Global Policy Forum

The Developmental Impacts of an Investment Agreement at the WTO

New global investment agreement must be stopped
A new global investment agreement proposed at the World Trade Organisation (WTO) carries huge risks for the world's poorest people says leading development agency, ActionAid. In its new report, Unlimited Companies, the agency calls on the UK Government and the EU to drop their support for the agreement and stop putting the interests of big business before the needs of poor countries.

The report comes at a crucial time in trade negotiations, as the Working Group on Trade and Investment meets in Geneva for the last time before the WTO Cancun Ministerial in September.

"People's rights should not be for sale. If the investment agreement is passed it is likely to strip away our ability to regulate foreign investors, which is vital if poor people are really to benefit. Developing countries must not be short-changed – it is time to put people before profit," says Adriano Campolina Soares from ActionAid Brazil.

Examining evidence from countries including Haiti, Uganda, India and Brazil, the report takes a comprehensive look at the impacts of foreign investment by companies, such as Coca Cola and Nestle, on developing countries. It explains how increased liberalisation through a WTO investment agreement could compromise the rights of poor people even further.

Foreign investment often leaves poor people vulnerable to the worst corporate abuses. It can only bring benefits if carefully managed. Governments in poor countries are keen to attract multinational investors – as they can bring much needed capital, jobs, new technology and managerial skills, helping to raise the standard of living for many poor people. However, all too often big business is allowed to trample on peoples' rights, evicting them from their homes, squeezing them out of business and refusing to allow workers to join unions or make a decent wage.

In India, hundreds of ‘untouchable' Dalit and tribal group members have been protesting outside a new Coca Cola bottling plant since April 2002. The protestors say the factory breaches India's laws, has offered few local jobs and has contaminated water supplies to 1,000 families. "I used to pump water for 12 hours throughout the night for my farm. Ever since the Coke factory came up, I cannot run the pump even for one hour due to depletion of water in the well. As a result, there was total crop failure during the past two to three years," says Shahul Hameed, a local farmer who used to grow rice, coconut, mango, and groundnut on land adjacent to the bottling plant.

In Brazil, thousands of local diary farmers have gone bust or been squeezed out of the market after the multinationals Nestle and Parmalat gained control of over 50% of the Brazilian dairy sector in the late 1990s. Prices fell by 50% for farmers in Minas Gerais state and 70,000 poor producers had to stop supplying the largest companies between 1996 and 2002. "Parmalat punished us for two years, paying lower and lower prices for our milk, so we had less and less to pay our bills," says Renat Hildt, a family farmer from Rio Grande do Sul.

Key statistics:

· In 1973 global foreign direct investment flows totalled just $21.5 billion. In 2000 they reached $1,492 billion – almost 70 times the 1973 level.

· Developing countries only attracted 30% of all foreign direct investment flows in 2001.

· The top 20 developing countries got 90% of the total foreign investment, leaving the 100 other developing countries to share out the rest.

· In 2001 44 sub-Saharan African countries received less that $3 billion between them.

· In the same year, the world's 49 least developed countries (excluding oil rich Angola) received just $2.7 billion.

The UK Government argues that an investment agreement will encourage multinational corporations to invest in poor countries by offering them greater protections. However, the fact that poorest countries do not attract foreign investment has more to do with the underdevelopment of their economies and infrastructure than with the investment climate that they offer to potential investors

"The World Bank and the United Nations have admitted that an investment agreement will not encourage foreign investment in poor countries. Even the UK Government has now told ActionAid it has no evidence to support its position. Dropping the investment agreement would allow more time to get agreement on the priority areas of agriculture and access to drugs," says trade analyst, Tim Rice.

Key recommendations:

· The UK and EU should drop their support for an investment agreement at the WTO.

· No trade offs. In the run up to the Cancun Ministerial, neither the UK nor any other developed nation should attempt to persuade developing countries to trade off their interests as regards investment negotiations in the hope of gains in other areas such as agriculture.

· Regulation. The UK Government should support the establishment of a binding international regulatory framework on multinational corporations, outside the WTO, that will strengthen the ability of developing countries to manage foreign investment to the benefit of the poor.

· Research. The UK should commission more research so that it can base its policy positions on a better understanding of the impacts of foreign investment, particularly in developing countries.

FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C íŸ 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.