Investment, Competition and Govt Procurement at WTO

Investment, Competition & Government Procurement at the WTO
by Prof. Jane Kelsey,
Action, Research and Education network of Aotearoa (ARENA), New Zealand,
prepared for AFTINET seminar on
Alternatives to the WTO, Sydney, 8 November 2002

The MAI Revisited

Even before the collapse of the Multilateral Agreement on Investment at the OECD in 1998 there were moves to get investment onto the agenda at the WTO. At the Singapore WTO ministerial in 1996 the major powers led by the European Commission (EC) secured agreement to establish working groups to report on linkages between ‘trade and’ investment, competition and government procurement (they became known as the ‘Singapore’ issues). Poorer countries (led by India and Pakistan) had opposed any negotiations, arguing that no new issues should be introduced until the inequities of the existing agreements were addressed and that investment and competition had nothing to do with trade and therefore had no place at the WTO.

At the Doha Ministerial meeting in 2001 they failed to hold the line. The ‘Doha Declaration’ 2001 says negotiations will take place after the Cancun Ministerial in September 2002, ‘on the basis of a decision to be taken, by explicit consensus, at that session on modalities of negotiations’. At India’s insistence, the Chairman’s accompanying statement interpreted this to mean there must to be no formal objection from any country to proceeding to negotiate on those modalities; not surprisingly, the meaning and status of that statement is disputed. What happens before and at Cancun is therefore critical.

The Game Plan

The EC is leading the charge, with demands for concessions on investment and competition as a trade off for any moves on agriculture. Its aim is still to secure a high quality Bill of Rights for TNCs, by stealth. It proposes to begin by focusing on foreign direct investment (FDI), with guarantees of non-discrimination against those investors, dispute settlement through trade panels at the WTO and a standstill and rollback that makes it very difficult for countries to reverse. This approach is designed to deflect criticisms of a MAI revisited. The EC says it is not seeking investor-initiated dispute settlement, it will only cover those investments which governments opt in (as with GATS), and it will have clear protections for domestic regulation and rights of development. The US is taking a more aggressive position, as it did with the MAI.

Investor lobbies from the major powers (some 60% of FDI comes from within the ‘Quad’ countries) have also been regrouping. They made their requirements clear to their governments prior to Doha and are now pitching in a less aggressive way to get the investment issue onto the WTO agenda and ratchet it up from there. Their immediate objectives are:

  • Privatization of state monopolies and enterprises, including public private partnerships
  • Access to the services sectors of countries, especially public and environmental services and utilities
  • Removing constraints on inter-company trade among transnationals through unrestricted investment, movement of capital and competition laws
  • Harmonising accounting and regulatory regimes to favour big player
  • Enforcement of rules against governments at all levels in non-national courts

The WTO Investment Agreement in Context: A WTO investment agreement would complement the existing investment liberalization measures, which are also the subject of highly contested negotiations at present:

Trade Related Investment Measures (TRIMS) prohibits the imposition of specific performance measures on foreign investors, eg. local processing of raw materials, use of local products, joint ventures with local companies. Poorer countries are arguing that they need more time to notify non-complying measures and implement the agreement and that they should be allowed to require use of local products and technology transfer; etc. The US, EU, Japan and Canada say no.

General Agreement on Trade in Services (GATS) guarantees foreign services companies the right to establish a commercial presence and supply a service from across the border where that service is included in the host country’s schedule. This is subject to restrictions entered into the schedule. Schedules also contain ‘horizontal’ commitments which often bind a country not to tighten its vetting for foreign investments across all services sectors. Negotiations are now underway to extend the sectors committed by each country under the GATS. Requests were to be made by July 2002; responses are to be tabled in late March 2003. Environmental services have been marked out for special negotiations, in line with the advocacy of public private partnerships at the Johannesburg Summit on Sustainable Development. The EU, US and Australia are also behind moves to negotiate new ‘disciplines’ on domestic regulation that would require all countries to regulate their services in ways that interfere least with foreign suppliers, and which could open regulations to challenge for exceeding what is ‘necessary’. As services constitute some 50% of the world’s foreign direct investment, GATS is a mini-MAI by itself.

Bilateral investment treaties (BITs) (aka Investment Protection and Promotion Agreements and Closer Economic Partnerships). These have been expanding rapidly, especially after the WTO and APEC bogged down in the late 1990s. They often include rules on non-discrimination against foreign investors and investor-initiated complaints. Some also include rules on rights to establish foreign investments and protections against expropriation, including ‘creeping expropriation’. These exist in the US model BIT and is likely to be demanded in any US-Australia CEP.

Regional agreements. Investment rules are binding in the case of NAFTA Chapter 11, including highly intrusive protections against ‘creeping expropriation’ where government regulation reduces the profitability for a foreign investment. Multi-millions dollar awards have been made to TNCs where government regulations have breached chapter 11, provoking a massive outcry in the US, Canada and Mexico. Negotiations for a Free Trade Agreement for the Americas could see this apply across all 34 American countries. In the case of APEC there are ‘voluntary and non-binding investment principles’ which member countries use to justify removing restrictions.

Key issues identified in the lead up to the Cancun Ministerial in September 2002

  • Scope and definition: The main focus has been on foreign direct investment (IMF definition is a minimum ownership stake of 10%). The US is demanding inclusion of portfolio investment, covering equities, bonds, mortgages etc
  • Transparency: poorer countries are objecting to the enormous compliance costs
  • Non-discrimination: this would apply after investments are established and apply between different countries (Most favoured nation) and between foreign and domestic investors (national treatment). US is arguing that foreign investors require better treatment than locals.
  • Pre-establishment rules: binding commitments on rights of entry and vetting of foreign investments, including restricted areas and national interest tests.
  • Rights to development: poorer countries want less rhetoric and genuine rights to technology transfer and maximum flexibility. India insists that this is best achieved by having no agreement on investment in the WTO.
  • Exemptions and safeguards: Poorer countries are insisting on rights to restrict investors in financial crises and severe balance of payments deficits, EU and US are resisting.
  • Dispute settlement: poorer countries want disputes dealt with by consultations, noting that other mechanisms are set in bilateral and regional agreements; EU and Japan want to use WTO dispute mechanisms (ie trade panels); Chinese Taipei is promoting investor-initiated disputes at the WTO.


Negotiations on Competition

The discussions on competition which the EC secured at Doha aim to increase market access for TNCs to poorer countries, in the name of strengthening (and preferably harmonising) their competition laws and institutions and ensuring ‘transparency’. In practice this would restrict competition. There is no intention to address the international major concerns about anticompetitive practices of TNCs: price fixing, cartels, mega-mergers and corporate corruption. Nor will they protect poorer countries and small businesses from such practices. The ‘level playing field’ will be occupied by TNCs who have the scale, technology and resources to exclude their local and international competitors. The EC wants it to apply to public and private actors, so it would speed up privatization and deregulation (for example of postal services or state trading enterprises such as export monopoly boards).

Negotiations on Government Procurement

The WTO already has a ‘plurilateral’ agreement on government procurement, which only 24 countries have signed. This requires non-discrimination against foreign companies in central and local government purchasing and transparency in their rules and procedures. The WTO working group set up at the Singapore ministerial in 1996 includes all WTO members. This was opposed by poorer countries because it would prevent them using public funds to buy and employ locally, would add further to their burden of implementation and be the thin end of the wedge to opening government purchasing to TNCs. The current talks, mandated at Doha, are limited to ‘transparency’ and will become subject to formal negotiations on the same terms as investment and competition.

Key objections: As with the MAI such agreements would

  • lock in neo-liberalism/corporate globalisation and exclude alternative development models
  • privilege foreign investment over economic, social, cultural, environmental priorities
  • empower self-regulating TNCs with enforceable rights and no responsibilities
  • deepen the alienation and exploitation of women workers, indigenous peoples and communities that are victims of environmental and social dumping by TNCs
  • increase financial instability, corporate corruption and balance of payments crises
  • prize open any remaining public, essential and infrastructure services to TNC control and prevent re-nationalisation after they collapse
  • buy into buy into the corporate capture of ‘sustainable development’ at the WSSD and endanger public control of environmental services
  • further erode the democratic right of governments to regulate investment and economic life in the broad interests of the country, and of its citizens to determine that direction
  • reinforce the secrecy and bullying of the WTO’s processes and the marginalisation of poorer countries, and more . . . .

Alternatives

Many international NGOs and commentators insist that international rules are essential, but rules whose goal is to empower people and their communities rather than international capital. This means abandoning existing and proposed WTO agreements and concluding new agreements in institutions with broader mandates. Their aim is to encourage the better aspects of foreign investment, balanced by national sovereignty and the responsibilities of investors to communities and societies in which they operate. This would

Ensure flexibility at the national level to ensure

  • appropriate regulation of FDI to secure benefits for local and national economy;
  • legislation to make corporate influence over governments transparent;
  • regulating markets to achieve public benefits;
  • promotion of domestic saving and investment and active industry policies

Develop mechanisms at the international level to

  • Reduce wasteful competition to attract FDI through tax breaks and subsidies
  • Create an international mechanism to deal with abuses by TNCs, such as transfer pricing
  • Develop means to go behind the corporate veil and hold TNCs liable for disasters and collapsed infrastructure

Regulate investment through

  • minimum social and environmental standards
  • transparency, consultation and reporting requirements
  • a liability regime to make companies accountable
  • rights of redress for citizens

Promote competition laws that set out:

  • obligations of foreign firms to host countries;
  • obligations of home governments to ensure foreign firms fulfill their obligations;
  • measures to ensure competitiveness of domestic firms;
  • action against anti-competitive practices by governments eg. anti-dumping;
  • impeding of competition by IPR protections;
  • limits on mega-mergers.

Strategies at the National level:

1. Maintain local resistance to neo-liberal policies at the local level geared to:

  • dispossess indigenous peoples of resources and authority
  • privatise and commercialise public services
  • entrench market led social, environmental and cultural policies and regulation
  • open government procurement to competitive tendering
  • remove restrictions on foreign investment
  • union-breaking and similar strategies to weaken centers of resistance
  • dismantle regional and industry development strategies, etc.

2. Expose existing and proposed agreements and discredit the propaganda

  • expose the existing bilateral investment treaties (BITS), how, when and why they were negotiated and the risks they pose, with practical examples
  • identify when they come up for review and seek to have them discontinued
  • identify current negotiations of BITs and investment sections of free trade agreements (notably the forthcoming negotiations with the US)
  • link this analysis to services, government procurement, TRIMS and TRIPS commitments

3. Promote debate on alternative development strategies

  • resist the rhetoric of business responsibility and corporate led sustainable development
  • insist that social justice cannot survive where capital has all the power
  • insist on the viability of controls on capital movements and foreign investment
  • strengthen democratic accountabilities of corporations and governments at all levels

Key readings:

Seattle to Brussels Network, Investment and competition negotiations in the WTO – What’s wrong with it and what are the alternatives?, http://www.s2bnetwork.org

Third World Economics, Issue 252 (1-15 March 2001); Issue 281 (16-31 March 2002); issue 290 (1-15 October 2002) www.twnside.org

AFTINET, World Trade Organisation Negotiations: Resurrecting the MAI?, April 2002

Bill Rosenberg,’ New Issues = Old MAI’ in Foreign Control Watchdog (forthcoming) access through www.arena.org.nz

Public Citizen’s Global Trade Watch, ‘Bankrupting Democracy’ (on NAFTA) www.citizen.org

European Commission ‘basic framework of multilateral rules on Foreign Direct Investment’ http://europa.eu.int/comm/trade/miti/invest/conswtoag_inv.htm