WRITTEN QUESTION E-1135/96 by Amedeo Amadeo (NI) to the Commission (13 May 1996)

Subject: Direct investment

In connection with the international harmonization of the regulations on direct investment, certain choices were confirmed at the OECD ministerial council meeting held in Paris at the end of May 1995 and it was proposed that negotiations within the OECD should begin immediately; the delegates at the meeting also called for talks in this area between the two organizations.

Does the Commission not consider that it would be more appropriate for the multilateral agreement on investment to be negotiated at the level of the World Trade Organization?

However, since the OECD has already started the negotiations, does the Commission not agree that the Community and its Member States should take an active part in them, though without losing sight of the need for a future agreement at the level of the WTO?

Answer given by Mr de Silguy on behalf of the Commission (14 June 1996)

The Commission, in its communication 'A level playing field for investment worldwide' ((COM(95) 42. )) takes the view that multilateral rules on investment liberalization and protection, guaranteeing the most liberal treatment and a high protection of investment, would be highly desirable in the changing economic environment, characterised by a strong increase in the role and importance of capital flows in international economic cooperation. It suggested the Council should call for negotiations on international rules on foreign direct investment (FDI) with the broadest possible participation, the result of which should be incorporated into the World trade organisation (WTO) system, should request the Organisation for economic cooperation and development (OECD), as a contribution to strengthening the multilateral system, to pursue its work aimed at elaborating a multilateral investment agreement, and should urge an early start of discussions in the WTO in order to prepare formal negotiations to begin as soon as possible.

On 10 April 1995 the Council confirmed this twin track approach, giving a mandate to the Commission to participate in the OECD negotiations and to prepare work at WTO for negotiations at a subsequent stage.

The Commission does not see a conflict between active participation at the OECD negotiations and the preparation of work at WTO. As regards timing, it would seem the two approaches can be complementary. The OECD ministerial of 1995 requested the conclusion of negotiations on a multilateral agreement on investment (MAI) by the ministerial of 1997. If this schedule is met, and assuming that the WTO ministerial in December 1996 calls for the start of negotiations, there would be no overlapping negotiations. Furthermore, on a substantive level, it is considered that the MAI would be a very valuable input for efforts to reach agreement on a broader geographical basis, as it would establish an international agreement in a foreseeable future, whereas negotiations in the WTO might take a longer time before they would lead to such binding rules. Furthermore the expertise of OECD in the field of investment, the fact that obligations already exist, and the possibility that OECD negotiations would lead to an agreement of high standards, would ensure that the MAI would form a very solid basis for later efforts in WTO.

OECD negotiations began in September 1995. Since then progress has been achieved although a considerable number of issues remain to be covered and agreed. The Commission actively participates in these negotiations on the basis of the negotiating mandate given by the Council, and in close cooperation with the Member States.

The MAI will become, according to the negotiating mandate of the OECD ministerial in 1995, a free standing agreement, thus open to accession to non-OECD countries which are willing and able to take up the obligations under this agreement. However, it is not foreseeable to which degree third countries will later join an MAI negotiated at OECD without their prior participation at the negotiations. Furthermore, effective rules on investment in third countries would be a definite value added to the world economy, given the present legal situation in some of these countries and their increasing role as hosts for foreign investments. Finally, international rules on investment should ideally have the highest possible degree of compatibility with existing rules under the WTO agreement. These, in particular in the General agreement on trade in services (GATS), already cover to some degree foreign direct investment. These factors will continue to make it highly advisable to work on international rules on investment liberalization and investment protection at the level of WTO.

The Commission, in line with the Council request to work on preparing negotiations in Geneva, has so far engaged in several activities connected with the setting up of an informal working group in the WTO. It co-sponsored two seminars by the United nations conference on trade and development on FDI issues in Geneva, and a conference on European FDI in Asia on 1 April 1996 in Geneva.