8:13 AM Feb 13, 1996

SINGAPORE FAVOURS WTO DISCUSSIONS ON INVESTMENT

Geneva 13 Feb (Chakravarthi Raghavan) -- Singapore, the host-country for the first Ministerial Meeting of the World Trade Organization, is in favour of a WTO work programme or discussions at an informal group, to deal with investment issues and proposals

Several participants from the Third World at the seminar, held at Divonne-les-Baines in France, said that the Singapore Ambassador, Mr. Kesavapani, posed a series of questions on this issue at a final panel discussion and answered all of them in the affirmative.

One participant said that the overall impression left was that in Singapore's view the time was ripe for a discussion of the issues relating to 'trade and investment' and that this should take place at the WTO and that the Ministerial Meeting in Singapore in December this year should decide on a work programme or an informal group to deal with the investment question in the WTO.

A junior diplomat from an Asian country who was at the seminar said that the speakers on various subjects presented a one-sided view on the issues, though a couple of discussants questioned and challenged some of the assumptions and assertions of the speakers.

The seminar was described by the UNCTAD secretariat as Divonne-II, being the second seminar that UNCTAD had convened and held outside Geneva at Divonne on this.

At the earlier seminar, last November, UNCTAD Secretary-General Rubens Ricupero as Chairman had declared at the end that there was no consensus on the need for a Multilateral Investment Agreement nor on its timing or the forum for taking it up.

Mr. Roger Lawrence, Deputy to the UNCTAD Secretary-General who chaired this second seminar reportedly drew no conclusions, but noted the views of some on need for further seminars and meetings to address specific issues raised. But Egypt's Mme Magda Shahin, in her comments said that there was no consensus on the trade and investment agreement issue and that the place for serious and open discussions and efforts to establish a consensus was at the UN Conference on Trade and Development, not at the WTO. Once a consensus was established at UNCTAD on the need for a multilateral investment agreement and the subjects to be covered, then would be the time to negotiate it at the WTO.

Any future seminars to build a consensus for detailed exploration, she said, should be held in Geneva at UNCTAD and open to all (and not in small gatherings at Divonne).

The chief of UNCTAD's Research and Policy analysis branch on TNCs and Investment, Mr. Karl Sauvant, in a presentation on FDI and Development, more or less went over the same ground as the 1995 World Investment Report in projecting the role of TNCs and their contribution to growth and development, and of FDI as a 'package' containing tangible and intangible assets central to economic growth and development -- capital, technology, organization and managerial practices, skills and access to international markets.

The only concession he made to critics of his division's promotion of TNCs was when he said: "This is not to say that development is not possible without FDI or that FDI cannot have a negative impact on individual countries.... that the same composition of FDI package is of equal interest to all countries... governments do have an important pro-active role to play in order to increase the contribution that FDI can make to development. But this role needs to be carefully calibrated, and formulated in full awareness of the constraints created by a liberalizing and globalizing world economy. As the specific configuration of these constraints varies from country to country and industry to industry, it is a true challenge for policy markers to find the proper policy mix that makes their countries attractive for foreign and domestic investment and lets their countries benefit as much as possible from this investment."

But Sauvant's presentation, a text of which was distributed to participants, did not explain how these 'calibrated policies' and the 'proper policy mix' needed by individual countries would be possible under a Multilateral Investment Agreement or Framework that his divisions WIR-1995 has advocated.

In the final session of the seminar, Kesavapani had posed a series of questions and answered them in the affirmative, a Third World diplomat present at the session said later. Of the listed panellists at that session, the diplomat said, Singapore came out the strongest in favour.

The other panellists included Ambassadors of Norway, Hungary, Argentina, South Africa and China and the Director on Multilateral Investment Affairs from the office of the US Trade Representative.

At Divonne-I, when the Indian Representative to the WTO had posed a series of questions on what would be the corresponding obligations that home governments of TNCs would accept in return for foreign investment rights and the problems that would be posed to developing countries through an unrestrained right to foreign investors, Kesavapani had said that concerns such as those of India would have to be taken into account.

In explaining Singapore position, at subsequent private meetings, Kesavapani had noted that Singapore was not promoting an MIA nor the EU view on the issue, but that as host country for the Ministerial meeting, Singapore could not prevent other countries and their Ministers from raising issues that they wanted to.

However, the Singapore Trade Minister, Yeo Cheo Tong, at a limited conclave of key countries, at Stockholm last November, had said about the Singapore agenda: "... the WTO must be at the forefront of emerging trade issues, nurturing greater awareness and knowledge, and developing multilateral rules where necessary". He mentioned investment policy as the first issue (to be address) and said that "Greater clarity and transparency in investment rules would benefit all WTO members and facilitate greater investment flows. With so much at stake, we would need to seriously consider the inclusion of a multilateral framework of rules governing investment policy in the WTO agenda, provided the reservations of some of our WTO partners are adequately addressed."

Yeo Cheo Tong's speech has not been published, but a copy of it was made available to the SUNS by a participant on the basis of non-disclosure of source.

In his remarks at Divonne-II, the Singapore ambassador appears to have lined up Singapore behind the view (also propagated by Canadians) for an informal working group to discuss the issues leading to a working party for discussions and negotiations for an investment agreement in the WTO.

Kesavapani, the diplomat said, in posing the questions and answering them in the affirmative on Monday put across the view that the time was ripe for discussions on 'trade and investment', that the most appropriate forum for this was the WTO, that a series of issues flagged by the invited speakers at the seminar, including those by former GATT Director-General Arthur Dunkel, who chairs the Commission on International Trade and Investment Policy at the International Chamber of Commerce. All the invited speakers had spoken about convergence of views and consensus in favour of FDI, same ground rules across the world and need for an agreement.

The issues to be addressed, in Kesavapani's view, included questions about performance requirements on foreign investors, restrictions on investment, national treatment, compensation. The WTO discussions, he said, could clarify the issues and from there one could proceed to negotiations.

Earlier, in a luncheon address, the WTO Director-General, Mr. Renato Ruggiero is reported to have spoken in favour of a multilateral investment arrangement and a work programme to be set at the WTO's Ministerial meeting in Singapore for discussions and subsequent negotiations. Ruggiero is then reported to have invited questions or comments and, when none came, declared there was a consensus, a participant said.

An Asian diplomat privately expressed surprise that while the UNCTAD Secretary-General in his report to the Conference appeared to be taking a cautious view on new trade agenda, and had spoken of the need to draw various parts of civil society into the discussions and even creating a global forum for this purpose at UNCTAD, Divonne-II had only representatives of some corporations and the ICC, OECD, WTO and a few academics, most of them presenting a one-sided view. Though nearly 50 NGOs of the North and South had come out against the investment agreement idea, none of them with opposite views had been invited to participate in the discussions, he noted.

The diplomat was also surprised that several of the countries whose policy-makers back home, like Prime Minister Mahathir, have come out in criticism, their representatives here did not express any views at Dionne-II. The diplomat however hazarded his guess that perhaps the ambassadors of countries felt that they were not in the business of "negotiating" with the secretariats of the WTO or UNCTAD, but with representatives of other countries and believed that the issue should best be addressed when, as seems likely, WTO member-countries meet at level of heads of delegations to see when, how and whether the subjects mentioned by Ministers at Marrakesh should be taken up at the WTO.

Another diplomat from an Asian country said that views even within Asean appeared divided on the subject of a multilateral investment agreement, on holding discussions at the WTO or setting up a work programme at Singapore.

The diplomat said from pronouncements of leaders back home and discussions with ASEAN diplomats here, it would appear that Malaysia and Indonesia did not favour the Singapore view.

However, he said, none of the other ASEAN ambassadors present at Divonne-II expressed any differing or contrary view.

The diplomat said it was his impression that the ASEAN representatives have agreed not to openly differ from each other and speak against the Singapore view, but leave the issue to be sorted out at ASEAN ministerial meeting, including one being held this week, in preparation for the Europe-Asia summit at Bangkok.

While the lead speakers at various sessions addressed various facets of the issue and favoured negotiations for an investment agreement, two academics who were discussants in separate sessions appeared to question and challenge such views.

The Canadian Assistant Deputy Minister, Alan Nymark, spoke of emerging consensus at APEC, NAFTA etc, and held out the example of Nafta and the provisions there for individual country reservations and exceptions (Mexico excepted the oil sector, USA the maritime sector and Canada the audio-visual sector) suggested there could be ways within an MIA to address particular concerns of individual countries.

But a Singapore academic, Prof. Sornarajah, professor of international law and foreign investments at the National University of Singapore, as a discussant challenged this view, and cited his own studies and that of German and other academics to the effect that there was no unanimity, consensus or convergence among countries or regional groupings on the FDI and investment questions nor in terms of customary or international law in this entire area. He questioned the view of a consensus within APEC, and pointed out that the APEC guidelines called for national treatment for foreign investors, but subjected it to national laws of each country.

Many of the suggested principles for an MIA, Sornarajah said, were based on "power". Any international agreement had to be based on equity and justice, not power.

But later in the final session, Amb. Kesavapani is reported to have made light of Prof. Sornaraja's view by noting that he was an academic who would be flying back to Singapore next day, while he (Kesavapani) was here at the WTO and had to deal with such questions.

Another academic, Prof. Raymond Vernon, Professor Emeritus at Harvard University, a discussant at another session, appears to have said that discussions on 'trade and investment', and proposals for a multilateral agreement to assure rights of investment, national treatment etc, were not addressing real issues and problems. In his view any such discussions and negotiations for a treaty would quickly come up against questions of competition law, concerns of labour and the social clause, consumer issues and rights, environment etc.

Governments in the West, pushing for an MIA and for rights for their TNCs to invest abroad, without any restrictions or conditions from host countries, would quickly face social problems and demands from their labour about their rights and concerns because of loss of jobs and reduced incomes when TNCs relocate their production to the Third World countries for profit motivations.

Prof. Vernon suggested that the OECD approach and that mooted by others, following the model of the US Friendship and Commerce treaties, did not address the real issues. The Friendship and Commerce treaty approach in effect envisage 'superior' rights for the foreign investor. But in today's world, national governments providing such rights would quickly run into domestic political troubles. There could be cases of a giant foreign investment project by a TNC in a country, where there is no equivalent domestic investment project, and the more beneficial terms for the TNC could be justified and the government of the country get away with it by arguing that the special benefits for the foreigner would be available to any 'national' investor. But when there is competition with domestic investors, such superior rights, or even equivalent rights, would be more difficult.

And when organized unions and labour in the North find the TNCs relocating production to places of cheaper labour, and Northern labour is rendered redundant, the governments would be facing immense social uproar and demands for linking the TNC investment rights with labour conditions.

Prof. Vernon also noted that the WTO's dispute settlement system itself was likely to run into difficulties, and an investment agreement in the WTO would increase them. The powerful countries would be unable to accept the position that their policies and actions could be decided at an international level by a group of jurists (sitting in panels and appellate body). The smaller and weaker nations would have no other go than abide by the rulings, because of fear of retaliation, but the powerful would not.

The real issues of investment could not be handled in a multilateral agreement: taxation, profits of the corporations and the transfer pricing questions. Vernon said that the moment negotiations began on investment rights, the issue of competition and competition law would be primary one that would have to be directly related to the investment rights and those now pushing their governments for an investment treaty would find themselves in difficulties.

A participant at the seminar later explained that Prof. Vernon's view seemed to be that big corporations having trouble with their governments appeared to want international actions to create level playing fields -- which would either result in more facilities for them, or same problems for everyone.

Among the panellists at the final session, the US said that it did not favour a WTO treaty since it believed that developing countries were not ready for it. The negotiations for a positive list (of commitments and market access) in the General Agreement on Trade in Services (GATS) and the difficulties faced in the sectoral negotiations on financial services, in the rules and disciplines on Trade-related Investment Measures (TRIMs), had convinced the US that it was best to aim at an OECD treaty with a higher level of commitments, and then bring it to the WTO in the future when developing countries would be ready.

But other participants resented an OECD treaty being presented to them later on a take-it-or-leave-it basis, and suggested that as between an OECD and the WTO as a forum for negotiation, they wanted the WTO forum.

Argentina noted that it had the most liberal regime on foreign investment and had given foreigners full national treatment. Some of the investment and property rights issues were already dealt with in the WTO - in the TRIPs agreement, that on subsidies, TRIMs, and GATS. There were also some international disciplines as that of the IMF. A number of regional agreements were also emerging with investment provisions. In that view, Argentina favoured WTO discussions and negotiations. In the Argentine view the most important issue in an investment agreement would relate to transparency.

Egypt favoured discussions at UNCTAD in an open way to clarify issues and build a consensus before the agreed issues could be taken up at the WTO for negotiations. Competition policy would have to be an integral part of any investment negotiations or agreement and the TNCs advocating a multilateral treaty should be aware that there would be disciplines on their behaviour.

Russia suggested that it would be wiser to have discussions and negotiations in universal fora of 187 members, rather than a limited one.

China felt that the role of developing countries, as home and host countries for foreign investment should not be under-estimated. UNCTAD as a universal forum should play a special and important role in the process of exploring investment and trade linkages and negotiating rights and oblligations.