January 16, 2004
Mr. Chairman, ladies and gentlemen, I want to thank you for the opportunity to address you today. I will briefly introduce my organization, the Center for International Environmental Law, and then address three specific topics: investment, the recent trend towards bilateral trade and investment agreements, and a few comments on the environmental aspects of UNCTAD’s work.
The Center for International Environmental Law (CIEL) is a relatively small NGO based in Washington, DC and here in Geneva. Our mission is to protect the global environment and human health while promoting sustainable development. Our work here in Geneva has focused largely on ensuring that international trade and economic rules and institutions support sustainable development.
International Investment Rules
Foreign direct investment (FDI) is certainly critical for the development of national economies. That said, there does not appear to be a strong correlation between adopting rigorous international rules on investment and increases in either the amount or quality of FDI. Thus I would urge UNCTAD to take a more critical look at the benefits of legal regimes designed to protect the rights of investors. At the same time, UNCTAD needs to continue its efforts to improve understanding of the “costs” these regimes impose – particularly the ways in which investment rules are being used to constrain the regulatory prerogatives of governments.
The increased attention being given to the concept of preserving “policy space” at the national level is vitally important. It is a fundamental prerequisite for sustainable development. It requires that advocates of stronger economic development policies and advocates of more effective environmental and social regimes to work together to ensure that international trade and investment rules do not limit the ability of governments to implement the policies necessary to achieve these interrelated goals.
Given that CIEL takes a legal perspective on these matters, I also want to express concern that existing and proposed investment rules are stretching and expanding concepts such as national treatment, expropriation, and minimum standard of treatment. While arcane perhaps, the details of these concepts and their application need to be understood before new regimes are put into place. The effect of expanding these doctrines is compounded by the inclusion of investor-state dispute settlement mechanisms. The past few years have seen an explosion of disputes being brought to international investment arbitration. The lack of transparency that is the hallmark of international arbitration makes it difficult to fully assess the trends in the jurisprudence. Nevertheless, it is clear for example, that large corporate investors are using investment rules to seek compensation from the Argentine government for the “losses” that they attribute to the emergency economic policies that were implemented to address a profound economic crisis. Likewise, investors are using the investment rules of NAFTA to seek millions of dollars in compensation for the impact of environmental regulations.
My fear is that many countries are entering into “high standard” investment regimes without understanding the litigious culture in which many investors operate and consequently underestimating the potential liabilities they may face in investor initiated disputes. UNCTAD could usefully devote some of its considerable expertise on investment matters to help developing country negotiators understand the implications of recent developments in investment arbitration.
The final comment I wish to make on the investment topic is the imbalance between rights and obligations for foreign investors in existing international investment regimes. These “investor protection agreements” provide multiple layers of protection and robust dispute settlement provisions for investors, but impose no corresponding obligations on investors or home states to ensure that investors behave as good citizens of host countries. The reference to a more coherent international effort in this regard in paragraph 58 of the Pre-Conference Negotiating Text is welcome. This effort is a critical element of ensuring that foreign investment provides benefits to the peoples of host countries.
Multilateralism versus Bilateralism
Moving to the second broad topic, recent developments lead to a concern that new international agreements on trade and investment are increasingly regional or bilateral rather than multilateral. With over 2000 bilateral investment treaties and numerous new bilateral free trade agreements, one could argue that the most significant developments in international trade and investment rules are taking place in bilateral as opposed to multilateral fora. While developing countries have made strides in terms of recognizing and organizing to protect their interests in multilateral fora, the shift to bilateral negotiations puts great pressure on individual developing countries. For example, despite widespread concerns with intellectual property rules under the WTO’s TRIPs agreement, a number of developing countries have recently committed to or are considering bilateral rules that go well beyond the TRIPs agreement. Similarly, developing countries have resisted investment negotiations at the WTO, but are turning around and binding themselves through bilateral agreements to investment rules that go well beyond what has been discussed at the WTO.
Developing countries have clearly recognized that overly aggressive intellectual property and investment rules may not be in their best interest and have acted accordingly in multilateral and some regional negotiations. Nevertheless, many of the same countries then turn around and adopt these rules through bilateral negotiations.
I urge UNCTAD to look for ways to provide support for individual developing countries engaged in such negotiations. This could take the form of both capacity building and training efforts as well as timely policy analysis of the impacts of “state of the art” agreements on developing country economies and social policies.
Environmental Elements of the Pre-Conference Negotiating Text
Finally, coming from an environmental organization, I want to address briefly the environmental aspects of the Pre-Conference Negotiating Text. Paragraphs 92 and 113 of the text touch on a number of key areas of importance. For example, the BIOTRADE Initiative and capacity building work with UNEP are certainly worthy initiatives. Similarly efforts to engage more effectively in international standard setting and certification programs are critical. Also efforts to ensure that developing countries are able to benefit from traditional knowledge and biological resources are important to both economic development and wise environmental policy. The elimination of environmentally harmful subsidies (for example in the fisheries and energy sectors) would deliver both economic development and environmental benefits and should be a priority.
Despite these positive elements in the text, I fear that perhaps an unfounded concern that the environment is somehow in conflict with the economic development aspirations of the Global South is limiting UNCTAD’s vision. I want to mention just two examples of initiatives that could be a greater part of UNCTAD’s work. A fundamental tool to help developing countries evaluate the wisdom of entering into new trade agreements is being able to fully assess the benefits and costs of doing so. Clearly the economic pros and cons must be evaluated to ensure that a country will gain more that it will lose. Just as important however, is an evaluation of the environmental and social impacts of entering into new trade agreements. I cannot accept that communities in the developing world only care about economic growth. What community, for example, would accept a chemical plant in its midst if it resulted in severe drinking water contamination or in babies being born with debilitating birth defects? UNCTAD could play a greater role in helping to assess and understand the full impacts of trade and investment policies before they are put into place.
I would also suggest that UNCTAD look more closely at alternative energy sources (such as solar and wind power) as the basis for decentralized development models that would support efforts to foster small and medium sized enterprises. Having lived in Mali during the hot season, I can tell you that the potential for using solar energy in equatorial Africa is huge. Given how critical sources of energy are for development, UNCTAD should be aggressively exploring and promoting alternative energy sources. While large-scale centralized development projects may make sense some of the time, there is perhaps more promise in small scale, community oriented development projects.
In conclusion, let me thank you again Mr. Chairman for the privilege of being here today. I hope that these hearings in the lead up to UNCTAD XI are just the beginning of your efforts to engage civil society in the important task of planning UNCTAD’s future work and direction. There is a growing wealth of knowledge and experience among NGOs that can help make UNCTAD a stronger and more effective institution – something we all support. Obviously, much of this NGO capacity is located outside of Geneva and I urge all of us to look for effective ways to broaden the participation of civil society in the UNCTAD XI preparatory process.
Thank you ladies and gentlemen.