Developing countries stand to gain from membership of a multilateral investment agreement. In a global economy, this is the best way to encourage the long-term productive capital formation by foreign anddomestic firms that will support sustainable development.
By committing themselves to an international regulatory regime, developing countries would achieve asubstantial reduction in investor uncertainty, which should lead to more and better investment by foreign,domestic and expatriate firms. Additional benefits can be expected from the control of activities such ascorrupt concessions, money laundering and tax evasion.
However, the presumption in international investment agreements between developed countries is thatforeign investors are at an initial disadvantage to established domestic firms and regulatory authorities. Inthe case of developing countries - particular small or poor ones - the reverse may be the case. Thisasymmetry should be the concern of international regulatory arrangements.
The current draft of the Multilateral Agreement on Investment (MAI) represents the consolidation ofexisting arrangements between OECD members, with provision for subsequent voluntary accession bynon-members. This seems to imply accession by a limited number of middle-income industrialisingcountries in the immediate future. If adopted, the MAI is likely to become the benchmark for futureinternational investment agreements.
International principles and declarations on environmental protection, core labour standards and theOECD guidelines for the behaviour of multinationals are recognised, but not incorporated as binding intothe text of the agreement nor made to prevail over its provisions. Only the environmental principles setout in the Rio Declaration could be construed, under the present draft, to be a binding parameter ofinterpretation. Concerns exist among some developing countries that the MAI will involve a loss of economicsovereignty, and prevent the pursuit of their chosen industrialisation strategies. A number of NGOs areconcerned by the prospect of the Agreement leading to lower labour and environmental standards worldwide. We do not find that either of these concerns is justified by the existing proposal.Although there are no specific provisions in the MAI for developing countries as such, the rules forcountry-specific exceptions leave sufficient scope in principle for developing country interests. Further,there is a real cost to developing countries of non-accession in terms of lower potential growth, and asignificant danger of downward regulatory competition for foreign investment between those poorcountries which are unable to join.
Domestic legislation conforming to the principles of “national” and “most favoured nation” treatment isrequired under the MAI. The “absolute” standards on investment protection are essential to improve theinvestment climate in LDCs, through the “import” of credibility, stability and transparency. The scope andapplication provisions for the treatment of foreign investment and foreign investors are appropriate fordeveloping countries in principle. The transparency requirements in the Agreement should strengthenmarket institutions in developing countries, as will the dispute procedures - although both would beexpensive for poor countries.
The restrictions in the MAI on performance requirements and other controls do not constitute a seriousdisadvantage for developing countries, as there is a wide margin for exceptions. The general exceptions (for national security or public order reasons) and safeguards (for monetary, balance of payments andother macroeconomic disequilibria) to the application of the MAI are a crucial condition for the accessionof developing countries.The MAI will not affect re-negotiation of existing debt, nor limit monetary or exchange rate policy underIMF rules. Although the requirement to liberalise investment in the financial sector is likely to be positivefor developing countries in the long run, the experience of capital surges shows that the establishment ofstrong regulatory bodies must precede any such liberalisation.Domestic tax measures are excluded from the MAI, except with respect to expropriation and transparency, which provides for the fiscal policy flexibility developing countries need. However, the MAI fails totackle the problems of double taxation and off-shore investment, which can lead to serious loss of scarcefiscal resources.The role of aid donors in supporting the accession of developing countries to the MAI would be crucial,and it would be inconsistent for OECD members to promote such accession among poor countries withoutproviding the resources required to make this feasible. This would principally involve technical assistanceto strengthen the regulatory and legal capacity of developing countries.A tax agreement with acceding developing counties should be established as a complement to the MAI, inorder to ensure an equitable allocation of scarce fiscal resources. An accelerated programme of debt relief (beyond that offered under the HIPC initiative) should also accompany accession, in order to reduce themacroeconomic uncertainty faced by potential investors.There already exist a broad range of regional and multilateral arrangements on investment-related issueswhich have the advantages of being clearly linked to trade agreements, involving developing countryparticipation, and incorporating effective dispute resolution procedures. Effective regional agreementsinvolving investment issues also exist in a number of cases, where the interests of developing countriesare adequately represented. It is thus not clear that in its present form the MAI is in fact a multilateral investment agreement “of thehighest standard” as was originally intended, due to the large range of exceptions claimed by the potentialsignatories on the one hand and its ambiguous relationship to non-investment issues, effective disputesprocedures and WTO commitments on the other.
If the accession to the MAI of all developing countries willing to do so is not feasible due to lack ofconsensus among OECD members, or the negotiating timetable becomes further delayed, the pursuit of acomprehensive multilateral investment agreement in the wider forum of the WTO should be considered.Such an option would provide for direct representation of developing countries and imply a number ofadditional benefits. These would include compatibility with existing trade agreements, a more effective dispute settlement procedure, and greater scope to address competition, liberalisation and incentives issues.
MAI -Multilateral Agreement on Investment
GATS -General Agreement on Trade in Services
MFN -Most favoured nation treatment
NT -National treatment
TRIMs -Trade-Related Investment Measures
Unentugs 2012.April 08