What are the 105 countries negotiating a possible new international treaty on investment at the World Trade Organization actually negotiating about? A draft consolidated text of the negotiations obtained by Borderlex might offer a few clues as negotiators meet today to try to bring matters forward.
The planned ‘investment facilitation for development’ treaty is part of the bundle of plurilateral initiatives announced in at the 11th WTO ministerial in Buenos Aires in December 2017. It is also the initiative with most members of the institution participating in it. The professed hope of negotiators is to bring these talks to the finish line at the end of this year.
Negotiations advanced at a brisk pace in 2021. The pandemic has offered further impetus to participating developing countries to make progress on a file as foreign direct investment dried up.
Negotiations are held as per WTO tradition in secret. Briefings to the public, let alone the press can come across as quite elliptic. So what is this about?
A first skeleton of a treaty was put together in April 2021 on the basis of text submissions by a wide range of countries – warranting it the nickname ‘Easter Text’. Borderlex has obtained an Easter Text dating from November 2021. A sixth revision was circulated on 10 February. This article is written with the caveat that most of its analysis relies on the text’s fifth version. However, any changes provided in the sixth version are expected to be marginal.
Purpose and structure of the agreement
In many ways the draft agreement resembles the 65-WTO member services domestic regulation agreement concluded in December 2021. The focus is on guaranteeing basic good administration to foreign investors opening up shop in the signatory countries. The exercise is not about formally opening up new markets.
Investment negotiators have also been at pains to make it clear that this WTO treaty does not open any rights for investors to sue host governments in ad hoc investor-state arbitration courts under other existing investment agreements.
The text’s first paragraph states that the “purpose of this Agreement is to improve the transparency of measures, streamline administrative procedures, and adopt other investment facilitation measures”.
The aim is also “to promote international cooperation, as a means of facilitating the flow of [foreign direct] investment between Members, particularly to developing and least developed country Members” as well as “fostering sustainable development.”
The draft agreement contains seven sections, with a lot of space given to questions related to the treaty’s scope and definitions.
Section II on ‘transparency of investment measures’, section III on ‘streamlining and speeding up administrative procedures’ and section IV on ‘focal points, domestic regulatory coherence and cross-border cooperation” cover the bulk of the substantial obligations governments will sign on to.
The second to fourth sections include obligations related to the publication of information by governments about the rules applying to foreign investors. Members are required to make this information public and to keep it up to date. There are also obligations to notify measures to the WTO secretariat.
Members are encouraged to set a one-stop-shop in their government to help foreign investors find their way with the regulatory requirements that go with setting up operations in the country.
Governments are required to treat license applications in a transparent and prompt matter and to keep any related fees transparent and reasonable. Government agencies dealing with such files are required to be independent and impartial.
Obligations related to ‘domestic regulation’ – involving for example carrying out impact assessments – and regulatory cooperation are ‘soft’, with words ‘encouraged to carry out’ or ‘best endeavours’ dominating the language there.
Potential innovations in WTO rules: helping local businesses, corporate due diligence, S&DT
The agreement contains provisions which are still in brackets – i.e. not agreed – on establishing a domestic database of suppliers to foreign investors.
This means that although the developing or host countries will stick to WTO rules that forbid ‘forced localisation requirements’, there is now scope to facilitate the matching of supply and demand in the investment recipient country to help boost local employment and technology transfers.
Section VI covers ‘sustainable investment’ with obligations covering responsible business conduct and fighting corruption.
There is language recognising a foreign companies’ corporate due diligence obligations. “Each Member recognises the importance of investors and enterprises implementing due diligence in order to identify and address adverse impacts, such as on the environment and labour conditions, in their operations, their supply chains and other business relationships,” reads the November version of the draft.
China tabled new language on the ‘corporate due diligence topic’ ahead of the meetings held today in Geneva.
The draft treaty has ample language on technical assistance and cooperation with countries seeking to roll out a programme of administrative reform that would put their practices into line with the treaty’s obligations.
The treaty draft text of November 2021 indicates that there might be potential obligations of the government from where the investor originates.
Section V on ‘special and differential treatment’ might yield new legal innovations which WTO system observers and those involved in the discussion about the future of the role and rules for flexibilities or exemptions for developing countries might find of interest.
Although the language on this issue is far from settled, developing countries might be divided into three different categories A, B and C. With more or less flexible implementation requirements imposed on them depending on their classification.
Language that would oblige governments to be more transparent about the rules applying to business travellers in relation to investments was marked down as ‘in brackets’ – i.e. still pending – in late November 2022. This issue appears to be in particular a Chinese and Turkish demand.
Key sticking points
At a meeting held in late January the pen-holder for these talks, Chile’s ambassador Mathias Francke, said that the “key issues that need to be addressed as a priority in the coming months” include defining the “scope” – “including key definitions”, “most-favoured nation” and “non-discrimination” obligations, “special and differential treatment” and preparatory work on investment facilitation “needs assessments”.
Although the scope of the agreement is already rather narrowly defined, there is a quest to tighten these up further and to explicitly exempt certain activities from the treaty obligations. This is in particular about government procurement and government subsidies.
Members are also finding it challenging to agree on the exact definition of basic terms such as “authorization”, “investment”, “applicant” or “enterprise”.
A major question indeed is whether any such agreement would apply to all WTO members – as many WTO plurilateral agreements do – or its benefits only extended to signatories of the investment facilitation accord.
Negotiators will meet monthly until July to bring these talks closer to conclusion.