10:29 AM Dec 5, 1995

SINGAPORE WTO MINISTERIAL TO UNIVERSALISE OECD'S MIA ?

Geneva 5 Dec (Chakravarthi Raghavan) -- The Organization for Economic Cooperation and Development (OECD), the Paris-based 25-member rich nations club, hopes to complete work on a Multilateral Investment Agreement (MIA) next year, in time to bring it before the first Ministerial meeting of the WTO at Singapore and make it "universal".

This intention of the OECD countries came out, loud and clear, at a meeting Monday morning of the OECD Secretary-General, Jean Claude Paye, with the informal group of developing countries at the World Trade Organization (WTO). Paye met the informal developing country group at his request. The meeting was chaired by Argentina's Amb. Sanchez Arnau who heads the group.

Explaining OECD activities and 'complementarity' with work at the WTO, Paye is reported to have made references to the ongoing OECD work on a MIA treaty. Work on this treaty, he is reported to have said, was going on at the OECD and likely to be completed about the summer of 1996. When completed and finalised, the OECD wanted it to be made universal at the Singapore Ministerial meeting of the WTO.

That the MIA treaty issue was the principal aim of his meeting with the developing countries was clear from the fact that he came to the meeting with one of his top officials dealing with this question at the OECD.

The discussions on this question among developing countries have been beclouded by confusion between foreign investment and its merits for an economy and the concept of a Multilateral Investment Agreement establishing the rights of foreigners to invest in any country and the limits of a host country's interference with this right.

Most of the countries speaking for a WTO investment agreement in fact appear to be confusing the need for FDI and their country-policies welcoming it, with the different concept of an MIA as a right for a foreign investor, but think that with an MIA in place, they would more easily get FDI.

Developing countries now favour foreign direct investment (FDI), and woo it avidly for its purported benefits of capital which they lack, and attendant technology transfer and employment benefits.

While there is little quarrel with the first (getting scarce capital), the other claims are probably less clear. The employment generated by a foreign investor, mostly a TNC (whether large, small or medium), setting up a production facility to delocalise its operations and use cheaper labour, has to be judged in terms of loss of jobs in the domestic economy's small, medium or artisanal production sectors.

And technology is not transferred by the foreign investor bringing in capital goods equipment and setting up production -- with patented technology embedded in it, and packaged with trade mark and designer rights of the product and trade secrets of undisclosed process -- but whether forward and backward linkages with local economy is established that results in the diffusion of that technology in the domestic economy.

There is very little evidence of this last without some host-country interventions, and some contrary evidence of such foreign investment on its own merely creating 'enclave economies and operations'. Some experts see technology diffusion effect to be less likely in future given the WTO's outlawing of domestic content requirements that governments can impose and the rights for foreigners under TRIPs to supply a market through exports, rather than having to work patents in the country.

Some on-going research work, by non-orthodox economists, as also experience of some countries with virtually open regimes for foreign investors, suggest that while initially the FDI benefits the capital account, over a period, the country faces fundamental disequilibria on its external account because of the outward remittances on account of profits, technology and other fees, and the imported inputs.

With a right to invest anywhere, the foreign investor will go to big countries with large domestic markets for consumer goods. The WTO's Trade-related Investment Measures (TRIMs) already blocks countries from imposing any local content requirements and would enable the investor to import from the home country inputs for final consumer products for the host country market. An MIA would also block a country from imposing any export obligations.

The various ideas of rights for foreigners and obligations for host governments sought to be included in an MIA in fact are virtually similar to the initial demands by Japan, EC and the USA in the Uruguay Round negotiating groups in TRIMs, Services and TRIPs.

Some developing countries, identified by the US as those who are to be pressured to accede to the OECD treaty, have been of the view that a multilaterally negotiated agreement at the WTO would be preferable to bilateral agreements or an OECD one that they may be forced to join. On this basis they are arguing for bringing the issue on to the WTO agenda in order to be able to influence the contents of the treaty, rather than being forced to accept what the OECD decides.

But there are others who are sceptic that by agreeing to negotiate an agreement in the WTO, the developing countries would act together and be able to make any fundamental changes in the approach. They point in this connection not only to the failure of developing countries to act to safeguard their interests in the Uruguay Round outcome, but even thereafter.

Once an issue is brought to the WTO for discussion, or even for negotiating a plurilateral accord, ^it will inevitably lead to an agreement binding on all and thus foreclose the limited development options open to countries to escape their colonial heritage and dependency, according to this view.

Asked at the informal developing country group meeting by Amb. Celso Lafer of Brazil to explain the work going on at OECD on the investment agreement issue, Paye is reported to have said that various negotiating groups were tackling aspects of the issue. Among the questions are whether or not to include portfolio investments under the purview of the treaty, whether the most-favoured-nation and national treatment principles are to be applied in the beginning or after the investment is done.

[At a recent UNCTAD-organized seminar on the MIA issue, an American lawyer for a US transnational corporation, John Messing, advocated MIA covering portfolio investments and short-term capital flows also.]

When Peru found the Paye view illogical -- in first negotiating a treaty in the OECD and then bringing it to the WTO for universal acceptance -- the OECD official sought to explain it in terms of the OECD having started work on this issue even before the WTO came into being, and taking account of the fact that the old GATT could not deal with it.

However, the OECD work on this was initiated in June 1994 at the OECD ministerial meeting, nearly six months after the Uruguay Round was concluded and three months after the Marrakesh agreement was signed.

Paye would also appear to have said that the OECD was working on a treaty in order to reassure foreign investors and encourage such investment in developing countries.

Singapore's Amb. Kesavapani appears to have commented that it was not enough to reassure foreign investors. Developing countries had some serious concerns on this issue and would need to be reassured about the implications, their obligations, and what would be the rights that they and their public would get. Developing countries were not part of the process and from the remarks of Paye it would appear that the OECD expected everything to be completed before the Singapore meeting.

No one at the informal meeting though would appear to have raised why a multilateral investment agreement is needed, why it should be done in the WTO creating obligations on host countries, rights for foreign investors and those rights to be protected at the WTO by the home governments of the investors, but with no obligations by the home countries of the foreign investors.

But according to some participants, the meeting was not widely attended, partly perhaps due to its scheduling at short notice. As a result, they said, some delegations who have voiced serious doubts about such an agreement at the WTO were not present.

Both the US and the European Union's Executive Commission want an MIA to assure foreign capital (of their countries) to have "the right" to go to any country and invest without needing any government approval, with permission to invest refusable only on limited grounds like 'security'. Under such an MIA, they want a foreign investor to get "national treatment" -- that the foreign capital and investor to be treated on the same footing as domestic investors in every way, including access to credit, research and other subsidies etc.

A recent EU paper, in addition, has said that where a country gives foreign investors more rights or privileges than domestic investors, the host country would be obliged to give most-favoured-nation treatment to all foreign investors -- i.e. extend to foreign investor from any country the most favourable treatment accorded by that country to a foreign investor from any other country.

While some critics are looking at the investment agreement issue in terms of domestic vs foreign investors, a more serious issue to be faced would be that such an agreement would result in countries having to abandon any right to influence or control domestic and foreign capital investments in areas or sectors for investment and discourage investments in other sectors.

This would have serious repercussions on a development strategy, crippled as it is already by the WTO rules.

The United States initiated this work at the OECD in June 1994, and it is being pushed in the OECD framework. The US has made no bones of its intention either: pursue the work within the OECD to get a treaty with the "highest standards" for the foreign investor, and then push it on other non-OECD major economies to sign on and join.

The Executive Commission of the European Union (which has no status in the OECD, but is the negotiator for the EU members at the WTO) has been promoting the idea of 'negotiating' the treaty in the WTO. It wants the Singapore Ministerial meeting set for December 1996 to agree to negotiate such a treaty and bring this issue on the WTO's trade agenda.

The WTO's Director-General, Renato Ruggiero, has also been delivering speeches over the last few months advocating this idea, and making it appear that the issue was on the WTO agenda as a result of the Marrakesh ministerial meeting where the some of the industrial country governments raised the issue.

But in fact the Marrakesh meeting reached no consensus on this or a number of other questions (the Marrakesh laundry list as it became known among critics) that various ministers had raised in their own speeches. The Uruguayan Chairman of that meeting merely listed all the items raised by the various ministers, and said that the Preparatory Committee for the WTO (which was established at Marrakesh) would consider these questions.

That Committee did not seriously discuss any of the items, having had to spend most of its time on the procedural issues and decisions to bring the WTO into being, and remitted these and other substantive questions to the WTO and its bodies when they came into being.

There has been no open and transparent discussion of this issue at the WTO in the WTO Council, which is the only competent body to discuss this issue or set the agenda of the Singapore meeting.

But it has become the subject of discussions at informal meetings of small closed groups of delegations at Geneva, and some ministerial gatherings including one at Stockholm and more recently at Vancouver. At these meetings, the EU, Canada and a few others have been pushing hard to put the investment treaty issue on the Singapore agenda and have made no secret of the fact that they want the MIA in the WTO because it would enable them to invoke WTO's dispute settlement mechanism and its cross-retaliation provisions.