Anil K. Kanungo

While a simple, transparent and investor-friendly policy regime is necessary for attracting foreign capital, the proposed Multilateral Agreement will only alter the balance of power between a developing country, and the asset holders.

NOT taking on board the issue of investment as part of the Doha Round of negotiations in the July framework concluded at Geneva on July 31, 2004, on a priority basis, may have been a positive development temporarily for the developing countries, but its long-term benefits cannot be ignored. Investment is crucial to the economic growth of a country, more so for the developing countries. In this regard, establishing an international regime on investment, even in the form of a Multilateral Agreement on Investment (complementary to both the developing and developed countries), as proposed by the developed countries, is welcome.

The history of the efforts towards establishing the Multilateral Agreement on Investment (MAI) has been a long and chequered one. Its origin goes back to the OECD-driven proposal in the 1980s which was ultimately given a burial after a strong protest from the civil society as well as breaking of ranks (France's withdrawal) among the developed countries themselves.

It was only at the Singapore Ministerial Conference in 1996 that the issue of investment resurfaced. The exclusive Working Group on Trade and Investment created then provided a forum and a mandate for all member-countries to express their position on this issue. Discussions continued under this Working Group till a concrete shape was reached at the Doha Ministerial Conference, finally resulting in the Doha Ministerial Declaration (DMD) on Investment.

The promises made by the developed countries to look into the concerns of the developing countries, as set out in the DMD on Investment before negotiating at the Cancun Ministerial Conference in 2003, were never kept. Such polarised opinions led by the G-20 group of developing countries, spearheaded by Brazil, India, China and South Africa, opposed any forward move on investment at Cancun despite serious attempts by the developed countries for an MAI.

So far, the deadlock over this issue suggests that the extent of disagreement between the developed and the developing countries is only widening. An immediate solution may not be in sight, but the revival of the Doha Ministerial Declaration (DMD) on Investment looks significant as it would steer the negotiations for arriving at a consensus. Areas critical to the developing countries' interests such as the scope and definition, transparency, non-discrimination, modalities for pre-establishment commitments based on a GATS-type positive list approach, development provisions and consultation and settlement of disputes between members mandated by DMD, need to be discussed at length to pronounce the benefits embedded in such an agreement for the host countries.

DMD's recognition of the needs of the developing and the less developed countries for technical assistance and capacity building, is a pointer to the western negotiators that the MAI must address these concerns.

It also recognised that special development, trade and financial needs of these countries should be taken into account as an integral part of any framework.

The role of foreign direct investment in the development of a country is well-recognised by national governments, but what should form the basis of the MAI is that such flows need to be compatible with the national interests of the host country. This is particularly significant in respect of developing countries such as India, which have developed appropriate technologies that could sustain production at low cost level, especially in the small-scale and cottage industries. What is at stake before entering into the agreement, is the real scope of the proposed agreement, that is, whether in addition to FDI, other types of investments would also be covered. India has always specifically advocated the need for policy flexibility in terms of determining the forms of investment that would contribute to the expansion of country's trade.

While a simple, transparent and investor-friendly policy regime is necessary for attracting foreign capital, the proposed Multilateral Agreement will only alter the balance of power between a developing country and the asset holders.The issue may have been temporarily put to rest, but will bounce back as developed countries have much bigger stakes in it.

Continuous pressure by developed nations on the developing countries to sign the MAI will push the developing countries to agree for a balanced format. The earlier formula of a code of conduct for MNCs charted out by developing countries under the auspices of the United Nations Centre on Transnational Corporations in the 1990s may be activated to balance out the rights and obligations of the foreign investors and host countries, particularly from the developing world.

(The author is faculty member, Indian Institute of Foreign Trade, New Delhi.)

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