The purpose of this study is to foster an understanding of the background behind the discussion of trade-related investment policies in the Uruguay Round of Multilateral Trade Negotiations (MTNs) and foreign investment policies, from a multilateral perspective. It also seeks to suggest approaches in resolving the issues concerned to address the contemporary trade liberalization agenda.
The Uruguay Round of the MTNs is showing no signs of actual progress as major countries involved are in disagreement of opinion on trade-related investment policies. There are four main reasons foreign investment policy is a difficult issue to be addressed at a multilateral agreement; first, host countries and investing countries show differing perspectives on investment policies. While host countries assume investment policies as a basic block for the development of the international economy, investment countries argue them to be appeased through multilateral negotiations. They claim the flow of investment funds and global trade to be distorted or limited due to an inefficient allocation of resources. Second, many countries, including the European Community asides from developing countries, are doubtful whether GATT can serve its function to handle foreign investment policies. In particular, developing countries are against handling foreign investment in GATT as they believe it is only a reflection of developed countries’ interests. Third, many countries are deeply skeptical of addressing foreign investment issues at the multilateral level, as international efforts to liberalize foreign investment has not achieved any practical or effective result. Finally, claims on foreign investment policies to distorting and limiting trade flows may go through a theoretical examination. But because of its lack of empirical data, the impact of the phenomena on trade flows can be judged as minor.
Considering the discussion of foreign investment in GATT and the different stances of countries, the main issues in the Uruguay Round can be summed up in three points: first, there is a need to clarify the scope of trade-related investment policies that should be regulated by international standards; second, there is a need for international standards that deal with the treatment of developing countries and Trans-National Corporations (TNCs). The Uruguay Round needs to be developed in a more objective and rational way in order to achieve a real effective outcome. In particular, building a basic framework on the negotiation tasks of trade related investment policies is of utmost importance, focusing on the relationship between foreign investment and trade of goods. Hence, trade-related investment measures must be taken according to the way and degree it affects trade flow, only controlling policies that directly block or distort trade flows. Despite its indirect impact on trade flows, there is a need for an institutional system that can regulate investment policies according to the severity of its impact. Opinions on the severity of this impact may vary, but it must include foreign investment measures after a careful scrutiny of GATT provisions. If they are included in the GATT provisions, they should be modified and included so long as they play a direct impact on trade flows. In terms of the treatment of developing countries, the policies must be improved while abiding the existing GATT provisions to prevent side-effects and abusive usage. Depending on circumstances, temporary usage of the (regulations) may be needed despite its goal to protect infant industries and improve balance of payments for the sake of economic development. Lastly, major developing host countries need to discuss the issue of foreign investment corporations for a balance between foreign investment and trade issues. They will need to work for an international framework that can regulate foreign investment corporations that play a negative impact on trade flows, especially trade-related economic activities.
Up until the 1980s, Korea has been adopting a closed foreign investment policy to protect local industries and improve the balance of payments. This is less used recently due to the active liberalization of foreign investment high economic growth and an active balance of payments. On the other hand, some investment measures will last for the meantime, but its scope and target will gradually decrease. They include: duties in medical supplies; duties in high-level technology transfer; exemption policies for high-level technological industries and small and medium enterprises (SMEs). As foreign investment enters Korean industries in the face of rapid liberalization of foreign investment policies, Korea is forecast to grow into a major host and investing country. From such prospect, the Uruguay Round may not play a direct impact on the Korean economy, but is expected to play a positive impact on Korean companies’ entry to foreign markets. Thus, Korea must play an active role in the negotiations and exert efforts to develop it as observed by this study. Korea is expected to play a key role between investing and host countries, also between developed and developing countries.
Finally, key agendas that Korea will face as they head towards a complelte liberalization of foreign-investments in the long term include: local industries’ adjustment to liberalization; implementation of economic policies to achieve the fundamental goal of liberalization; unfair economic activities of TNCs and their resulting economic externalities; and assistance for other investment host countries at similar levels of development. As a response, goals for investment liberalization plans must clearly be identifed at its early stage, to help local industries make a quick adjustment. There must be a consistenty when implementing investment measures that improve local industries’ technology and competitiveness, and trade policies. Furthermore, there is a need for an institutional approach that can regulate TNCs’ unfair economic activities and an economic externality of companies accepting such activities. Focus must also be given to setting the pace of investment liberalization by going through a discussion with leading developing countries, which are at similar economic development levels.
무역관련투자시책 협상과제와 우리의 입장(Tasks for negotiation in trade-related investment policies-Korea’s position)
|Series Title; No||정책연구시리즈 / 88-11|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Trade|
|Holding||KDI; KDI School|