11:54 AM Jun 4, 1996

EU, RUGGIERO PUSHING INVESTMENT AT WTO

Geneva 4 June (Chakravarthi Raghavan) -- Trade diplomats, at level of Heads of Delegations, are due to resume on 10 June their informal discussions on new issues sought to be brought on the WTO agenda for future trade negotiations.

The consultations at informal HOD meetings are chaired by the Director-General of the World Trade Organization, Mr. Renato Ruggiero.

While members, individually or on behalf of regional and sub-regional groups have mentioned several new issues that they believe ought to be on the future WTO trade agenda, and some of these have been sketched out in "non-papers", Mr. Ruggiero himself is pushing strongly for the Singapore meeting setting in motion a process leading to future negotiations on a Multilateral Investment Agreement.

At the last informal HOD meeting on 15 May, where most delegations re-emphasized the high priority they attached to implementation issues, and various delegations presented their 'non-papers', it was reported that the discussions were essentially of a procedural nature -- on the criteria to be used in selecting new issues.

At that meeting, the EU and Ruggiero sought to push the investment issue on to the WTO agenda, with an agreement to start the process at Singapore by a working group to study the issues.

Egypt, India and Pakistan questioned this, noting that UNCTAD-IX -- with all the WTO members and others -- had asked UNCTAD, both the secretariat and the intergovernmental machinery to study the entire range of issues.

Though two of the ASEAN countries (Malaysia and Indonesia) at the level of their Heads of Government/State have opposed the idea of a multilateral investment agreement or one at the WTO (with its cross-retaliatory disciplines), the ASEAN, through the Philippines (which supports an MIA) made an equivocal statement to the effect that they opposed transposition of any OECD agreement into the WTO, but with no views on the WTO study or negotiations.

Singapore, which as a host country is interested in the success of the Singapore meeting and avoiding any confrontation, is known to favour starting a study process at the Ministerial meeting. It is trying to "sell" this to others suggesting that it involves no further commitment.

However, it was such a study process on Services that ultimately led to the negotiations in the Uruguay Round.

Whether the ASEAN statement thus implies support to the WTO investment is not clear, though ASEAN sources say that the views of Malaysia and Indonesia have not changed and that the Philippines statement was the 'least common denominator' agreement among the ASEAN.

Immediately after the 15 May HOD meeting (and the Philippines statement on behalf of ASEAN), the Malaysian representative said the his country's opposition to the investment issue at the WTO or a multilateral investment agreement had not changed.

Neverthless, the EU and the WTO head interpreted the ASEAN statement, and Egypt's statement (while opposing the WTO taking up the issue at Singapore) about having an open mind as indicative of support.

And the EU, which with other industrial countries is opposed to "duplication" of work and activities at UNCTAD, has also said that both could go ahead with the study and consideration. Its view of an UNCTAD role is what the present UNCTAD's division on TNCs does: namely, seeing its role as one of promoting the interests of TNCs, and holding seminars to promote the idea of a WTO multilateral investment agreement. The EU cites in this connection two seminars organized by UNCTAD's TNC division at Divonne, near Geneva.

This view of the UNCTAD would be quite contrary to the decisions of UNCTAD-IX.

The UNCTAD Secretary-General, Mr. Rubens Ricupero, at a press conference at Midrand at the end of the UNCTAD-IX, said that UNCTAD would "look at all aspects of this MIA, its rationale, why is it needed..."

He noted that while it was for the demandeurs, and not for UNCTAD to explain the rationale for an MIA or why it was needed, there were controversies about all these, including the content, how to adjust the rights and obligations of investors, rights of host countries in several respects including technology, and about the right of establishment (of a foreigner to establish and invest of right).

"What UNCTAD will attempt to do is to present a balanced view... look at different approaches to the problems and what the possibilities are of reaching a balance," Ricupero said.

Ruggiero told the HOD meeting on May 15, that he would be holding informal consultations with delegations on how to proceed in general and in particular on the new issues.

While this implies an open-mind to promote a consensus among the WTO's members, whose collectivity he is to reflect, Ruggiero in his public speeches has been single-mindedly pushing the investment issue which is favoured by the European Union's Executive Commission.

While over the 50 year history of the multilateral trading system of the provisional GATT and its successor the WTO, heads of the institution have been prone to push the interests and agenda of the two majors (US and Europe), but behind the scenes, Ruggiero has been doing this openly, and sometimes in a misleading way.

At UNCTAD-IX in Midrand he suggested that if there was an MIA, Africa which is now bypassed by the foreign investment flows would attract foreign direct investment and its 'marginalization' would end. He said that much of the flows to developing countries now go to the Asians, who however were opposing any MIA. He tried to imply by this that the Asian opposition was aimed at ensuring the FDI flows go to them and not to marginalized Africa and the Least Developed Countries.

When asked whether the WTO or the home countries of the TNCs could guarantee FDI flows to Africans and the LDCs if an MIA is concluded in the WTO, Ruggiero was unable to provide any unequivocal answers.

But UNCTAD Secretary-General Rubens Ricupero, with whom he was jointly holding the press conference, intervened to say that an investment treaty could only create a framework, but that investment flows to a country depended on any number of other factors.

The Ruggiero thesis on need for investment rules in the WTO has been spelt out in two recent speeches of his -- the texts of which were put out in Geneva by the WTO press office -- one at Stockholm on 10 May, and another at Ottawa on 29 May.

At Stockholm he described Trade and Investment as a "leading candidate" for the future trade agenda, arguing that "in an increasingly global economy it does not make sense to liberalise trade in goods and services and ignore investment" and that the potential that foreign investment offers the world economy may not be realized in the absence of strong international rules to provide security and non-discriminatory treatment for investors. In the absence of a strong multilateral framework, he said, there would be a proliferation of bilateral treaties -- which currently number 900 and would need to be some 20,000 if all countries were to be covered and that the business world would not welcome such a bewildering variety of requirements.

In his Ottawa speech (on 28 May), while arguing for investment being taken up as a new trade agenda in the WTO, Ruggiero said that no rationale could be offered for not having multilateral rules in the WTO, since investment issues were already covered in the Agreement on Trade-Related Investment Measures (TRIMs) which had provided a mandate to the WTO to look at investment issues.

The General Agreement on Trade in Services (GATS), he further argued, had already led to 'substantial commitments' on investment in a wide range of sectors -- the right of foreigners to establish themselves and conduct business once they are established, and generally for WTO members to provide MFN treatment to all trade in services.

The Ruggiero speech did not explain why, if TRIMs and GATS already cover investment issues, there should be all this time and energy spent by him in promoting the issue as a new trade agenda for the WTO.

Third World trade diplomats said that in private conclaves where these questions have come up, neither Ruggiero nor the EC have been able to answer these questions.

It is a matter of record though that in the Uruguay Round negotiations, the United States, Japan and, later on, the EU brought up under the TRIMs and in the GATS negotiations investment and establishment as a right for foreigners, and for national treatment once established to enable an investor, for e.g. in a service sector, to expand into some other activity in goods or services.

But a TRIMs Agreement and a GATS became possible only when they gave up these demands. TRIMs was confined to measures already viewed as GATT-illegal -- local content requirements etc.

A major argument of developing countries in the TRIMs negotiations was that various 'measures' they had in place, relating to import or export obligations of the investors, were intended to offset the Restrictive Business Practices of the TNCs, and a country's investment measures could not be given up without international disciplines on the anti-competitive behaviour of TNCs.

That was why the provision in the TRIMs agreement that further disciplines on trade-related investment measures would be considered along with measures dealing with competition issues and that this would be done after five years.

And in GATS, countries are committed only to those sectors and sub-sectors where they were willing to allow foreign competition to their domestic service providers, and specified these sectors and sub-sectors.

Not only that, they are able to specify the mode of delivery (trans-border, commercial presence, or movement of natural persons), and to specify the conditions including the extent to which they would agree to commercial presence -- the nature of such presence, including the extent of foreign ownership (minority, majority, fully owned etc) and the limitations on national treatment, implying better treatment for nationals.

In TRIMs, the agreement provides for further negotiations after five years, and a commitment to take up competition issues along with it.

The GATS, envisages gradual liberalization and periodic negotiations towards this end, and with developing countries permitted to do so at a slower pace and depending on their development needs

And while developing countries are being advised not to bring back old issues or reopen 'compromises' (in TRIPs, agriculture, subsidies etc), on investments, the old demands are being brought up under a new name.

Ruggiero has left little doubt about his own agenda and determination to push for it. He has also not attempted to disguise the philosophy, namely, that it is all about maximisation of profits and resources, irrespective of equity considerations.

Participating on the opening day of UNCTAD-IX at Midrand, in a round-table of the Heads of Agencies, chaired by UN Secretary-General Boutros Boutros-Ghali (which followed a Round Table of Heads of State/Government), Ruggiero refuted the concept and principle of incorporating equity concerns into the trading system -- an issue which other speakers, both Heads of States and Heads of some international Organizations had raised at the Round-tables.

Several of these speakers had insisted that the globalization process and the trading system must pay greater attention to the issues of equity or the fair distribution of benefits and losses arising from trade.

In opposing this idea, Ruggiero said there were two separate questions arising from the trading system: firstly, what is the most efficient way of increasing resources and secondly, the problem of its distribution.

"You cannot integrate the two problems into one," he said. "The responsibility of the trading system is to favour the most competitive producer and through this increase resources in the most efficient way. How these resources will be distributed and used is not our responsibility. It is the responsibility of international institutions and national governments," Ruggiero added.

But the view that the WTO and the GATT is only about resource mobilization by rewarding the efficient producer is contrary to the objectives of the WTO (set out in the preambular paras). They include raising standards of living, full employment and large and steadily growing real incomes and effective demand, and expanding production of and trade in goods and services, while allowing for optimal use of world's resources.

Thus the view that WTO's responsibility is only to favour the most competitive producer and increase the resources in an efficient way is only a partial view of the WTO objectives.