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Africa: Investment Rules
Africa: Investment Rules
Date Distributed (ymd): 970205
Document reposted by APIC
NEW INVESTMENT RULES CAUSE CONCERN
Major issues loom for countries already struggling with
Uruguay Round trade agreements
By Tim Wall
Article from Africa Recovery, VOL. 10#3, December 1996
Africa Recovery is published in English and French by the
Library and Publications Division of the United Nations
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African and other developing countries are worried by the
industrialized country push to put more liberal proposals for
foreign investment on the international agenda. They fear that
even discussion of a new set of binding rules may overwhelm
developing countries still struggling to implement, and also
gain compensation for, the Uruguay Round trade agreements.
These concerns were not dispelled by the carefully worded
compromise that emerged from the first ministerial meeting of
the World Trade Organization (WTO), held on 9-13 December in
Singapore. There, the Ministerial Declaration announced that
two working groups would soon be set up, one to "examine the
relationship between trade and investment" and the other to
study the interaction between trade and competition policy in
order to "identify any areas that may merit further
consideration in the WTO."
It was precisely such a proposal for a working party on
investment that had been beaten back by developing countries
at an early November meeting to set the agenda for the WTO's
Singapore meeting, Zambian Ambassador in Geneva Patrick
Sinyinza had told Africa Recovery. But further attempts would
be made to raise the issue in Singapore, said Mr. Sinyinza
who chairs the Trade and Development Board of the UN
Conference on Trade and Development (UNCTAD). Many African
countries, said Mr. Sinyinza, fear that such discussions in
the WTO would quickly lead to negotiations in which their
position would be one of "vulnerability and little grasp of
the issues," as occurred in the Uruguay Round.
Summing up the developed country view, the European Trade
Policy Commissioner Leon Brittan said in Singapore that
investment should be a "top priority for the WTO" in the years
ahead. It is also an issue "primarily for the WTO because it
involves the development of an appropriate framework of
binding rules." Many developing countries need a secure legal
environment to attract a "fair share of investment capital"
and WTO rules would help provide the "necessary underpinning,"
Mr. Brittan argued.
The European Commission (EC), Japan and Canada are among those
pushing for early talks. The US is said to favour waiting for
the OECD's multilateral agreement on investment (MAI) before
starting negotiations in the WTO. Presentation of the MAI is
scheduled for an OECD ministerial meeting in May-June 1997.
Once accepted, it could then be opened to accession by
non-OECD members. Some developing countries have already
expressed interest in becoming early signatories to an OECD
accord on investment.
The push for WTO discussion of a more liberal framework for
transnational corporations and other foreign investors was led
last May at the UNCTAD IX conference in Midrand, South Africa,
by some members of the Organization for Economic Cooperation
and Development (OECD). But pressure from developing countries
led to UNCTAD being mandated to study the benefits and
pitfalls of a new multilateral investment framework.
The Singapore compromise recognized this mandate by welcoming
the "work under way [in UNCTAD] as provided for in the Midrand
Declaration and the contribution it can make to the
understanding of issues." WTO ministers said the working
groups should cooperate with UNCTAD and "ensure that the
development dimension is taken fully into account." WTO's
General Council is to chart future directions in two years'
time. Acknowledging developing country concerns, the Singapore
Declaration stated: "It is clearly understood that future
negotiations, if any, regarding multilateral disciplines in
these areas, will take place only after an explicit consensus
decision is taken among WTO members regarding such
negotiations."
Developing country concerns
If such new investment rules "would give something more than
current bilateral agreements, in which all the obligations are
placed on the host country and none on the investor, we might
see an interest in it," said Egypt's Ambassador Mounir Zahran,
the African Group's chairman at Midrand.
However, many developing countries, particularly the least
developed, still face many problems in adjusting domestic
policies to comply with the Uruguay Round Agreements, argued
a 28 October statement issued in Geneva by Egypt, Ghana,
Haiti, India, Indonesia, Malaysia, Tanzania and Uganda.
Introducing new issues on the WTO agenda would also unduly
strain national economies and policies and the WTO structure,
the statement said.
The eight countries added that study and informal discussion
of a possible framework should stay within UNCTAD for the time
being, as it remains unclear how a new framework might affect
the ability of national governments to regulate investment
flows to suit national development plans.
They pointed out that the Uruguay Round already has provisions
on Trade-Related Investment Measures (TRIMs) aimed at reducing
trade distortions caused by national investment policies. As
the WTO is scheduled to review implementation of TRIMs in
1999, the eight countries argued that early WTO discussion of
a new investment framework would constitute a back-door route
to re-opening issues already negotiated during the Uruguay
Round, and that introduction of new investment-related
measures should come after the 1999 TRIMs review, not before.
But there were some African countries who said the Singapore
meeting should contain some discussion, but not negotiation,
of new investment rules. Mr Sinyinza said Madagascar, Morocco,
Nigeria, Tunisia and Zambia were among the countries backing
this approach at the 10 October Global Investment Forum
organized by UNCTAD. These countries, he said, felt that
discussion within the WTO would facilitate a "learning
process" for African and other developing countries. As the
WTO is a rule-making body, the line dividing discussion from
negotiation could be very thin, said Mr. Sinyinza. But this
possibility is offset by the danger that potentially more
rigorous rules from the OECD could become a
take-it-or-leave-it proposition for Africa, he warned.
African unease about the potential disadvantages of any new
investment rules is compounded by concern that such rules
would "remove the last vestiges of national planning and pose
a threat to national sovereignty," says Mr. Trevor Abrahams,
Advisor to South African Trade Minister Alec Erwin who chaired
the Global Investment Forum and presided at UNCTAD IX. It is
"absolutely clear" that some of the proposed new measures
"would be destructive to weaker economies" whose domestic
firms cannot compete with transnational corporations. "It
would be unfair to impose such new rules before these
countries have had a chance to engage in full economic
reforms," he told Africa Recovery.
Many least developed countries are particularly unhappy at the
prospect of embarking on new issues in the WTO while Uruguay
Round provisions to compensate net-food importing countries
for losses entailed under free-trade rules have not yet been
implemented, he added.
NGOs cite colonialism
"The issue is not whether foreign investment is good or should
be welcomed," said a position paper circulated at UNCTAD IX by
the Third World Network (TWN) of non-governmental
organizations. But for "foreign investment to play a positive
role, governments must have the right and powers to regulate
its entry, terms of conditions and operations." TWN argues
that "the real motives of the proponents are to increase
access of their companies to resources and markets of the
developing countries, as well as to have another powerful
instrument to block the development of potential rivals."
Citing some measures suggested by the European Community for
the OECD investment proposals, TWN said that a new treaty
under the terms promoted by the EC would constitute "a return
to the colonial era."
Even among developed countries, however, there are objections
to aspects of EC proposals, including full liberalization of
investment rules, and negotiations in the OECD are reportedly
going more slowly than originally expected. It now seems that
the draft agreement to be presented to the OECD ministerial
meeting in 1997 will be long on standardized rules but short
on measures that actually liberalize entry for and equalize
treatment of FDI.
There is also concern within the OECD that the "go-it-alone
route may not be a good idea" because it may antagonize those
developing countries which now have a large and growing role
in international trade and investment, Mr. Abrahams said.
"We should not prejudge that Africa will come off badly, and
we don't enjoy the luxury of sticking with the status quo,"
said Ambassador Sinyinza, pointing to Africa's low inflows of
FDI. "If we don't participate in the process, Africa may miss
another chance."
The trend since the 1980s is towards liberalization of
cross-border investments, notes Mr. Michael Gestrin, an editor
of UNCTAD's recently published 1,000-page International
Investment Instruments: A Compendium. He said that "clearly,
investment is on the table [of international discussions] and
it won't be pushed off."
Box 1: New Investment Rules Cause
Concern
Proposed new freedoms for foreign investment
Developed country advocates of new rules for foreign direct
investment (FDI) favour measures along the following lines:
- Foreign firms would have the right to enter a nation and
invest in all sectors except for the security sector.
- Foreign and domestic firms would have equal access to
government aid, subsidies, tax benefits and contracts.
- There would be no restrictions on foreign firms transferring
profits to their headquarters.
- Binding mechanisms would be established to settle
state-to-state and investor-state disputes.
But if investment protection and liberalization are very
important for transnational corporations, sustainable
development and social policy issues are equally important for
developing country governments, trade unions and consumer
groups, says the UN Conference on Trade and Development
(UNCTAD) in its World Investment Report, 1996. To take account
of different levels of development and provide for mutual
advantage in new investment rules, UNCTAD says development
objectives must be safeguarded (by allowing time for
adjustment to stringent new rules), advanced (by allowing
developing countries to increase their benefits from FDI), and
supported (by developed country governments which can promote
FDI flows that fit in with developing country needs, for
example, in appropriate technology or export production).
Box 2: North Africa's relative gain in continent's FDI inflows
Africa remained at the margin of burgeoning worldwide flows of
foreign direct investment (FDI) in 1995, says UNCTAD's World
Investment Report, 1996. Global flows of FDI rose by 40 per
cent between 1994 and 1995, reaching $315 bn, but in those two
years, inflows to Africa fell from $5 bn to $4.7 bn, or just
1.5 per cent of the 1995 world total.
Within Africa, UNCTAD noted a swing from south to north in
subregional inflows of FDI since 1980, largely due to
disinvestment in South Africa during the apartheid era and an
upswing in European investor interest in North Africa. In
1980, Southern Africa accounted for nearly two-thirds of
Africa's stock of FDI, while only 12 per cent was in North
Africa. By 1995, Southern Africa's share had fallen to 24 per
cent while that of North Africa had increased to 30 per cent.
The percentage of FDI located in the rest of Africa rose from
24 per cent in 1980 to 45 per cent in 1995. UNCTAD attributes
the surge in FDI to North Africa in part to "efforts to
establish an appropriate FDI framework." North Africa has
concluded an average of 16 bilateral investment treaties
(BITs) per country, more than in any other developing region.
Sub-Saharan Africa, by contrast, has 4.6 BITs per country, the
lowest among developing regions.
Although FDI in Africa has become less regionally
concentrated, a few countries, mostly oil-producers, still
take the lion's share. Nigeria, for example, received 61 per
cent of average annual inflows to sub-Saharan Africa in
1993-95; over the same period, Egypt took in 48 per cent of
FDI going to North Africa. South Africa experienced a net
disinvestment during the 1980s and early 1990s, and only
minimal inflows in 1994 and 1995, but it still holds
two-thirds of the inward FDI stock of Southern Africa.
Western European companies remain the largest bloc of
investors in Africa, owning more than half of the 600 biggest
foreign affiliates on the continent. The US share in Africa's
inward stock of FDI fell from 32 per cent in 1985 to 25 per
cent in 1993. And growing Japanese development assistance to
Africa has not led to an investment surge. According to
UNCTAD, only 0.1 per cent of Japanese outward FDI went to
Africa in 1990-94.
This material is being reposted for wider distribution by the
Africa Policy Information Center (APIC), the educational
affiliate of the Washington Office on Africa. APIC's primary
objective is to widen the policy debate in the United States
around African issues and the U.S. role in Africa, by
concentrating on providing accessible policy-relevant
information and analysis usable by a wide range of groups and
individuals.
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