Richard Melson

April 2006

South Bulletin No. 122

www.southcentre.org

South Bulletin 122

15 April 2006

This issue of the South Bulletin focuses on foreign investment.

In this Issue:

IBSA: Assessing the Trilateral South-South Initiative

The 3rd India-Brazil-South Africa (IBSA) Ministerial Trilateral Commission meeting was held on 30 March 2006 in Rio de Janeiro, Brazil. The Ministers apparently covered a number of areas top enhance trilateral cooperation. An assessment of some of the areas by the South African Foreign Affairs Minister Dr. Nkosazana Dlamini Zuma at the trilateral Commission meeting.

Lifting the Lid on Foreign Investment Contracts - (I)

‘Lifting the Lid on Foreign Investment Contracts: The Real Deal for Sustainable Development’ is the title of a recent briefing paper by the UK-based International Institute for Environment and Development (IIED). This report highlights a range of concerns about foreign direct investment governed by foreign investment contracts. This is the first part of the paper, to be followed in the next issue.

Turbo-Charging Investor Sovereignty – (I)

Corporate power has lobbied aggressively to liberalise investment rules by removing ‘distorting’ domestic regulations and empowering private investors to extract compensation from foreign governments for any legislation that adversely affected inward investments. This is the first part of an article carried recently by the UK-based Corner House. To be followed in the next issue.

The European Investment Bank: In the South for Whom?

A recent report ‘The European Investment Bank in the South: In whose interest?’ notes that the European Investment Bank (EIB) has become one of the most powerful International Financial Institutions in the world. Citing case studies from eight countries, the author Jaroslava Colajacomo says its funding is more directed towards supporting big companies in extractive industries or water privatisation than towards poverty alleviation or environmental standards.

Coping With Increasingly Complex Investment Agreements

Navigating through the maze of international investment agreements can be a particularly challenging task for developing countries, and particularly the least developed countries. According to a recent UNCTAD study - Systemic Issues in International Investment Agreements (IIAs) - a new generation of IIAs is emerging with significant variation in content and therefore, has consequent policy implications.

More in this Issue

The Commission on IPRs, Innovation & Public Health – A Critique

Trade: Managing Environmental & Health Requirements

IBSA Forum Ministerial Communiqué

South Centre News

Editorial

IBSA: Assessing the Trilateral South-South Initiative

The 3rd India-Brazil-South Africa (IBSA) Ministerial Trilateral Commission meeting was held on 30 March 2006 in Rio de Janeiro, Brazil. Brazil’s Foreign Minister Celso Amorim observed that only in the last two years, bilateral trade with India increased by 170 per cent and with South Africa it went up by 86 per cent. Last year, 54 per cent of Brazil’s total trade of about $200 billion was with developing nations, Mr. Amorim reportedly said. The Ministers apparently covered a number of areas (see the Mninisterial Comuniqué in this Bulletin) to enhance trilateral cooperation. An assessment of some of the areas was provided in the following statement delivered by South African Foreign Affairs Minister Dr. Nkosazana Dlamini Zuma at the trilateral Commission.

"At the instance of our meeting in Rio de Janeiro we would be obliged to enquire on the level of progress and significance that this forum has hitherto established. It is particularly important to do so because our Principals are about to converge and attest to the relevance of IBSA to the world.

The key challenge will be whether this Dialogue Forum has in any significant fashion achieved its objectives. Perhaps the question to ask is whether any impact has occurred as a consequence of our existence, has the world remained the same, or has any ground shifted since our founding.

The depth of this question is in the history and purpose of our founding. A short visit to 2003 will be instructive and I propose to do so by recalling our founding principles. As many of you will recall, we did boldly proclaim to the world that we shall seek a deeper consultative process between and amongst ourselves. This we would do to enhance our common positions in the multilateral fora.

We further proclaimed the desire to grow trilateral cooperation measures. To this end we imagined that if one of us was strong in a particular area and field and the other in another, a collective exploitation of our individual strengths would put our resources into better use and ensure greater impact.

We further proclaimed at the time that we shall seek to exist not in exclusion and sole benefit to ourselves, that in the spirit of common and balanced development we shall seek to contribute our efforts, resources and energies to those causes in our neighbourhoods that we shall collectively deem deserving. We committed ourselves to the possibility of moving the fight against poverty beyond the realm and borders off our respective countries.

We dreamt of an IBSA that would have a program of action, an IBSA that would not be limited to an interaction amongst governments only, but an IBSA that would spread its relevance to business, academia and all other organs of civil society.

We proclaimed that we should seek to construct a new paradigm and philosophical grounding in the manner in which we would shift the emphasis of the North-South trade axis. That we will also think it important to invest confidence in ourselves and the ability to trade with each other and create a South South horizontal axle.

Time has come for us to reevaluate our modest dreams and check the reality score, so that we can find the legitimacy of our Principals making bold of their yesterday’s dreams to the world. We have taken small steps towards our dreams and perhaps for me some of the significant areas:

Multilateral Cooperation

From small beginnings of initiating dialogue between and amongst ourselves on international trade issues, we have changed the manner in which business had been constructed. Without embellishment I think it would be correct to assert that our collective interventions in calling the G20 into being, has produced an indelible constructive mark on the negotiations on trade in the WTO.

Acknowledging that the road ahead is still marred with real hardships and difficulties, it would also be fair to say that the G20 has set the development agenda in an irreversible mode. The future is reassuring and the course for South-South cooperation has never been more real.

The three of us can jointly proclaim that common positions and galvanizing unity on common purpose is formidable. The recent formation of NAMA 11 attests to this determination.

We have acted in common purpose and consort in the fight for the reform of the United Nations. Whilst that fight is not yet over but clearly our areas of common convergence have become more pronounced. Our separate and collective attitude and regard to the progress in the attainment of the Millennium Declaration Goals stand us in good stead. The determination to succeed in this regard and urge those in our neighbourhoods to do the same suggest that if we persevere it may that hope will triumph over despondency and a new reality will emerge, we may banish poverty for a sizeable number of our populations.

Technical Cooperation Issues

Our agenda has over time found a more focused expression on those issues that would produce most progress and set us up on an independent and competitive footing. During the UNGA 60 session and meeting on its wing, our Principals have pointed us in the right direction as they correctly alluded to the need for concerted efforts in evolving intervention strategies on questions of Energy, ICT, Transport, Trade and Investments. Let me give attention to each of these:

- Energy

It has become abundantly clear that reliance on fossil fuels as sources of energy have imposed constraints on our development now and in the future. Work is thus apace to share both experiences and innovative technologies in developing alternatives sources of energy. Serving as platforms for such discussions will continue to be the knowledge base that the three countries have on bio-fuels such as ethanol production and others.

- ICT

The challenge to enhance our competitive edge rests in our ability to fortify our efforts to be on the cutting edge of innovation in as far as information and technological competence is concerned. We will be well served if our societies are able to grapple with the requirement to close the digital gap and remove ignorance. Progress towards e-governance for a better delivery of services to our people is afoot and negotiations towards an IBSA website is in progress

- Transport

Obvious advantages in the area of transportation of goods between our respective continents have evidently begged for an elaborate plan on both maritime and air service transportation. It is expected of our technical experts to elaborate on these plans and bring them into operation soon.

The benefits seem obvious and yet significant in changing the landscapes of our economies. Development of logistics, infrastructure and transshipment hubs will enhance our flow of trade, facilitate movements of persons and bring tourism potential to its full realization.

- Trade and Investment

Whilst the potential between our countries has always looked us in the eye, it is true that we have hitherto not fully realized such. Walking back the memory lane, perhaps it would be prudent to recall our joint resolve to have established greater trade flows, something in the order of US $ 10 billion. Inspired by New Delhi, it could have been said we were too ambitious or motivated by dreams of zealous persons.

Consistent with the requirement to let hard work transform yesterday’s dreams into today’s reality the signs for this potential to be realized is there. As at 2005, trade between Brazil and South Africa is US$1.7 billion, Brazil and India is US$ 2.3 billion, and these are signs of growth and achievement in that direction.

In our quest to succeed in this regard we have since realized the signing of the SACU/MERCUSUR preferential trade and also MERCUSUR/India preferential. The IBSA countries are also in the process of harmonizing the said process of preferential trade arrangements.

In 2003 we made bold of our desire to ensure a non-insular regard to the importance and significance of IBSA. We expressed the desire to have ensured that IBSA was not an exclusive prerogative of government, but that it would anchor its legitimacy of broad based acceptance and embracement by civil society. Not only have we in this regard founded the Business Council to which our businesspersons have taken to with enthusiasm. A year later since Cape Town and the launch, the three countries have steadfastly maintained interest and will report new outcomes on their engagement.

We recall with pride and humility our engagement in Guinea Bissau. We are hopeful that our small intervention will make a difference in the lives of ordinary people touched by that project. We look forward to the projects in Haiti and Palestine taking root and similarly producing a positive effect. In conclusion, let me turn my attention to yet an important issue that commonly confront the three of us including fellow developing countries. This is the issue of the REACH legislation. As you will recall, this is the European Union legislation on Registration, Evaluation, and Authorisation of Chemicals.

Colleagues will recall that the legislation finds its legitimacy in the WSSD article 20 of the Johannesburg Plan of Action.

We are thus intrinsically not opposed to the spirit of the legislation but are perturbed by the unintended negative consequences of the legislation. The requirement to register about 30 000 chemicals covered by the scope of the legislation will impose a cost burden of approximately E9.2 billion on developing countries, will take at least 18 months to register an item and so forth.

If REACH were to be implemented in its current form, it would wreak havoc and stunt the development of our economies. The legislation would act as a Technical Barriers to Trade (TBT); the effect on trade regarding minerals, ores, chemicals, textiles and metals is simply enormous and devastating. We are thus obliged towards common purpose and action to develop a unifying program of action to negotiate a better dispensation."

Lifting the Lid on Foreign Investment Contracts - (I)

Lifting the Lid on Foreign Investment Contracts: The Real Deal for Sustainable Development’ is the title of a recent briefing paper by the UK-based International Institute for Environment and Development (IIED). This report highlights a range of concerns about foreign direct investment governed by foreign investment contracts. The specific concerns are heightened by a generalised lack of transparency in the negotiation and accessibility of foreign investment contracts, by their tendency to favour settlement of disputes by private international arbitral tribunals not national courts, and by their potential to undermine public policy goals related to sustainable development. This is the first part of the paper, to ne followed in the next issue.

This is a report on a little known, little understood area of foreign investment relations between corporations and governments. It is an area that is largely hidden from public scrutiny. Yet it has far-reaching implications for the way of life, the rights, and the natural environments of millions of people in countries around the world.

This report is not about the policies that are reflected in bilateral investment treaties between governments, or in regional free trade agreements between governments. Nor is it about controversial efforts on the part of governments to design international investment frameworks to protect the rights of foreign investors. Instead, it looks at foreign investment arrangements at a different level. Its focus is on deals between foreign investors and governments – foreign investment contracts. The terms of these deals have major implications for whether investment projects bring real benefits for the people and environments of the countries where they take place, or whether instead they undermine sustainable development.

Based on our initial investigations into a wide-ranging group of foreign investment projects and their associated deals in Belize, Chile, Ghana, Mali, and Pakistan, we highlight concerns about the processes through which foreign investment contracts are negotiated, the terms of the deals, and their wider implications for sustainable development. We aim to ‘lift the lid’ on these types of contract; to raise awareness about them; and to alert their negotiators to the rapidly increasing civil society interest in the implications that they hold for sustainable development.

Key Points:

Ÿ Foreign investment contracts – deals between foreign investors and host country governments – have major implications for sustainable development. For example, we have found that some exempt foreign investors from local laws, or commit governments not to change certain laws once the investment has taken place.

Ÿ Government agencies keen to attract foreign investment have sometimes changed domestic legislation especially to clear the way for environmentally harmful investment projects.

Ÿ Many foreign investment contracts are hidden from public view and confidentially negotiated. Disputes between foreign investors and governments are typically resolved in the closed world of international commercial arbitration.

Ÿ Foreign investment contract provisions need to strike a balance between the legitimate interest of investors in stability for their investment on the one hand, and the pursuit of sustainable development on the other. Too often the priority is investment stability at the expense of sustainable development.

Ÿ Making foreign investment contracts supportive of sustainable development calls for reform at four levels: the processes of contract negotiation; the terms of the contracts themselves; dispute settlement arrangements; and alignment between the wider policy environments in which foreign investment contracts are negotiated and sustainable development.

This report is based on our preliminary work together as partners in an ongoing collaboration. Our shared goal is sustainable development – the policy imperative for governments, people and businesses to balance economic, social and environmental considerations, so as to meet the needs of today’s generation without compromising the ability of future generations to meet their own needs.

The problem with foreign investment contracts

Foreign investment has the potential to bring real benefits, enhancing the lives of people around the world by providing products and services that meet human needs. At the same time, the activities of multinational corporations have the potential to harm workers, communities, the environment and even public institutions.

Easier communications around the world have helped to raise public concern about negative impacts of foreign companies in poor countries. But efforts to promote responsible business behaviour through market-driven pressure have so far done little more than tinker at the edges. The basic terms for foreign direct investment in some of the world’s most controversial projects – including oil pipelines, mine sites, power plants and dams – are set out in privately negotiated contracts between large companies and government officials of the countries that host their investment projects.

A foreign investment contract, for us, is an agreement between a company or some other kind of business and a state, for the purposes of an investment project in that state. The agreement sets out terms and conditions applicable to the investment project. An investment contract is ‘foreign’ when it is associated with a foreign business (which may or may not itself be a direct party to the contract) with capacity to control important management decisions or associated impacts.

Foreign investment contracts take a variety of forms. At one end of the spectrum, contracts for mining in Mali are based on a model agreement which is annexed to Mali’s Mining Code. In contrast, the ‘Third Master Agreement’ for the construction of the controversial Chalillo Dam in Belize was fully negotiated between the parties.

In theory, the policy context for the negotiation of foreign investment contracts in host countries should reflect the principles of sustainable development, incorporating environmental protection, economic development, poverty reduction and human development. But there are all too often contrasts between theory and practice.

There can be major mismatches between claims that are made about the positive impacts of foreign investment at the macro level, where decisions on investment contracts are taken, and their actual impacts at the local level. Mostly, local communities affected by investment projects have no say in the negotiation and implementation of the deals that govern the project. Yet they often suffer negative impacts. Only with real appreciation of local contexts can policymakers and businesses understand how best to get the right balance between sustainable development at the national and local levels.

Part of the problem is that an international policy environment committed to free markets has resulted in a system of investment regulation that is geared towards meeting the interests and needs of foreign investors rather than communities or the environment. All too often governments have focused on reforms designed to free up markets at the expense of efforts to strengthen environmental or social protection. The uses of foreign investment contracts in the world’s poorer countries are often a direct result of experiments in macroeconomic policy-making or application of the latest thinking in the technical assistance programmes of the World Bank Group. In the 1980s and 1990s, the structural adjustment programmes of the World Bank and the International Monetary Fund encouraged governments to disengage from direct production of goods and services, promoting processes of privatisation instead. For example, in Ghana, the current policy framework for mining investment contracts is a logical evolution of reforms flowing from a World Bank and IMF-initiated economic recovery programme.

It would be wrong to suggest that foreign investors hold all the cards as they negotiate with host countries; but they often have the best possible professional support from advisers charged with acting in their best commercial interests. Host states might lack the resources to do the same and might find themselves sorely tempted to exchange their long-term right to regulate foreign investors for short-term investment gains.

Foreign investment contracts raise concerns at three levels:

Ÿ Transparency: many contracts are not publicly available, or are only made publicly available once they have been signed. Few contracts provide opportunities for public input or review during the process of negotiation. These concerns are apparent from case study work in Belize, Pakistan, and Ghana.

Ÿ The content of the contracts: particularly the balance that they reflect between the concern of foreign investors for stability for their project, and the provisions that are agreed to by host states responsible for upholding public policy goals. These concerns are highlighted by our work in Belize and Ghana.

Ÿ The incidental impacts of the contracts on sustainable development in the countries where investment projects take place. These result from legal and other processes that, although not part of an investment contract as such, are directly linked to that contract. For example, incidental impacts may include changes to national legislation specifically to clear the way for controversial projects. These concerns are shown in ca se study work in Chile, Mali, Pakistan and Belize.

Transparency

In many parts of the world, even the basic provisions of foreign investment contracts are not made publicly available. Alternatively, they may be made available once the deals that they reflect have been done, but without providing opportunities for public input.

Transparency, access to information, and rights of public participation are core principles of sustainable development. Lack of transparency is a breeding ground for corruption. It erodes participatory democracy by denying citizens and communities likely to be affected by a project the opportunity to have a say on whether and how investments should be undertaken.

Without public scrutiny of foreign investment contracts, it is impossible for citizens to judge whether or not their elected governments are acting in their best interests and effectively pursuing or meeting public policy goals. It is also impossible for them properly to hold their governments to account for consequences of foreign direct investment. Even where parliamentarians are afforded opportunities to scrutinise contracts, the risks of co-option as well as issues of expertise and capacity all point to the importance of wider public input to foreign investment contract negotiations and scrutiny of draft contracts.

In Chile, contracts associated with privatisation of the water sector are not transparent nor do members of the public have access to them. This lack of transparency feeds a general perception that there are no adequate mechanisms to guarantee the accountability of the companies, particularly in relation to their investment plans for infrastructure development to improve and extend water services.

In Belize, a contract between the Government of Belize and Belize Cruise Terminal Limited (BCTL) was signed in April 2004. BCTL had been established as a joint venture between Carnival Corporation of Panama and Belize Ports Ltd. The contract concerned the development of a cruise ship port and related facilities at the Belize Port Free Zone at Port Loyola, Belize City.

The terms of the cruise contract were not made public. Then in October 2004 the agreement was leaked, promoting widespread public discussion. The overriding fear, according to Tourism Minister Mark Espat (who himself claimed not to have been consulted on the deal) was that ‘cruise passengers by the hundreds and thousands will overrun the popular destinations, diminishing the premium you can charge, destroying the exclusivity of Belize and after a few good years, Belize would lose its cruise industry charm and with the loss would be the loss of a steadily growing overnight sector’. After a great deal of pressure from within the tourism industry, a ‘clarification agreement’ was signed that addressed some of the concerns – such as those raised by contractual clauses on the applicability of environmental legislation to BCTL. Not only did the ‘clarification agreement’ not go far enough for the Belize Tourism Association, an umbrella group, but there is also a question as to whether or not the ‘clarification’ has been legally incorporated into the terms of the contract. The Belize Tourism Association began judicial review proceedings late in 2004, on the grounds that the contract was unreasonable and unlawful. Their case has yet to be decided.

The disclosure of the cruise contract clearly triggered concern, both because of the terms as well as the secrecy of a deal that will have far-reaching effects for the country. It has also stimulated widespread public discussion within the tourism industry and beyond about what model of development Belize will pursue in its efforts to promote tourism in the country. Without public engagement, the policy decisions reflected in the terms of the deal, and its prioritisation of high-volume visits by cruise ship tourists, would have taken effect without any meaningful opportunities for public review.

In Pakistan, in 1997, the Pakistani Ministry of Petroleum and Natural Resources granted a licence to Premier Exploration Pakistan Limited, which at that time was a joint venture between Anglo-Dutch Shell and English Premier Oil, allowing it to undertake natural oil and gas exploration in the Kirthar National Park. The Park is the largest national park in Pakistan. As well as being on the UN list of protected areas because of the number of threatened animal species it hosts, the Park is crucially important for water supply to Karachi, which has a population of 14 million people. Despite the controversy surrounding oil exploration in the Kirthar National Park and a rash of litigation related to the Shell-Premier investment, our project team was not able to access relevant documents. This continues to be the case now, even after the joint venture between Premier and KUFPEC (Shell divested from the project once the controversy erupted) completed exploration activities in the Park.

Not all countries fail to provide for public access to investment contracts. For example, in Ghana, the Constitution makes provision for Parliamentary involvement in grants of rights or concessions for exploitation of minerals. Any transaction, contract or undertaking has to be ratified in Parliament by a two-thirds voting majority. On the government side, negotiations are normally led by the Minerals Commission. Usually, before ratification of a mining investment agreement, the Parliamentary Committee on Minerals and Natural Resources would have an opportunity to scrutinise the agreement and to ask questions to officials from the Minerals Commission on aspects of the agreement. Whether and when contracts become available to the wider public depends on whether the Parliamentary Committee invites public comments on the contract document; for most agreements placed before Parliament this does not happen. Ratification by Parliament has little impact on the substantive content of agreements negotiated by the Minerals Commission. It is a last resort right of veto.

A public right of access to information is clearly not the same as a public right of participation. In the Ghanaian case, the extent of the public right to comment is at least determined by a Parliamentary Committee. In practice though, the exercise of this discretion has rarely offered members of the public opportunities to make substantive inputs to contracts whilst substantive negotiations are still under way. Civil society groups and communities living in and around potential mining sites in Ghana rarely have opportunities to make inputs during the negotiation process.

Another way for host country governments to provide for public access to information about foreign investment contracts is formally to adopt them as part of their legislation. This approach has been taken, for example, in the case of oil and gas projects in Cameroon and in Azerbaijan. It has a number of consequences: not only does it offer additional security to foreign investors, but it may also carry wider legal implications stemming from the fact that the host state’s action in ratifying the contract through legislation amounts to more than a contractual act as an exercise of sovereign authority. And if contracts breach other kinds of national laws, their adoption through legislation can also potentially open the way for citizens to challenge the terms of those contracts in national courts.

Aside from the general problem of lack of access to the terms of foreign investment contracts, some deals include provisions which prevent members of the public from accessing the information that they need to assess the socio-economic implications of the project. In Ghana, for example, a typical mining lease would likely bind the Government to treat all information submitted under obligations in the lease as confidential for a period of five years, or until termination of the lease. Even then, the consent of the company might be required.

Lack of transparency in the negotiation of foreign investment contracts can shift public concern to processes and forums whose mandates do not match the underlying concerns but that do at least allow a measure of public participation. For example, in some cases, including the Chalillo Dam project in Belize and Shell-Premier’s exploration in Pakistan, public concerns about lack of transparency have found expression through legal challenges to environmental impact assessment procedures that countries have adopted for evaluating the environmental impacts of large projects. But these impact assessment procedures are not designed to enable effective scrutiny of non-environmental concerns. They are a poor substitute for wider transparency or public opportunities to shape the terms of the contracts themselves.

Turbo-Charging Investor Sovereignty – (I)

Corporate power has lobbied aggressively to liberalise investment rules by removing ‘distorting’ domestic regulations (such as performance standards and constraints on repatriation of profits) and empowering private investors to extract compensation from foreign governments for any legislation that adversely affected inward investments. In the following article, which was carried recently in the UK-based Corner House, authors Nicholas Hildyard and Greg Muttitt trace the history of ‘Investment Agreements and Corporate Colonialism’. Through a number of examples, they bring out the kind of pressures that are applied on States wishing to attract foreign investments. This is the first part of the article, to be followed in the issue.

"We got a horrible contract with BP, horrible" -President Saakashvili of Georgia, August 2004

"Without having to amend local laws, we went above or around them by using a treaty." -George Goolsby, Baker Botts Architect of legal regime for BP’s Baku-Tbilisi-Ceyhan oil pipeline.

Reconstruction and construction do not take place only in bricks and mortar. Long before the first foundation stone is laid for a major pipeline, road, mine or oilfield development, the project is constructed on the hard drives of investors, built of financial spreadsheets and legal agreements. Certainly, no less effort goes into engineering these aspects than the physical project itself, and their impacts on communities and the environment can be at least as profound.

But it is here that the analogy with bricks and mortar ends. For corporate investors, the body of project and financial law is a frontier against which they continually aim to advance. Reconstruction of a country’s economy, whether following war or dramatic political change, is an opportunity not just to make profits, not even just to apply draconian measures to protect those profits – but to push forward accepted investment practice, setting precedents to be rolled out around the world.

Corporate power never stands still. Blocked from getting what they want in one arena, companies quickly move to develop new mechanisms for bypassing whatever obstacles have been put in their way. Working simultaneously at the national, regional and international level, corporations and their institutional allies in government are constantly assessing and exploiting the political space available to them, never taking it for granted and forever seeking opportunistically to expand its boundaries. Legal and other constraints on corporate behaviour are probed and challenged; policy bodies assiduously monitored, courted and cajoled; and old alliances that no longer achieve the corporate goals of minimum regulation and taxes ruthlessly ditched in favour of new groupings that can deliver the goods. Pragmatic to the last, and operating against an endless and varied background of resistance, corporate power takes what is available to it and builds on it to establish precedent, expand its practice, and claim it as the norm, shoring up the gains made through changes in the law. Successes follow set-backs and set-backs follow successes: nothing is ever taken for granted except the need to rework the framework in which corporations operate in order to reinforce and expand their political base.

For the last three decades, for example, corporate power has lobbied aggressively to liberalise investment rules by removing "distorting" domestic regulations (such as performance standards and constraints on repatriation of profits) and empowering private investors to extract compensation from foreign governments for any legislation that adversely affected inward investments. For companies, the Holy Grail has long been a global investment regime, imposing binding rules favouring investors worldwide – a regime that enhances the companies’ powers of retaliation in the event of their "investment rights" being infringed by elevating a simple contract dispute into a breach of international law, thus enabling their home governments to weigh in on their behalf.

To date, the companies have been denied that goal by civil society resistance. In the early 1970s, the USA pushed to include investment in the Tokyo Round of the General Agreement on Tariffs and Trade (GATT). When that failed, due to opposition from developing countries, corporations pressed their national governments to secure corporate investment interests through bilateral agreements and regional initiatives, including rights for companies to take their disputes with States to international arbitration. In the early 1990s, the companies moved back to the international stage, this time seeking to push a binding investment Treaty – known as the MAI or Multilateral Agreement on Investment – through the Organisation for Economic Cooperation and Development (OECD). When the negotiations collapsed following massive public opposition, corporate power returned to GATT’s successor, the World Trade Organisation (WTO), only to be rebuffed once again. This is unlikely to be the last attempt.

Unable as yet to achieve what they wanted through multilateral negotiations, corporations have reverted to Plan B (or perhaps it was always Plan A), once again relying on bilateral and regional Treaties to push their investment interests. On the one hand, companies are increasingly using the arbitration clauses of Bilateral Investment Treaties (BITs) to challenge national laws (including environmental laws), local administrative regulations, taxes and other governmental actions that are deemed detrimental to the value of their investments, or to push through new obligations such as the requirement to "protect" intellectual property rights. On the other, company lawyers are using existing or specially-negotiated BITs to turbo-charge standard concession agreements, imposing project-specific legal regimes – known as Host Government Agreements (HGAs) – that give companies effective control over the legislation and regulations that apply to their activities and require States to compensate them for any new laws that affect corporate profits.

Meanwhile, oil, gas and other extractive industry companies are also using and evolving legal instruments first developed in the 1960s – Production Sharing Agreements (PSAs) – and imposing new or tightened conditions which have allowed corporate power to gain almost complete control not just over the laws that apply to their activities but over the very development of the host States’ natural resources. Having used Host Government Agreements and Production Sharing Agreements to win hugely favourable investor rights in the countries of the former Soviet Union and in West Africa, corporate power is now applying the same legal instruments to impose a new era of resource colonialism in Iraq.

From Colonial to Neo-colonial

It is not new for investment agreements to give corporations extensive rights, prodigious profits and minimal obligations: where recently-negotiated investment agreements differ from those in the past is in the extent of their enforceability and their dominance over international, national and municipal law.

Generous agreements were signed during the colonial period, either by direct rulers, or by their local puppets. For example, in 1936, the British Governor of Nigeria, Sir Bernard Bourdillion, granted a consortium of BP and Shell rights to all of the oil in the entire country. In Iraq, the British-installed monarch Faisal in 1925 signed a concession with a consortium of British and French (later joined by American) companies. The Iraqi concession was for a period of 75 years, and along with two further concessions signed in the 1930s (one with a subsidiary of the same consortium; the other to a company which it subsequently bought out), the consortium obtained, like in Nigeria, rights to all of the oil in the entire country.

In the middle of the twentieth century, as colonial empires were crumbling, corporations had to seek new means to defend their investments, in particular from the growing nationalist movements. In the case of the oil industry, the collapse of empire was followed by the setting of tougher terms by host governments, the renegotiation of existing agreements, and in many cases nationalisation of assets. A key test came in Iran, when populist leader Muhammad Mossadegh nationalised BP’s (then known as the Anglo-Iranian Oil Company) oil operations in 1951, in a move reflecting popular frustration at the unfair terms of the 60-year concession agreement with the company.

As lawyer Anthony Sinclair has documented, BP lobbied hard to persuade its major shareholder, the British Government, to take up the defence of its contracts in the international courts. Although the Government complied, its case failed because the company’s contracts were deemed insufficiently rigorous to allow the International Court of Justice to hear the case. Unable to achieve what they sought through the courts, the UK Government, together with the US, staged a M16 and CIA sponsored coup.

BP – and other companies - learned major lessons from this experience in Iran. Having failed to fend off nationalisation in the courts, BP was advised by its legal counsel that in future the company should include a special clause (known as an "umbrella clause") in its new contracts with Iran that would nestle the contracts within a UK-Iran treaty, thus ensuring that they would automatically be governed by international law. A dispute between the company and Iran would thus be transformed into a dispute between the Government of the UK and the Iranian Government.

In the event, such umbrella clauses were not included in the new contracts – although they were considered during the drafting – largely because it was deemed unlikely that the UK government would wish to become embroiled in the minutiae of every dispute under the contract. Nonetheless, the idea of "umbrella clauses" had been seeded – and over the coming decades, companies would further explore their potential, along with other legal instruments, to achieve greater corporate control over investments in an age of "decolonisation" and increasing nationalism.

By the 1990s, the avenues first developed by BP’s legal advisors were beginning to bear fruit. With public funding for development through the multinational development banks declining, southern countries were under increasing pressure to agree to investment terms that were highly advantageous to companies in order to attract inward investment. Indeed, the companies and the MDBs repeatedly told them that they had no option but to do so.

Encouraged by this, companies began to expand the scope of investment contracts to gain exemptions a range of environmental and other legislation. But the companies went beyond simply demanding exemptions to local law. Spearheaded by the multinational oil companies – or more accurately their lawyers – corporate power began pioneering new legal arrangements (known as Host Government Agreements) which closely mimicked those first suggested by BPs lawyers in the 1950s.

The collapse of the Soviet Union, and the subsequent rapid liberalisation of its economy under conditions where the state was relatively weak and corporations strong, presented the ideal opportunity to roll out the new approach.

New-style agreements were signed in the 1990s, not just in the former Soviet republics, but also (following the end of the Cold War and the discovery of deepwater oil extraction technology) across West Africa.

Learning the lessons of Iran, the new agreements explicitly sought to "internationalise" the investment contracts being signed with foreign states, thereby elevating contract disputes into violations of international law. In some cases, this has been achieved by invoking clauses in the new Bilateral Investment Agreements or regional trade agreements that have proliferated since the 1980s. In others, new treaties have been signed with the specific aim of shrouding individual contracts within their protective cloak. This has not only enabled the companies whose "rights" have been infringed to remove investor-state disputes from the jurisdiction of national courts, but also to mobilize the entire diplomatic weight of their home government against the offending host state to remedy the breach.

The Case of the Baku-Tblisi-Ceyhan Oil Pipeline

As in Iran, BP has been at the forefront in designing and promoting the new agreements. Indeed, the legal regime which the BP-led consortium negotiated for the Baku-Tbilisi- Ceyhan oil pipeline project, which will transport oil from BP’s Caspian oil fields via Georgia to Turkey’s Mediterannean coast, has broken new ground in the use of international investment agreements to exempt companies from regulation and insulate them from local legal accountability. The agreements thus merit close analysis, not least because BP and other companies are promoting them as a template for future oil pipeline projects.

The legal agreements for the projects were drawn up in secret – when western non-governmental organisations investigating the project visited Azerbaijan in 2001, a year after the agreements had been ratified by Azerbaijan, the project documents were not even available to parliamentarians, let alone members of the public.

The legal regime for the project consists of two layers of agreements: first an Inter- Governmental Agreement (IGA) between Azerbaijan, Georgia and Turkey, which has the status of a Treaty; and second, three separate Host Government Agreements (HGAs) between the companies in BTC Co, the consortium which owns and will operate the pipeline, and each of three countries. The HGAs are defined as private law contracts.

Under the agreements, which are specifically aimed at guaranteeing the "freedom of petroleum transit", a formulation that effectively claims rights for oil itself, the three governments have all but surrendered sovereignty over the pipeline route to the oil consortium. Not only do the agreements trump all existing and future laws in the three countries, other than the respective constitutions, but they also impose obligations that severely limit the State’s ability to act in the interest of its citizens. Moreover, they go far beyond the norms of traditional concession agreements.

Using Treaty Status to Trump National Law Standard concession agreements are invariably subject to national host State law. The HGAs for the BTC pipeline, by contrast, have been drawn up under (and therefore nest within) the framework of what is in effect an international investment treaty. The companies therefore claim that HGAs automatically assume the status of international public law while simultaneously remaining private contracts.

The internationalisation of the concession agreements for BTC reveals how well BP has learned the lessons of Iran. As "treaties", the HGAs have a privileged status since, as the European Bank for Reconstruction and Development (EBRD) notes, "in general, a treaty takes precedence over inconsistent domestic law, even subsequent domestic law." The provisions in the HGA thus trump all domestic law. Moreover, as a "treaty", the HGA is far more difficult for a new government to overturn than an ordinary Act of the national legislature.

Although BP argues that a treaty between the three countries was necessary in order to ensure that the pipeline was subject to a uniform legal regime, other cross-border projects – notably many existing trans-border pipelines – have long been operated without being subject to specially-negotiated treaties.

Moreover, the regulations to which the pipeline is subject under the agreements differs significantly from country to country: for example, land acquisition is carried out differently in Turkey and Georgia, with affected citizens in Georgia receiving higher compensation.

If uniformity was initially the avowed aim, therefore, it was quickly jettisoned once the pipeline began to be built. Indeed, the true explanation for placing the HGAs within a Treaty is revealed by James Goolsby of Baker Botts, the Houston-based energy-sector law firm which was the legal architect of the agreements: "Without having to amend local laws, we went above or around them by using a treaty."

In effect, BP specifically married two legal instruments – a BIT (or more accurately, given the three countries involved, a Trilateral Investment Treaty) and a private contract concession agreement – specifically in order to circumvent local law.

The European Investment Bank: In the South for Whom?

A recent report ‘The European Investment Bank in the South: In whose interest?’ notes that the European Investment Bank (EIB) has become one of the most powerful International Financial Institutions in the world. Citing case studies from eight countries - Zambia, Chad, Cameroon, Laos, the Philippines, Indonesia, Mexico and Brazil - the author Jaroslava Colajacomo says its funding is more directed towards supporting big companies in sectors such as extractive industries or water privatisation than towards poverty alleviation or environmental standards.

The full report can be downloaded from:

www.foei.org/publications/pdfs/eibinthesouth.pdf

or

www.bankwatch.org/documents/eib_in_south_3.pdf

Presented below are extracts from the report, produced jointly by CRBM, CEE Bankwatch, Friends of the Earth International and WEED.

The EIB is a public institution established within the European Union co-operation framework and has responsibilities in ensuring sustainable development and positive benefits for people in the countries where it lends, as originally recognised in the Treaty for Europe. In Africa, Latin America and Asia the EIB is supposed to operate in coherence with EU co-operation frameworks (Cotonou Agreement and Council regulations). These frameworks are embedded in EU agreements and priorities for development agreed with the respective countries (in so called Country Strategy Papers). These priorities include poverty alleviation and social and environmental improvement.

Through analysis of original data, this report evaluates the EIB’s activities in African, Latin American and Asian countries. The report draws on a recent European Parliament study1 and on case studies written by civil society groups from eight countries in the global South where the EIB operates: Zambia, Chad, Cameroon, Laos, The Philippines, Indonesia, Mexico and Brazil.

This report argues that the EIB appears to be in practice a fundamentally demand- driven institution responding to the needs of its clients, readily financing projects where economic returns are high and guaranteed instead of prioritizing lending for poverty alleviation or environmental protection. The EIB has for example, rarely subsidised environmental projects, or invested in renewable energy. Furthermore, case studies illustrate how EIB financed projects have often been damaging to communities and the environment, for example in investments in plantations for pulp production in Brazil.

In Latin America and Asia the EIB’s mandate is based on so called ‘mutual interest’. The EIB appears to interpret this ‘mutual interest’ as primarily development of an external market and support for EU companies. In these regions, EIB loans have targeted well-established and financially secure sectors or clients, thus tending not to reach out to the poorest (and financially risky) countries or small local companies. In Latin America, more than 90% of EIB loans since 1993 have been given to either subsidiaries of EU-based companies or to big trans-national corporations. This report illustrates that these investments are often directed towards export, with profit for the EU companies, while support for creation and improvement of local infrastructure such as electricity networks and local transport systems is neglected.

In Africa the EIB manages a significant share of EU commission budget money for development cooperation (up to 13.5 billion during last ten years) and this tendency is increasing with the creation of the new EIB’s Cotonou Investment Facility, expected to disburse €2.2 billion of the EU budget between 2003 and 2008. This report shows how the first few loans disbursed by the Facility went predominantly to the private sector, to large European corporations or large local companies, including the recent loan for the copper and titanium mines in Zambia and Mozambique.

In Africa, as in Latin America, the preferred targets of EIB loans are within the extractive industries sector.

The Chad–Cameroon Oil Pipeline was the largest project ever funded by the EIB in Africa, with €144 million, representing four per cent of its total lending in the ACP region countries. In 2006 the EIB is considering financing another risky fossil fuel project, the West African Gas Pipeline extending from Nigeria to Ghana. The EIB’s loans for extractive industry projects described in this report indicate how the EIB has often failed to deliver local development benefits in term of jobs or basic services. This report also found this to be true in other sectors, such as loans to Volkswagen in Mexico and water companies in Asia. The EIB’s significant investment in Private-Public Partnership water privatisation projects in Indonesia and the Philippines have had no benefits to those lacking access to safe water supplies or to the poor.

Less than 50 years old, the European Investment Bank (EIB) has become one of the most powerful International Financial Institutions in the world. Acting on behalf of European citizens and the European Union Governments that own it, the EIB lends about €45 billion a year of public money for projects that claim to help development and cohesion of the European Union (EU). In the 1960’s the EIB started to finance projects in Africa and today about ten percent of the EIB’s financing is outside Europe, in countries from China to Brazil. This lending covers a wide spectrum of project investments including in energy, water, communication, industry and financial intermediaries. But in whose interests are these projects?

This report finds that EIB financed projects in the global South have often received inadequate environmental and social assessment resulting in detrimental impacts on local communities and the environment. In Africa and Asia, a priority area of lending for the EIB has been in hydropower production and large dams, often at the expense of the environment. The Nam Theun 2 Dam in Laos, reviewed in this report, was financed in disregard of its violation of internationally recognised standards.

The EIB claims that its selection of projects financed outside the EU is rigorous and that all projects it finances must comply with EU environmental policies and standards (for example on environmental and social assessment) and take into account local conditions and law. However, the case studies in this publication show that in reality EU standards are not met, nor are best practices followed. There are no mechanisms in place to properly assess the coherence of the EIB’s operations with EU policies prior to or post loan approval. Moreover, there are cases where EU policies are insufficient or do not apply to nonmember countries. Unlike other International Financial Institutions like the World Bank or the Asian Development Bank, the EIB has no internal safeguard policies, such as a resettlement or indigenous peoples’ policy, nor an independent complaints mechanism for affected people for projects outside Europe.

Despite international calls to meet the Millennium Development Goals to address the needs of the poor, the EIB’s support for basic social needs (such as access to water and sanitation, health, and education) has been minimal in its total lending in the global south. In Africa, the EIB is obliged to adhere to EU strategies for poverty alleviation and social development – with strong reference to the MDGs – yet, so far there is little indication that EIB lending activities have contributed to this goal.

Furthermore, the EIB remains one of the least transparent and least accountable institutions within the EU. This report shows how the EIB denies vital information to the public (including whether the EIB is considering financing a project and key environmental and social impact assessments) and concludes that EIB clients have primary disclosure control regarding project information.

The EIB’s accountability to the EU Commission and Parliament needs urgent attention. Although the European Commission reviews annually EIB operations, and the European Parliament is free to pass resolutions regarding the EIB or to come forward with its own reports, the EIB is not bound to comply with Parliament’s recommendations. For example, although over a year ago the European Parliament called on the EIB to adhere to the findings of the World Bank’s Extractive Industries Review (EIR), the EIB has not implemented these recommendations.

This report recommends a dramatic shake up of the EIB in its choice of projects, its relation to affected people, its accountability to the European Union, its procedures and processes, and its monitoring of projects and policies regarding lending in the global South. The EIB must take full responsibility for the consequences of its lending and it must ensure that the projects it finances deliver benefits to people and the environment.

Conclusion

Although the EIB is obliged to support EU development strategy, in reality EIB lending to Africa, Latin America and Asia over the last ten years has not. Many of the loans went to large-scale, non-sustainable oil, gas, mining, dam and industrial projects – sectors that may be economically viable for the EIB but mainly benefit subsidiaries of EU companies, not local people or the environment. This report found no evidence of the EIB following the dictates of EU sectoral priorities or EU Development Policy, particular its poverty focus.

Although the EIB states in its 2004 Environmental Statement that ‘it finances projects that maximize the benefits for the environment’ no project was financed in Latin America, Asia or Africa in the last ten years which explicitly set out to promote and conserve the natural environment and biodiversity protection.

Although the EIB is often presented as the "development bank of the EU" in practice it remains distant from key EU policy objectives regarding poverty alleviation and social development embedded in the EU’s Country Strategy Papers. These papers are the main planning instruments for EU aid programming and disbursement to countries outside Europe.

Even though the Treaty establishing a Constitution for Europe suggested that EIB lending operations be subordinated under the goals of EU development co-operation policy, the EIB has yet to be given (apart from in relation to the ACP countries) a formal institutional mandate for development co-operation in all the regions outside the European Union. The definition of clear criteria for EIB lending thus becomes all the more urgent.

Lack of participation and meaningful consultation with affected people and civil society about shaping, receiving compensation from, and consenting to the project, is of significant concern.

All the cases analysed in this report show a lack of civil society participation in decision making. This is in violation of international best practice embedded in the EU Directives and is incoherent with many other IFI standards. In the cases of the Nam Theun 2 Dam in Laos, the water privatization projects in the Philippines and Indonesia, the Chad-Cameroon pipeline, and the gas pipeline in Bolivia-Brazil, the EIB did not apply any transparency regulations. Local communities and indigenous people were informed and consulted late, if at all, about possible impacts and they did not have any role in decision making. When information was provided, it was often not done in an appropriate manner or language. The EIB often directs interested public to clients’web sites instead of publishing a version of the environmental assessment locally for public comments, as it is required by the EU policy on environmental impact assessment. In cases where EIB was the sole financier, no information during the whole project cycle was made available to affected people, local NGOs, international NGOs, or the European Parliament.

Moreover, given that in the African, Caribbean and Pacific region the EIB has increasingly used European Union budgetary funds, the sharp shift in EIB lending towards the private sector is extremely worrying. The case studies from Indonesia and the Philippines have shown that private investors frequently fail to meet the rights of the poor to a clean and safe water supply, and instead, bring tariff increases. Importantly, the EIB generally favours European corporations over local companies.

Finally, one of the main findings when assessing EIB operations outside Europe is the operational freedom it enjoys at the local level, especially in the application of the provisions of the EU Council mandates and the EU Commission monitoring. The EIB’s lack of a development strategy facilitates a client centred approach, rather than one driven by principles of sustainable development. As we have seen, project appraisal practices end up focusing on economic, financial and technical aspects, rather than social or environmental ones. This risk is aggravated by the fact that the EIB does not have its own internal safeguard and sectoral development policies and strategies (as the World Bank and other Multilateral Development Banks do) to guide its lending activities.

As the EIB is setting out to revise its mandate for investments outside Europe, the European Council and the European Commission must act urgently and in co-ordination to ensure people and the environment are the EIB’s central beneficiaries.

This report illustrates the detrimental impact of EIB practices in the global south through regional analyses and eight case studies. They expose a deep negligence towards affected people’s rights and environmental considerations, as well as systematic shortcomings in project appraisal and a lack of proper monitoring and evaluation.

Recommendations

While lending outside the European Union, the EIB should:

1. Take full responsibility for the impacts of its lending, including cleaning up the legacy its current and past projects have created and ensuring that no future projects damage local people and the environment;

2. Obtain the consent of local communities and indigenous peoples before proceeding with any new project and establish clear and transparent procedures on public consultations with affected people and civil society, in accordance with international best practices;

3. Respect principles of human rights, food security, labour rights and indigenous peoples’ rights in accordance with relevant international laws and conventions while ensuring that all projects adhere to best practice international environmental standards and procedures. The EIB should also set up proper monitoring and evaluation mechanisms to ensure that companies receiving EIB support comply with relevant host, home and EU laws and policies, including international human rights, labour and environmental obligations;

4. Ensure that all future projects financed contribute to meeting the Millennium Development Goals of the UN130 while prohibiting support for projects that are inherently incoherent with poverty alleviation and sustainability including:

Ø Projects that involve significant conversion or degradation of critical natural habitats, support the destructive exploitation of natural resources; or involve the production of substances that are banned or scheduled to be phased out of production;

Ø Large dams that do not comply with the World Commission on Dams’ criteria;

Ø Extractive industry projects and nuclear power plants;

Ø Large scale industrial tree plantations

5. Proactively disseminate all relevant information regarding projects in a timely manner, in appropriate languages and in a method understandable for affected communities;

6. Adopt best practice safeguard policies, including on indigenous peoples, resettlement, environment and human rights, through a consultative mechanism with international civil society and affected people;

7. Adopt an independent accountability and compliance mechanism, which provides equal access for citizens in all regions where the EIB operates;

8. Adopt a development strategy through a consultative mechanism with international civil society and affected people in all regions of operation. Additionally, as the EIB operates within the framework of the European Union development aid and co-operation agreements, the European Commission should annually assess the coherence of the EIB’s lending operations outside the EU with the principles mentioned above. The Commission should demand suspension of EIB activities when these activities are incoherent with EU mandates and policies on development aid. The EIB should be fully accountable to the European Parliament and the people in countries of operation.

Coping With Increasingly Complex Investment Agreements

Navigating through the maze of international investment agreements can be a particularly challenging task for developing countries, and particularly the least developed countries. According to a recent study by the United Nations Conference on Trade and Development (UNCTAD) - Systemic Issues in International Investment Agreements (IIAs) - a new generation of IIAs is emerging with significant variation in content and therefore, policy implications. The brief study, released on 5 April, 2006, is presented below.

International investment agreements continue to increase in number…

International investment agreements (IIAs) have proliferated at the bilateral, regional and interregional levels over the past decade. By the end of 2005, the total number of IIAs exceeded 5,200. [1] In addition, given the limited duration of IIAs and the evolution of international law on investment, several countries are renegotiating existing treaties.

… with some important normative developments

Several main trends can be discerned within these important normative developments:

Ÿ First, some BIT models have deviated from the traditional open-ended asset based definition of "investment", attempting to find ways to strike a balance between maintaining a comprehensive investment definition and excluding assets that are not intended by the parties to be covered investments.

Ÿ Second, revisions to the wording of various substantive treaty obligations are emerging that aim to elaborate upon the language and clarify the meaning of provisions dealing with absolute standards of protection, in particular the meaning of the "fair and equitable treatment" standard and the concept of indirect expropriation.

Ÿ Third, a broader set of issues is addressed, including not only specific economic aspects, such as investment in financial services, but also issues where more room for host country regulation is sought, for example as regards the protection of health, safety, the environment and the promotion of internationally recognized labour rights.

Ÿ Fourth, the rise in investor–State disputes has resulted in a corresponding increase in interpretations of certain treaty provisions by arbitral tribunals. These interpretations are not always consistent with each other.

Ÿ Fifth, in light of the above, significant innovations regarding investor–State dispute settlement procedures are being made, in particular as far as greater and substantial transparency in arbitral proceedings (e.g. open hearings, publication of related legal documents) is concerned.

A new generation of IIAs is emerging…

International investment rules are increasingly being adopted as part of bilateral, regional, interregional and plurilateral agreements which address and seek to facilitate trade and investment transactions. These agreements cover a range of trade liberalization and promotion provisions, and also contain commitments to liberalize, protect and/or promote investment flows between the parties. They also often address investment-related issues such as intellectual property rights, competition, services and the movement of labour. The proliferation of IIA agreements in recent years is one of the key developments in international economic relations which have arisen in response to the increasing global competition facing national economies as they seek resources and markets.

… with significant variations in their content

A number of patterns have emerged with regard to the investment provisions in "new generation" IIAs, albeit with many significant variations:

Ÿ Agreements geared at investment liberalization typically follow two main approaches: One is exemplified by NAFTA and provides for actual liberalization subject to a list of country exceptions (negative list approach); the other (exemplified by several European Union agreements with third countries) is to provide for the progressive abolition of restrictions on the entry, establishment and operation of investment.

Ÿ Agreements that provide for investment protection and liberalization (concluded by a small group of countries that includes, inter alia, Australia, Chile, Japan, Singapore, Mexico and the United States) follow the NAFTA model, but are more comprehensive (i.e. they cover more sectors), detailed (i.e. they provide greater sophistication) and, for the most part, more rigorous than prior NAFTA-style investment agreements.

Ÿ Other recent agreements have a narrower coverage of investment issues and only establishing a framework for cooperation on the promotion of investments (e.g. the free trade agreements signed between the countries of the European Free Trade Association and Central European countries).

As a result of these developments, foreign investors and countries are confronted with an ever more complex universe of investment rules…

As a result of these developments, foreign investors and countries have to operate within an increasingly complicated framework of multi-layered and multi-faceted investment rules, which may contain overlapping or even inconsistent provisions. New agreements are emerging rapidly, featuring a structure and approach to investment issues not found in earlier agreements. Even similar types of agreements may exhibit important differences.

… and need to cope with different kinds of interactions between IIA provisions

In general, IIA provisions may interact in any of at least five different ways:

Ÿ First, they may interact in such a way as to create and define a particular right or duty, an "explication" interaction. For example, the expropriation provision found in many IIAs requires payment of compensation for the expropriation of investment, but the nature of the assets protected by this provision typically can be identified only with reference to the definition of the term "investment". The greatest challenge to consistency presented by this interaction may arise from the agreement’s complexity. The larger the number of provisions involved in the interaction, the greater the likelihood that negotiators will not be able to anticipate all the consequences of the interaction.

Ÿ Second, separate IIA provisions may create or enforce the same right or duty, a "reinforcement" interaction. This occurs, for example, in services-related investment provisions in which parties reaffirm their commitments under the General Agreement on Trade in Services (GATS). Furthermore, the most-favoured nation clause (MFN clause) can have a reinforcement effect. Depending on how the MFN clause is drafted, the host country may be obliged under the IIA to honour, with respect to covered investments, commitments made with respect to foreign investment in any other agreements.

Ÿ Third, IIA provisions may create different rights or obligations applicable to the same subject matter, a "cumulation" interaction. One situation where the potential for inconsistency is clear in such an interaction may be found in agreements that have a chapter on investment and a separate chapter on trade in services. Investment chapters sometimes have provisions which follow a negative list approach, while services chapters sometimes have provisions on market access which adopt a positive list approach. Another example relates to agreements that have a chapter on trade in services generally and additional chapters on trade in certain service sectors, such as financial services. In addition, "cumulation" interaction may occur with respect to dispute resolution provisions. For instance, some IIAs include an investment chapter with an investor–State resolution mechanism that is cumulative to the more general dispute resolution mechanism in the agreement. The issue may arise as to whether disputes concerning other chapters of the agreement may be brought under the investor–State dispute resolution mechanism.

Ÿ Fourth, one provision may limit, diminish or extinguish the rights or duties created by another provision, a "contradiction" interaction. For instance, while a BIT may grant a right of establishment to foreign investors, a regional agreement to which a party to the bilateral agreement belongs may exclude such a right. Similarly, different treaties may contain different provisions and/or language concerning performance requirements and other substantive issues dealing with the treatment of foreign investment once admitted.

Ÿ Finally, one provision may increase the impact of a right or obligation created by another provision, an "amplification" interaction. For example, a host country that concludes an IIA with a chapter on trade in services may commit itself to granting market access to service providers in a particular sector of the economy. Once a service provider has established a commercial presence in the host country in accordance with the market access commitment, the commercial presence may also be considered an investment within the meaning of the investment chapter and, therefore, entitled to all of the protections afforded to investment generally.

… and interactions between IIA provisions and State contracts

There may also be interactions between the provisions of an IIA and the provisions of a contract between the host country and the foreign investor (i.e. a State contract), such as an investment authorization. In some cases, the interaction is a "reinforcement" interaction. This occurs, for example, where the IIA has a so-called "umbrella clause", which requires the host country to observe obligations into which it has entered with respect to an investment. Under this clause, a violation of the State contract also violates the IIA.

Provisions of IIAs may sometimes have "contradiction" interactions with provisions of State contracts. For example, IIA prohibitions on performance requirements may limit the host country’s ability to include certain requirements in a State contract. Similarly, IIA provisions on non-discrimination might limit the ability of the host country to guarantee preferential treatment to a particular investor in a State contract.

These different kinds of interactions present new challenges for policymakers…

The various interactions among an expansive patchwork of IIAs complicate the task for policy makers of gauging the full legal and policy implications of any such agreement and may increase the risk of investment disputes. Moreover, as global economic integration deepens, managing the impacts of integration on the domestic economy becomes more complex and the challenges involved in concluding IIAs correspondingly greater.

… as IIA interactions may undermine policy coherence

One of the main issues in this context relates to maintaining the consistency of a country’s economic development policy. Policy coherence, in general, requires that the provisions of a country’s IIAs be consistent with the country’s investment policy. In particular, IIAs should not be significantly over-inclusive (i.e. they go further than the underlying policy requires), or significantly under-inclusive (i.e. they do not go as far as the underlying policy requires). Policy coherence also requires that a country’s IIAs are consistent with one another. Not only should it be possible for a party to comply with all applicable IIA provisions, but also compliance with one IIA provision should not impair the pursuit of the policy underlying another IIA provision.

There are several approaches to address the issue of policy coherence in IIAs…

Because of the potential of IIA provisions to undermine policy coherence, some IIAs have adopted a number of solutions intended to maintain policy coherence in the face of overlapping IIA provisions. The "definition" solution defines the terms of a provision in such a way as to eliminate any inconsistency with corresponding provisions in other IIAs. However, this solution implies that different IIAs use almost identical definitions for any given term, e.g. the definition of "investment". Such an outcome might be difficult to achieve. The same concern, albeit to a lesser extent, exists with regard to the "scope" solution, which limits the scope of a provision so as to avoid inconsistency with another corresponding provision, e.g. the geographical and temporal application of a treaty. The "hierarchy" solution specifies which provision shall prevail in case an inconsistency is spotted. This approach is reflected in the Vienna Convention on the Law of Treaties, which provides that the latter agreement prevails as among the parties to both agreements. A systemic problem could therefore arise if a party to these contradictory agreements is not a party to the Vienna Convention. The "election" solution allows a specified actor to choose which provision shall prevail in the event of an inconsistency. This solution is very rare and comes close to a dispute set resolved by agreement of the parties. It leaves open the question of what would happen if the parties do not reach an agreement.

… and in respect of future treaty making

The existence of an increasingly complex framework of multi-layered and multi-faceted investment rules also has implications on the negotiations of future international investment rules:

Ÿ First, the complexity of negotiations increases as more and more countries issues are involved. This raises the questions of how broad the agenda of any particular set of negotiations should be, as well as how ambitious parties want to be with regard to the nature of commitments.

Ÿ Second, the negotiation of IIAs includes interrelated, difficult policy issues that at least in principle touch upon a whole range of domestic concerns, comprising, increasingly, social and environmental matters. Indeed, such agreements reflect the growing internationalization of the domestic policy agenda. Failure to take related issues of national policy properly into consideration may have serious development implications for the host countries. Therefore, IIAs should reflect a certain balance between rights and responsibilities – either by including them within the same instrument or by establishing bridges with other binding and non-binding international instruments.

Ÿ Third, although IIAs by definition contain obligations that, by their very nature, limit to some extent the autonomy of participating parties, the need for a certain degree of flexibility to allow countries to pursue their development objectives in the light of their specific needs and circumstances should be addressed. The more investment agreements go beyond promotion and protection issues and in particular attempt to include commitments to liberalize, the more complicated their negotiation becomes. Where liberalization is sought, progressive liberalization of investment regulations may be more acceptable than upfront and all-embracing commitments to liberalize.

Ÿ Fourth, transparency in the conduct of investment negotiations plays a key role in securing the necessary support and legitimacy for international investment agreements. The awareness, understanding and input of all development stakeholders are important.

Developing countries are confronted with particular challenges …

While the above issues are important to all countries at any level of development, developed, developing and transitional alike, they are particularly pertinent for developing countries that have a smaller capacity to deal with them. Developing countries are faced with several challenges in this regard:

Ÿ First, developing countries need to ascertain how best to integrate IIAs into their economic development policyv. These agreements are intended to promote economic development by providing a stable, predictable and transparent environment for foreign investment. However, all international agreements circumscribe the discretion of the parties. Developing countries need to retain sufficient policy space to promote economic development, without undermining the effectiveness of the IIA.

Ÿ Second, developing countries need to establish and maintain policy coherence in the face of a large number of interacting IIAs. As an initial matter, this entails creating a coherent national development approach that integrates investment, trade, competition, technology and industrial policies. As new IIAs are negotiated, each should be reviewed carefully to ensure that it is consistent with and, in fact, promotes the country’s economic development. Establishing and maintaining policy coherence has become more challenging for developing countries in recent years because of at least two factors. One factor is that many developing countries are now both capital-importing and capital-exporting economies. Thus, an IIA may have implications for a developing country as both a host and a home country. The other factor is the sheer number and complexity of the agreements.

Ÿ Third, as domestic capacities in developing countries increase, a more sophisticated approach aiming at technological and scientific collaboration between foreign and domestic firms is required. This includes the crucial question of how to balance national and international R&D policies. IIAs usually address numerous issues that are relevant in this respect, such as the entry and establishment of R&D-related FDI, performance requirements, incentives and the movement of key personnel. Developing countries need to examine as to what extent these provisions can actually contribute to enhancing their R&D potential, and how IIAs interact with international agreements on intellectual property rights.

Ÿ Fourth, developing countries need to ensure that they have sufficient capacity to analyse the scope of obligations into which they are entering when they conclude an IIA. They also need to improve their capacities to understand the economic and social implications of the commitments contained in IIAs

Ÿ Fifth, developing countries need to implement the treaty commitments they have assumed. Implementation entails completing the ratification process, bringing national laws and practices into conformity with treaty commitments, informing and training local authorities that actually have to apply the IIA, managing the disputes that arise under IIAs, and re-evaluating national investment policies in the light of national development strategies and past experience.

Ÿ Finally, finding a development-oriented balance in future IIAs that adequately addresses the issue of policy coherence is a major challenge. In the pursuit of the development dimension of IIAs, more attention also needs to be paid to commitments by home countries and to the contributions that TNCs can make to advance the development impact of their investment in developing countries.

… which underlines the importance of policy research and analysis, capacity building and technical assistance

As already noted, the burden of addressing these challenges is likely to weigh disproportionately on developing countries, especially the least developed ones, because they often lack the human and financial resources needed to implement agreements. This underlines the importance of policy research and analysis, as well as capacity-building technical cooperation to help developing countries to assess better various policy options before entering into new agreements and to implement the commitments made. International organizations can play a role in this regard.

Note

[1] The IIAs universe is composed of bilateral treaties for the promotion and protection of investment (or bilateral investment treaties), treaties for the avoidance of double taxation (or double taxation treaties), other bilateral and regional trade and investment agreements as well as various multilateral agreements that contain a commitment to liberalize, protect and/or promote investment.

The Commission on IPRs, Innovation & Public Health – A Critique

After two years of work, the independent Commission on Intellectual Property Rights, Innovation and Public Health (CIPIH), set up by the World Health Organization (WHO), has submitted its 228 page report "Public Health, Innovation and Intellectual Property Rights." It looks at how governments, industry, scientists, international law and financing mechanisms can work best to overcome the challenges of access to medicines for the poor. "There is now global momentum to address these issues, and we have a unique opportunity to build on this," said Mme Ruth Dreifuss, the Chair of the Commission and a former President of the Swiss Confederation. However, while the report makes an important contribution, there are a number of related issues that need more focused attention, according to Professor Carlos Correa (Argentina), one of the Commissioners. The following is a commentary by Prof. Correa on the report.

The CIPIH Report can make an important contribution to the current debates on the ways of addressing the development of medicines that predominantly affect the poor. It contains some important considerations and recommendations. However, given the composition and the mandate of the CIPIH, it was perhaps inevitable that different views would arise in dealing with such complex and sensitive issues. I have expressed the view that the CIPIH should have concentrated in the drafting of an essentially action-oriented report examining the institutional and other changes needed to promote innovation for the diseases prevailing in developing countries. Other members, however, insisted on a much broader approach, including regulatory and delivery issues, which has necessarily led to a less focused analysis and set of recommendations.

The broad range of issues dealt with and differences in the Members’ opinions did not permit the CIPIH to carry out an in depth- analysis and reach more substantive conclusions on some of the key issues addressed in the Report, such as:

Ÿ the differential impact of patent regimes in developed and developing countries;

Ÿ the costs that the granting of patents generate in developing countries, which are not offset by the benefits that could be theoretically derived there from;

Ÿ the ways in which developing countries can fully implement and utilize the flexibilities built into the TRIPS Agreement;

Ÿ the serious distortions that affect the patent system, which is increasingly polluted with the granting of patents over minor or trivial developments, as well as with patents that conceal the knowledge necessary to effectively implement the protected inventions;

Ÿ the important changes that have taken place in the structure of the pharmaceutical industry and the new roles played by biotechnology firms and contract research organizations in pharmaceutical R&D;

Ÿ the crisis in R&D productivity, as evidenced by the decline in the rate of development of new chemical molecules and the emphasis on ‘me-too’ drugs;

Ÿ the lack of transparency about the actual costs of R&D for new drugs;

Ÿ the strategic use of patents to prevent or delay generic competition through ‘evergreening’ of patents on minor or trivial variants of existing products.

The Report, however, makes one important point crystal clear: the patent system does not play any significant role in bringing about the medicines needed by the poor. The reason for this, as spelled out in the Report, is that patents only work when profitable markets exist. Given this basic finding, it is crucial that governments take the necessary steps to implement other suitable mechanisms for developing and making available such medicines.

In this regard, the report recommends further work and elaboration on the idea of a R&D treaty proposed by several non governmental organizations and scholars. It also recommends that WHO initiates the development of a global plan of action that should encompass a central role for WHO, as the leading health agency in the world, in designing mechanisms for priority setting and sustainable financing of essential health R&D. Unfortunately, the Commission was unable to make more concrete and operative proposals on this critical matter.

The Report rightly acknowledges the crucial role that competition plays in improving access to medicines. Further analysis is required on the various barriers (anti-competitive practices, abuses of patent rights, etc.) that are often erected by brand name companies to keep competitors out and maintain high prices. The report also mentions compulsory licenses and government use as measures that can be applied to increase the affordability of medicines. But it fails short of recommending their wider utilization in the new scenario that emerged after the TRIPS Agreement became fully mandatory in developing countries, where a single company may virtually control the worldwide the supply of a medicine.

While the Report recommends that WHO should playa proactive role in the continuous review of the effects of the TRIPS Agreement implementation. WHO should also assess the negative implications of the TRIPS-plus standards adopted in the context of free trade agreements. Where applied, such standards (including data exclusivity, extension of the patent term, patent-drug registration linkage) can erode the room for maneuver left by the TRIPS Agreement and unnecessarily reduce access to pharmaceutical products.

Some members of the CIPIH insisted on including references to donations of medicines made by the pharmaceutical industry, in spite that this issue was not central to its mandate. A consideration of this subject, in the appropriate context, would require to better examine the volume and type of donations, the conditions under which they are made, and their effects on sustainable access to drugs. For instance, there is evidence suggesting that in some cases the donation schemes were too complex to implement for local health authorities and that they have led to no availability at all as they kept generic products out of the market.

Although it is important to promote a critical participation of developing countries in the International Conference on Harmonization (ICH), this process is run by developed countries’ industry and responds to the particular circumstances prevailing in those countries. The International Conference of Drug Regulatory Authorities (ICDRA), seems to provide a more adequate framework to promote the improvement of drug regulatory policies in developing countries.

The report recommends the implementation of an obligation to disclose the origin of genetic resources and associated information at the national level. International rules should also be adopted for this purpose, since the application of that measure solely at the national level would not provide a sufficient basis to take actions in cases of bio-piracy on the basis of patents granted in a foreign jurisdiction.

Finally, I think that the CIPIH could have undertaken a more substantial analysis and make more concrete recommendations if all its members had participated and contributed to its work with greater independence from industry’s interests. The Chair of the CIPIH deserves full respect for her efforts to find adequate responses to the health needs of the poor. The Secretariat must be commended for its competent work and invaluable assistance.

[1] See, however, on this issue, the study prepared for the CIPIH by S. Musungu and C. Oh, ‘The use of flexibilities in TRIPS by developing countries: can they promote access to medicines? (available at http://www . who. Int/lintellectual property/studies/TRIPSFLEXI. pdf).

Trade: Managing Environmental & Health Requirements

The latest Trade and Environment Review 2006, published by the United Nations Conference on Trade and Development, focuses on ‘Environmental Requirements and Market Access for Developing Countries: Developing Pro-Active Approaches and Strategies.’ It looks at how barriers could be turned into opportunities, with a sector focus on organic agriculture. The Review also contains commentaries by experts. The following commentary on environmental requirements and market access has been taken from the Review. It is authored by Sanjay Kumar, Director, Trade Policy Division, Ministry of Commerce and Industry, Government of India.

Rise in environmental and health requirements

As the liberalization of tariffs and quantitative restrictions on trade in agricultural and food products progresses, more attention is being paid to measures such as food safety regulations, labeling requirements and quality standards. Many developing countries find that environmental requirements which can potentially affect market access are proliferating and becoming more stringent and complex. They are also concerned that some of the standards fixed by developed countries are higher than international standards. Although the WTO Agreement on Sanitary and Phytosanitary (SPS) measures tries to bring about a harmonization of standards by pegging them to international standards for food safety and health of plants and animals in order to protect consumers, these requirements are becoming increasingly complex and multidimensional, which places an enormous burden on developing countries. Besides, these multiple requirements keep changing, and quite rapidly. An analysis of WTO TBT notifications from January 2000 to December 2003 shows that 30 per cent of the notifications were environment and health related. Further categorization reveals that these TBT notifications related to human health (18 per cent), consumer safety (11 per cent ), environment and health protection (22 per cent), labelling (16 per cent), consumer protection (23 per cent) and consumer information (10 per cent). The analysis also shows that the distinction between environmental standards and health and quality standards is gradually becoming blurred, as also indicated by Hoffmann and Rotherham. The domains are not easily delineable and they simultaneously serve different policy objectives.

Although the WTO and Rio Principle 11 recognize the diversity of environmental standards across countries, they also note that the standards should reflect the environmental and development context in which they are applied. The WTO preamble endorses the fact that environmental policies must be designed to take into account the situation of each member, in terms of both actual needs and economic means. The principle of special and differential treatment for developing and least developed countries has also been recognized so as to avoid inappropriate or unwarranted economic and social costs to these countries. While the need for standards is acknowledged, there is also general agreement that member countries should be allowed some latitude in meeting sanitary and phytosanitary requirements provided certain conditions are met. The WTO Appellate Body does not stand in the way of environmental protection and is willing to uphold unilateral trade measures that have this objective. Given the above, we need to ask ourselves whether the objectives of free trade are being achieved in the context of the growing number of regulations.

Role of standards

The social welfare function, which reflects the trade-off between income and environmental quality, depends on the stage of economic, social and political development of a country. The variation in environmental standards across countries can be justified, but it is imperative to recognize other factors as well. The environmental Kuznet’s curve postulates that as income increases environmental quality worsens up to a point, after which it improves. Trade liberalization that results in an increase in income can generate more resources for improving environmental quality. But the role of institutional and democratic reforms should not be ignored as they are necessary for the people to articulate their preferences for environmental quality and thereby influence the political decision-making process.

Environmental standards per se do not hamper trade creation; standards are needed to reduce risk to health or life of plants, animals and humans. Standards are also necessary for the smooth functioning of anonymous exchanges as they help provide information for the efficient functioning of markets. International standards also lead to technical compatibility across countries and convey information to consumers about products that have been produced abroad or processes that took place in some other country. Thus, besides reinforcing consumer confidence, international standards reduce transaction costs and facilitate international trade. In fact, the WTO’s World Trade Report 2005 states that standards tend to address three issues: networking externalities, information externalities – mainly for consumer safety – and environmental externalities. As regards the latter, some standards lead to partial internalization of unaccounted environmental costs. If well designed, environmental standards should encourage sustainable production and consumption patterns and methods. It is through the sharing of common standards that anonymous partners in a market can communicate, have common expectations on the performance of each other’s products and trust the compatibility of joint production.

Foreign standards can sometimes also lead to exporters cleaning up their production processes. An interesting case is that of South Africa’s citrus industry, which made significant changes in its production process in response to strict United States and EU environmental and health-related standards for imported citrus fruit. Positive outcomes from such changes included decreased pesticide use (due to a move towards integrated pest management) and better working conditions (in part from less exposure to pesticides).

But the danger is that often these standards are adopted so as to exclude, rather than include, products from other countries. For example, EU standards on aflatoxin levels in peanuts – which exceed the norms set by the Codex Alimentarius, the international standard-setting body for food-related standards – engender disproportionate costs, and may be designed to serve protectionists ends. Another example of trade restriction is the ban in many countries on the use of pentachlorophenol – a fungicide used in leather tanning. This ban benefited United States companies which manufacture the only viable alternatives. Another example is limits set by some developed countries on the use of formaldehyde, glyoxal and PCP residues in textiles, driven, at least in part, by the fact that they would benefit Western holders of patents on the only known substitutes.

Compliance costs

It has been seen that a large number of regulatory measures are related to supply chains. Firms in developing countries are required constantly to adjust their production processes in response to the changing environmental regulations in their export markets that are largely in developed countries. These measures impede developing countries’ trade. Studies have shown that compliance with external eco-standards often necessitates the import of inputs and technology, which raises the costs of production and the prices of outputs. [1] An econometric study using firm-level data generated from 16 developing countries suggests that standards increase short-term production costs by requiring additional labour and capital. It also suggests that a one per cent increase in investment to meet compliance costs raises variable production costs by a multiplier of between 0.06 and 0.13 per cent, a statistically significant increase. [2] While the impact is small as a share of production costs, it implies an absolute increase of a similar magnitude to the compliance cost itself.

Some examples of costs of compliance can be helpful in this regard. EU standards for the production and processing of shrimp (HACCP requirements) specify certain management and processing practices with a focus on micro-biological hazards, as well as chemical and physical hazards. For each stage of production and processing, there is a required monitoring regime to ensure compliance with these standards. The World Conservation Union – IUCN found that in Bangladesh, where shrimp is the second largest export item, to meet the standards, processors would have to spend close to $2.2 million per year, with annual government spending on monitoring and certifying compliance amounting to an additional $225,000. Another example concerns the use of azo dyes used in the leather and textile sectors in many developing countries. After certain azo dyes were found to be carcinogenic, several European countries enacted legislation prohibiting their use in consumer goods, and these restrictions were subsequently extended across the EU. This had a significant impact on a large number of developing-country manufacturers: by September 1997 in China alone, 1,167 small town and village cluster enterprises had closed operations following the imposition of regulations. Yet another example concerns Chile, where it was found that the fixed cost involved in obtaining organic certification for wine production had significantly different impacts on small and large producers: certification costs amounted to 5 per cent of the operating cost for those with vineyards of 50 hectares, while it was 25 per cent for those with vineyards of 10 hectares.

The issue, therefore, is whether standards relating to environmental and health regulations are in effect impeding trade. Again taking the case of small-scale farmers in Bangladesh, for example, for whom shrimp cultivation is one source of income, these producers are largely unaware of HACCP requirements, and, even if they were, they would be unable to implement the stringent and expensive monitoring systems required; the monitoring systems become affordable only at a certain scale of operation. Such regulations therefore have the effect of pushing small-scale producers out of the system in favour of large producers, leading to negative impacts on sustainable development of large numbers of fishing families. While the governments in these developing countries sometimes try and help these small producers to meet the requirements of the developed countries, more often than not the developing countries lack the appropriate scientific and technical expertise to deal with the standards. They are also strapped for cash, often with large fiscal deficits, so that they are unable to give any meaningful help, technical or financial, to address such foreign regulations on a sustainable basis.

It may be argued that the fact that adjustment costs are relatively high is not by itself the most important consideration; rather, it is the benefits that can be derived from meeting new requirements which are important, and the monetary value of those benefits needs to be taken into account. However, in order to obtain benefits, huge investments become necessary. Further, there is no guarantee that once suitable changes in the production processes have been made the goods will get continued or enhanced market access, as buyers do not give any such guarantee upfront. A concomitant problem is that of shifting standards. As the exporters/producers get ready to meet a particular standard, developed countries might move to a different standard, which may be only slightly different from the earlier one, and adjusting once again to these can involve huge costs for the producers. Sometimes incremental higher standards or regulations entail a higher share of costs in total production costs, making low-value products relatively more vulnerable, and often forcing producers out of business.

Other constraints

Sometimes developing country firms also find it difficult to understand the regulatory structures of developed countries. They face capacity constraints and structural problems in this respect. The capacity constraints can include difficulties in identifying relevant ERHRs (environmental and related health requirements), implementing the necessary technical, institutional and procedural changes, and demonstrating compliance in a credible way. Structural problems can include lack of awareness and management of information, poor institutional capacity, weak infrastructure, a dominance of small and medium-sized enterprises in the export sector, lack of finance and insufficient access to technology. In many instances developing country firms are incompatible with the prevailing systems of production and marketing in the developed countries. Lack of infrastructure and monitoring facilities, limited technology choices and inadequate access to environmentally-friendly raw materials and information are also constraints for developing countries’ firms. Removing these constraints can be financially burdensome. Moreover, the costs tend to be more formidable for small and medium-sized enterprises than for large enterprises.

Developing national strategies

No doubt the regulations that are designed to protect consumer health and the environment can have a negative impact on exporting countries, but it is neither appropriate nor effective to try to reject them. The right approach would be to analyse them (including their scientific justification), adapt to them and create conditions to meet those requirements in a way that maximizes the developmental and environmental benefits, while minimizing the adjustment costs. It is not that environmental and related health concerns are not legitimate, but regulations and standards need to be carefully designed in order to minimize their negative impacts on developing countries. There is no doubt that a proactive response to them will be important; rejecting them is not a solution, except for the limited number that can be contested under trade law. A recent World Bank report [3] identifies three types of strategies for developing countries to address evolving food safety and agricultural health standards. They are:

Ÿ Exit, which implies switching from certain markets, products or buyers to those whose standards could be more cost-effectively met;

Ÿ Voice, whereby developing countries seek to influence standards through negotiations or through formal complaints; and

Ÿ Compliance, whereby a set of legal, administrative, technical and organizational steps can be taken to conform to product or process requirements.

An "exit" strategy may not be an affordable option, given the increasing number of standards introduced by both developed and developing countries, and the fact that trade promotes development. It can be a short-term strategy, but not a sustainable one. "Voice" can be an important strategy but that also needs to be dovetailed into a proactive "compliance" strategy, which is a key strategy for most developing countries. This option seeks to provide a long-term solution to overcoming supply-side constraints by putting an appropriate structure in place.

Since most developing countries have limited resources, it is important for them not to spread their valuable resources too thin by tackling the problem on all exportable items in the "compliance" strategy. Instead, they should identify, as a starting point, some commodities that are of key actual or potential export value, and concentrate efforts on them. The idea is to turn environmental standards into opportunities. An active governmental role is an important part of this adjustment strategy. There is a need to establish a mechanism for getting the information on foreign environmental standards and releasing this in a timely manner to industry through industry associations. It is also important for developing countries to be able to participate in consultations held in export markets in the development phase of new standards. To succeed, exporters need knowledge of markets and marketing channels, and the ability to mount strong marketing efforts. They also need appropriate support from their governments, which should not be limited to financial support alone. Success will also depend on the ability to overcome obstacles in the form of differing standards in different markets, costs and difficulties in conformity assessment, and structural problems in supply chains.

In sum, a possible strategy for national governments could contain the following elements:

Ÿ Effect appropriate changes in the regulatory set-up for collective and collaborative actions to turn the challenges into competitive opportunities;

Ÿ Modify firm- and farm-level production, post-harvest processing and treatment technologies in some key sectors or for the main commodities;

Ÿ Seek appropriate mentoring partners in these identified sectors or commodities;

Ÿ Strengthen information management systems to keep up-to-date on new requirements and develop a system for information dissemination to exporters and other stakeholders;

Ÿ Participate in international standards-setting bodies, develop national standards and strengthen accreditation and certification systems;

Ÿ Invest in physical infrastructure to build capacity for compliance, including testing facilities, risk analysis and assessments;

Ÿ Build information and skill capacity for influencing standards developments in key export markets through active participation in pre-standard-setting consultations;

Ÿ Improve coordination between industry and standards institutes so as to encourage industry to carry out research and analysis to support standardization activities;

Ÿ Push for mutual recognition agreements with trading partners based on the principle of equivalence.

Developing countries can also formulate strategies for developing or facilitating access to alternative regional markets. South-South trade is a growing area, and these countries are increasingly forming different trade partnerships. Developing countries should consider accessing each other’s markets, rather than only concentrating on exports to developed countries.

In addition, it is well worth exploring a novel feature that has recently been introduced by the European Commission in the new Regulation on Official Food and Feed Controls. Article 50 of this Regulation – Support for developing countries – contains three elements:

Ÿ The EU may offer technical assistance to developing countries on request;

Ÿ The EU shall provide aid to support developing countries in building the required institutional capacity; and

Ÿ Developing countries may request a phased introduction of the EU regulation’s import conditions, taking into account the progress made in building institutional capacity through the EU’s aid programmes.

This explicit linkage between a longer transition period, the EU’s support for institutional capacity building and its impact on the ground could be regarded as a more advanced and valuable form of S&D treatment. This trend is encouraging, as Article 50 was created as a result of an exante impact assessment of the new regulation on exporting developing countries. This underlines the importance of such assessments, and that developing countries need to insist on their preparation.

Do environmental and health requirements undermine free trade objectives?

The key question, therefore, is whether environmental and health requirements undermine free trade objectives. Certainly, they have the potential of being turned into non-tariff barriers. On the other hand, if there is collaboration and cooperation in realizing the free trade objective through active participation in pre-regulation and pre-standard-setting consultations, harmonization and equivalence, support by developed countries to adjustments in developing countries, and an emphasis on providing technical assistance for capacity building in developing countries, the free trade objective can definitely be achieved. In that case, ERHRs will not be considered as impeding trade. Indeed, as Hoffmann and Rotherham contend, in the short run the application of the ERHRs may be trade distortive, but in the long run it may actually lead to more trade. In fact it has been suggested that the adoption of ERHRs will in the long run lead to sustainable development and benefits to the national economy in terms of enhanced resource efficiency, lower pollution intensity and higher occupational safety, among others. Diversity of standards cannot be a ground for complaints of unfairness. In fact governments are free to set appropriate public policy objectives and compete for investments in a world of mobile and scarce capital. Ex-ante assessments of the impacts of ERHRs through a largely consultative process between developing-country representatives and developed countries’ industries is a good suggestion, as improved product safety, reduced environmental harm and better public health are both a national and an international public good.

Notes

[1] Final summary of the Re-governming Markets E-Conference, accessible at: www.regoverningmarkets.org/ discussions.html.

[2] Bharucha V, The impact of environmental standards and regulations set in foreign markets on India’s exports, in: Jha V, Hewison G and Undenhills M, eds., Trade, Environment and Sustainable Development: A South Asia Perspective, London, Macmillan Press, 2000.

[3] Maskus KE et al., The costs of complying with foreign product standards for firms in developing countries: an econometric study, Washington, DC, World Bank, 2004.

IBSA Forum Ministerial Communiqué

A wide range of issues were covered by the Ministers at the latest meeting of the India-Brazil-South Africa (IBSA) Dialogue Forum, held in Rio de Janeiro, Brazil. The Ministerial Communiqué, issued on 30 March 2006 and reproduced below, outline the priorities of the three countries from three continents on key issues of international concern.

"1. The Minister of State for External Affairs of India, H. E. Mr Anand Sharma, the Minister of External Relations of Brazil, H. E. Mr. Celso Amorim, and the Minister of Foreign Affairs of South Africa, H. E. Dr. Nkosazana Dlamini-Zuma, met in Rio de Janeiro on 30 March 2006 for the Third Meeting of the Trilateral Commission of the IBSA Dialogue Forum.

2. The Ministers discussed a wide range of critical global issues and reconfirmed their shared vision and determination to play a constructive role in international affairs and to maintain friendly relations with all countries. They reaffirmed the IBSA Dialogue Forum as an important mechanism for political consultation and co-ordination as well as for strengthening cooperation in sectoral areas and to improve economic relations among India, Brazil and South Africa.

3. They confirmed their support for a strong multilateral system as a means towards addressing issues of global concern, in particular the pre-eminent role of the United Nations in the maintenance of international peace and security and the promotion of sustainable development.

Millenium Review Summit

4. The Ministers recognized the successful conclusion of the Millennium Review Summit, which took place in September 2005. The Ministers expressed their hope that the UN reform processes continue to reflect a balance between development and security concerns and, in this regard, reiterated their perception that development matters remain an indispensable foundation for a new collective security system.

5. They reaffirmed their commitment to the goal of developing countries successfully achieving, at the minimum, the Millennium Development Goals (MDGs) as a core strategy in the international fight against underdevelopment, hunger and poverty. They reiterated their support for the Action against Hunger and Poverty initiative and, in particular, the Declaration issued by the promoters of the initiative on the occasion of the UN Millennium Review Summit. They reconfirmed the importance of obtaining new and additional financial and other resources for fighting poverty and financing development.

6. Within the framework of the Monterrey consensus, the Ministers acknowledged that the MDGs will not be achieved without also resorting to additional and innovative sources of financing for development. The Ministers confirmed their willingness to support and promote innovative financing mechanisms and in this regard reiterated their intention to take active part in the work by the Leading Group on Solidarity Levies, created at the Ministerial Conference on Innovative Financing, held in Paris in February/March 2006.

United Nations Institutional Reform

7. The Ministers reiterated their continued support for the reform of the United Nations to make it more democratic and responsive to the priorities of its Member States, particularly those of developing countries that constitute the vast majority of its membership. In that regard, they welcomed the decisions taken in the September Summit in New York in 2005 and expressed their full support for the implementation of those decisions as contained in the "Summit Outcome Document".

8. The Ministers emphasised that the Security Council must, in its composition, represent contemporary realities and not those of 1945. Keeping in view that the decisions of the Security Council should serve the interests of the larger United Nations Membership, they emphasised the need for the urgent reform of the Security Council that would include its expansion in both categories of membership, permanent and non-permanent, in order to render it more democratic, legitimate, representative and responsive. Towards this end, the representation of developing countries from Africa, Asia and Latin America, as permanent members of the Security Council, is essential. The IBSA countries agreed to continue to exchange views on this issue, which they feel is central to the process of the reform of the United Nations, and work towards this common purpose in the coming months, with the view to achieving concrete results by the end of the 60th General Assembly.

9. They welcomed the creation of the Peacebuilding Commission as an important intergovernmental advisory body through which international community could provide long term support to countries emerging from conflict, including capacity-building efforts. IBSA countries reiterated their commitment towards working for an early operationalisation of the Peacebuilding Commission.

10. They welcomed the creation of the Human Rights Council and expressed their commitment to ensuring that it fulfils the expectation of the international community. Now that the Peace Building Commission and the Human Rights Council have been created, the UN reform process must concentrate on the Security Council reform.

11. They voiced their full support for the capable manner in which the United Nations Secretary-General, Mr. Kofi Annan, has been conducting the work of the organisation, and expressed confidence in his efforts to enhance the UN’s role in international relations.

12. They recommitted their respective delegations to the UN and its specialised agencies, as well as other multilateral bodies, to remain in close contact with each other and to consult on all issues of significance.

South-South Cooperation

13. The Ministers reaffirmed that South-South cooperation is an essential and fundamental component of international cooperation for development, and stressed their support for mainstreaming of South-South cooperation and of the pursuit of the development of Technical Cooperation amongst Developing Countries (TCDC) to its full potential. In this regard, they recommitted themselves to work together for the enhancement of South-South cooperation and emphasized the establishment of the IBSA Fund as an example of cooperation among three developing countries for the benefit of the neediest nations of the South.

14. They noted with satisfaction the adoption of the Doha Plan of Action at the South Summit, held in Doha, between 12 and 16 June 2005. They emphasized the importance of strengthening South-South cooperation in order to promote growth and development.

The New Partnership for Africa’s Development (NEPAD)

15. The Ministers reaffirmed their support for the socio-economic development programme of the African Union and committed the IBSA partnership to seeking practical and concrete measures to be pursued in support of the implementation of NEPAD. The three countries share a common experience in the struggle against poverty and underdevelopment, as well as complementary levels of development. There was therefore much to gain from sharing information and best practices in dealing with common challenges and in identifying areas of common concern, need and benefit.

South American Integration

16. The Ministers welcomed the consolidation of the South American Community of Nations, which held its first Presidential Meeting in Brasilia, on 30 September, 2005, and recognized it as a major achievement in the process of strengthening the political coordination and economic, commercial and infrastructural integration among South American countries.

Terrorism

17. The Ministers reaffirmed that international terrorism constitutes one of the most serious threats to peace and security and that acts of terrorism were criminal and unjustifiable whatever the considerations or factors that might be invoked to justify them. The Ministers emphasised the need for concerted and co-ordinated action by the international community, with the ultimate objective of eradicating terrorism in all its forms and manifestations.

18. They reaffirmed their full support for the implementation of all the measures to combat terrorism outlined in relevant UN Security Council Resolutions. They welcomed the Council’s efforts to increase cooperation and coordination in the fight against terrorism and called on the international community to work together in a spirit of cooperation and tolerance to eliminate terrorism. Recalling that the Outcome Document of the World Summit 2005 had called upon the member states to conclude a comprehensive convention on international terrorism during the current Session of the UN General Assembly, the Ministers stressed the importance of finalising the convention on international terrorism and called upon all States to cooperate in resolving the outstanding issues with the objective of an expeditious conclusion of negotiations and the adoption of this Convention.

19. They emphasised that international cooperation to combat terrorism should be conducted in conformity with the principles of the United Nations Charter, international law and relevant international conventions, including international human rights, humanitarian and refugee instruments.

Disarmament, Non-Proliferation and Arms Control

20. The Ministers reaffirmed the view that the primary focus on human development, the fight against poverty, and measures to promote a better quality of life, should underpin and provide for greater guarantees for international peace and stability. The three Ministers took stock of the global security situation concerning disarmament and non-proliferation, and expressed their concern over the lack of progress in multilateral fora related to the field, and voiced their hope that the international community will show the necessary resolve and political will to reinforce the international disarmament and non-proliferation regime by means of multilaterally-negotiated, transparent, balanced and effective measures.

21. The Ministers expressed their conviction that multilateral institutions set up under multilateral disarmament agreements should remain the primary institutions and mechanisms, in the international community’s endeavour to achieve common objectives in the area of disarmament and non-proliferation.

22. They took note of the positive continuing cooperation among their countries at the IAEA and other fora, with a view to ensuring the unimpeded growth and development of the peaceful use of atomic energy, through the supply of technology, equipment and material, under appropriate safeguards, and reaffirmed their will to intensify such cooperation. In this regard, the Ministers called for a peaceful resolution of the Iranian nuclear programme within the context of the IAEA.

23. They highlighted that nuclear energy can play an important role in meeting growing global energy requirements while at the same time addressing concerns related to global warming. In this regard they agreed to consider further enhancing international civilian nuclear cooperation, with countries who share the objectives of non-proliferation and have contributed to them, as well as having concluded appropriate safeguard agreements with IAEA.

24. The Ministers expressed concern over the continuing impasse in the Conference on Disarmament and called upon member states to intensify efforts to reach an agreement on a programme of work. In this context, they reiterated that the Five Ambassadors proposal as revised in 2003 still remained a viable basis for a programme of work.

25. They also expressed their commitment to the universalization of the Convention for the Prohibition of Chemical Weapons and Biological Weapons Convention (BWC), as well as to the goal of ensuring its balanced, transparent and effective implementation.

26. They also agreed on the pressing need to adopt measures aimed at strengthening the Convention for the Prohibition of Biological and Toxin Weapons, in order to consolidate its role as a key disarmament instrument of the international disarmament and non-proliferation regime, and expressed their will to intensify the cooperation and consultations in relation to the Convention, in particular in the context of its 6th Review Conference, scheduled for November-December 2006.

27. They recalled the importance of cooperative and effective international action against the illicit trade in small arms, light weapons and ammunition, and the need for the 2006 Review Conference of the United Nations Programme of Action to Prevent, Combat and Eradicate the Illicit Trade in Small Arms and Light Weapons in All Its Aspects (UN-PoA), adopted at the Conference on the Illicit Trade of Small Arms and Light Weapons in All Its Aspects.

Situation in the Middle East

28. The Ministers welcomed the holding of transparent and free parliamentary elections in the Palestinian territories on 25 January 2006 and of general elections in Israel this very week. They welcomed the strengthening of the democratic process in Palestine and the peaceful nature of the polling. They expressed the hope that the newly formed government in Palestine and the newly formed government in Israel will continue to pursue peaceful negotiations as laid down by the Road Map for Peace and to abstain from taking any action or measure which might put in jeopardy the peace process in the region leading to the establishment of a viable, sovereign, independent State of Palestine living side by side in peaceful co-existence with the State of Israel.

International Trade

29. Considering the results of the 6th WTO Ministerial Conference, held in Hong Kong, in December 2005, the Ministers emphasized the necessity of renewed political commitment to advance negotiations so that the Hong Kong deadlines are met.

30. As agriculture is central to development and the Doha Round, the Ministers expressed their conviction that Hong Kong consolidated the G-20 as an element of systemic relevance in WTO Agriculture negotiations.

31. The Ministers emphasised the need to consolidate unity on the development content of the Round. This is supported by increased activity, in the form of consultations, held in Geneva by Indian, Brazilian and South African delegations, in order to co-ordinate positions and strengthen Non-Agricultural Market Access (NAMA), as well as the establishment of the NAMA -11 whose two main principles are supporting flexibilities for developing countries and balance between NAMA and other areas under negotiation.

32. They recognized the importance of incorporating the development dimension in international discussions concerning intellectual property, as a means to preserve the policy space that countries enjoy in ensuring access to knowledge, health, culture and a sustainable environment. In this context, they welcomed the launching of a "Development Agenda in the World Intellectual Property Organization" and reaffirmed their hope that the aforementioned Organization incorporates effectively the development dimension in all its bodies.

33. The Ministers took note of the broader objectives of the European Union proposed Registration, Evaluation and Authorization of Chemicals (REACH) Legislation, in respect of the protection of human health and the environment. The Ministers reiterated their support for the commitments made on chemical safety at the World Summit on Sustainable Development (WSSD) in 2002.

34. The ministers expressed their concern for the unintended consequences that REACH will have on developing economies exporting to the EU. Such consequences will negatively affect the attainment of development goals in the South, including the MDGs. The Ministers recognised the efforts, commitments and determination of leaders of developing economies to effectively address the challenges of poverty, underdevelopment, marginalisation social exclusion and economic disparities.

35. The Ministers urged the EU to give due consideration to the grave consequences for developing economies should REACH be adopted in its current form. The Ministers urged the EU to ensure that REACH will not become a Technical Barrier to Trade (TBT). The high costs for compliance, the possibilities for substituting commodities and the lack of technological and human resource capacity to comply may render the EU markets inaccessible for exports from developing countries. The Ministers expressed their desire that REACH should be consistent with the WTO laws and provide for adequate flexibility to developing countries.

36. The Ministers undertook to work together and jointly to address the challenges posed by REACH. The Ministers resolved to make all efforts to cooperate in coordinated manner regarding REACH.

International Financial System

37. The Ministers underlined the convergence of views regarding the need for enhancing the governance of the international financial system and, in this respect, reiterated their commitment to coordinate efforts on this issue. They further stressed that progress in this field will lead to improvements in crisis prevention and the increase of resources to finance development.

Sustainable Development

38. The Ministers reaffirmed the validity of the principles contained in the Rio Declaration, particularly on common but differentiated responsibilities, the Programme of Action contained in Agenda 21, and the Plan of Implementation of the World Summit on Sustainable Development (WSSD) held in Johannesburg. IBSA would continue its efforts to mobilise new and additional financial resources and the transfer of environmentally-sound technologies within an agreed time-frame in order to implement the outcomes of these conferences.

39. They stressed that an international environment supportive of development would be critical to this process. They also called for a specific focus on capacity-building as well as on the transfer of financial resources and technology to developing countries.

40. They noted with appreciation the stage of the TRIPS Council negotiations on the relationship between the TRIPS Agreement and the Convention on Biological Diversity and reaffirmed the urgent need that Members reach a prompt solution for the problem raised by the granting of intellectual property rights concerning or making use of genetic resources and/or associated traditional knowledge without compliance of relevant provisions of the Convention on Biological Diversity. In this respect, they underscored the wide support for the proposal of amending TRIPS with a view to require intellectual property applications to disclose the country of origin of the subject matter as well as the compliance with the requirements of fair and equitable benefit-sharing and prior informed consent, in accordance with the legislation of the country of origin.

41. They expressed, in this context, their positive expectations about the results of the VIII Conference of the Parties of the Convention on Biological Diversity (COP-8/CBD), which is being held in Curitiba, Brazil (March, 20th-31st). They concurred on that COP-8 constitutes an opportunity to advance the effective implementation of CBD.

42. They also called for expediting negotiation and conclusion of the international regime on access and benefit sharing, as an instrument for protecting intellectual property rights concerning traditional and indigenous knowledge. India, Brazil and South Africa, as the founding members of the Group of Like-Minded Megadiverse Countries, agreed to strengthen cooperation and co-ordination, with an emphasis on multilateral negotiations and in fostering activities related to South-South Cooperation.

43. They recalled that Brazil, India and South Africa will jointly participate in the Capacity Building Committee of the Group on Earth Observation (GEO), an intergovernmental partnership entrusted with implementing the Global Earth Observation System of Systems (GEOSS). The participation in the Capacity Building Committee provides a unique opportunity for the three countries to cooperate in enhancing the capabilities of developing countries, especially less developed ones, in the use, analysis, interpretation and modelling of Earth Observation data, for applications in the nine societal benefit areas of GEOSS, which comprise Agriculture, Health, Disasters, Water, Ecosystems, Climate, Meteorology, Energy and Biodiversity.

Climate Change

44. The Ministers expressed their satisfaction with the results of the Montreal meetings (COP-11, COP/MOP-1), particularly with the adoption of the Marrakech Accords and the establishment of the Ad-hoc Working Group on Further Commitments for Annex 1 Parties under the Kyoto Protocol to consider such commitments for the period beyond 2012. They further urged developed countries to meet their own commitments and undertakings under the Protocol not only in terms of complying with current targets for Greenhouse Gases (GHG) emission reduction, but also in terms of their commitment in respect of technology transfer, capacity building and financial support to developing countries. They also welcomed the dialogue on long term co-operative action to address climate change by enhancing implementation of the Convention.

45. They also agreed on the need for continued consultations within IBSA Forum on the environment and climate change issues.

IBSA Facility Fund for Alleviation of Poverty And Hunger

46. The Ministers reiterated the fundamental character of the IBSA Fund as a means to disseminate the best practices in the alleviation of poverty and hunger. They emphasized the importance of the participation of institutions of IBSA countries (Governmental and Non-Governmental) in the projects financed by the Fund and recommended that the UNDP, as administrator of the Fund, find means to make that participation possible.

47. The Ministers received the report of the visit of the Technical Monitoring Committee (TMC) to Guinea Bissau and accepted the recommendations made by the TMC, especially concerning the management of the project, and urged the UNDP Office in Bissau to work more closely with the UNDP Special Unit for South-South Cooperation in New York, the Coordinator of the project and the Guinean Bissau national authorities. They accepted the Committee’s recommendation that an additional agreement be signed with UNDP in order to clarify rights and obligations of both parties.

48. The Ministers reiterated their commitment to move forward with other projects in the scope of the Fund. They welcomed the finalisation of the concept paper of the project on waste collection in Haiti (Carrefour Feuille) and called upon speedy appointment of a project coordinator so that the project can be implemented as soon as possible. They underlined the importance of making progresses in the drawing up of the projects benefiting Palestine and Laos.

49. The IBSA countries recommitted themselves to allocate at least US$ 1 million a year to the Fund.

IBSA Sectoral Cooperation

50. The Ministers reviewed the work of the sectoral working groups and adopted their reports.

51. Reference was made to the two Workshops on Information Society and E-Government, held in South Africa and India, and to the commitment of the three delegations to actively participate in the last event of the series, to take place in Brazil, in June 2006.

52. The Ministers welcomed the agreement reached by the Working Group on the Information Society, on the content of the "IBSA Framework for Cooperation on Information Society", setting up the basis and defining modes of cooperation in the fields of Information Society and Communication Technologies, and took note with satisfaction of the Joint Action Program for 2006-2007, prescribing specific initiatives in all fields of cooperation covered by the Framework. The Ministers also welcomed the development of the IBSA website (www.ibsa-trilateral.org), maintained by South Africa, and invite the various working groups of the IBSA Forum to provide content and make full use of this channel of communication.

53. The Ministers recognized with pleasure the high level of coordination between the three delegations during the second phase of the World Summit on the Information Society (WSIS), held in Tunis, in November 2005, and its preparatory works. In this regard, the three countries reiterated their commitment to keep working together during the WSIS follow-up process, as well as in other international fora related to the issue, to promote the use of Information and Communication Technologies as a tool for development and to build multilateral, democratic and transparent global Internet governance mechanisms.

54. The Ministers decided to formalise the establishment of an additional sectoral working group on Social Issues, as a follow-up to the International Seminar on Economic Development and Social Equity, held in Rio de Janeiro, on 3rd and 4th August, 2005. They also expressed their intention of establishing as soon as possible a working group on Public Administration.

55. The member countries reiterated their commitment to further promote the production and use of Biofuels as environmentally friendly and sustainable fuels which promote socio - economic development, taking into consideration their global importance. Progress is being made, on exchange of information on Renewable Energy and the Biofuels value chain.

56. More emphasis will be placed on exchange of information into the areas of energy efficiency and conservation, and hydrogen energy. India will host the second technical meeting of the Energy Working Group, to which other stakeholders including private sector players may be invited for the enhancement of implementation of IBSA initiatives.

57. The Ministers agreed on the importance of new initiatives aimed at strengthening economic and trade relations among developing countries, as a means to generate business opportunities and contribute to an international trade scenario more suitable to their development projects. In that regard, they took note with great satisfaction that Mercosul will be proposing to SACU and India the creation of a Working Group to explore the modalities of a Trilateral Free Trade Agreement (T-FTA) among them. They underlined the significance of this exercise and expressed their full support to the initiative.

58. Further the Ministers supported the initiative of a renewable source of energy seminar and the proposals to assist Small, Medium and Micro Enterprises through the proposed study on how to make business in the IBSA countries, and the proposals on sharing of experiences and training opportunities.

59. The Ministers also laid emphasis on the need to conclude the bilateral customs cooperation agreements expeditiously.

60. The member countries decided that, in taking forward the renewed approach to IBSA deliverables, South Africa should host a meeting on civil aviation and maritime transport in April 2006. This meeting will focus on the finalization of the trilateral on maritime transport agreement and also review implementation of air transport agreement. It should be noted, in addition, that during the present meeting of the working group in Rio, which also included the presence of representatives of Air India, VARIG and SAA, tremendous progress has been made and concrete projects have been identified for cooperation. To this end cooperation will be fostered in areas of airlink expansions, training and knowledge sharing in airports and airspace management, port management, operational and infrastructural systems, including capacity building in shipbuilding, environmental management and navigational systems.

61. The development of transshipment facilities will also be made a priority in order to support the IBSA trade strategy which advocates for the creation of South-South shipping highway that integrate subregional connection between MERCOSUL, SACU and Indian regions.

62. The Ministers noted progress on the establishment of a framework to strengthen cooperation in the field of agriculture. Specific areas of cooperation that have been identified are: research and capacity building, agricultural trade, rural development and poverty alleviation, and other allied areas as may be agreed.

63. Following the successful meeting of the health working group held in Brazil from 6th to 10th February 2006 in which broad areas of cooperation were discussed, the South African Minister of Health invited her counterparts for a meeting in March 2006. However, this meeting will now take place on the margins of the WHO meeting in Geneva, in May 2006.

IBSA Trade and Investment Forum

64. The Ministers noted with satisfaction the results of the Trade and Investment Forum. The forum was divided into four panels: a) Trilateral trade analysis; b) implementation of the preferential trade agreements between Mercosul, India and Southern African Customs Union (SACU); c) challenges to the growth of the trilateral trade (barriers, logistics and financing); and d) organization of the trilateral business meeting on the occasion of the IBSA Meeting of Heads of Government and State in September 2006.The delegations of India, Brazil and South Africa presented data and facts concerning trade issues that thrusted fruitful discussions among the businessmen attending the meeting.

65. It was presented an evaluation of the current aspects of the negotiations involving Mercosul, SACU and India. All delegations concluded that there must be an expansion on acting positions to fit the ever growing market of the three countries. The importance of solid links between the three countries was mentioned several times and also the necessity of a stronger South-South union. The possible substitution of imports from northern countries by imports from southern countries was considered a possible solution to enforce this new commercial agreement.

66. Brazilian businessmen pointed out that among the main barriers to be eliminated to foster trilateral trade are: a) logistics, b) customs procedures, c) lack of information and d) distances. The logistic problem was tackled by the suggestion of a study (previously discussed in the IBSA work group for trade and investment (on March 28th) to further address the issue. The private sector also emphasized the necessity of creating flights uniting Brazil-South Africa-India. The measure would help to narrow the distances both physical and cultural between IBSA partners.

67. In what concerns customs procedures, it was suggested more cooperation in the area by the specific government institutions, in order to simplify many of the regulations and turn the customs process into a more unified process.

68. The study suggested in the work group of trade and investment, as well as the magazine "Brazil Brand of Excellence", the Brazilian website "Brazil Trade Net" and the creation of the IBSA site, were solutions proposed to help ease the gap of information, and bring businessmen from the three countries closer.

69. A great deal of possible solutions were suggested to help strengthen the IBSA economic area: more aggressive free trade agreements, closer relations between businesses and industries from the three countries, enhancing contact between the automobile industries of IBSA.

70. Some sectors were also given special attention: the renewable energy sector and ethanol industry. The WG on trade and investment decided to create a seminar that will happen in South Africa before the Summit in September.

71. The meeting was praised and considered by the attendants as highly productive. It is expected new steps towards a more united and stronger IBSA by all.

72. The Ministers of India and South Africa confirmed the participation of Prime Minister Singh and President Mbeki in the IBSA Summit to be convened by Brazil on 13th September 2006.

73. The Ministers welcomed the announcement by Brazil of the II Conference of Intellectuals from the Africa and the Diaspora, which will take place in Salvador, on 12th-14th July 2006. Representatives from India will also be extended an invitation to attend this meeting as observers.

74. The Ministers of India and South Africa expressed their deep gratitude to the Minister of Foreign Affairs of Brazil for convening the Third Meeting of the Trilateral Commission.

75. The Ministers agreed that the next meeting will be hosted by India in the first quarter of 2007."

South Centre News

Trade for Development

The South Centre staff:

· Attended several meetings organized by Small and Vulnerable Economies in the context of WTO negotiations on agriculture and Non-Agricultural Market Access (NAMA). The South Centre provided statistic data and background information to facilitate their discussions.

· Participated in two meetings of the Africa, Caribbean and Pacific (ACP) Group (on 29 and 31 April 2006) in which issues relating to the WTO Trade Facilitation negotiations were discussed. The South Centre was invited to the meetings to participate as experts to help the ACP member States in the trade facilitation negotiations.

· South Centre staff participated in a Seminar on "The Impact of Agro Import Surges in Developing Countries" held in Geneva on 12 April 2006 where the preliminary results of country case studies on the effects of import surges in developing countries were presented. The Seminar was jointly organized by Action Aid International and Third World Network. South Centre staff provided and overview of the state of the discussions in the WTO with respect to specific provisions in favour of developing countries to address import surges such as the Special Safeguard Mechanism (SSM) and related findings of the case studies presented during the seminar to the issues raised in the WTO negotiations.

Global Governance

· Staff from the South Centre met with Ms. Vlasta Macku, the Chief of the UNCTAD Virtual Institute, to discuss the possibilities of the South Centre becoming a partner in the UNCTAD Virtual Institute.

Seven Get ‘Champion of the Earth’ UNEP Award

Nairobi, 23 March -- Seven ‘green’ leaders are to be celebrated as the 2006 Champions of the Earth by the United Nations Environment Programme (UNEP). They are: Tewolde Gebre Egziabher of Ethiopia, a champion against the patenting of life forms and for community rights in Africa; Tommy Koh of Singapore for his contributions to the cause of the environment; Mikhail Gorbachev of the Russian Federation, a champion in the field of international environmental politics and for conflict prevention on waterways globally; Rosa Elena Simeon Negrin of Cuba, a champion of small island developing states; The Women’s Environment and Development Organization (WEDO); and Mohamed El-Ashry of Egypt, a champion for the wise use of natural resources.

Established in 2004 by the United Nations Environment Programme, The Champions of the Earth is a new international award that recognises prominent and inspirational environmental leaders

New Funding for Essential Nutrition Programs

London, 27 March -- The Global Alliance for Improved Nutrition – GAIN – has received US$20 million from the Bill & Melinda Gates Foundation to strengthen efforts to address poor nutrition, which has been linked to almost half of all child deaths worldwide. This was announced at a meeting of the Business Alliance for Food Fortification. "The money will be used to develop ten new projects in developing countries and will make food fortified with vitamins and minerals available to around 200 million people," said Mr Jay Naidoo, Chair of the GAIN Board of Directors. "Priority will be given to countries where there are large numbers of people affected by malnutrition, such as Bangladesh, Egypt, India and Indonesia."

Malnutrition arising from a lack of vitamins and minerals can lead to an increase in child deaths, birth defects, poor intellectual development and reduced productivity. "We are aiming for a realistic target of eliminating vitamin and mineral deficiencies in the next ten years," said Mr Marc Van Ameringen, Executive Director of GAIN. "Food fortification, adding vitamins and minerals to the foods that people eat every day, is a proven solution to a genuine health and development problem and it only costs around 25 cents per person per year."

The new grant represents a second instalment of funds from the Bill & Melinda Gates Foundation, which supported the establishment of GAIN in 2002 with a US$ 50 million grant.

Jakarta Declaration to help finance Infrastructure Development

Jakarta, 12 April -- Ministers and senior officials from over 50 countries adopting the Jakarta Declaration at the close of the 62nd session of United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) with a plan to finance crucial infrastructure development. An estimated US$180 billion to upgrade the region’s infrastructure each year. "I think we can say we are 70 per cent on the way to finding solutions to close the financing gap, which is very encouraging," UNESCAP Executive Secretary Kim Hak-Su said.

The 12 resolutions adopted by the Commission reflected the region’s growing concern about education, public health, rising energy prices and a deteriorating environment. They also reflected the determination of countries to find new ways to finance its development agenda and to increase public-private sector partnerships to achieve them.

Some of the key resolutions included an intergovernmental agreement on the Trans-Asian Railway Network, enhancing the implementation of the Plan of Action for Sustainable Tourism Development, implementing the Plan of Action for the Least Developed Countries for the Decade 2001-2010, and building an information society in Asia and the Pacific.

"The active participation in the deliberations on the Jakarta Declaration underscored our collective political will and commitment to regional cooperation in infrastructure development," the Chairman of the 62nd Commission, Indonesian Foreign Minister Hasan Wirajuda said as he announced the successful conclusion of the Session.

"This will translate into improving the lives of nearly 700 million people in our region living in conditions of vulnerability and deprivation," he said.

Editorial

In Search of a Global Alliance to Stop Biodiversity Loss

The 8th meeting of the Conference of Parties to the UN Convention on Biological Diversity (CBD) held towards the end of last month was another occasion to bring the spotlight back to the condition of our living planet. It is no secret that the Earth’s life support systems, from its forests and flowers to its coral reefs and waterways, are under assault as never before. At the meeting in Curitiba, Brazil, the head of the CBD, Ahmed Djoghlaf, called for a Global Alliance to fight biodiversity loss. It was four years ago, at the World Summit on Sustainable Development, the leaders of the world agreed to achieve by 2010 "a significant reduction of the current rate of biodiversity loss at global, regional and national levels as a contribution to poverty alleviation and to the benefit of all life on earth". In September 2005, 150 Heads of State, meeting at the World Summit in New York called on all states to fulfil their commitment and significantly reduce the rate of loss of biodiversity by 2010.

As is happening with the Millennium Development Goals, it is quite likely that significant reductions in the rate of biodiversity loss will not be achieved by the target date of 2010. Despite partial successes and occasional good stories emanating from some parts of the globe, the overral picture, given the present level of commitments by all stakeholders, may continue to be grim. The findings of a 2005 study into the health of the planet’s ecosystems, called the Millennium Ecosystem Assessment, undertaken by over 1,300 experts from 95 countries, has added its voice to those of the politicians. Two thirds of the services provided by nature to humankind are estimated to be in decline, worldwide. Humans have made unprecedented changes to ecosystems in recent decades to meet growing demands for food and other ecosystems services. These changes have weakened nature’s ability to deliver its vital services.

But a sense of urgency to reverse the tide of biodiversity loss, however, is yet to manifest itself in the major human activities apparently causing the degradation of the earth’s life-support systems. It is the kind of economic growth pursued in the last several decades that may bear the primary responsibility. As the CBD chief observed in his address to the ministerial segment, it is a ‘frightening reality.’ "From the dawn of humanity we have always lived in harmony with nature and enjoyed its bounty. However our umbilical link with Mother Nature is now being seriously eroded. Over the last 50 years, humans have changed ecosystems faster and more extensively than in any comparable period of time in human history. Humans are making unprecedented changes to ecosystems. These changes are weakening nature’s ability to deliver its vital services. Human activity is putting such a strain on the natural functions of the Earth that the ability of the planet’s ecosystems to sustain future generations can no longer be taken for granted. All the science shows that we are on the eve of one of the greatest extinctions of life on this planet. We are undermining the ecological capital of our children."

The three objectives of the CBD - namely, the conservation of biological diversity, the sustainable use of its components, and the fair and equitable sharing of the benefits from the use of genetic resources – in themselves point a way forward. But progress on those fronts is slow and halting. Trade - both national and international – if promoted sustainably, can itself be a great help in achieving the objectives of the CBD. At the Curitiba meeting, the head of UNCTAD, Dr. Supachai Panitchpakdi, talked of the UNCTAD´s BioTrade Initiative, launched in 1996, to promote trade and investment of biodiversity products and to foster sustainable development. He gave the examples of UNCTAD support for the Jambi Kiwa Association of Medicinal Plant Producers in Ecuador and through other UNCTAD-supported projects, businesses market frozen pulp from the fruit of the cupuacu tree in Bolivia, and oleoresins, dyes and essential oils in Colombia.

The head of the WTO, Pascal Lamy, observed in his remarks to the Curitiba meeting, that ‘the Convention on Biological Diversity and the WTO stand side-by-side today in the canvass of rules that the international community has been weaving to make the world a more orderly place.’ The issues of access to genetic resources, of prior informed consent and of benefit sharing are all being explored in the WTO, he said. "They are also being examined in WIPO - another important partner in the intellectual property domain. Our members continue to be divided on how best to address these issues, with some wanting an amendment of the TRIPS agreement, and others saying that there is no conflict between the WTO and the CBD warranting such a change. The discussions must still run their course."

But that is the sad reality. That it fails to capture what the CBD chief describes a ‘frightening reality’ of the damage being done to the earth’s life support systems. Not does it give a sense that time is running out, or that the clock is ticking.

Attached please find the latest issue of the South Bulletin no.122. 
in pdf and word formats. Focus on foreign investment.

Best regards,

See attached file: bulletin122.pdf
See attached file: South Bulletin 122Word.doc)

Someshwar Singh

Senior Editor
South Centre
Ch. du Champ d'Anier 17
1211 Geneva 19
Switzerland

Tel-(4122)7918044
Fax-(4122)7988531

email: singh@southcentre.org
website: www.southcentre.org
Latest issue of the South Bulletin no.122

Attachment:

bulletin122.pdf (0.17 MB)

SouthBulletin122Word.doc (0.26 MB)

singh@southcentre.org

Thursday, April 13, 2006