A WTO Agreement on Investment: A Solution in Search of a Problem?

Abstract

As global competition for foreign direct investment (FDI) intensifies, the question pending before the World Trade Organization (WTO) is whether to negotiate an agreement on investment that would address, inter alia, national laws that restrict market access of foreign capital. Whether the WTO can succeed in concluding a multilateral agreement on investment is subject to doubt. Several WTO members (e.g., the EU) have supported such a framework agreement, while others (e.g., the United States) have expressed misgivings and shown reluctance to move forward on meaningful negotiations. Considering the diverse and broad WTO membership that includes developed, developing, and emerging economies, a strong argument can be made that the WTO is the proper forum for concluding a multilateral investment agreement, not only because of its broad-based membership, but because of the close link between trade and liberalized investment rules. On the other hand, a WTO agreement on investment may be a solution in search of problem for the following reasons. First, FDI flows are steadily increasing, even in the absence of a multilateral investment agreement. Second, the threat to national sovereignty that a WTO agreement on investment represents to developing countries is a genuine concern. Third, the development concerns of developing countries and their capacity (or incapacity) to absorb yet another WTO agreement cannot be ignored. Fourth, it is safe to predict that many exceptions and reservations will be made to any WTO agreement on investment, effectively hollowing it out. Fifth, an incremental, sectoral approach is a tested and proven approach at the WTO for successfully negotiating market liberalization for foreign investment. Sixth, the most pressing issue facing the WTO membership in the context of FDI isn't a lack of market access for foreign capital. The immediate problem are TRIMs, both positive and negative, that potentially distort investment patterns. Seventh and finally, it is far from clear that the current network of bilateral and regional investment agreements provides an unstable and unpredictable legal environment for FDI. Bilateral investment agreements offer the flexibility that is not possible under a multilateral framework.