Following the collapse of the 5th WTO ministerial conference (Cancun, Mexico, 10-14 September 2003), the scene of talks was shifted back to Geneva (headquarters of WTO) with a deadline of 15 December, 2003.

Despite two meetings of the WTO general council and series of informal consultations among members, no progress has been made during past six months. On the key contentious matters of agriculture and 'Singapore Issues,' the position of members remains as distant as was in Cancun.

In agriculture, the contentious areas are elimination of export subsidies and domestic support programmes (particularly in the USA, European Union and Japan) hurting the developing countries.

The Singapore Issues (so named as they were first raised at Singapore Conference in 1997 and include Trade and Investment, Trade and Competition Policy, Transparency in Government Procurement, and Trade Facilitation), no explicit consensus on initiating negotiations, as stipulated in the Doha Ministerial Declaration (November 2001), has so far been reached. The developing countries are not prepared to take up such new areas unless progress in made on issues in hand.

Notwithstanding the progress on the negotiations, the outstanding issues are critical enough to be addressed in their own right. This article discusses one of the contentious issues, namely, 'relationship between trade and investment.'

FRAMEWORK: The foreign investment is considered as an agent of economic growth, promotion of trade and transfer of skills and technology. It is also viewed, by many, as an instrument of economic and political dominance and interference in the domestic affairs of developing countries.

This fear probably is one of the causes of developing countries opposing the multilateral framework on investment and preferring the use of domestic policies for protecting, regulating and promoting foreign investment.

The debate on having a multilateral framework continues. Its proponents argue that it will further promote foreign investment by contributing to greater transparency, predictability, stability and security. This will supplement national policies and bilateral and regional arrangements. Small and weaker nations will be better protected in a rule-based system, it is further argued.......

The opponents are apprehensive of the framework leading to expansion in foreign investment and fear that it might threaten the national policy space of developing countries to pursue their development objectives.

Thus the critical task ahead is to create a balance between flexibility to developing countries for undertaking development oriented policies, on the one hand, and obligations and commitments under a multilateral investment, on the other.

The scope, content, structure and other elements of the proposed framework are to be so conceived as to ensure necessary flexibility for developing countries to pursue their development policies. With this perspective in view, the various aspects of the multilateral framework are discussed here.

The nature and extent of commitment under the multilateral framework will depend on the definition and scope of foreign investment. The narrow definition of investment focuses on direct investment while the broad one includes all assets of investors (like portfolio and direct investment).

The coverage of direct investment also differs. In some instances it only includes net inflows, while in others even the share of foreign investor in the reserve fund of the firm and credit by home firm are considered as investment.

An agreement on scope and definition is therefore essential since specific commitments will base on them. The developing countries are in favour of narrow definition as their primary interest is in attracting foreign direct investment.

The agreement should have a built-in mechanism for ensuring transparency and predictability of domestic policies and measures relating to foreign investment. Such mechanism can be evolved without difficulty on the basis of General Agreement on Trade in Services and Agreement on Trade Related Investment Measures.

The agreement should be based on the two main pillars of WTO system, namely, Most Favoured Nation Treatment (MFA) and National Treatment (i.e. no discrimination among foreign and domestic investors). The developing countries should have the flexibility to apply them in a selected and phased manner.

What should be the nature and extent of obligations and commitments of member states is a critical question. The answer will depend partly on the definition and scope of foreign investment used in the agreement.

Some other issues that need to be addressed are (i) universal or selected nature of commitments (i.e. whether commitments apply to all types of investment or to selected sectors), (ii) positive or negative list of exceptions, and (iii) coverage of commitments/ obligations to new and/or earlier investments also.

The agreement should recognize the development, trade and finance needs of developing and least developed countries. Their commitments should be based on the recognized principles of differential and more favourable treatment to them.

In addition it should contain provisions of technical and financial assistance for capacity building and other related needs. The developing countries should not be expected to assume all obligations immediately and there should be a built-in transitional period for them to assume full obligations.

The transfer and dissemination of technology accompanying foreign direct investment is an area of primary concern for developing countries. The framework should contain provisions for ensuring greater and unhindered inflow of latest technology to developing countries.

The agreement will have clauses relating to the areas of exceptions as well as a mechanism of safeguard and emergency measures to protect the domestic economy against sudden and unusual adverse external developments. It should also have provisions for allowing the developing countries to maintain certain restrictive measures for balance of payments reasons.

Procedures and institutions will have to be developed for consultation on issues and settlement of disputes among member states. In addition to dealing with state-to-state disputes, this should also cover state-investor issues. This would require strengthening the existing national dispute settlement set-up, in particular in developing countries, and the WTO consultation and dispute settlement mechanism.

The stage for initiating negotiations on a multilateral framework for foreign investment is not reached as many issues are yet to be clarified. The Working Group on Relationship between Trade and Investment should analyse outstanding matters with a view to building up greater understanding and clarity.

In this context the provisions of the bilateral, regional and other arrangements should also be examined to see their consistency with the framework. A link with other WTO agreements will have to be developed. Moreover, the capacity of developing countries to analyse the issues and regulate and promote foreign investment will have to be strengthened.

The investment issue is a part of the unfinished agenda and is linked with other outstanding issues (in particular agriculture, implementation of commitments regarding special treatment to developing and least developed countries contained in earlier WTO agreements, safeguard measures, and other Singapore issues). All have to progress together.

The foreign investment is not a developed-developing countries issue alone. Three-forth of the global foreign direct investment is destined to developed countries, the remaining one-fourth being the share of developing countries. The concerns of developed host and home countries figure prominently.

The intended multilateral framework has to be based on balance of obligations between the host and home countries. It should also address issues relating to the conduct of transnational corporations, which are the main actors in this field.

From developing countries point of view the most important question is the development dimension, namely, to ensure that the multilateral framework is supportive of their national policies of development and attraction of foreign investment in greater measure.