Third World should keep its eyes open

Published:The Financial Express, December 18, 2002
By Pradeep S Mehta

Brussels, December 17: The Doha agenda is likely to be mired in a show of virility between the European Union (EU) and the US. Each will flex its muscles. To reduce the pressure on its agriculture reforms, the EU will go after anti-dumping, which as we know, is a red rag for the US. That certainly looks like the contours of a trade-off package, if things have to move forward towards Cancun.

Many pundits believe that agriculture is the key to a successful conclusion of the pre-Cancun pow-wows in Geneva. Pascal Lamy, the EU trade supremo, doesn’t think so. “Each and every other issue in the Doha agenda: agriculture, special and differential treatment, investment, competition, TRIPs and public health are the keys which can determine the failure or success of the Cancun talks. Each one of them can be a deal-breaker or a dealmaker”.

Lamy was speaking at a seminar on a possible WTO agreement on investment, organised by Confrontations, a think-tank of some French members of European Parliament at Brussels last week. He believes that if one has to label a deal-breaker, it will be anti-dumping.

Indeed, the EU would look for diversion for its lack of progress in agriculture. For a change, Lamy agreed that in agriculture, the EU has to reduce export support; improve market access for developing countries; and reduce domestic support.

Just after the Doha conference, at a civil society meeting in New Delhi, he had stated that they had agreed to only address trade distorting subsidies in the Doha Round. By end of this year, they will file their proposals at Geneva, while the deadline for negotiations is March 31, 2003.

Deep internal splits, spearheaded by a Franco-German alliance, have so far prevented the EU from budging its stand on agriculture. Continued recalcitrance on the part of EU will put the Doha Round at risk, in spite of what Lamy wishes to say. The EU parliament’s position paper on trade and poverty, while shedding crocodile tears, does not even whisper a word on agriculture. This has invited condemnation for cynically betraying the world’s poor. The US is also not far behind, having expanded the basket of domestic support to its agriculture since the Doha meeting, but explains it as legitimate under the agreement on agriculture. Be that as it may, investment can be another bone of contention between the two giants.

The US has already signaled its support for an investment agreement of the highest standard, by including market access and portfolio investment. This is certainly against the spirit of the Doha Declaration, which proposes for gradual development of the accord rather than a fully-blown agreement to begin with.

The draft OECD multilateral agreement on investment (MAI), which died in 1998, after traversing three years of intense negotiations, was aimed to be a high-standard agreement. At the end of the day, when the cake was nearly baked, even the US found it not so tasty. Investment and other new issues like competition have been understood as the armour for EU’s reduction of agriculture support.

At this seminar, Lamy laid out the EU’s position which was quite different from the US. Firstly, he reassured the meeting that this will not be a remake of the aborted OECD MAI. Because it was a mistake in many ways, and both the topic and the timing was bad. On the current proposal, he referred to it as the investment for development agreement, thus breaking from the mould of MAI or MIA or MFI and so on. The definition of investment would be limited to a very extensive flexibility clause for developing countries to hold exceptions. It would be gradual and progressive, and in no case would investor stating dispute resolution be a part of the agenda. It’s not possible because in the WTO scheme, it is only states which can bring disputes against another state. Lamy feels that the timing is good now, and that many investment issues have already been covered under the GATS, mode-3. Further, he agreed that the agreement could also cover investor obligations.

Investor and home country obligations was the subject of a recent paper moved at the World Trade Organisation (WTO) by several countries, including China, India, Pakistan, Cuba, Zimbabwe and Kenya. This drew a sharp reaction from many developed countries, because of the proposed home country obligations to regulate their investors. In fact, they were quite surprised at China joining this bandwagon. It was heard in the corridors that China supported the paper merely for developing country solidarity, and may not sustain the position when it comes to the crunch.

At Doha, China was upfront in supporting negotiations on an investment agreement. This was certainly not a ’new kid on the block’ phenomenon. China already attracts the highest foreign direct investment (FDI) inflows among developing countries. The developing country solidarity in this case is rather weak. Most developing countries, such as Africa and South America are willing to go along with an investment agreement as proposed by the EU. Some others who may grunt today, but will settle for a minimalistic text tomorrow. WTO is all about power-play, rather than fair-play.

Investor and host (not home) country obligations was debated at the United Nations for several years under the now defunct: UN Code of Conduct for TNCs. It was killed in 1993 by the US, when it threatened developing countries with “no FDI”, if they continued to support the same. Only Pakistan remained brave enough as the last bastion of demand, but all developing countries, including India, just backed off. Not many would know that the two traditional adversaries are thick friends at the WTO.

On the other hand, developing countries have been signing up Bilateral Investment Treaties (BITs) with rich countries to attract FDI. (The rich do not do so among themselves, as they follow OECD codes for FDI flows). The number has been steadily growing over time, and stands at over 2,100 the spaghetti bowl syndrome. In this context, a point raised by the South African trade minister Alec Erwin at Doha in favour of an investment accord at the WTO is worth revisiting here.

BITs entered into by small and poor African countries are one sided, and thus a multilateral framework will provide them with more comfort. They are desperate for FDI, and will be willing to go along with any such arrangement, which can offer some hope for increased flows. On the contrary, BITs per se are no guarantee for FDI flows. Both Malaysia and India do not have a BITs agreement with the US, yet the latter is the largest investor in both the countries. Further, the US is going all over town to sign up BITs and bilateral trade treaties with both social and environment clauses. These are becoming the building blocks to get them into the binding realm of international economic relations at the WTO.

In a queer way, Lamy’s proposal on investor obligations could be a back door entry for the social clause. Investors will be prevented from the race-to-the-bottom phenomenon, i.e. investors will not be offered incentives of lower environment and labour standards by host countries. This is a strident demand by the influential civil society and the trade union movement in the OECD world. They will not be satisfied if such conditionalities are not a part of the agreement.

On the issue of labour standards in the WTO, Lamy responded to an influential trade union representative at the meeting, that in spite of his best efforts, he could not succeed at Doha: “There is no second chance at Cancun, and if you want it there, go and lobby the 3rd world governments who are opposing it”.

However, in a not so mischievous way, he added, that while they failed getting it through the front door at Doha, there is a chance to get through the back door via the International Labour Organisation’s Commission on the Social Dimensions of Globalisation. This body was set up to deflect pressure from the WTO, and allow the debate to continue. We only hope that this back-door entry also fails, but the developing countries need to keep their eyes open.

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