WORLD TRADE
ORGANIZATIONWT/WGTI/W/107
10 October 2001
(01-4914)
Working Group on the Relationship
between Trade and InvestmentOriginal:  English
COMMUNICATION FROM UNCTAD
As agreed at the 5 October 2001 meeting, reproduced below is a statement by the observer
representative of UNCTAD on recent work undertaken within UNCTAD's work programme oninternational investment agreements
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1. Thank you very much for this opportunity to bring you and the Working Group up-to-date on
UNCTAD’s activities relating to investment since your last session in June 2001.  My brief remarks
will concentrate on two items: first, the recently published World Investment Report 2001: Promoting
Linkages ; and second, the activities implemented and/or underway within the purview of our work
programme on international investment agreements (IIAs).  In closing, I will briefly refer to the
outcome of UNCTAD’s expert meeting on internationa l arrangements for the transfer of technology.
2. First, the World Investment Report 2001(WIROI): Promoting Linkages  which was launched
on 18 September 2001. WIR01 examines the continued growth of foreign direct investment (FDI) as
one of the major determinants of the process of globalization: in 2000, global inflows of FDI
undertaken by an estimated 60,000 transnational corporations (TNCs) climbed to $1.3 trillion,
increasing the global inward stock of FDI to $6.3 trillion.  Although unevenly benefiting from this
productive core of the globalization process, almost all countries are acknowledging the advantages
that FDI can bring to host economies and are activ ely seeking to attract it: witness the continued
unilateral liberalization of the FDI regimes of many countries (of the 150 reported changes in FDI
regimes by 69 countries in 2000, 98 per cent were in the direction of more liberalization); witness also
the rise of the number of bilateral investment treaties (BITs) (in 2000, some 78 countries concluded
84 BITs, bringing the total of BITs to 1,941 at the end of 2000) and treaties for the avoidance of
double taxation (with the total reaching 2,118 in December 2000).
3. The special topic of the Report is how countries can increase their benefits from FDI, in
particular with a view towards strengthening the domestic enterprise sector. Increasing those benefits
is all the more important given that new FDI flow s are projected to decline in 2001. A key mechanism
for benefitting from FDI are the supply linkages between foreign affiliates of TNCs and local firms.
4. Promoting such linkages is a win-win proposition as foreign affiliates, local firms and host
countries can all gain from their creation. As firms in many industries concentrate on their core
business and outsource other activities, supply chain management is becoming more important for
their competitiveness. By using suppliers in a host country, foreign affiliates can obtain inputs in a
cost-effective, flexible and revenue-yielding manner.   Local firms can benefit through increased sales
and by being connected to the global production networks of TNCs and their stocks of information,technology and knowledge. Host economies, particularly in the developing world, may also see
advantages in the form of income and employment generation, the transfer of valuable knowledge and
technology and, more broadly, the development of a vibrant domestic enterprise sector.WT/WGTI/W/107
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5. Some TNCs have organized special development programmes to assist their suppliers. In
different industries and host countries, these companies provide support to upgrade the suppliers’
technology, productivity and ability to compete internationally. However, the extent to which foreign
affiliates forge linkages with domestic suppliers (as opposed to, say, using imports) is determined by
the cost-benefit ratio of such efforts. Above all foreign affiliates establish deep links with the localenterprise sector. In many cases, a lack of efficient local suppliers is the main obstacle to the creation
of linkages.
6. Building on the mutual self-interest of host countries and firms in backward linkages, policy
makers in host countries can influence the willingness of foreign affiliates to use local suppliers. In
particular, they can address specific obstacles to the linkage-formation process by raising the benefits
and/or reducing the costs of using domestic suppliers.
7. Specific policy measures that have been used by countries pertain to the provision of
information and matchmaking; encouraging foreign affiliates to participate in programmes aimed at
upgrading the technological capabilities of domestic suppliers; establishing training programmes in
partnership with foreign affiliates for the benefit of domestic suppliers; and various schemes to
enhance access to finance.  WIR01  documents a range of such experiences.
8. The area of linkage promotion deserves more attention from countries searching for ways to
benefit more from FDI and to better integrate it into their development strategies. Experience shows
that well-targeted government support – adapted, of course, to the circumstances prevailing in the
country – can tilt the balance in favour of more li nkages, thereby contributing to knowledge transfers
from TNCs and fostering the development of a vibrant domestic enterprise sector.  WIR01 concludes
that, as is often the case, the best results can be reached through close public-private collaboration.
9. Let me now turn to the activities implemented since your last session in March 2001 within
our work programme on IIAs.  Here, four sets of activities are noteworthy.
10. First, the intensive training courses on issues in IIAs were launched with a first course for
francophone African countries.  It took place in Alexandria, Egypt, from 5 to 16 June 2001.  The
course, which brought together 21 participants from  African countries (as well as the People’sRepublic of Laos), was organized in cooperation with Senghor University and l’Agence pour la
Francophonie. For your information, we have made available a report on this course.  A similar course
for East, South-East and South Asia is currently in its planning stage, scheduled to take place from 19
to 30 November this year.  This forthcoming course will be organized in cooperation with the Indian
Institute of Foreign Trade as well as the Jawaharlal Nehru University, the National University of
Singapore and the University of International Business and Economics, Beijing.  Twenty participants
from countries of the region are expected to attend.  Courses for anglophone African countries andLatin America and the Caribbean countries are in their planning stages.
11. Second, UNCTAD’s facilitation of another round of BITs negotiations for least developed
countries in Bonn, Germany.  The event will bring together the Economic Union of
Belgium-Luxembourg, Cambodia, Eritrea, France, Malawi, Mozambique, the Netherlands, Sierra
Leone, Sudan, Sweden, Uganda and Zambia.  (As of today, 5 October 2001, 13 BITs were
concluded.)  The Bonn negotiations will be immedi ately followed by bilateral negotiations between
Germany and Malawi in Berlin.  Like earlier rounds, the Bonn event is meant to provide a platform
for developing countries, particularly Least Developed Countries,  to negotiate BITs with other
interested countries, and among themselves.  UNCTAD does not participate in the negotiations as
such.
12. Third, the civil-society element of our capac ity-building work in this area (which was
launched with a joint UNCTAD/SOMO/LaRRI course in Namibia earlier this year) has been givenWT/WGTI/W/107
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new momentum with the launching of a joint UNC TAD-CUTS (Consumer Unity and Trust Society of
India) project on “Awareness and capacity-building for civil society on investment regimes and
international investment issues”.  This DFID-f inanced project seeks to address the need for
involvement and capacity-building for civil society through the organization of fact-finding research
and subsequent national and regional seminars for representatives of civil society.  It will beimplemented in Bangladesh, Brazil, Hungary, Indi a, South Africa, Tanzania and Zambia.  UNCTAD
will cooperate through its expertise, information and contacts, as well as active participation in the
steering of this project.
13. Finally, UNCTAD has, since your last meeting, finalized work on the issues paper on Social
Responsibility.  The paper examines the relatively wide area of issues emerging from the economic
and social impact of transnational corporations that go beyond issues related to employment and
environment. (Both of these issues are addressed in other papers of this Series .)  In particular, the
paper focuses on a number of aspects ÿ including developmental obligations, socio-political
obligations and consumer protection issues ÿ that have received some attention in international fora. It
also looks at a few others ÿ especially corporate governance, ethical business standards and the
observance of human rights ÿ that seem to be emerging issues.  The paper observes that social
responsibility issues are typically not addressed in IIAs and that, in any event, great care must betaken when dealing with such issues in IIAs.
14. In the context of the IIA papers, I also wish to draw your attention to the language versions of
some of the papers. The papers on Admission and Establishment  and on Most-favoured-nation
Treatment have by now been published in French; Admission and Establishment ,
Most-favoured-nation Treatment , Investment-related Trade Measures  and Scope and Definition  are
now also available in Russian; and Admission and Establishment  has been issued in Arabic.  Copies of
these language versions can be made available upon request.
15. Allow me to close my remarks with a reference to UNCTAD’s intergovernmental work. First,
the expert group meeting on “International arrangements for transfer of technology: best practices for
access to and measures to encourage transfer of technology with a view to capacity-building indeveloping countries, especially in least developed countries”.  The meeting, held on 27-29 June
2001, reviewed the coverage of agreements, particularly as regards the spread of provisions on
transfer of technology, the effectiveness of their implementation, and possible improvements in terms
of what can be done to enhance their impact on transfer of technology.  The outcome of the meeting
notes that several dozen international instruments include provisions with respect to enhancing the
transfer of technology to developing countries, in particular LDCs, as well as their technological
capabilities. There has been some success in implementation, but more needs to be done. It provides alist of best practices that could contribute to generating favourable conditions and opportunities for
transfer of technology and capacity building.
16. Second, I would like to draw your attent ion to the forthcoming UNCTAD expert group
meeting on ”The impact of FDI policies on indus trialization, local entrepreneurship and the
development of supply capacity”, scheduled for 5 to 7 November, and the next session of theCommission on Investment, Technology and Related Financial Issues, scheduled from 21-25 January
2002, which will review the Outcomes of the two expert group meetings mentioned.
17. To conclude, I would like to emphasize that we welcome the opportunity to continue to share
our experiences with this Working Group and to continue to make our expertise available, if so
desired.
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