Almost imperceptibly, more than 100 Members of the World Trade Organization have done something extraordinary and unprecedented. For the first time, they have agreed on a set of global rules for foreign direct investment.
In striking theInvestment Facilitation for Development agreement, 113 WTO Members have made it easier for developing countries to attract much-needed foreign direct investment. They have also demonstrated that the too-often derided WTO can deliver important results, particularly when members negotiateplurilaterally, involving many but not all of its members, and negotiations take place without the involvement of some of the organization’s more obstreperous members.
Modeled on the WTO’s 2013Trade Facilitation Agreement, the accord establishes a transparency framework through which participating governments will publish all laws and regulations related to inward foreign investment. The information will be publicly available through a single portal, making it easily accessible to all interested parties. Regulatory procedures will be streamlined and unnecessary paperwork scrapped. Responsible conduct by investors will be promoted through their adoption (albeit voluntary) of globally recognized corporate principles, standards, and guidelines. Both home and host governments have committed to fighting corruption and money laundering.
With negotiations completed, participating members will now begin technical work to ensure that the text is compatible with the WTO’s legal framework and to verify that terms are consistent across the three official WTO languages – English, French, and Spanish. The final text is expected to be signed by ministers at the WTO’s13th Ministerial Conference, scheduled for the week of February 26 in Abu Dhabi.
Importantly, the agreement does not cover market access for investors or investor protections. Nor does it include an investor/state dispute settlement provision. Disagreements arising between members will be addressed through the WTO’s existing government-to-government dispute settlement mechanism.
For decades, governments had tried, and failed, to reach agreement on investment. Fierce opposition to multilateral investment negotiations and specifically these three controversial provisions led previous efforts to be scrapped. Members of the Organization on Economic Cooperation and Development tried to negotiate rules among its then-29 members in the late 1990s. So broad-based was the opposition to this agreement that legendary anti-globalization activist Lori Wallach joined forces with the late Jesse Helms, the right-wing Senator from North Carolina, to help sink the pact. Wallach referred to theMultilateral Agreement on Investment as “a slow-motion coup d’etat” in which corporations would be able to sue governments and strike down environmental, education, or labor laws and regulations. By December 1998, the OECD declared that the negotiations that started in 1995 “were no longer taking place.”
In December 1996, WTO membersset up a working group to “examine the relationship between trade and investment.” Narrowly defined rules on investment already exist in the WTO through the agreement onTrade Related Investment Measures (TRIMS) and theGeneral Agreement on Trade and Services (GATS). In the case of TRIMS, those rules prohibit WTO governments from imposing domestic content requirements on foreign companies producing within their borders. TRIMS provisions further preclude export performance obligations on foreign companies. GATS rules extend to foreign services providers the right to operate in other WTO-member countries.
Many members had hoped the working group on trade and investment would grow into a set of negotiations that might expand the scope of WTO investment rules. But there was intense opposition to the idea from many developing countries – and NGOs – and the idea was dropped in 2003.
At theBuenos Aires Ministerial Conference in 2017, groups of WTO members began work on a range of issues, including Investment Facilitation for Development, with a new format in which those wishing to participate in results-based negotiations could do so and others could sit on the sidelines. Exploratory talks were launched on investment facilitation by 70 members in Buenos Aires and negotiations commenced formally in September 2020. The negotiations have been open to all WTO members and proponents agreed at the outset that any benefits emerging from the negotiations would be extended to all members, even those not participating in the process.
Known as Joint Statement Initiatives (JSI),* these plurilateral negotiations resulted in three agreements. Work has proceeded efficiently, and by WTO standards, remarkably fast. Still, these plurilateral undertakings do not enjoy universal approval among the membership. India and South Africa, in particular, have sought to sink the initiatives, arguing that the JSIs are not truly multilateral and that they distract members from issues of importance to Delhi and Pretoria.
But the vast majority of WTO Members have participated in at least one JSI and they counter that plurilateral WTO agreements are nothing new and that any benefits arising from these negotiations flow to the entire membership. Proponents largely shrug off the South African and Indian objections and maintain privately that opposition is really prompted by the realization that neither country can employ its customary tactics of blocking negotiations or holding them hostage to extract concessions elsewhere in the WTO.
One other prominent WTO member did not participate in the investment facilitation negotiations – the US. Washington does not share Indian or South African systemic objections to the JSIs and has participated in many of them.
But Washington has traditionally preferred to negotiate investment treatiesbilaterally so it can use its economic power to leverage more favorable outcomes than might be achieved multilaterally. Moreover, the Biden administration tends to disparage the WTO, showing little interest in reforming the organization or advancing its negotiating agenda. It was somewhat ironic nonetheless that Deputy National Security Advisor Mike Pyle chose investment as the centerpiece of atalk he gave last month at the Carnegie Endowment for International Peace. He stated that investment, rather than trade, would be at the center of US international economic policy, and that the Biden administration was seeking to create a “toolkit” for investment facilitation, particularly in developing countries.
Given that the principal objective of governments that negotiated the WTO investment agreement is to increase investment flows to developing countries, one wonders what sort of toolkit Mr. Pyle is proposing or whether this is once again a case of Washington seeking to impose its own set of rules on its partners.
Certainly, there is a strong need to bolster investment in the developing world. According to the United Nations Conference on Trade and Development, developing countries face an ever-growinggap in investment that hinders their efforts to achieve the UN’s Sustainable Development Goals by 2030. According to UNCTAD, that gap has grown to $4 trillion per year, up from $2.5 trillion when the SDGs launched in 2015.
The agreement on Investment Facilitation for Development is not a panacea. How the accord will function in practice remains to be seen. But it is difficult to see how an agreement that brings greater transparency, predictability, and accountability to the process of foreign direct investment can be anything other than positive. WTO members have shown, moreover, that unencumbered by the obstructive behavior of some governments, they can achieve meaningful results.
* Among other issues, JSI negotiations also encompass electric commerce, women’s economic empowerment, environmental issues, the enhanced participation in the trading system of micro, small and medium sized enterprises, and domestic regulation in services.
As a seasoned expert in international trade and economic policy, I have closely followed the recent developments in the World Trade Organization (WTO) regarding the Investment Facilitation for Development agreement. My extensive knowledge in this field allows me to provide a comprehensive analysis of the concepts and implications outlined in the article.
The Investment Facilitation for Development agreement, a groundbreaking initiative by 113 WTO Members, signifies a significant milestone in global trade governance. Drawing parallels with the WTO's 2013 Trade Facilitation Agreement, this accord focuses on establishing a transparent framework for foreign direct investment (FDI). Here are the key concepts highlighted in the article:
Global Rules for FDI: The agreement marks the first time over 100 WTO Members have collectively agreed on global rules for foreign direct investment. This achievement is unprecedented and demonstrates the potential for constructive collaboration within the WTO.
Transparency Framework: Modeled after the Trade Facilitation Agreement, the accord establishes a transparency framework. Participating governments commit to publishing all laws and regulations related to inward foreign investment. This information will be easily accessible through a single portal, promoting transparency and accessibility.
Streamlined Regulatory Procedures: The agreement aims to streamline regulatory procedures related to foreign direct investment. Unnecessary paperwork will be eliminated, facilitating a smoother process for investors and contributing to a more attractive environment for developing countries.
Responsible Conduct by Investors: The agreement encourages responsible conduct by investors through the voluntary adoption of globally recognized corporate principles, standards, and guidelines. This inclusion reflects a commitment to promoting ethical business practices.
Combatting Corruption and Money Laundering: Both home and host governments commit to fighting corruption and money laundering. This demonstrates a broader commitment to ensuring the integrity of investment processes and transactions.
Language Compatibility and Technical Work: Following the completion of negotiations, participating members will undertake technical work to ensure the compatibility of the text with the WTO's legal framework. Verification of terms across the official WTO languages (English, French, and Spanish) is crucial for a comprehensive and inclusive agreement.
Exclusion of Investor Protections and Dispute Settlement: Notably, the agreement does not cover market access for investors or investor protections. Disagreements will be addressed through the existing WTO government-to-government dispute settlement mechanism, emphasizing the exclusion of investor/state dispute settlement provisions.
Historical Context: The article provides historical context, detailing past challenges in reaching an agreement on investment within the WTO. The shift from failed attempts in the late 1990s to the recent success in plurilateral negotiations highlights the evolving dynamics of international trade discussions.
US Position: The article mentions the absence of the United States in the investment facilitation negotiations. The US, traditionally preferring bilateral investment treaties, has not participated, showcasing its inclination towards leveraging economic power in bilateral negotiations.
Bolstering Investment in Developing Countries: Acknowledging the need to bolster investment in the developing world, the article references the significant investment gap faced by developing countries. The UN's Sustainable Development Goals by 2030 are mentioned as a benchmark, emphasizing the urgency of addressing the $4 trillion per year investment gap.
In conclusion, the Investment Facilitation for Development agreement represents a positive step toward fostering transparent, predictable, and accountable foreign direct investment. While the agreement is not a panacea, its potential positive impact on global investment flows, particularly in developing countries, is noteworthy. The article provides a thorough overview of the agreement's key components and contextualizes its significance within the broader landscape of international trade negotiations.