also be brought in, with higher rights and obligations for one group of countries, and lower rights for others.

In fact before Marrakesh, there was much debate on what should be done with the then existing plurilateral agreements under GATT. Ultimately there was a compromise to incorporate the then existing plurilateral accords into the WTO, but make incorporation of any new accords to be done by the Ministerial Conference, exclusively by consensus (both of signatories and non-signatories).

However, a more serious risk of a plurilateral and opt-in or opt-out approach, at the end, would be those standing out, in exercise of their promised right to do so, will find themselves facing intense pressures from private capital markets and investors (and the World Bank, IMF etc) to join in or face additional costs of attracting capital.

It is a fact of the current foreign investment practices of the TNCs, that they put into a country very little actually of their own capital, but at best use some small moiety, and set up a subsidiary which is then overloaded with loan capital. This is raised from the markets and lent to the subsidiary or through other operations. Either way, the loan capital carries interest and servicing charges which include country-risk premia etc - that are set by the banks and other creditors, and rating agencies etc which are not as independent as often made out. A further country-risk premium, a few percentage points, would easily be added to those standing out - with even domestic capital joining this process as a kind of comprador capitalism to siphon out money from the hosts.

The promises and assurances of the main proponents are dubious and carry little credence. Bringing in the negotiations into the WTO, in one form or another, will amount to committing the folly of Troy in the battle against the Greeks. SUNS4995

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

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