June - July 1998
Statement to the Secretary-General of UNCTAD by Non-Governmental
Organisations, on the need to review UNCTAD'S approach to a
possible Multilateral framework on Investment
As representatives of civil society organisations, we welcome the objective of UNCTAD to increase dialogue with civil society. This is because we believe that if done properly and sincerely this can increase the inputs of civil society in the work of UNCTAD. Our overriding aim is to increase the awareness and prospects of genuine development and of the right to development.
In this context, we would like to express deep disappointment and concern about the approach taken by the UNCTAD Secretariat on the issue of a possible multilateral framework for investment.
As is well known, many hundreds of civil groups around the world are protesting and campaigning against the multilateral agreement on investment (MAI) being negotiated at the OECD. The protests are not only against the OECD version of the MAI, but against the principles, policies and approach that the MAI model (of extreme investment liberalisation, promotion of foreign investor rights and removal of regulatory rights of states) represents.
The originators of this model have the overriding aim of granting unprecedented and overwhelming powers and rights to corporations to make profits and transfer funds anywhere in the world, through the erosion or even total removal of the rights of national governments and citizens to regulate their entry and operations. The economic, developmental, social and environmental implications and consequences, especially for developing countries but also for citizens everywhere, are clearly serious and devastating and this understanding has spurred the citizen protest actions in many countries.
The NGOs generally are also against the same approach and model if it is pursued in other fora, especially the WTO.
It would especially be damaging if an organisation like UNCTAD, (whose raison d'etre is to protect, defend and guard the interests of development, developing countries and ordinary people especially the disadvantaged) were to succumb to the approach of this model. Our concern and fear is that the UNCTAD Secretariat seems to be well on the road of accepting the MAI as a basic model in its approach to a possible MFI and has joined the MAI bandwagon. From our viewpoint, this would be going against the principles for which UNCTAD was founded.
The UNCTAD secretariat has not played its expected role of first examining the complex nexus or link between investment and development and in that context enable objective conclusions to be drawn on the implications of an MFI.
Instead, the UNCTAD approach has been to take the MAI model as the "possible MFI", and then merely look at development dimensions of its elements. The aim seems to be to make the MAI more "development friendly" (or to seem to be so) so that those developing countries and NGOs that have objected can more easily accept the model.
This is tantamount to "massaging" developing countries and civil society to join in the process of accepting the MAI and its model.
Given that many developing countries are against the nature and principles of a multilateral investment agreement, as is evident from the UNCTAD-organised discussion session with civil society and Ambassadors on 10 June (and from their positions in various fora), and given the widespread opposition from NGOs, it is of grave concern that UNCTAD has become a facilitator for the MAI approach.
It is important to trace the evolution of the MAI issue and also the mandate to UNCTAD. During the Uruguay Round, the Northern proposals on investment policy per se (much along the lines of the present MAI) were eventually removed from the TRIMS negotiations after strong resistance from developing countries. In the preparations for the December 1996 WTO Ministerial Conference, once again many developing countries were against the proposal for negotiations on a multilateral investment agreement.
In 1996, NGOs also supported a move led by developing countries to give the Midrand mandate to UNCTAD at the UNCTAD-IX Conference to study the implications for development of a possible MFI. UNCTAD was seen as an alternative venue for discussions on investment as NGOs felt it was a more appropriate forum where the complex issues could be discussed in the development context.
In December 1996, the WTO Conference established a working group on trade and investment, with a mandate specifically only to examine the relation between trade and investment, and not to negotiate an agreement.
This working group later established an agenda that includes several issues such as the implications of the relation between trade and investment and macroeconomic stability, balance of payments, employment, and the experiences of different countries with foreign investment. These issues require macroeconomic analysis and in the context of development policies and experiences.
Meanwhile, as NGOs became aware of the substance of the MAI in the OECD, they began protest campaigns in many countries, and this contributed to the problems in the negotiations as well as growing unpopularity of the MAI.
Given the stress on development, the Midrand mandate clearly points to the need for the UNCTAD Secretariat to take development, development needs and the development process as the starting and reference point and the framework of its analysis and work on the implications of a possible MFI.
Within that context, analysis (especially macroeconomic analysis) should have been done on the role of foreign investment, its positive and negative effects, and to come up with conclusions on the conditions under which FDI could be successfully used for development, and under which conditions it could lead to problems such as displacement of local firms, excessive profit outflows, balance of payments deficits, reduction in savings and inappropriate shifts in consumption patterns, exploitative treatment of extractive resources, negative ecological effects and cultural influences.
Research of this type is also urgently required by diplomats and policy makers of developing countries, which are participating in the WTO's trade and investment working group, as many of these issues form a large part of the group's agenda.
UNCTAD has such expertise to analyse the roles of foreign and domestic investment and their effects on macroeconomic and development variables. This expertise could have been used to target and answer the questions raised in implications of an MFI. Unfortunately there is little evidence that this macroeconomic analysis has been applied in UNCTAD's work on MFI.
Based on such studies, there could be better understanding on the conditions for the successful use of FDI for development, and then in that context the issue of what kind of multilateral framework, if any, was needed could be clarified. That framework could turn out to be an MAI-type model, or it could well be of a greatly different type. Or else they may be an indication that a multilateral framework is not necessary or could be negative.
Unfortunately the approach the UNCTAD secretariat has taken on the implications of a possible MFI has been different. UNCTAD seems to have taken on board the MAI as the model of a possible MFI, divided up the elements of this model (such as scope, investment measures such as the right to establishment, ownership, national treatment, protection and treatment of investors' rights) and then make an attempt to examine the development dimensions of each element.
Such an approach is biased as it takes the MAI as a starting or reference point and then at best tries to add on development aspects. This approach is "putting the cart before the horse", as it does not throw light on the development process or the effect of foreign investment, and thus it cannot develop criteria by which to judge the appropriateness or otherwise of a MFI or different types of MFI.
Following from the architecture of its MFI approach, the UNCTAD investment work programme is biased towards the MAI or the MAI-type model.
This is seen in the structure and content of various aspects of the activities of UNCTAD's work programme on a possible MFI. For example:
We therefore would like to suggest the following:
1. The UNCTAD Secretariat should carry out an overall review of its present approach to the MFI issue, in line with the points made above.
2. The present approach of taking the MAI model as the starting point of reference should be changed. The approach of starting with an understanding of the development process should be taken, with the issue of the investment-development nexus being a key aspect.
3. In line with point 2 above, UNCTAD should carry out studies, within the context of the development process and objectives, on the roles and effects of foreign and domestic investment, taking into account national experiences; as well as the relation between FI and macroeconomic stability, savings, balance of payments, and other economic variables.
4. Studies can also be done by UNCTAD on effects of FDI on consumption patterns, the environment, sustainable development, social development and culture.
5. In line with the above, the UNCTAD Secretariat should review and reorientate its work programme on MFI, including the reports, publications, workshops and expert meetings.
We thank you for your time in considering our concerns and suggestions, which we are making perhaps frankly but in all sincerity.
NGOS endorsing this statement:
ENDA Tiers Monde (Senegal).
IRENE (International Restructuring Education Network Europe).
DIS: Centre for Partnership in Development (Norway).
Third World Network.
Council of Canadians (Canada).
Polaris Institute (Canada).
Friends of the Earth (USA).
Public Citizen (USA).
Nayakrishi Andalon (New Agricultural Movement, Bangladesh).
IRED (South Africa).
World Confederation of Labour.
Africa Village Academy (Ethiopia).
Instituto des Tercer Mundo (Uruguay).
Transnational Institute (Netherlands).
BUKO Agrokoerdination (Germany).
ENDA Maghreb (Maroc).
Pro Public (Nepal).
Africa Trade Network (Ghana).
Mexican Action Network on Free Trade (Mexico).
Bangladesh Environmental lawyers Association (Bangladesh).
Consumers' Association of Penang (Malaysia).