Investment Facilitation at the WTO: An attempt to bring a controversial issue into an organization in crisis

Out of the WTO’s 164 members, 70 have formally signed on to so-called “structured discussions” aimed at identifying what issues and elements could form a basis for a multilateral framework for investment facilitation that they could present at the 12th Ministerial Conference in Kazakhstan in June 2020. The members involved in this effort plan to wrap up the latest phase of their work by the end of July 2019, which has been devoted to reviewing concrete examples of different investment facilitation issues that members raised throughout last year. These structured discussions have brought investment back into the limelight, a subject that has a long and complex history, but has only recently re-emerged within the WTO context.

We describe how the investment facilitation debate has evolved in the WTO, from the early days of investment as a so-called “Singapore issue” to the 11th Ministerial Conference in Buenos Aires in December 2017 and the structured discussions that have unfolded since.

1. From Singapore to Cancún: The failed attempts to develop multilateral rules on investment at the WTO

When the WTO replaced the GATT system in January 1995, it already had in its rules some limited provisions relating to investment, including those incorporated in the General Agreement on Trade in Services (GATS) and featured throughout the Agreement on Trade-Related Investment Measures (TRIMs). At the WTO’s first-ever ministerial conference in Singapore in 1996, members set up working groups devoted to the relationship between trade and investment, trade and competition policy, transparency in government procurement, and trade facilitation.[1]

These Singapore issues were later brought into the 2001 Doha Ministerial Declaration, which launched the Doha Round, where members were due to negotiate reforms on agriculture, non-agricultural market access, services, and various other items while placing developing country members’ “needs and interests at the heart” of this work. [2] Along with adopting this Doha work program, ministers agreed that negotiations on these Singapore issues would begin after their Fifth Session. The paragraphs in the Doha Declaration on investment refer to “the case for a multilateral framework to secure transparent, stable and predictable conditions for long-term cross-border investment, particularly foreign direct investment, that will contribute to the expansion of trade, and the need for enhanced technical assistance and capacity-building in this area.”1, 2

Ultimately, that “Fifth Session” turned into the 2003 Cancún Ministerial, one of the most high-profile collapses in the WTO’s history, which fell apart partly due to severe disagreement over whether to launch negotiations on the Singapore issues, and if so which ones. After days of round-the-clock negotiations, ministers were unable to agree on a declaration or other consensus statement when the meeting closed.[3] The July 2004 meeting of the WTO General Council dropped all the Singapore issues except for trade facilitation, which was incorporated into the Doha Round.[4]

This was not the only effort underway to negotiate a multilateral agreement on investment. Negotiations on such an accord had previously taken place at the OECD, which would have also involved the participation of non-OECD countries, but ultimately were abandoned in 1998.[5]

While investment was dropped as a WTO negotiating issue in 2004, the international landscape on investment protection and liberalization continued to evolve through BITs and other treaties with investment provisions. These treaties and associated ISDS regimes now face intense criticism and calls for reform.

More recently, the subject of investment facilitation has gained attention as another aspect of investment law and policy. Investment facilitation is at the centre of Brazil’s innovative investment treaty model developed in 2015, which has since served as the basis for various agreements that the South American country has negotiated with other partners.[6] Investment facilitation is also integrated in the work of several international organizations, such as UNCTAD, the OECD, and the World Bank.[7] In 2016, UNCTAD released its Global Action Menu on Investment Facilitation.[8]

2. New attempts to include investment in the WTO via investment facilitation

Investment started re-emerging as an area of interest for some WTO members, initially within two coalitions: MIKTA (Mexico, Indonesia, South Korea, Turkey, and Australia) and the Friends of Investment Facilitation for Development (FIFD), which involved various developing country members. These two groups convened informal meetings and workshops throughout 2017 on whether and how the WTO could be a place for considering “measures that Members could take to facilitate investment.”[9]

That effort led to the adoption of a Joint Ministerial Statement on Investment Facilitation for Development at the 11th Ministerial Conference in Buenos Aires at the end of 2017, with 70 members announcing the launch of “structured discussions with the aim of developing a multilateral framework on investment facilitation.” To address some members’ concerns about an attempt to develop multilateral rules on investment liberalization and protection, the group clarified that this work would exclude market access, investment protection and ISDS.[10]

While the exclusion of ISDS seems straightforward, the delineation between investment facilitation on the one hand and market access and protection on the other is blurry at best, so that the distinction would be hard to implement. Indeed, some issues that are already being considered in this context, and which could lead to potential disciplines, such as mandatory time limits for government decisions on the admission of proposed investments, go directly to market access questions and the ability of governments to evaluate proposed investments effectively before making decisions.

These structured discussions are not formal negotiations, given that launching negotiations on new issues within the WTO requires consensus from the entire membership, as stated in the 2015 Nairobi Ministerial Declaration.[11] Still, even the exclusion of the most contentious issues from the structured discussions was insufficient to convince the remaining 94 WTO members to join at that stage.

The structured discussions aim primarily to identify a set of issues and elements within the areas listed in the joint statement, namely on how to ensure “transparency and predictability of investment measures; streamline and speed up administrative procedures and requirements; and enhance international cooperation, information sharing, the exchange of best practices, and relations with relevant stakeholders, including dispute prevention.” 7

Throughout 2018, participants in the joint initiative met regularly to discuss issues that could be considered within the broader areas described in the Buenos Aires statement.[12] This led to the preparation of an 81-item checklist of issues for further examination and potential inclusion in a multilateral framework. Despite claims that the discussions are fully transparent, the full list has been kept out of public scrutiny to date.[13], [14] Participants have since been looking at and compiling concrete examples of investment facilitation measures that are featured in the checklist, looking to finalize this stage by the end of July.16

The ongoing work of the joint initiative on investment facilitation should not obscure how openly controversial the initiative is among the wider WTO membership, with several—such as Eswatini, the Gambia, India, South Africa, Uganda, and Zimbabwe[15]—arguing that this issue falls outside the WTO’s mandate and that any negotiation on new issues will, as stated in Nairobi, require consensus from the full membership and could have major systemic implications. Several members, particularly some developing country members, have warned that the energy devoted to new issues could distract from advancing negotiations on priority issues from the original Doha agenda.[16]

The proponents of investment facilitation in the WTO appear to look towards the success in negotiating the Trade Facilitation Agreement (TFA) as proof that the global trade body’s members can and should use it as inspiration when negotiating on certain “new issues”—even when the TFA’s context may not apply. The TFA is the only full-fledged multilateral agreement adopted since the WTO’s creation, though it too required about a decade of negotiation.[17]

Upon closer consideration, the parallels between trade and investment facilitation—besides the obvious similarities in name, and the shared background in terms of the Singapore issues—are limited in theory and practice. Trade facilitation involves what happens to goods as they cross national borders, with TFA measures focused on issues such as the release and clearance of goods. Investment facilitation, by comparison, goes well beyond border issues and relates to the establishment and subsequent operation of an enterprise, potentially involving a wide range of regulatory issues as diverse as environment, labour, consumer protection, competition, transportation, anti-corruption, taxation, health, and safety, among others.[18] The TFA experience therefore is an inappropriate anchor for promoting the investment facilitation discussions.

3. Investment facilitation and international investment governance

The history above indicates that launching investment negotiations in the WTO would face tremendous challenges and risk using up resources that could be better spent in other, more urgent areas. Launching negotiations on investment would also risk splitting the WTO membership further at a time when trade multilateralism is already in crisis. But it is not only for these reasons that we believe that governments should refrain from embarking on investment facilitation negotiations. The WTO is about developing binding disciplines to regulate trade. But the issue of investment facilitation at the international level should focus instead on better understanding needs, developing cooperative structures and building capacity. There are few, if any, empirical studies on what has been successful and what is needed to facilitate investment, and even less so on facilitating investment for sustainable development, which inherently requires government decision-making powers to be exercised.[19] Rather than imposing requirements to set up one-stop shops or consultation processes for instance, states should benefit from technical support from specialized international agencies, such as UNCTAD[20] and the OECD, to facilitate investment for sustainable development purposes through informed, innovative and efficient decision-making processes.

Furthermore, the international community should ask whether introducing binding multilateral rules on the narrow issue of investment facilitation at the WTO could lead to duplication and further fragmentation of international investment governance. No other area of international economic law has developed in a fashion as piecemeal as investment. There are investment protection rules in BITs and FTAs; investment liberalization in regional agreements, BITs and FTAs; investment dispute settlement in UNCITRAL, ICSID, BITs, FTAs and other treaties with investment provisions; international investment policy oversight, dialogue, and capacity building at UNCTAD; investment promotion and facilitation support at UNCTAD, OECD and the World Bank; and business and human rights and responsible business conduct at the Office of the United Nations High Commissioner for Human Rights (OHCHR) and OECD. In addition, investment for sustainable development is intrinsically linked to the SDGs under Agenda 2030.

Instead of rushing into disciplines in an organization that lacks the necessary substantive expertise on investment and has struggled to fulfil the sustainable development part of its mandate through its rule-making efforts, states should consider how to best structure international investment governance to advance sustainable development. Reflections on investment facilitation would form one aspect of such broader discussions on international investment governance. These should take place through an inclusive, open, and publicly accessible process, likely in the United Nations but in partnership with other relevant organizations outside the UN, such as the WTO and the OECD, and result in creative solutions on how specialized institutions can best coordinate and collaborate to achieve the overarching objective of investment for sustainable development.

Authors

Sofía Baliño is a media and communications officer with a background in trade journalism working in the Economic Law and Policy Program at IISD. Nathalie Bernasconi-Osterwalder leads the Economic Law and Policy Program at IISD and is Executive Director of IISD Europe in Geneva.

Notes

[1] WTO. (1996). Singapore Ministerial Declaration. Retrieved from https://www.wto.org/english/thewto_e/minist_e/min96_e/wtodec_e.htm

[2] WTO. (2001). Doha Ministerial Declaration. Retrieved from https://www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_e.htm#tradeinvestment

[3] Bridges Daily Update. (2003, September 15). Cancun collapse: When there’s no will there’s no way. Retrieved from https://www.ictsd.org/bridges-news/bridges/news/bridges-daily-update-6-cancun-collapse-where-theres-no-will-theres-no-way

[4] WTO. (2004). The July 2004 package. Retrieved from https://www.wto.org/english/tratop_e/dda_e/dda_package_july04_e.htm

[5] See Drabek, Z. (1998). A multilateral agreement on investment: Convincing the sceptics. Retrieved from https://www.wto.org/english/res_e/reser_e/pera9805.doc; OECD. Multilateral agreement on investment. Retrieved from https://www.oecd.org/investment/internationalinvestmentagreements/multilateralagreementoninvestment.htm

[6] See Martins, J. H. V. (2017). Brazil’s cooperation and facilitation investment agreements (CFIA) and recent developments. Investment Treaty News, 8(2), 10–12. Retrieved from http://www.iisd.org/ITN/2017/06/12/brazils-cooperation-facilitation-investment-agreements-cfia-recent-developments-jose-henrique-vieira-martins; Bernasconi-Osterwalder, N., & Brauch, M. D. (2015). Brazil’s innovative approach to international investment law. Geneva: IISD. Retrieved from https://www.iisd.org/blog/brazils-innovative-approach-international-investment-law

[7] See Zhang, J. (2018, July). Investment facilitation: Making sense of concepts, discussions and processes. Geneva: IISD. Retrieved from https://www.iisd.org/library/investment-facilitation-making-sense-concepts-discussions-and-processes

[8] UNCTAD. (2017, May). Global action menu for investment facilitation. Geneva: UNCTAD. Retrieved from https://investmentpolicy.unctad.org/publications/148/unctad-global-action-menu-for-investment-facilitation

[9] WTO. (2017, April 21). Proposal for a WTO informal dialogue on investment facilitation for development. Retrieved from https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdList=236954,236782,236668,236429,236189,236149,235960,235961,235962,235526&CurrentCatalogueIdIndex=6

[10] WTO. (2017, December 13). Joint ministerial statement on investment facilitation for development. Retrieved from https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdList=240870&CurrentCatalogueIdIndex=0. The sponsors listed on the joint statement included Argentina, Australia, Benin, Brazil, Cambodia, Canada, Chile, China, Colombia, Costa Rica, El Salvador, the European Union, Guatemala, Guinea, Honduras, Hong Kong, Japan, Kazakhstan, South Korea, Kuwait, Kyrgyz Republic, Lao People’s Democratic Republic, Liberia, Macao, Malaysia, Mexico, Moldova, Montenegro, Myanmar, New Zealand, Nicaragua, Nigeria, Pakistan, Panama, Paraguay, Qatar, Russian Federation, Singapore, Switzerland, Tajikistan, Togo and Uruguay.

[11] WTO. (2015, December 19). Nairobi Ministerial Declaration. Retrieved from https://www.wto.org/english/thewto_e/minist_e/mc10_e/mindecision_e.htm

[12] WTO (2018, 2-4 October). WTO public forum: Trade 2030: Working session 29, Investment facilitation for development. Session notes taken on site, supporting audio available online at https://www.wto.org/audio/pf18session29.mp3.

[13] Graduate Institute, German Development Institute (2019, May 23). A multilateral framework on investment facilitation. Retrieved from https://www.die-gdi.de/en/events/details/a-multilateral-framework-on-investment-facilitation.

[14] WTO. (2019). Informal dialogue on investment facilitation for development. Retrieved from https://www.wto.org/english/thewto_e/acc_e/ifd_feb2019_v1.pdf

[15] See statements available at https://www.wto.org/english/thewto_e/minist_e/mc11_e/mc11_plenary_e.htm

[16] WTO. (2017, July 21). Minutes of the meeting held in the Centre William Rappard on 10 and 18 May 2017. Retrieved from https://docs.wto.org/dol2fe/Pages/FE_Search/DDFDocuments/237843/q/WT/GC/M167.pdf

[17] WTO. (2014). Bali package and November 2014 decisions. Retrieved from https://www.wto.org/english/thewto_e/minist_e/mc9_e/balipackage_e.htm#trade_facilitation

[18] Brauch, M. D., Mann, H., and Bernasconi-Osterwalder, N. (2019, January). SADC–IISD investment facilitation workshop: Report of the meeting held August 21–23, 2018 in Johannesburg, South Africa, pp. 4–5. Geneva: IISD. Retrieved from https://iisd.org/library/sadc-iisd-investment-facilitation-workshop

[19] UNCTAD. (2015). Investment policy framework for sustainable development. Retrieved from https://investmentpolicy.unctad.org/publications/149/unctad-investment-policy-framework-for-sustainable-development Note that the UNCTAD action items on investment facilitation are not suggested as potential legal obligations but are meant rather for promoting effective decision-making.

[20] Brauch, M. D. (2017, December). A risky tango? Investment facilitation and the WTO Ministerial Conference in Buenos Aires. Geneva: IISD. Retrieved from https://www.iisd.org/library/risky-tango-investment-facilitation-and-wto-ministerial-conference-buenos-aires