The links between investment and trade in goods covered by GATT, TBT and other WTO agreements are straightforward: trade in goods can lead to investment. As a foreign producer gains a greater share of a national market, it may make sense to invest and sell locally rather than continue to export from abroad. Investment in a foreign country is often based on the expectation of trade, including the possibility of importing goods to the investor's home country. The links are even stronger where trade in services is concerned. Indeed, the General Agreement on Trade in Services, concluded as part of the Uruguay Round, contains quite extensive provisions on investment under the heading of "right of establishment."

Some countries wanted to include investment in the Uruguay Round, but were unable to get broad agreement to do so. The result was a very narrow agreement focusing on trade-related investment measures known as the TRIMs Agreement. The question of including investment in further negotiations is again on the table, with the European Union and Japan advocating this approach. And, compared with what it was during the Uruguay Round, the resistance from developing countries is now less energetic.

The international debate about investment has long been polarized. One group of countries—generally, those from the OECD—has sought to promote an agreement on investor rights and their protection. In UNCTAD another group of countries has sought to develop rules governing investor obligations. Nowhere have both aspects been treated together.

Investment is vital to the prospects for sustainable development. The ultimate goal of policies to promote sustainable development is to transform the structure of economies by supporting sustainable activities and discouraging unsustainable ones. Many current activities, and most of our production technologies, are known to be unsustainable and will need to be modified or replaced. But to do so will require large investments, and, in particular, the most efficient use of limited capital resources. An appropriately structured international investment agreement could help to achieve these aims.

After the successful conclusion of the Uruguay Round, an attempt was made to negotiate a Multilateral Agreement on Investment within the OECD. The draft MAI was modelled on GATT and on many bilateral investment agreements. It provided for a range of investor rights and for a dispute settlement process to protect them. Purposely, the MAI remained ambiguous in its institutional provisions to facilitate its ultimate transfer into the WTO.

But MAI negotiations were called off after broadly based environmental opposition had drawn attention to the draft's shortcomings and after several other interests had joined in opposing the draft MAI. Moreover, as negotiations neared their end, countries sought so many exceptions to the disciplines imposed by the MAI that it was rendered much less meaningful.

The problems with an investment agreement go beyond the environmental objections that were raised. Productive investment is a long-term activity. Facilities built today may still exist a century later, albeit in much modified form. Moreover, foreign investors, unlike traders, acquire extensive rights in the host country—for example, the right to employ people, to use environmental resources, to benefit from infrastructure, to transport, export and import. An investment agreement must balance investor rights with investor responsibilities at all stages of the investment process. That requires a regime with characteristics that differ markedly from those of the GATT/WTO regime, which deals with the discrete activity of a good or service entering a country. In particular it must be able to make case-by-case discretionary judgments in a broad framework. In other words, whereas an investment regime must be rules-based, like the trade regime, it must also be more dynamic and more willing to engage in discussion with states and investors.

5.9 Government procurement