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Multilateral Investment Rules: Multilateral Investment Rules: Achieving a Balance in the Achieving a Balance in the

Rights/Obligations of Companies and Rights/Obligations of Companies and CountriesCountries

 

Stephen Young & Ana Teresa Tavares-LehmannStephen Young & Ana Teresa Tavares-Lehmann  

WTI, Berne, 8th April 2008

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IntroductionIntroduction

• History of international investment agreements (IIAs): radical shifts in the public policy pendulum (forces for regulation vs. for liberalisation)

• Recent past: forces for liberalisation dominated– Strong bargaining power of MNEs vis-à-vis host countries

• Last decade: new wave begun to emerge - obligations of companies and rights of countries back on the agenda

• Papers’ aim & contribution: to review these developments and discuss options for progress both within and outwith the WTO

• Paper starts by reviewing state-of-play with IIAs– Focusing on distinct levels and on the current ‘patchwork’– And on the shifting policy pendulum (since the 1940s) between

forces for liberalisation and for regulation

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State-of-play with IIAsState-of-play with IIAs

• International investment regulation: controversy– Agreement on multilateral rules never reached, and does not

seem likely in the near future (Young & Tavares, 2004)– A tale of successive disappointments (Brewer & Young, 2000)

• Issue debated since the 1940s (Havana Charter - ITO)– FDI provisions included – & among the least consensual items

• FDI vastly neglected in the multilateral agenda– Especially of the GATT - only in the context of the Uruguay Round

FDI issues brought again to the fore: TRIMs, TRIPs, GATS, SCMs, DSU

– However, investment addressed still in a collateral way

• More recently: Doha Round explicitly included FDI themes– Negotiations related to GATS, TRIPs, Antidumping & Subsidies

Agreements

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State-of-play with IIAsState-of-play with IIAs• Doha Round: special working groups set up to study

– Relationship between trade & investment, between competition & investment, and transparency in government procurement

• Doha ‘Development’ Round: major setback in Cancún (2003)

• Investment issues keep being mentioned, but prospects for a multilateral IA seem as unlikely as ever

• State-of-play is a patchwork– Complex architecture with overlapping levels: multilateral,

regional, national, subnational– Highly variable level of depth & sophistication among & within

levels– Lack of systemic coordination– Most important instrument: BITs (obligations of countries…)– Context of tough competition (‘race’) for FDI

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The Shifting Policy The Shifting Policy PendulumPendulum

Early 1980s-mid 1990s

late 1990s-early 2000s

Late 1960s-early 1980s

1940s- late 1960s

forces for regulation

weak strong

weak

strong

forces for liberalizatio

n

Source: Brewer and Young 2001

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Issues for inclusion in IIAs to balance rights/obligations of companies/countries

• Very encompassing range of issues entering debate recently

• Recent initiatives (MAI, UN Global Compact) and the rise of NGOs called attention to some of these ‘new issues’– eg UN Global Compact: promotion of global corporate

citizenship (10 principles eg human rights, environment, anti-corruption)

– Resulted from reality, & questioning simple truths like FDI spillovers are always positive

• In the past rights of firms & obligations of countries were focus of FDI-related framework– leading to increasing bargaining power of companies and

growing uneasiness of countries (esp. developing nations)

• Current sensitivities and scepticism: changes

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Issues for inclusion in IIAs to balance rights/obligations of companies/countries

• A range of ‘new’ issues, absent from the traditional agenda, gained prominence:

– Balance between efficiency and equity

– Economic development and poverty reduction

– Sustainable development

– Environmental rules e.g. climate change

– 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 by globalisation is leading to a more equitable outcome

• Active debate – potential widening gap gainers & losers– Countries, distribution of income between social groups, …

• Contribution of FDI to development– FDI impact/spillovers (development, income distribution,

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 the way MNEs operate– E.g. environmental compliance rules

• Need for fairer balance rights/obligations of firms/countries

• Kyoto Protocol and NGOs/consumer lobby putting pressure on 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 of M&A ‘waves’– MNEs and protection of workers’ rights debate

• Studies reach mixed results– Companies not typically attracted preferentially to

countries with low labour standards, some studies defend– Others: MNEs pay higher wages– Others: case examples of exploitation

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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 cause for concern, especially in countries with weak domestic structures (particularly developing nations)

• Active debate

• Recent proliferation of national and regional competition authorities

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•Rules-based approach through multilateralism (eg sector-specific approach, GATS), but limited progress likely

•Multilateralising regionalism (incorporating RIAs within WTO mechanism)

• Quasi rules-based approach, with gradation of rules:      Legally-binding core principles

EU-type system of Regulations and Directives Gradation of rules according to principles, such as level of economic development

 •Combined rules-based and voluntary approach

  Legally-binding core principles Voluntary approach for wider range of corporate citizenship/ corporate social responsibility issues

Options for ProgressOptions for Progress

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Concluding remarks

• Major challenge in improving rights of countries and obligations of companies lies less in multilateralism than in country-specific initiatives (outside remit of WTO)

• New proposals on Special & Differentiated Treatment within WTO may be positive, especially for developing countries– Country-specific programmes a step too far for the WTO

• Greater integration, coordination and transparency needed

• Need for an ‘alliance compact’ between MNEs and developing country governments as an evolving partnership– Non-binding, semi-formal agreement– MNE affiliate-government agreements on a company basis, starting

with a few MNEs (eg Business Action for Africa)

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Concluding remarks

• Our view about ways of achieving a balance in the rights/ obligations of firms/countries

• These go beyond the WTO’s remit and require voluntarism alongside regulation

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

• Therefore, reporting mechanisms have to be found to ensure that MNE-host country partnership activities are not totally divorced from the WTO

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Many examples(often business-led) e.g. Linkage development

Voluntary Initiatives in Corporate Voluntary Initiatives in Corporate Citizenship/ Corporate Social Citizenship/ Corporate Social

ResponsibilityResponsibility

Business

Action

for

Africa

UN

Global

Compact

Level

of

Initiative

National

Regional

Global

Individual MNE

MNE Alliance

MNE Populations

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Non-binding initiative launched in 1976, but regularly updated.Prevailing philosophy is ‘regulation-oriented’.Directed at but limited participation by multinational enterprises. Coverage

• Disclosure• Employment and industrial relations• Environment• Combating bribery• Consumer interests• Science & Technology• Competition• Taxation

OECD Guidelines for Multinational EnterprisesOECD Guidelines for Multinational Enterprises

(Source: www.oecd.org/dataoecd/56/36/1922428.pdf)

Voluntary Initiatives at Global Voluntary Initiatives at Global LevelLevel

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Voluntary Initiatives at Global LevelVoluntary Initiatives at Global Level (cont.) (cont.)  

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

  Voluntary initiative launched in 1999 to promote global corporate citizenship.About 2500 companies involved. Non-participating companies are removed from membership. Includes SMEs (›10 employees) as well as MNEs.Global governance principles include operation of business-led Local Networks (currently around 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 Promote initiatives 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 Sub-Regional / Regional Voluntary Initiatives at Sub-Regional / Regional LevelLevel

  Business Action for AfricaBusiness Action for Africa

(Source: www.businessactionforafrica.org)

International network of MNEs (8 major sponsors) - promoted by UK Government – focusing upon southern Africa, with 3 objectives, 6 themes.Objectives:

• Growth and poverty reduction• Promote a more balanced view of Africa• Develop and showcase good business practice

Themes:• Governance and transparency• Trade• Business climate• Enterprise and employment• Human development• Perceptions of Africa

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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 MNE affiliates and host country governments in developing countries, updated annually as an evolving partnership.

• Focus upon world-class MNEs initially• Potential range of areas for inclusion in Alliance

Compact could be quite wide, but aim to regularise what often happens currently an informal basis

• Distinction between areas where MNE managers can offer comment or advice or direct participation

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Potential issues for inclusion in alliance Potential issues for inclusion in alliance compact and MNE affiliate involvementcompact and MNE affiliate involvement

 

 

Policy areaMNE

affiliates in host country

Macroeconomic policy Monetary, fiscal, exchange rates, demand Regionalization and globalizationMacro-organization policy Market reform and privatization Trade and FDI (liberalization and removal of barriers) Transport and communications (infrastructure improvements) Competition and regulation (privatized monopolies) Education and training (school, vocational, university, firm and sector) Environmental management Regional policyMicroeconomic policies and measures Investment promotion and after-care (including support for Investment Promotion Agency) Trade promotion and facilitation Entrepreneurship and SME development Innovation and technological development Supplier linkages and clusters Regulatory reform (removal of administrative barriers; institutional reform) Stakeholder participation (internal marketing, e.g. promoting benefits of FDI and of privatization; private sector 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