Investment for Development

Papers and Power Point Presentations at IFD-Launch Meeting

Paper Presentations

International Investment Rule-Making: Overview, Relevance and Role of Civil Society, Particularly Non-Governmental Organizations: Khalil Hamdani

Benefits and Costs of FDI for Development: An ongoing OECD project:  Hans Christiansen

Mozambique’s experience in attracting beneficial IFD: The case of Mozal aluminium smelter: Leonido Funzamo

International Investment and Environmental issues: the case of Kenya's Kwale mineral sands project : David O Ongo’lo

Can Developing Countries use Foreign Investment to move up the Development Ladder: Suman Bery

Consumer Public Perceptions of Competition Policy and Consumer Protection in South Africa: Diane R Terblanche

Power Point Presentations

Country Reports

Country Reports

INTERNATIONAL INVESTMENT RULE-MAKING: OVERVIEW, RELEVANCE AND ROLE OF CIVIL SOCIETY, PARTICULARLY NON-GOVERNMENTAL ORGANIZATIONS

Foreign direct investment and IIAs

The role of UNCTAD

Civil society and IIAs

Khalil Hamdani, Chief, Investment Policies and Capacity-building (IPCB) Branch, 

Division on Investment, Technology and Enterprise Development (DITE), 

United Nations Conference for Trade and Development (UNCTAD), Geneva,

DITE/IPCB/IA/PUB/2001/10

Honorable chair, distinguished delegates, ladies and gentlemen

It is a great pleasure and indeed a privilege for me to address you today.  UNCTAD is honored to have been invited to participate in the project on “Awareness and capacity-building for civil society on investment regimes and international investment issues” and its inaugural brainstorming seminar.  I am bringing with me a special message from the Secretary-General of UNCTAD, Mr. Rubens Ricupero, expressing his personal regrets to not be able to be with us here today due to other commitments in connection with the preparation of the forthcoming United Nations Conference on Finance for Development.

Foreign direct investment and IIAs

Chair,

Today, foreign direct investment (FDI) is widely recognized as a major potential contributor to growth and development that brings not only capital to the host country, but also technology, management know-how and access to new markets.   In comparison with other forms of capital flows, it is also more stable, with a longer‑term commitment to the host economy.  It is not surprising therefore that today virtually all countries are pursuing investment-friendly policies and actively seek to attract FDI.

This has greatly contributed to a remarkable increase in FDI inflows to developing countries, which today account for roughly 24 per cent of world inflows and 30 per cent of global inward stock.  This investment is however concentrated in roughly 10 developing countries, mostly the newly industrializing countries in Asia and Latin America.  That means that 90 per cent of the developing world, and especially all least developed countries, do not fully participate in the FDI boom and the most forceful of elements that characterizes the process of globalization.  Although a word of caution should be added here in terms of the relative importance of FDI -- as indeed one dollar invested in India means more to this country's economy as the same dollar invested in Louisville, Kentucky -- this picture of marginalization is of great concern to the global community.

To address this concern, most developing countries are not only establishing national legal frameworks aimed at reducing obstacles to FDI, they are also participating actively in international investment agreements (IIAs) at the bilateral, regional, interregional and multilateral levels.   They do so in the belief that, on balance, such engagement will help to increase their countries’ attractiveness to foreign investors through the legal stability, predictability and transparency that such treaties entail.  However, like all international instruments, such agreements  typically contain obligations that, by their very nature, reduce to some extent the autonomy of the participating countries and limit the policy options available to developing-country governments in the pursuit if their national development objectives through FDI.  The basic challenge in discussing and/or negotiating IIAs is hence to achieve a balance between the need to create a stable, predictable and transparent FDI policy framework in which firms can advance their corporate objectives on the one hand, and the need to retain the margin of freedom necessary to pursue particular national development objectives on the other.

At the same time, international agreements need to take into account the important differences in the characteristics of all parties involved; most importantly, the economic asymmetries and different levels of development between developing and developed countries.  If international agreements in this area do not allow developing countries to pursue their fundamental objective of advancing their development and indeed make a positive contribution to this objective, they run the risk of being of little or no interest to them.  This underlines the importance of designing agreements, and indeed the obligations they entail, in such manner that allows all parties a certain degree of flexibility in pursuing development objectives. The most difficult challenge that arise in the discussion and/or negotiation of international investment agreements is therefore to find the proper balance between obligations and flexibility; a balance that leaves sufficient space for development‑oriented national policies.

The role of UNCTAD

Chair,

Many developing countries have requested UNCTAD's assistance in strengthening their FDI policy making capacity at the national and international level so that they can take full advantage of the emerging regional and global investment opportunities, as well as learn from the rich global diversity of sustainable investment policy experiences and best practices.  UNCTAD, as a development organization, has a special responsibility to assist developing countries in these processes.  The objective of UNCTAD's work programme on IIAs, which was launched after the Midrand Conference in South Africa in 1996 and endorsed in the Bangkok Plan of Action of UNCTAD X in February 2000, is to deepen the insight into the key issues and concepts involved and to ensure that the development dimension is understood and adequately addressed. 

In carrying out this work, let me emphasize that UNCTAD is not in itself a negotiating forum for international investment issues, nor does it take a stance on the value of IIAs and their negotiation and discussion.  Rather, it is for governments themselves to decide whether or not they wish to negotiate on any of these matters, and, if so, where and when.  UNCTAD can facilitate this decision-making process, it cannot make the decision.  Our ultimate objective is to ensure the effective participation of developing countries in negotiations and discussions.

Our work in this area is aimed at enabling developing countries to participate as effectively as possible in discussions on and/or negotiations of IIAs, be they at the bilateral, regional or international level, and at ensuring that the development dimension is adequately addressed. Main activities are Centreed around training and capacity- and consensus-building seminars and workshops that are based on our Issues in International Investment Agreements series.   Looking at the core elements of IIAs -- such as national treatment, MFN, etc. -- from a development perspective, this series has established a standard working tool for negotiators from developed and developing countries alike. Other main activities in this area include our facilitation services to the negotiation of bilateral investment treaties and double taxation treaties involving the countries of the South, and our advice to regional organizations with regard to the formulation and/or modernization of existing investment regimes. 

It is in line with this work programme that members of the WTO have recently agreed, in their Declaration of the Fourth Session of the WTO Ministerial Conference in Doha, to call on UNCTAD to work with the WTO and other relevant intergovernmental organizations to cooperate in the provision of strengthened and adequately resourced technical assistance in the pursuance of the mandate to prepare for negotiations in the WTO on investment.

The third pillar of this work programme consist ofcapacity-building through engagement of civil society and private-public-sector dialogue events.  This element brought me here today.  It consists of a series of seminars and workshops conducted for non-governmental organizations. The objective of these seminars/workshops is twofold: first, they aim to familiarize representatives of civil society with current issues related to IIAs and to the working of intergovernmental machineries dealing with this issue. Secondly, they are meant to provide a forum for an exchange of views between civil society and policy-makers in this area. In both ways, these seminars/workshops will contribute to a wider consensus building in this area.  In the past, several NGOs have already participated in, and benefited from this approach, through involvement in regional symposia, seminars for Geneva delegates and a series of public-private sector dialogue events.  They included, among others, CUTS -- our host today, as well as the International Confederation of Free Trade Unions, Oxfam, SOMO, the Third World Network, and the World Wildlife Fund International. 

Civil society and IIAs

Chair,

The involvement of civil society in our work reflects, of course, the growing importance it plays in international economic rule-making.  This evolving importance can be best exemplified in the failed attempt to conclude an OECD Multilateral Agreement on Investment (MAI) in the late 1990s.

 Whereas it is widely accepted that one reason for the failure of the MAI was a change in the political climate during the course of the negotiations and the emergence of a backlash against globalization, it is also acknowledged that the proliferated stance of non-governmental organizations (NGOs) not only played a role in bringing about this change in the political climate but also directly contributed to the abandoning of the OECD’s efforts in this regard.

For one, the new centre/left Governments in a number of influential OECD countries brought in new political priorities, while the Asian crisis and its aftermath called for caution regarding capital mobility.  In other words, in 1995, when the negotiations began, it was generally believed among negotiators that the MAI exercise was primarily a task of assembling the technical elements from various existing IIAs into a rational whole that would have substantial systemic benefits which would appeal to the political constituencies of the countries involved.  As the negotiations progressed, however, the technical exercise had become a political one.

For the other, negotiators of the MAI clearly underestimated the intensity of the public debate the MAI would provoke in some countries, although consultations with capitals and stakeholders had taken place during the preparatory process.  Indeed, the influence of NGOs brought about unexpected developments at a relatively late stage of the negotiations.  This was so, in particular, with respect to the issues of indirect expropriation and investor-to-State dispute settlement, issues that initially had been perceived to be relatively easy to deal with, as they had already been included in numerous IIAs.  This was in part a reaction to what was perceived by NGOs as lack of appropriate consultations with key stakeholders in the framework of a process they considered to be closed and opaque.  But NGOs argued that their fears were just as much the result of real concern over the underlying philosophy and approach of the MAI, its structure and objectives, as well as a number of substantive issues; its failure to deal with competition, corruption and investor behaviour, the increase in investor rights as regards the definition of investment; pre-establishment protection; performance requirements and expropriation -- in short, the failure of the MAI to adequately address the development dimension while at the same time openly intended to be open to accession by developing countries.

Since then, civil society -- as spearheaded by a number of NGOs -- has become a force to deal with in international investment rule-making in particular and international economic rule-making in general. Indeed, no international gathering dealing with the problems of the world economy has lacked the virulent (and, at times, violent) involvement of civil society stakeholders. As far as investment is concerned, these groups are skeptical about the bold claims made for foreign investment as a development panacea.  The questions raised in this regard centre around the issues of whether greater international investment can bring substantial benefits to developing countries, particularly in terms of the transfer of resources (financial, technical and human), and whether international rule-making in this area, and particularly a comprehensive regulatory framework, can indeed promote sustainable development.  More specifically, FDI and its regulatory (national, bilateral, regional and multilateral) frameworks are scrutinized in terms of their contribution to strengthening of the links to the national economy, the direct costs of attracting FDI, competition with local firms, community development, levels of reinvestment, technology transfer, environmental quality and natural resource use, and cultural issues, to name a few.

In view of the significance of these issues, any discussions on IIAs are obviously important to all governments and civil society as a whole.  At the same time, there is a need for full and effective participation of all groups of civil society, to hear their views and benefit from their experiences. Specifically, NGOs have developed positions and views concerning IIAs that need to be brought into the process of international investment-rulemaking.  However, to be able to participate effectively in this debate, there is also a need for educated insight in the economics and politics of FDI, i.e. what determines flows, how do global TNC structures impact on local affiliate behaviour, how can countries increase the development benefits that FDI undoubtedly entails. The need for better insight goes beyond these general issues, however, and extends to the need to understand local FDI experiences and problems. 

Such general and specific insight will provide tools to enable civil society organisations to effectively participate in the called-for public dialogue on these matters and to raise issues from their perspective on negotiations on and/or discussions of FDI agreements.  This important role of NGOs has also been recognized in the Doha Ministerial Declaration of the WTO (paragraph 10).  Contributions and discussions based on profound knowledge of the matter at hand will give an insight in the different ways in which investment agreements are being discussed and decided on: macro‑economic analysis, investment policies and the global context, the technical level of articles of an investment agreement and the room of manoeuvre for improvement and changes from a development perspective, and by looking at the advantages and disadvantages of foreign investment and its impact on people and the environment.

The current inaugural seminar, as well as the series of regional seminars for NGOs that will follow, aims to fulfill this purpose: to provide a preliminary forum for exchange and capacity-building that will allow representatives of civil society to form and voice their views on this issue.  By familiarizing representatives of NGOs with the economics and politics of FDI, a better and more result-orientated involvement of civil society in FDI-policy decision-making process will emerge, in the interest of increasing the development benefits that host developing countries can derive from the FDI that they receive.  At the same time, our gathering here and the seminar series that follows will provide the opportunity to discuss the kind of political and civil society activities that promote changes in investment policies and agreements, and to create links of exchange and cooperation among civil society.

It is my hope that the Symposium being held here in Jaipur will make a valuable contribution to this endeavour.  With this in mind, I wish you every success in your discussions over the next two days.

In closing, I wish to acknowledge the financial support of the Government of the United Kingdom to this Symposium and the generous hospitality of CUTs which is hosting the event.  I also wish to express UNCTAD’s appreciation for the support by numerous donor countries, including the United Kingdom, to our work programme on IIAs.

CONTACT US

CUTS Centre For International Trade, Economics & Environment (CITEE)

D–217,  Bhaskar Marg,  Bani  Park, 

Jaipur  302 016,  India,

Ph: 91.141.2282821

Fax: 91.141.2282485  

Email: cuts@cuts.org /ifd_cuts@rediffmail.com

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