11:44 AM Oct 8, 1996

RUGGIERO BRINGS HIS INVESTMENT 'BATTLE' TO UNCTAD

Geneva 8 Oct (Chakravarthi Raghavan) -- The head of the World Trade Organization's secretariat, Mr. Renato Ruggiero, brought into UNCTAD Tuesday, his battle to get a decision on the investment issue at the Singapore Ministerial Conference with the argument that WTO was already dealing with investment and there was a compelling case to take up trade and investment issue also in the WTO.

Addressing UNCTAD's Trade and Development Board, Ruggiero presented an upbeat view and said in a world where production is mobile, capital is footloose, technology is diffuse, and where all countries -- developing and developed - are competing for the same investments, the same markets and same innovative edge, "globalization is a great leveller."

[Speaking Monday at the United Nations in New York (where Poverty Eradication Day was being observed), the UNDP Administrator, Gus Speth referred to another kind of levelling taking place in the world, with some 67,000 people joining every day the ranks of the poor (estimated by the UNDP's Human Development Report 1996 to be about 1.3 billion in the developing world, and argued for broader development strategies that would prevent such high levels of poverty.]

[Addressing the Board Monday, UNCTAD Secretary-General Rubens Ricupero while noting the opportunities that globalization could provide had struck a note of caution and spoke about the loss of hope of people, in developing and developed world, about the future and need for work to bring hope for the people.]

In bringing up the issue at the Trade and Development Board session, Ruggiero clearly has been buoyed by the fact that Canada and Japan have tabled a formal draft decision.

The idea of investment as an independent new agenda item at Singapore Ministerial Conference, 'trade and investment', and to be incorporated into a work programme of the WTO, is being pushed within the informal heads of delegation process chaired by Ruggiero at the WTO, where it has become quite controversial. The European Commission originally initiated the move for negotiations on a multilateral investment agreement (MIA) with right of establishment and national treatment for foreign investors.

But tactically, the EU Commission has left the running to Canada, recently joined by Japan, both of whom are pushing for a decision or understanding at Singapore for a work programme to initiate studies and discussions.

Though it is claimed by the sponsors that this would not involve any negotiations, even a discussion about a discussion at the WTO is a process of negotiations.

At an informal HOD meeting on Monday, Japan and Canada tabled a new 'non-paper' for a draft decision to set up a working party on investment, with draft terms of reference, and to report to the next ministerial Conference. Though the subject was just mentioned, with Canada suggesting that a drafting group could look into the proposed terms of reference, India reportedly rejected it and pointing out that this was not an issue that could be resolved through a "drafting exercise", but a substantial political problem about bringing the issue on the WTO agenda at Singapore. Egypt also spoke up against the move, and rejected any new issue being brought up for Singapore.

Ruggiero himself put forward a draft outline for a Ministerial Declaration which contains a part relating to the future work programme, and lists under it as heading various items including investment.

While the next meeting of the HOD is reported to be set for the first week of November, Ruggiero is known to be personally meeting individual envoys of countries that have expressed reservations or opposition, in an effort to pressure and persuade them to agree to take up a "study process" at Singapore. Pressures are also known to be applied at capitals of some of the smaller countries, with ideas planted that their envoys should absent themselves from the HOD process if they could not agree.

The WTO defines "consensus" as the absence of opposition from anyone at a meeting where a subject is brought up for decision, and the WTO head, as well as those pushing the investment issue, are hoping by this process to isolate the few countries who have come out against the subject. But the tactics being adopted seems likely to result in a confrontation for the fledgling organization at a time when its vision of "free-trade" and "globalization" is arousing much concern among the public of the North and the South, and the business community of the South.

The Ruggerio speech at the TDB was characterized, in the comments and questions posed to him, as "interesting" and "thought-provoking", which translated into plain English meant "differences".

Earlier welcoming him, the President of the Trade and Development Board, Zambia's Amb. Patrick N. Sinyinza, spoke of the WTO head in terms of one bringing the perspectives of the international private sector to the UNCTAD discussions.

Ruggiero viewing the invitation to him to speak as of "special significance", noted that not too long ago the two organizations were viewed as speaking for different worlds and different perspectives, and that the new cooperation between UNCTAD and WTO reflected the fact that the goal of economic development and trade liberalization had become interdependent and that the vision of economic progress had become a global one.

The WTO head spoke of the growing leverage of developing countries in the global trading system as one based on "raw economic power", as evidenced by the fact that a third of the world's 25 leading exporters and importers were now developing countries who now account for 25% of world trade, compared to less than 20% a decade ago. If current trends continued, he said, developing country share could reach 40% by 2010 and over half by 2020. "These statistics tells us what we intuitively know -- that a huge and historic shift in economic power is currently underway."

The paradigm of development, Ruggiero claimed, had changed dramatically and instead of the conventional wisdom about developing economies needing protection from bracing winds of international trade and competition, the opposite was now true -- with open trade spurring innovation and creativity and fostering specialization. He also spoke glowingly, and uncritically, of FDI and said it not only supplied capital to developing countries to supplement their domestic savings but was acting as the central nervous system of the entire world economy. FDI to developing countries over the last five years had increased from $22 billion to $100 billion - though much of it still directed towards a dozen or so countries.

Ruggiero then went on to argue that no one stood to benefit from globalization more than the developing world and that the lines separating the developed, developing and least developed had become blurred, if not anachronistic, and that this growing trade and production benefited everyone, with the imports by the fast-developing countries providing a new stimulus for worldwide economic growth, with sales abroad projected to provide 16 million jobs in the US in 2000 compared to seven million a decade ago.

The WTO head spoke of the major developing economies now generating their own internal demand, and growing without the "locomotive" of developed country demand, but that developing countries were now more dependent on access to developed country services, investment and technology.

However, he acknowledged, one quarter of the world still lived in poverty, 1.2 billion without drinkable water, two billion without access to electricity or telephone and such inequalities are inhuman and would necessarily have a global effect. He referred to his proposals to the G-7 leaders at Lyon for benefits to the LDCs, by elimination of all tariff and non-tariff barriers to LDC exports (a request that the G-7 have rejected, but with some indication that they might agree to provide it through GSP for African LDCs who are perceived as no threat to the competetivity of the North).

Referring to the Singapore Ministerial Conference and proposals for further liberalization, Ruggiero said nothing illustrated "new logic" of trade policy than the issue of investment where there was a consensus about the importance of investment to development and the intimate links between trade and investment in the context of globalization, and that the issues raised by this need further study and examination.

Ruggiero said that the question then was where this work should take place. Some, he said, suggested that the only forum is UNCTAD, which was making very valuable progress, while others suggested also a role for the WTO on this critical issue.

"After all," Ruggiero argued (presenting the case pushed by Canada, Japan and the EU in his informal heads of delegation processes at the WTO), "aspects of investment already feature prominently in WTO agreements, most notably TRIMs. And investment issues are also scheduled to be addressed in the socalled 'Built in Agenda'. And our annual report for this year - whose chapters focusing on investment will be released next week -- highlights this imperative, and makes a compelling case why trade and investment issues should be taken up also in the WTO. Anyway both secretariats of UNCTAD and WTO were already working closely in analysing the issue of investment, and the outcome of these studies reflect their collaboration, Ruggiero added.

Referring to Ruggiero's remarks about economic growth in developing countries coming out of internal trade among developing countries, and providing stimulus for growth of the developed world, UNCTAD Secretary-General Rubens Ricupero said this was only a "relative truth".

The rising imports of the developing world, Ricupero said, was dependent on the future of the multilateral trading system. The increasing imports of the developing world would continue only if developing countries continued to have increasing access to the markets of the industrialized countries.

In commenting on Ruggiero's remarks, Egypt said no one could deny the importance of investment, and developing countries had liberalized their policies towards investment. The investment issue was an aspect covered by the built-in agenda of TRIMs which, under its Art. 9, called for consideration being given, after five years, to the issue of investment policies being complimented by competition policies.

But the issue now (about investment studies in the WTO) was different. It was not a case of UNCTAD having a monopoly in studying the issue (as Ruggiero implied), but of timing and proper preparation. There were many issues relating to investment and development which were important to the developing countries and these had to be studied adequately before investment could be discussed in a rule-making body like the WTO. Egypt believed that UNCTAD was best placed to initiate such an educational process, particularly of the development questions involved.

While the incentives offered by developing countries were seen as 'distortive' and hence needing trade rules, developing countries saw these as necessary for promoting industrialization and development. There were also other questions involved -- like transfer of technology policies.

Egypt, like other developing countries, was not at all clear how these questions would be affected by the right of establishment and right of national treatment to foreign investors.

There was also the question of how a balance could be achieved. Investment question was being approached from the point of view of the rights of investors. But they would need to look at the obligations of investors. This was the balance sought to be achieved in the TRIMs agreement which has called for addressing investment issue along with competition policy. Also to be addressed are issues of the migration, taxes etc. These are best studied at UNCTAD before deciding whether there is a role for rule-making at the WTO.

Cuba noted that there were a number of proposals for the SMC being handled in the Ruggiero consultation process, but that the proposals on investment appeared to have generated two currents of thought. Some seemed to feel that the time was ripe to take up a process of study and even negotiations, while others seemed to favour studies within the framework what was already going on in UNCTAD. Did Ruggiero see any prospect of consensus between these two lines of thought. Also, what effect would the OECD process and its multilateral agreement on investment have on the WTO.

The Cuban ambassador also referred to the situation of the marginalised countries and said while globalization was bringing benefits to some developing countries, it only involved a small number while many others were getting no benefits. The figures of the marginalised were very disturbing. The FDI was going only to a few countries, and an investment agreement in a globalizing world might go only to markets where rates of growth and returns are higher.

Pakistan asked the WTO head whether any assessment had been made by his organization as to the impact on developing country exports as a result of the liberalization of trade under the Uruguay Round.

Morocco asked whether there could be a political balance in the approach to the problems of the LDCs, linking trade with need for solidarity to the poorest.

Bangladesh said that many LDCs had reduced their tariffs and liberalised their import regimes, and had been "deluged" by imports while their exports still faced many restrictions, including non-trade related ones, and in many cases high tariffs. While they were looking to the SMC to resolve some of these problems, the large number of new issues being brought seemed likely to generate a contentious debate at Singapore.

Ruggiero, in a brief response, referred to his own suggestion to the G-7 for removing all barriers to the exports of the LDCs, and his intention to pursue avenues to open up exports for the LDCs. He saw no reason for Singapore becoming a venue of contention. But he did not answer the questions from Egypt and Cuba, merely repeating his earlier arguments.