Cloak & Dagger Diplomacy on Investment at the WTO
(How the WTO has an uncanny knack for worsening its legitimacy woes)
Plurilateral negotiations on investment having been going on for some time now at the WTO, with 110 WTO Members so far participating. Investment has always been a touchy subject at the WTO. In the Uruguay Round developing country Members were able to push back efforts to create sweeping obligations to open up their countries to FDI & treat foreign investors nicely. The result was instead an accord that merely affirmed that certain investment-related measures might be violations of the existing GATT (e.g. domestic content requirements). Where WTO Members chose to make commitments under mode 3 in the GATS (“commercial presence”) in effect they were also binding their investment policies. But neoliberal disappointment with the Uruguay Round outcome on investment led to a push to move to a plurilateral forum where developing countries could be bypassed, at least for the time being.
Thus, negotiations were re-launched for a (misnamed) Multilateral Agreement on Investment (MAI), under the auspices of the OECD. When civil society started to get wind about what was going on, a set of controversies ensued that led to the fairly rapid collapse of the MAI project. As was observed widely, including in an UNCTAD post-mortem of the debacle, NGOs were able effectively to point to a process tainted by “the lack of appropriate consultations with key stakeholders in the framework of a process … considered to be closed and opaque.”
This fits almost exactly as a description of what’s going on now at the WTO on investment. While one or other very outdated draft of the plurilateral Agreement on Investment Facilitation for Development has been publicly circulated, more current versions (the most recent apparently presented earlier this month) are being kept under wraps. The last such document in the WTO’s documents database is from November 2022, and even that one is “restricted” -I tried to download it from the site this morning but couldn’t.
The WTO Members involved in the investment talks have not reached out for broader consultation among stakeholders, sharing proposed texts as opposed to leaking discarded ones. Some WTO Members such as India and South Africa have raised fundamental questions about the legality and legitimacy of plurilateral negotiations and agreements in the WTO framework. These are complex questions, which I’ll address in later posts, but operating in secrecy only adds fuel to this fire.
From what one can glean through public sources, the content of the proposals is, overall, benign. the MAI would have raised risks of regulatory chill and destruction of policy space in the way in which the investment regime of BITs and Investor-State Arbitration has done much more radically. The WTO proposals, by contrast, focus on mechanisms to improve relations between host states and investors, through devices such as contact points and mechanisms for better internal coordination of policies that affect foreign investors and investment. And the possibility along the lines of the WTO (multilateral) Trade Facilitation Agreement of technical assistance for development. All of this may help states, especially developing countries, avoid the kind of disputes that lead to ISDS claims or to settle them at an early stage through improved communication channels with investors.
Against this positive potential must be set the risk that the good governance norms in a plurilateral agreement at the WTO would be imported by ISDS arbitrators into BITs in order to put even greater burdens on host states with regard to the treatment of investors. This could be done in some cases by arbitrators relying on the MFN clauses in BITs, which ISDS tribunals routinely use to allow investors to cherry-pick provisions in investment agreements between the host state and a third country that are more favorable to the investor (An abuse of MFN that may be puzzling to WTO folks, as MFN in the GATT and WTO has never been deployed in this manner, to bring in other treaties). Even aside from MFN, arbitrators could add the WTO obligations to the content of the ever pliable, evolutive Fair and Equitable Treatment norm in investment agreements (even if some recent treaties attempt to tie the hands of investor-friendly arbitrators by narrowing FET).
The publicly available (albeit now outdated) drafts from the WTO process attempt to prevent such possibilities by insulating the WTO norms from the BIT and ISDS- based investment regime. But this language is arguably not adequate to keep ISDS arbitrators, a notably wild bunch, under firm control (I’ll expand on this once the actual draft becomes public).
Whether the trade facilitation talks ultimately succeed or fail, the WTO leadership, if they are really interested in making the WTO a more credible institution, are doing the Organization no favors by failing to push for openness in these talks, and proper stakeholder engagement. The leadership likes to talk about “inclusive trade.” Transparency is an obvious first step toward inclusiveness.