12:03 PM Jun 17, 1996

CONTINUED RESISTANCE TO MIA AT WTO

Geneva 15 (Chakravarthi Raghavan) -- Efforts to put investment issues on the agenda of the World Trade Organization, through a work programme to be initiated at the Singapore Ministerial meeting, met with resistance Friday at an informal meeting of Heads of Delegations (HOD), trade officials said Friday.

The informal HOD meetings, under the chairmanship of the WTO Director-General Renato Ruggiero, is preparing for the Singapore Ministerial meeting beginning 9 December.

Either directly as India, Egypt and Bangladesh did or obliquely as Asean and Pakistan, the Canadian move ran into opposition, with India providing some extensive arguments against the move, according to Third World delegation sources. The EU, Canada, and a number of developing countries supported the move.

The United States reportedly stressed that any decision must be by consensus and made clear that while it could agree to an informal working group to study the issue, with carefully negotiated terms of reference, the US would oppose any investment negotiations at the WTO.

Both the investment issue, and a related issue raised by Hong Kong, namely need for change in GATT/WTO rules to take account of what it calls "multinationalizing" world economy are to be taken up further at a future meeting of the HOD.

The Canadian non-paper, has argued that a primary driver in the changing multilateral system and that it was now commonplace corporate strategy to approach FDI as a means of accessing foreign markets and rationalizing their production processes.

With WTO home to agreements focusing both trade and investment, and increasingly focusing on domestic measures of countries, the WTO was well-placed to analyze investment developments and conditions and reach a clearer understanding of the role of international investment in the trading system.

A WTO work programme, Canada has suggested, could examine among others complementarity of trade and investment in a globalizing world, investment measures affecting trade and trade measures affecting investment, WTO agreements addressing trade and investment, comparison of existing bilateral, regional and multilateral agreements with investment disciplines, role of investment in development and growth of economies, international competition for investment flows including the determinants in decision-making of companies in choosing locations, policy responses of countries competing for investment and existing barriers to investment.

Further discussion of the Canadian proposal, as also of a Hong Kong one for a working group to review WTO rules to deal with transnationlized production in a globalizing world economy is to be taken up at further meetings of the informal HOD group.

A non-paper by Hong Kong, on reviewing and reforming GATT/WTO rules in a globalizing economy, has called for a 'broad-based review' of WTO rules to take account of a "rapidly multinationalizing world economy".

Hong Kong has suggested that with businesses free to base themselves just about anywhere, and being able to source raw materials or components internationally, assembly them in one place and market them elsewhere, and with firms free to choose where they invest, where they product and "where and how they pay tax", an increasing part of the world trade was now intra-firm, and competition is inter-firm.

In this situation, Hong Kong has argued, several of the WTO rules are anomalies. Companies now factor into their business decisions trade remedies (invoking anti-dumping and countervailing duties against subsidies etc) to disadvantage their competitors.

There was hence need to look at WTO rules, not piece-meal, but overall, including rules of origin (particularly preferential rules devaluing the MFN principle), anti-competitive practices, subsidies or incentives, domestic content requirements or preferential rules.

There should be a broad-based review, taking consumer interest as a starting point, and this should be done by establishing a working group at the Singapore Ministerial meeting to report back to the WTO members, according to Hong Kong.

Though Canada has put forward its non-paper on investment for a working group for study of investment at Singapore, it was seen essentially as a part of the Canadian-EU efforts, more openly disclosed at seminars outside the WTO, for a Multilateral Investment Agreement guaranteeing the right of establishment, national treatment and most-favoured-nation treatment for foreign investors in any country.

Ruggiero himself has been pushing for the MIA, and reportedly opened the discussions Friday with a statement indicating his interest in the investment issue.

A point that reportedly came up sharply in the discussions was that while the subject was now being approached as one limited to a study of trade and investment in a globalizing world, and that such an investment agreement would promote flows of investment to developing countries, the major thrust and aim was of its sponsors was for an MIA, aimed at ensuring a level-playing field for foreign investors from Europe and elsewhere in the emerging and dynamic markets.

The European Union's Executive Commission has been propagating the view that with an MIA, and the certainty it offers to foreign investors, investments will flow to the areas of the world which are now bypassed, in particular the least development countries, including the vast majority in sub-Saharan Africa.

However, the EU's own document on this issue mentions only the emerging and dynamic economies (of Asia and Latin America) and does not even mention developing countries as such, leave aside the least developed.

The WTO Director-General, Mr. Renato Ruggiero, when he was in Midrand, South Africa, for UNCTAD-IX, had suggested that the marginalisation of Africa would end, and FDI would flow to them if an MIA was agreed.

At a press conference, which he addressed jointly with the UNCTAD Secretary-General, Mr. Rubens Ricupero, Ruggiero was challenged on this, but unable to answer, whether WTO agreement on MIA would be able to guarantee flows of FDI to needy African countries and home countries would undertake such an obligation.

Mr. Ricupero however conceded that a multilateral investment framework (that is being sought to be pushed by UNCTAD's division on TNCs) could not guarantee FDI flows to any signatory, since this depended on a number of other factors.

The ASEAN, speaking on the Canadian proposal, and somewhat ambivalently (because of their internal differences, and bowing to Singapore desire to avoid discord at the first Ministerial meeting in December by agreeing to a study process) came out clearly against any effort to transpose an OECD agreement into the WTO.

This position, also presented on the last occasion when the issue was discussed at the HOD meet, has been interpreted and presented by the EU as well as WTO officials as indicative of ASEAN support for WTO study that could lead to WTO negotiations.

However, Malaysia and Indonesia, in their capitals, and at level of their Heads of Governments have come out clearly as opposing any WTO multilateral investment agreement negotiations, and their delegates suggest that their position has not changed.

In their intervention Friday, in posing several questions to Canada and its non-paper, the Asean countries reportedly indicated their view that the investment issue should be taken up at the WTO only in the context of the TRIMs (Trade-Related Investment Measures) Agreement, which calls for a review before 2000, and to consider at that time whether the TRIMs accord should be complemented with provisions for investment policy and competition policy.

India, noted that currently there was little understanding of the impact of FDI on trade and development of a developing country, and no authentic studies to enable them to reach definite conclusions -- only surmises, impressions and beliefs.

All countries, including India, adopted strategies for FDI to suit their individual domestic conditions, including measures to ensure flows to certain strategic sectors and backward areas. And countries like India were not ready to give up this right.

Foreign investors seek returns for their investment, and want reasonable protection for their property and stable political conditions and judicial systems in host countries. But there seemed no basis for the view that with an MIA investments would flow to developing countries, particularly the LDCs, who are now bypassed. Different countries adopted different policies and incentives to attract FDI. If investors had a right to go and invest anywhere, they would undoubtedly go to the bigger countries with larger and growing markets, and in fact less FDI might flow to the LDCs.

It was also incorrect to say that 'investment' was already being dealt with in the WTO. During the Uruguay Round developed countries sought to apply disciplines on investments, but this was not accepted. TRIMs became possible only on basis of ending GATT-inconsistent measures, and GATS was only an agreement for permission (by host country) to invest and not any right of investment.

Egypt noted that UNCTAD has now been asked to study the entire issue, and there was need for a comprehensive study of all the elements, and in particular effects on development. There was no need for WTO to undertake a work programme now on this issue.

Bangladesh also opposed the WTO work programme on the issue, while Pakistan said that while it favoured investments, it did not see any need for an agreement on right to invest. Peru supported an investment agreement, while Mexico was in favour of respecting the positions of everyone.