WTO, The New Threats to Developing Countries and Sustainability

Linked with Martin Khor – Malaysia, with Third World Network TWN, and with Speech about Third World Economics.

An Excerpt: … e. Trade and Investment

The main proponents of an investment agreement would like international binding rules that allow freedom of foreign investors the rights to enter countries without conditions and regulations, and to operate in the host countries without most conditions now existing, and be granted “national treatment” and MFN (Most Favored Nation) status. Performance requirements (e.g., equity ownership restrictions, obligations on technology transfer, export orientation, geographical location, etc.) and restrictions on movements of funds would be prohibited. Investment incentives may also be disciplined. There would also be strict standards of protection for investors’ rights, for example in relation to “expropriation” of property. (A wide definition could be given to expropriation; the NAFTA (North American Free Trade Agreement) experience is worth noting, where expropriation includes government policies such as health or environmental measures that affect the future earnings and profits of an investor; full compensation to the investor is required).

An international agreement on investment rules of this type is ultimately designed to maximize foreign investors’ rights whilst minimizing the authority, rights and policy space of governments and developing countries. This has serious consequences in terms of policy making in economic, social and political spheres, affecting ability to plan in relation to local participation and ownership, balancing of equity shares between foreign and locals and between local communities, the ability to build capacity of local firms and entrepreneurs, and the need for protecting the balance of payments and the level of foreign reserves. It would also weaken the bargaining position of government vis-ŕ-vis foreign investors (including portfolio investors) and creditors.

Suggestions: An investment agreement in WTO is most likely to be damaging to development options and interests. The position that should be taken in the WTO is as follows: Investment is not a trade issue, and thus bringing it within the ambit of WTO would be an aberration and could cause distortion to the trade system. It is certainly not clear that the principles of WTO (including national treatment, MFN) that apply to trade in goods should apply to investment nor, that if they were applicable, that they would benefit developing countries. Traditionally developing countries have had the freedom and right to regulate the entry and conditions of establishment and operation of foreign investments; restricting their rights could cause adverse repercussions.

Eventually it can be argued that there is no consensus on modalities of negotiations, nor even on the principle of whether there should be an agreement in WTO, and that therefore there should not be a decision to start negotiations at the Fifth Ministerial meeting of 2003 … (full text).

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