Issue 65 Sept 1998
THE MULTILATERAL AGREEMENT on INVESTMENT
United Nations Conference on Trade and Development (UNCTAD) debates Globalisation
'The joy of the heart lies in striving upward' – 'HEART 1932'
The Trade and Development Board of UNCTAD, which held its 44th Session in October last year, discussed changes in the world economy in relation to growth and inequality, competition and competitiveness, and the special problems of the least developed countries (LDCs).
Opening the meeting, the president of the board, Goce Petreski, said that every meeting bears its own contradictions and dilemmas and that those affecting the end of this century are globalisation and interdependence on the one hand, and the quest for identity and political and cultural freedom on the other. UNCTAD Secretary-General Rubens Ricupero added that as nations struggle to come to grips with global trends and other forces beyond their control it takes a multilateral body with a universal membership and a mandate such as UNCTAD's to examine the interdependent nature of complex economic phenomena and to propose appropriate measures to policy makers.
The first segment of the meeting tackled these questions on the basis of UNCTAD's 1997 report, emphasising the increasing income gaps within and between nations, which appear to be reinforced by the forces of globalisation. The spokesman of the Asian Group and China said that globalisation had increased opportunities for growth and development, but increasing disparities in many parts of the world were fuelling a consciousness of marginalisation and injustice, which could lead to conflict and violence. He stressed the need to provide adequate education, training and social safety nets, as well as to develop capital formation policies that would re-establish industry, agriculture and investment in real productive capacity as the dominant sectors of economic activity.
The United States representative said that while extreme inequality was undesirable, some degree of income dispersion provided valuable incentives. He suggested that the optimal amount of inequality might be associated with maximum output. As for the growing gap between countries, he said that it did not necessarily imply a reduction in absolute as opposed to relative standards of living for the citizens of countries on the low end of global income distribution.
The European Union representative noted that the 1997 Report was more pessimistic than that of other international organisations. Nevertheless, the data on inequality presented was cause for concern and the relationship between globalisation, growth and economic polarization merited further research.
Board members reached 'agreed conclusions', which included acceptance that world income gaps across and within countries have generally widened over the past two decades and acknowledgement that globalisation may have contributed to this tendency: that 'there are social and political limits to growing inequality and that if pushed too far income disparities can provoke a backlash, generating instability and triggering populist policies and protectionist tendencies which nullify the economic gains of closer integration.' The text recommended that 'measures to achieve higher employment rates, fiscal stability and social objectives, including appropriate social safety nets, should complement policies fostering economic growth.' The Japanese delegation said it would be better to focus on the opportunities posed by globalisation rather than the threats.
Least Developed Countries (LDCS)
The LDC delegations emphasised how vulnerable many of them remain to marginalisation from the world economy. They noted with concern that their debt situation overall continued to worsen and that debt servicing alone absorbed an excessive proportion of their limited foreign currency resources. Several delegations of developed countries said that in the long term the better solution was for the LDCs to become more competitive, particularly by strengthening their supply capacity. Mr Ricupero insisted that technical discussions must keep the human and ethical dimension at the fore: that these were not just technical but deeply political matters related to the of struggle for power.'
Africa
Since 35 of the 48 LDCs are in Africa, some points discussed related closely to those raised in the discussion on LDCS. Among points discussed was how much flexibility African governments had in devising economic policies in the context of globalisation. Many participants viewed the presumed erosion of African government's room for manoeuvre to be overstated; they said governments still have discretion in the choice of foreign direct investment (FDI), import regimes and a number of other instruments and thus to be able to influence world policies. Among the agreed conclusions on this issue were:
* factors impeding the expansion of trade for most African countries are, among others, small markets, high costs of transactions and transportation, and lack of sufficient communication links;
* Africa has the highest debt to exports ratio of any continent. This debt burden is unsustainable for most of the African countries concerned, thus a speedy and substantial reduction of the debt overhang problem is critical if Africa is to be successfully integrated into the world economy;
* given that a very small percentage of total FDI flows goes to Africa, ways and means should be considered on how FDI can be encouraged in the continent.
High Level Segment
The board's high level segment discussions were marked by the launching of a Partners for Development meeting between UNCTAD, the private sector and NGOS to be held in Lyon (France) from 9-13 November 1998. Mr. Ricupera said the meeting would play an important part in making the 'renaissance of UNCTAD' a reality. He stated that the major crisis affecting international organisations was related to a lack of integration of civil society actors: that if human rights and the environment were now high on the international agenda, it was largely thanks to the NGO movement. He added that the meeting would take a very pragmatic approach: that instead of attempting to negotiate a text, it would focus on concrete partnership projects related to trade and development with which governments, the private sector and NGOs could choose to be associated.
The chair of the highlevel segment, Development Minister Jan Pronk, closed the meeting by observing that the day's discussions reflected a call to 'get ready' for globalisation. Much work had gone into globalising the economy but much needed to be done in terms of the globalisation of issues related to the environment, jobs and security. Mr Pronk concluded by saying that a key role of the UN was to facilitate civil society 'to speak out and give voice to those who do not already have economic power.'
'Development Friendliness' of Foreign Direct Investment
The Commission on Investment, Technology and Related Financial Issues of UNCTAD's Trade and Development Board discussed the criteria to assess the development friendliness of international investment agreements as part of UNCTAD's mandate to identify and analyse the development implications of a possible multilateral framework for investment (MFI). Mr Ricupero said that FDI must be geared to help create strong national productive bases that could interact effectively with international capital. It was in the interests of transnational corporations (TNCS) to be seen as good 'corporate citizens'. If they acted as catalysts for development (by way of transfer of technology, managerial skills and access to markets), this would be the best guarantee for the economic stability that TNCs seek.
Development Friendliness Criteria
A panel of experts presented the commission with their proposed criteria to favour the development friendliness of international investment agreements. Possible appropriate criteria included the following objectives:
* countries should have the right to screen out FDI that would be detrimental to national development;
* foreign investments should be consistent with and make a positive contribution to declared national development objectives such as technology transfers, upgrading of managerial skills or the strengthening of domestic enterprises;
* foreign investors should comply with domestic laws and regulations;
* national governments should be allowed to restrict capital outflows in periods of acute balance of payments crises;
* explicit reference should be made to the social and environmental responsibilities and/or obligations of foreign investors;
* home countries should create favourable conditions for outward investment toward developing countries and countries in transition, and
* there should be obligation on both home and host governments to combat corruption in terms of the responsibilities of host government officials and foreign corporations.
The 1997 UNCTAD Trade and Development Report emphasised that inequality does matter in economic terms. The proportion of income accruing to capital relative to labour has been rising in both developed and developing countries. 'What is especially disturbing' it says 'is that the increased concentration of national income in the hands of a few has not been accompanied by higher investment and faster growth.'
The report suggests that something more is required than expanded bilateral and regional cooperation. It says that the decision taken at the 1996 Ministerial Conference of the World Trade Organisation to study the relationships between investment, trade and competition policy underlines the international community's growing recognition of the need for a global framework on these issues. The report points out that UNCTAD's Set of Principles and Rules for the Control of Restrictive Business Practices is the only multilateral instrument covering all aspects of restrictive business practices and it implies that new international initiatives may be needed in this area.
Source: United Nations Non-governmental Liaison Service, ROUNDUP, November 1997,
Palais des Nations, CH-1211 Geneva 10, Switzerland, fax +41-22/788 7366, email
It seems noteworthy that while UNCTAD, with its mandate to make recommendations to policy makers on global economic issues, was debating these issues at its 44th Session in Geneva, the Ministers of the Organisation for Economic Cooperation and Development (OECD) at their meetings in Paris were endeavouring to finalise the undemocratic and ill-fated Multilateral Agreement on Investment (see Many to Many no 64), which clearly had no regard for mutuality of service between foreign and host countries or for any sector of the global community other than the financial investor.
A contribution towards safeguarding the ethical along with the legal content of future international agreements was recently submitted for formal approval by the United Nations Association of New Zealand in the form of a resolution proposing:
'that the states of the United Nations urgently consider developing a Charter of International Law. This Charter would include a code of ethics and guidelines to ensure that the world's economic resources and natural environment are managed to achieve social progress for all peoples of the world now and in the future.'
'No one should be fooled by the festive atmosphere of these celebrations (50th anniversary commemoration of the multilateral trading system). Outside there is anguish and fear, insecurity about jobs and what Thoreau described as a life of quiet desperation. That is also part of the reality as much as the impressive achievements of global liberalization. It is the sacred duty of the United Nations system, WTO and the Bretton Woods Institutions to create reasons to believe in the future and to give people back sound reasons to hope.'
--Rubens Ricupero, UNCTAD Secretary-General, 18-20 May, Geneva.
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