South Asia Watch on Trade, Economics & Environment (SAWTEE)

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Investment within BIMSTEC
Published: The Kathmandu Post, 19 March 2004
By: Ratnakar Adhikari

Last month, at a meeting organised by Trade Promotion Centre in Kathmandu, Prof Mahendra Lama of Jawaharlal Nehru University said: “Bureaucrats start thinking after they retire and politicians after they die.” I could not figure out in which context he was saying that, but now realise that it is perfectly applicable in the present context of Nepal.

Along the same line, a group of politician and bureaucrats of the country, claiming to represent the people of Nepal, went and signed BIMSTEC Free Trade Agreement (FTA) last month in Phuket, Thailand. After returning home, they have started blowing their own trumpet saying that they were able to make landmark achievements by signing the FTA, without thinking about its possible fallouts.

They have even branded the sceptics as cynical, doing great disservice to the nation. Unfortunately, those sceptics do not belong to the ultra radical camp. Most of them are those academicians and researchers, who have devoted a significant portion of their lives working on trade policy issues. They have obviously become a “pain in the back” for the government because of their criticisms, which this government is finding difficult to swallow.

Taking the risk of being blamed as an anti-national element by the most nationalist government Nepal has ever had, I would like to provide the readers with an idea about the possible fallouts of the inclusion of investment agreement within BIMSTEC FTA. There are other equally controversial issues such as liberalisation commitment on goods sectors by eliminating tariff (i.e., bringing down the tariff to zero) and liberalisation of services in a GATS plus mode (i.e., making it more liberal than at the WTO), and lack of revenue compensation mechanisms for the least developed countries (LDCs). However, this column does not purport to raise those issues.

History is replete with the examples of failed attempts by the developed countries to bring stricter disciplines on investment at the global level with a view to protecting the rights of the investors, albeit without corresponding responsibilities. When the developed countries wanted to introduce this subject during the Uruguay Round (UR) of trade negotiations under the aegis of General Agreement on Tariffs and Trade (GATT), they faced stiff resistance from the developing countries. This is because an investment agreement containing “non-discrimination” (most-favoured nation and national treatment) and “right to establishment” provisions restricts the policy options of the host government to regulate investment in pursuance of its developmental objectives.

Finally, developed countries had to agree to a minimalist text on investment within the UR Agreements – which is currently known as the Trade Related Investment Measures (TRIMS). This Agreement is not as harmful for the developing countries as the developed countries would have wanted it to be because it only imposes on the host country an obligation not to make use of performance (such as local content and export balancing) requirements.

Our informed readers do not need to be reminded that due to the pressure of the developed countries, in particular the European Union (EU), it was decided by the fourth Ministerial Conference of the WTO held in Doha that negotiations on Singapore Issues (which includes investment issue) would commence after the fifth Ministerial. Due to the collective force of the developing countries to withstand the pressure from the developed ones during the fifth Ministerial held in Cancun in September 2003, the Ministerial itself collapsed.

At the same time, those developed countries, which wanted to protect their investment, have been opting for bilateral and regional routes. Currently there are more than 2,000 bilateral investment treaties (BITs) in the world, and some of the progressive regional trading arrangements [such as EU and North American Free Trade Agreement (NAFTA)] contain investment provisions. However, the investment Chapter under NAFTA (the so called Chapter XI) is being criticised for being heavily biased in favour of the investors.

Two of the most controversial provisions within Chapter XI of NAFTA are those on “deemed expropriation” and “investor to State dispute”. While the first provision severely restricts the policy space of the governments to exercise its sovereign power to impose even social, health and environmental standards, the second provision allows the foreign investors to sue the State if they feel that the government has “violated” their rights. One of the reasons for the developing countries to have opposed the inclusion of the investment agreement within the WTO is that the developed countries are trying to use this very highly contentious Chapter of NAFTA as the template for a multilateral investment agreement.

If we go back to recent history (1996-98) we find that there was an attempt made by the richest countries of the world to prepare an investment treaty (then named Multilateral Agreement on Investment or MAI) among themselves within the Organisation for Economic

Cooperation and Development (OECD), building on NAFTA Chapter XI. Though their long-term vision was to bring the agreement into the WTO after having agreed among themselves, they were unable to reach consensus. While the entire text of the treaty was 300 pages, reservations made by the countries had reached 600 pages! Finally, when France refused to join the consensus, Canada followed suit leading to the collapse of the entire agreement.

Readers would also recall that while there is a clear North-South divide on trade and investment issues, there is another layer of North-South divide within the South also – with the relatively better off countries in the South trying to coerce, mislead and dupe the weaker ones to get their way. The former ones, who never get tired of blaming the developed countries for institutionalising double standards, practice the same within the South.

BIMSTEC FTA membership comprises relatively better off developing countries as well as desperately poor LDCs. The former ones are making an indirect attempt to include NAFTA Chapter XI type investment agreement within the BIMSTEC FTA and our trade negotiators fail to understand the game being played. May God give them some sense of judgement, coupled with the ability to think!

If one goes through the wordings of the investment paragraph, it can be found that it has already opened the door for providing “rights to establishment” to the foreign investors – which coupled with non-discrimination provision of the FTA – is bound to spell disaster for this tiny little country.

It is my humble request to our trade negotiators to read the text of any treaty before signing, and particularly focus on enhancing their capacity to be able to read “between the lines”. This will provide an opportunity for them to weigh the pros and cons of the given treaty. This will also help ensure that they do not blow their own trumpet anymore – after signing a raw deal.

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