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The Doha Declaration and Prospects for Investment Negotiations in the WTO
JÜRGEN KURTZ*
1. INTRODUCTION
Unlike the system of trade liberalization in the World Trade Organization (WTO)[1], there has never been a comprehensive, multilateral agreement on foreign investment. Binding international initiatives on foreign investment exist largely at the bilateral[2], regional[3] and sectoral[4] levels. This is despite exponential growth in rates of foreign investment and the increasing complementarity of trade and investment as strategies for penetrating domestic markets.
At the Fourth WTO Ministerial Conference at Doha in Qatar, agreement appears to have been reached to commence investment negotiations at the Fifth Ministerial Conference in Mexico in 2003.[5] Yet, it was only in 1998 that similar negotiations in the Organisation for Economic Co-Operation and Development (OECD) towards a Multilateral Agreement on Investment (MAI) ended without result.[6] The MAI provisions themselves were heavily influenced by the detailed investment provisions in Chapter 11 of the North American Free Trade Agreement (NAFTA).
Somewhat unexpectedly, uncertainty surrounds the exact parameters of the part of the Doha agenda dealing with investment negotiations. This article assesses the prospects for the commencement of investment negotiations at the forthcoming Cancun Ministerial. In doing so, the article argues that an essential challenge that negotiators face is to incorporate the lessons that can be learned from both NAFTA Chapter 11 and the failure of the OECD Multilateral Agreement on Investment.
2. THE DOHA MINISTERIAL DECLARATION
2.1 Background
With the specter of the failed Seattle WTO Ministerial in 1999 and on-going public demonstrations against economic globalization, WTO members were under great pressure to reach agreement at the Doha Ministerial in late 2001. In the lead up to the Doha talks, a number of proposals were floated to breach expected developing country opposition to the inclusion of investment rules on the negotiating agenda. Most notably, the EU put forward a proposal for an essentially plurilateral approach enabling countries to opt out of final investment rules.[7] Interestingly, at least in the initial stages of preparatory discussion before the Doha Ministerial, the large caucus of developing countries under the “Group of 77” umbrella did not seem as implacably opposed to the inclusion of investment rules as expected.[8] Yet, within this broad grouping, there was strong opposition by the so-called “Like Minded Group” of India, Malaysia and Pakistan who resisted commencing negotiations on investment and merely sought further study on the possibility.[9] But on the whole, developing countries were more concerned with matters such as the elimination of agricultural export subsidies,[10] reform of the use of anti-dumping and countervailing duty laws[11], further talks on textiles[12] and the reform of the Agreement on Trade-Related Aspects of Intellectual Property Rights to enable governments to take necessary steps to protect public health.[13] Not surprisingly, developing countries opposed the inclusion of environmental rules in the WTO, an area promoted strongly by the EU.[14]
In a break from the past, the United States was not as strong a demandeur for the commencement of investment negotiations in the Doha agenda.[15] This may have been as a result of the failure of the primarily US-backed MAI, the on-going difficulties in the interpretation of Chapter 11 of NAFTA[16] and the inter-agency disputes within the Bush administration on the extent to which language for future bilateral agreements with Singapore and Chile and even the regional FTAA should diverge from the NAFTA Chapter 11 model.[17] Instead, the other members of the Triad – Japan and the EU – pushed forcefully for the commencement of negotiations on investment.[18] The strategic interests of the US appear to have been to resist the push for negotiations to reform the use of anti-dumping and countervailing duty measures while advocating reform agricultural rules to assist US producers.[19]
2.2 The Resulting Doha Declaration
The broad divergences between WTO member states in the lead up to the Doha Ministerial set the scene for trading compensatory bargains across separate issues to achieve consensus for the start of negotiations. Unlike the failed Seattle Ministerial in 1999, WTO Ministers succeeded in agreeing to an agenda to commence negotiations. The overall outcome of the Doha Ministerial was to launch immediate negotiations on nine different topics[20], eight of which are to be concluded as a single undertaking[21] by 1 January 2005. The eight are implementation, agriculture, services, industrial tariffs, subsidies, anti-dumping, regional trade agreements and the environment. Negotiations on reform of the dispute settlement rules are to be concluded by May 2003.
From the perspective of developing countries, it might be slightly ambitious to describe the Doha agenda as a development round of negotiations. However, there were three primary areas of interest for developing countries included in the single undertaking negotiations. Firstly, implementation of existing commitments is an issue for negotiations in its own right together with a separate Decision on Implementation-Related Issues and Concerns.[22] Developing countries have expressed concern with the lack of implementation of existing commitments virtually since the coming into force of the Uruguay Round set of agreements. Further, developing countries succeeded in including anti-dumping and subsidy reform amongst the topics for immediate negotiation. The Doha declaration also contains long substantial sections on topics such as technical assistance, capacity building and least-developed-countries.[23] Aside from the negotiating program, a general work program was also launched on priority issues for developing countries such as trade and debt,[24] finance and technology transfer,[25] as well as special and differential treatment.[26]
On the opposite side of the ledger, developing countries failed to include legally-binding language in the TRIPS Agreement to enable them to address public health emergencies. This was strongly resisted by the pharmaceutical industry on the basis that it would act as a giant carve-out for the TRIPS Agreement.[27] Instead, a separate Declaration on the TRIPS Agreement and Public Health contains a political statement supportive of public health.[28]. Outside of the context of implementation issues, no substantial progress was made on a long-standing issue of interest for developing countries being further market access for textile products. This remains an inherently sensitive topic in many developed states particularly the US. Similarly, the issue of movement of people (rather than movement of goods or capital) was not addressed in the Doha agenda. Whilst this is not suprising (given the even more politically sensitive aspects of this topic especially since the September 11 terrorist attack), this issue is of considerable interest to developing countries given their comparative advantage in this area.[29]
Within the developed states, the EU scored a major victory with the immediate launch of negotiations on certain, albeit limited, environmental initiatives.[30] As a trade-off, the EU agreed to relatively strong language in the agricultural mandate particularly on reducing export subsidies.[31] This is an area which pits the European Union against most of the rest of WTO member states (and to a large degree, the United States). For the purposes of this paper, investment (pushed largely by the EU) was not included in the set of topics for immediate negotiations. However, there is reference to the start of negotiations on investment rules in the future. Unexpectedly, ambiguity surrounds the exact parameters of this part of the Doha agenda.
2.3 Is There Really Agreement to Commence Negotiations on Investment?
The most confusing aspect of the Doha Ministerial revolves around the so-called Singapore issues of investment, competition policy, government procurement and trade facilitation.[32] On each of these issues, the Doha declaration provides that members “agree that negotiations will take place after the fifth Session of the Ministerial Conference on the basis of a decision to be taken, by explicit consensus, at that Session on modalities of negotiations” (emphasis added).[33]
Developed members of the WTO such as the US viewed this language as a mandate to launch negotiations at the fifth Ministerial in Mexico in 2003. But some developing countries have opposed this interpretation. In the last hours of the Doha conference, India extracted a statement from the Qatari trade minister Youssef Kamal in his role as the Chair of the Ministerial that:
[M]y understanding is that at that [fifth Ministerial]…a decision would indeed need to be taken by explicit consensus before negotiations on [the Singapore issues] could proceed…In my view, this would give each member the right to take positions on modalities that would prevent negotiations from proceeding after the Fifth Session of the Ministerial Conference until that Member is prepared to join an explicit consensus.[34]
The legal status of this statement is unclear. It is not attached to the official Ministerial Declaration itself. Further, this interpretation seems at odds with the agreement in the Doha Declaration to treat “the negotiations to be pursued under the terms of this Declaration” as “parts of a single undertaking”.[35] This issue is also linked to the reciprocal balance of concessions within the overall Doha agenda. If the commencement of negotiations (rather than the modalities on which they proceed) on these issues were blocked, then demandeur countries like the EU and Japan could justifiably see the negotiating package as unbalanced and resist negotiations in other areas.
Given the historical resistance of some developing countries to the issue of multilateral investment rules, it would seem that the demandeur countries will practically need to do two things to ensure negotiations start on investment in Mexico in 2003. Firstly, careful consideration to developing countries’ interests on issues other than investment within the agreed negotiating agenda (such as long-standing concerns on implementation of existing commitments) will go a long way to building consensus for the start of investment negotiations. Secondly, in the lead up to the 2003 WTO Ministerial, the work undertaken by the WTO Working Group on the Relationship between Trade and Investment in developing a framework for a proposed WTO investment agreement could also play a significant role in ensuring the start of negotiations in 2003.[36] This will depend upon the extent to which the proposed framework for a WTO investment agreement balances both developed and developing country interests. The next part of the paper will put forward a series of suggestions for a WTO investment agreement which attempt to achieve this aim. In doing so, the proposals tie together the lines of inquiry and lessons discerned from earlier analyses of NAFTA Chapter 11 and the MAI.[37]
3. SUGGESTIONS FOR A WTO INVESTMENT AGREEMENT
There are four principles that should shape any effort in structuring a framework for a WTO investment agreement.
Firstly, developing countries are unlikely accept a “high standards”, NAFTA or MAI-like model on investment liberalization and protection. Indeed, there is a need to shift away from the perception that negotiation of investment rules is a zero-sum game with the only outcomes being either full liberalization or full protectionism.[38] Liberalization of investment restrictions (especially on the question of admission of foreign investment) is an inherently politically sensitive process. Further, unlike tariff negotiations, these restrictions cannot be negotiated incrementally and there is uncertainty as to the quantification of the benefits in removing some restrictions such as certain performance requirements. A WTO investment agreement will need to balance the clear benefits that can result from increased liberalization (and investment flows) with the reality that some countries will continue to take restrictive measures whether for political or developmental purposes.[39]
Secondly, there are clearly a number of on-going difficulties with the NAFTA Chapter 11 model particularly in regard to the issue of regulatory autonomy. The WTO negotiators should not simply look to the NAFTA precedent as the only model available. This was the approach within the MAI initiative only for the OECD negotiators to belatedly try and rectify some of the clear problems that have arisen from the NAFTA model.[40] This also raises a much more fundamental issue. The NAFTA Chapter 11 model of extremely strong provisions on liberalization, protection and dispute settlement is rooted in another time and place. In particular, the broad wording of the investment protection provisions (largely borrowed from similar US bilateral investment treaties) were designed to deliver stability in the face of hostile expropriatory behavior by newly independent states in the Cold War era. In the last few decades, most developing countries have moved away from this type of behavior and have unilaterally begun to liberalize their national investment policies (within developmental parameters such as the use of performance requirements).[41] The type of broad and often undefined coverage of provisions in NAFTA Chapter 11 such as Article 1105 (Minimum Standard of Treatment) and 1110 (Expropriation) seems somewhat anachronous in the current international environment. Foreign investors are now more interested in gaining entry and freedom to operate in a host state. Thus, the strategic focus of a WTO framework on investment should be more on the way in which liberalization commitments are structured than setting down guarantees of investment protection.
The third underlying principle in structuring the framework for a proposed WTO investment agreement is the likely prospect of NGO oversight. The perceived success of the NGO campaign against the MAI episode (as well as on-going concern by many NGOs with NAFTA Chapter 11) will spark similar interest by these groups in future investment initiatives.[42] At a minimum, WTO negotiators should strive for a greater degree of transparency in the negotiating process than that shown in the MAI episode. A clear explanation of the objectives and components of a WTO investment agreement may in fact pre-empt some NGO concerns.
Fourthly, NGO oversight is in many ways linked to the greater emphasis in developed states (particularly the EU) on the so-called linkages between international economic initiatives and matters such as the environment and labor. These issues should not be simply dismissed as protectionist tendencies driven by interest groups in developed states. Instead, WTO negotiators should aim to recapture some of the broadness of vision encapsulated within the Havana Charter that set down a mix of liberal and regulatory initiatives. This may, to some degree, conflict with the interests of developing countries who have historically resisted initiatives in this area. But increasingly, matters such as the relationship between investment flows and domestic environmental and labor standards cannot be artificially separated. The key to resolving this tension will be to devise reasonable proposals that again balance divergent interests in this area.
Using these underlying themes, the following are modest but realistic suggestions for the drafting of a WTO investment agreement:
3.1 Scope: A Narrower Definition of “Investment”
The way in which “investment” is defined will be crucial in delineating the scope of operation of a WTO investment agreement. Developing countries are unlikely to accept coverage of short-term (and often speculative) capital flows such as portfolio investment.[43] Given this, it seems that WTO negotiators should aim to develop a narrower, asset-based definition of “investment” than that set out in NAFTA and the MAI. At one end of the spectrum, negotiators could simply limit the coverage of the agreement to FDI. Alternatively, the definition of “investment” could go beyond FDI to encompass a closed list of assets which the negotiating group is able to reach consensus on. This list of assets could again try to isolate the key characteristics of the types of capital flow of most benefit to developing states. For example, other assets which could conceivably fall within this category are intra-firm debt or even debt with a relatively long-term perspective. The advantage for developing states going beyond FDI to include other forms of capital flow is that it could possibly provide for further concessions by developed countries in other matters of interest to developing countries such as disciplines on the use of investment incentives.
3.2 Liberalization
The non-discriminatory standards of national and most-favored-nation treatment should remain as the cornerstone of a WTO investment agreement. However, the question is to what forms of national regulation should these standards apply. This difficult question in turn breaks down into two sub-questions. Firstly, to which de jure discriminatory measures should the liberalization provisions apply? For example, should a WTO agreement exclude politically sensitive pre-admission restrictions and only extend to restrictions imposed once a foreign investor is permitted into the host state? Further, should there be some limitation on the arguably economically wasteful use of investment incentives by host states to attract foreign investors? Secondly, how should a WTO investment agreement deal with the difficult problem of de facto discriminatory measures; those regulatory measures which do not on their face discriminate against foreign investors but have some incidental, adverse impact. The following possibilities are suggested to these questions.
(a) Pre-Admission Restrictions: A GATS Bottom-Up Structure
The question of entry of foreign investors into a host state is inherently politically sensitive. Put simply, foreign investment (as a means of long-term ownership of national assets and resources) is much more politically sensitive than foreign trade.[44] This political sensitivity is heightened by the manner in which liberalization is effected in the foreign investment sphere. Trade restrictions such as tariffs can be reduced incrementally and the value of those reductions can be translated relatively easily into a common denominator.[45] This is much more difficult in the context of regulatory impediments to foreign investors.
As such, a WTO agreement could simply exclude the coverage of national and most-favored-nation treatment from the pre-admission phase of the investment process. This would free host states to regulate the question of entry of investors. But, as an alternative option (considering the likelihood of the demandeurs pushing forcefully for some kind of treatment of pre-establishment restrictions), the WTO negotiators could consider a bottom up approach to scheduling commitments on pre-establishment matters similar to that used in the WTO General Agreement on Trade in Services.[46] This would then give host states significant discretion to specify what economic sectors of the national economy would be open to the entry of foreign investors.
(b) Post-Admission Restrictions: A Top Down Structure
Most restrictions imposed once an investor enters into a host state are motivated by the desire to fully capture the economic benefits of the foreign investment. The range of post-admission restrictions is enormous[47] and can encompass techniques as diverse as compulsory joint ventures with host state participation through to performance requirements on the operation of the foreign investment. Performance requirements deserve particular emphasis given their inclusion in the WTO Agreement on Trade-Related Investment Measures.[48] These are conditions imposed on investors (often linked to the grant of an incentive by the host state) such as local content requirements (mandating that products produced by the investor in the host state contain a certain level of local materials), the employment of local personnel and mandatory technology transfer (often through compulsory licensing requirements).
For these restrictions, a WTO agreement should follow the stricter NAFTA and MAI approach of applying liberalization conditions on a top down basis. Under this approach, the liberalization conditions would apply across all economic sectors and national laws of a WTO member unless specifically exempted by the submission of a negative-list of such measures. Careful consideration will need to be given as to the techniques in which to effect a system of progressive liberalization of these non-conforming measures. Again, the guiding principle should be one of caution by specifying realistic time periods in which to initiate such procedures.
(c) The Grand Bargain: Investment Incentives/Performance Requirements
A WTO investment agreement should discipline the use of investment incentives. This is easily the area in which developing countries have potentially the most to gain from an investment agreement. Incentives are arguably as economically distortive as negative restrictions on foreign investors such as performance requirements.[49] Developing states are also at a comparative disadvantage to developed countries in their use of incentives. But the absence of such disciplines in both the MAI and NAFTA evidences the historical resistance in the OECD states to disciplining these forms of positive discrimination in favor of foreign investors.
However, on the other side of the ledger, it would not be unexpected for developed states to seek to expand the list of performance requirements subject to the TRIMS Agreement in a WTO investment agreement.[50] This scenario would provide WTO negotiators with the type of intra-issue linkage to meet the strategic interests of both sets of parties; some discipline on the use of investment incentives against further commitments to limit the use of performance requirements.
(d) National Treatment and the Difficult Question of De Facto Discrimination
A national treatment obligation in a WTO investment agreement should clearly apply to regulatory measures that discriminate on their face against foreign investors. The more difficult question is how a national treatment norm in an investment agreement should deal with de facto discriminatory measures. To date, this issue has not received the attention it deserves in existing institutional fora. Within NAFTA case law, the implications of the operation of the national treatment norm have largely been overshadowed by analyses of the broad wording of the investment protection provisions in Articles 1105 (Minimum Standard) and 1110 (Expropriation).[51] The primary focus of the interpretation issued by the NAFTA Free Trade Commission was to limit the operation of Article 1105. However, within the context of a proposed WTO investment agreement, it will be relatively easy to proscribe the operation of investment protection provisions by carefully defining their application. On a conceptual level, this is much more difficult to do with the application of the national treatment norm. Thus, this is where the WTO Working Group on Trade and Investment should focus their efforts in the lead-up to the Mexico Ministerial.
There is no ready and simple answer to this difficult issue. However, there are two fundamental points which should be considered. Firstly, protectionist intent (as discerned through statements made by regulators) should not be enough to constitute a finding of de facto discrimination. This was the path taken by a NAFTA arbitral tribunal in the S.D. Myers case[52] and, as has long been recognized in WTO jurisprudence, is a path beset by dangers particularly from a legitimacy perspective. Thus, as a second principle, the focus should be on the discriminatory impact of the particular measure. In turn, should it be enough to simply identify (rather than quantify) an adverse impact on a foreign investor to ground breach of the national treatment norm? This has long been the approach within the GATT/WTO in the oft-stated principle that the focus of GATT Article III on national treatment is to protect competitive opportunities and expectations.[53] However, GATT Article III.4 in turn is limited in its operation by the fact that national treatment is only applied to “like products”. Thus, the overall scope of Article III.4 is restricted by an analysis of whether two products are sufficient similar (whether in their physical characteristics or through other criteria such as tariff classifications) to justify the application of the national treatment norm. In contrast, the national treatment clause in NAFTA Chapter 11 uses the formulation “in like circumstances” which, to date, has not been used by arbitral panels as a means in which to draw some boundary around the operation of that clause.[54] Accordingly, it is difficult to conceptually see any real limit to the operation of a national treatment clause along the lines of NAFTA Article 1102. Thus, it is suggested that attention should be given in the WTO Working Group on the issue of quantifying what level of adverse impact on a foreign investor is sufficient to ground breach of national treatment. Again, there is no simple or ready answer to this difficult question. But to some degree, the answer may partly lie in providing guidance (possibly in the form of interpretative note and careful drafting of the “in like circumstances” qualification) to a panel considering the application of a national treatment provision in a WTO investment agreement. It is essential that a WTO panel considering the impact of a given regulatory measure not approach its task with an assumption of protectionism. This is a worrying trend evident in some of the NAFTA Chapter 11 cases.[55] As has been pointed out elsewhere, regulation of risk is a norm in the modern regulatory state and not an inherently suspicious intervention in free markets.[56]
3.4 Investment Protection: A Step Back
In devising clauses dealing with investment protection, negotiators should bear in mind the contemporary environment surrounding foreign investors and host, particularly developing, states. Foreign investors are generally no longer concerned with protecting existing investments in recently decolonized host states but instead, are more interested in gaining entry and freedom of operation in a host state. In other words, the emphasis in a WTO investment agreement should be on investment liberalization rather than protection. This is bolstered by the problems that have arisen from the overly broad NAFTA Chapter 11 protection provisions of Articles 1105 (Minimum Standard of Treatment) and 1110 (Expropriation).
With this in mind, there are two proposals for the investment protection provisions of a WTO investment agreement. Firstly, negotiators should give careful thought to simply not including a minimum standard of treatment clause along the lines of NAFTA Article 1105. If the demandeur countries are successful in insisting on such a clause, then the negotiators should carefully define the exact parameters of its application such, as for example, guarantees of transparency and due process in domestic legal proceedings. In contrast, there is much greater justification for the inclusion of a clause along the lines of NAFTA Article 1110 guaranteeing compensation in the event of expropriation. But the scope of that protection should be limited to direct expropriation. Negotiators should strongly resist extending this standard of protection to so-called creeping or indirect expropriation.
3.5 Dispute Settlement
It is unlikely that the WTO negotiators will develop investor-state dispute settlement procedures in a WTO agreement.[57] Indeed, if dispute settlement is limited between WTO member states, this could possibly limit the potential for some of the NAFTA Chapter 11 difficulties as investors would not have a direct route in which to challenge regulatory measures. Bu there are clearly strong normative justifications for the inclusion of investor-state dispute resolution procedures. If the WTO negotiators do decide to tackle this issue, the likelihood of recreating the problems that have arisen in NAFTA will be reduced if the substantive provisions of a WTO investment agreement are carefully delineated.
3.6 Investor Responsibilities
The theme of preferring the interests of foreign investors (rather than their responsibilities) underlined much of NGO opposition to the MAI.[58] This is a theme which should not be simply rejected out of hand by WTO negotiators. For example, consideration should be given to the approach taken late in the MAI of the annexation of the OECD Guidelines on Multinational Enterprises to a WTO investment agreement.[59] It is also clear that NGO groups will once again push strongly for wording on the impact of foreign investment on domestic environmental and labor standards. On these issues, a degree of caution is warranted. Clearly, developing states will most likely resist this approach as an unjustified attack on areas of legitimate comparative advantage. If the WTO negotiators decide to tackle these areas of linkage, they would best be served by working within the traditional GATT/WTO formulation of negative integration (devising disciplines on what member states should not do) rather than moving towards any suggestion of positive harmonization (imposing positive obligations) on these questions. In this vein, one possible approach is to include provision requiring WTO members not to lower their labor or environmental standards with a view to attracting investment. The advantage of this approach is that it does not force WTO members to adopt a particular standard of environmental or labor protection but to simply not lower their chosen standards to attract foreign investors. There is a similar provision in NAFTA. On a slightly more ambitious note, such a commitment could even be framed to build in some role for NGO oversight (just as in NAFTA side-agreements on labor and environment) on the question of identifying countries that have dropped domestic standards to attract foreign investors. Whilst this type of proposal will no doubt provoke opposition amongst some WTO member states, it would be an ideal opportunity in which to constructively harness NGO expertise as well as possibly build NGO support for such a WTO investment agreement.
4. Conclusion
The obstacles to the successful conclusion of investment negotiations in the WTO seem formidable. Since the end of the Second World War, investment rules have largely been negotiated at the bilateral and regional levels in part due to the perceived resistance of developing countries to the prospect of multilateral investment rules. However, the failure of the OECD MAI highlights the fallacy that it is somehow easier to forge deep levels of liberalization amongst developed countries.
There are two essential challenges which negotiators face in negotiating investment rules in the WTO. Firstly, a WTO agreement must reflect the interests of developing countries. This will require negotiators to think creatively and especially to avoid a MAI-type scenario of simply replicating the very strong investment liberalization and protection provisions of NAFTA Chapter 11. The options for negotiation should not be perceived as a zero-sum game with either full liberalization of discriminatory regulation or full protectionism. Given the political sensitivity of many investment restrictions, a WTO agreement will most likely have to constitute a compromise with a mix of liberalization provisions whilst preserving a degree of freedom to impose developmental restrictions. The last part of the paper has put forward a series of suggestion in which to effect such a compromise including the architecture of the agreement and its impact on pre-admission restrictions, coverage of the damaging use of investment incentives and sensitivity to use of some performance requirements by host states.
The second challenge WTO negotiators face is possibly the more difficult one. This is to address some of the concerning jurisprudence that has developed out of the NAFTA Chapter 11 case law. Many of these cases seem to represent an extension of the coverage of NAFTA Chapter 11 beyond clearly discriminatory measures to encompass seemingly legitimate regulations with little adverse impact on foreign investors. In part, much of the case law derives from the broad scope of the investment protection provisions in NAFTA Chapter 11. The broad scope of these provisions seems somewhat anachronous in the current international environment when investors are more interested in gaining access and freedom to operate in host states. As such, the WTO negotiators should consider carefully the utility of overly strong and undefined investment protection provisions. It is submitted that a better approach would be to merely focus on protection from direct expropriation. However, of itself, this approach will not solve all of the problematic tendencies flowing from the NAFTA case law. The most difficult issue which WTO negotiators will need to address is the way in which a national treatment norm should apply in an investment context. The NAFTA experience and the MAI approach have followed the long-standing practice in BITs of importing the national treatment norm from the GATT. However, little attention to date has been given to the potentially broad application of the concept of de facto discrimination in the investment context. It is essential that a WTO investment agreement manage the task of delineating the coverage of de facto discrimination in such a way as to preserve core components of regulatory autonomy. The suggestions put forward in the final part of this paper are not intended to be exhaustive in this respect. They are, however, an invitation to examine this difficult issue further.
* Lecturer, Law School, The University of Melbourne, Australia. This article is based on an earlier article: Jürgen Kurtz, A General Investment Agreement in the WTO? Lessons from Chapter 11 of NAFTA and the OECD Multilateral Agreement on Investment 23 (4) U. PA. J. INT’L ECON. L. 713 (2002).
[1] Marrakesh Agreement Establishing the World Trade Organization, Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, Apr. 15, 1994, 33 I.L.M. 1144 (1994). .
[2] See generally RUDOLF DOLZER & MARGRETE STEVENS, BILATERAL INVESTMENT TREATIES (1995) (for a comprehensive discussion of the use and coverage of bilateral investment treaties).
[3] See, e.g., North American Free Trade Agreement, Dec. 17, 1992, U.S.-Can.-Mex., chs. 1-9 32 I.L.M 289; chs. 10-22, 32 I.L.M 605 [hereinafter NAFTA]. The member states of NAFTA are the United States, Canada and Mexico. The investment provisions are found in Chapter 11 of NAFTA.
[4] E.g. Energy Charter Treaty, Dec. 17, 1994, Part III, 33 I.L.M. 381 (1995). The Energy Charter Treaty provides for the liberalization of investment restrictions and investment protection amongst a large number of OECD and Eastern European states within the energy sector.
[5] WTO, Ministerial Declaration: Ministerial Conference Fourth Session Doha, 9-14 November 2001, WT/MIN(01)/DEC/1 20 (Nov. 14, 2001), at ¶ 20-22 [hereinafter Doha Ministerial Declaration].
[6] For the final draft of the MAI, seeOECD, THE MAI NEGOTIATING TEXT, Final Version, Apr. 24, 1998, DAFFE/MAI(98)7/REV1, at 128 [hereinafter MAI Negotiating Text]. For an overview of the negotiating history and failure of the MAI, see William Dymond, The MAI: A Sad and Melancholy Tale, in CANADA AMONG NATIONS 35 (Carleton University, 1999); Peter T. Muchlinski, The Rise and Fall of the Multilateral Agreement on Investment: Lessons for the Regulation of International Business, in FOUNDATIONS AND PERSPECTIVES OF INTERNATIONAL TRADE LAW 114 (Ian Fletcher et al. eds., 2001).
[7] See Neue WTO-Runde Dank EU-Flexibilität, NEUE ZÜRCHER ZEITUNG, Feb. 24-25, 2001, at 10; Draft Declaration Presses for Decision on Investment, Competition, 19 (39) INSIDE U.S. TRADE, Sep. 28, 2001, at 17. This opposition is largely based on the fact that developing countries (as net capital importers or host states for FDI) are not naturally demandeurs of multilateral investment rules. For further analysis of the extent and shift in developing country opposition to such rules, see Jürgen Kurtz, A General Investment Agreement in the WTO? Lessons from Chapter 11 of NAFTA and the OECD Multilateral Agreement on Investment, 23 (4) U. PA. J. INT’L ECON. L. 713, 715-724 (2002).
[8] Group of 77 Pushes Concessions in Agriculture, Open to Investment Talks, 19 (43) INSIDE U.S. TRADE, Oct. 26, 2001, at 17-18.
[9] Decision on Investment, Competition Talks Likely to be Delayed, Special Report INSIDE U.S. TRADE, Nov. 13, 2001 at 3-4. In particular, India has long opposed the inclusion of investment on the negotiating agenda of the WTO. For a critique of the Indian negotiating position on this issue, see Satya P. Das, An Indian Perspective on WTO Rules on Direct Foreign Investment, World Bank (Dec. 1999).
[10] Group of 77 Pushes Concessions in Agriculture, Open to Investment Talks, 19 (43) INSIDE U.S. TRADE, Oct. 26, 2001, at 17-18.
[11] The anti-dumping procedure under the Uruguay Round Antidumping Agreement (which can lead to the imposition of anti-dumping duties) tend to be typically initiated by developed states – particularly the US, Australia, Canada and the EU – whilst developing countries are most often defenders rather than complainants. See WTO, ANNUAL REPORT 21 (2000); MICHAEL J. TREBILCOCK & ROBERT HOWSE, THE REGULATION OF INTERNATIONAL TRADE 166-71 (2d ed. 1999). The desire of developing countries to commence negotiations for reform of the anti-dumping rules to prevent disproportionate use of anti-dumping measures is detailed in Group of 77 Pushes Concessions in Agriculture, Open to Investment Talks, 19 (43) INSIDE U.S. TRADE, Oct. 26, 2001, at 17; WTO Draft Declaration Proposes AD Negotiations, Delays Environment, Special Report INSIDE U.S. TRADE, Oct. 30, 2001, at 1, 9.
[12] Group of 77 Pushes Concessions in Agriculture, Open to Investment Talks, 19 (43) INSIDE U.S. TRADE, Oct. 26, 2001, at 17-18.
[13] TRIPS –Public Health Declaration Splits Developing, Developed Nations, 19 (39) INSIDE U.S. TRADE, Sep. 28, 2001, at 11-12.
[14] Lamy Says EU Must Have Ability to Negotiate Environment in WTO, 19 (45) INSIDE U.S. TRADE, Nov. 9, 2001, at 11-12.
[15] At Doha, U.S. Aims to Postpone Decision on Dumping, Weighs EU Plan, 19 (45) INSIDE U.S. TRADE, Nov. 9, 2001, at 2.
[16] To date, NAFTA arbitral tribunals have taken broad and sometimes conflicting interpretations of the protections offered by NAFTA Chapter 11 and especially Articles 1105 (which provides investors with a guarantee of “fair and equitable treatment” and “full protection and security”) and 1110 (which imposes an obligation on NAFTA states to compensate investors for measures which either directly or indirectly lead to expropriation of their investment). For an overview of the different jurisprudential approaches taken by NAFTA arbitral tribunals to these provisions, see Kurtz, supra note 7, at 732-54. For a copy of the resulting agreement of the NAFTA states (through the auspices of the NAFTA Free Trade Commission) to clarify the operation of these provisions, see the web site of the Canadian Department of Foreign Affairs and International Trade (http://www.dfait-maeci.gc.ca) For a brief analysis of this interpretation, see U.S., Canada, Mexico Agree to Clarify NAFTA’s Investor-State Provisions, 19 (31) INSIDE U.S. TRADE, Aug. 3, 2001, at 1, 21-3.
[17] See generally U.S. Industry Pushes NAFTA Investment Model in Future Agreements, 19 (17) INSIDE U.S. TRADE, Apr. 27, 2001, at 1, 22; Investment Remains a Hole in U.S.-Singapore FTA Negotiations, 19 (35) INSIDE U.S. TRADE, Aug. 31, 2001, at 5-6; House Democrats Seek New Limits to Investor-State Disputes, 19 (40), INSIDE U.S. TRADE, Oct. 5, 2001, at 22-23; Business, Environmentalists Clash over TPA Investor Protections, 19 (42) INSIDE U.S. TRADE, Oct. 19, 2001, at 9-10; Zoellick Warns Against Changes to Investor-State Provision, 19 (43) INSIDE U.S. TRADE, Oct. 26, 2001, at 19-20; Group Faces Decision on Investor Protections for Chile FTA, 19 (47) INSIDE U.S. TRADE, Nov. 23, 2001, at 1, 18-20; Administration Mulls Government Veto Option for Investor Disputes, 20 (11) INSIDE U.S. TRADE, Mar. 15, 2002, at 1, 22-3.
[18] See Decision on Investment, Competition Talks Likely to be Delayed, Special Report INSIDE U.S. TRADE, Nov. 13, 2001, at 3-4 (details last-minute efforts by the EU and Japan to secure support from developing countries for the inclusion of investment in the Doha agenda).
[19] Zoellick Raises Two Objections to WTO Draft Declaration, 19 (44) INSIDE U.S. TRADE, Nov. 2, 2001, at 21-22.
[20] These are Implementation (¶ 12), Agriculture, (¶ 13), Services (¶ 15), Industrial tariffs (¶ 16), Subsidies (¶ 28), Anti-dumping (¶ 28) Regional Trade agreements (¶ 29), Environment (¶ 31) and on a separate track, the Dispute Settlement Understanding (¶ 30). See Doha Ministerial Declaration, supra note 5. For an analysis of these topics as well as the Doha Declaration generally, see International Centre for Trade and Sustainable Development, The Doha Declaration’s Meaning Depends on the Reader, 5 (9) BRIDGES, Nov./Dec. 2001, at 1-20.
[21] The concept of a single undertaking means that nothing is finalized until negotiations are concluded in all areas. See Doha Ministerial Declaration, supra note 5, ¶ 47.
[22] See Doha Ministerial Declaration, supra note 5, ¶ 12; WTO, Implementation-Related Issues and Concerns: Ministerial Conference Fourth Session Doha, 9-14 November 2001, WT/MIN(01)/17 20 (Nov. 14, 2001).
[23] See Doha Ministerial Declaration, supra note 5, ¶ 38-44.
[24] See Doha Ministerial Declaration, supra note 5, ¶ 36.
[25] See Doha Ministerial Declaration, supra note 5, ¶ 37.
[26] See Doha Ministerial Declaration, supra note 5, ¶ 44.
[27] See WTO Countries in Deadlock on TRIPS, 19 (43) INSIDE U.S. TRADE, Oct. 26, 2001, at 1, 22-3; Fight Over TRIPS Narrowed to Whether Declaration Would Be Binding, Special Report INSIDE U.S. TRADE, Nov. 13, 2001, at 3.
[28] The relevant part of this Declaration reads “[w]e agree that the TRIPS Agreement does not and should not prevent Members from taking measures to protect public health. Accordingly, while reiterating our commitment to the TRIPS Agreement, we affirm that the Agreement can and should be interpreted and implemented in a manner supportive of WTO Members’ right to protect public health and, in particular, to promote access to medicines for all.”. See WTO, Declaration on the TRIPS Agreement and Public Health: Ministerial Conference Fourth Session Doha, 9-14 November 2001, WT/MIN(01)/DEC/2 (Nov. 20, 2001), at ¶ 4.
[29] See generally TREBILCOCK & HOWSE, supra note 11, at 484-99 (analyzing the welfare implications of greater immigration flows and the absence of international rules on this issue). The on-going negotiations between the US and Chile on a proposed FTA highlight the tensions involved in this area. Chile (with the support of the US service industry) has consistently pushed for the inclusion of rights providing temporary entry for services personnel. This has been stringently opposed by the US out of concern over their impact on immigration. See U.S. Resists Chile Services Visa Push, But Looks for Model Accord, 20 (2) INSIDE U.S. TRADE, Jan. 11, 2002, at 1, 20-21.
[30] The agreement to commence negotiations on the environment are limited to three approved areas; (i) the relationship between existing WTO rules and to the trade obligations in multilateral environmental agreements; (ii) the reduction of trade barriers to the sale of environmental goods and services; and (iii) to clarify and improve WTO disciplines on fisheries subsidies. See Doha Ministerial Declaration, supra note 5, ¶ 31.
[31] The relevant part of the negotiating agenda reads “[b]uilding on the work carried out to date and without prejudging the outcome of the negotiations we commit ourselves to comprehensive negotiations aimed at: substantial improvements in market access; reductions of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support.”. See Doha Ministerial Declaration, supra note 5, ¶ 13.
[32] In the lead up to the WTO Ministerial Meeting in Singapore in 1996, developed countries pushed for the commencement of negotiations on each of these topics. The resistance of developing countries led to a compromise whereby Ministers only agreed to establish working groups to study the issues surrounding these topics. See WTO, World Trade Organization: Singapore Ministerial Declaration WT/MIN(96)/DEC (Dec. 13, 1996), 36 I.L.M. 218 (1997), ¶ 20-3. For an overview of negotiations between developed and developing countries on investment in the lead up to the Singapore Ministerial, see also Zdenek Drabek, A Multilateral Agreement on Investment: Convincing the Sceptics, WTO ERAD-98-05 (1998), at 9; Smythe, supra note 152, at 108-12.
[33] See Doha Ministerial Declaration, supra note 5, ¶ 20 (Investment); ¶ 23 (Competition Policy); ¶ 26 (Government Procurement); ¶ 27 (Trade Facilitation).
[34] For a description of the Indian position as well as an extract of the Chairman’s statement, see Note from Qatar Chairman Yields Uncertainty on New WTO Issues, 19 (47) INSIDE U.S. TRADE, Nov. 23, 2001, at 15-6.
[35] See Doha Ministerial Declaration, supra note 5, ¶ 45-7.
[36] The Doha Declaration explicitly envisages that the Working Group on Trade and Investment undertake this type of work in the period leading up to the Fifth Ministerial in 2003. See Doha Ministerial Declaration, supra note 5, ¶ 22.
[37] For detailed commentary on the lessons that can be discerned from analyses of NAFTA Chapter 11 and the OECD MAI, see Kurtz, supra note 7, at 732-73.
[38] This valuable point on the way past investment negotiations have been perceived is set out in Muchlinski, supra note 6, at 133.
[39] This point is also replicated in the Doha agenda itself. The proposed work to be undertaken in the WTO Working Group on the Relationship Between Trade and Investment in advance of the Mexico Ministerial in developing a framework “should reflect in a balanced manner the interests of home and host countries, and take due account of the development policies and objectives of host governments as well as their right to regulate in the public interest”. See Doha Ministerial Declaration, supra note 5, ¶ 22.
[40] In 1998 – late in the MAI negotiations – the Chairperson of the MAI Negotiating Group released a package proposing changes to the draft MAI “to achieve balance between MAI disciplines and other important areas of public policy concern to MAI Parties and to avoid unintended consequences on normal regulatory practices. See OECD, CHAIRMAN’S NOTE ON ENVIRONMENT AND RELATED MATTERS ON LABOUR, Mar. 9, 1998, DAFFE/MAI(98)10. For an analysis of the specific changes suggested by this package (and their relationship to NAFTA-inspired MAI provisions), see Kurtz, supra note 4, at 768-73.
[41] For evidence of this shift, see Kurtz, supra note 4, at 718-32.
[42] For an overview of the NGO campaign against the MAI with a particular focus on the perceived success of the use of the Internet in that campaign, see Jürgen Kurtz, NGOs, the Internet and International Economic Policy Making: The Failure of the OECD Multilateral Agreement on Investment, 3 (2) MELBOURNE J. INT’L L. 213.
[43] For example, concern as to the rate of outflow of portfolio investment during the Asian financial crisis let Malaysia to introduce currency restrictions in September 1998. Helmut Reisen, After the Great Asian Slump: Towards a Coherent Approach to Global Capital Flows, Policy Brief No. 16, OECD Development Centre (1999) at 5. The restrictions explicitly excluded FDI which was something that the Malaysian authorities were at pains to publicize. See IMF & World Bank Group, Statement by Dato’ Mustapa Mohamed, Second Finance Minister of Malaysia, Press Release No. 45 (October 6-8 1998).
[44] This point is argued forcefully by AV Ganesan, a former Commerce Secretary to the Government of India. See A V Ganesan, Developing Countries and a Possible Multilateral Framework on Investment: Strategic Options 7 (2) TRANSNAT’L CORP. 1 (1998).
[45] For an overview of the mechanics and negotiating techniques for reducing tariffs, see BERNARD M. HOEKMAN & MICHEL M. KOSTECKI, THE POLITICAL ECONOMY OF THE WORLD TRADING SYSTEM: THE WTO AND BEYOND 122-33 (2d ed. 2001).
[46] General Agreement on Trade in Services, Apr. 15, 1994, art. 1, Agreement Establishing the World Trade Organization, Annex 1B, Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, 33 I.L.M. 1167 (1994). Indeed, this bottom up approach to scheduling commitments in a WTO investment agreement is one of a set of issues to be addressed by the WTO Working Group on Trade and Investment in the lead-up to the Mexico Ministerial. See Doha Ministerial Declaration, supra note 5, ¶ 22.
[47] For a detailed list, see UNCTAD, WORLD INVESTMENT REPORT 1996: INVESTMENT, TRADE AND INTERNATIONAL POLICY ARRANGEMENTS 177-79 (1996).
[48] Agreement on Trade-Related Investment Measures, April 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, LEGAL INSTRUMENTS – RESULTS OF THE URUGUAY ROUND (1994).
[49] For a detailed analysis of this sometime contested point, see Kurtz, supra note 7, 729-32.
[50] For example, the United States has long opposed the use of technology transfer requirements (which are not explicitly covered by the TRIMS Agreement. See REPORT OF THE COMISSION ON UNITED STATES-PACIFIC TRADE AND INVESTMENT POLICY, BUILDING AMERICAN PROSPERITY IN THE 21ST CENTURY: US TRADE AND INVESTMENT IN THE ASIA PACIFIC REGION xii (1997) (“Recommendation 6: Foreign Direct Investment Liberalization…[F]orced technology transfer as a precondition for foreign direct investment should be actively opposed by the U.S. government.”)
[51] See, e.g., Abstract of ICSID (Additional Facility): Metalclad Corp. v United Mexican States, 40 I.L.M. 35, 37-43 (2001); North American Free Trade Agreement (NAFTA) Arbitration: S.D. Myers, Inc. v Government of Canada, 40 I.L.M 1408, 1437 (2001) [hereinafter S.D. Myers]; Methanex Corporation v The United States of America, Claimant Methanex Corporation’s Draft Amended Claim, Feb. 12, 2001, 4-33, http://www.toddweiler.com; Methanex Corporation v The United States of America, Statement of Defense of Respondent United States of America, Aug. 10, 2000, 6-26, http://www.toddweiler.com.
[52] S.D. Myers, supra note 51, at 1423-48.
[53] See, e.g., Japan – Taxes on Alcoholic Beverages, Report of the Appellate Body, WT/DS8/AB/R; WT/DS10/AB/R; WT/DS11/AB/R (4 October 1996), at para. F. (“The broad and fundamental purpose of Article III is to avoid protectionism in the application of internal tax and regulatory measures…Toward, this end, Article III obliges Members of the WTO to provide equality of competitive conditions for imported products in relation to domestic products…Moreover, it is irrelevant that the “trade effects” of the tax differential between imported and domestic products, as reflected in the volume of imports, are insignificant or even non-existent; Article III protects expectations not of any particular trade volume but rather of the equal competitive relationship between imported and domestic products.” (emphasis added))
[54] See North American Free Trade Agreement Arbitral Panel Established Pursuant to Chapter Twenty, In the Matter of Cross-Border Trucking Services, Secretariat File no. USA-MEX-98-2008-01, para. 246-259, Feb. 6, 2001 at http://www.state.gov (adopting a narrow market access interpretation of the phrase “in like circumstances” in the context of national treatment for cross-border services under Article 1202 of NAFTA).
[55] See In the Matter of an Arbitration Under Chapter Eleven of the North American Free Trade Agreement Between Pope & Talbot Inc and the Government of Canada, Award on the Merits of Phase 2, para. 70, Apr. 10, 2001, at www.dfait-maeci.gc.ca. (“We have already seen that it is not always clear whether a measure is a de jure or de facto case, but even if it were Canada has presented no reasons to justify treating the two forms of disadvantage differently. Indeed, the recognition that national treatment can be denied through de facto measures has always been based on an unwillingness to allow circumvention of that right by skillful or evasive drafting.)
[56] Robert Howse, Managing the Interface between International Trade Law and the Regulatory State: What Lessons Should (and Should Not) Be Drawn from the Jurisprudence of the United States Dormant Commerce Clause, in REGULATORY BARRIERS AND THE PRINCIPLE OF NON-DISCRIMINATION IN WORLD TRADE LAW 156 (Thomas Cottier & Petros C. Mavroidis eds. 2000).
[57] In the lead-up to the Mexico Ministerial, the Doha agenda only countenances further work on the clarification of “consultation and the settlement of disputes between Members”. See Doha Ministerial Declaration, supra note 5, ¶ 22.
[58] For an assessment of the various arguments put forward by NGOs against the MAI, see Kurtz, supra note 42, at 234-37.
[59] For a creative suggestion to counter the perception of bias in favor of investor rights, see TREBILCOCK & HOWSE, supra note 11, at 366. The authors suggest that, in a future investment agreement, the right to investor-state dispute settlement could be conditioned on agreement by investors to abide by the OECD Guidelines.
