11:27 AM Jul 17, 1996

SOUTH URGED TO SAY NO TO WTO INVESTMENT PROCESS

Geneva July 16 (Chakravarthi Raghavan) -- Developing countries would do well by refusing at the Singapore Ministerial Conference (SMC) of the WTO to start a 'study process' on Multilateral Investment Agreement (MIA) in the WTO, but insist that any such be carried out in UNCTAD, which has the mandate and is the more appropriate forum.

This view was presented at the Conference on The WTO: Perspectives of the South, held in Kuala Lumpur last week (9-10 July), by Mr. Martin Khor, Director of the Third World Network. Organized by Malaysia's Institute of Strategic and International Studies (ISIS), the meeting was attended by trade policy officials, diplomats, academics and businessmen from some 15 developing countries of Africa, Asia and Latin America.

In a paper, "The WTO and the proposed MIA: Implications for developing countries and proposed positions", Khor said some Northern countries were maneuvering to get the SMC establish a working group with a work programme to examine trade and investment issues, with the view towards negotiations and eventually an MIA.

However, added Khor, since there is growing resistance from developing countries to negotiations on a MIA or even to establishing a working group, the MIA proponents might opt instead for a Ministerial decision to begin an "educative process" in the WTO, with no commitment that there be negotiations for an agreement.

"It is however unclear what an 'educative process' would be like, or whether, in practical terms, there would be any difference between this and a working group," said Khor.

"There is a strong possibility that once the issue is accepted as within the competence of the WTO, even for an educative process, there would be strong pressures that this process proceed into a working group, negotiations and treaty.

"The pressures within the WTO towards rule-making make the WTO an unsuitable forum for an educative process, since there would be an atmosphere of tension, fear and suspicion."

A more open forum for discussion and an educative process would be the UN, where the issue can be seen in its many facets, and not only from the perspective of rule making and the trading system.

"At the recent UNCTAD-IX (Midrand, May 1996), UNCTAD was given the mandate to discuss the issue of trade and investment and the implications of a MIA, at intergovernmental level. Thus, the discussions of this issue in all its aspects, and an educative process could take place at UNCTAD. Through such a process, the role of the trading system can be better clarified."

The WTO, Khor noted, is already scheduled to review the TRIMs agreement by about 2000. "Should any country want to bring up the trade and investment relationship, this can be done in the context of the TRIMS review. This has the advantage that TRIMS is geared towards trade-related measures and aspects of investments (which is a more legitimate area of WTO competence), rather than investment regimes per se."

Commenting on the MIA in relation to the Singapore Trade Minister's proposal that before any new issue is brought into the WTO for negotiations, it should be able to meet three criteria: that it is substantially trade-related, that the WTO (and not some other agency) is the appropriate forum, and that the issue is already "mature."

On all three counts, the MIA or "trade and investment" fails to meet the test, said Khor.

In terms of trade system, any human activities can have a impact on trade, and some have a substantial linkage to trade; but to be brought into the trade system they should also be directly 'distortive' of trade. This aspect of trade-relatedness and trade distortiveness of investment is already dealt with under TRIMs. Any review of rules and further discussion of the trade and investments issue can be taken up under the process of reviewing TRIMs, which is part of the WTO's built-in agenda for the next few years.

As for the suitability of the WTO, Khor said trade and investment (and in particular the implications of a MIA) is extremely complex issue, involving developmental, economic, social and even political issues of great import.

An agency like UNCTAD has a more suitable body of knowledge, technical expertise and history of discussions, to examine the many facets of investment liberalisation and the balance of rights and obligations of investors, host countries and home countries of investors. UNCTAD-IX has given a detailed mandate, both to the intergovernmental body and the secretariat, to study and discuss this issue.

Just as the ILO is the appropriate forum to discuss trade and labour standards, the UNCTAD is a suitable forum to discuss the trade and investment linkage, including its development aspects. Any conclusions can later be taken up at the WTO in terms of implications for trade rules.

In terms of the third criteria for taking up the issue at the SMC, given the controversies and complexities, the issue is not mature for negotiations, Khor said. There is a significant and growing number of countries that are opposed to and wary of the MIA proposal, and a consensus to begin a working group is absent.

Since the issue is not ripe (and perhaps not suitable at all) for negotiations in the WTO, and since the WTO is primarily a rule-making and negotiating body, an educative process would better be carried out in another more suitable forum like UNCTAD.

Analysing the implications of the EU proposal for an MIA, Khor said it would deprive developing countries of a large part of their economic sovereignty, end the right of States, and the powers of governments, to regulate foreign investments and investments in general, as well as determine other key elements of macroeconomic policy, financial management and development planning.

"The treaty is a throw-back to colonial-era economics," Khor said. "It cannot have a place in the present world where developing countries have the legitimate right to regulate investments, develop their own domestic economy and to strengthen their own enterprises."

Foreign investments, Khor said, has an important role in developing countries. But this role can be fulfilled positively, only if governments retain the right to choose the types of foreign investments and the terms of their entry and operation.

Thus, the objection to the MIA was not out of a bias against foreign investment per se. "Rather," said Khor, "it flows from the successful experience of those countries that have made use of foreign investment, and the realisation of the importance of the need of government to have decision-making powers and policy options over the entry, terms of equity and operations of foreign investments."

"For example, Malaysia has had a very sophisticated system of combining liberalisation with regulation in a policy mix that can be fine-tuned and altered according to the country's economic condition and development needs. The ability and right to have options for flexible policy was especially needed to redress social imbalances among ethnic communities in the country.

"Thus, from this experience, it is clear to us that developing countries need to maintain the right and option to regulate investments and have their own policy on foreign investment, instead of an international investment regime that would take away those rights. Giving total freedom and rights to foreign firms and foreigners may lead to the disappearance of many local enterprises, higher unemployment, greater outflow of financial resources, and therefore to balance of payments problems. It may also worsen social imbalances within society, thereby causing social instability which will offset economic prospects."

Khor said that the industrial countries are pushing for this treaty to strengthen the access of their corporations to the markets and resources of the South, and not for altruistic purposes of helping the South. Developing countries should not be taken in by arguments that this treaty is formulated in their interests.

Referring to the moves within the OECD to establish its own multilateral agreement on investments (MAI), Khor said that it would be wrong to argue that developing countries should agree to a MIA process in the WTO in order to influence or pre-empt this OECD process.

The OECD's MAI is to be readied by May 1997, the dateline set at political level by OECD Ministers at a meeting in 1995. The negotiations within the OECD are already advanced. There did not seem to be any doubt from the OECD officials that the dateline will be met.

At an OECD organized meeting in Hongkong in March, to which 12 non-OECD countries were invited, the OECD explanation of the MAI drew criticisms from most of non-OECD countries' representatives at the meeting, on both process and substance, Khor noted.

Most countries were outraged with the OECD's intention of negotiating a multilateral treaty amongst themselves, without the participation of other countries, in order to attain "high standards". What was important was not "high standards" but "correct standards." Most non-OECD participants had also serious concerns that the MAI would give all rights to the foreign companies and all obligations to host country governments.

Khor said: "It would appear that since the OECD's MAI would be concluded by May 1997, there is no way that developing countries can influence this treaty through establishing a programme in the WTO and giving inputs from there.

"Should the OECD countries want to negotiate an investment treaty among themselves in the OECD, it is their right to do so. Should they extend that their MAI to other countries to join, each country can make its own decision as to whether or not to accede. However, the fact that the OECD is negotiating an MAI should not be used as grounds that the issue should also be negotiated in the WTO."

Khor concluded that if there is a need to discuss the inter-related issues of investment, and rights and obligations of investors, the forum should not be a negotiating venue like the WTO, but a more open and neutral body such as UNCTAD, which has the general mandate to discuss policies within the development context.