Bridges Weekly Trade News Digest • Volume 6 • Number 26 • 10th July 2002
‘Positive-List’ Approach Popular At WTOI Investment Talks
At the second yearly session of the WTO Working Group on Trade and Investment, held from 3-5 July, Members in accordance with the Doha negotiating mandate discussed the issues of "development provisions", "non-discrimination", and "modalities for pre- establishment treatment based on a General Agreement on Trade in Services (GATS)-type positive list approach". There seemed to be broad- based support cutting across the developed-developing country divide for a GATS-type positive list approach. At the same time, some developing countries said they wanted maximum leeway regarding their right to screen foreign direct investment (FDI).
GATS-type garners support
Support for a GATS-type positive list approach was reflected in the EU (WT/WGTI/W/121, searchable at http://docsonline.wto.org/gen_search.asp) and Korean (WT/WGTI/W/123) submissions. The EU submission stated that the approach would "allow flexibility for all WTO Members" who, as in the GATS, could confine national treatment and market access only to those sectors they feel ready to make commitments in, while concurrently providing across-the-board Most-Favoured Nation (MFN) treatment. At the same time, the submission said, it would enable transparency and predictability with regard to rules affecting admission and establishment of investors in each country. This approach, the EC argued, had the merit of being flexible enough "to allow a gradual and progressive liberalisation of FDI, fully compatible with any development strategy adopted by WTO Members." The Korean submission also appreciated the scope provided by the GATS approach to balance the goal of retaining disciplines for further liberalisation and the goal of providing flexibility for individual needs. Both submissions noted that since investment in service sectors was already covered by the GATS, a similar approach could prove useful for investment in the primary and secondary sectors. Among developing countries, the GATS-type approach received support from Malaysia and Brazil. Malaysia said that a GATS-type positive list would be in favour of developing countries.
Non-discrimination: critical to demandeurs, but exemptions possible
In a second submission, the EU (WT/WGTI/W/122) called for using the WTO’s non-discriminatory provisions of MFN and national treatment in dealing with foreign investment, which it said "should not stay behind the level of treatment granted to foreign investors under the GATS. While the GATT provides for both unconditional MFN and National Treatment, the GATS applies across the board unconditional MFN(with possible exemptions), and National treatment is provided only in those sectors where specific commitments are made by the members. The EU submission however envisaged general, as well as subject-and country-specific, exceptions. The Canadian submission noted that drawing an a priori distinction between pre and post establishment national treatment could be seen to undermine the meaning of national treatment and market access. Pre-establishment treatment refers to the laws and regulations of a host country that govern the entry of foreign investment. While wanting to retain an understanding that " pre- establishment commitments are not "off the table" in any International Investment Agreement under the WTO, Canada also acknowledged that pre- establishment market access would not be permitted by the host country in all cases in all sectors. This, according to the Canadian submission, was as an important illustration of "flexibility" in MFN/National Treatment type of agreements.
Support for non-discrimination principles was also evident in the Korean submission, while the Japanese (WT/WGTI/W/124) submission called for including MFN and national treatment as "core" principles in a possible investment type agreement. A second Japanese submission (WT/WGTI/W/125) proposed developing an industrial classification system to easily identify and exempt possible economic sectors from such core principles. Chinese Taipei submitted papers on development provisions (W/126), non-discrimination (W/127), scope and definition of investment (W/128) and transparency (W/129).
Development
There was little consensus on the exact nature that development provisions within a possible multilateral investment agreement might take. According to a trade source, including MFN and national treatment as core principles in an Investment Agreement would certainly limit flexibility for many developing countries to meet their development objectives. It is flexibility in terms of the right to screen FDI that developing countries such as India are demanding. India, stressing that the Group was still in a study phase, underlined the need for policy space on investment, and that any multilateral discipline should not limit this space. It added that Bilateral Investment Treaties (BITs) already contained the flexibility required. According to India, any discussion on the mobility of capital remained incomplete without appropriate investigation into the scope for the mobility of labour. India also proposed discussing a binding code of conduct on investors, with a further stipulation for enforcement by home countries through a set of precise domestic laws that could be activated by any host country.
In its submission on Development Provisions, Canada (WT/WGTI/W/131) stated that the "recognition of the right to regulate, flexibility with respect to key sectors or policy areas, as well as recognition that the process of liberalisation should take into account differing levels of development" as the key elements in any investment agreement. The Canadian submission also called for considering special and differential treatment in terms of phase-in periods of compliance with focused technical assistance, a view shared by Chinese Taipei (WT/WGTI/W126). One Latin American country said it felt "very negative about the Canadian approach" and that it was not alone in feeling this way.
Malaysia called for permanent "carve-outs" (exemptions) from any obligation regarding admission of FDI, while Brazil said that development provisions must be built-in in any agreement, adding that a GATS-type approach would be the best way to ensure adequate balance between disciplines to protect investors and policy flexibility to allow governments to pursue development objectives. Egypt stressed the need to recognise security limitations and the right to use performance requirements and investment incentives. Opposing this right, Chinese Taipei said that if such requirements were allowed it should not be made permanent under future investment frameworks.
The next meeting of the Working Group is scheduled for 16-17 September.
(Also see BRIDGES Weekly, 23 April 2002)
ICTSD Reporting; WTO Documents: WT/WGTI/W/121, WT/WGTI/W/122, WT/WGTI/W/123, WT/WGTI/W/124, WT/WGTI/W/125, WT/WGTI/W/126, WT/WGTI/W/130,WT/WGTI/W/131.