TRADE AND INVESTMENT From bilaterals to a multilateral agreement?

Since 1997, WTO members have been engaged in analysis and debate about the relationship between international trade and investment, and its implications for economic growth and development. Because the mandate came from the 1996 Singapore Ministerial Conference, trade and investment is sometimes described as one of four “Singapore issues”.

In the Working Group on the Relationship between Trade and Investment, members have examined a range of international investment instruments and existing agreements, and have debated the possible pros and cons of negotiating a multilateral framework of investment rules in the WTO. The UN Conference on Trade and Development (UNCTAD) has played an important role in this analytical process, particularly in helping WTO delegations better understand the development dimension of this subject.

The WTO already has limited provisions on certain trade aspects of foreign investment. The Agreement on Trade-Related Investment Measures (TRIMs) elaborates on existing GATT provisions prohibiting government requirements for investors to purchase inputs locally or to sell their output domestically rather than exporting it. The General Agreement on Trade in Services (GATS) has rules relating to the establishment by a foreign service supplier of a “commercial presence” in an overseas market. The WTO Agreements on Trade-Related Intellectual Property Rights, on Subsidies and the plurilateral Government Procurement Agreement also touch on foreign investment.

But the main way in which rules are applied to foreign direct investment at present is through government-to-government Bilateral Investment Treaties (BITs). UNCTAD estimates over 2,100 bilateral treaties are in operation today. Historically, most of these treaties were signed between developed and developing countries but recently, the number of treaties among developing countries has been increasing.

Foreign direct investment inflows have risen from US$203 billion in 1990 to $735 billion in 2001, according to UNCTAD. Developing countries received $238 billion of the foreign direct investment inflows in 2001. In the working group, members have recognized that foreign direct investment is important for development, such as helping increase export competitiveness and technology transfer.


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The Doha mandate

At the 2001 Doha Ministerial Conference, the ministers recognized “the case for constructing a multilateral framework to secure transparent, stable and predictable conditions for long-term cross-border investment, particularly facing foreign direct investment”. They gave the Working Group a new aand more ambitious mandate on this subject, and agreed that negotiations on an investment agreement would take place after the next ministerial conference in Cancún “on the basis of a decision to be taken, by explicit consensus at that Session on the modalities of negotiations [i.e. how the negotiations are to be conducted].” The final part of the sentence, dealing with negotiations, was discussed at length and reflects widely different sensitivities among WTO member governments.

Ministers also instructed the working group to clarify a number of core issues and to examine some broader objectives that would need to be taken into account — in particular the need to incorporate a solid “development dimension” into any prospective agreement.

The WTO was also tasked with producing a much more extensive and intensive programme of technical assistance in cooperation with other agencies, in particular UNCTAD.


Since then … back to top

Since the Doha Ministerial Conference, the working group has focused on clarifying a number of core issues, such as: the definition of the issues and what they cover (their “scope”); transparency; non-discrimination; ways of dealing with commitments on the entry of foreign investment, based on a list of things members are willing to do rather than general commitments with lists of exceptions (a “GATS—type positive list approach”); development provisions; exceptions and balance-of-payments safeguards; consultation; and dispute settlement.

Its work has also been guided by a number of principles spelled out in the Doha declaration such as the need to balance the interests of countries where foreign investment originates and where it is invested, countries’ right to regulate investment, development, public interest and individual countries’ specific circumstances. It also emphasizes support and technical cooperation for developing and least-developed countries, and coordination with other international organizations such as UNCTAD.


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For Cancún

For Cancún, ministers have to decide whether there is an “explicit consensus” on modalities that would allow negotiations to go ahead, leading to new WTO rules on trade and investment.

A number of developed and developing WTO members argue that after seven years of study and analysis ministers should now launch negotiations for a WTO agreement on foreign direct investment. They argue that the existing international regime of individual bilateral investment treaties plus regional investment agreements leads to confusion. They say that a WTO agreement would establish a stable, non-discriminatory environment that would increase investment flows.

These members have made it clear that the agreement they are proposing to negotiate in the WTO bears no relationship to the OECD’s Multilateral Agreement on Investment (MAI) — in the WTO, negotiations would start from a blank sheet of paper.

At the same time, many developing countries have made it clear that they consider that the Working Group had not completed its analysis and study of the subject. They argue that the existing bilateral investment treaties already provide adequate legal protection to investors, and question whether a WTO agreement would indeed increase investment flows. They have expressed concern that a multilateral agreement would add obligations to developing countries while limiting their ability to align investment inflows with national development objectives.


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> Investment and trade
> Doha declaration