Renewed Debate Emerges Over Global Trade and Investment Frameworks

30 November 2017

The subject of how to better facilitate investment has a long history in global economic policy discourse, interlinkages involving trade-related investment measures, services, and intellectual property. In recent months, groups of WTO members have tried to bring the discussion to the global trade club and raise its profile, arguing that in a world of intricate production patterns and global value chains (GVCs), economic regulation cannot be sufficient if policy regimes continue developing in separate silos.

Other members argue that investment facilitation is a “Singapore issue,” in reference to a series of topics that were considered as possible additions to the WTO’s negotiating mandate under the Doha Round and were in large part shelved. These members also argue that discussing investment facilitation in the WTO context could detract attention and resources from decades of negotiations on critical issues for developing and least developed countries (LDCs).

Proposals for an investment facilitation agreement in the WTO context are in the early stages. What is ultimately at issue is how members will view the relationship between the trade and investment regimes, both during the ministerial and beyond, as well as the role of private sector investment for advancing the Sustainable Development Goals (SDGs). The UN Conference on Trade and Development (UNCTAD) estimates that developing countries will require an additional US$2.5 trillion each year to meet the SDGs and that half of this amount will need to come from private investors.

Investment in the current WTO framework

The WTO framework already contains piecemeal approaches to investment rules through trade-related measures codified into select accords: the Agreement on Trade-Related Investment Measures (TRIMS), the General Agreement on Trade and Services (GATS), the Government Procurement Agreement (GPA), and the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS). These agreements, however, only regulate the use of investment restrictions that are specifically trade-related, or in sectors where members have commitments.

They explicitly link market access and national treatment benefits to the production of goods and the provision of services. By focusing on the trade-related aspects of foreign direct investment (FDI), members limited the scope of WTO investment rules to traderelated measures, retaining their right to regulate FDI for national development priorities.

At the Singapore Ministerial Conference in 1996, ministers agreed to establish working groups on investment, competition policy, and transparency in government procurement, together known as the aforementioned Singapore issues. The investment working group focused on the economic relationship between trade and investment. After years of debate, and with the exception of trade facilitation, the Singapore issues were dropped from the Doha Agenda work programme in July 2004. The Cancún Ministerial in 2003 proved to be the last major attempt until this year to address investment in the WTO rulemaking context.

The evolution of GVCs and the investment facilitation debate

The 16 years that have passed since the Doha Round’s launch have seen numerous changes in the global economic landscape. This includes the rapid growth in the scale and depth of international investment agreements (IIAs), bilateral investment treaties (BITs), and regional trade agreements (RTAs), as well as increasingly elaborate patterns of global production through value chains. The fast-paced changes of the trade and investment scene may call for a similarly rapid response from the international community. Research by the World Bank, WTO, and others has found that more profound and more far-reaching trade and investment agreements can lead to higher investment flows through GVCs, cutting trade costs and directing investments to finance domestic infrastructure and transportation. Furthermore, investment can play an important role in supporting developmental objectives, with World Bank figures finding that over 40 percent of the approximately US$1.75 trillion of global FDI flows went towards developing countries last year, providing financing that often surpasses foreign aid.

In 2016, China as holder of the G20 presidency established a new Trade and Investment Working Group (TIWG) and non-binding guiding principles for investment policymaking, endorsed by all G20 leaders at the Hangzhou Summit in September 2016. While investment facilitation was mentioned only briefly in the final version, in reference to better transparency and an enabling business climate, it sparked increasing awareness over the importance of clear, efficient investment policy frameworks to support today’s production patterns.

However, WTO members have been divided over how to approach investment facilitation going forward, partly due to whether it is considered a “new issue” and therefore would require consensus to start formal, multilateral talks in line with the Nairobi ministerial declaration from 2015.

While traditional investment discussions at the WTO addressed FDI regulations as a whole, current proposals are limited to investment facilitation, largely avoiding some of the more politically challenging subject areas such as market access or dispute settlement.

Instead, the proposals focus on measures aiming to facilitate the establishment, expansion, and maintenance of business activities on a day-to-day basis in host countries, along with other hurdles such as the need for better transparency, shared information, and a stable policy environment.

Investment facilitation at the WTO – what is at stake?

At the very core of the issue of investment facilitation lies the underlying debate of whether it should be addressed within the WTO framework – and whether doing so is necessary for the organisation’s negotiating agenda to keep pace with a changing global economy. It has also renewed questions over whether trade and investment are interchangeable or complementary, which affects then how to treat investment facilitation in these discussions.

The Friends of Investment Facilitation for Development (FIFD) currently consists of 11 WTO members: Argentina, Brazil, Chile, China, Colombia, Hong Kong, Kazakhstan, Mexico, Nigeria, Pakistan, and South Korea. The MIKTA group consists of Mexico, Indonesia, South Korea, Turkey, and Australia. The two coalitions, with their overlapping membership, have both called for addressed investment facilitation in the WTO context, with the FIFD submission citing the increasing inter-linkages between trade and investment and their mutually reinforcing roles in fostering global development and inclusive growth. They argue, for instance, that the GATS already covers FDI in services, which accounts for two-thirds of global inward FDI stock and 55-60 percent of all services trade.

Meanwhile, India has suggested that services facilitation measures should be addressed separately through a possible Trade Facilitation Agreement for Services, though members have debated whether it is appropriate to focus on how to facilitate investment only in services, as opposed to investment more broadly. However, India, South Africa, Uganda, Bolivia, and several other countries argue that rules on investment facilitation could exceed the WTO’s current mandate.

Another issue at stake relates to differences between the WTO’s Trade Facilitation Agreement and a possible investment facilitation agreement, given the latter’s implications for domestic institutions and regulations. For instance, investment facilitation may require legal reforms to avoid increased costs of doing business, guarantee business competition, and maximise the effectiveness and efficiency of its administration through all stages of the investment cycle.

Another challenge may come from the need for better physical infrastructure, higher quality business services and labour forces, and improved property rights protections. These issues have led countries to raise concerns regarding the possible loss of regulatory sovereignty and economic policy space to regulate should WTO members ink a global treaty on investment facilitation.

Negotiating proposals for Buenos Aires

Discussions on investment facilitation have lately been brought to the WTO through the concerted efforts of the FIFD and MIKTA groups, who have hosted workshops and informal dialogues over the past year. Most recently, a high-level forum on trade and investment facilitation was held by FIFD in early November in association with the Economic Community for West African States (ECOWAS).

In this context of renewed momentum to discuss investment facilitation, China, Russia, Argentina, and Brazil, as well as the MIKTA group and FIFD countries have submitted various WTO proposals on investment facilitation, modelled largely on the Trade Facilitation Agreement in scope and structure. Despite broad convergence on issues such as better transparency, efficiency, and international coordination, the proposals also shown some notable differences.

The MIKTA Workshop Reflections on Investment Facilitation from this past April suggested that discussions of investment facilitation at the WTO would strengthen trade and investment flows as well as policy coherence between the two regimes. The FIFD proposal for an “Informal Dialogue on Investment Facilitation” distributed that same month called for an informal dialogue “to explore – without limiting or prejudging possible outcomes – the role that the WTO could play as a forum to discuss measures that members could take to facilitate investment.”

The Argentina-Brazil proposal for a WTO “Instrument on Investment Facilitation” focuses on setting up National Focal Points or Ombudspersons at the domestic level that would cooperate and coordinate with each other as well as with a proposed WTO Committee for Investment Facilitation.

The Russian proposal mainly differentiates itself from the above approach due to its inclusion of possible provisions on “dispute prevention and resolution” and also leaves room to include future provisions of market access for investments, something other members have been reluctant to incorporate. It also refers to special and differential treatment considerations when developing these rules. For its part, China has recommended providing stakeholders with the opportunity to comment on new investment-related laws and regulations as well as, in the case of LDCs, according investors with easy access to essential public infrastructure.

Setting the path for a post-Buenos Aires Agenda

Proponents for WTO discussions on investment facilitation say that doing so could play a role in ensuring a coherent interaction between trade and investment regimes that, in turn, could have implications for the provision of global public goods.

Nevertheless, the issue will require further exploration and study, given its complexity and the rapidly changing environment that stakeholders are working in. While the next steps for Buenos Aires are uncertain, the growing engagement in this area suggests that the debate over whether and how to craft new trade rules – either at the WTO or elsewhere – on investment facilitation is only just beginning.

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