(Geneva, 6 March 2006)

Mr. Chairman,

On behalf of the Group of 77 and China, I congratulate you on assumption of chairmanship of this important session. We have full confidence in your leadership. We assure you of our Group’s support towards a successful conclusion of our substantive work at this Commission. The documents prepared for this Session by the Secretariat are rich in content and would facilitate our deliberations under each item on the agenda.

Development financing and technological infrastructure provide the all-important fuel for any policy vehicle that may be used to reach the developmental objectives. The proven inadequacy of resources to bridge the digital and the development divides with a view to financing long term economic development in Asia, Africa and Latin America has enhanced the importance of investment flows to developing countries and the need for exploring other innovative means to finance the attainment of MDGs. However, some of the important international trends and indicators like the net outflow of US $ 350 billion from developing to developed countries in the year 2004 are not encouraging. Some initiatives like the debt write off last year have had a limited impact in Africa as well as on the overall situation. Much more needs to done mainly because more is being said than is being done to fuel the development locomotive.

Mr. Chairman,

Let me comment briefly on each of the substantive items on the agenda. The Group of 77 and China would like the essence of these comments to be duly reflected in the outcome of this Session which we hope will be substantive and meaningful.

On Agenda Item 3: Policy issues related to investment and development, the Group of 77 and China would like to reiterate the importance of both the quantity and quality of Foreign Direct Investment (FDI). Attracting FDI has assumed a prominent place with regard to the development strategies being advocated and pursued by policy makers at the national, regional and international levels. The results have not been entirely satisfactory. The experience of a limited number of fast growing Asian economies testifies to the role of FDI towards bridging the resource gap of low-income countries and avoiding further piling up of debt while directly tackling the causes of poverty. A more cautious approach with regard to premature liberalization must be inferred from the Asian crisis. The experience, in terms of impact on development and poverty alleviation, with prescriptions of conformity with market fundamentals, accelerated liberalization, deregulation and privatization has not been satisfactory. It calls for a rethinking of the conventional wisdom on the one sided emphasis on FDI and its replacement with a more balanced and strategic approach tailored to specific economic conditions and challenges. Last year the UNCTAD report on Economic Development in Africa has raised some important questions in this area that need to be further explored and expanded to include a similar assessment of the situation in Asia and Latin America. Our Group would like UNCTAD to continue with its work on this critically important issue with far reaching implications for policy options and policy space available to the developing countries. We look forward to examining the results of UNCTAD’s research and analytical work on this issue at future sessions of the Commission.

Mr. Chairman,

There is some good news in the recent data by UNCTAD which shows increase in FDI flows to developing counties during the last two years, bringing it to the highest ever level. The World Investment Report 2005 provided a useful analysis on recent trends. It is encouraging that TNCs now consider developing countries as host locations even for strategic functions like R & D. The Report, however notes that so far the internationalization of R&D has primarily benefited countries in Asia. The expert meeting on Capacity Building in the area of FDI statistics in December provided a useful forum to discuss key issues on data compilation analysis and policy formulation in developing countries. Most useful was the identification of five criteria, namely, reliability, comparability, usefulness, comprehensiveness and timeliness to assess the quality of FDI data. It would now be essential to operationalise the recommendations of the Expert Meeting with particular reference to collection, dissemination and exchange of information and experiences on a regular basis in the interest of a harmonized data. This Commission must examine the role that UNCTAD could play in institutional Capacity Building in the field of FDI statistics.

Mr. Chairman,

On Agenda Item 4: Issues related to international arrangements, this Commission provides opportunity to discuss systemic issues of international investment Agreements (IIAs) with particular reference to the subject of policy coherence. The universe of IIAs continues to expand; the total number of BITs reached 2,392 at the end of 2004. Developing countries are partners to 75 percent of the concluded BITs and that 25 percent of them have been concluded exclusively between developing countries. A new generation of IIAs is emerging that is far more complex and shows more variation in scope, approach and content than the “traditional” BITs. This continuing increase in IIAs and their growing complexity has implications for developing countries.

The faster pace at which new IIAs are concluded creates logistical problems for developing countries. The problem is aggravated by the fact that negotiation and conclusion of the “new generation” IIAs is no longer a matter only for investment experts. It also requires substantial knowledge in other policy areas, such as trade, services, competition or intellectual property. Secondly, as IIAs become more complex, it becomes more difficult to correctly assess the obligations arising from them. Developing countries have to improve their capacities to understand the economic and social implications of the commitments contained in IIAs. In particular, there is a need to establish and maintain coherence in the face of a large number of interacting IIAs. Thirdly, new challenges arise for developing countries even within the context of “traditional” BITs. Thus, as developing countries sign more and more BITs, they may be confronted with a whole variety of obligations that are not identical. To identify these differences and to cope with them is not an easy task for developing countries. Fourthly, special attention has to be given to the Most-Favoured Nation (MFN) treatment principle. The determination of what is actually the most favourable treatment becomes more delicate as the number of treaties rises. Moreover, in the light of recent arbitration awards, the scope and effect of the MFN clause has become a matter of concern. Developing countries need advice on how to draft MFN clauses in the future to avoid “bad surprises” concerning their application. Lastly, developing countries confront problems on account of at least two different BIT models when negotiating an agreement with industrialized countries – the US/Canadian approach, on the one hand, and the European approach on the other. What we would like to stress is the issue of policy coherence when developing countries sign up to these two different BIT approaches.

Mr. Chairman,

The “new generation” IIAs include interrelated and complex policy issues that go far beyond mere admission of foreign investment and its treatment in accordance with international law. Increasingly, they touch upon a whole range of domestic concerns comprising, for instance, social and environmental matters, training and employment of personnel, the granting of incentives, industrial and technology policies, the establishment of linkages between foreign investment and domestic enterprises in host countries, or the interaction between FDI, on the one hand, and trade and services, on the other. Developing countries have to pay very close attention to all these policy areas when negotiating IIAs. In this context, we would like to emphasize two main concerns of developing countries:

First, IIAs need to strike a proper balance between creating a favourable, stable, predictable and transparent legal environment for foreign investment and retaining sufficient regulatory power and discretion of host country governments. Without undermining the rights of foreign investors, developing countries have to adjust their development objectives as the need arises. This is all the more important as the increasing complexity of IIAs makes it more intricate to correctly assess the possible effects of the agreements. However, ensuring some degree of flexibility or space on behalf of the host countries is being constricted as the new IIAs become more sophisticated and cover a broader range of issues.

Second, in order to advance development objectives, IIAs should put more emphasis on the responsibilities of foreign investors in the host country. In addition, more consideration needs to be given to the question of what home countries of foreign investors can do to specifically promote development-friendly investment. The importance of corporate social responsibility was recognized in the Sao Paulo Consensus and must figure in the research and analysis conducted by UNCTAD with a view to building consensus on the ways and means to operationalise it.

The G-77 and China are of the view that translating treaty obligations into domestic legislation is another difficult and time-consuming process for many developing countries. It may require major adaptations of the affected laws and regulations. Many developing economies are lagging behind in these implementation steps. This may lead to costly investment disputes and run counter to objectives of the agreements. Finding a development-oriented balance in future IIAs that adequately addresses the various issues is the main challenge. The burden of coping with this challenge is likely to weigh disproportionately on developing countries. We call upon UNCTAD to intensify its work in the area of policy coherence. Furthermore, technical assistance and capacity building is needed to strengthen developing countries’ ability to conduct negotiations on “new generation” IIAs, and to properly implement them into the domestic legislation. We hope discussions at this Commission will shed further light on these vital issues.

Mr. Chairman,

On Agenda Item 5: issues related to Investment Policy Reviews, the G-77 and China reaffirm appreciation for the investment Policy Review programme and its well-established exchange of experiences mechanism. Over the years, an increasing number of G77 countries have benefited from the programme in terms of definition and improvement of their national investment policies. Countries participating in the programme have had the opportunity to discuss their efforts at modernizing the institutions and policies dealing with Foreign Direct Investment with peer countries and national and international private sectors. This exchange of experiences has contributed to raising awareness on the main elements of a favourable investment environment, while providing support to the individual development objectives of the countries under review.

While investment flows to developing countries have reached record levels and prospects for future flows are positive, regional and intra-regional disparities persist. It is hoped that the experience accumulated via the Reviews will enable countries to maximize gains from increased capital attraction. To that end, our Group would like to stress the importance of the follow-up of implementation activities of the IPR programme and encourage donor countries to support such activities through their development assistance mechanisms. The analysis and recommendations stemming from the Reviews must not remain unanswered. The Group commends the monitoring of the completed Reviews initiated with the Implementation Report of Egypt last year and follow-up on the Peruvian IPR this year. We support similar exercises in all countries which have benefited from the Reviews in the past. This year we look forward to considering the Investment Policy Review of Colombia. We also look forward to the completion of the on-going Investment Policy Reviews of Brazil, Morocco, Nigeria and Rwanda welcome the launching of IPRs for Bangladesh and Senegal. UNCTAD should focus on undertaking science, technology and innovation policy reviews and exploring modes and mechanisms of transfer and diffusion of technology through FDI and other channels.

Finally, on Item entitled Joint meeting of the Commission and World Association of Investment Promotion Agencies (WAIPA), the Group of 77 and China appreciate UNCTAD’s efforts aimed at strengthening developing countries’ capacity to better attract FDI and benefit from it. At the last session of the Working Party we were informed in detail about the activities of UCTAD in the area of investment promotion, particularly about the various technical cooperation projects undertaken in close cooperation with Investment Promotion Agencies (IPAs) from developing countries as major partners and beneficiaries. We would like to reiterate that this work be further strengthened and diversified.

G-77 and China are of the view that UNCTAD and WAIPA are natural partners as they share the same objectives of assisting developing countries to increase their investment inflows and improve their investment climate. The Sao Paulo Consensus specifically indicated that WAIPA will be a principal partner of UNCTAD in the area of investment. We understand that this partnership has been strengthened in the post UNCTAD XI period and believe that UNCTAD should continue to work closely with WIPA including through joint high-level sessions between the Commission on Investment, Technology and Related Financial Issues and the WAIPA World Investment Conference.

Mr. Chairman,

The Group of 77 and China look forward to discussing report on the implementation of agreed conclusions and recommendations of last session of the Commission. We hope that our deliberations this week will yield substantive outcome and assure you of our full support to your endeavours to achieve this objective.

I thank you.

© The Group of 77