Goal

To analyse Africa’s investment flows, intra-Africa trade, multilateral and bilateral investment treaties and propose policy and legal regimes that ensure investment in Africa contributes to human development, protection of human rights and the environment.

Scope

Increasing trade and investment among sub-Saharan African countries through physical and economic integration could bring real benefits in increased trade, employment and higher incomes. Regional trade corridors that connect countries through roads, and railways, and provide access to ports and airports can help move goods to markets and connect people with employment opportunities. Economic integration that reduces cumbersome customs and border crossing procedures, as well as tariffs, can also enhance regional trade.

A number of African countries have committed to promoting regional integration by creating regional economic communities. Entities such as the East Africa Community (EAC), the Southern African Development Community (SADC), the Economic Community of Western States (ECOWAS) and the Common Market for Eastern and Southern Africa (COMESA) are at varying stages of implementation and operation, but are all committed to creating a free trade area, with some even aiming to create a full common market. But evidence also shows that uncritical, asymmetrical opening of the continent to foreign investors could lead to unemployment and under-employment, lack of value addition, biopiracy and eventual de-industrialisation.

Section of the Thika Super Highway (Kenya)

Prior to the Uruguay Round negotiations, the linkage between trade and investment received little attention in the framework of the GATT.The Charter for an International Trade Organization (1948) contained provisions on the treatment of foreign investment as part of a chapter on economic development. This Charter was never ratified and only its provisions on commercial policy were incorporated into the General Agreement on Tariffs and Trade (GATT).

Perhaps the most significant development with respect to investment in the period before the Uruguay round was a ruling by a panel in a dispute settlement proceeding between the United States and Canada. In Canada — Administration of the Foreign Investment Review Act (“FIRA”) (BISD 30S/140, 1984) a GATT dispute settlement panel considered a complaint by the United States regarding certain types of undertakings that were required from foreign investors by the Canadian authorities as conditions for the approval of investment projects. These undertakings pertained to the purchase of certain products from domestic sources (local content requirements) and to the export of a certain amount or percentage of output (export performance requirements). The Panel concluded that the local content requirements were inconsistent with the national treatment obligation of Article III:4 of the GATT(1) but that the export performance requirements were not inconsistent with GATT obligations.

The Panel emphasized that at issue in the dispute before it was the consistency with the GATT of specific trade-related measures taken by Canada under its foreign investment legislation and not Canada’s right to regulate foreign investment per se. 

The panel decision in the FIRA case was significant in that it confirmed that existing obligations under the GATT were applicable to performance requirements imposed by governments in an investment context in so far as such requirements involve trade-distorting measures. At the same time, the panel’s conclusion that the GATT did not cover export performance requirements also underscored the limited scope of existing GATT disciplines with respect to such trade-related performance requirements.

The Uruguay Round negotiations on trade-related investment measures (TRIMS) were marked by strong disagreement among participants over the coverage and nature of possible new disciplines. While some developed countries proposed provisions that would prohibit a wide range of measures in addition to the local content requirements found to be inconsistent with Article III in the FIRA panel case, many developing countries opposed this. The compromise that eventually emerged from the negotiations is essentially limited to an interpretation and clarification of the application to trade-related investment measures of GATT provisions on national treatment for imported goods (Article III) and on quantitative restrictions on imports or exports (Article XI). Thus, the TRIMs Agreement does not cover many of the measures that were discussed in the Uruguay Round negotiations, such as export performance and transfer of technology requirements. Developed countries, seeking more freedoms and rights for their investors were not satisfied and sought to have a banding multilateral agreement guaranteeing the rights of foreign investors.

The Multilateral Agreement on Investment (MAI) was a draft agreement negotiated between members of (OECD) in 1995–1998. This was after a proposal to launch negotiations in the WTO over a raft of new issues, which became known as the “Singapore Issues” and included trade and investment agreement, was defeated. Its ostensible purpose was to develop multilateral rules that would ensure international investment was governed in a more systematic and uniform way between states. When its draft became public in 1997, it drew widespread criticism from developing countries and civil society groups, particularly over the possibility that the agreement would make it difficult to regulate foreign investors. After the treaty’s critics waged an intense global campaign against the MAI, the host nation France announced in October 1998 that it would not support the agreement, effectively preventing its adoption due to the OECD’s consensus procedures.

Equitable economic growth, driven by trade and investment, is the critical engine that will help end poverty in sub-Saharan Africa. Addressing the underlying imbalances in the world trade system and investing in long-term development of the trade sector are more critical than ever for Africa.