THE INTERNATIONAL WORKING GROUP ON THE DOHA AGENDA (IWOGDA) PROGRAMME  

Whereas many would like to see the launching of the negotiations by the next Round, such a presumption is far from being certain. The caveats in the Doha mandate are not to be overseen. As Agreement to launch negotiations is tantamount to a clear and overt consensus on the modalities of negotiations regarding the four Singapore issues, the fifth round could yet be another ‘stop’ to take stock and assess the situation. The Chairman of the Conference gave the Doha language additional impetus by emphasising in his concluding remarks his understanding of the paragraph. He clearly expressed that it gave: “each Member the right to take a position 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”[1].

It is important to say at the outset that such a language is very much in favour of developing countries, for the following reasons:

(a)        As the language re-emphasises the procedural inter-linkages in addressing the 4 new issues from the perspective of launching negotiations, in case an explicit consensus on the modalities of negotiations is not attained, there will be no multilateral negotiations.

(b)        It gives ample time for developing countries to study the modalities of negotiations in a more profound manner and thus be more adamant in pushing for the modalities of negotiations of interest to them.

Regardless of the Doha mandate empowering those developing countries that are objecting to multilateral frameworks on investment and competition policies to continue to do so, the fact of the matter remains that we need to go beyond the categorical ‘NO’ argument. We need to provide ourselves with enough ammunition in case negotiations become imminent. This paper goes beyond the mere argumentation against multilateral frameworks on investment and competition policy and considers options for possible negotiations. As an outline paper, I will address the topics requested in a brief and focused manner.

National policy space and the right of the host governments to regulate in the public interest:

        §          In addressing the National policy space, developing countries will have to find the right balance between the need to negotiate rules and disciplines on market access and protection of investment in the WTO and safeguarding the national sovereignty and the control over one’s own economy.

        §          Governments must have the right and power to regulate the entry of FDI, terms, conditions and operations. Such an “acquis” must form the minimum requirements for a negotiated agreement on investment rules.

        §          Governments must maintain flexibility with respect to key sectors or policy areas of interest to them.

Ways of taking into account the development policies and objectives of host governments:

1.   One should rethink the issue of definition of investment and seriously consider the possibility of including short-term capital flows as complementary flows to FDI in the framework, especially in the light of the volatility of the short-term capital markets. We are also in need of disciplining such flows to protect the developing host countries.

2.   Developing countries can’t be doing wrong in taking the GATS as a ‘starting’ point for negotiations. This Agreement has given developing countries utmost flexibility for a number of reasons, which I need not reiterate at this stage. It is important to say, however, that GATS provided a range of means for achieving flexible treatment for developing countries, in particular through its approach to scheduling commitments. The essential lesson to obtain from GATS is that developing countries should aim at gaining similar concessions to investment as they had succeeded for services if there are any future negotiations on an investment agreement. Developing countries will have to try and replicate the asymmetry of GATS that has helped set the right perspective for developing and developed countries by acknowledging the differences and gaps in the level of capital, technology, TNCs, etc. They will have to stick to the “positive list approach” by only listing those sectors, which they would like to open for foreign direct investment. (The relevant articles in the GATS Agreement can be discussed and emulated for the investment framework, notably Articles: IV, IX, VIII, Export, XV)

3.   Developing countries need also to go beyond the GATS in respect of issues such as performance requirements, as important policy instruments to pursue development objectives and to promote domestic industry. Not going beyond the TRIMs Agreement, which so far  does not prohibit:

(a)         Export performance requirements, as a condition for investment;

(b)         A certain percentage of equity should be held by local investors;

(c)         A foreign investor must bring in the most up-to-date technology or must conduct a specific level or type of R&D locally.

4.    Furthermore, in any investment framework market access should be negotiated on the basis of development-oriented performance requirements including those stated above as allowable ones.  

5.   Moreover the length of the transitional period for the TRIMs agreement regarding the local content requirement, which is an important determinant for developing countries to develop their own industries and to ensure linkages of FDI with domestic economic activities for fear of developing a dual economy needs to be reconsidered. India and Brazil called for a substantial modification to the TRIMs agreement, which would exempt them from its disciplines or at least allow the maintenance of local content requirements for an indefinite period.

Ways of balancing the interests of host countries with home countries:

1.   The inclusion of the right and relevant S&D treatment for developing countries and to introduce from the beginning a balanced framework, so as to set on par the protection and right of the investors and promotion of the development of developing countries is essential. Such a balance should be inherent in the structure of the Agreement itself.

2.   Developing countries will have to think of how to reintroduce and reflect the principle of “relative reciprocity” based on the asymmetry in the levels of capital, technology, regulatory framework and supply capacity, etc.

3.      S&D could be regrouped in the following types:

(a)        Technical co-operation, capacity building and exchange of experience.

(b)        Transition periods allowing for temporary flexibility and gradualism.

(c)        Exceptions and exemptions: these could be performance requirements and/or sector exceptions under certain specified conditions and for developmental reasons. Such exemptions would not be subject to a time limit and their applicability could be reviewed periodically.

(d)        Specific undertakings for developed countries to eliminate their own exceptions and exemptions on a non-reciprocal basis and in areas of interest to developing countries known as relative reciprocity.

4.   The present WTO system, especially with the Uruguay Round, has relied mainly on transition periods, broadly 5 to 10 years for developing countries after which all partners are considered “equal under the law”. Even after such periods of time, there is no guarantee that a level playing field will result from applying equal rules to unequal players. What is contemplated in an investment framework should be S&D of a more structural nature.

Competition policy

1.   The issue of competition policy had long been perceived as an issue of interest to developing countries in particular. It is worth noting that, contrary to investment, the request to negotiate competition policy and RBPs in the Uruguay Round came initially from the developing countries at the Punta del Este meeting. Though specific negotiations on the issue did not take place at the Uruguay Round, a large number of competition rules are reflected, either directly or indirectly, in various WTO agreements, including on Anti-dumping, Subsidies and Countervailing Measures, GATS, TRIPs, and State Trading Enterprises.

2.   The positions of the two different groupings, developed and developing countries are far from being harmonious. When developed countries in general and the US in particular speak of a competition policy framework, it is for the purpose of establishing domestic competition law in the developing countries to control their public sector. When developing countries, however, speak of the possibility of negotiating a competition policy framework in the WTO, it is for the purpose of curbing the RBPs at the national, regional and international levels, as their domestic competition policies at best are incapable of handling anti-competitive practices of the major TNCs.

3.    Whereas the United States has the capacity of extending its competition policies extraterritorially, other countries, particularly developing countries, lack such power. In addition, developing countries are largely unaware of cartel’s agreements affecting their economies and are largely powerless to investigate and prosecute these cartels. Even in cases where OECD countries know of international cartel activities that harm developing countries, and there is evidence available, this cannot be shared with the affected countries, as there are severe restrictions on competition authorities as to the extent to which they could share information.

4.    We also find that export cartels are legalised in the major developed countries. An interesting export cartel case is the Soda Ash case, in which six US companies formed an export cartel named Ansac. This cartel does not sell soda ash in the US, but exports to Europe and elsewhere. When India banned Ansac from exporting to India, the US threatened to withdraw GSP benefits to India’s exports to the US unless Ansac was allowed to export to India. (Issues in the WTO WGTCP: “Hard Core Cartels and Developing Countries’ Interests” An Outline Paper presented by Dr. Taimoon Stewart, the University of the West Indies – Republic of Trinidad and Tobago.)

5.    For the above mentioned reasons and others a multilateral framework for competition policy should improve the situation for developing countries. The framework of rules and disciplines in the area of competition policy should go beyond the exchange of non-confidential information. At minimum it should aim at prohibiting hard core cartels and develop the institutional capacity in developing countries to enable them to detect the cartels affecting their economies and deal with them effectively. (The Nordic countries had to change their laws to allow for successful investigation and prosecution of hard core cartels. This can not be done with non-confidential information).

6.   There is, however, one important proviso, by adopting national competition laws and opening their markets to more competition by foreign firms while, at the same, time abolishing their national monopolies, developing countries are certainly taking an immense risk. When they liberalise, they need to ensure that national companies find a niche in order to have an opportunity to develop instead of being forced out of the market. Special and differential treatment for certain industries of developing countries, particularly their small and medium-sized enterprises, would seem essential in this respect. It should include the right for these countries to exempt from full-fledged competition certain sectors of their national economy (e.g. oil, coffee, cocoa, copper, etc.).

7.    It is important for developing countries to have a competition framework in the WTO and benefiting from its DSU. The WTO representing today a more forceful and binding trading system on all its Members should not fail to cover distortions to trade by the private enterprises such as anti-competitive practices as was the original objective of the Havana Charter.

8.    In pursuing actively an international agreement on competition rules and disciplines, developing countries should be cautious, however, to agree ona step-by-step approach which would begin at the national level, while nevertheless linking it with the WTO dispute-settlement mechanism. As this could lead to sanctions and cross-sanctions if enforcement is considered inappropriate by a dispute-settlement panel. The onus will fall on the weaker partner in such an agreement.

9.    The framework should also comprise of rules and regulations aimed at making firms avoid restrictive business practices that have an effect on the international level. (e.g., a ban on export cartels, control of monopoly-creating mergers, etc.). Agreement on this type of an international framework of competition could be harder to attain. In particular, it is difficult to see how such rules and regulations would be enforced directly against forceful TNCs. Such an agreement can only be adequately implemented if sincere and sound international co-operation exists with home country authorities.

Interface between investment and competition: 

Though developing countries recognise the need of adopting adequate competition laws at the national level to allow for fair competition and thus attract more investment, they also are well aware of the fact that such laws are deficient addressing anti-competitive practices at the international level.  Thus, the growing need to look at the linkages between trade, competition and investment from a global perspective, with a view towards coming to grips with multilateral frameworks on investment and competition policy closely inter-related.

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