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WTO NEWS: 1996 PRESS RELEASES

PRESS/42
13 February 1996

Foreign direct investment seen as primary motor of globalization,
says WTO Director-General

“An increasingly symbiotic and integrated relationship between trade and investment.”

“There can be no doubt that foreign direct investment has joined international trade as a primary motor of globalization,” said Mr Renato Ruggiero, WTO Director-General, at the UNCTAD Seminar on foreign direct investment and the multilateral trading system in Geneva on 12 February 1996.

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“Indeed, in today's economy, trade and investment are not merely increasingly complementary, but also increasingly inseparable as two sides of the coin of the process of globalization.”

Speaking to an audience of government officials, businessmen and academics, Mr. Ruggiero emphasized how foreign direct investment facilitates an international division of labour to take advantage of international trade opportunities by increasing the mobility of factors of production. “It represents the most effective mechanism for the diffusion of productive know-how and capital around the world and the general creation of wealth. It can release much of the untapped production potential of today's developing and transition economies, while at the same time opening up new markets for high value-added products and services of the industrial countries that generate high income jobs.”

Mr. Ruggiero pointed out a number of important aspects of investment policy which were already the subject of WTO rules governing the treatment of foreign companies operating within a country's territory - such as the rules covering trade in services, or the protection of intellectual property rights, and the agreement dealing with trade-related investment measures which includes a commitment by the WTO member governments to consider within the next four years the need for complementary provisions on investment policy.

Turning to developments outside the WTO framework, Mr Ruggiero said that the need for international agreements for the promotion and protection of investment had been widely manifested in the great increase in interest in bilateral investment treaties - some 60 per cent of the more than 900 existing bilateral investment treaties had been negotiated during the course of this decade, including a growing number and proportion among developing countries. He also pointed to a proliferation of regional and other initiatives to address the establishment of international rules relating to foreign investment such as the European Union whose rules in this area extend to the whole of Western Europe; NAFTA which integrates issues of trade and investment into a single trade agreement; the ASEAN leaders' initiative to study the establishment of an ASEAN free investment area; the work of APEC on investment; and the OECD negotiations aimed at concluding a multilateral agreement on investment by mid-1997.

Mr Ruggiero cautioned that this proliferation of initiatives raised a number of concerns such as that some countries were not involved in any of these efforts and that some key initiatives were not open to many countries, especially developing countries, thereby risking outcomes that might be mutually conflicting and discriminatory particularly where strong and coherent multilateral rules did not apply. He also expressed concern at the interaction of these initiatives with the existing multilateral rules and work programme of the WTO.

Bearing in mind the proliferation of such treaties and initiatives, Mr Ruggiero stressed that there could be no doubt of the widespread recognition of the need for international cooperation. He highlighted some of the characteristics which might justify multilateral work on investment:

- The involvement of a sufficiently representative cross-section of the international community;

- While not necessarily replacing bilateral investment treaties, obviating the need for the negotiation of the tens of thousands of BITs that would be necessary to provide equivalent international rules;

- Ensuring that regional and any other more limited arrangements fit into a framework that provides adequate safeguards against discrimination to third countries;

- Promoting access to foreign direct investment, and reducing the cost of securing it to recipient countries, through providing greater security and common rules, for example against beggar-my-neighbour investment policies;

- Not undermining but increasing the ability of states to determine their own futures. In general, foreign direct investment, by increasing wealth and transferring know-how, will do this, but it is necessary to be sensitive to the concerns of Member countries, especially those who perceive themselves as weaker ones on this score;

- Ensuring an adequate balance that reflects the mutual dependence of the home and host countries in any foreign investment;

- Ensuring that the issue is not perceived as one of North/South relations, but as one of common interest;

- Consolidating commitments to, and facilitating public support for, the free flow of investment and of goods and services. In this regard we should not delude ourselves that public support for outward investment is automatic.

“There is an increasingly symbiotic and integrated relationship between trade and investment,” said Mr Ruggiero. “A key question before the multilateral trading system is whether the time is ripe to initiate a consideration as to whether this broader approach to trade policy should be extended to all areas of international trade.”

The full text of Mr Ruggiero's statement is available on request.