WTO Ministerial Section • Volume 7 • Number 14 • 16th April 2003

Trade and Investment: New EU Paper on Policy Space for Development

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WTO Working Group on Trade and Investment (WGTI) met from 14-15 April to discuss a new EU concept paper on policy space for development, as well as submissions by Japan, Canada and China on transparency and other issues related to a possible multilateral framework on investment.The EU submission (WT/WGTI/W/154, searchable at http://docsonline.wto.org) draws on the assumption of pre-establishment commitments within a future multilateral framework on investment being based on a General Agreement on Trade in Services (GATS) type positive list approach. This, according to the EU, would contain sufficient flexibility to allay any fears about rules on pre-establishment impeding "policy spaces" for development. The GATS-type approach has allowed Members to undertake commitments only in those sectors they wished to open up. In addition, by including limitations to market access or national treatment, the EU maintained that Members could protect spaces for domestic policies including those aimed at increasing employment, generating and transferring technology, and protecting minority groups. Members could even take measures violating national treatment and market access — subject to transparency and most favoured nation (MFN) principles — as long as they left the specific sectors unbound following the GATS approach.

Seeking to address concerns that a multilateral framework would have a "crowding out" effect on domestic investment, the EU paper pointed to a lack of empirical evidence in this regard and stressed the complementary and output-stimulating effect that foreign direct investment (FDI) would have. Even in case of the "crowding-out" effect, the EU paper maintained, FDI tended to stimulate competition and promote domestic investment. Referring to a possible framework on investment as an ‘Investment for Development Framework’, the EU indicated it was willing to discuss different points of view and move the debate forward at a concrete level and to further discuss and analyse the "crowding out" effect.

Reactions to the EU concept paper

The first day of the WGTI meeting saw focussed discussion on the EU submission. A key developing country delegate commented that many countries were still not comfortable with the idea of multilateral disciplines on pre-establishment commitments. Another noted that having an investment framework in place did not necessarily mean that investment flow would increase. One delegate pointed to the fact that pre-establishment commitments were still missing from a number of Bilateral Investment Agreements (BITs), and many Members were worried about opening a Pandora’s box during the course of the negotiations, were they to be included. The US said it preferred using a negative list approach over a positive list approach, noting that the former was more familiar to developing countries and had been the choice in most BITs. One participant said that calling an investment agreement an "Investment for Development Framework" does not necessarily make it development-friendly.

One civil society commentator characterised the EU move as an attempt to shift the burden of proof to countries that remain unconvinced of the need for such rules. She pointed out that the EU had yet to convince countries in this regard, especially of the need for the "heavy-handed" enforcement mechanisms of the WTO. She also contended that the EU could not guarantee the outcome once Members agreed to negotiate, noting problems encountered in this regard in previous WTO negotiations. The risk of unexpected results would be particularly high if Members only agreed on "procedural modalities" (i.e. dates, the sequence of discussion and deadlines of the negotiations) and did not engage in substantive negotiations on precise definitions, parameters and rules regarding investment. She noted that while the EU submission had indicated that a Member would still be allowed to modify or withdraw from any commitment in its schedule, this might not be straightforward in practise. Another observer noted the irony of the EU speaking about an "Investment for Development Framework" when there is no meaningful progress in talks relevant to development in areas such as special and differential (S&D) treatment and agriculture.

Background

The EU has already tabled a paper on considerations for modalities for the Singapore issues — investment, competition policy, transparency in government procurement and trade facilitation — in late February this year (see BRIDGES Weekly, 5 March 2003). The EU considers the Singapore issues to be a "key element" of the Doha Round trade talks, and supports the launch of negotiations at the WTO Ministerial conference in Cancun in September this year. Many developing countries and civil society groups oppose negotiations on the Singapore issues, and investment in particular, arguing that negotiations would be premature considering the existing workload, and that the WTO would be an inappropriate venue for such negotiations (see BRIDGES Weekly, 26 March 2003). The role of the WGTI is to conduct analytical work on the relationship between trade and investment. The group will meet again from 10-12 June.

ICTSD reporting; "The EC’s Trojan Horse: The Investment for Development Framework," IATP GENEVA UPDATE, 9 April 2003.