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CIAO DATE: 3/99
Agenda Formation and the Negotiation of Investment Rules at the WTO: The History of a Campaign *
Concordia University College of Alberta
International Studies Association
40th Annual Convention
Washington, D.C.
February 16–20, 1999
First draft: Comments and suggestions are welcome
Introduction
This paper examines the process of the development of an international investment regime in the postwar period. It uses a case study of the history of attempts to include the negotiation of rules regarding the treatment of foreign direct investment (FDI) in the negotiating agenda of the World Trade Organization (WTO) to shed some light on the reasons why it has proven so difficult to agree on a set of binding international rules on the treatment of foreign investment. This difficulty is, on the whole, surprising given a number of factors in the global economy which, in the view of most of the prevailing theories of regime formation, would have predicted the establishment of a strong regime protecting investors and their interests. Yet the lengthy campaign to include investment issues within the binding rules of the WTO has had limited success. In order to examine why this is so the paper focuses in particular on the recent efforts to use the Working Group on Trade and Investment at the WTO to forge a consensus on the need to negotiate new, binding rules on investment.
The paper argues that the issue of investment rules at the WTO is part of a broadening agenda for trade negotiations which is, in itself, a reflection of the process of globalization. At the same time that process, this paper argues, while enhancing capital mobility and increasing the demands on the part of foreign investors and capital exporters for new rules, has also brought a broader range of other actors (both state and non-state) into the process of agenda formation. The result has been a struggle over the inclusion of investment at the World Trade Organization in which those who desire to negotiate such rules have had to resort to a number of tactics to try to persuade other WTO members of the need for such rules. Even with this concerted effort it is not clear that those favouring such rules will be very successful. A coalition of state and non-state actors who articulate an alternative, critical vision of investment rules has developed in opposition to them. Moreover, instability within the international political economy, although much of it is connected to short-term capital movements, has also served to undermine a number of the key arguments and ideas about the treatment of foreign direct investment.
The paper begins with a brief review of explanations of the formation of international economic regimes in conjunction with a review of the process of globalization in terms of changing patterns of foreign direct investment and the redefining of interests which has resulted. The second section of the paper examines the origins of growing demands for investment rules as they emerged in the 1970s and the 1980s. The earlier efforts, it could be argued, largely reflected the differing north-south, and host-home interests and the central role of the United States as the largest capital exporter and chief promoter of the liberalization of investment regulation through the creation of international rules.
The third section chronicles the growing link between trade and investment rules reflected in the efforts to insert investment into the agenda of the General Agreement on Tariffs and Trade (GATT), the key organization for the negotiation of post-war trade rules. This effort, led in large measure by the United States, and resisted by developing host states, ultimately, through a large measure of coercion and some suasion, resulted in the addition of investment to the agenda of the Uruguay Round of trade negotiations.
The fourth section outlines the negotiation of Trade Related Investment Measures (TRIMs) at the GATT and the subsequent failed attempt to launch further negotiations of investment rules at the newly-formed WTO. This section highlights both the organized and fairly effective resistance of a number of developing countries to the addition of investment rules to any future negotiating agendas, as well as the leading role that capital-exporting countries, other than the United States, are beginning to play in this process.
The fifth section of the paper examines the strategy of those actors who wish to push for negotiation of investment rules. With a lessened capacity to coerce other state actors within the WTO they have opted for a strategy of suasion, seeking to form a consensus around, first the benefits of FDI and its clear links to trade and then the need for multilateral rules to be negotiated at the WTO. Efforts have involved the use of a working group on the relationship between trade and investment at the WTO to “educate” opponents of investment negotiations. As the sixth section of the paper outlines they have also sought to enlist other organizations in the effort, in particular UNCTAD, which also has a trade and investment mandate, is located in Geneva and has a level of credibility with developing countries that it will represent their interests. However, as the final section of the paper will indicate, the strategy has had limited success to date for several reasons. A number of countries have continued to challenge the notion of the need for binding international rules that would limit state authority, even as they have been the recipients of significant inflows of FDI and accept its positive benefits. In addition, the rapid and effective mobilization of non-governmental organizations within WTO member countries and through their transnational networks had led to increased opposition to the inclusion of investment on the agenda. This opposition has been strengthened and reinforced by developments external to the WTO, including the unsuccessful attempt to negotiate a Multilateral Agreement on Investment at the OECD.
The conclusion of the paper indicates that while capital mobility, on the one hand, has enhanced the bargaining power of investors with states and contributed to a broadening of the trade agenda, on the other hand, the broader agenda has raised serious concerns and thus opposition to the demands of capital and a number of capital exporting countries to negotiate binding rules on investment at the WTO. This opposition movement has been able to use new technology and the recent global economic crisis to call the demands for unfettered mobility of capital into question and reassert the notion of the legitimacy of state regulation. Moreover, in contrast to the earlier leadership role, the US position on investment rules at the WTO has been much more ambiguous. Thus the case reflects a need to supplement the existing explanations since they cannot fully account for the difficulty in reaching a consensus on the need for new rules to further constrain state discretion in the regulation of foreign direct investment.
Explaining Agenda Formation and the Negotiation of International Economic Regimes in an Era of Globalization
International regimes refers to set of explicit rules that are specific to an issue area, that are agreed upon by governments and are intended to affect state behaviour in some way. (Hasenclever et al, 1997) Like many of the international economic regimes that have been attempted and/or have been developed in the post war period, rules which have emerged that deal with the treatment of foreign direct investment have been part of a largely incremental process which has taken place by way of inter-state agreement, via negotiations which have occurred in a wide variety of international organizations and fora. This “institutional bargaining” (Young, 1998) has involved bilateral and multilateral situations and covered both regional and global sets of states. The result has been a series of overlapping and sometimes even inconsistent or conflicting sets of binding and non-binding rules along with various concepts, norms and principles that have developed.
But what accounts for the emergence of a particular set of negotiations on investment rules at any point in time?. For most theorists of international relations the answer would lie in theories that address the process of international negotiations, especially the earliest stages which are often called pre-negotiations (Stein), or more often theories regarding the emergence and development of international regimes. In both cases the process of agenda formation, often seen as one of several stages in a process, is usually seen within the context that involves key assumptions about power, rationality, the role of ideas and learning and the significance of institutions. These schools of thought have been variously labeled realist, neo-liberal, and cognitive or knowledge-based (Hasenclever). Much of the research drawn from these perspectives has been criticized as being too state-centric and often not concerned with the historical context or the reasons why demands have emerged for a regime in a particular issue area. Those within the critical political economy tradition have also argued that they ignored the extent to which such international economic rules conserve a particular social order that privileges and advantages one class.
Globalization within the discourse of critical political economy refers to an increasingly integrated system of global production involving a transnational division of labour organized within a single or linked group of corporations. As part of this process capital, unlike labour, moves fairly freely, facilitated by rapidly changing technology and increasingly open national economies which have become integrated into, and dependent upon, networks of international exchange. However, this process of globalization has generally been acknowledged to be an uneven one which, as David Held (1996) has pointed out, has important consequences in giving rise to differential access to power:
At the heart of this differential access is power, where power has to be conceptualized as the capacity to transform material circumstances-whether social, political or economic—to achieve goals based on the mobilization of resources, the creation of system rules and the control of infrastructure and institutions. (Held, 255)
Economic globalization has thus had differential impacts on the well-being of social classes, ethnic groups, genders and geographic regions which may marginalize or privilege various state and non-state actors in the global economy.
How has the relationship between economic globalization and the development of regimes been seen in the global political economy? Critical perspectives have focused on the uneven and hierarchical consequences of globalization which advantage large hegemonic state actors and transnational capital. Thus Gill (1995) sees this process in terms of a “new constitutionalism” which, at the global level, involves the imposition of discipline on public institutions, partly to prevent national interference in global markets. Like Held he sees this process as one that has reflected the power and privilege of key state and non-state actors, in particular, corporate capital and the United States, which is reflected in the discourse of the global political economy, a virtual hegemony of liberal economic ideas.
In effect, new constitutionalism is the imposition of discipline on public institutions, partly to prevent national interference with the property rights and entry and exit options of holders of mobile corporate capital with regard to particular jurisdictions. These initiatives are also linked to efforts to define appropriate policy, partly by strengthening the surveillance mechanisms of international organizations and private agencies (413).
Like realism this critical perspective argues that regimes mirror power within the international system.
Neo-liberalism, on the other hand, focuses on the extent to which increased economic interdependence alters state interests which, in turn, generates demands for regimes as a rational way to lessen costs. In all three theories, it could be argued, soaring levels of FDI in the postwar period, recent changes in the pattern and distribution of FDI, and the fact that a body of “experts”, primarily mainstream economists in a number of international organizations have, along with multinational capital (ICC, 1996) and the United States, championed the need for binding rules that would limit state regulation of foreign investment would have predicted success in the 1990s, in both generating a consensus on the need to negotiate investment rules and predicting a successful outcome. Indeed there are strong parallels with the case of services at the WTO which did, at least on the surface, appear to conform to the theories, especially those dealing with the importance of ideas and the formation of epistemic communities (Haas, Drake and Nicholaidis).
However, the case of FDI challenges these theories partly, it could be argued, because of the process of globalization itself and the fact that ideas which challenged the mainstream view of FDI emerged in the 1970s and re-emerged in the 1990s. These ideas regenerated as a result of the uneven distribution of benefits and the growing instability and volatility associated with globalization as this case study indicates, also highlights the need to examine more closely domestic forces. Over all theorist need to recognize the extent to which the rule-making process at the global level is a long, complex one that does not solely reflect the preferences of corporate capital and the most powerful economic actors. Other state actors have put up strong resistance to idea of negotiating binding global rules on investment. Supporters of negotiating rules such as like EU, Japan and middle powers (eg Canada) have been forced to try a more subtle, educative process to forge a set of shared ideas and interests to overcome this opposition, using, in addition, other organizations (UNCTAD). This despite the enormous importance of FDI in the global economy and the liberalizing of investment regulations that has gone on at the domestic level.
Foreign Direct Investment and Changing Interests
How have changing patterns of FDI influenced state interests? Foreign investment outflows in the early postwar period were dominated by the United States while many of the current OECD members countries were hosts to net inflows of FDI. By the 1960’s, these large and growing stocks of FDI raised concerns on the part of domestically-based capital and officials in a number of host countries. The result was a series of measures designed to limit or bar FDI from key sectors, preempt it altogether by creating strong national firms, or screen incoming investment to maximize the local economic spin-offs by imposing performance requirements, in return for the state granting market access. These policies were reflected at the international level in a movement on the part of a number of developing countries to challenge the prevailing liberal economic order in the General Assembly of the UN and launch a process to develop a Code of Conduct which would apply to both multinational corporations and host states. This effort ultimately failed (Krasner, 1984) and in a defensive move the United States pushed, in the mid 1970s, for the negotiation of a non-binding set of principles about the treatment of investors and the conduct of MNCs within the OECD where challenges to the liberal view of the international political economy were less likely to occur.
Over time, however, the sources of FDI within the OECD countries became more diversified as the US share dropped to about one quarter of outflows (from almost half) while those of Japan, Germany and a number of other countries increased. By the 1980’s the United States itself had become host to the largest proportions of FDI inflows, while remaining the largest source of outflows — a position it still retains. (UN, 1997: 4) In the 1980s outward FDI increased rapidly in many OECD countries which had previously been primarily hosts to FDI
One of the most significant aspect of the globalization process has been this increased mobility of capital in the form of longer and shorter-term flows. In the case of longer-term flows, foreign direct investment (FDI) has been seen as the key factor in reshaping the global economy, influencing trade flows and ultimately challenging state sovereignty. Increasingly the treatment of foreign investors by host states has become the subject of regional and multilateral agreements among states which have taken the form of defining principles that limit the discretionary authority of states over foreign capital (eg NAFTA). The stated aim is to increase the security of these investments for foreign investors by ensuring the predictability and transparency of state investment policy and by giving foreign investors recourse to international dispute settlement mechanisms in their conflicts with states. A consequence, according to proponents of these rules, is an increase in FDI flows, markets that are more open, more efficient and ultimately more competitive firms and economies. How did these changes in national investment regulations and norms for international rules come about? These changes, it can be argued, have their roots in changing postwar patterns of investment and ideas about foreign direct investment, as well as in the changing interests of state and non-state actors in investment rules.
The changes to FDI flows in the 1980s were accompanied by a series of other economic changes. These included slower economic growth and increased competitive trade pressures as a number of industrializing countries expanded exports. FDI also increased dramatically in the service sector.
The response on the part of many host countries to such changes was to liberalize investment regulations, particularly by removing some of the sectoral limits on FDI and abandoning the effort to generally control access and use it to bargain with incoming investors. In the case of a number of developing countries much of this liberalization is linked to more coercive forces related, either to the debt crisis, policies of the IMF which pushed the abandonment of import substitution economic development and required liberalization as a condition of debt relief, or bilateral pressures from large market economies demanding removal of barriers to trade and investment and threatening bilateral trade sanctions. Attempts to bargain over incoming investment and to influence the behaviour of investors on the part of host states were increasingly viewed by the United States and ultimately the GATT as illegitimate, as illustrated by the 1983 dispute regarding the operation of Canada’s Foreign Investment Review Agency, which the US claimed had trade-related consequences. The trend to investment deregulation was selective, however, and many forms of less transparent, discriminatory regulation of foreign investors remained, especially in the service sector.
The removal of barriers to trade and FDI, along with technological changes, ushered in an era of increasingly intensified linkages among OECD economies and a small group of the largest non-OECD economies in Asia and Latin America. Intra-firm trade became a growing proportion of total OECD trade. As a result of these processes the roles as host or home economies among the OECD member countries are less clear. Trade and investment are now viewed as closely linked and investment liberalization has been seen by member countries as a positive measure to attract new investment and as a means to ensure the competitive position of existing firms. A series of domestic changes that have reduced the role of the state in many OECD countries and deregulated various sectors of the economy, have accompanied the global changes and further served to enhance capital mobility. A number of analysts have argued these changes reflect a shifting role for states from one of defending domestic interests in relation to developments in the global economy to one of facilitating domestic adjustment to the requirements of the global economy (Cox) to enhance their relative competitive position. (Cerny). This trend is also reflected in the dramatic increase in both bilateral investment treaties between developing countries and capital exporters and trade agreements that address investment. (UN, 1997:19)
These changes have lessened the preoccupation of multinational capital with issues of expropriation and the denial of access to national markets in favour of new demands for, first, the removal of those few remaining sectoral barriers to FDI, especially in services, and second any state regulation which could systematically disadvantage a foreign investor once established within a national market (International Chamber of Commerce). The establishment of binding international agreements with dispute resolution mechanisms thus becomes a way for investors to have legal recourse against states which may attempt to alter or increase regulation of firms, even if that change were in response to public demand. While multinational capital seeks to limit state discretion to regulate in any way that would disadvantage it, there is less interest in limiting the competitive bidding among states to attract investment, either through fiscal incentives, or through competitive deregulation.
The United States, the GATT and Investment Rules
The emergence of investment issues onto the agenda of the WTO in the early 1980s was very much a US initiative, reflecting the concerns of US business and its interest as the largest capital exporter. Trade pressure had increased United States’ concerns about the increased tendency of host states to use selective controls over incoming investors to extract performance concessions. By the early 1980’s complaints from firms and a number of surveys of the Department of Commerce in 1977 and 1982 (Moran, 1991) indicated that local content requirements, export commitments, technology transfer requirements, as well as other controls over remittances and foreign exchange, were being imposed on US firms, especially by developing countries.
In 1982 the US International Trade Commission initiated a study of the trade impact of a number of these measures. The subsequent 1983 Administration statement on investment policy (US, 1983) reinforced the linkage of trade and investment issues in US policy. Much of the growth of US investment was in the areas of services and thus also had an investment dimension. Although the United States enjoyed a trade surplus in services, several large US-based, service industries felt prevented from further expansion abroad because of foreign state regulation of service industries which denied them market access (Feketekuty, 1988) An important aspect of attaining such access was international recognition of a right of establishment for foreign-based firms offering non-tradeable services. This clearly had direct implications for host state rights to control or limit the entry of FDI.
In September, 1981 the United States proposed a work program to the Consultative Group of Eighteen of the GATT 1 which included both trade in services and trade-related performance requirements imposed on foreign investors. The intention, according to a senior Treasury official, was to ultimately address a list of investment-related concerns through the GATT, including the right of establishment, national treatment and nationalization. For the United States Administration the GATT was the preferred venue for the negotiations at that time because, unlike the OECD, its rules could be made binding, the large US market gave it clout and WTO membership included developing countries, the chief abusers, in the US view, of trade-related performance measures tied to investment policies. In contrast, for the US, the United Nations Conference on Trade and Development (UNCTAD) and the UN Commission on Transnational Corporations were seen to be less desirable because of the dominant role played by the large number of developing host country members. Even at the GATT, however, a number of developing- country members strongly opposed the US work program.
United States officials persisted, however. In March, 1982 Ambassador Brock made it clear to the US Senate that both negotiations on trade in services and trade-related investment measures were priorities for the November 1982 GATT ministerial meeting. 2 Specifically, the United States would seek “a political commitment from ministers to initiate a work program on investment policies with a particular focus on trade-distorting practices such as performance requirements” In the case of services, which were “a top priority”, the United States wanted to obtain specific commitments to a work program that would examine the GATT articles and codes and their applicability to services within a specified time frame. Not all countries agreed with US priorities. Canada for example, argued that any program of study proposed would be “unbalanced unless it were to address, at the same time, the behaviour of multinational corporations.” (Winham, 1983) The opposition of a number of large, developing countries was even stronger.
At the November, 1982 GATT meeting Brazil and India led the opposition to any discussion of investment issues. In the case of services there was a fear on the part of developing countries that they would be forced to open key economic sectors, such as banking, communications and transportation to foreign companies, in return for access to developed country markets for their goods. 3 A limited compromise on services was finally achieved. The final declaration merely referred to national studies on services to be undertaken by members. There was no mention of investment issues at all in the final declaration. Ambassador Brock’s disappointment on the investment issue was clear and he warned that the United States would “protect its interests” and if necessary, pursue its “legitimate complaints perhaps in a more unilateral and confrontational manner than would have occurred, if the GATT ministerial had made more progress in this area.” 4 The United States, thus, continued a policy of both strengthening its pursuit of its service trade and investment objectives aggressively on a bilateral basis, while also continuing to work multilaterally, especially in the GATT, to gain acceptance for its agenda.
The US sought to establish that host state efforts to extract enhanced performance from multinational enterprises through increased local sourcing, processing and exports constituted, in effect, a violation of several articles of the GATT. Thus the dispute with Canada over the operation of the Foreign Investment Review Agency (FIRA) provided a useful case with which the United States could test the limits of the GATT’s rules and pressure Canada to eliminate performance requirements from its investment screening process. In July 1983 the GATT panel found, in the case of undertakings related to sourcing requirements, that FIRA’s administration did indeed violate sections of Article III (GATT, 1983). In the case of exports, however, the finding went against the United States.
By 1986 several developments had strengthened the prospect for trade in services and investment issues to become an accepted part of future GATT negotiations. The United States had been at least partially successful in its case against FIRA at the GATT. At the same time some of the opposition from developing countries to any discussion of the investment or services issues had begun to fragment. This was partly because of some divergence of interests among certain newly industrializing countries and other developing countries, increased understanding of the role of services in trade, (Drake and Nicolaides, 1992) and also a result of coercion through successful US bilateral trade pressure on a number of countries. Moreover, the United States itself was willing to compromise on its demands to answer developing countries’ concerns. Many had feared the prospect of being pushed by developed countries into trading off services for market access for goods. This concern was addressed when ministers agreed to completely separate the two negotiation processes.
A subset of investment measures were also included as an area to be discussed in a review of GATT articles. The commitment in the ministerial declaration, however, was quite limited stating that:
Following an examination of the operation of the GATT articles related to the trade-restrictive and distorting effects of investment measures, negotiations should elaborate, as appropriate, further provisions that may be necessary to avoid such adverse effects upon trade. (GATT, 1986)
From TRIMs to Singapore
While the United States was successful in its effort to have investment issues addressed at the GATT it was not able to translate that into a broad agreement which would impose a host of new disciplines on host states, largely because there was little consensus on what constituted a trade-related investment measure and what was the legitimate scope of state regulation of FDI. In addition strong developing country opposition to any but the narrowest interpretation made it virtually impossible to find a consensus. The key dispute which developed during the Uruguay Round negotiations over trade-related investment measures (TRIMs) centred on how to determine whether various measures had a distorting effect on trade and how broad a range of investment measures would be prohibited on that basis (Moran, 1991 and Croome, 1995). The United States had the objective of trying to identify a large number of FDI policy instruments which could be subject to retaliation based on their trade impact. Conversely a number of host countries, primarily developing countries, totally opposed the inclusion of TRIMs in the GATT, or sought a smaller, definitive list of a priori prohibited measures, confined to those instruments which had a clear, direct impact on trade.
Preliminary proposals were met with strong opposition by a group of developing countries who argued proposals were premature, given that neither the trade impact of TRIMs, nor the relevance of GATT articles was yet to be clearly established. The focus, they argued, should be on the effects (on a case by case basis) and not the measures per se. The rights of states to regulate investment needed to be affirmed, restrictive business practices of large corporations addressed and exceptions for development purposes recognized. The two sides were very far apart. By the mid-term review held by ministers in Montreal in December 1988 it was clear that limited progress had been made. Meetings in the spring and summer of 1989 included reviews of the empirical evidence of the TRIMs impact, provided mainly by the US, much of which was challenged by developing countries who questioned the overall impact of TRIMs on trade and how to separate their impact from other factors. Submissions by India and Singapore questioned the whole applicability of GATT articles to TRIMs, since the articles dealt with discriminatory trade measure themselves, not their effects. They argued existing GATT articles could always deal with the nullification or impairment of benefits which may result from TRIMs.
It was left to the chair of the negotiating group to attempt in various drafts to reconcile large differences but the gaps between the two sides proved unbridgeable and no text, only a list of areas of disagreement, was put forward. Trade talks were suspended because of major disagreements on key issues, such as agriculture, and not restarted until February 1991.
By this time the dynamics of negotiations had changed. Chairs and the Secretariat were actively forging compromises in areas such as TRIMs at the negotiators level to try to clear them off the agenda while the big battles over agriculture and other issues were being fought at the political level. The Draft Final Act of December 1991 reflected those efforts and included a lowest common denominator TRIMs text, largely the work of the chair. This text, in essence, remained unchanged from that point on and was embodied in the approved Final Act of 1993. There is little evidence of any attempt either of the powerful capital exporters to link TRIMs to other issues and force concessions out of weaker opponents. In fact, many observers argue that the United States saw TRIMs as less of a priority by 1991. This was partly due, they suggest (Croome, 1995, Low, 1993), to a preoccupation with other issues. In addition the US itself was now a net importer of FDI, faced with pressures to develop further restrictions (like the Exxon-Florio amendment of 1988). The lack of pressure was also due to the increased liberalization of FDI regulations in many developing countries, a result of trying to attract new capital, reflected in their eagerness to sign bilateral investment treaties (BITs) with capital exporters, and concessions extracted by the international financial institutions (the IMF and the World Bank) arising from the debt crisis of the 1980s. The TRIMs problem was thus receding over time in the US view. However, the larger number of developing countries now involved in trade negotiations and the strong opposition of a number of them to a broader agreement also played a major role in limiting the scope of the TRIMs agreement. Still the United States did get TRIMs into the GATT and clearly viewed it as only the first step.
The Final Act of the Uruguay Round identified TRIMs as a violation of GATT article III (national treatment) and Article XI (limits to quantitative restrictions) required all member states to notify the GATT of non-conforming measures and eliminate them within two years (five for developing countries) (GATT, 1993). Such measures included all requirements for local sourcing of inputs or domestic content in return for access. In addition, so-called “trade balancing” regulations which force foreign investors to balance imports with exported product and similar restrictions on foreign exchange were also prohibited.
While the US experience at the GATT was one of success in linking trade and FDI, it was one of failure too in that only a limited agreement resulted. Few disciplines were imposed on members as a result of the TRIMs agreement and the United States was forced to recognize that progress within WTO on investment issues was likely to be slow. This view was later reinforced by the opposition to liberalizing investment rules among members of the Asia-Pacific Forum on Economic Cooperation (APEC). Getting the WTO to address a broader set of investment rules in the US view, would clearly be a slow, difficult process.
The impact of the changing membership and the waning US dominance in the GATT and now the WTO was reflected in the Uruguay Round where a determined bloc of developing countries were able to extract some concessions and, in the case of TRIMs, restrict the scope of its application and reinforce the principle of special treatment for developing countries.(Moran)
The increasingly inclusive nature of the WTO membership poses a challenge for the investment issue. As of the fall of 1997 membership had reached 132 — a large number of which are developing countries, in addition a series of countries are negotiating accession, including Russia and China. The expansion of the membership has put significant strains on the consensus decision process which drives the WTO. At the same time its more universal membership means that more countries and geographic regions will be covered by any disciplines or obligations developed in the WTO.
Thus the United States was initially very hostile to efforts to push investment at the WTO, fearing it would only further entrench opposition at the WTO and that any agreement, if it did emerge, would, like the TRIMs, be slow to achieve and very limited in scope, hardly worth the domestic political capital that would need to be expended in the US to get Congressional concurrence. In contrast a “high standards” OECD MAI embodying broad, binding commitments to national treatment and an investor-state dispute resolution mechanism would serve as a model. Developing countries would be able to negotiate accession to it only on an individual basis, thereby precluding an opposition coalition forming which could well be the result of a WTO process. Even more vehement in its denunciation of any effort to discuss investment at the WTO was the United States Council on International Business, an umbrella organization of business and a member of the OECD’s Business and Industry Advisory Committee.
In contrast the EU and Japan saw investment negotiations as a two track process, with the OECD’s limited membership and ample resources facilitating a consensus, whereas the WTO process would undoubtedly be a longer and a more contentious one. Despite the 1995 OECD ministerial decision to launch negotiations at the OECD, efforts to push investment as an issue for eventual WTO negotiation intensified. They continued in the fall of 1995 and throughout the spring and summer of 1996, with a view to building momentum for the first full WTO ministerial meeting in December, 1996 in Singapore.
Canada hosted a meeting in the fall of 1995 with sixteen middle-sized countries including Australia, Hong Kong, Indonesia, Singapore and Thailand where the investment issue was raised. 5 Among those who also wanted to see negotiations at the WTO were the European Commission. The WTO is the only home for an MAI where the Commission’s control is not challenged. In the Commission’s view the WTO affords Europe a more united front when bargaining with other large actors like the United States and will ultimately generate rules that will be more universally acceptable and enforceable. Moreover a growing proportion of EU investment by the 1990s was in non-OECD developing countries, also the source of the bulk of complaints from EU business about the treatment of investors. A number of middle sized capital exporting countries like Canada also favoured the WTO for similar reasons and because they saw a strengthened WTO as the key to ensure the development of a set of binding trade and investment rules that could limit powerful hegemonic economic actors like the United States. The Commission began preparing the way through a series of informal discussions in the fall of 1995 with various WTO representatives in Geneva. The United States remained opposed to any push to put investment on the agenda of the WTO because the completion of an MAI at the OECD was considered to be the top priority.(Aaron, 1995) Despite US opposition, expressed informally at the Quad trade ministers meetings with Canada, the EU and Japan and at negotiating sessions at the OECD, Canada and the Commission persisted in their efforts. These included the sponsoring, along with a number of other countries, of two seminars organized and offered under the auspices of UNCTAD, an organization that enjoyed the trust of developing countries, but also had a mandate of its own to address the investment issue. The seminars, held in the outskirts of Geneva in October 1995 and February 1996 dealt with “Foreign Investment in a Globalizing Economy” and attracted over 40 participants from developing countries (UNCTAD, 1996). Shortly thereafter a canvass of WTO members on the investment issue still indicated a certain amount of developing-country opposition to initiating negotiations on investment at the WTO. Ironically this put many of these countries on the same side as the United States in opposing any reference to investment negotiations, despite their disagreements on other issues such as labour standards and government procurement.
In April 1996 Canada presented a proposal which was intended to build a compromise between the two extreme positions of either no mention of investment in any ministerial declaration (the US and a number of developing countries) and the desire to identify investment as an area for future negotiation (the EU and Japan). Canada proposed to begin a work program at the WTO on trade and investment, an attempt to move the process forward by proposing detailed analytical work on FDI and the various international rules dealing with investment (Canada, 1996). The effort was portrayed as an educative one that did not presuppose future negotiations even though the goal was clearly to build a consensus on investment negotiations. The caution of the paper reflected the recognition, however, that any attempt to launch negotiations in the near future would be doomed to failure. While countries such as India and Tanzania were opposed 6 and questioned the need to undertake research in an organization like the WTO, which is largely oriented to contractual trade agreements and the negotiations involved in such agreements, other WTO members, such as Brazil and Mexico, were somewhat more supportive. The issue was raised again at a further meeting in June where developing country opposition was beginning to coalesce, even as the proposal was garnering additional sponsorship from other industrialised countries such as Japan. Eventually the US also supported the proposal largely for its educative value, but insisted at a later Quad trade ministers meeting that Canada, the EU and Japan reaffirm their support for the negotiation of the MAI at the OECD. 7 From the US viewpoint any effort to push investment at the WTO would fail and risked building an intransigence among a number of countries.
While a number of international business groups, such as the International Chamber of Commerce, European business groups and the Trans Atlantic Business Dialogue, supported simultaneous efforts at the WTO and the OECD to negotiate investment rules, the US Advisory Committee on Trade Policy and Negotiation (ACTPN, 1996) and the US Council for International Business were strongly opposed to the efforts at the WTO claiming that the Commission would “use the WTO work program to frustrate our OECD investment objectives”. 8 Despite the criticism the European Union supported the work program with a view to “aiming toward a consensus which might lead in time to the negotiations of a WTO investment instrument”(EU, 1996).
The Director-General of the WTO, Renato Ruggiero and the Secretariat of the WTO also seemed to support the inclusion of investment in a WTO work program. The Secretariat released a 75 page paper on FDI, on October 16, 1996 a week before the next WTO delegates meeting which was in the midst of dealing with the Singapore agenda and divisive issue such as investment and labour standards.. It argued that FDI required a set of global rules that could take the interests of all economies into account and that “only a multilateral negotiation at the WTO, when appropriate, can provide such a global and balanced framework”(WTO, 1996). The report appeared to some delegates to be designed to support the call for WTO negotiations on investment. In his speeches Ruggiero repeatedly underlined the linkage of FDI and trade and the need for a set of multilateral rules, given the patchwork of regional and bilateral agreements.
Efforts to forge a developing country consensus to stop the inclusion of investment and a number of other new issues on the Singapore agenda were spearheaded by India which hosted a meeting of 14 countries in September 1996. The meeting’s communique raised the question of the role of UNCTAD, which also had a mandate, as a result of the UNCTAD IX, to study the issue of FDI and pointed out the fact that the TRIMs agreement already called for a review in 1999- 2000. There was little support for the goal of an MAI:
While countries are trying to promote inward investment autonomously in different degrees and some countries have more liberal inward investment regimes, the efforts to bind all countries into a common framework of disciplines concerning transnational investments does not in the view of many participants appear to be well-considered and equitable. 9
No consensus was achieved among WTO delegates on the investment issue prior to the Singapore meeting. A group of industrialized countries, along with some developing countries in Latin America and Asia, supported the work program, a number of other developing countries did not and the issue remained unresolved, along with the question of labour standards, right up until the Singapore meeting itself where a compromise was forged.
The ministerial declaration which emerged from the Singapore meeting has only a few sentences on investment, greatly reduced from the initial proposal. Ministers agreed to “establish a working group to examine the relationship between trade and investment” the work of which “shall not prejudice whether negotiations will be initiated in the future”. The process will also draw upon the work at the UNCTAD and “other appropriate intergovernmental fora.” For promoters of investment rules UNCTAD could provide some analytical capacity on the investment side which the WTO lacked and also had the trust of many developing countries, even though it risked turning the investment issue into one that pitted north against south.
The declaration also noted the existing built-in agenda in the TRIMs review, due in four years. Clearly limited support existed in the WTO to launch any negotiations on an MAI. The WTO press briefing was frank in acknowledging “there is disagreement over the extent to which the WTO should be involved in setting international rules for foreign investment.” (WTO, 1996)
As part of the compromise the declaration also created a second parallel working group on the relationship between trade and competition policy. This working group would provide an opportunity to address questions relating to the potential market dominance of multinationals and other issues related to the behaviour of firms in host countries, in contrast to the focus on restraining state regulation which forms the thrust of discussion of investment rules — a chance. in other words, to address the other side of the foreign investment issue.
The Working Group on Trade and Investment Rules: A Solution in Search of a Problem
As the Singapore Declaration indicated this working group was established as part of an “educative” process and was not intended to seek or generate a consensus vis-à-vis future negotiations. The Declaration reiterated several times that the working group would operate without prejudice to any future decisions regarding negotiations. In agreeing to this compromise. however, a number of actors did have specific preferences regarding future negotiations which coloured their activities within the working group as they sought to use it to further their goals. For the European Commission, Japan, Canada and a number of other states which favoured liberalization of investment regulations and the creation of multilateral rules to that end, the idea was to use the working group as a basis to begin the process (albeit a slow one) of consensus on the need for investment to be included on the agenda of a future round of negotiations. The US was not, however, in contrast to the Uruguay Round, at the forefront of these efforts. Having decided on a strategy of pushing for a binding investment agreement at the OECD US officials acquiesced with the working group only to the extent that the process as educative, allowing them to proselytize on the benefits of FDI and liberalization without much of a negative impact on the OECD process.
In contrast, opponents of investment negotiations at the WTO, and others who were at least sceptical, viewed the working group with more suspicion. Nonetheless by stressing the education aspect, encouraging lengthy research questions and a general de-linking of the working group from any processes of decision-making in the WTO, they felt they could minimize its impact and use it to highlight their concerns about the push to liberalize further and their opposition to future negotiations. For others who were very active in the group, such as Korea, it provided an opportunity to show their credentials as an investment friendly country and an emerging player on trade issues. By being active and engaged in the work of the group they could establish their credentials to be included in future, informal meetings which are often critical to negotiations at the WTO.
The working group also reflected an additional compromise made in Singapore regarding what other international organizations would be drawn into its work. A number of developing countries pushed for the inclusion of UNCTAD, an organization seen as both having a mandate to address investment issues (discussed below), as well as the research capacity on FDI as a result of its absorption of the former UN Commission on Transnational Corporations and the Centre on Transnational Corporations in 1993. More important, perhaps, was the role of UNCTAD in articulating the interests of developing countries and ensuring the inclusion of the development dimension in any discussion of multilateral rules on FDI.
While some actors, such as the US, are distrustful and sceptical regarding UNCTAD other actors who favour negotiations on investment rules saw its involvement as a way to bring reassurance to developing countries who were nervous or hesitant about being involved in the working group 10 and have actively worked with UNCTAD to promote discussion of investment issues. While a number of other organizations such as the IMF, the World Bank and the OECD have also been involved, only UNCTAD has a formal ongoing role in the working group.
The Working Group began its operations in the spring of 1997 under the chairmanship of the Thai Ambassador Krirk-Kai Tiarapaet and held its first meeting in June 1997 (WTO, July, 1997), followed by two more in October and December 1997, and then meetings roughly every other month in 1998. After initial submissions a checklist of issues was proposed by the chair and agreed upon and included four aspects:
According to participants 11 the meetings operated in a fairly positive and non-adversarial way. Because of the informal process there were no rigid rules regarding the order of discussion and members were free to raise issues and revisit them in subsequent meetings. Perhaps as a consequence, the final two issues on the checklist were not dealt with until much later in the process (March 1998).This too reflected strategies. Even among proponents of negotiating investment rules there was a recognition that an early or too vigorous push to discuss rules would simply lead to entrenched opposition and limit dialogue. To be credible with the large number of developing country members they had to focus on the economic research and seriously address development issues. They were also aware that the ultimate decision on the agenda of any future round would be made at the next ministerial due in the fall of 1999. Ultimately any discussion of gaps in existing rules could serve as the building block to a consensus later in 1999 as long as the working groups mandate were extended. Opponents of investment rule negotiations wished, on the other hand, to drag the process out by focussing on the first two economic research items in the checklist to avoid the development of any consensus on the need for new rules and to avoid reaching any conclusions that would precipitate a decision.
Presentations of members reflected competing views. A number of delegations emphasized the close integration of trade and investment, the benefits of foreign investment and the need for greater overall coherence, transparency and predictability in investment policies and stressed the role that the WTO could play in this process. These arguments were clearly intended to support the view that investment issues should be addressed within the WTO. On the other side a number of members sought to argue against this view, either by questioning the nature of the trade and investment link for developing countries, arguing that investment work was already being done in a number of other organizations and need not be addressed at the WTO, or stressing the purely educative role of the Working Group and focussing on a number of issues of concern to developing countries.
Typical of these competing positions were the early written submissions to the Working Group from the EU and India. In the case of the European Commission its written submission of May 30, 1997 focussed on the growth and significance of FDI in the global economy, the fact that 40 per cent of world trade is now intra-firm and that the “current patchwork of rules” in “inefficient” and “non-transparent”. The submission pointed out the fact that the WTO has already had investment on its agenda as a result of the GATS and the TRIMs and that the WTO is in the best position to “level the playing field” so that small and medium enterprises are more willing and able to undertake the risk of foreign direct investment (FDI). They also argued that increased competition for FDI could lead to a race to the bottom with incentives that would hurt developing countries and that these countries could gain much from a balanced set of rules. This was followed at a later date by the submission of a survey of UK companies examining the factors which shaped their outward FDI. Factors identified included macroeconomic growth and the presence of a predictable, transparent and open regime for trade and investment. The EU paper had also to acknowledge however, record levels of investment flows (UN, 1998) including an increasing proportion to developing countries, in the absence of any WTO rules. The EU pointed out however, that most of this FDI was concentrated in only a few economies and argued that smaller developing economies would thus benefit if flows became more dispersed.
In contrast India’s written statement (India, June, 1997) reminded members of the Singapore Declaration and the purely educational and non-prejudicial role of the Working Group. India argued that the “development perspective should be all-pervasive”. Concerns to be addressed in the study should include the impact of FDI on the balance of payments, technology transfer, and a recognition of the need of states to pursue their national industrial policies. India proposed an exhaustive list of twelve elements that should be the focus of the study which would include “the business practices and corporate strategies of transnational corporations” and the “interrelationship between mobility of capital and mobility of labour”.
After eighteen months of work only a few areas of consensus had been identified by the participants. Over all there was an acceptance of the idea that FDI could provide benefits for economic development. There was an acceptance too that trade and investment were closely linked. Neither meant, however, that FDI was not without problems for some developing countries. Moreover, on the issue of existing agreements and the need for new rules there was much less agreement. Among those supporting the need for new multilateral rules including the EU, Japan, Canada, Hong Kong, Switzerland, Korea, Brazil and Mexico the argument tended to be that FDI was beneficial, that state intervention in the investment process, either in the form of incentives or regulation, caused distortions in the process, increasing inefficiency, and even worse, generating uncertainty for investors. This, in turn, would ultimately depress investment flows. Multilateral rules, on the other hand, they argued, would bring transparency, efficiency and certainty which would enhance flows and ultimately benefit all countries. Clearly many developing countries needed and wanted increased flows of investment. The link, however, between multilateral rules and investment flows is a tenuous one that is hard to demonstrate or support with much research data.
Opponents of investment rules, which included India, Pakistan, Egypt, Morocco, Cuba and the ASEAN group pointed to particular problems with FDI, or to the fact that many of them already had numerous Bilateral Investment Treaties which provided protection to foreign firms, once established, and which appeared to be operating well. Moreover the ASEAN countries were quick to point to the conflicting research on incentives and the success they had had with incentives that targeted certain sectors and were linked to a firm’s performance. Clearly the ASEAN countries could hardly be seen as countries which in the 1990s had had difficulties attracting investment. When it came to reviewing existing agreements there was little consensus on the merits of various approaches to the questions of whether a broad or narrow definition of investor was preferable, how to define national treatment or whether most favoured nation or national treatment is really the prevailing international norm.
The one concrete issue about which the group had to make a decision, that is, deadlines even ended in a stalemate and reflected the two opposing camps. Those who generally opposed the idea of investment negotiations were quite happy to see the working group continue far into the future, if not indefinitely. In contrast those favouring negotiations sought to bring some sort of closure to the group’s work which would force some conclusions, preferably in mid 1999, so that they would have an impact on the deliberations leading up to a late fall ministerial in 1999 where a decision on any agenda would be taken. Unable to reach any consensus the group merely recommended that it continue and decided to leave the matter of a timetable to be decided by the General Council. Recent reports on the Council meeting suggest these divisions have dogged the meeting leaving the likelihood of developing a consensus uncertain.
For a number of the opponents of the negotiations such as India there is little likelihood of a change of view. The shaky coalition government still struggling with controversial domestic legislation to implement the Uruguay Round commitments (for example intellectual property) and already dissatisfied with the slow implementation of trading partners’ commitments in areas such as textiles and agriculture see no priority to address investment rules in the near future if ever.
Clearly from the perspective of the proponents of investment negotiations the first year and a half of the working group had yielded fairly limited results but other avenues of suasion and opposition were also ongoing. In particular, the work of UNCTAD provided another opportunity to raise the issue of investment rules with developing countries in a non-threatening way which was supported by a number of developed countries.
UNCTAD, Credibility and A Framework for Investment Rules
Indeed UNCTAD already had a mandate to address investment issues. In May, 1996 UNCTAD outlined a clear role for itself within the debate over investment rules when the UNCTAD IX meeting in Midrand South Africa referred to “identifying and analyzing the implications for the development of issues relevant to a possible multilateral framework on investment (MFI).” The work programme for the secretariat was to be aimed a helping developing countries participate as effectively as possible in various bilateral and multilateral discussions and negotiations already ongoing (eg. FTAA) or soon to take place. The argument was that developing countries need to be familiar with concepts and issues and most important, the development implications of such rules. UNCTAD had already established a role in research through its absorption of the Centre on Transnational Corporations and the publication of its well-regarded annual report on FDI renamed the World Investment Review. The new UNCTAD work program included a wide variety of activities comprising research, technical papers, a series of seminars held in Geneva and various regions including the Caribbean (Kingston, Sept 1998) and Latin America (Peru, November) designed to bring member countries, international and regional organizations as well as business and a variety of NGOs together to discuss investment rules. These activities began to accelerate in 1997-98 and culminated in November 1998 with the release of the World Investment Review for 1998 which discussed an MFI. This was followed by a high profile meeting in Lyon France with heavy private sector participation designed to foster partnerships for development. All of these activities left the impression with a number of NGO critics that UNCTAD had become the stalking horse for capital exporters and investment rule proponents.
Critics point out that UNCTAD seeks to assess the possible benefits of rules and to make sure any such rules are “development friendly” without ever questioning the concept behind such rules, the content of the rules and whose interests they ultimately serve. UNCTAD officials dispute such charges and point to the fact that the NGOs participating in its seminars have included the most vocal critics of the OECD’s MAI. UNCTAD sees their role as one of capacity building, ensuring that developing countries are equipped to deal with what it calls “the intensification of international investment discussions and negotiations”(Fortin). They remind their critics that members of UNCTAD, in a consensus decision in 1996, approved this program, and that UNCTAD is not a negotiating forum. Any decision if or when to negotiate is left to states and UNCTAD’s role is simply one of facilitating that decision.
What is perhaps the most interesting aspect of the UNCTAD program is how it is financed. A number of actors favouring the negotiation of investment rules (EU, Japan, Switzerland, Netherlands, Norway and Brazil) have played a role in financing these activities through their contributions to a trust fund which the cash strapped organization has founded to fund this activity. From the perspective of proponents of negotiations the support for UNCTAD’s efforts has a number of advantages. It ensures that the issue gets the attention of developing countries, who are a large part of the WTO membership. It also ensures any resistance to negotiation based on a lack of expertise or unease with the issues or concepts is diminished and shows that proponents of investment rules at the WTO do take development concerns seriously. From UNCTAD’s perspective it ensures that the organization has a role and keeps a hand in any future discussion or developments dealing with investment rules.
While it might seem that proponents of investment rules, with their activities within the working group and their support for UNCTAD’s efforts should be making headway in their efforts it must be recognized that other actors outside the context of the WTO are also playing a role by both shaping the domestic debate on international investment rules within a number of WTO member countries and increasingly bringing their concerns directly to the WTO through a coordinated transnational effort.. No where has this coordinated effort already had more impact than the case of the MAI at the OECD where their concerted action and criticism raised serious doubts about the agreement within a number of member countries and created real pressure on both the OECD and the WTO to open up their processes.
Agenda Formation and Non-State Actors: the Internet, the MAI and the WTO
The MAI case had an impact in two ways. First it increased the awareness of the issues and implications regarding binding investment rules for a broader public as a result of the failed attempt to negotiate such rules at the OECD. The draft MAI agreement when it was leaked via the internet in March 1997, had an even greater impact in the extent to which it precipitated a mobilization of non-state actors in opposition to the type of investment rules it embodied As a result a wide range of groups including environmental, cultural, development, and labour organizations were able to mount a concerted attack on the process and bring forward some sophisticated critiques of the agreement. Moreover the defeat of the MAI coupled with the pronouncements of those such as the European Commissioner Leon Brittan and others such as the Canadian trade minister, who have always favoured the WTO as the venue to negotiate binding investment rules, 12 have encouraged these groups to turn their attention to the WTO. An NGO campaign of opposition to MAI type rules at the WTO has already begun and a letter opposing what has been dubbed the “MAI shell game” has been circulated widely among NGOs, (237 had signed on by mid- November 1998) building on links established as a result of the MAI battle. Opposition to the negotiation of binding investment rules has even emerged among free trade supporters, such as respected trade economist Jagnish Bhagwati whose letters opposing negotiations sent to the WTO and the Financial Times (October 23, 1998) have received much attention. Many of the NGO opponents have also moved beyond mere opposition to the MAI negotiations, be they at the OECD or the WTO, to an effort to articulate an alternative vision of international rules on investment based on a different set of values. 13
A second factor which has made the effort of suasion at the WTO much more problematic has been the financial crisis which has swept Asia, Russia and now Latin America. On the one hand the crisis, although it may have involved short-term speculative flows, rather than FDI raises concerns about the efforts to define FDI very broadly, as was the case in the MAI and remove or limit state regulation on investors. Many of the countries seen to be candidates for “education” on investment issues have themselves been affected, or potentially could be affected, by the crisis. This too has injected an element of caution into their view of investment rules.(EC, 1998) Moreover, as leaders of international business groups lobbying at the OECD and the WTO will privately admit the crisis has strengthened the arguments of those opposing unfettered globalization and enhanced capital mobility.
What the OECD case is however, is a cautionary tale both about the difficulty of reaching consensus on investment issues and the continued domestic sensitivity of investment issues even among developed countries, the impact of what both the Secretary-General of the OECD and the Director-General of the WTO, have called a “globalization backlash” which has unleashed a barrage of opposition to this agreement. The challenge will be even greater at the WTO. Both organizations have faced increased pressure to open up a dialogue with civil society, from powerful members such as the United States, struggling to get congressional approval for its trade agenda. The organization has been slow to react but has made progress in the last year in both finding room for the views of NGOs and more rapidly derestricting their documents. The Director-General of the WTO points proudly to the 45,000 14 hits on the WTO new and improved website and the 25 million pages downloaded from it.
Conclusion
For some capital exporting countries and the EU all roads lead to Geneva. It is the WTO, which has the capacity to create binding global rules on investment with its more global membership and strengthened dispute resolution system. Yet at the WTO the diverse membership and strong opposition to negotiations on the part of a number of countries, necessitated the campaign of persuasion, the contours of which this paper has attempted to outline. The OECD experience also suggests that a broader and earlier process of consultation within countries on the nature of investment disciplines they might seek or be willing to accept at the WTO will have to be undertaken in the event that the 1999 ministerial decides to go forward with negotiations.
What is notable in contrast to the earlier battle over investment and services on the agenda for the Uruguay Round is the extent to which the US has not been fully engaged in this campaign, and is seen to be at best “lukewarm”. In the 1980s the US was at the forefront of this effort and was not unwilling to use bilateral coercion against the holdouts who opposed its agenda for negotiations. In this case the campaign has been led much more by the Europeans, the Japanese and some middle sized countries such as Canada, a result partly of the lack of domestic support the US Administration faces, demonstrated in its failure to get fast track authorization and its desire, at least until 1998, to see the OECD process succeed. The US favours a more limited, sectoral negotiation, focussed on the so-called “built in” agenda, such as agriculture and services, where further work is built into existing agreements. If the US view was different and it had become aggressively engaged in this campaign the outcome might have been different. However, the behaviour of the US, it could be argued, is itself a reflection of the fact that this process of agenda formation is indeed more complex, and less certain, from the perspective of the most powerful economies, suggesting that the process of rule-making and regime formation does not conform fully to the realist perspective or that of critical political economy. The domestic difficulty of selling trade and investment agreements in the United States also highlights the need for greater attention to how state interests are defined.
Moreover, opponents of rules that would limit state’s capacity to intervene against the interests of capital within the globalization process are not completely marginalized, either within, or outside the WTO, as this case suggests. Unlike the services case, concerted efforts to forge a shared interest in the negotiation of broad, binding rules on the treatment of FDI at the WTO has not yet developed. In fact, it could be argued, that the structure of the services agreement reflected the difficulty of doing it in that issue area as well. The GATS, according to some observers, is less than it appears to be. Its success lay in the articulation of a few broad principles guiding negotiations which allowed states to control the pace and extent of liberalization in sectors when attractive deals could be cut. Proponents of FDI rules, however, have talked of broad, binding commitments to concepts such as national treatment, which combined with a broad definition of investor and strong investor-state dispute settlement rules, could severely restrict state regulatory discretion, forcing states into the negotiation of limited, country specific reservations, themselves subject to further pressure to rollback in the future. It is not surprising that some developing countries find the prospect of negotiating such rules with large powerful capital-exporting actors less attractive.
This case study has also highlighted a contradictory process in the changes that globalization has wrought, including the rapid expansion of information technology, economic instability and the very uneven distribution of economic benefits which have worked to mobilize opponents to these broad investment rules, resulting in a situation where the outcome is much less certain than prevailing theories would suggest.
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Endnotes
*: Paper presented at the Annual Meeting of the International Studies Association, Washington D.C., Feb. 18, 1999. The generosity of the Canadian Social Science and Humanities Research Council, Grant no. 410-96-1565, in funding this research is gratefully acknowledged, as is the cooperation of officials in the Canadian Department of Foreign Affairs and International Trade, the World Trade Organization and UNCTAD. Back.
Note 1: The Consultative Group included the United States, Japan, the European Community, Canada, Australia and a number of developing countries such as Argentina, India, Brazil, Nigeria and the Philippines. Back.
Note 2: United States Senate, Finance Committee, Subcommittee on International Trade Statement of United States Trade Representative, William Brock, March, 1982 Back.
Note 3: Rodney De C. Gray, 1985. For a full history of the origins of the Uruguay Round negotiations and the position of developing countries see John Croome, Reshaping the World Trading System: A History of the Uruguay Round, 1995 Back.
Note 4: US Senate, Finance Committee, January, 1983 Back.
Note 5: This account is based on interviews with Canadian government officials in Ottawa and Geneva, February and April 1997. Back.
Note 6: The arguments of the Indian representative are repeated in the article by the Indian minister R.B. Ramaiah, “Towards a Multilateral Framework on Investment?” Transnational Corporations, 6:1 (April, 1997), 116-135. Back.
Note 7: Inside US Trade, Sept. 28, 1996 Back.
Note 8: Inside US Trade, Aug. 23, 1996 Back.
Note 9: Inside US Trade, Oct, 4, 1996 Back.
Note 10: The European strategy is outlined in a Discussion paper of December 15, 1998 which has been leaked via the internet. The Commission claims the paper, which has been replaced by a January one, is out of date. It is also decidedly more frank about strategy. Back.
Note 11: This discussion of the working group is based on interviews in November 1998 in Geneva with some participants, officials at the WTO and UNCTAD ,as well as a review of WTO documents dealing with the working group (WT/WGTI), some of which are available on the WTO website (www.wto.org) Back.
Note 12: See the statement of the Canadian Minister of International Trade, Sergio Marchi, at the OECD ministerial meeting, April 27, 1998
To be effective and beneficial, any eventual investment rules must be truly multilateral. Consequently, the MAI process at the OECD must remain open to non-members, and, more importantly, the MAI’s ultimatehome should be at the WTO —.Back.
Note 13: The MAI Citizens Inquiry led by a coalition of NGOs in Canada and the Citizens’ Public Trust Treaty directed at the UN and circulated by Public Citizen are just a couple of examples. Back.
Note 14: Comments at the final press conference of the WTO ministerial in Geneva, May 20, 1998. Back.
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