1:00 PM May 28, 1997

EXPERTS ASKED TO GIVE PRACTICAL ADVICE

Geneva, 28 May (Chakravarthi Raghavan) -- Experts on investment issues attending a 3-day meeting to examine development implications of bilateral investment treaties were urged Wednesday to come up with practical advice and suggestions to provide a development dimensions to ongoing discussions about a possible multilateral framework on investment (MFI).

The UNCTAD Secretary-General, Mr. Rubens Ricupero, was opening an expert meeting under the Commission on Investment, Technology and Related Financial Issues. The expert meeting has been asked to focus on existing Agreements on Investment and their Development Dimensions.

Ricupero asked the experts to focus their discussions, and provide concrete advice, on possible guidelines that would enable negotiators to take account of the development dimensions and needs, as also drawing some lessons from the experience of negotiating the General Agreement on Trade in Services (GATS) under the Uruguay Round.

But some of his remarks on the last, which he made in the form of points without too much elaboration in terms of its lessons for possible negotiations on a multilateral framework on investment, could result in wrong conclusions being drawn by developing countries.

And part of the problem appears to lie with the way the Midrand mandate, including its call for initial examination of bilateral agreements, appears to have been interpreted by the division of the secretariat dealing with this. And part of it is also due to the fact that under budget constraints, the UN programs and projects are now donor-driven, and end up, despite the best will in the world, promoting issues of interest to donors.

From the secretariat documentation and presentations, emerges a view that a multilateral framework is inevitable and desirable, and the way to inject a development dimension is to take the existing bilateral frameworks (that provide for right of establishment, national treatment and protection of investors rights) and add on special provisions for development - an approach that resulted in Part IV of the GATT, as a 'best endeavour' provision for 'special favours (rather than rights)' for developing countries that were never implemented.

Given UNCTAD's specificity as an organization to promote development of developing countries (and now of the transition economies), and given that trade, investment and development raise a number of inter-dependent issues falling under these rubrics, and also with considerable effects and inputs from other issues, it is not clear why UNCTAD is not approaching this from the perspective of interdependence of the issues and their relationships and consequences for development, as taking that as a starting point to consider whether a multilateral framework is needed and if so of what type and content.

But the manner in which the experts meeting and their discussions have been structured force the developing countries to take an MFI (based on the MAI or MIA sought by the developed countries) as the granted, and inject here and there the development perspectives and their concerns.

In the 70s and 80s when UNCTAD was a negotiating forum, there used to be considerable discussions over the agenda and the basis for the discussions. Though outsiders tended to scoff at them as 'procedural' debates, they were really about substance. But it was given up in the new context of the demand of developed countries that UNCTAD not be a negotiating forum.

But in the context of the new issues to be discussed, with a view to promoting a consensus for multilateral frameworks, that old argument where "procedure" was really about "substance" may need to be revisited by developing countries.

The UNCTAD mandate for the discussions on an MFI come out of the Midrand mandate at the ninth session of the UN Conference on Trade and Development in April 1996 (which incidentally was due to the pressures and lobbying by NGOs of North and South on their delegations).

Under that mandate, UNCTAD is to identify and analyze implications for development of issues relevant to a possible multilateral framework on investment, beginning with an examination and review of existing agreements, taking into account the interests of developing countries and bearing in mind the work undertaken by other organizations. In this regard, the role of OECD and the activities of its outreach programme in examining the recent developments in that organization.

In opening the meeting, Mr. Ricupero referred to the experience and progress of negotiations for a Multilateral Agreement on Investment (MAI) taking place in the OECD, and its current discussions on handling "exceptions" (for national security, environment, cultural concerns etc) to be provided in terms of the obligations. Discussions were still going on as to whether a general exception should be drafted, or exceptions should be granted on a case-by-case and country-by-country case for individual countries joining the agreement.

Meanwhile, as a result of the decisions of the Singapore Ministerial Conference of the WTO, a working group has been set up to study the issues relating to trade and investment and UNCTAD has been given an institutional role to present its views to this group.

Positioning the expert group meeting in this context, Ricupero noted that bilateral investment treaties (BITs) by definition were specific, unlike the broader negotiations for an MAI taking place in the OECD, or the discussions in the WTO. The BITs are to be examined in order to draw some general conclusions and lessons.

There were now some 1310 BITs involving some 161 countries -- an enormous 'universe' of bilateral accords. However, each of the BITs have some individual specificities, and it may prove difficult to draw general lessons that could be applied to discussions for a multilateral framework. The different bilateral treaties are based on the realities of each country and to their different levels of social and economic development. They provide a degree of flexibility and reality that could be lacking in a generic approach.

But a scrutiny of the BITs could throw some light on how some of these agreements had perhaps served the development interest better than others.

UNCTAD's work in this area had to be guided by the interests of development of developing countries, and not only of economic growth but of integration of countries into the international economy, and participate in the distribution of trade and technology.

Some bilateral agreements might be better than others from this perspective.

One of the important objectives of the expert meeting would be atleast to start a process that would identify as far as possible what could be viewed as the best practices in negotiation of bilateral agreements in promoting the prospects of development, and whether these best practices are good examples that could be replicated by other developing countries, and eventually used as guidelines in terms of the different interests of countries in relation to the negotiations going on in the OECD and the discussions that are going to take place in WTO.

The experts should hence come up with concrete advice and identification of issues that could be useful, and also suggestions in terms of continuation of this work.

In this regard, Ricupero said, UNCTAD was planning to run a training course for negotiations on investment agreements, going a little beyond the type of seminars it has been holding.

Participants in the OECD process had been involved in it for nearly ten years, and know exactly what was behind each word used in the treaty. But developing countries and their negotiators would be starting from the scratch, Ricupero noted.

It was hence necessary that the OECD countries not repeat in the investment area the mistakes made in the negotiations on services, Ricupero said, drawing his own experience as the Brazilian Permanent Representative in Geneva for the Uruguay Round negotiations.

The OECD experts had brought to those negotiations their experience in studying the issue for years and the framework for negotiations drawn up there. But there had been no such similar attempt to prepare the developing countries for such negotiations.

Between the suggestion for negotiations on services and the actual negotiations, Ricupero suggested, four years were wasted in discussions on the scope of the negotiations. This was so even after negotiations began -- over much of 1987 and 1988 -- when considerable time was spent on what Ricupero thought were "purely preliminary issues.

These included the issue of 'definition of services', where finally the attempt to 'define' was given up, and the problems about statistical data (which was not available), which ultimately had to be put aside and the GATS was negotiated and concluded.

"We should not repeat those kind of mistakes, but start right now and prepare ourselves for what will go on over the next few years," Ricupero said.

However, Ricupero did not amplify his remarks, and the format for such meetings precluded questions to be put and clarifications sought.

It could mean that any effort to define 'investments' (to distinguish between FDI in socalled bricks and mortars investment) and short-term and portfolio investment is not useful now when financial derivatives have obliterated these differences or that given these problems, an approach to deal with inflows and outflows being amenable to national country-regulations from each country's development perspective, and through a positive list approach of the GATS type.

And given the confusing and contradictory data on foreign investments (given the varying differences in definitions of the IMF, OECD, World Bank, and UNCTAD itself), did Ricupero mean that differences in approaches to current and capital accounts and BOP and other macro-issues can be put aside, or strict regulations to deal with them should be part of the MFI?

But to put his remarks in perspective, the United States raised the services issue in the GATT context at the 1982 Ministerial meeting (and this intention was unveiled by then USTR William Brock, first in 1981 in Congressional confirmation hearings, and then at the Davos symposium, where it met with some reservations from the then GATT Director-General Arthur Dunkel, and the EC).

The US move met with resistance, by a group of countries led by Brazil and India. Among others, the US definition of what it wanted to be covered was so broad as to include not merely commercial service activities, but also many others including non-governmental and even christian missionary, human rights groups etc.

The subsequent study program among interested countries in the GATT helped to make the EC realise that it too had advantages in pursuing the services issue, but that without compromises to take on board the concerns of major developing countries, the exercise would be a non-starter. This led to the compromise at Punta del Este to pursue the negotiations on separate tracks, and then decide on institutional arrangements. but in the rapid turn around of negotiators, particularly from the South, these were lost sight of (when the WTO accord was negotiated and settled, with provision for cross-retaliation).

UNCTAD itself undertook some studies on services (as a result of the 1983 UNCTAD-VI), and brought up a whole range of service activities of interest to developing countries like various producer services etc.

The entire discussions about negotiations about services that preceded Punta del Este was related to the US view that 'services' could be brought into GATT, by merely changing the definition of products and goods in the GATT 1947, and thus would have incorporated the right to cross-border investment as a part of the MFN and National treatment concepts of trade.

US academic and official literature at that time showed that from the US perspective this was a way to bring the "foreigner rights to hold and exploit property abroad" into the GATT framework -- a Westphalian view of international law, enforced till early 20th century by gunboat diplomacy of the UK and USA, and one that was challenged even during the League of Nations period, and was reversed and abrogated by the UN Charter and Assembly Declarations.

Actual service negotiations became possible in the Uruguay Round only when the 'procedural' discussions and views and objections of developing countries, had to be taken on board - and the concept of an agreement to focus on 'trade in services' which could involve cross-border transactions, or providing services through 'commercial presence' and 'temporary movement of natural persons' was evolved, and the idea of a 'positive' list where countries committed themselves only to what they 'offered' was accepted.

A multilateral investment agreement, with right of investors to 'establish' on another country's territory and engage in production and trade, get national treatment with domestic investors, and with property rights (over original capital and subsequent ability to earn and maximise profits) would in fact enable the GATS to be overriden insofar as 'capital' as a factor is concerned.

The MIA envisaged by the US and the EC and Japan would also obviate their need to get WTO rules on subsidies, agriculture, anti-dumping etc further amended in their favour.

And the fact that developing countries negotiated (against advice of statisticians, their own and those in international organizations), without knowing the equivalent of 'directions of trade' data available for goods, has resulted in their making concessions which are proving to be a drain on their BOP, not knowing what they would gain in return.

This was done by developing countries negotiators on the basis of neo-liberal economic theory that 'unilateral liberalisation' benefits the liberalising country and enhances consumer welfare - a theory based on one-sided experiences of trade in goods, one that ignored other considerations of political economy of a country, and which was sought to be applied to services trade on the ground that since no acceptable theoretical framework was available for services trade, the goods theories could be used as a proxy.

A similar argument is also used now both by the WTO economists and UNCTAD's TNC division to present a theory on trade and investment and their substitutability, based on experience in trade in goods.

Brazil like other developing countries, did not accept the US and EC initial views on services trade and GATS, and insisted on a positive list approach, rather than an across-the-board blind liberalization of all service sectors, and this was what finally emerged. And even the Americans moved away from their initial simplistic view of extending GATT to services by changing the definition of 'goods' and 'products', and applying all GATT provisions mutatis mutandis.

Ricupero might have had this in mind, though he did not make it clear, when he asked the OECD countries not to commit the mistakes of the GATS negotiations, implying they should not attempt an approach of universally applicable obligations, with perhaps some limited, time-bound exceptions for individual developing countries.