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Multilateral Investment Rules: AchievingMultilateral Investment Rules: Achievinga Balance in the Rights/Obligations ofa Balance in the Rights/Obligations of

Companies and CountriesCompanies and Countries

Stephen Young & Ana Teresa TavaresStephen Young & Ana Teresa Tavares--LehmannLehmann

WTI, Berne, 8th April 2008


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IntroductionIntroduction

Historyofinternationalinvestmentagreements (IIAs):radicalshiftsinthe public policy pendulum (forcesforregulationvs.forliberalisation)

Recentpast:forcesforliberalisationdominated

Strongbargaining powerofMNEsvis--vis hostcountries

Lastdecade:newwave begunto emerge- obligationsofcompaniesandrightsofcountries backontheagenda

Papersaim & contribution:toreviewthesedevelopmentsanddiscussoptionsforprogress bothwithinandoutwiththe WTO

Paperstarts byreviewingstate-of-playwith IIAs

Focusingondistinctlevelsandonthecurrent patchwork

Andontheshiftingpolicypendulum (sincethe 1940s) betweenforcesforliberalisationandforregulation


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StateState--ofof--play with IIAsplay with IIAs

Internationalinvestmentregulation:controversy Agreementonmultilateralrulesneverreached,anddoesnotseem

likelyinthenearfuture (Young & Tavares, 2004)

Ataleofsuccessivedisappointments (Brewer & Young, 2000)

Issuedebatedsincethe 1940s (Havana Charter - ITO) FDIprovisionsincluded & amongtheleastconsensualitems

FDIvastlyneglectedinthemultilateralagenda Especiallyofthe GATT - onlyinthecontextofthe UruguayRoundFDI

issues broughtagaintothefore:TRIMs,TRIPs, GATS,SCMs,DSU However,investmentaddressedstillinacollateralway

Morerecently:DohaRound explicitlyincludedFDIthemes Negotiationsrelatedto GATS,TRIPs,Antidumping & Subsidies

Agreements


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StateState--ofof--play with IIAsplay with IIAs

DohaRound:specialworkinggroupssetuptostudy

Relationship betweentrade & investment, betweencompetition &investment,andtransparencyingovernmentprocurement

Doha DevelopmentRound:majorsetbackin Cancn (2003)

Investmentissueskeep beingmentioned, butprospectsforamultilateralIAseemas unlikelyas ever

State-of-playisapatchwork Complex architecturewithoverlappinglevels:multilateral,regional,

national,subnational Highlyvariablelevelofdepth & sophisticationamong & withinlevels

Lackofsystemiccoordination

Mostimportantinstrument: BITs (obligationsofcountries)

Contextoftoughcompetition (race)forFDI


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The Shifting Policy PendulumThe Shifting Policy Pendulum

Early1980s-mid

1990s

late 1990s-early 2000s

Late1960s-early1980s

1940s-late1960s

forcesforregulation

weak strong

weak

strong

forcesforliberalization

Source: Brewer and Young 2001


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Issues for inclusion in IIAs to balancerights/obligations of companies/countries

A rangeofnew issues, absent from thetraditionalagenda, gained prominence:

Balance between efficiency and equity Economic development and poverty reduction

Sustainabledevelopment

Environmental rules e.g. climatechange Labour and employment rights

Human rights

Competition policy and restrictive business practices


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Balance between efficiency and equity /Economic development and poverty reduction

Doubts whether allocation of resources promoted byglobalisation is leading to a more equitableoutcome

Activedebate potential widening gap gainers & losers Countries, distribution of income between social groups,

Contribution of FDI to development FDI impact/spillovers (development, incomedistribution, wages, )


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Environmental rules (particularly climate change)/Sustainable development

Though not specifically a FDI-related issue

Growing consciousness of potential impact

Impact on theway MNEs operate E.g. environmental compliancerules

Need for fairer balancerights/obligations of firms/countries

Kyoto Protocol and NGOs/consumer lobby putting pressureon MNEs MNEs responding to this pressure, as they did with CSR


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Labour and employment rights / Human rights

Another controversial area Obsession with cost reduction, social dumping

Impact ofM&Awaves

MNEs and protection of workers rights debate

Studies reach mixed results Companies not typically attracted preferentially to countries with

low labour standards, somestudies defend Others: MNEs pay higher wages

Others: case examples ofexploitation


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Competition policy & restrictive business practices

MNEs often accused of anti-competitive behaviour Building strong market power

Undertaking dumping & predatory pricing practices

A causefor concern, especially in countries with weakdomestic structures (particularly developing nations)

Activedebate

Recent prolif eration of national and regionalcompetition authorities


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Rules-based approach through multilateralism (egsector-specific approach, GATS), but limited progresslikely

Multilateralising regionalism (incorporating RIAs within

WTO mechanism)

Quasi rules-based approach, with gradation of rules: Legally-binding coreprinciples

EU-typesystem of Regulations and Directives Gradation of rules according to principles, suc h a s level ofeconomic development

Combined rules-based and voluntary approach Legally-binding coreprinciples

Voluntary approach for wider range of corporate citizenship/

Options for ProgressOptions for Progress


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Concluding remarks

Major challenge in improving rights of countries andobligations of companies lies less in multilateralism than incountry-specific initiatives (outsideremit of WTO)

New proposals on Special & Differentiated Treatment within

WTO may bepositive, especially for developing countries Country-specific programmes a step too far for theWTO

Greater integration, coordination and transparency needed

Need for an alliance compact between MNEs anddeveloping country governments as an evolving partnership Non-binding, semi-formal agreement

MNE affiliate-government agreements on a company basis, startingwith a few MNEs (eg Business Action for Africa)


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Concluding remarks

Our view about ways of achieving a balancein therights/obligations of firms/countries

These go beyond the WTOs remit and require

voluntarism alongsideregulation

It is important that the WTO remains central institutionfor liberalising and regulating the global trade &investment system

Therefore, reporting mechanisms have to be found toensure that MNE-host country partnership activities arenot totally divorced from theWTO


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Many examples(often business-led) e.g.Linkagedevelopment

Voluntary Initiatives in CorporateVoluntary Initiatives in CorporateCitizenship/ Corporate Social ResponsibilityCitizenship/ Corporate Social Responsibility

Business

Action

for

Africa

UN

Global

Compact

Level

of

Initiative

National

Regional

Global

IndividualMNE

MNEAlliance

MNEPopulations


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VoluntaryInitiativesatGlobalLevelVoluntaryInitiativesatGlobalLevel (cont.)(cont.)

United Nations Global CompactUnited Nations Global Compact(Source: www.unglobalcompact.org)

Voluntaryinitiativelaunchedin 1999 topromote globalcorporatecitizenship.

About 2500 companies involved. Non-participating companies are removed frommembership. Includes SMEs (10 employees) as well as MNEs.

Global governanceprinciples includeoperation of business-led Local Networks (currentlyaround 50).

10 Principles:

Human Rights (Principles 1 & 2)

Right to collective bargaining

Elimination of forced and compulsory labour

Abolition of child labour

Elimination of discrimination in employment

Environment(Principles 7-9) Precautionary approach to environmental challenges

Promoteinitiatives for environmental responsibility

Develop and diffuse environmentally friendly technologies

Anti-Corruption (Principle 10)

Businesses to work against all forms of corruption


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Voluntary Initiatives at SubVoluntary Initiatives at Sub--Regional / Regional LevelRegional / Regional Level

Business Action for AfricaBusiness Action for Africa

(Source: www.businessactionforafrica.org)

International network of MNEs(8 major sponsors) - promoted by UKGovernment focusing upon sout hern Africa, with 3 objectives, 6themes.

Objectives:

Growth and poverty reduction

Promote amore balanced view ofAfrica

Develop and showcase good businesspractice

Themes:

Governance and transparency Trade

Business climate

Enterprise and employment

Humandevelopment

Perceptions ofAfrica


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Voluntary Initiatives at National LevelVoluntary Initiatives at National Level

(Source: Young in Dunning & Boyd(eds), 2003)

Non-binding, semi-formal agreement between MNEaffiliatesandhostcountry governments in de velopingcountries, updated annually as an evolvingpartnership.

Focusuponworld-class MNEs initially

Potential range o f areas for inc lusion in AllianceCompact could be quite wide, but aim to reg ularisewhatoftenhappens currentlyan informal basis

Distinction betweenareaswhere MNE managers canoffer commentoradvice or direct participation


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Potential issues for inclusion in alliance compactPotential issues for inclusion in alliance compactand MNE affiliate involvementand MNE affiliate involvement

Policy area

MNE affiliates

inhostcountry

Macroeconomic policyMonetary, fiscal, exchangerates, demandRegionalization and globalization

Macro-organization policyMarket reform and privatizationTradeand FDI (liberalization and removal ofbarriers)

Transport and communications (infrastructureimprovements)Competition and regulation (privatized monopolies)Education and training (school, vocational, university, firm and

sector)Environmental managementRegional policy

Microeconomic policies and measuresInvestment promotion and after-care (including support for

Investment Promotion Agency)Tradepromotion and facilitationEntrepreneurship and SME developmentInnovation and technological developmentSupplier linkages and clustersRegulatory reform (removal of administrative barriers;

institutional reform)Stakeholder participation (internal marketing, e.g. promoting

benefits of FDI and of privatization; privatesector advocacy)

(C)(A)

(C)(A)

(A)(C)

(P)(C/A)(C)

(A/P)(A)(A/P)(A/P)(P)

(A)

(A)

NOTE: C=comment;A=advice; P=participation Source: Young 2003

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