12:45 PM Feb 15, 1996


Geneva 15 Feb (Chakravarthi Raghavan) -- Many more developing countries, including several ASEAN members, now appear to be coming out more openly to voice their objections and concerns to starting a multilateral investment agreement process in the World Trade Organization or being rushed into taking a decision on this question at the Singapore Ministerial meeting.

On Monday this week, UNCTAD had held a second seminar on the issue at Divonne, in neighbouring France, with the participation of several delegations, academics, representatives of some TNCs and OECD and other officials. No conclusions were drawn at the meeting.

But the Chairman of that seminar, Roger Lawrence, Deputy to the UNCTAD Secretary-General, who heads the division on TNCs and Investment, told the SUNS later that it was clear from the seminar that there was a very wide variety of views on the issue of a multilateral investment agreement, emphasizing his use of the word 'agreement' in lower case.

The UNCTAD secretariat, he said, had "no position" with regard to the best way forward on investment or the proper institution for any discussions, now or later on.

The issue he said would figure at UNCTAD-IX, and the Secretary-General of UNCTAD had spelt out some views in his Report to the Conference.

Last week, Horst Krenzler, the Director-General of External Relations (DG-I) in the EU's Executive Commission, had met with a smaller group of Geneva WTO diplomats to discuss with them the investment, social clause and the environment issues.

On Tuesday, Canada would appear to have got together an informal group of delegations to discuss the issue. Early in December last, Canada had informally provided a 'Canadian Paper' setting out what it called 'Elements of a WTO Work Programme on Investment', and proposing that the Singapore meeting set up a Working Group and mandate it to consider several elements (listed in its paper) of the investment issue and reach decisions within 18 months, in time to launch investment negotiations at the 1998 WTO Ministerial meeting.

The Tuesday meeting would appear to have focused on this issue and how to begin work at the WTO.

Participants have been unwilling to acknowledge such a meeting or identify those present there or the discussions. WTO officials said they had no official word of such a meeting, but that they had learnt of such a meeting indirectly from some delegations.

But information pieced together from various sources show that some 20 countries or more were present, unlike in the past where such discussions were amongst a handful of delegations.

The Europeans, Canadians and several Latin American countries favoured start of a process at the WTO, with some Latin Americans expressing their worry that otherwise the issue would be pursued at the OECD, and developing countries would be faced with a fait accompli at the WTO and given an accord on a 'take-it-or-leave-it-basis'.

Unlike at the earlier, smaller informal meetings in Geneva, where India was pictured as the only one opposing WTO talks, several developing countries at the Tuesday meeting (including India, Egypt, Malaysia) reportedly expressed their concerns over the idea of a WTO investment agreement, as well as their opposition to being rushed into taking a position and a decision whether to start negotiations or even a WTO work programme for study at the Singapore Ministerial meeting.

One source said that Singapore was the only one among the ASEAN to support a WTO discussion and for a decision at the Singapore Ministerial meet in December, while other ASEAN countries (Malaysia, Indonesia, the Philippines and Thailand) seemed to have reservations or objections, which they voiced with some nuances.

And though several of the Latin American members appear to support the idea, their motivations were seen as different and even slightly contradictory, by Latin American sources and some academics.

Argentina and Chile, which have a neo-liberal regime and allow foreign investment flows, with Argentina providing to any foreign investor full national treatment, favour a WTO negotiation process.

Brazil was said to be favouring a WTO process so that it is not faced with an OECD agreement which it is asked to sign. Also, the Brazilian position was pictured as part of its effort both to secure a common investment policy within Mercosur (where Argentina is pursuing a complete neo-liberal approach) as also in its own domestic terms, namely, that the Brazilian Congress is more likely to approve a multilateral agreement. Several bilateral agreements reportedly are being held up in Congress.

Mexico, though party to some investment provisions in NAFTA, nevertheless has been supportive of developing countries who feel the need for fuller study and exploration of the issues before starting a WTO process.

Several of the participants at the Tuesday meeting also appear to have challenged the view that investment is already covered by several of the WTO agreements (GATS, TRIMs, TRIPs, Subsidies etc) and thus neither an issue of principle nor of jurisdiction was involved in WTO taking up and negotiating an investment agreement.

This view is being assiduously propagated by the EU, Canada, and the WTO Director-General and his secretariat officials.

But this was countered by the Ambassador of a major developing country (and supported by some others), who said he did not agree that an investment regime of the kind being proposed by some industrialised countries was already in place in the WTO agreements. In any case, he said, if there is a view that it was already in existence, then all WTO countries were already bound by such elements, and it was thus not a new issue that should be pursued, and the matter should therefore end there.

The Ambassador added that if certain parties wanted to advocate an investment regime they should say so and give the reasons for it, instead of making the argument that it was already in the WTO and thus had already been accepted.

As one of participants later explained on a non-attributive basis, "if the subject is already covered and in WTO agreements to which we are all parties, there is no need for either a separate negotiating process or work programme on investment, or for the WTO Director-General to go around the world campaigning for this, and presenting a one-sided view, but giving the impression that there was a consensus of sorts...

"Those wanting to flesh out existing rules and seek more provisions on investment should pursue their aims through the established WTO processes and in terms of the existing agreements and provisions.

"The very fact that the EU, Canada and the WTO head are pushing for investment as a separate WTO issue, even when all of them claim it is already being dealt with, shows their shaky ground," the delegate said.

Another developing country representative pointed out that originally some industrial countries wanted the right to invest as a major principle in the services negotiations in the Uruguay Round.

The secretariat of the UN Centre for TNCs also advocated at that time that the real negotiations on services was the 'investment' issue, but developing countries refused to accept this view.

The investment or establishment right for services was rejected in the negotiating group, even by some industrialized countries.

It survived only as 'commercial presence', with each contracting party free to offer the terms and conditions, including exceptions or limitations to national treatment, the kind of commercial presence (merely a representational office to canvass business, joint ventures with minority foreign participation, foreign investment without limitations, and technology transfer conditions) of foreign enterprises in different service sectors.

Another developing country representative said that it was a futile exercise to debate whether or not the principle of investment rights was already in the WTO.

Trade officials and observers, familiar with the preparatory processes for the launching of the Uruguay Round, the mandate negotiated for it, the proposals formulated by the US, Japan and the EC Commission for the negotiations on services, and trade-related investment measures, noted that the repeated efforts of these countries to bring in investment rights or 'establishment' rights for foreign capital were rejected.

In the GATS, it survived only as one of four-modes of delivery, and in terms of a 'commercial presence' and not an investment right or right of establishment as proposed by the US and EU.

Within the GATS and commercial presence as a mode of delivery, it was left to each individual country, in formulating a 'positive list' of market access commitments in sectors and subsectors of 'services', it would inscribe on its schedule under GATS, to specific which mode of delivery for a service it would commit itself and, when it agreed to 'commercial presence' as a mode of delivery, it would be able to limit what it would allow under this (ranging from a representational or mere commercial office, foreign capital investment with minority share in joint ventures and all the way to wholly-owned foreign corporations or subsidiaries), that would be accepted as a mode of delivery, and the limitations on such service providers visavis domestic enterprises and the issue of 'national treatment')

In TRIMs, only those investment measures that were 'trade-distortive' were taken up, and even within it measures that had a direct (and not indirect) trade-distortive effect. And the TRIMs agreement clearly spells out that it is related only to the Trade in Goods.

While calling for a review before year 2000 of the operation of the Agreement with a view to suggesting amendments, the TRIMs agreement envisages the review addressing whether there is a need to complement it with an agreement covering investment policy and competition policy.

This is a far cry from the EU concept of an investment agreement for right of foreign investors to invest anywhere in the world, bar security and a narrow range of exceptions.

At the Divonne-II seminar, Mr. Adrian Otten, the Director of the WTO division on intellectual property and investment, argued that though the TRIPs agreement was explicitly not about investment, it contained detailed commitments on an increasingly important aspect of the legal environment under which foreign investors operate, and that IPR issue was one of protection of foreign investors' "intangible assets".

Apart from the controversy as to whether it is a 'liberalising' or 'illiberal and restrictive one', the Otten view of what the TRIPs agreement signifies is likely to be challenged by developing countries. They point out that the agreement was negotiated and presented (by negotiators to their capitals) as one for promoting innovation and for developmental and technological objectives.

The European Commission, which mentioned 'investment' at Marrakesh and had it included in the Marrakesh 'laundry list', first publicly voiced its demand for taking up the investment issue in the WTO and what it wanted to achieve in a paper it circulated to a few key delegations here in March 1995 and this was later published. Subsequently, the EU formulated a more detailed position paper.

When the issue was first publicly mooted in October-November last, including at the UNCTAD-sponsored first seminar in November at Divonne, India expressed its opposition to an 'investment right' for foreigners via the WTO and Malaysia expressed some concerns and reservations and need for further understanding.

At some meetings outside Geneva (the small ministerial meet at Stockholm in November and the later Canadian-sponsored Vancouver meeting), and to which only a few developing countries were invited, it was reported that some of them seemed agreeable to undertake the work in the WTO, viewing it from their perspective as better than work at the OECD resulting in an agreement which they would then be compelled to join.

Singapore, as the host country for the first of the regular two-yearly WTO Ministerial meetings, had been at all these gatherings and its views favouring a discussion on the issue at the Singapore meeting and perhaps leading to a work programme, was generally interpreted as an ASEAN view - though Singapore itself does not appear to have claimed that it was reflecting an ASEAN position.

But at this week's Canadian-sponsored informal meeting of some 20 or more key delegations, for the first time reportedly it became clear that a number of ASEAN countries, with some nuances in their approaches, are opposed to or have their concerns and reservations and objections. These reportedly included Malaysia, Indonesia and Thailand and the Philippines.

The European Union and Canada, as well as the WTO Director-General and the secretariat, since about November last year, have been heading the drive, to bring investment on the WTO agenda as a separate issue

There has also been the effort to promote the view that 'investment' is already covered in several agreements in the WTO, and it is merely a question of more rules and disciplines to liberalize investment and promote investment flows for development.

But at Mr. Krenzler's meeting last week, when asked whether the EU was in a position to guarantee that countries signing on to an investment agreement could be assured of investment flows they needed, Krenzler had to back away and admit that no one could make any such guarantees.

In promoting the investment regime idea, the WTO Director-General Renato Ruggiero has been trying to buttress it with some historically incorrect statements - such as in his luncheon speech at Monday's UNCTAD-sponsored seminar at Divonne in neighbouring France, where he spoke of the international trading system and "an open regime for foreign direct investment" as having been mutually supportive. He also trotted out the Ricardian view of free trade, namely, of a mutually beneficial division of labour in which each country specializes in what it does best, and of FDI playing a particularly important role in facilitating an international division of labour that takes advantage of international trade opportunities.

The only period of time when there was a liberal regime and free trade was a short two decades from about 1860 in continental Europe. Then, and when it collapsed with France and Germany rejecting free trade since it benefited only Britain, the two allowed foreign capital in, but restrained outward investment. European capital also went to the United States, which had a highly restrictive and protective trade regime. In the post-war period, US investments in Europe, came as a result of trade restrictions of Europe, and thus was an effort to get around and not 'mutually support' liberal trade. The OECD's Code of Liberalization on Capital Movements, came only in 1961, more than a decade after the GATT, strictly confined to trade in goods. While the OECD guidelines were for free movement of capital, for policy purposes it discriminated against categories of capital and acknowledged that free capital movement would depend on a country's economic and financial position. This was used also to justify restrictions by member-countries at different economic levels on restrictions. The OECD code also recognized that social costs of free movement could outweigh for countries the benefits of free capital movement.

Egypt's Mme Magda Shahin, who participated at the Divonne-II, in explaining her country's reservations in starting a WTO process, told SUNS that the industrial countries had been studying and discussing this issue for years, and had reached more or less a similar level of development, before taking up investment questions.

To rush developing countries into this issue now was pretty unfair.

Nor did the argument that a WTO process would be better than the OECD one make any sense. "Would the OECD process be stopped, if we decide to take up the work at the WTO and begin to study all the issues," she asked. "Certainly, not".

There was need for a full and frank discussion of all the issues, and with the full participation of academics and non-governmental experts and organizations, and of all the governments, she said.

This was possible only at UNCTAD in a non-contractual context, and without preconceived notions, and the discussion had to include investment questions, rights of foreign investors, the rights of home and host countries and their obligations, including the obligations that home countries would assume on behalf of their corporations and their good behaviour, technology questions, competition questions etc.

If after a full and objective study and discussion, it was felt there was a need for a contractual agreement related to trade, it could be then taken up and negotiated at the WTO. But before doing that one had also to assess the new trade dispute settlement system of the WTO and the cross-retaliation provisions.