Bulletin #7

Poorer Countries Opposed To A Wto Investment Agreement Ask:

"What Part Of No Don't You Understand?"

By Jane Kelsey at the WTO in Cancun

The stand-off over plans to negotiate a new multilateral agreement on investment agreement in the World Trade Organization (WTO) is set to intensify following the release of a provocative draft text at the fourth day of the ministerial meeting in Cancun.

The text was apparently drafted by Canadian trade minister Pierre Pettigrew whose appointment as the Friend of the Chair on the four 'Singapore issues' of investment, competition, transparency in government procurement and trade facilitation has already created controversy.

The WTO in theory operates on consensus. But the bizarre process adopted for this ministerial allowed Pettigrew to decide 'in his own responsibility' what proposals should be put forward, whether or not that reflects the views of all governments on the issue. The overall chair of the meeting, Mexico's trade minister, then prepared a draft declaration for further discussion, also 'in his own responsibility'.

When Pettigrew played a similar role at the Doha ministerial in 2001, he was accused of extreme bias for pushing his own pro-negotiations line and ignoring the vigorous opposition of many poorer countries.

Only the determined intervention of India in the final moments of that meeting secured a requirement that there must be explicit consensus on the 'modalities for negotiations' at this Cancun meeting before any negotiations can begin.

It has been made abundantly clear from the beginning this ministerial meeting that there is no such consensus, with richer and poorer countries deeply polarized.

On the first day of the meeting a group of 71 countries, including powerful voices such as China, India and Malaysia itself, as well as the Caribbean Community and the Least Developed Countries, issued an unambiguous statement opposing negotiations on the Singapore issues.

Speaking on their behalf at a press conference Malaysia's forthright trade minister Rafidah Aziz left no doubt that there was and would be no consensus. The Doha negotiating mandate required a decision to be taken at this meeting. It would only take one country to block the negotiations. "Either we agree to launch negotiations or we do not. There is no consensus."

"We can't have uniform rules on investment. National governments must have their own rules. Clear rules do not have to be multilateral. Transparency can be achieved at the national level to provide the necessary security for foreign investors."

She also rebuffed suggestions they might be prepared to trade off negotiations on the Singapore issues for supposed gains elsewhere. "This is not about trade offs and concessions. All issues must be addressed on their own merits. We are not in the WTO to make decisions based on sweeteners."

They set out a number of concerns to support their position. Investment is not a trade issue. A charter of freedom for foreign investors and transnationals would potentially devastate their local businesses and economies. The technicalities and complexity of such an agreement require much more study. In any case, poor governments have no capacity to engage in further negotiations and implement any such agreement.

At the other end of the spectrum, the European Union has been adamant that there must be negotiations on all four Singapore issues, calling it a 'deal breaker'. They have been trying to drive these issues into the WTO since the first ministerial meeting in Singapore in 1996 and are determined to secure concessions on investment before making any movement on agriculture.

A possible fall back position for the EU suggested that governments might be able to opt in or out of such negotiations and any resulting agreement. This made some delegations justifiably nervous, believing that this would provoke a repeat of domestic campaigns that brought negotiations on the Multilateral Agreement on Investment to a standstill in 1998.

Until now, the New Zealand government has claimed that it is neutral about any such agreement, especially on investment.

But instead of accepting the explicit position of a near majority of WTO members that there is no consensus, it has proposed a compromise framework agreement setting out best practice rules for the treatment of foreign investments once they have been established. That agreement would create a review committee, using the WTO's peer review processes, but breaches of the framework might not be enforceable through the dispute settlement process.

It is not clear whether this primarily reflects New Zealand's concerns about the paralysis of the agriculture negotiations or the risk of a national campaign against 'the child of the MAI'. Whatever the motive, the intervention reportedly infuriated both the European Union and a number of governments that have stated their explicit rejection of negotiations and want the Singapore issues taken off the agenda now.

The draft text released early this afternoon has reinforced the sense that poorer countries are being bulldozed into negotiations on investment, despite the requirement of explicit consensus.

It proposes a four stage process. A further period to "intensify the process" of clarification of the issues would be followed by "elaboration of procedural and substantive modalities" that should take into account the need for special and differential treatment of poorer countries. These "modalities that will allow negotiation of a multilateral investment framework" would have to be adopted no later than an as-yet-unspecified date.

The only concession to the opposition of poorer countries is that the framework "should enable Members to undertake obligations and commitments commensurate with their individual needs and circumstances."

In other words, the draft wording says there will be negotiations to produce a 'framework' agreement on investment that will begin by a set date. There is no reiteration of the language secured by India at Doha that requires explicit consensus on either the decision to conduct negotiations following further clarification or the nature of these modalities. What is meant by a 'framework agreement' and what kind of flexibility is envisaged remains very vague and may reflect elements of the New Zealand proposal.

Separate annexes to the draft propose commencing negotiations on transparency in government procurement and trade facilitation. Government procurement is limited at this stage to goods above a certain value, with no decision about application of the dispute settlement machinery. Unlike investment, there is no date for conclusion of these two agreements. The proposed language on competition is much vaguer, and merely talks of continuing clarification of the issues.

The draft is guaranteed to provoke an extremely volatile response.

Even if the opponents of the Singapore issues succeed in resisting the draft, or continue to delay the conclusion of an agreement if the draft does get approved, the EU and Japan have a fallback position through the General Agreement on Trade in Services (GATS).

The GATS already provides a framework for achieving the EU's main objectives from a deal on investment, especially for the services firms that would have been the major beneficiaries. The GATS rules already guarantee rights of entry for foreign services firms, restrict the right of governments to adopt measures that limit their access to services markets, and prohibit discrimination in favour of local services providers.

To date, GATS has been a non-issue in Cancun. Negotiations are already underway to expand the list of services which governments have committed to the WTO's free trade rules. Parallel discussions aim to devise even more restrictive rules on the ability of governments to regulate services. This includes rules that guarantee foreign firms access to government procurement in services.

French and Canadian groups who closely monitor WTO negotiations in both services and investment, including the Council of Canadians and the Institut Pour La Relocalisation de L'Economie, are claiming there are plans to transfer the negotiations of the Singapore issues into the GATS if no consensus is achieved.

They point to a recent press release from the International Chamber of Commerce that recommended such a move. The draft ministerial statement prepared by the Chair and Director General before the meeting reaffirmed countries' commitments to launch new negotiations on government procurement as well as subsidies. They also claim that "internal sources indicate that the European Union's '133 Committee' is considering such a strategic shift".

Whether or not their claim of a deliberate strategy is true, there is no doubt that failure to begin negotiations on the Singapore issues will focus the attention of the EU and fellow advocates on securing more extensive binding rules on investment, competition and government procurement through the services negotiations.

That will also intensify the opposition to the GATS from governments of poor countries and diverse groups around the world and bring the GATS negotiations to a virtual standstill.