8:06 AM Feb 8, 1996

NEW ISSUES TO BE DEBATED INFORMALLY AT WTO

Geneva 8 Feb (Chakravarthi Raghavan) -- With the major trading powers, and particularly the European Union and the United States, exerting pressures to bring new issues on the World Trade Organization's agenda, trade negotiators at the WTO are expected to begin soon an informal process to consider whether, what, when and how the new issues could be taken up at Singapore and beyond.

The informal process -- at meetings open to all members, and at level of heads of delegations -- to discuss and consider all the Marrakesh 'laundry list' of new issues appears to be a compromise to get around the opposition to discuss and put on the WTO trade agenda investment rights and social clause issues.

It is a compromise between taking up the priority items of interest to the US and EU or all items. But there is little doubt that once the process starts, only those of interest to the North will survive and remain active and a WTO process - whether for study or anything else - will move inexorably to a WTO agreement.

The EU is pushing the investment issue, but less firm on social clause. The US is pushing the social clause and 'corruption' in foreign trade and contracts and other economic exchanges (where it complains European governments and their corporations engage in such activities, and thus get unfair advantages).

In an effort to confuse the unwary, varying terms are being used: 'treaty', 'WTO rules', multilateral disciplines, understanding etc. But in international law, and WTO context, there is no difference.

There is also the suggestion for a plurilateral treaty inside the WTO - as a way of getting around the opposition of countries like India or Malaysia, giving them the option to join or not. But trade diplomats say it will be a first step to making it an integral WTO treaty, with those not joining under constant pressure to join. Among developing countries, of the few involved in the restricted informal process so far, India has been firmly opposing the investment issue. Malaysia has in effect opposed, but not outright, though this could be a question of style. The Malaysian Prime Minister Dr. Mahathir Mohammad has strongly attacked it. Other Asean countries have been ambivalent, with some hoping that opposition of others this would kill it (and the social clause idea) without their having to take a stand. Some Latin Americans, particularly those following neo-liberal economics also favour investment issues at the WTO, but some others appear to have reservations.

Africa, as in other matters, is marginalized. But some of them are being made to believe that if they agree to an MIA, they will get foreign investment which now eludes them. But the MIA can only provide rights for investors, and the home countries can't and won't guarantee investment flows.

At Marrakesh in April 1994, when the Uruguay Round was formally concluded and the Final Act and/or the WTO treaty was signed at a Ministerial meeting, no consensus could be reached on the new agenda issues.

All the items mentioned by one or another of the Ministers was put together and incorporated in the final statement of Uruguay Minister Mr. Sergio Abreu Bonilla who chaired that meeting.

The list, in terms of relationships with trade, included labour standards, immigration policy, competition policy including export financing and restrictive business practices, investment, regionalism, financial and monetary questions including debt, commodity markets, company law, compensation for erosion of preferences, links between trade, development, political stability and alleviation of poverty, and unilateral or extra-territorial trade measures.

The WTO preparatory committee was asked to discuss the suggestions for inclusion of these additional items on the WTO work programme. That committee shoved all these on to the WTO General Council, where the efforts to get going consideration of selected agenda of interest to EU (investment), US (social clause and corruption) has been blocked.

Though the WTO chief, Renato Ruggiero has been talking of a near consensus on some of these issues, and claiming 'ignorance' of the reasons behind opposition of some countries, deriding it as 'sovereignty reasons', in fact there are many conflicting views among members on the detail, and even at a general level there is no real consensus.

The European Union is pushing very strongly for action at Singapore to start a process for negotiating a "multilateral investment agreement" at the WTO. It has set out in informal papers given to delegations in Geneva, and published in Brussels, the kind of provisions it seeks.

The United States has indicated that it does not want the issue at the WTO now, but that it wants a very strong treaty to be negotiated at the OECD, making it privately known that its principal targets are the EU member countries and Japan.

The US proposals, and the general objectives of the OECD agreement being negotiated, would give any investor belonging to a country party to that agreement, equal rights (national treatment) to the domestic investors, including the right to invest. An unresolved question at the OECD is whether the scope should cover not only long-term investment, but short-term portfolio type investments.

The EU proposals (for a WTO accord) would give foreign investors the right to invest anywhere in the territories of the WTO members, for a MFN treatment by all WTO members on the investment rights -- in effect a 'global welfare state' in a new-liberal order for foreign investors who, effectively, are the major Transnational Corporations.

It will also give the home countries of these TNCs the right to take up disputes on behalf of their individual TNCs visavis a host country -- for restricting the right to invest, for not being given equal treatment with domestic investors and other rights to freely operate -- at the WTO, invoke its Dispute Settlement Understanding and take cross-retaliatory trade sanctions on that basis.

In fact, Canada has made clear in some of the consultations and seminars that the WTO as the forum for the agreement, is because of its dispute settlement system and cross-retaliatory sanctions.

The Singapore ministerial meeting, the first of the regular two-yearly meetings of the WTO, is to take place in December this year.

While there is an inbuilt agenda for that meeting, and the items on that agenda have to be processed and brought up by the various WTO bodies and overall by the General Council, for several weeks now efforts to cook up an agenda and bring up particular items have been underway in smaller conclaves, often outside Geneva.

Such ministerial meetings, involving a few countries and ministers, have been held at Stockholm and Vancouver last year and another is planned for Brisbane in Australia.

There is also a Europe-Asia (Asean and Far East) summit scheduled for Bangkok 1-2 March (where the EU wants to bring up the investment treaty issue) and persuade the ASEAN to agree.

Singapore's trade authority and the International Herald Tribune have organized a trade forum meeting in April and, as part of it, have invited a number of high personalities and the neo-liberal trade order experts, business representatives (but no unions, consumers or public interest NGOs). It will be just on the eve of UNCTAD-IX.

The WTO chief, Mr. Renato Ruggiero has been going around the world and visiting capitals and addressing various public and private fora on the new trade issues. Though the new issues have not been discussed at the WTO at all, he appears to have developed or arrived at the WTO with his own agenda of sorts for expanding the WTO empire, and has been pushing the investment, social clause and environment questions.

In his latest foray, into Africa last month, he announced that the marginalisation of Africa was over (as a result of the neo-liberal WTO trade order) and has been promoting the investment issue as a panacea for development and integration of Africa in the globalizing world economy.

Trade diplomats from many of the developing countries, and even some trade officials at the WTO, privately complain that Ruggiero has not been holding any indepth discussions with negotiators accredited to the WTO, and that this was creating some embarrassments in their capitals.

Some of these new trade agenda issues, have been flagged by the UNCTAD Secretary-General Rubens Ricupero in his report to the Conference. The report has underlined the controversies and complexities surrounding them and lack of international consensus. In effect the report seeks an UNCTAD-IX mandate to study and discuss these questions in depth at UNCTAD to promote an international consensus.

But UNCTAD's Department on Transnational Corporations and Investment (DTCI) -- which publishes the annual World Investment Report, and the quarterly journal 'Transnational Corporations' -- has been promoting the view of complete substitutability of trade and investment, of freedom of mobility for capital as a factor of production, and for Multilateral Investment Agreement (MIA).

The department organized and held a seminar last November at Divonne-les-Bains in neighbouring France and is holding a second one at the same place on 12 February. Delegations have been invited, but the media has been asked to rest content with a press release that would be issued.

Some of that department's views on FDI, the Development theory of a Triad-led process of globalization and integration of countries through the TNCs, and an MIA to promote and further it, were challenged at an UNCTAD staff seminar, open to others, on 31 January.

The entire MIA and investment rights are being pushed in terms a nostalgic (but factually incorrect) view of the 19th century laissez faire golden era of capitalism, of the current neo-liberalism and the socalled Triad-led globalization and integration process and theories (enunciated for e.g. at the Prebish lecture at UNCTAD in 1994 by the department's guru, Prof. John Dunning) have been vigorously promoted since 1990 under the socalled Washington Consensus.

However, as the proceedings at the annual Davos World Economic Forum, and the views of its sponsors, participants, as well as influential newspaper columnists in the North, have shown many of these assumptions are now under serious challenge. There is a rising demand for brakes on if not a reversal of this transnational-led globalization process which the WTO and others are facilitating and promoting. Even Prof Schwab who runs the WEF a body that promotes TNC and European business interests, has stressed the need to take note of the rising backlash against globalization.

Unlike in the 1970s, the critics are not challenging the role of private investment and entrepreneurs, but rather the hype surrounding it and the efforts to 'disarm' national authorities and the instruments they could bring to play to safeguard wider public interests, without any corresponding international rules to counter the TNCs.

Proponents and opponents concede that the two main functions of FDI, in development terms, lie in the transfer of technology, knowhow and skills that TNCs could bring to a host country, and to fill the gap in domestic savings and foreign exchange earnings to enable a country to invest and bring about the structural changes and industrialization.

As Canadian trade policy expert, Sylvia Ostrey has said in the December 1993 issue of the 'Transnational Corporations', "the factors underlying the deepening process driven by the activities of TNCs within the triad suggest that developing countries will face new systemic impediments and policy challenges in the 1990s with regard to the acquisition and local diffusion of new technologies."

As a number of more critical studies have brought out, the transfer of technology and skills by TNCs, when they establish themselves in a country or enter into affiliate or subcontracting relationships, is firm-specific (to the subsidiary, affiliate or subcontractor) and considerable efforts are made to prevent diffusion outside into the general economy of the host country.

While FDI and other affiliate/contractual modes is their preferred route, it is only when the TNCs are unable to exploit freely and without governmental restrictions their firm-specific assets (capital, skills, market access, IPRs -- patents, trade marks etc) that they enter into relationships with domestic firms or "sell" and "license" their technology and other 'assets'.

They go to a country to gain access to a domestic market, or set up production for supplying to a regional market. They are not charitable or social organisms, and pursue their activities to make profits for the benefit of their shareholders, who even in these days of wider cross-country shareholding, remain mostly or mainly nationals of their home country.

In their global activities, TNCs pursue strategies to maximise their global profits and capital accumulation for the benefit of their shareholders, and the benefits and objectives to the host country figure low on their priorities -- unless forced to otherwise by the stipulations of the host country as a condition for getting the right to invest.

A developing country, depending on its stage of development, has shifting priorities in this regard. From a simple, initial objective of getting foreign capital to fill the domestic savings gap and invest for industrialization and export of simple commodities and processed products, as the country moves up the scale it needs either to develop its own technology and skills to stay ahead in the competition game or persuade the TNC to constantly upgrade the available technology (and enable its diffusion in the country).

At the intermediate stage between FDI to start the process of industrialization and structural change from a rural and traditional agriculture stage and a self-sustaining industrial economy, a developing country (particularly with a large internal market) may even find TNC/FDI operation useful to counter a domestic private monopoly that local entrepreneurs are unable to challenge. But even there it has to make sure that the domestic monopoly is not replaced by the foreign monopoly.

While at the initial stage, FDI fills the investment/foreign exchange earnings gap of a country, and adds to the its cumulative capital, unless the country develops its domestic capital and other production factors, and its own firms engaged in production, exports, technology development, investment and capital accumulation, it will face soon a net outflow (as Malaysian experience now shows) and the country will haemorrhage and lose welfare.

Over-reliance on FDI and TNCs for development would mean that without a constant and ever rising stream of FDI, the outgo of the initial investments (profits, various fees, transfer pricing which even major countries like the US and France are now finding to be a major problem and drain) will create a Ponzi situation not unlike the earlier foreign borrowing for development paradigm.

All these are very complicated issues, and not easy of generalized formula approach of rules applicable equally to all and, in any event, cannot be addressed in WTO framework, where negotiators in Geneva or even ministers and officials in trade ministries don't have a full grasp.

As Cambridge academic, Prof Robert Rowthorn put it at the UNCTAD staff seminar (on the flying geese paradigm) "it is one thing for developing countries to undertake liberalization of FDI, but quite another to be forced to sign an international agreement and compelled to undertake commitments for liberalized investments. This is what Sir Leon Brittan (EU trade commissioner) is pushing at the WTO and it is a policy to compel the governments of the South (to act) for the benefit of individual transnational enterprises (of the North)..."