REPA Booklet - Stop Epa

34
Foreign Investment
“EPA investment
agreements
would restrict
the ability of
[Pacific]
governments to
pursue
nationally
prioritised
economic and
social
objectives.”
(Actionaid
International,
2004)
What is the Pacific’s attitue to including foreign investment in an EPA?
According to The Way Forward, the flow of foreign investment in the Pacific Islands has been steadily falling and
is not enough to keep pace with the depreciation of existing investments. Their goal is to increase the level of
investment. Some policy changes could help reverse the trend, although as the Forum concedes
it appears inescapable that the small size, geographical dispersion and isolation of the Pacific ACP
States constitute an irreducible inherent handicap to their ability to attract foreign investment. Even
[those] States that have faithfully followed the prescriptions for economic reform of their external
advisers, such as Samoa, have found that this has not been rewarded by any significant increase in
the inflow of foreign direct investment.
How do they think an investment agreement with the European Union could address these issues?
Their advisers assume that foreign investors will be attracted to the Islands by binding rules that promise them
the right to invest and to be treated at least as well as local firms. But international studies don’t support that: other
factors tend to be much more important to firms when deciding which countries to invest in. The advisers also
say there are real benefits from tying the hands of governments and forcing them to address problems of
inefficiency and corruption, especially in state enterprises. Yet that can just as easily result in private monopolies,
which can be as or more inefficient, abusive and corrupt. Equally worrying, it would deprive responsible
governments of the policy levers they need to develop their local firms and regulate foreign investors. It could
even expose them to massive damages awards if they regulate unethical investors to defend the national
interest.
Surely the Pacific Islands wouldn’t sign an agreement that had that effect?
Informally, Forum advisers say the Islands would not agree to an expropriation provision that could leave them
liable to damages awards. But there is no reference to this risk in the consultancy reports. Moreover, the
Commission may not agree. One EC official noted that Cotonou talks of investment protection and described the
Chile/EU investment chapter as ‘state of the art’. But he also conceded that Economic Partnership Agreements
are different, and the Pacific hasn’t the capacity and investment structure that such an agreement would require.
It is worrying that the Pacific Joint Road Map identifies the OECD as the source of expert advice on investment
rules, as it takes a purist approach to IPPAs and expropriation.
What kind of investment agreement are the Pacific Islands considering?
The Way Forward says they want to include provisions on investment in an Economic Partnership Agreement,
possibly supported by an enhanced Investment Promotion and Protection Agreement (IPPA-plus) that individual
Pacific Islands could sign up to.
What does the ‘plus’ refer to?
The dubious benefits and proven risks of IPPAs are discussed above in section 16. The ‘plus’ refers to
investment facilities that would be tailored to meet the needs and circumstances of the Pacific Islands:
- an investment guarantee arrangement that covers the risk to foreign investors from the absence of
clearly defined land titles and political instability;
- a concessionary lending facility that recognises it is inappropriate for the private sector in small and
remote countries to rely on loans that are based on market interest rates, either by modifying existing
European Union investment facilities (such as the European Investment Bank) or creating new ones;
- targeting investment support towards the priority areas of tourism, fisheries and aspects of agriculture.
These measures would be closely linked to ‘appropriate development assistance measures’ designed to help
overcome ‘policy-related and inherent obstacles’ to increased investment, and to commitments by Pacific Island
governments to implement appropriate policies. In other words, classic neoliberal policies and conditionalities.
Doesn’t that contradict the ACP Group’s opposition to investment rules in the WTO?
Yes. That’s causing considerable unease, especially in African ACP countries. Although investment is now off
the formal negotiating agenda for the Doha Round, the Commission hasn’t given up altogether and there is likely
to be another push when it thinks the opposition has been weakened. The Pacific’s decision to break ranks will
weaken that opposition and make it harder for other ACP States to resist in their own EPA negotiations.
66
A People’s Guide To The Pacific’s Economic Partnership Agreement