11:28 AM Oct 11, 1996

SHARP DISAGREEMENT OVER WTO PROCESS ON INVESTMENT

Geneva 11 Oct (Chakravarthi Raghavan) -- A day-long UNCTAD-sponsored 'Global Investment Forum', meeting as a high-level segment of its Trade and Development Board, ended Thursday evening on a note of disagreement on whether trade and investment as an issue could be taken up at the forthcoming Singapore Ministerial Conference, whether for negotiations or even a study process.

Some of the sharp disagreements voiced over even a study process at the WTO on the relationships between trade and investment suggest that if its sponsors (the WTO Director-General, Canada, Japan, EU, and to some extent the US) persisted in it, the Singapore Conference of the WTO in December may prove to be a scene of contention and confrontation.

The first two sessions of the forum, one devoted to the issue of investments and benefits, and another on a multilateral framework, had a large chorus of views about the benefits, with several developing nations, particularly the LDCs, outlining their liberal regimes and pleading for FDI, but meeting with lofty generalized responses from the International Chamber of Commerce (ICC) and the TNC executives who had been brought in on what they should do.

In fact the socalled private sector participation was of the private sector of the North, and its large TNCs. When this lopsided representation and claim of a few from the North to speak for the world's business was commented upon, UNCTAD Secretary-General appeared to agree with this criticism when he said small and medium businesses from the South would need to be brought in for any future meetings.

But there were a few, but sharp, presentations, including one by Martin Khor of the Third World Network, on the costs and negative effects of FDI and need for a full and adequate study and objective analysis. Khor reminded the developing country delegations that their countries had fought for independence in order to ensure autonomy of economic space and development free from foreign capital's stranglehold. An MIA would reverse the entire process. He was also sharply critical of the 180 degree turn that had been done by UNCTAD's division on TNCs after the old UNCTC was closed down in New York and transferred here.

The lop-sided voice given to the international business was best illustrated by the fact that in the entire session while everyone, including panellists, spoke from the floor, the International Chamber of Commerce (which had two representatives to speak to give the business view) spoke from a special place by the side of the podium.

The UNCTAD Secretary-General who chaired and moderated the second session, noted the experience of countries with bilateral and regional agreements and the 'unknown' as far as they were concerned of a multilateral framework which at the moment was a kind of "ideal construct". He also noted that the negotiation of a General Agreement on Trade in Services (GATS), involving commercial presence as a mode of supply, had ultimately become possible only because of the work done in UNCTAD from 1984. He appeared to be trying to make the point that a similar process in UNCTAD on investment could help open the way for a multilateral framework.

But the final session of the forum, on "Where do we go from here?", which had been intended to elicit views and reactions to a study process at UNCTAD and the WTO, while generally favourable to an UNCTAD process, elicited some sharp opposition from several developing countries, including many from sub-Saharan Africa on an MIA or a WTO process towards it.

Several of them including Uganda, Indonesia and India spoke strongly against work being done on a MIA, or a study at WTO, whilst other countries including Ghana and Zambia warned against being rushed into a MIA process.

The Uganda Finance Minister used some strong words to describe the Northern attempts to lobby for an MIA, by claiming that it would bring more FDI to Africa, as "deceit".

Perhaps the only sub-Saharan African country that came out in favour of an MIA at the WTO was Madagascar. Others who spoke with varying nuances rejected it.

India saw UNCTAD as best venue for study and analysis, and cautioned that if developing countries agreed to such a process both at UNCTAD and the WTO, the UNCTAD process would be marginalised.

The final words of the session rested with Indonesia. Putting the issue on the agenda of the Singapore Ministerial Conference of the WTO or initiation of a study process at Singapore on trade and investment, said Indonesian delegate, Mr. Soenaryo Danusaputro, Deputy Chairman of Indonesia's Investment Coordinating Board, "is totally inappropriate and unacceptable".

The moderator terminated the session on that note, though some other developing countries including Malaysia, and one or two panellists had put up their cards desiring to speak.

A statement by the Chair, Minister Alec Erwin of South Africa who disclaimed he was doing any summing up, but sought to sum up by speaking about the role of business, failed to bring a note of consensus to the proceedings. Erwin also sought by his words to moderate the sharp disagreements from several of South Africa's neighbours to an MIA and spoke of business role in economic growth and development, and about regional integration having to embrace trade, investment etc.

If UNCTAD, as is commonly accused by the industrial world and TNCs had played a dirigistic role over development in the past, the view of business, TNCs, and their home countries, and even some developing countries, about business being left to develop (and presumably TNCs) seemed to contradict a theme often articulated about of development being a human-centred process and the view of US and some others that development is an individual human right and not national.

Earlier, responding to an European Commission official's insistence that it should be taken up for negotiations at the WTO, and what seemed a somewhat paternalistic view that the EC would, through development cooperation, take care of need for foreign resources and funds for sub-Saharan Africa, brought a very sharp response from Uganda's Minister of State for Finance.

Minister Basoga Nsadhu accused those promoting an MIA through the argument that it would bring more investments to Africa as trying to "cheat" Africa.

"We were told if we had democracy we will get funds. We had democracy but no funds came. We were told if we had structural adjustments, FDI would come. We had SAPs, but no funds came. We were told if we had trade liberalization and privatization, FDI would come, but none came. Now we are told we will get funds if there is an MIA.

"You are trying to cheat Africa," he said with some emotion.

India's ambassador to the WTO, Mr. Narayanan stressed that the initiative for an MIA was coming not from the capital-importing countries but capital exporting countries. The issue of investment had ramifications beyond trade, and it needed careful study and analysis and should best be done in UNCTAD which has been mandated at UNCTAD-IX in Midrand to study all aspects of the issue, and with a development focus. Narayanan mentioned in this connection the ICC view that a multilateral framework should include portfolio investments.

UNCTAD, he said, had a wider membership than the WTO which as a negotiating forum was not the most ideal place for an educative process. On the view that came from the US and OECD that a OECD agreement could later be multilateralised, Narayanan said the OECD was entitled to negotiate anything it wanted. But it can't be multilateralised unless the wider WTO members agree to it.

On the view of Canada, Japan, Norway, the US and others that the study of the issue could take place both in UNCTAD and WTO, Narayanan warned UNCTAD that any such parallel process will result in marginalising UNCTAD. The issue should be studied in UNCTAD as mandated.

A few developed countries tried to assure developing countries that they had nothing to worry about as their views would be accommodated in a MIA process in the WTO.

But statements by other developed countries made it clear that the North had some definite views on what elements and principles they had already decided to have in their proposed MIA, and what they would not agree to (such as obligations of foreign investors or their home countries) and that developing countries were being pressured into accepting these. These elements (the right of entry and establishment of foreign firms, national treatment and removal of restrictions on remittances) were criticised by representatives of developing countries as infringing on their sovereign right to regulate investments for development and social objectives.

Earlier, the International Chamber of Commerce, the United States and other countries of origin of TNCs, who are seeking investment rights in the developing world, made clear that while they sought "rights" for the foreign investors, including right of investment or establishment, right to national treatment and for MFN treatment, such investors would undertake no particular or special obligations towards host countries and their development or other objectives of development policy, research and development in the country etc.

The US made clear that the approach of rights of investors and their obligations, was not acceptable to the United States, and any attempt to renew the efforts to formulate a code of conduct for TNCs would be rejected.

The only approach acceptable, the US delegate said, was the GATT approach of 'national treatment' (between domestic and imported goods) and the most-favoured-nation principle.

While the US was blunt, other industrial nations like Canada, Japan and the EU tried to blur over it. The chief spokesman for transnational capital, the International Chamber of Commerce (ICC), made clear that they want 'investment rights' to be very broadly defined to include not only FDI, but all other forms including portfolio investment.

Several Third World delegations later said that while in the informal heads of delegation process at the WTO, several of them had raised the issue of the obligations that investors and their home countries would undertake in return for an MIA assuring investor's rights, it had not received a clear answer.

But the Global Investment Forum discussions had clearly shown that the investors wanted all the rights and no obligations.

The forum, with participation of transnational corporations and their business executives, ministers from several developing nations, and high officials, discussed in two sessions FDI trends, policies and inter-relationships and 'Towards a multilateral framework on investment?", with a third session titled "Where do we go from here?"

The first two sessions, marked by speeches and interventions from several developing countries explaining their liberalized policies on inward FDI, and failure to still attract FDI flows, and the views of Transnational capital and its promoters and organs, the International Chamber of Commerce, left on the very crowded audience in the hall, an impression of a well-orchestrated effort to show amity between host countries and potential investors, and UNCTAD's capacity to organise a forum where the two could meet and do business.

But the response to a number of questions from developing countries as to what obligations foreign investors would undertake in return for the right to invest and get national treatment in a country, There were some delegations, and a panellist or two who sharply questioned the idea of a multilateral framework

After a day of speeches of developing countries, particularly from Africa and other parts of the world now starved of FDI flows, about their liberal and welcoming regimes, the final session on "Where do we go from here?" ended with a very sharp speech from Uganda, accusing those trying to promote a Multilateral Investment Agreement (MIA) as one that would bring needed foreign direct investment to Africa, of "cheating" and a softly-worded, but firm view from Indonesia that a WTO study process was "inappropriate and unacceptable"

Speaking for Indonesia, Mr Soenaryo Danusaputro, deputy chairman of the Investment Coordinating Board, said it was the role and right of governments to take measures to maximise the benefits of FDI and minimise its costs. The host country had the right to use policies to improve its technology level by requiring foreign investors to transfer technology.

Therefore, the OECD's multilateral agreement on investment (MAI) is not appropriate or relevant to the interests of most developing countries, said Soenaryo. He added that the developed countries also wanted to use the WTO not only for trade but also for investment issues.

Although trade and investment are related, these two areas were also different since trade involves marketing of products arising from production, whilst investment involves improving the national capacity to produce. Soenaryo said that binding developing countries to investment rules would be "risky" to their interests.

The WTO already had a committee on TRIMS, to deal with the TRIMS agreement, which reflected a careful balance in the Uruguay Round. Information and analysis on the linkages between trade and investment are still lacking. Investment and investment policy have many critical dimensions, of which trade is only one. Other aspects include finance, technology, ownership of assets, implications of the balance of equity holdings. Therefore, said Indonesia, the Midrand mandate to UNCTAD to review and discuss these many effects of investment is valid.

"UNCTAD is the best forum to look at the issue of a multilateral framework on investment. Pursuing an educative process in the WTO is totally inappropriate and unacceptable. We want UNCTAD to do this."

Nsadhu humorously related a marriage custom in Uganda in which the bridegroom's family had to pay the bride's family a brideprice in the form of cows. In return, the marriage would give rise to children as a benefit.

Using this analogy as a backdrop, Nsadhu said the relationship between developed and developing countries in the proposed MIA was a "tricky" one. The rich countries and their companies wanted the markets of poorer countries and to make profits from them.

"The relationship here is completely unequal," he added. "They wanted us to have democracy, and we complied. They asked us to have liberalisation and privatisation, and we did it."

Despite this, there had been very little investment inflow. "Now they are saying that even the bilateral relationships we have built up are not enough, and that what we now need is a MIA."

Nsadhu said that African countries would be disadvantaged if they agreed to a MIA or MAI. Before they were able to strengthen themselves through national efforts or regional groupings, "it is a waste of time to move to a MIA, as we would remain net suppliers of raw materials and we would only serve as markets."

Nsadhu added it was uncertain "how much financial resources would go out of our countries due to foreign investment. The outflow will be much greater than the capital inflow.

"The way forward is not to rush into this process. It is a deceit to say that if you sign on to a MIA you will get investment."

A representative from Bangladesh said that his country already had a very liberal investment regime. "Yet we feel the time is not ripe to have regulations on treatment of FDI under a rules-based organisation like the WTO which has the possibility of cross-retaliation." He added that the country's experience on FDI was limited, and there was also little knowledge on issues relating to the subject, As such there was a fear of the unknown.

Zambia's Ambassador Patrick Sinyinza, speaking as president of the Trade and Development Board, said there was no mathematical equation that can predict the flow and direction of FDI to answer the question whether an investment code can increase investment to Africa.

"We have learnt that the determinants of FDI go beyond an investment code. FDI is determined by other factors such as the political environment. That is why Africa liberalised its investment regime but investment flows have not come despite the multiple incentives granted."

He said there was no clear answer whether a global investment code would be to Africa's advantage and thus this question should be subject to more analysis.

At an earlier session, Sinyinza had said that Zambia had unilaterally liberalised its FDI regime, and was now observing with concern the MIA discussion in various fora. In this regard, he posed the questions, "Why now? What is in it for developing countries? How would a MIA change the flow of FDI?" He proposed that UNCTAD should carry out studies in this direction.