A Golden Opportunity for a Beleaguered WTO
The 14th Ministerial Conference of the World Trade Organization – convening this week in Yaoundé, Cameroon – comes at a time when the multilateral trading system is under unprecedented strain. But this system is far from doomed. On the contrary, one promising way to strengthen it is entirely feasible, and can be achieved at the upcoming conference: integrating the Investment Facilitation for Development Agreement (IFDA) into the WTO rulebook.
While investment is not the only ingredient that drives development, it is an essential one. But flows of foreign direct investment (FDI) to developing economies have largely stagnated this decade. Investment facilitation like that promised by the IFDA would help to reverse this trend, enabling countries (especially in the developing world) to attract the capital they need – not only from foreign investors, but also from domestic firms – to strengthen their productive capacity and create jobs.
To understand how investment facilitation works, it is worth starting with what it does not do. In particular, it does not require governments to grant just anyone access to their markets. Countries design their own FDI policies, based on an assessment of what would best serve the national interest. This includes rules about which actors from which countries may invest in their economies. Investment facilitation does not challenge or change these rules.
Likewise, investment facilitation does not require governments to protect the foreign investments that are made. Investor-state disputes are not part of the investment-facilitation agenda.
What investment facilitation does is improve transparency, streamline and accelerate administrative procedures, strengthen dialogue between governments and investors, and encourage companies to adopt the kinds of responsible business practices that make sustainable FDI possible. So, the IFDA would ensure the publication of relevant laws and regulations, and the creation of a single information portal including, for example, the fees investors might face and descriptions of authorization procedures they would need to complete. The IFDA would also support digitalization and the strengthening of e-government platforms, so that investors could file applications online. And it would promote stakeholder consultations.
While such measures would improve the investment climate for foreign and domestic firms alike, other IFDA initiatives would be geared specifically toward sustainable FDI. These include, for starters, the promotion of supplier-development programs and domestic supplier databases, both of which would strengthen the local enterprise sector, the bedrock of sustainable development.
A separate chapter on “sustainable investment” encourages foreign investors to observe internationally recognized guidelines of responsible business conduct, covering areas like labor, the environment, human rights, and community relations. This provision strengthens host countries’ hand when dealing with multinational enterprises.
Many, if not most, of the IFDA’s provisions address bread-and-butter issues that national and sub-national investment-promotion agencies deal with on a daily basis when seeking to attract FDI. But developing-country governments have limited capacity to implement investment-facilitation measures. The IFDA helps to make up for these shortfalls, including by providing the technical support countries need to reap its full benefits.
The preconditions for implementing the IFDA are already in place: 128 of 166 WTO members – including 91 developing countries, 27 of which are least-developed countries – support the agreement. Moreover, many countries, with the support of international organizations, have already initiated needs assessments to clarify the kinds of technical support they require.
Support for the IFDA partly reflects the desire to signal to international investors that the participating country is open for business, actively seeking to improve its investment climate, and anchoring its efforts in international standards and commitments. It also reflects an awareness that, given the gradual convergence of national and international regulatory frameworks governing FDI, investment facilitation has become a crucial determinant of where capital actually flows.
By helping countries distinguish themselves within a highly competitive global FDI market, the IFDA would enable them to draw the attention of the right investors. With technical assistance, information sharing, and other measures, the IFDA promises to go a long way toward helping developing economies attract the foreign capital they so badly need.
The stage is set for the WTO to adopt the IFDA. By doing so at the upcoming Ministerial Conference, member governments would brighten developing economies’ future prospects at a time of rising economic uncertainty and send a powerful signal that, despite the challenges it faces, the WTO can still deliver tangible results.
