The Fifth Ministerial Conference of World Trade Organization (WTO) would be held in Cancun, Mexico in September 2003, in the midst of several controversial issues. There has been no meaningful progress on agriculture, TRIPs and public health, “special and differential treatment

Notwithstanding the proliferation of over 1800 binding treaties that contain provisions related to foreign investment at the bilateral, regional (e.g., NAFTA, EU, and MERCOSUR) and sectoral levels, there is no comprehensive multilateral agreement on foreign investment. In the past, every country has used a variety of regulations to control foreign investment depending on its stage of development. The discriminatory forms of regulatory measures on foreign investment vary from country to country. For instance, host countries often impose pre-admission and post-admission regulations on foreign investment. It is important to stress here that regulations are not confined to the developing and the under-developed countries. Several developed countries (for instance, US and Japan) have extensively imposed regulations on foreign investment in the past and many of them still regulate the entry of foreign investment in strategic sectors such as media, atomic energy, telecommunications and aviation. Evidence also suggests that performance requirements such as local content requirements and technology transfer help in establishing industrial linkages upstream and downstream and contribute significantly towards economic development of the host country.

Past attempts to establish a multilateral investment regime through various for a have failed miserably. The first attempt to forge a multilateral agreement on foreign investment was made in the immediate post World War II period. In 1948, the draft Charter to establish an International Trade Organization (ITO) was presented at a meeting in Havana. Notwithstanding the fact that the US government was one of the driving force behind the Havana Charter, the US Congress refused to ratify it. Consequently, the proposal for establishing ITO was given up and the General Agreement on Tariffs and Trade (GATT) was launched as a temporary measure. For nearly four decades since its inception, GATT never brought investment issues under its rubric and maintained the dividing line between trade and investment issues. It was only at the Uruguay Round of GATT negotiations from 1986 to 1994 that the issue of investment was brought within its framework.

The failure to establish ITO was one of the major reasons which facilitated a shift from multilateral to bilateral investment agreements. In the 1950s and 60s, bilateral investment agreements were the dominant instruments of investment agreements. In those decades, majority of bilateral investment agreements were geared towards protecting foreign investors against the threat of expropriation as many developing countries had undertaken nationalization measures in the aftermath of independence from colonial rule.

In the sixties and seventies, international investment negotiations shifted to other for a. Big capital exporting countries led by the US started initiating discussions on investment issues at the OECD. While the developing countries started raising investment issues with an entirely different perspective at the United Nations in the 1970s. The UN initiatives were geared towards drafting a Code of Conduct on Transnational Corporations to curb abuse of corporate power and establish guidelines for corporate behavior in the host countries. Concerned with the fact that the Code was unlikely to serve the interests of capital exporting countries, the US persuaded other developed countries to block the draft Code of Conduct at the UN. Consequently, the Code was not approved. UN initiatives also lost momentum in the eighties when excessive build up of external loans triggered the debt crisis in many developing countries. The drying up of commercial bank lending forced indebted countries to open their doors to foreign investment.

Initiatives at UN did not deter the US from aggressively pursuing the investment liberalization agenda. Despite its failure to include investment in the Tokyo Round negotiations during 1973-79, the US remained resolute in pushing a comprehensive agreement on investment at the GATT. By incorporating TRIMs and General Agreement on Trade in Services (GATS) in the Final Act of the Uruguay Round, the developed countries were successful in bringing investment issues under the ambit of GATT. To circumvent opposition from the developing countries, the developed countries led by US also called upon the OECD to launch a comprehensive binding investment treaty known as Multilateral Agreement on Investment (MAI) which included heavy dose of investment liberalization, protection of investors and a dispute resolution mechanism. Because of the differences among the OECD member-countries on certain issues coupled with popular opposition by the NGOs and trade unions, the MAI was finally shelved in November 1998. After the collapse of the MAI negotiations, the Working Group on Trade and Investment at the WTO remains the only multilateral forum where investment issues are under discussion at present.

Current approaches advocating international investment agreements are grounded on several myths. There is no evidence to prove conclusively that investment agreements lead to increased foreign investment in all countries. Nor does it boost the prospects of obtaining investment in future. Since the 1980s, a number of developing countries have carried out wide-ranging investment liberalization measures and have signed numerous bilateral investment agreements, yet they receive less than one-third of total FDI flows. Further, FDI flows are highly concentrated in a few developing countries. Bulk of portfolio investment flows are also concentrated in a few “emerging markets.