Investment Working Group Meeting Illustrates Modalities Split

Original Publication Date: 
12 June, 2003
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Date: June 13, 2003

The last formal meeting of the World Trade Organization's investment working group before the September Cancun ministerial illustrated the deep divisions among members on how specific the mandate must be in order to proceed with investment negotiations and over how broad the scope of a potential agreement should be. The debate over the scope of an agreement is centered on whether an investment agreement should cover so-called portfolio investment as the U.S. wants or be limited to foreign direct investment as developing countries want.

These divisions are accompanied by a debate on whether WTO members should proceed to investment negotiations at all, Geneva sources said.

Countries such as India and Malaysia, for example, expressed serious opposition to the appropriateness of the WTO as the venue for negotiations on an investment agreement. There is a huge divergence of views on whether the WTO is the appropriate venue for investment negotiations, said a developing country official.

On modalities, members are split into two camps with developed and developing countries pushing for vastly different approaches. Developed countries, such as the EU and Japan, are advocating vague modalities that would include items such as the scheduling of meetings, the naming of a chair and other procedural issues, according to trade officials.

The U.S., according to Geneva trade officials, has not yet fully staked out its position on modalities for investment negotiations. However, last month a U.S. trade official said that given the disagreements among members it could be difficult to get a very elaborate statement on modalities at the end of the day. The official said modalities could range anywhere from procedural issues such as the establishment of deadlines to more substantive issues.

Developing countries such as Brazil, India, Malaysia and other Southeast Asian nations which have traditionally been cool to investment negotiations contend that any modalities must be detailed and specific and clearly outline what issues will be addressed in any negotiations, according to developing country officials. The possibility for us to influence the shape of an agreement is right now, not after the negotiations have begun, said one developing country official.

That point was made in a paper presented by a group of 26 developing countries to this week's meeting of the Trade Negotiations Committee that insisted that modalities would have to provide certainty on the structure and precise content of negotiations. But one Geneva diplomat said the significance of the June 6 proposal, which was supported by India and Malaysia, is that it does not reject the idea of negotiations on Singapore issues out of hand.

Developing countries are looking for negotiating modalities to be specific enough so as to allow for the provision of policy space, according to one Asian trade official. Such policy space could include carve-outs for developing countries that would exempt them from certain obligations, such as post-establishment national treatment requirements for foreign investors, said the official.

The idea of policy space could also address pre-establishment issues for developing countries that would give them the flexibility to screen possible foreign investors and determine whether to condition investments by channeling them into certain sectors, said the official.

Another possible policy space issue is the desire by some developing countries to prevent an investment agreement from introducing further restrictions in the WTO's Agreement on Trade Related Investment Measures, according to a developing country official.

That official said developing countries would like to retain their ability to require investors to engage in joint ventures with local firms. Additionally, the official said developing countries might push for new TRIMS flexibility with respect to export performance requirements.

In contrast, supporters of vague modalities argue that any substantive differences on how to proceed in the negotiations can be addressed in the negotiations themselves. This point was made in a paper presented to the working group by Canada, Korea and Costa Rica, that said very real progress has been made in clearing the underbrush for a greater understanding of issues to be taken into account during negotiations. The paper said that outstanding differences could be settled in the negotiations themselves, which they want to start at the Cancun ministerial.

According to the paper, an investment agreement could take into account in a balanced way the interests of all Members of the WTO-developed, developing and least-developed alike. For developing countries, that would mean an agreement that would allow members to undertake any obligations and commitments commensurate with their individual needs and circumstances.

An investment agreement would have to reflect in a balanced manner the interests of home and host countries, and take account of development policies and the objectives of host governments including their right to regulate in the public interest, according to the paper.

The paper received mixed reviews with one Asian trade official describing it as a waste of time, because it did not contain anything new. Another developing country official also said the paper merely re-stated well-known positions.

The U.S. said it agreed with the principal message of the paper, namely that negotiations on investment should begin at Cancun, according to a Geneva source. The EU backed the U.S. position, saying that it supported most of the paper, and that disagreements over certain issues could be worked out in the negotiations, a position also supported by Japan. The EU also said it was the job of the working group merely to clarify issues not to agree on them, the source said.

Six other WTO members expressed their support for the beginning of negotiations on investment at Cancun this week; Australia, Hungary, Norway, Taiwan, Switzerland and Hong Kong.

The U.S. has long advocated a building block approach to an investment agreement, meaning an agreement could cover transparency and non-discrimination. The U.S. has insisted that the elements detailed in the Doha Declaration on investment are not necessarily elements for an eventual investment agreement.

Paragraph 22 of the Doha declaration calls on countries to focus on the clarification of: scope and definition; transparency; non-discrimination; modalities for establishing commitments based on a GATS-type, positive list approach, development provisions; exceptions and balance-of-payments safeguards; consultation and the settlement of disputes between members.

Division on these issues was apparent at this week's meeting of the working group on the relationship between trade and investment when the U.S. challenged China on two elements contained in the Doha Declaration.

On transparency, the U.S. challenged China on its assertion that transparency need only be defined as the simple notification of new laws. The U.S. advocated that investment transparency should include provisions for judicial review and prior notification of proposed new laws relevant to investors.

The U.S. also challenged China on non-discrimination provisions saying that the same level of treatment must be afforded to foreign and domestic investors.

Inside US Trade

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