Excellencies, Distinguished Delegates,
On behalf of the Secretary-General of UNCTAD, Dr. Supachai Panitchpakdi, it is a great pleasure for me to welcome you to the first of four expert meetings on the issue of investment for development. I am pleased to see that today we have with us more than 130 experts from governments, private sector, academia and civil society. Thank you for joining us for this Expert Meeting, particular to those who have travelled a long way.
Ladies and Gentlemen,
As you are all aware, this multi-year Expert Meeting is beginning its work in the middle of the gravest economic crisis since the Great Depression. This global financial crisis has already brought economic hardship to most if not all areas of the world. But unfortunately, it is the developing countries that will likely be the most affected by the ramifications of the crisis. And investment is a key determinant both of the adverse impact of the crisis and of how developing countries will cope with it. And just as global demand contracts and supply of credit tightens, developing countries are also likely to suffer from declining FDI inflows. Our initial estimates already suggest that in 2008, global FDI inflows have fallen by 21 percent. Prospects for the year 2009 are at least as bad, with global FDI likely to plunge further. Needless to say, this will have a significant impact, particularly for those developing countries that have heavily relied on foreign investors to assist in achieving economic development goals.
But the sharp decline in global FDI will also have policy implications in the area of international investment rulemaking.
First, the recession in many countries has brought with it dangers of renewed protectionism, which could pose a grave threat for worldwide economic recovery. In the light of the crisis, some countries have recently begun to introduce some more restrictive measures in the area of investment. Of course, the protection of strategic industries (in particular oil and minerals) and critical infrastructure as well as the pursuit of other key domestic policy objectives is a sovereign right of countries, which is all the more important in the time of crises. UNCTAD, as you know, has always been an advocate of "policy space". Yet, some of the restrictions posed for foreign investors appear to go beyond legitimate concerns to protect national security interests. Although the current system of international investment rules is ambivalent on this matter - with some IIAs explicitly contain national security exceptions and others not - existing IIAs can be a tool to stem against the rising tide of these protectionist dangers.
Second, given that one purpose of IIAs is the promotion of FDI, such agreements may be particularly needed in the present times. Indeed, IIAs have the potential to reduce the overall decline in cross-border direct investment flows.
In addition to these very imminent problems emerging from the global economic crisis, contemporary international investment rulemaking is faced with additional, more generic challenges. Most importantly, there is a need to make IIAs more development-friendly. To date, most investment agreements do not specifically address the development aspect or only note it in passing. While some sector-specific provisions as well as treaty exceptions related to concerns in the area of national security, public health or environmental protection are included in IIAs with increasing frequency, such provisions are rarely devised explicitly with the development aspect in mind. More creative work will be needed in the future, so that IIAs will more directly address and contribute to development objectives. This issue could indeed form one discussion point during the next two days, and we look forward to your novel and operational ideas in this context.
Another challenge is to bring greater coherence to the universe of international investment rulemaking. To date, countries continue to conclude investment treaties on an individual basis, thereby further perpetuating and accentuating the existing IIA patchwork with its inherent inconsistencies and its uneven consideration for development concerns. The negative effect is that countries may risk concluding investment agreements that at times contradict each other regarding certain treaty provisions, jeopardizing overall policy coherence. Developing countries, which commonly have less bargaining power in bilateral treaty negotiations, are more likely to face these problems.
Moreover, the recent years have seen another new type of challenge arising in the area of international investment rulemaking, namely the rapid increase in investor-State dispute settlement cases, involving mostly developing countries. Until today, the number of treaty-based investor-State dispute settlement cases known to our organization reached 320. Most of these cases were filed within the last ten years, illuminating a trend towards increased use of international arbitration to resolve disputes. Indeed, just a bit more than ten years ago - in April 1998 - the total number was a mere fourteen cases. Unfortunately, each case confronts the State involved with enormous administrative and financial costs. Not only do States have to pay compensation to investors if a case is lost, but they are also obliged to finance the litigation proceedings and pay for the lawyers that support their defense. Quite understandably, these costs are particularly burdensome for developing countries.
Therefore, while an effective system for settling disputes is a necessary component of international investment rules, the particular mechanism of investor-State dispute settlement is posing a considerable burden especially to developing countries. We therefore need to consider ways to reduce this burden. One possibility would be to enhance the role of alternative methods of treaty-based investor-State dispute resolution in IIAs. Another way would be to consider establishing a facility that developing countries could draw on, like it exists with the Advisory Centre on WTO Law that helps countries in trade disputes before the WTO. I note that such possibility was discussed yesterday among Latin American countries, and I am pleased to note the secretariat´s technical assistance support provided to this group of countries in this context.
These are only some of the key issues in international investment rulemaking that you may wish to consider in your deliberations.
Ladies and Gentlemen,
As you know, the Accra Accord concluded at UNCTAD XII re-emphasized the importance of UNCTAD´s consensus-building, technical assistance and capacity-building, and research and policy analysis work in the area of IIAs. Against this background, it is my pleasure to announce that on the occasion of your gathering today we are launching our most recent publication, entitled "International Investment Rule-Making: Stocktaking, Challenges and the Way Forward". This publication, which is the most recent issue of our Series on International Investment Policies for Development, reviews the past sixty years of international investment rulemaking, highlighting the major developments during this period, and presenting the challenges that I just alluded to in greater detail.
Your expert meeting is meant to help us prepare ourselves - policy makers and stakeholders in developed and developing countries - for these challenges. Your expertise and knowledge can help finding viable solutions to emerging problems. More specifically, the meeting aims to achieve this purpose in the following three manners.
- First, we invite you take stock of recent trends and characteristics of the existing universe of international investment agreements, exchanging your national and regional experiences concerning the systemic issues that arise from these trends and salient features.
- Second, we hope that over the life-cycle of this multi-year meeting, you will be able to identify pragmatic policy instruments that could address these issues. Indeed, these expert meetings are designed to generate practical options and actionable outcomes, such as inventories of best practices, checklists, indicative guidelines, sets of criteria or principles and model frameworks.
- Third, we hope that this meeting will serve to establish an intergovernmental network of experts to facilitate on an ongoing basis an exchange of experiences, best practices and views in this area.
As many of you know, UNCTAD already operates since quite some time an online network of IIA experts and an online IIA discussion forum - both of which, I am told, are being used by more than 1,000 experts in the field. With our meeting today, we want to elevate these discussion forums to a new height. Backstopped by the secretariat, a newly institutionalized online network of intergovernmental experts could be enormously helpful in achieving our task of formulating a pragmatic outcome in this area until the 13th Conference.
In all, we are looking forward to your active participation and insightful exchange during the next two days. We hope that they will bring us a step further in our aspirations for a more development-oriented, transparent and consistent system of international investment rules. In this spirit, I wish this meeting every success.
Thank you very much.