Many Developing Countries Don't Want To Start Investment Negotiations

Original Publication Date: 
10 June, 2003

News and Updates

Geneva 11 June 2003

1. Introduction

Developing countries remain unconvinced that an investment agreement in the WTO will bring benefits for them. At the last scheduled meeting of the Working Group on the Relationship between Trade and Investment (WGTI) held on 10-11 June, a number of developing countries said they were not ready for negotiations to begin on a multilateral agreement on investment.

The developing countries were responding to a paper submitted to the WGTI by Canada, Costa Rica and Korea, which called on WTO Members to agree at Cancun to move on to the next phase; namely, negotiations for a WTO agreement on investment.

Although stating that 'a multilateral framework for investment in the WTO would not guarantee greater investment flows', the paper went on to say that failure to negotiate such an agreement would mean a missed opportunity to 'shape the multilateral environment in which international investment can contribute to the development prospects of all our citizens'.

In response, it was reported that at least two developing countries in the WGTI asked the question: 'If a multilateral agreement on investment does not guarantee greater investment flow, why should we agree to one?'

This is a question that has often been put forward by developing countries for an answer from the proponents of a multilateral agreement on investment in the WTO. It seems they have yet to be given a satisfactory answer. As Kenya said in the WGTI, 'we are not convinced with the explanations given'.

2. Clarification process not over, say developing countries

Many developing countries at the WGTI meeting also said they could not agree with the proposition that the clarification process in the WGTI is complete.

Canada, in introducing the paper, said that after seven years of work, the preparatory work in the WGTI was complete, and that 'the negotiation of comprehensive investment rules in the WTO was overdue'.

According to Canada, the WGTI has considered and discussed well over fifty submissions from Members, international organizations, and the Secretariat (including reports to Council), amounting to many hundreds of pages of documentation which covered not only all the issues that the Group had been asked to cover, but additional issues as well. Thus, the sponsors of the paper said that they now find themselves ready to proceed to the next phase of work: negotiations on a multilateral framework for investment within the WTO. The sponsors also envisaged that such negotiations would ultimately be part of a single undertaking associated with WTO agreements as a whole.

The paper further said that a WTO investment framework should reflect in a balanced manner the interests of home and host countries, and take due account of the development policies and objectives of host governments as well as their right to regulate in the public interest. The special development, trade and financial needs of developing and least-developed countries should be taken into account as an integral part of any framework, which should enable Members to undertake any obligations and commitments commensurate with their individual needs and circumstances. In its response, China said that the paper made a number of bold assumptions and hasty generalizations. China maintained its view that the work of the WGTI was far from complete, since there was still no agreement on definition, scope and many other issues. India supported China's position that the work in the WGTI was far from complete.

Kenya also shared this view, stating that, 'the clarification of elements contained in paragraph 22 of Doha Declaration should lead to a convergence in understanding of the issues'. As far as his delegation was concerned, this convergence had not been achieved, he added. The Kenya delegate also said that investment was a new issue and there was a need for full understanding of the development implications before negotiations began. 'We do not believe that the many questions that so far remain unanswered can be done so in a negotiating mode', he said.

[The least-developed countries in the recently concluded Trade Ministers' Meeting (May 31 - June 2, 2003) in Dhaka have also come to the same conclusion. The Dhaka Declaration makes it clear that the LDC group of countries does not envisage the start of negotiations on the investment issue at Cancun. Paragraph 29 of the Dhaka Declaration states as follows: 'Progress in the work in the WGTI clearly indicates that there would be no agreement between now and Cancun on any of the elements outlined in the Doha Declaration'. Paragraph 30 then recommends that 'the WGTI should continue work on the issues referred to in Paragraph 22 of the Doha Ministerial Declaration, including studies on whether and how any multilateral investment agreement would facilitate flows of FDI or improve its quality in LDCs'.]

India also challenged the assumption made in the paper that negotiations will be launched at Cancun. India said this was not a correct assumption, reminding the WGTI that at Doha, the Chairman set the precondition of 'explicit consensus' for negotiations to begin.

Indonesia said that the WGTI discussions have brought to the fore the fact that there were many divergent views on this issue. Thus, it would not be proper to begin negotiations. The Indonesian delegate said, 'time is not ripe to begin negotiations'. He also said the investment issue was a complex one, which would require more study, especially with regard to its implications for developing countries.

Both Indonesia and India in their statements also stressed the point that there were still divergences of view even on the fundamental point of whether the investment issue should be located in the WTO. Indonesia said that the investment issue was beyond the scope of the WTO, while the Indian delegate said that he did not think that investment was part of the core competence of the WTO.

In its response, Malaysia said that active discussions in the WGTI did not mean that Members were ready for negotiations. The Malaysian delegate reiterated the importance of policy space in the area of investment for many developing countries, and said that the costs would outweigh the benefits for developing countries in a multilateral investment agreement.

Developing countries were also not convinced that their concerns and special needs would be adequately addressed in an investment agreement. Thailand said that while it kept an open mind about the negotiations, it was very disappointed with proposals on the table. Technical assistance is not enough, Thailand said, special provisions for developing countries should also be built into any agreement. It said developing countries should be allowed to attach conditions to investments.

The Kenyan delegate said that statements of good intention are often heard, for example, on provision of technical assistance and capacity building; appropriate flexibility for developing and least developing countries and that the development interests of developing and least developed countries will be fully taken into account as an inducement to start negotiations in this area. However, for Kenya, technical assistance and capacity building should be aimed at achieving sufficient convergence in understanding of the issues involved before we enter into negotiations. He added: 'We also need to clearly know how the interests of developing and least developed countries will be taken into account before we start negotiations and not just statements of good intention'.

3. Advocates' view on the purpose of a WTO investment agreement

In their paper, Canada, Costa Rica and Korea said that a WTO agreement on investment could complement the already existing large network of bilateral investment agreements. While the relationship investment agreements and investment flows, or investment agreements and trade flows is arguably more complex than that of trade rules and trade flows, it cannot be denied that these relationships exist, or that they would not benefit from clear rules at the multilateral level.

Furthermore, the three countries argue, as countries seek to diversify their sources of, and destinations for, international investment, a multilateral framework is best suited to complement the large but less than universal network of bilateral and regional agreements that already exists.

The paper received support from the major developed countries in terms of the principal message: that negotiations should be launched on investment at Cancun. The US, EC and Japan were in favour of launching negotiations on the investment.

The US supported this proposition, and also agreed with the paper in saying that failure to negotiate an investment agreement would mean that WTO will miss out on the opportunity to shape the international environment for investment. For the US, an investment agreement that will translate bilateral agreements into the multilateral context, will reassure investors, leading to more investment and greater industrial growth.

The EU also said it was in agreement with much of the paper's content. It said that the mandate of the Group is to clarify issues, not agree on them. Japan said that divergent views and concerns should be addressed in the negotiations, and looked forward to active participation of developing countries.

Chile was also of the view that negotiations should be launched in Cancun under the single undertaking. Although it has investment provisions in its bilateral agreements, Chile said this was not enough. Multilateral rules, it said, would mean all members would benefit. Other Members speaking in support of launching negotiations at Cancun were Hungary, Norway, Chinese Taipei, Switzerland, Australia and Hong Kong.

4. New development: 'Friends of the Chair' to help process

The WGTI was to meet on Tuesday 11 June to discuss the draft report of the WGTI, in preparation for the Cancun Conference. However, the consideration of the draft report of the working group was brief. It was decided that Members should provide their comments on the draft to the Chair by June 18, so that a final draft could be prepared for adoption by the end of the month. If there was need for further clarification or changes, a final meeting of the Working Group could be held to discuss them.

In his concluding remarks, the WGTI Chair, Ambassador Luiz Felipe de Seixas Corr