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Investment Issues in the West Africa–European Union Economic Partnership Agreement Negotiations: Is a Harmonised Regional Investment Framework the Answer?

Document Cited in Related
Vincent
DOI10.3366/ajicl.2012.0045
Date01 October 2012
AuthorPaul Kuruk
Pages448-470
Published date01 October 2012
INTRODUCTION

The African, Caribbean and Pacific Group of Countries (ACP) are currently involved in negotiations with the European Union (EU) to replace the existing trade agreement governing trading relations between the EU and the ACP (the Cotonou Agreement)1

The text of the Cotonou Agreement can be found at http://www.acpsec.org/en/conventions/cotonou/accord1.htm (accessed 12 December 2011).

with new trade agreements to be called Economic Partnership Agreements (EPAs).2

The Economic Partnership Agreements envisage the creation of free trade areas between the EU and ACP regions.

 The negotiations became necessary because of the demand within the World Trade Organization (WTO) for members to revise their trading arrangements to comply with the WTO principle of reciprocity.3

Under the principle of reciprocity, when one party to a trade agreement makes a concession by lowering its tariffs on goods, the other parties reciprocate by lowering their tariffs too. C. Rhodes, Reciprocity, US Trade Policy and the GATT Regime, Cornell University Press (1993), p. 1.

Under the Cotonou Agreement of 2000, the EU extended unilateral trade preferences to ACP countries,4

See generally, Cotonou Agreement, supra note 1.

which some members of the WTO successfully challenged5

Several non-ACP countries, including Brazil, Ecuador, Honduras, Guatemala, Mexico and Thailand, successfully challenged EU preferences for ACP countries in the sugar and banana sectors as discriminatory. See for example, ‘European Communities – Regime for the Importation, Sale and Distribution of Bananas’, 9 September 1997 WT/DS27/AB/R; and ‘European Communities – Export Subsidies on Sugar, Report of the Appellate Body, 2005’, 28 April 2005, WT/DS265/AB/R.

 as violating the principle of reciprocity,6

Under the WTO rules, trade preferences may be granted so long as they only differentiate between countries according to their level of development. The trade preferences granted under the Lome Conventions did not comply with these rules because they were not extended to similarly situated non-ACP LDCs and non-ACP developing countries.

 hence the need to replace the Cotonou Agreement with more WTO-compatible reciprocal trade agreements. The EPAs will advance a basic objective of the Cotonou Agreement to foster ‘the smooth and gradual integration of the ACP countries into the world economy … thereby promoting their sustainable development and contributing to poverty eradication’.7

Cotonou Agreement, supra note 1, article 34.

 Such a process would require an enabling trade regime to be put in place to assist the ACP countries to manage the challenges of globalisation and to adapt progressively to new conditions of international trade, thereby facilitating their transition to the liberalised global economy.8

For general background information on the EPAs, see South Centre, Understanding the Economic Partnership Agreements (EPAs), Fact Sheet No. 1 (2007).

Investment has been proposed by the EU for negotiation in the EPAs.9

EU General Affairs Council, Recommendations Authorising the Commission to Negotiate Economic Partnership Agreements With the ACP Countries and Regions, 16 June 2002.

The term ‘investment’ is generally based on the concept of ‘asset’. It occurs ‘when an investor based in one country (the home country) acquires an asset in another country (the host country) with intent to manage that asset’.10

R. Blackhurst and A. Otten, Press Release, ‘World Trade Organization, Trade and Foreign Direct Investment’, PRESS/57 (9 October 1996), available at http://www.wto.org/english/news_e/pres96_e/pr057_e.htm (accessed 22 December 2011).

 All assets of an enterprise, such as movable and immovable property, equity in companies, claims to money, contractual rights, intellectual property rights, concessions, licences and similar rights are included.11

See, for example, article 10.27 of the Chile–United States Free Trade Agreement, available at http://www.ustr.gov/sites/default/files/uploads/agreements/fta/chile/asset_upload_file1_4004.pdf (accessed 15 December 2011).

 In WTO lingo, investment is sometimes referred to as a ‘Singapore’ issue, because it was during the Ministerial Conference of the WTO in Singapore in 1996 that a working group was set up on trade and investment to make recommendations regarding possible negotiations on the subject

Developing countries have always sought to attract foreign investment because of the benefits perceived to be associated with it, including the ‘injection of much needed capital; the introduction, transfer, or spillover of technology; the introduction of sophisticated management skills; increased host country employment; increased competition in the host country market; and increased foreign exchange from exports by the foreign investor’.12

E. M. Burt, ‘Developing Countries and the Framework for Negotiations on Foreign Direct Investment in the World Trade Organization’, 12 American University Journal of International Law and Policy (1997): 1015, 1021.

However, because the investment also comes with risks such as potential depletion of foreign exchange reserves as a result of repatriation of investor profits,13

Ibid.

 or restrictive business practices such as transfer pricing,14

In transfer pricing the multinational enterprise parent or subsidiary sells inputs or outputs to the other at distorted market prices, affecting the host country's balance of payments. R. H. Edwards and S. Lester, ‘Towards a More Comprehensive Agreement on Trade Related Investment Measures’, 33 Stanford Journal of International Law (1997): 169, 174.

 host country governments have tended to subject investment to various regulatory controls. Restrictions common at the commencement of the investment include mandatory review by the government of the investment proposal to ensure that the proposed investment would be beneficial to the country's economy; prohibition of the investor from certain sectors of the economy, either as part of a policy excluding all private enterprise15

Both developed and developing countries limit investment where national security is threatened. R. H. Folsom, M. W. Gordon and J. A. Spanogle, International Business Transactions: A Problem Oriented Coursebook (4th edn), Foundation Press (1999), p. 909.

 or reserving sectors to nationals only;16

Ibid., p. 910.

 or limitations on ownership of the investment owing to joint venture requirements17

Governments prefer joint ventures because they enable greater participation of local capital in benefits of economic development, lessen the danger of foreign domination of industry, and facilitate faster transmission of technical and business know-how.

 or minority equity restrictions.18

In some cases, a company may seek a waiver of the ownership restrictions by offering incentives regarding technology, plant location, education, research and development, balancing imports with exports, and sourcing capital from abroad. Folsom et al., supra note 15, pp. 910–11.

 Once established, however, the operation of the enterprise can be subject to additional restrictions such as limits on the repatriation of capital, sending profits or royalties abroad, access to hard currency to pay for needed imports or performance requirements.19

Edwards and Lester, supra note 14, p. 173.

An agreement covering investment in the EPAs as advocated by the EU would be based inter alia on principles of transparency and non-discrimination with regards to the rights of investors,20

EU General Affairs Council, supra note 9.

and presumably, ease host country regulation of investors. In the opinion of the EU, such a regulatory framework would enhance and stimulate mutually beneficial sustainable investment between the EU and ACP countries.21

Ibid.

This paper examines the investment issue in the negotiations of the EPA between the EU and the West Africa region. As background, Section II traces how the subject of investment was introduced in the negotiations by the EU and highlights the failed efforts at the WTO to adopt a binding multilateral framework on investment. Section III discusses the concerns about development that have characterised the debate on investment and informed the stance by West Africa not to negotiate specific commitments on investments but rather seek cooperation from the EU to promote investment in West Africa. Section IV describes the key features of the ECOWAS Supplementary Act on Investment, a regional instrument developed by the Economic Community of West African States (ECOWAS) as part of its regional integration program. Finding the ECOWAS Supplementary Act to be a balanced instrument that improves the regulatory environment and provides guarantees to investors, the paper concludes that the instrument preserves sufficient policy space for West African governments, making it less likely that the West African negotiators would be eager to endorse an EPA investment framework that could limit such policy space.

 THE WEST AFRICA–EUROPEAN UNION ECONOMIC PARTNERSHIP AGREEMENT NEGOTIATIONS Preparation of a road map

As required by the Cotonou Agreement, negotiations between the EU and the ACP countries over the terms of the EPAs were launched on schedule in Brussels on 27 September 2002.22

Cotonou Agreement, supra note 1, article 37.

At the opening Ministerial Conference, it was decided that the negotiations would be conducted in two phases.23

Economic Community of West African States and European Commission, Roadmap for Economic Partnership Agreement Negotiations Between West Africa and the European Community (hereinafter ROADMAP), paragraph 1 (2004), available at http://trade.ec.europa.eu/doclib/docs/2004/october/tradoc_118923.pdf (accessed 21 December 2011).

 The first phase of negotiations, which was concluded a year later, was conducted at the all-ACP level and covered horizontal issues of interest to all parties.24

See Joint Report of the Meeting on Phase 1 of the EPA Negotiations (2 October...

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