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INVESTMENT REGIMES IN THE EU-MERCOSUR NEGOTIATIONS
by Christian Russau, FDCL
Berlin, September 2005

1. Imposing International Investment Regimes between the European Union (EU) and the Common Market of the South (MERCOSUR)?

After the 'collapse of Cancún' in September 2003, bilateralism, as represented by free trade agreements (FTAs), preferential-trade agreements (PTAs) and bilateral investment-treaties (BITs), is seen as a logical alternative to the multilateralism of the World Trade Organisation (WTO). There are 282 preferential trade agreements worldwide, 255 of which are reciprocal trade agreements, and 27 non-reciprocal (i.e. unilaterally granted trade privileges). 192 reciprocal trade agreements are intra-regional and 63 inter-regional.[1] UNCTAD estimates speak of 2,300 bilateral trade agreements worldwide as of July 2004.

Those who view multilateralism and bilateralism as opposing concepts tend to overlook that rather than exclude each other, they are complementary.[2] The WTO article I GATT from 1947 defines the most-favoured nation principle (MFN), according to which a WTO member state granting trade preferences to another member state has to grant the same preferences to all other WTO member states.[3] However, article XXIV GATT 1947 provides an exception, insofar as theoretically the WTO rules allow regional free trade agreements provided they do not contradict WTO principles. The priority the WTO enjoys in the international trade system determines the rules for the trade-related preferences of bilateralism. In this respect, the apparent absolute opposition of 'multilateralism versus bilateralism' of the free trade agenda is rather a complementary model. Thus, in the bilateral EU-MERCOSUR negotiations, explicit references to the multilateral level of the WTO were made, too - though not formally, but as a political package deal.

This interaction of multilateralism and bilateralism is complemented by the attempt to form the increasingly perfect net of international-treaty regimes in the three sectors (trade, investment, and immaterial goods), determining in this triad the inescapable political rules for the comprehensive and worldwide arrangement of and for the market. In free trade and bilateral investment agreements, the principles of non-discrimination and national treatment have priority over national, regional or local policies. Any trade relevant regulation would previously have had to prove it was the least 'discriminatory'. When it comes to establishing international, market-governed logics of utilisation - on the real floor of a world market fired by competitivity - trade- and investment-relevant policy-making on a communal, regional or federal level represent a threat to neo-liberal market logic: the 'certainty of law' for the neo-liberal market concept might be undermined. Yet from a development politics perspective[4] it is particularly urgent to protect the scope for political action, such as the use of 'macro-economic instruments (among others capital-flow controls and protectionist measures)'[5], and it becomes absolutely indispensable from the perspective of the democratic sovereignty of states to be able to make decisions in this policy field.

These insights are the starting point for this analysis of the current negotiations between the European Union (EU) and the Common Market of the South (MERCOSUR), which places emphasis on the issues of foreign 'direct investments' (always implicitly included in the current negotiation round), and explores why a future EU-MERCOSUR agreement on 'foreign investments' threatens to lever out the fundamental condition of the possibility for policy making with respect to foreign direct investments. The paper examines the regulatory status quo for foreign direct investments in the four MERCOSUR member states (Chapter 2), before analysing the negotiation poker between the EU and MERCOSUR in the period between March and October 2004, regarding the negotiation topic 'foreign direct investments'. Chapter 4 complements this by examining the bilateral investment agreements ratified by the MERCOSUR members, and reviews the most recent developments in the special case of bilateral investment treaties signed by Brazil in the 1990s.

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Footnotes:
1] State April 2004, see Arashiro, Zuleika / Marin, Cynthia / Chacoff, Alejandro: Challenges to Multilateralism, The Explosion of PTAs, (Instituto de Estudos do Comércio e Negociações Internacionais (ICONE)), April 2004.
2] See also Russau, Christian: 'Präferentielle Handelsabkommen und Exporthybris - Multi- und Bilateralismus in der politischen Freihandelsagenda zwischen EU und Brasilien', in: FDCL EU - MERCOSUR Bulletin Nr. 2, 3
September 2004.
3] '[...] any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product
originating in or destined for the territories of all other contracting parties', Art.I GATT 1947.
4] Relating to the industrialised countries` own past, Ha-Joon Chang pointed out the active role in implementing state-controlled protectionist measures: Chang, Ha-Joon, Kicking Away the Ladder: Development Strategy in
Historical Perspective, (London, Anthem Press, 2002). See. also Zarksy, Lyuba / Gallagher, Kevin: Searching for the Holy Grail? Making FDI work for Sustainable Development, WWF analytical paper, March 2003.
5] Mahnkopf, Birgit: 'Investition als Intervention: Wie interregionale und bilaterale Investitionsabkommen die Souveränität von Entwicklungsländern beschneiden', in: IPG 1/2005, p.129.