Six Easy Pieces: Five Things the WTO Should Do—and One it Should Not

6. Do NOT Include Investment in the WTO

Despite the failure of the effort to negotiate one in the OECD, there is a need for a multilateral agreement on investment. Current patterns of foreign direct investment (FDI) are flawed; they concentrate too heavily in a few countries, and underfund the type of innovation, infrastructure and productive facilities that sustainable development demands. Clearly, the risks associated with investment in many developing countries exact severe financial penalties, and deprive many of the benefits of new technologies. A properly structured investment regime is needed to ensure that these risks become more predictable, that investment fosters sustainable development in a broader range of countries, and that it does not lead to undue environmental degradation.

The requirements of an investment regime are, however, structurally different from those for the liberalization of trade in goods or services. Productive investment has a long-term time horizon and can involve numerous changes over the lifetime of an investment, responding to new technologies, changing market opportunities and an evolving understanding of the consequences of an investment. A foreign investor acquires continuing rights in the host country, a kind of economic citizenship, and with these rights come obligations. The principles of most favoured nation and national treatment are insufficient to ensure that investment is handled fairly and equitably.

Furthermore, FDI, which is arguably trade related, is only a small part of a vast and complex system of marginally trade-related international capital flows and practices. Any attempt to bring institutional arrangements to bear on international investment would have to also deal with portfolio and speculative investment, inter-bank practices, hedge funds, derivatives, offshore investment havens, possible clearing houses, the lender of last resort question, and so on. The GATT/WTO structure is unsuitable for the development of the needed international investment regime, and its current strengths will be put at risk by attempts to extend it into this dynamic and conflictual area.

The international community should find a forum other than the WTO in which to negotiate a multilateral framework of rules governing international investment. An IISD paper setting out the arguments behind this recommendation is available.