Global Policy Forum

By Sanjay Suri

Nobody is talking yet of turning the World Trade Organisation into a world trade and investment organisation. But that is the way it will go if the European Union and its supporters have their way.

To the European Union (EU), its proposal to bring investment under the ambit of the World Trade Organisation (WTO) is an inevitable extension of international rules from world trade to investment. Most developing countries and leading non-governmental organisations (NGOs) see in this a further tilt of an imbalance that the WTO has brought - or at least failed to check.

This was a strongly disputed issue at the last meeting of trade ministers held at Doha in Qatar two years ago. No agreement was reached there and since then, the Doha Round, as it has come to be called, is over whether it should include talks on a set of new issues such as investment, competition, transparency in government procurement and trade facilitation. A decision was held over until the Cancun ministerial meeting this month.

Investment is inevitably the most controversial of these new proposals. The EU argues that an investment agreement will attract foreign investors to developing countries, bringing new capital and technology. At the same time, it will provide security and guarantees to companies working abroad.

The EU is supported by Japan, South Korea, Switzerland and some other countries. The position of the United States is somewhat uncertain. U.S. officials have said they do not want investment agreements under the WTO unless they can be as strong as rules negotiated bilaterally. If there is an investment accord, U.S. officials have said, they would like it to include short-term capital and portfolio investment. The champions of bringing international investment under the ambit of the WTO want negotiations on a WTO investment agreement to begin after the Cancun ministerial conference.

The EU has set out some modalities in its proposal, including the need for transparency and non-discrimination, but it is keeping its proposals relatively open for negotiations at Cancun. It is taking a flexible approach in an attempt to win over developing countries, most of which have been resistant to the idea.

"We would like to see the WTO drop investment from its agenda," Peter Hardstaff, head of policy with the World Development Movement (WDM), an independent NGO, told IPS. "The WTO is not the appropriate place to start formulating rules on investment. There is no way the WTO can come up with a balanced view on investment, or a way to regulate companies, investors and home country obligations." Such a regime would deny developing countries a fair chance to grow, he said. "We are concerned that a WTO investment agreement will be used to get rid of the kind of investment regulations, which a lot of countries have used to get rich," said Hardstaff.

"The rich countries have used joint venture requirements, local content requirement, limits to capital leaving the country, or protecting some areas from foreign investment." Developing countries could be denied such measures in their attempt to grow. "The WTO would lock in liberalisation, which means that governments would be stopped from changing agreements if they are not working," said Hardstaff. This has happened with liberalisation moves in several countries.

"The World Bank has said that countries that sign up to an investment agreement will not necessarily get more investment. So why lock yourself into policies when you know they can go wrong." Hardstaff dismissed suggestions that an investment agreement would promote greater foreign direct investment in developing countries. "This argument is patently spurious," he said. "There is no evidence that a multilateral agreement will increase foreign investment in poor countries."

The move to bring investment into the WTO regime has been opposed among others by Brazil, Indonesia, India, the Philippines, Egypt, Venezuela, Malaysia, Thailand, Cuba and Jamaica. The 49 least developed countries also opposed such a move at their last meeting in Dhaka, as did the meeting of African trade ministers in June.

The investment proposal seeks to open negotiations both on direct investment and portfolio investment under which financial institutions can put money into stock markets in other countries - and pull the money out in hard currency when the markets are not considered profitable enough. Such an agreement would significantly reduce the options of governments to intervene at a time of dangerous fluctuations in the market.

The investment proposal could also affect agriculture issues. ActionAid, a leading British charity, says in a report that "a WTO agreement could result in new sectors being opened to investment, including agriculture, and that this could threaten the food and land rights of poor people." ActionAid is supporting the opposition to the move by developing countries. "The EU's stubborn pursuit of an investment agreement at the WTO poses a severe threat to progress on international trade rules at a time when the Doha Round of negotiations is already on the brink of collapse," it says.

Opposition to the investment proposal has grown in recent days, while only a handful of countries push for it. The issue was first raised at the WTO ministerial meeting in Singapore in 1996, but since then the move has not got the kind of support its champions in Europe have pushed for. In the two years before the Doha meeting in 2001, at least 60 developing countries opposed any moves to open up these 'new issues'. But that has not stopped the EU from pushing ahead with its agenda to commence talk on 'modalities' for negotiations on an agreement.

The Doha Ministerial Declaration stated that negotiations on investment could begin after the Cancun meeting only if there was "explicit consensus" on the modalities for negotiations. The Doha declaration could be signed because members agreed to postpone this issue to the Cancun meeting.

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