New World vs. Old World Trade Policies

-- The flow of foreign direct investment (FDI) into developing countries (including China) grew more than 10-fold in the past 15 or 16 years. It reached $379,070,000,000 in 2006.

-- The services sector – banks, communication, education, hotels, restaurants, and public utilities, for example – now outpaces manufacturing in attracting FDI. In 2005 the services sector accounted for about three-fifths (61 percent) of global FDI stock (up from 49 percent in 1990).

-- Although the number of multinational corporations with headquarters in developing countries is increasing, they still are dwarfed by those based in industrialized economies. The total foreign assets of the top multinationals based in developing economies, for example, in 2005 amounted to the total foreign assets of a single U.S. multinational, General Electric, the largest multinational in the world.

-- Foreign affiliates of the 78,000 multinational corporations based in the United States, Europe, and Japan have tripled their workforce. In 2006 the number of people on their payrolls stood at 73,000,000 (not counting people hired by contractors and subcontractors), up from 25,000,000 in 1990.

Those are a few of the fascinating statistics in Development and Globalization: Facts and Figures, just issued by the United Nations Conference on Trade and Development (UNCTAD). They illustrate the transformations the world has undergone since 1990.

What implications do these and other transformations have for world trade and investment policies? The question is seldom addressed. But there are some exceptions.


Awareness is growing that at least the investment chapter of the typical trade agreement needs revision. UNCTAD’s 2007 Trade and Development Report, for example, criticized most bilateral “North-South” free trade agreements for restricting the options that poor countries have for adopting FDI policies suitable for their own circumstances.

On October 1-2, over 30 negotiators representing more than 25 countries assembled in Singapore for the 1st Annual Forum of Developing Country Negotiators. There they discussed (as a forum report put it) “their common challenge: finding the appropriate balance between the need to attract more foreign direct investment and the need to serve a wide range of public policy objectives, including economic development.”

That same challenge facing developing countries is analyzed in a report expected to be approved by the June meeting of the Human Rights Council. The report; written by Professor John Ruggie of Harvard, devotes seven paragraphs to the “adverse effects” of the current one-sided policy of protecting foreign investors and investments. These protections, Ruggie writes, have been expanded “with little regard to States’ duties to protect to protect [human rights], skewing the balance between the two [the State and the foreign investor].”

“The State Duty to Protect” human rights is a major theme of the Ruggie report, titled Protect, Respect and Remedy: a Framework for Business and Human Rights. Pope Benedict XVI stressed the same theme, mostly using the same terms, in his address to the UN General Assembly on April 18.

When will U.S. policymakers listen to these voices? Until they do, expect the backlash against globalization to continue, or even to intensify. See previous postings this month.


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