U.S. AND JAPAN CONTINUE TO PUSH FOR INVESTMENT REGIME.

Jun 27, 1988

U.S. AND JAPAN CONTINUE TO PUSH FOR INVESTMENT REGIME.

GENEVA, JUNE (IFDA/CHAKRAVARTHI RAGHAVAN) -- The U.S. drive to create a new international regime on investments has created a three-way split in GATT and the Uruguay round negotiating group on "trade-related investment measures" has so far been unable to find a consensus for its work, according to participants.

The three viewpoints are those of the U.S. and Japan with a maximalist approach, the European Community and other Europeans like the Nordics who take a more restricted view, and the third world countries who insist on the strict interpretation of the negotiating mandate and are against international rules on investment measures as such.

According to the Punta del Este declaration, "following an examination of the operation of GATT articles related to trade restrictive and distorting effects of investment measures, negotiations should elaborate, as appropriate, further provisions that may be necessary to avoid such adverse effects on trade".

Participants said that after 18 months of work the group is nowhere near a consensus even on its preliminary steps.

As Malaysian delegate, Amb. Eng Hee Khor put it at last week’s meeting of the group: "at this stage of the work of the group there is as yet no consensus as to what is a Trade-Related Investment Measure, what exactly is its adverse effect on trade, let alone any possible consensus with regard to any possible elaboration of further provisions of the general agreement to take care of any adverse effects that are supposed to arise from TRIMS".

The group is chaired by Japan’s Tomohiko Kobayashi, whose selection for the post was canvassed in 1987 on the basis that Japan (unlike the U.S.) did not have any strong views on the investment issues.

But as soon as the group began functioning, it became clear that Japan (...), and in some respects Japan’s aim as a leading capital surplus country is to secure international economic space for its TNCS vis-à-vis not only third world countries but other industrialised countries of Europe.

In their papers, submissions and comments, the U.S. and Japan continue to push for a wide-ranging international investment regime that would limit the sovereignty and rights of nation-states vis-à-vis the TNCS, and tilt international exchanges in favour of the latter.

They are calling for elaboration of new GATT rules and disciplines to deal with all trade-restricting and trade-distorting investment measures. According to their logic, any government measure on investment has trade effects, which may restrict or distort international trade, and hence virtually all governmental investment measures should be subject to international disciplines.

Though presented in terms of encouraging private entrepreurship and investments in the third world to promote production and growth, the real thrust is to further the interests of their TNCS.

In effect the two are trying to alter the balance of negotiating power between a host country and a TNC, and give a free hand to their TNCS in their global strategies of planning investment production and trade in any country to impose conditions on the TNC, while limiting the right and capacity of the government of that country.

The EEC, supported by the Nordics and other Europeans, while also seeking to tie the hands of the host governments in some areas, would appear to be in favour of narrowing the scope of negotiations and deal only with those investment measures which have "a direct and significant" trade restricting and trade-distorting effects.

Third world countries such as Argentina, Brazil, Egypt, India Malaysia and Mexico favour an approach based on a strict interpretation of the mandate and have stressed that the group should deal only with the "trade effects" of investment measures which are trade-restrictive or trade-distortive, and not on the investment measures as such.

These countries have pointed out that the Punta del Este mandate has only called for elaboration, as appropriate, of further GATT provisions that might be necessary "to avoid such adverse (trade restrictive and distorting) effects on trade".

The group had before it the latest U.S. paper for application of GATT trade policy concepts to TRIMS, an EEC paper of areas where negotiations for further GATT provisions would be needed, and a Japanese paper presenting a methodology for dealing with various types of TRIMS and for GATT disciplines on all TRIMS.

Malaysia put forward also a paper of its own, focussing essentially on GATT provisions applicable to third world countries in article XVIII (government assistance to economic development) and part IV of GATT relating to trade and development. The major thrust of the paper the need for third world countries to adopt investment measures and the need for special and differential treatment for them.

The U.S. paper has said that the "development" considerations should "follow" the establishment of appropriate disciplines on TRIMS and should be in the context of precisely delineated obligations for all CPS.

In informal discussions, the U.S., Japan and others would appear to have said that the special and differential treatment for the third world should only be in terms of providing a longer time-span of five to ten years to bring their domestic measures in line with the proposed new disciplines.

Several third world countries have taken the position that in any new rules and disciplines to be developed in GATT, in this and other areas, the development dimension must be integral and cannot be merely an exception for them in the shape of a longer or shorter time-span to conform.

Since not only decisions of governments, but also those of TNCS (which be definition are even less transparent) have trade-effects, any GATT rules should deal with trade-effects of both governmental and private decision, third world countries have argued.

And since, through the GATT rules and disputes settlement procedures, home governments of TNCS seek a negotiating and enforcement right with host governments on behalf of their TNCS; the home governments should also undertake obligations in respect of behaviour of their TNCS.

After last week’s meeting participants have the impression that the U.S. realises that not much of significance could be expected to emerge in this area from the mid-term review scheduled for the week of December five at Montreal.

In this perspective, the U.S. would appear now to be trying to define "an approach to TRIMS" that would widen the scope of negotiations, and leave the actual negotiations after the Montreal mid-term review.

At the same time the U.S. appears to be trying to maintain the "optics of progress" by insisting on scheduling the same number of meetings before Montreal as other groups.

In informal discussions, Japan would appear to have revealed that the issue of TRIMS is now to be discussed at the next quadrilateral meeting (of the U.S., EEC, Japan and Canada) scheduled to be held after the Toronto Summit at Minneapolis.

At the last OECD Ministerial meeting in Paris while a number of issues on the agenda of the Uruguay round would appear to have been discussed, TRIMS was not considered. The quadrilateral meeting is expected to be preliminary to an effort to evolve a common OECD stand.

In its paper, the EEC has said that of the 14 "investment measures" that had been cited before the group some did not have direct effects on trade and hence should be excluded.

Among the measures to be excluded are those providing incentives for investment, licensing requirements obliging an investor to license a local producer, local equity requirements, remittance requirements restricting remittance of profits, capital and other funds associated with investment, and technology transfer requirements.

While some or all of these measure might have an impact on the decision of an investor to invest in a country, or have an adverse effect on an investor’s competititve position (such as through a tax regime), they are not "directly trade-related" and hence should be excluded from consideration, according to the EEC.

The EEC however has identified eight measures, which it says limit the investor’s capacity either to import or export goods or sell then on the domestic market and hence should be tackled in the group.

These measures, in the EEC view, are: local content requirements, manufacturing requirements, export performance requirements, product mandating requirements, trade balancing requirements, exchange restrictions (limiting the investors ability to import products or components used by him), domestic sales requirements, and manufacturing limitations concerning components of the final product.

Japan has identified two sets of TRIMS: those, which it feels are inconsistent with GATT provisions, and those, which are not inconsistent with GATT but have "relevance" to existing GATT provisions.

In the case of the former the Uruguay round should confirm applicability of existing articles and all participants should agree to prohibit them in principle and concrete procedures laid down for reducing or abolishing them.

For GATT-consistent measures (like export performance requirements), Japan wants new provisions and rules elaborated, and all Uruguay round participants to agree to prohibit them too.

Also, in the Japanese view, GATT rules of non-discrimination, transparency, consultations and dispute settlement should be applied to all TRIMS.

In adopting a similar approach, and calling for application of "familiar trade policy concepts" to TRIMS, the U.S. has said that existing GATT provisions were not sufficient and additional provisions would be necessary.

Due to the linkages between various measures there should be a "systematic approach", with new disciplines elaborated and with appropriate transitional arrangements, and for effective and expeditious enforcement and dispute settlement mechanisms.

The U.S. and Japan also want the application of GATT dispute settlement mechanisms and procedures to TRIMS. This would enable them to retaliate against the exports of any "host country" if that host country runs foul of the TNC.