Published on: Financial Express, November 26, 2001,
By Pradeep S Mehta
“It is the Wall Street’s agenda’, observed the noted trade economist, Jagdish Bhagwati, at an Asia-Pacific regional conference on international investment agreements organised by the UNCTAD at New Delhi a few summers ago. Prof. Bhagwati, who is an ardent free trade advocate, argued strongly against investment issues to be placed within the World Trade Organisation (WTO) framework. Similarly, another economist adviser to Mike Moore, Konrad Von Moltke, while agreeing to the utility of an international agreement, feels that WTO is a minefield for an investment agreement.
In spite of such considered opinions, the push at Doha to include negotiations on investment did succeed, when nations “recognized the case for a multilateral framework to secure transparent, stable and predictable conditions for cross border investment.” In fact, the rich country’s worry is the lack of bound policy commitments in the developing world, which is the main motivation for this demand.
Indeed that was the motive of the OECD countries when they launched negotiations on a multilateral agreement on investment (MAI) in June 1995. The highly developed draft agreement was aborted when France blew the whistle and the matter was shelved. Two other important reasons were first, the intransigence of the US, due to several commitments which would have reduced their sovereignty. Second, a revolt by the civil society in the West against the agreement was another nail in the coffin.
The US still remains a bystander in the WTO context. It has decided to go along with the European Union as part of a larger strategy of accommodation and bargain in arriving at an agreed text of the Doha ministerial declaration. In this piece I write about investment, while other issues of the Doha Round’s ‘work programme’ will be taken up one by one. One on environment has already appeared on these pages (November 20).
Investment is one of the new issues, along with competition policy, trade facilitation and transparency in government procurement. We are overjoyed with the postponement of the negotiations on these issues. I am not so sure whether we can be complacent about the matter. As an experienced commentator put it: we will have our necks on the chopping block after two years, while another felt that we have buried the matter and will be able to postpone it even when it reappears two years hence. I don’t agree with either.
On the relationship between trade and investment, during the next two years, the work programme of the WTO stipulates that the Working Group should carry on its work, focusing on clarifying specified issues. This working group was set up in 1997 following the Singapore Ministerial Decision. Come the Ministerial in 2003, negotiations on investment will take place, “on the basis of a decision to be taken, by explicit consensus, at that Session, on the modalities of the negotiations.”
In the typical opaque language that comes from tortuous international negotiations, it is not at all clear what this means. But looking at the investment issue in its political context, what is clear is that the EU will not tire in using sticks and carrots to make sure that binding negotiations really do start in 2003.
Meanwhile, smarting for the hurt inflicted during the Doha talks, the EU will push for negotiations in the various plurilateral trade arrangements that it has with poor countries. This would include such accords as the Cotonou Agreement with 78 of its former colonies in the Africa, Caribbean and Pacific regions.
Developing countries must, therefore, make the most of the next two years to prepare themselves as much as possible. First, research is necessary. The rich country demandeurs of an investment agreement at the WTO claim that increased confidence and assurances will lead to greater investment flows to developing countries. Considering that over 95 per cent of foreign direct investment now flows into only 30 countries, an agreement that can lead to more of this investment being directed to developing countries would be very beneficial.
However, there is no evidence to show that this will be the case. Few other developing countries have the intellectual and analytical capacity of India. India would really deserve to be a leader of the developing world if it put these capabilities to such constructive use. Second, is to develop a clear picture of the country’s interests in this area. This was a frequent refrain of commentators before the Doha meet, but it applies just as much now as it did before. The danger is that the country will lapse into a false sense of security brought on by the “explicit consensus” phrase stated in the Declaration and not bother to develop its own set of demands.
There are certain points that India should be using all its Doha-style bombast to resist on behalf of developing countries. These include restrictions on domestic development policies, too broad a definition of investment that puts countries at the mercy of fickle portfolio investors and across-the board liberalisation. The declaration recognises several development dimensions for being considered for clarifications during the future study/tentative negotiations. These include further clarification, with issues like a GATS-type positive-list approach for pre-establishment commitments to be made by countries. This is one area where India can derive some comfort, as in its posturing on investment issues since some time it has maintained stoutly that it will not allow unbridled entry of foreign investors.
It also notes the necessity of keeping development provisions, and exceptions and balance of payment safeguards. Furthermore, in a paragraph under the investment clause of the Declaration, it asserts that: “Any 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 right to regulate is welcome, while the words ‘framework should reflect in a balanced manner the interests’ convey the mandatory nature of the recommendation as far as a possible future agreement is concerned.
However, there are also many things in the investment arena that India can, and should be demanding, like standards for enforceable rules governing the behaviour of the mega-corporations that today escape the reach of national laws. Many countries and the whole civil society have been demanding such rules for quite some time, and such a demand will receive widespread support. Problems will come from the US, which believes in national regulation which need not be informed by any international agreement.
It may be that India never has to put these demands on the table. In fact, it is quite likely that the investment negotiations will drag very slowly, or even die a natural death as the rich countries argue between themselves about what should be in and what should be out. If the failed OECD MAI is anything to go by, Europe, Canada and the US will not be able to accommodate each other’s demands, let alone the demands of the developing country majority at the WTO.
A third and final point: India must keep the developing country coalition together in the investment discussions as well as in other areas. This coalition was one of the major achievements of Doha and will be vital in keeping the WTO on the right track. Other countries should be encouraged to articulate fears and grievances, and these should be woven into a common position underlying the basic resistance of these countries to any kind of investment agreement. In conclusion, there will be no harm if as a proactive step we start designing an ideal international agreement on investment for being tabled at the working group as the text for being responded to.