4:42 AM Oct 30, 1995

 

FORWARD TO 19TH CENTURY ?

Geneva 27 Oct (Chakravarthi Raghavan) -- Event-planning, rather than substance, appears to have once again become the focus of attention and preoccupation of trade diplomats to the World Trade Organization (WTO), with the majors, and particularly the European Union trying to railroad the developing countries into negotiating an investment treaty.

The principal objective of the EU, US and others, observers note, is really to bring back the 19th century and early 20th century regime -- where the home countries of investors claimed the right to intervene in other countries on behalf of their investors, even sending their gunboats to enforce these rights.

Latin Americans, who were then independent, unlike most of Africa and Asia, mounted a juridical challenge through the Calvo doctrine of 1868, Subsequently, the UN charter making illegal use of force, and the various declarations and resolutions about national sovereignty and sovereign rights to natural resources and the Charter of Economic Rights and Duties of States have negated the earlier century claims.

While the US and now the EU states have entered into a web of bilateral treaties, they still face problems of enforcement through use of force. They now find enforcement through trade-retaliation, or atleast such threat, to be a potent instrument for asserting their will. Hence their efforts to push this through the WTO, Third World observers note.

The EU's Executive Commission, and its Trade Commissioner, Sir Leon Brittan, have made no secret of their intention to pressure and push the developing world down this slippery slope, and launch such a process at Singapore at the first Ministerial meeting of the World Trade Organization in December 1996.

As a host country keen upon and needing to attract the widest Ministerial participation and ensuring a "successful outcome", the island State of Singapore, which is a member of ASEAN and APEC, host to large number of transnational corporations and their foreign investments, and currently trying to become an outward investor, appears to be supportive of WTO negotiations on investment rules, but with some reservations.

When the WTO accord was negotiated and concluded, one of its claims was that the WTO would provide an institutional and organizational framework for the contractual trade body, establishing a rule-based, rule-governed organization under a definitive treaty, rather than function in the ad hoc way that the General Agreement of 1947, as a provisional, had to with periodic multilateral negotiations for lowering trade barriers being launched by special ministerial meetings.

The WTO was thus affirmed to be "the forum" for negotiations on agreements annexed to the treaty, and provide "a forum" for further negotiations among its members concerning their multilateral trade relations. The WTO has separate councils for goods, services and trade-related intellectual property issues, all functioning within their respective jurisdictions and agreements, and under the overall supervision of the WTO General Council. The latter has both a general overseeing function and considering things not on any specific Council agenda.

Nearly two years after concluding the Marrakesh agreement, and ten months into the WTO and its institutional framework as a forum for contractual trade relationships, event planning appears to have once again gained an upperhand over substance. When the GATT was founded in 1947, and for a long time, its role was seen as a forum for the United States and Europe to negotiate and agree on trade liberalisation matters -- with GATT heads generally viewing their role in the same way -- a view that appears still to prevail at the secretariat and its leadership, despite the WTO membership of over 120 countries now. While everyone at WTO -- Director-General Renato Ruggiero, and delegates of various countries -- talk about "transparency" as a key objective -- the WTO appears to be still suffering from the old GATT practices and ways of a few meeting and cooking up agreements in private outside, and then bringing it up for a formal approval in the decision-making bodies.

A small group of ministers, with a few from the South, met last week at Stockholm at a meeting convened by the Swedish Trade Minister. Also present were some academics and consultants (most belonging to a particular trade policy theology like Prof. Jagdish Bhagwati, a US national of Indian origin, Sylvia Ostrey former Canadian trade policy official), with a few invited journalists.

Other such meets being planned include one at Vancouver hosted by the Canadian government, and another next year at Brisbane called by Australia. Singapore, for its part, is trying to use a business forum that it is holding jointly with the International Herald Tribune as part of the preparatory work and to hear the views of business leaders.

The Singapore-IHT meet was planned and announced a while ago and perhaps would give both sides an opportunity to mend fences -- after some public spat about democracy, human rights etc in Singapore, and resulting in a libel suit which the IHT lost.

None of the events being planned though involve consumers or workers and others gaining or losing as a result of the trading system. Some government representatives argue there is no need to bring in consumers and other interests separately, since the governments represent the people, but are unable to explain why then the need to engage business either, since governments must be representing businessmen too.

At Marrakesh in April 1984, at the Ministerial meeting to sign the WTO accord, several ministers mentioned several issues which they thought ought to be on the WTO agenda, but none of them got any consensus. They were remitted to the WTO and its bodies to discuss and address in the Preparatory Committee that was set up to enable the WTO to come into being. That Committee found its plate too full, several procedural, merely to bring the WTO into being, and decided only to deal with and settle those questions where without a decision, the WTO cannot come into being -- and remitting all the others including the laundry list of new issues to the WTO bodies.

None of the issues have so far been formally discussed at the WTO bodies (though the Committee on TRIMs, under the Council on Goods, recently gave UNCTAD's centre on investment and the OECD, to present their views on investments and indirectly need for investment regimes). However, the fact that there has been no agreement at Marrakesh nor have these been discussed and debated, has not stopped the WTO Director-General Renato Ruggiero of Italy from sounding himself off and pushing several of the new items favoured by the EU and the United States. Recently, in some speeches in the United States and in his statement welcoming and supporting the views of the Quad Ministers (Canada, EU, Japan and the US) in Britain, he has left the impression of supporting bringing on WTO agenda, in one form or another, investment, competition and social policy - though he has been fudging the last issue.

Singapore, in supporting an investment rules agenda for the WTO, has been talking of benefits of "greater clarity and transparency in investment rules" to all WTO members and for including "a multilateral framework of rules, but qualifying it with the need to "address adequately" the reservations of some of our WTO partners.

Singapore government delegations have twice visited Geneva to sound out other delegations, particularly from the developing countries, over the Ministerial meeting in 1996 and the "preparatory process" for it and the issues and items to be focused on there.

Trade diplomats of other countries have received the impression that while anxious to avoid a situation of ministers 'negotiating' at Singapore, with some risks of failure, Singapore is also anxious both to attract widest Ministerial participation to boost its own national image abroad, as well as show some achievements.

With the United States already in a 'election campaign mode', and the administration unlikely to be overmuch engaged abroad (excepting in terms of how it would aid Clinton's re-election campaign and discomfit the Republicans), no major initiatives are coming from there.

But the EU has used this to gain some political mileage and with Singapore is pushing the investment agenda.

Many diplomats of developing countries, while wanting focus on the implementation of the various WTO agreements, and time to digest them, have begun to argue that it would be better to deal with "investment" questions in the WTO forum where they are present, rather than the OECD.

In the runup to the Brussels ministerial meeting, then Brazilian ambassador, Rubens Ricupero, posed the dilemmas facing the developing world in a picturesque french proverb of the chef, getting ready to kill the chicken for cooking and asking the chicken with what sauce it would like to be eaten. When the chicken preferred not to be killed at all, the chef responded that was not a choice available.

Developing countries now appear to be weighing their options in terms of which altar or forum they would be sacrificed - - OECD, WTO and/or UN Conference on Trade and Development where its investment division -- which prior to its abolition and transfer to UNCTAD had been in New York as Centre for Transnational Corporations. Founded to bring the TNCs under multilateral scrutiny and disciplines, even before its transfer to Geneva and merger, the department has done a 180 degree turn to promote TNC investments in line with the neo-liberalism embraced by developing countries, but bring the investment rules issue into UNCTAD.

While the Stockholm meet, and the other planned 'events', are all under socalled Chatham House rules (under which participants and their views would not be individually identified), the EU Commission ideas were spelt out a few months in a paper that it circulated to several delegations at the WTO in Geneva.

After the Stockholm meeting, where he spoke from a written text, Sir Leon Brittan appears to have more less made the same points and views public at a press conference. He saw the meeting as the start of an intensive process of consultations leading to the Singapore meeting and laying the ground for a solid strategy of future trade liberalisation.

The WTO, he argued, must respond to the needs of businessmen for trade and investment liberalization worldwide, and do it in such a way that it would get "global results" and make WTO "popular at home". The WTO's work programme should go beyond the Uruguay Round agenda and encompass investment, competition, environment and labour standards.

On the Social Clause, and the EU efforts to promote better living standards and the message it was sending through its GSP preferences to countries meeting ILO standards in core areas of child labour, bonded labour and freedom for trade unions, Brittan said the WTO could not remain silent. While there was a risk of North-South split, further discussions were needed between developed and developing countries.

On competition policy, an issue endorsed by G-7 Halifax summit, Brittan did not believe that all the issues involved could be resolved overnight, nor was it easy to persuade territorial competition authorities to exchange confidential information even bilaterally.

Investment, Brittan argued, was however the single most important new item for the WTO, and after much efforts, the OECD countries had now agreed that work on investments should taken place both at WTO and the OECD. While rule- making discussions were under way in the OECD, WTO discussions in Geneva he thought would be more tentative. The EU he added was hence sponsoring some informal seminars under UNCTAD auspices to share views among developed and developing countries.

At the UNCTAD-organized seminar last week, where some invited participants including such well-known advocates of neo-classical and neo-liberal order and of TNCs and Prof. John Dunning and Sylvia Ostry and a representative of South Korean TNC, Samsung Electronics, gave their presentations and views, arguing on the need for an international investment regime to encourage and attract foreign investments. A final session a panel discussion, with participation of several key ambassadors, devoted to "issues requiring international attention" produced some substantive issues and questions without any clear answers.

In the paper that it had informally given to WTO delegations in Geneva some months ago, explaining its initiative, the EU has said that, except under very strict exceptions of national security, any foreign investor should have a right to invest and establish in any country -- free access to investors and investments - national treatment for foreign investors and their investments, and measures to uphold and enforce commitments made to foreign investors.

At the seminar last week, both the EU and Canadian ambassadors reportedly made clear their intention and objective as one to get rules on 'trade and investment' to be written into the WTO and thus subject to its dispute settlement processes.

According to participants, one of the interesting points made by Sylvia Ostrey, who during the Uruguay Round in 1990, advocated its conclusion on the argument of need 'level playing fields' for TNCs who were seen as the key players in the process of globalisation and economic integration of countries. Ostrey conceded though that the investment rules and regimes would be "very intrusive" and issues of sovereignty etc were involved.

One diplomat from an important Third World country said that in fact such a WTO regime would result, not in more, but less investments to the needy countries and would only mean TNCs going to countries and engaging in activities enabling maximum profit-making for themselves through vertically integrated and unjust, colonial-era type, international division of labour. The Indian ambassador to the WTO, Mr. S. Narayanan, in raising questions whether there is need for a multilateral investment agreement, appeared to have posed some major questions and views, and several Third World delegates speaking afterwards on condition of anonymity said they fully supported, even though their own governments either did not seem to have any views or were supportive of investment negotiations in the belief that it would bring in much-needed foreign investments to them.

Narayanan noted that in the world of today there was more demand for FDI than the available supply. In such a situation, suppliers were in a sellers market and in a strong situation where they could lay down the conditions under which they would invest and force it on governments. Nevertheless it was the suppliers who were demanding a multilateral investment regime and rules.

Many of the countries pushing for the WTO rules, were countries which had bilateral agreements with others on investments already. Why were they now pushing for a multilateral investment regime.

Referring to the Ostrey view that a multilateral regime would be "intrusive" and involve issues of sovereignty, Narayanan would appear to have made clear that as far as India was concerned it was politically not feasible to agree to such a regime and accept the proposition that any foreigner could come and invest as of right. At some future point this view may change, but he did not see any prospect now.

Hence, before any multilateral investment regime is sought to be brought up, it was essential to address internationally the question of political feasibility of multilateral investment disciplines.

The Indian diplomat say any such regime and discipline as inherently asymmetric. Under any such multilateral discipline in the WTO, governments host to such FDI would be accepting obligations, and the governments home to the TNCs would have the right to bring up and argue on behalf of their TNCs, and take actions in the WTO on the ground of violations of the rights of their investors.

Would the home country undertake also some obligation, and accept responsibility for any misconduct, misfeasance, misbehaviour or even damage caused by the foreign investor to the local economy or public, even after such an investor flees the scene?

Though Narayanan did not appear to have mentioned any specifics, questions about the behaviour of the Union Carbide TNC of the United States and the responsibilities of that company and of the United States visavis the disaster at the Union Carbide plant at Bhopal has been frequently posed in India by opponents of the WTO and any investment regime.

There is also a public agitation over such TNC activities like those of pepsi cola and coco cola, kentucky fried chicken and other such TBCs in the consumer area and the mores they are inculcating.

Other non-governmental experts have been posing the question as to the responsibility that would be assumed by home governments -- such as the British government over culpable criminalities of the BCCI or of the more recent Leeson affair and the illegal activities of local branches of foreign banks or the widely prevalent transfer pricing practices, often verging on illegality, for tax avoidance by TNCs and a range of such actions.

Narayanan also is reported to have noted that the liberalisation of investments and investments regimes were being advocated in terms of liberalising the mobility of factors of production. But no one was ready to discuss or accept a similar mobility for labour as a factor of production.

Many countries were undertaking unilateral liberalisation and are welcoming foreign investments subject to rules and conditions. But extending this and binding it through international agreements would prove to be very difficult in countries with a democratic process and strong democratic institutions.

A Malaysian participant, Dato J. Jegathesan, Deputy Director-General of Malaysian Industrial Development authority, in making the same point about the political sensitivities, is reported to have noted that in his own country in 1969 there were major riots because of sensitivities about sovereignty. The riots were caused by the fact that the local population had only two percent of the ownership in industrial enterprises and activities, and the rest were foreign-owned. Governments had the responsibility of encouraging domestic capabilities and hence host governments must be able to lay down the conditions for foreign investors.

Singapore's, Amb. Kesava Pani, who earlier had mentioned Singapore's interest as both a host to foreign investments and a foreign investor, while seeming to be supportive of international and WTO consideration of the investment issue, said that concerns like those raised by Narayanan would need to be addressed.

Earlier, Malaysia's Amb. Haron Siraj, suggested that the issue was not mature for any consideration or negotiations and developing countries were not well informed about its implications in the WTO context. While the subject of investments could be discussed, both the plus and minus and with related issues including monetary and financial questions and behaviour, restrictive practices, of private parties. WTO was not the right venue and there should be no presumption that WTO was the place to take up the issue.

The Secretary-General of UNCTAD, Mr. Rubens Ricupero, who chaired the seminar is reported to have summed up the outcome as one of no consensus on need for international investment rules or where and when it should be discussed, taken up and negotiated.