14 de Diciembre de 2018
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Colección: Trends for a common future
Autor: Sidney Weintraub
Título: Technical Cooperation Needs for Hemispheric trade Negotiations

5. Investment

Investment only recently has taken its place alongside trade as a major issue in international trade negotiations. The long delay is substantively surprising because the two really are inseparable, but is historically understandable because GATT was created at a time when globalization was less extensive than today. The FTAA negotiators, particularly those who have had limited experience in investment negotiations, could well benefit from extensive technical help in this field.

It is useful to lay out some history about the transformation in thinking that has taken place in the LAC countries about receptivity to foreign direct investment (FDI). LAC countries generally resisted any extensive FDI in the first three decades after World War II over concern that if foreigners dominated large segments of their economic activity, national control and sovereignty would be compromised. FDI was not excluded, but it is fair to say that it was tolerated only when certain conditions were met. The nature of these conditions is well known: minority equity positions for foreigners; export and other performance requirements; insistence on using national courts to settle disputes; and exclusions from certain activities (energy, mining, and power generation and distribution were most commonly forbidden to foreigners)3. This policy changed in most countries during the 1980s when it became evident that foreign debt financing did not shield countries from turmoil and perhaps made it worse by leading to domestic bankruptcies and forcing governmental debt restructurings. The policy shift during the 1980s led to more open import markets and the desire to promote exports of goods and services. These objectives went together with seeking FDI because, unlike debt accumulation, the investors had an incentive to export as well as to penetrate the national market.

What occurred, therefore, was a search for FDI rather than mere toleration. The opening has never been complete; countries still reserve certain sectors for their governments and their nationals and many still seek assurance that the foreign investors will export and not focus exclusively on the domestic market. However, the change has been remarkable and took place quite rapidly during the “lost decade” of the 1980s. The active search to attract FDI has not been exclusive to the LAC area, but extends to developing countries generally and, indeed, to localities in industrial countries. One of the salient realities of the globalization phenomenon is that FDI has grown more rapidly over the past decade than has the collective GDP of the world’s economies. The internationalization of production, consequently, has increased.

The FTAA Negotiating Group on Investment (NGIN) must deal with such issues as definitions of investment and investor, national treatment, most-favored-nation treatment, fair and equitable treatment, remittances, expropriation and compensation, and dispute settlement, i.e., issues typically found in investment treaties in force worldwide. In addition, the NGIN must address such topics as performance requirements, the admission of foreigners for technical and managerial positions, the nature of exceptions and reservations, and the handling of transfer pricing between affiliated companies for tax purposes. These issues have historical antecedents and contemporary salience.

The informational needs go beyond those cited above. Countries need background on the nature and scope of the TRIMs (trade-related investment measures) agreement in the Uruguay Round. They must lay out the extent of the obligations they already have committed themselves to in the Uruguay Round. With respect to obligations entered into at the regional level, the FTAA working group on investment received a mandate from the trade ministerial meeting in Denver to “create an inventory of investment agreements and treaties, and the protection therein, that exist in the region.” The OAS trade unit prepared a compendium of investment agreements in the hemisphere and the IDB presented a study on national investment regimes.4 Both organizations were requested by the negotiating group to keep these inventories current. Another aspect that will be important is for the negotiators in the NGIN to be informed of the progress in other negotiating groups where close linkages exist with investment issues. These other groups include those on services, competition policy, and dispute settlement.

More than 60 bilateral investment treaties (BITs) have been signed between hemispheric countries (including the United States and Canada); and more than two-thirds are between LAC countries. The NGIN participants need to know what rights and obligations these impose on the signatories. Information on the extent of FDI in the hemisphere must be kept up to date5. Many international institutions have short seminars on investment issues, but it is uncertain whether these meet the needs of the FTAA negotiators. The WTO deals with the issue in connection with the contents of the TRIMs agreement which, while useful, probably does not go far enough. The OECD over the past few years has organized short seminars which were valuable—especially as they referred to the Multilateral Agreement on Investment (MAI) negotiations there, now suspended—but insufficient because they were too short (two days). Much the same can be said for training by other institutions, such as the OAS, UNCTAD, INTAL, and SELA. The more extensive IDB reimbursable credit programs, to the extent that they are entered into, should be detailed and extensive enough to overcome the shortcomings of other courses. The secretariats of the subregional groupings in the LAC region have had much experience with investment issues and may be able to provide considerable information to their members.

It is worth emphasizing a confluence of interest that is implicit in the discussion in this sector: LAC countries now seek to attract foreign direct investment and the industrial countries actively scan the hemisphere for opportunities to make such investment. The atmosphere for progress in the negotiations in this sector is therefore favorable.