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

entry of foreign firms, for example, and demand joint ventures or require foreign firms to
transfer technology to local firms. And states can regulate foreign investors’ hiring
practices, with the aim of enhancing development of human capital and skills. Even
under the more restrictive international regime on investment, developing countries can
continue to use standard and time-honoured investment regulations as instruments of
industrial promotion.

To be sure, the agreement does outlaw key investment regulations that have been
at the heart of many countries’ development strategies, most importantly local content
requirements, which demand investors to source their inputs locally, and also trade and
balancing requirements, which oblige foreign investors to include sufficiently high levels
of domestic inputs in exports to offset imported inputs. Both of these regulations aim to
generate backwards linkages from foreign investors to local manufacturers, and
outlawing them clearly takes away developing countries’ ability to use important policy
instruments to increase local value-added, employment, and industrial upgrading. Yet
while it would be unwise and inappropriate to downplay the significance of these
particular - and now prohibited - policy instruments, one cannot but help but note that
TRIMS is significantly less restrictive than its advocates originally sought (and certainly
less restrictive and intrusive than TRIPS). In fact, some of these prohibitions enshrined in
TRIMS actually predate the Uruguay Round. For example, it was under the GATT that
local content rules were deemed illegal.³⁴

Developed countries’ dissatisfaction with the outcome achieved in the TRIMS
negotiations could be seen in the immediate aftermath of the conclusion of the Uruguay
Round. No sooner was the new WTO established, and developed countries sought to re-
initiate negotiations in pursuit of a more broad-based international investment agreement.
Developed countries (now the EU more than US) made investment a high priority at the
WTO’s Second Ministerial Meeting in Singapore in 1996. Once again, however,
developing countries opposed this effort, and the North-South cleavage on investment
that marked the Uruguay Round remained evident in the post-Uruguay Round setting.
Developed countries sought a broad-based agreement, more akin to the investment
chapter in the North American Free Trade Agreement and the many bilateral investment
treaties (BITs) that were proliferating in the 1990s, which proscribe a wide range of
investment measures; developing countries, seeking to hold the line at TRIMS, attempted
to keep investment off the negotiating agenda. The compromise settlement was to create
a WTO Working Group on Trade and Investment, which would continue to study the
35
issue.

Before proceeding to discussion of the deadlock’s resolution (or not), it is worth
underscoring some of the underlying factors that contributed to the North-South
stalemate over investment. Most obviously and most directly, this was a disagreement
over the policy flexibility and developing countries’ rights and capacities to regulate
inward DFI. The TRIMS agreement may have been inadequate from the perspective of
capital-exporting countries, but few capital importers were likely to agree to a project that
would make binding regulations more restrictive. Moreover, even developing countries
that may have had few reservations regarding the substantive dimensions of such an

13

<<   11   12   13   14   15   16   17   >>

More intriguing information