Jun 15, 1998

DEVELOPMENT: UNCTAD'S 'MFI OUTREACH' TO CIVIL SOCIETY HITS SNAGS

 

Geneva, 12 June (Teteh Hormeku) -- The 'outreach programme' to civil society of the UN Conference on Trade and Development hit a snag Thursday when several representatives of non-governmental organizations sharply criticised the UN agency's approach to, and activities on, a possible multilateral framework on investment.  

Several NGOs from both South and North expressed disappointment and voiced their concern that the UNCTAD secretariat had not played its expected role of first examining the nexus or link between investment and development and in that context enable objective conclusions to be drawn on the implications of an MFI.  

Instead, they said, the UNCTAD approach seemed to be to take the MAI model as the MFI, and then merely look at development dimensions of its key elements.  

One NGO representative from Canada said this was tantamount to "massaging" developing countries and civil society to join in the process of accepting the MAI and its model.

The NGO concerns and criticisms came on the first day of an UNCTAD consultation meeting with NGOs and trade unions, at a session where senior UNCTAD officials explained the organisation's work programme on an MFI (multilateral framework on investment). 

The meeting came a day after another UNCTAD organized dialogue session in which NGOs and diplomats exchanged views on a possible MFI. At that dialogue session, the NGO representatives who spoke, as well as several developing country Ambassadors, were critical of the model and process of the multilateral agreement on investment at the OECD. And many among them were also of the view that there should be no negotiations on investment at the WTO.  

However, ambassadors of several developed countries, and of a few developing countries, viewed positively the prospect of WTO investment negotiations.  

At Thursday's UNCTAD-NGO consultations, UNCTAD Secretary-General Rubens Ricupero reiterated the importance that UNCTAD attached to developing links and collaborating with civil society, a theme he had also dwelt on at the previous day's meeting. 

At the first session, the chief of UNCTAD's Investment, Transnationals and Technology Flows branch, Mr. Karl Sauvant, stressed two points: how to strengthen the role of civil society in UNCTAD's future work on an MFI, and the need for inputs from NGOs on development-friendly elements of an MFI.  

Sauvant explained the topics of the research papers that UNCTAD was preparing on the MFI, which was UNCTAD's basic activity to help delegates to understand the topics that are being discussed in international agreements. 

He also explained UNCTAD's outreach seminars on the MFI at Geneva and in Africa, Asia, the Caribbean and Latin America, as well as the MFI discussion series with industrialists and with civil society.  

Mr. Pedro Roffe, Principal Adviser on Policy Development at UNCTAD's division on Trade in Goods and Services, and Commodities, gave a summary of the previous day's discussion/dialogue session. Following this, three NGOs -- Mr. Martin Khor of the Third World Network, Tony Clarke of the Polaris Institute of Canada and Roy Jones of the ICFTU -- responded with comments on the MFI and UNCTAD's work on this.  

Mr. Khor of the Third World Network traced the evolution of the MAI issue from the Uruguay Round (when investment policy per se was removed from the TRIMS negotiations after strong resistance from developing countries) to the preparations for the 1996 WTO Ministerial Conference, when once again many developing countries were against the proposal for negotiations on a multilateral investment agreement. At that time, Khor said, NGOs and developing countries supported the mandate given to UNCTAD, at the Midrand Conference, to study the implications for development of a possible MFI. Meanwhile the WTO's Singapore Ministerial Conference established a working group with a mandate specifically only to examine the relationship between trade and investment, and not to negotiate an agreement.  

This working group, said Khor, had an agenda that included several issues such as the implications of the relation between trade and investment and macroeconomic stability, balance of payments, employment, and the experiences of different countries with foreign investment.  

Meanwhile, as NGOs became aware of the substance of the MAI in the OECD, they began protest campaigns in many countries, and this contributed to the problems in the negotiations as well as growing unpopularity of the MAI. 

On the role of UNCTAD, Khor said that given the stress on development, he interpreted the Midrand mandate to mean that the UNCTAD Secretariat should take development, development needs and the development process as the starting and reference point and the framework of its analysis and work.  

Within that context, analysis should have been done on the role of foreign investment, its positive and negative effects, and to come up with conclusions on the conditions under which FDI could be successfully used for development, and under which conditions FDI could lead to problems such as displacement of local firms, excessive profit outflows or balance of payments deficits.  

He said that UNCTAD had such expertise, and cited the studies done on the East Asian experience and articles on foreign investment published in the UNCTAD Review. He added that two years ago, during an UNCTAD regional seminar in Kuala Lumpur, some UNCTAD staff and consultants had warned of a potential balance of payments crisis in some countries caused by excessive profit outflow resulting from FDI, a prediction that had since proved prophetic.  

Khor said such economic studies on the relationship of investment and development would also be of great help as inputs for the discussions in the WTO working group.  

Based on such studies, there could be better understanding on the conditions for the successful use of FDI for development and, in that context, the issue of what kind of multilateral framework, if any, was needed could be clarified. That framework could turn out to be an MAI-type model, or it could well be of a different type.  

He said that unfortunately the approach that the UNCTAD secretariat had taken on the implications of a possible MFI had been different. It seemed to have taken on the MAI as the model of a possible MFI, divided up the elements of this model (such as right to establishment, national treatment, freedom of capital flows) and then had made an attempt to examine or strengthen development dimensions of each element.  

Such an approach was biased as it took the MAI as a starting or reference point and then tried to improve it by adding development aspects. This was "putting the cart before the horse", as this approach did not throw light on the development process or the effect of foreign investment, and thus could not develop the criteria by which the appropriateness or otherwise of a MFI, or different types of MFI, could be judged.

Khor also criticised what he saw as a bias in UNCTAD's investment work programme towards the MAI or the MAI-type model. He cited articles advocating the MAI (including by EC Trade Commissioner Leon Brittan) in the UNCTAD journal Transnational Corporations, and the high-level World Investment Forum in 1996 at the height of the WTO preparations for the Ministerial Conference, when pride of place was given to the International Chamber of Commerce to promote the MAI. 

He added that UNCTAD's Commission on Investment had organised expert meetings around the theme of looking at investment agreements, but discussions on the impacts of foreign investment on the several aspects of development had been neglected. Similarly the outreach seminars on investment had the MAI and its elements as the reference point of discussions -- whereas discussions of the measures taken by governments to regulate investments for development objectives were neglected. 

Khor requested the UNCTAD secretariat to look at these shortcomings in its approach to the MFI so as to regain the confidence of NGOs, many of which had been unhappy with UNCTAD's role on the issue.  

Another discussant, Tony Clarke of the Polaris Institute of Canada, said it was a serious mistake to think there were only a few problems to patch up in the MAI. "The eruption of public opinion in Canada against the MAI is profound and very deep and goes to the core of the investment and neo-liberal model," he said.  

Canada had signed a free trade agreement with the US. and then the NAFTA agreement. The core of these agreements was an investment code, which is the same framework of the MAI. The experiences of the past decade had led to the strong reaction against the MAI, which was part of the model of freeing up TNCs to move anywhere in the world without state intervention.  

Clarke said that listening to Mr Ricupero (at the conclusion of the previous day's meeting, where he proposed an inclusive approach that included NGOs in preparations for multilateral negotiations on investment) and the UNCTAD investment programme as explained by auvant, it seemed the name of the game is to get civil society on board and accept and go ahead with the model.  

"That's the situation we are faced with," he said. "It would be a real mistake to accept this. People are seeing something else. People see more and more they have no control over their future as big government has been replaced by big TNCs and people feel they can't exercise any control over them." 

Clarke said the problem of democracy has become profound. 

The free trade agreements and investment regimes "don't come up by accident but are planned and deliberately put in place" by business organisations representing the big corporations that promoted deregulation and reshaped the role of the state. 

"Before we move ahead with the work of UNCTAD," Clarke said, "we must ask, is this the model we want? Do we want to be invited into the process when the model is already set?"  

When he heard the UNCTAD presentation and saw the charts, said Clarke, "I saw a programme of UNCTAD where it's taking on the task of 'massaging' civil society and developing countries to become a part of the model.

"The UNCTAD methodology talks of the MAI model, integrates development issues in the process and then to get on to the task of having development-friendly and development concerns. But the latter questions (of development) should be the first and not the last questions to be addressed and answered.  

"The architecture and the hierarchy of the UNCTAD approach is wrong. We must ask first what is the goal (i.e. development) and then what is the role of investment. Then we should answer how to manage investment to accomplish the task." 

Clarke said he agreed that the issue of an MFI was central.  

"The problem is that UNCTAD simply accepted the model of the MAI worked out by the TNCs. Are we accepting that, or do we put the model under the microscope and criticise it and develop a new process to help developing countries to play a more critical role to reshape the model?"  

Replying to Clarke, Andrew Whitley, chief in the office of the Secretary-General, said that in UNCTAD, "nothing is prejudged, and we have an open mind. We don't look at the MAI or MFI as a given. We look at the reality of the world, and where negotiations are taking place elsewhere."  

He added that UNCTAD wanted to influence the process and to put on the development dimensions. He also said he did not want to leave the impression of UNCTAD wanting superficial or patronising relations with civil society.  

Roy Jones of the ICFTU said a new political economy should be developed by UNCTAD and the OECD. He quoted an OECD economist who had given a lecture stating that liberalisation is not a causal factor for economic growth but that it leads to greater inequities and amplifies the effects of external shocks.  

On the MFI issue, Roy Jones hoped UNCTAD would not approach it from an Anglo-Saxon, Darwinian neo-liberal approach. Such an approach had created the backlash against globalisation.  

Tony Tuhan, director of IBON, a Philippines research organisation, commented on the UNCTAD investment work-plan, which, he said, seemed to be for preparing governments for investment negotiations in the WTO. He said it seemed that the position of UNCTAD was that negotiations are a probability and as a pragmatic body it was taking this approach.

However, Tuhan asked, "Should our approach change in order to become pragmatic, and has the acceptance of the neo-liberal model become normative? UNCTAD has become normative in incorporating neo-liberal ideas."

As an example, Tuhan quoted from a UNCTAD press statement on its investment expert group meeting on bilateral investment treaties, that "FDI is essential to development." He said he did not believe this statement was true.  

He added it may be that governments, finding that aid had declined, felt a need to attract FDI, a pragmatic step that pushed them into accepting bilateral investment treaties (BITs). "But this does not mean that we need to harmonise BITs into a multilateral agreement, a conclusion that UNCTAD appears to have drawn."  

He added that UNCTAD cannot pursue its work on MFI before first studying and making conclusions on the context and process of development. For example, if it found that FDI had negative effects on development and thus that FDI should be regulated, it may have to discourage an MFI. 

Jessica Woodroffe of World Development Movement (United Kingdom) also expressed concern over the role of UNCTAD in the investment issue. She said UNCTAD's starting point must be the development objective. Until there was pragmatic and empirical research (aimed at clarifying FDI's effects on realising development objectives), "I don't see how UNCTAD can take a position on whether to have an MFI or not." 

She also expressed concern that UNCTAD was looking at methods of consulting with civil society but might not take its message.  

The UK government, she remarked, had commissioned a report on the development aspects of the MAI from Prof. E.V.K. Fitzgerald of Oxford University. That report, she said, had been taken out of proportion in the MAI discussion. The Fitzgerald study was only a three-week cursory study and its terms of reference was not about making the best use of FDI but about how to add development dimensions to the MAI.  

The study also concluded that developing countries can benefit only if there is debt relief and more aid. Despite debt relief and extra aid not taking place, conclusions from the Fitzgerald study about the benefits of the MAI were being put forward.  

She was raising this because this study was being made use of as if it is a seminal work, which it is not. She also said she had heard what she hoped were ridiculous rumours that the UK government was going to give some money to UNCTAD to promote this report, and she hoped this was not true.  

Roberto Bissio of the Third World Institute, Uruguay, asked UNCTAD for clarification as he was confused. The UNCTAD Secretary-General had said UNCTAD should be open and that he would not make conclusions until he had heard NGO views, and also that NGOs would help design UNCTAD's Partners in Development conference.  

Yet in the UNCTAD bulletin "Pro-Invest" the name of the conference had become "Partners for Investment for Development", the co-sponsors were the city of Lyon and a business association, and the theme was "Partnering for the global market." 

Bissio said that given this situation, "are we being invited as NGOs to identify projects for TNCs to invest in?" He added he was puzzled as this was not an open approach, since what he was hearing from UNCTAD officials here was not what he saw from the UNCTAD publication.  

John Jones from the Centre for Partnership in Development in Norway, referring to what he saw was a basic issue, asked what was UNCTAD's basic economic model, and what was its understanding of the liberal and neo-liberal model?

Andrew Whitley of UNCTAD replied that UNCTAD did not have one model or one world view but that there was a diversity of views in UNCTAD and it was the policy of the Secretary-General to allow that to continue.  

Responding to the comments from NGOs, Karl Sauvant said that development was an institutional goal of UNCTAD and its work was geared to it. Can FDI help in this respect? This was not a new issue as anyone doing work on it knows, and there are 50,000 books and articles on the subject, although many issues need more work.  

Sauvant said sufficient research has been done. "We know that FDI has positive and negative effects. But we recognise that all governments have concluded, which is new, that on balance the positive effects are more; and governments offer incentives to attract investments. And so, the literature has concluded, that foreign investment contributes to development."  

UNCTAD's role, Sauvant said, was to see how to minimise the negative and maximise the positive effects of foreign investment, to answer practical questions asked by governments and help developing countries prepare for any discussion. What they decide is up to them.  

On the question of UNCTAD's role in the Fitzgerald report, Pedro Roffe said UNCTAD did not get any funds in relation to it. On UNCTAD's role in general, he said that the Secretary-General had said that the nature of the organisation was an intergovernment one. The programme developed by Karl Sauvant, he added, "is in response to what governments ask us to do. They are scrutinising us, what we do. They want guidance on how to operate in these fora." 

Roffe said that with reference to the question on UNCTAD's previous role in developing codes of conduct on technology transfer and so on, "governments had decided to take the negotiations somewhere else and we cannot help it. So we help them in the negotiating process." 

In response to the UNCTAD replies, Tony Clarke said NGOs did not dispute that UNCTAD should prepare governments for processes. The question was, where the direction of UNCTAD's work is coming from. He asked who was funding the seminars and outreach programmes of the MFI work in Geneva and at regional level? Also, to what extent was the funding driving the direction of the workshops? Clarke added that in the present world it is common that who pays the bill ends up directing what was going to happen.  

Pedro replied that the funds come from different sources, but most comes from the North. Some developing countries also contribute. He added that the Secretariat is independent, and "you can feel assured" the projects are not driven by donors but respond to needs.  

Other UNCTAD officials speaking unattributively later said that the British government had provided some Other NGOs said it had become known among NGO participants at the dialogue session on Wednesday, that Prof. Fitzgerald had been sought to be brought in by UNCTAD as an expert for the dialogue between NGOs and some invited delegations, but that the NGO groups which had cosponsored the event had objected to it and, in that context, the UK grant had become known. 

Also, the UNCTAD programme for an Asian regional symposium to be held in New Delhi in July, says that financing comes out of a 'trust fund on a possible multilateral framework on investment' to which the EU Commission, and the governments of Netherlands, Norway and Switzerland have contributed.