12:40 PM Sep 17, 1996

INVESTMENT, NEW ISSUES, FACE MORE OPPOSITION

Geneva 16 Sep (Chakravarthi Raghavan) -- A sizeable opposition against putting the 'investment' issue on the agenda of the Singapore Ministerial Conference (SMC) -- whether as a new negotiating issue or even as a 'study' process -- appears to have emerged at the WTO preparations for Singapore Ministerial Conference.

The new reasoned opposition emerged at the informal Heads of Delegations consultation process at the WTO on Monday. The HOD meets under the chairmanship of the WTO Director-General, Mr. Renato Ruggiero, which resumed Monday after the summer break, is looking into all the suggestions and ideas for new issues.

At the Monday meeting, Mr. Ruggiero identified in his opening remarks Government Procurement, Investment, Competition, WTO Rules and Labour Standards as the new issues on which the HOD process would need to work further. Also to be addressed, he said, were issues of further liberalization and regionalism and multilateralism - which were being considered in the relevant WTO committees.

While in his initial remarks, Ruggiero sought to present the discussions so far on the new issues as indicating widening support, his final remarks at the end of the meeting was more cautious and made no claims, as in the past, about near consensus or overwhelming majority support etc, one participant said.

Sources said it seemed that during the summer break, and the consideration of these questions at capitals, misgivings over taking up, in any way (whether for study or negotiations), new issues at Singapore appears to have crystallized and were frankly expressed by some who had so far taken a low profile.

In a long session, where some more new items appeared on the table, the delegations were described as having had a 'frank' discussion, placing their views and positions on among others investment, competition policy, labour standards and other new issues being pushed and promoted by the major Northern trading nations.

The Ruggiero process is to be resumed early in October, when Ruggiero plans to present an 'outline' for a Ministerial declaration and work programme after Singapore.

According to participants, Tanzania, Malaysia, Indonesia, India, Egypt, Pakistan, and Cuba were among those who spoke, with varying nuances, to underline that issues could be taken up only on the basis of consensus, that such a consensus was lacking currently for taking up the investment question at the WTO and that even an educational process could be done best at the UN Conference on Trade and Development and its intergovernmental bodies, as mandated by UNCTAD-IX.

One participant noted that in the past both Malaysia and Indonesia were somewhat muted in expressing their views inside the WTO, even though their governments in the capitals, and at the level of their Heads of Government, have come out very forcefully against a multilateral agreement on this issue.

Inside the WTO so far, the Malaysia and Indonesia have hewed to the ASEAN 'common' line that they were opposed to the (OECD) MAI being transplanted into the WTO. This consensus line of the ASEAN had been in deference to the views of Singapore, as a host country, not wanting any firm positions to be adopted that could affect the outcome of the SMC and its success.

But on Monday, both Malaysia and Indonesia made clear their opposition not only to negotiations on investment at the WTO, but also against any study process at the WTO, wanting such a study to be done at UNCTAD.

Malaysia's Minister-Counsellor, Mr. Yasin Suboh, said the HOD process was at a very critical juncture. "I feel it necessary that we fully understand each other so that decisions may be taken on a well-informed basis rather than best available information". It was only fair to make the position clear here and now so as to contribute to ensure WTO staying focus and remaining strong.

Limiting his comments to the investment issue, Suboh said: "This is not an new issue. It is already being captured in the Agreement on TRIMs. Specific decisions are contained therein and would be discussed within the ambit of the built-in agenda for TRIMs. At the moment we cannot join any consensus to circumvent the commitment as contained in TRIMs.

"We have benefitted tremendously from many management principles and one of which is the need to maximise the usage of available resources and avoid duplication. As you are aware, UNCTAD had already been mandated to study investment issue and accordingly we oppose the idea of an educative process within the WTO. This is the clarification we wish to provide to this HOD process for the attention of members."

Indonesia also reportedly made a similar statement, but the text of the remarks was not immediately available.

Mexico, a member of NAFTA and the OECD, also intervened at the HOD meeting to say that it had no problems with an investment agreement, a thorough study and educational process could best be carried out in an open forum like that in UNCTAD and not at the WTO.

Another participant reportedly said that international organizations like the UNESCO and UNCTAD were better organized to educate member-states than a rule-based contractual organization like the WTO.

Brazil however said it was prepared to explore a study process at the WTO, but only on the strict basis of a non-negotiating outcome.

Some non-official Brazilian sources have said that while initially the government seemed more favourably inclined to a WTO consideration of the issue (to ward off any pressures on them to sign on to an OECD agreement) there was some now 'rethinking' going on in Brasilia.

Among the others New Zealand and Australia while willing to take up the issue at the WTO were described as having been some what cautious -- with Australia, for example saying, it did not mind.

Jamaica, Seneghal and Madagascar favoured taking up the issue, with Seneghal and Madagascar arguing that it would help bring in more FDI to African countries - a view that had been countered earlier by Tanzania.

India and Egypt repeated their objections to taking up investment issue as such at the WTO, and reiterated the need to avoid divisions at Singapore that would detract from the focus on implementation.

Tanzania's Amb. Ali Mchumo is reported to have made a full presentation of the concerns of developing countries like his over a proposed Multilateral Investment Agreement (MIA) at the WTO and suggested that far from enhancing the prospects of African countries getting more Foreign Direct Investment, an MIA would result in investors going to major developing countries where they would have a better prospect of larger markets and more profits.

Trade officials said that everyone at the HOD meeting laid the highest priority for the SMC to address the implementation issues.

In his opening remarks to the HOD meeting, with a copy of his prepared 'talking points' made available to the participants later, Ruggiero said that between now and latter part of September he would undertake bilateral and plurilateral informal consultations on the whole range of outstanding issues, general and specific, to be able to come up with a preliminary draft for a Ministerial Declaration by the second half of October. He would be working closely with the chairman of the WTO General Council (Amb. Rossier of Switzerland), and he hoped to draft sections of 'the package' relating to the work of the HOD process for SMC by 7 November. It was absolutely necessary to arrive at 'as near as possible a consensus' before Singapore on the most difficult issues.

Ruggiero said that his discussions so far in Geneva and various capitals, had shown the priority areas: the success of the dispute settlement; the priority attached by developing countries to the textiles issues; the notification and related problems - which was not merely a developing country, but also a developed country problem; implementation of the Marrakesh Declaration and Decisions, in particular on net food importing developing countries and on measures for the least developed; and the accession negotiations.

Ruggiero said there was a need to set a work programme at the WTO starting from Singapore, and a greater part of this was already in the 'built-in agenda'.

The discussions so far of the five new issues has resulted in clarifications, with proponents adjusting their initial proposals. Ruggiero wanted the evolution to continue and spread to other areas so as to enlarge the areas of common ground and produce a balanced package.

On government procurement, he said, the US had now refined its proposal and indicated work on it could be merged with that on government under GATS, while the EU was for several processes initially working in parallel.

On investment, Ruggiero claimed in his opening remarks that the proposal for an 'educational WTO process' has received a large amount of support, but that at the same time there were 'certain' delegations who while willing to discuss investment at UNCTAD opposed such an undertaking at the WTO. He then went on to repeat his by now well-worn arguments that investment was not a new issue, but one envisaged under the Havana Charter, that there were some 1160 bilateral agreements, and that a forthcoming report (which he did not identify but is a reference to UNCTAD's World Investment Report, 1996 which is embargoed for publication next week) mentioned 22 multilateral instruments, 31 regional instruments and eight regional trade agreements.

UNCTAD's WIR 1995 which tried to push the EU/WTO secretariat view for an MIA, and has used some 'seminars' to promote the EC Commission view, is devoting this year's report (embargoed for publication 24/25 September, but presumably made available to Ruggiero and his officials in advance) to the issue.

Ruggiero also made the claim that 'investment' is already being dealt with in the WTO, and that the issue really was not whether WTO should become involved in investment matters or whether investment-related matters should be dealt with in an ad hoc, uncoordinated manner, or be dealt with in a comprehensive way.

Observers noted that TRIMs does not deal with all investment questions, but only those 'investment measures' of governments which are trade-related and trade-distortive, and that the built-in agenda merely requires that when the present agreement is taken up after five years it should also need to deal with competition.

And as for GATS, it merely deals with investment as one of the factor movements for providing services, and that it was left to each country to negotiate and agree to particular commitments.

On competition, the WTO head reportedly noted that as in investment, competition too is required to be dealt with in the built-in agenda over TRIMs, and that there were two proposals on the table, one from the EU and another from Japan.

On the WTO rules, Ruggiero noted, that the Hong Kong proposals raised a number of questions, including on investment and competition, in a globalizing economy. It had met with 'almost unanimous' support, even if qualified, and a great majority wanted a working group to discuss it, while others wanted to enlarge the scope of examination, while some others were opposed to having anti-dumping included or for such an examination so soon after the WTO entry into force.

WTO participants said that the US and the EU, the most frequent users of antidumping for domestic protection, are among those opposing such a wide examination.

Ruggiero reportedly added that there was 'some confusion' in the debate on the issue and it was not clear whether 'a highly political debate' was being sought or one focusing on a few specific rules.

On labour standards, Ruggiero stressed it had a long history, had been discussed on several occasions in the past, and he would not hence steer the discussions to one or the other conclusion. He was fully aware of the deep sensitivities on both sides, but that a common ground could be seen on four elements: * respect for core labour standards had been agreed to by all Members in the UN's Universal Declaration on Human rights; all delegations had recognized the primacy of the ILO role; no one opposed statements made officially by major proponents of the issue at WTO that trade sanctions were not envisaged; and, everybody agreed that a WTO discussion of labour standards should not lead to questioning the competitive advantage of low-wage countries.

Tanzania noted that the cardinal principle in decision-making at WTO, as in the old GATT, was consensus, and it was encouraging that there was consensus in putting priority on issues related to implementation, unfinished business, and those in the built-in-agenda.

They had not however been able to achieve any consensus on the 'new issues' and Tanzania was of the view that to have thorough and comprehensive discussions on implementation and other priority issues, putting new issues would be overloading the Singapore agenda. This would be neither fair to the issues already agreed upon as those of priority, nor to the new issues themselves.

Apart from lack of time for new issues, and the fact they would detract from issues of real priority, Tanzania felt that some of the new issues are better dealt with in other fora. The ILO for example was the most appropriate and competent body on labour standards. To discuss them in WTO would increase the risks of giving a blessing to unilateral and protectionist measures and thus denying potential market accessibility for some, especially developing countries. The spiralling effect of this would be to enhance poverty and retard economic growth.

The Tanzanian ambassador noted that there had also been no consensus on competition policies, government procurement etc -- not because they were not important, but because either they were too raw to command priority place in the Singapore agenda, or because the WTO was not the best forum or for other reasons.

Since Singapore was the first WTO Ministerial Conference, it should not be made controversial by putting contentious issues on the agenda, and thus give a negative start to the WTO. Any item not commanding consensus should not be inscribed into the Singapore agenda.

Such an item that had not enjoyed a clear consensus was the MIA. Tanzania had made clear at the July session of the HOD process why it did not think the issue was appropriate and timely.

Summarising Tanzania's major objections, Amb. Mchumo said Tanzania sincerely believed FDI has a very important role to play in the development of developing countries and these countries, and particularly LDCs did need FDI. Tanzania's misgivings at this stage over an MIA in the WTO was not because they did not recognize the importance of FDI. Rather, most developing countries like Tanzania had very liberal investment policies to attract investors. Tanzania had in place 'the most generous' investment package to inspire investor confidence. But Tanzania believed investment could play a useful part only if the host country could have a say in determining to which sector such investment should go and how benefits of investments could be linked with other national programmes of development.

There was ample empirical evidence that developing countries that had made the best use of FDI were those which had or still have national policies that enabled them to determine the role and conditions of FDI in their national economies.

The very essence of an MIA is to negate this fundamental principle. Instead, with the right of entry and establishment, the unfettered protection of investors rights including unhindered repatriation of profits and right to national treatment etc, an MIA may not ensure a 'level playing field' between the investor and the host country but would produce a "skewed balance" against the host country.

"And if proper policy controls are not taken by the host country, FDI can as well be a liability than an asset for development effort".

On the argument that MIA would be a good thing for developing countries and the LDCs, Mchumo noted that the main 'demandeurs' of MIA were the developed countries and the developing countries were mostly reacting to this demand, which is not a felt need of developing countries.

Is it a mere coincidence, he asked, that the proponents of an MIA are mainly from developed countries? Could it be that an MIA is particularly attractive to the TNCs originating in developed countries?

On the argument an MIA would be particularly helpful to Africans and the LDCs and that the priority of Africa and LDCs should be to promote investment rather than oppose an MIA and thus send wrong signals to investors, Mchumo said: "Nothing can be further from the truth... Most of our countries have liberal investment policies. And despite the most attractive investment regimes, investments have not been flowing to Africa. Despite (according to UNCTAD), Africa providing the highest rate of returns, it has so far attracted only 1.6% of world total stock of FDI, and even the bulk of this went to a few countries only.

The reasons for this are lack of physical infrastructure, skills, small market size, low growth rates, drought and other natural disasters etc. FDI is not flowing to Africa and LDCs, not because they lack sufficiently liberal investment codes which MIA would rectify, nor would an MIA increase FDI to Africa.

"It is the considered view and contention of my delegation that Africa and LDCs will be worse off if an MIA were to be in place because if you have such a universal blank cheque to investors, they would rush to countries where they would maximise their profits without undergoing the difficulties associated with Africa and LDCs."

Those genuinely concerned with increasing FDI flows to Africa and LDCs should not merely advise them to embrace more liberal investment packages,, but rather assist these countries in building physical infrastructures, telecommunications and other services to enhance their supply side economic capacity.

While many developing countries doubted whether an MIA was what they needed, opinion was divided on whether the issue should be on the Singapore agenda. On the argument that the Singapore meeting would not be negotiating for an MIA, but would only initiate an educative process and they should not fear just discussing the issue, Tanzania said that rather than conduct such discussions in a rule-settling body, this should be done at UNCTAD where all WTO members were also members.

Such an UNCTAD study had been mandated at Midrand and it would be unnecessary duplication to start this at the WTO. The study at UNCTAD would enable developing countries to fully understand the full implications of an MIA and only after that could there be a meaningful discussion. Even on a discussion table one needs to have an informed mind. Otherwise the discussions might be easily skewed against the less informed.

As of now, the developed countries seemed better informed about an MIA, through their many thinks tanks and secretariats like the OECD. No such similar opportunity existed for a similar process in developing countries. A discussion would be meaningless without a focus and, in a rule-setting body like the WTO, it was only logical for such focus to be the eventuality of establishing multilateral rules on investment.

Because of its complexity, "some of us are not yet ready for discussion at the WTO" and are requesting time to be able to benefit from a study on the matter which UNCTAD has been asked to undertake.

"What we cannot understand is the rush with which this matter is being hoisted on the agenda midst the clear protestations of some of us that we are not yet ready. This inexplicable haste is creating doubt as to the good faith of those who insist that the matter be on the Agenda by December. We think the international trading community must be magnanimous enough to be patient and wait for those members not yet ready to participate in a meaningful discussion on this matter.

"When we ask why this rush," the Tanzanian added, "we are told of the bicycle theory that the momentum for an MIA is WTO is such that we need to keep on pedalling or else there will be a fall. But who or what exactly will fall? The international trading system is not going to fall in January 1997 just because there was no discussion for an MIA in December in Singapore! Investments will still take place and global trade will still take place even when the MIA issue is postponed to a more acceptable time".

As for the argument that if the WTO did not take up the MIA and set an educative process in motion they would not be able to influence the OECD process, Mchumo said negotiations for the OECD's MAI had commenced in September last year and due to be concluded by mid-1997. An education process in the WTO would not stall the OECD process.

Since the international trading community had already agreed on trade-related investment matters under the TRIMs, Tanzania would have no objection to discussing these in the context of the built-in agenda.

"In the interests of consensus, those eager to start discussions on MIA in WTO should wait for us, as they will lose nothing in waiting, whereas it will be counter.productive to drag into discussions those of us who are not yet ready and need more information to take an informed mind to the discussions."

Besides the investment issue, at the HOD process Norway put forward a new paper on labour standards and spoke of the discussions to be held within the OECD process to which non-OECD members had been invited.

The EU in a new paper wanted an acceleration of the implementation of the commitments by developing countries to the TRIPs agreement.

Brazil objected to this, by noting that the transition period was a carefully negotiated text in the TRIPs, in return for other concessions and Brazil saw no reason to take up any accelerated implementation. India too shared Brazil's concerns.