09-01 "Resources, Rules and International Political Economy: The Politics of Development in the WTO"



GDAE Working Paper No. 09-01 Resources, Rules and International Political Economy

The upshot of these two sets of changes is that the issue of international
investment, always a hot topic in “North-South” international political economy, has
gained increased importance. Capital importing countries have become more desiring of
and dependent on DFI (and thus wary of potentially frightening investors with “over-
regulation”), and the interest of capital exporting countries has grown on account of the
greater number and variety of firms with a stake in the rules of IIR.

Now let’s turn to analysis of the North-South politics of IIR in the GATT and
WTO. As in the case of IP, investment was a domain where countries historically
retained a great deal of policy autonomy; and as in the case of IP, the 1980s would
witness an effort by developed countries to embed a more restrictive set of rules on
investment regulations in the international trade regime. Here too the Uruguay Round
provided the setting, as developed countries (again, the US as lead demandeur) pushed
for an agreement that would restrict countries’ abilities to impose investment regulations
on foreign firms.31

The history of the TRIMS Agreement shares many features with the history of the
TRIPS Agreement, in that developing countries first resisted inclusion of any
negotiations at all (arguing that investment was not “trade-related”), and second, when
unsuccessful in keeping the issue off the Uruguay Round agenda, strongly resisted the
content of an agreement that threatened to impinge negatively on their autonomous
economic policy prerogatives.32 Where the two histories differ, however, is that in the
area of investment, developing countries were much more successful at exploiting
differences among developed countries and diluting the final agreement. To understand
this, it is important to appreciate the breadth of the investment agreement that the US
initially sought in the UR: the US negotiating objectives extended significantly beyond
local content requirements per se, and included binding regulations on a wide array of
investment policies. Indeed, the US sought to restrict specific policies, regardless of their
demonstrated effects on trade. Not surprisingly, developing countries actively resisted
such a broad agreement, and the Uruguay Round’s investment negotiations were marked
by deadlock. Eventually a compromise was reached to limit the agreement to policies
with direct effects on trade.33

The subsequent Agreement on Trade-Related Investment Measures (TRIMS) is a
fairly narrow agreement in that it addresses, as the name suggests, “trade-related”
investment measures, while leaving countries with significant degrees of latitude
regarding investment regulation more generally. After all, the agreement does not offer a
precise definition of what a “trade-related investment measure” is, nor does it establish
criteria for identifying such measures. The agreement simply provides examples of
prohibited regulations in the form of an “illustrative list” in the appendix, which countries
are expected to identify and eliminate. Beyond the measures explicitly included in the
appendix, however, TRIMS lets countries determine what is and what is not a “trade-
related investment measure,” and, critically, which of their investment measures need to
be retired. Investment measures that do not violate national treatment or impose
quantitative restrictions on firms’ imports and exports are legal. Thus, states can screen

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