Trade Policy Note Final-rev08 - Development

occupies a large part of the overall territory of investment measures and the services
sector absorbs some two thirds of FDI flows. Moreover, the bulk of investment entry
restrictions are in the services sector. 65
GATS negotiations focus on limiting the tools for investment policy, both entry and
establishment regulations ( Article XVI), including limitations on foreign capital,
restrictions on the type of legal entity or joint venture, limitations on the number of
service suppliers or on the value or quantity of transactions, including through the
application of economic needs tests, as well as and the extent to which the principle of
national treatment is applied, including with respect to access to subsidies , (Article
XVII). It should be noted that when making a market access commitment on a sector
or sub-sector, a member is also committed to enable free movement of capital related
to the provision of that service. 66 In drawing up their overall investment strategies,
developing countries should therefore decide to what extent these various “tools” are
essential to the accomplishment of their development objectives. If they are, they
should be defended in trade negotiations.
Investment performance requirements: a tool for development
The use of performance requirements are not restricted under GATS and are actually
encouraged, as a means of strengthening the service sectors in developing countries,
through access to technology, or information channels or distribution networks. In the
area of trade in goods, however, two important investment performance requirements
are prohibited by the TRIMs Agreement, (a) local content requirements, and (b) trade
balancing requirement under which, for example, imports by investors are conditional
upon foreign exchange earnings or export volumes. Hence, the WTO permits a wide
range of investment performance requirements, including export performance (those
conditional on export volumes and earnings), and transfer of technology
requirements, both of which have been used effectively by countries which have
demonstrated rapid growth rates. 67 Given the failure of initiatives to establish general
disciplines on investment policy in the WTO, capital exporting countries are pursuing
the objective of eliminating performance requirements, as well as the gamut of other
investment measures being negotiated in GATS, through FTAs and other bilateral
agreements.
Transfer of technology performance requirements are aimed at increasing productivity
by enhancing human potentials to compete in the world market. Export performance
requirements orient production toward world markets and oblige firms to prepare
people to compete more effectively in a world of globalized production and to seek
new export opportunities. Performance requirements can also aim at improving
equity, by channelling investment to poorer regions or disadvantaged segments of the
population, or by ensur ing universal provision of key services, such as electricity,
65 See Gibbs, Murray, Statement on Investment Policy and Human Development in Sieh Mei Ling
Investment, Energy and Environmental Services: Promoting Human Development in WTO
Negotiations, University of Malaya, UNDP, and Malaysian Institute of Economic Research Kuala
Lumpur, M arch 2004 (http://www.um.edu.my).
66 See footnote to GATS Article XVI:1.
67 See case studies of Korea, China and Viet Nam in Seih Mei Ling (ed.), Investment Energy and
Environmental Services: Promoting Human Development in WTO Negotiations (Kuala Lumpur,
UNDP, MIER and University of Malaya, March 2004) (www.um.edu.my).
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