In order to facilitate in answering the research question, this following section seeks to combine the theoretical framework with the interviews conducted. Hence, the first section uncovers how sustainable FDI is perceived in the WTO and how the WTO’s initiatives correlate with the theoretical perception and definition of sustainable FDI. The second part of this analytical framework is used to detect the various stakeholders, their influence and relation to the WTO in facilitating and maintaining sustainable FDI. Therefore, the empirical findings in the interviews depict the different functions, responsibilities, risks and opportunities for the various actors. The last section of this analysis revolves the theoretical framework of orchestration. This framework is applied to the findings of the interviews to emphasize the specific instruments used by the WTO and the actors they engage with. As a result, the specific initiatives and possibilities of the WTO are analyzed as well as the limitations of the WTO.
7.1 Sustainable
FDI
7.1.2 The WTO and sustainable FDI
In analyzing what the WTO can do to facilitate sustainable FDI, it is crucial to detect how the WTO perceives sustainable FDI. As stated by the interviewee from the IISD; “We do believe that investment is a sustainable development issue... But we also believe that not every investment is sustainable and not every investment contributes to sustainable development automatically,”
(Interview 1 p. 2). This underlines the importance of investment to be part of a sustainable development. Similarly, an interviewee from the ITC states; “We distinguish between investment and good investment and trade and good trade. One is just simple, the good ones are those that benefit the country, create jobs and restrict the environment” (Interview 6, p. 6). Following the definition of sustainable FDI, this point of view suggests that it is not sufficient if FDI only covers one parameter such as social, economic, environmental or governance. The FDI has to be beneficial in several parameters. This statement aligns with the theoretical framework in which sustainable FDI is defined as; “Commercially viable investment that makes a substantial contribution to the economic, social, governance and environmental development of host countries and takes place in the framework of fair governance mechanisms” (P. Sauvant & Hamdani, 2015).
In analyzing the WTO’s view on sustainable FDI, the majority of interviewees agree that it is important to detect which parameters are most needed for the emerging markets. Thus, the WTO agreements should be specific enough to include all sustainable characteristics, but flexible enough to adapt the agreements to the specific emerging markets’ needs. As stated by the interviewee from the CCSI; “It is important to look at some sustainability characteristics that countries are looking for such as materialistic. There is still disagreement on how you reflect FDI sustainably” (Interview 5, p.
1). It can be found in several interviews that it is crucial to distinguish between different emerging markets. An interviewee from the ITC denotes; “A lot of investment goes into emerging markets and there is no one size fits all. Good practices as well have helped a lot” (Interview 6, p. 7). Similar to the importance of distinguishing between the markets, another interviewee from the ITC puts greater emphasis on the difference between the specific sectors in which the investor goes into.
Some industries, such as mining and industries concerning natural resources, have more relevance in terms of sustainability. The interviewee states; “We should be talking about context, much of the investment and recourses, has much more relevance in terms of sustainability than other areas.”
(Interview 3, p. 1). This statement underlines that the context, market and sector have to be clearly defined in order to detect how the FDI can become sustainable and beneficial for the emerging market. It follows that these statements show the necessity of the WTO to consider context which resonates with the theoretical perception that both the investor and the host countries’ needs should be considered to attract and maintain sustainable FDI (P. Sauvant, 2008).
7.1.3 Quantity or quality?
As most of the interviewees agree on the need to for the WTO to consider context and specific needs for the emerging market, there are different views on the approach and amount of investment. As stated by P. Sauvant and Mann, the issue is not only to attract more quantity but more quality (P. Sauvant & Mann, 2017). Throughout the interviews, it is discovered that there are various opinions on quantity and quality in terms of investment. The interviewee from the D.I.E says about the WTO’s negotiations; “The focus at the moment is more on the quantity rather than the quality” (Interview 2, p. 1). The interviewee from the World Economic Forum defines the quantity and quality of sustainable FDI as; “The idea of how much it should contribute is not the perfect way to think about it. If FDI makes 10 jobs that is great, if it makes 100 jobs, that is also great. As long as
the FDI respects regulatory frameworks, conducts and standards, agreed on internationally and set domestically”(Interview 4, p. 2). This statement denotes that any investment, if perceived as sustainable, is good. To clarify, the more, the better, but this is not the ideal way to approach sustainable investment.
The interviewee from the CCSI says; “The starting point is that all investment can make a contribution – but the question is – could it make even more contribution without losing the investor?” (Interview 5, p. 2). The essential of this statement is that all investment is a contribution and there should be a focus on how to make the most of it.
On the contrary, the interviewee from the IISD implies that there can indeed be negative FDI. This can be investment that are not properly regulated, pollutes or if the FDI exports natural resources without giving anything back to the host country. The interviewee states; “Normal or even negative, right? It can be a FDI that does not really bring benefits but could actually lead to negative effects.”
(Interview 1 p.2).
These two statements align with the theory that there is a difference between whether sustainable investment is an investment that ‘does no harm’ or do ‘active efforts’ to do good (P. Sauvant &
Mann, 2017 p. 6). At the same time, these statements also confer the conflict in the WTO negotiations that quantity is preferred over quality. However, quantity is also perceived as an enabling factor in order to focus on quality. The interviewee from the OECD provides a view that the WTO needs to increase the amount of investment before they can focus on making it sustainable; “If you do not have a lot of investment, it is also difficult to make it sustainable.”
(Interview 8, p. 2). Another finding and possible explanations for why quality has a tendency to be preferred over quality, is explained by one of the interviewees from the ITC; “There is this tradeoff between sustainability, cost and profit. Take into consideration the sustainability criteria. There is a tension between being sustainable and making profit” (Interview 7, p. 3). This statement suggests that quantity is preferred over quality as it is more profitable. Thus, the WTO focuses more on the amount of investment rather than the quality of the investments.
7.1.4 The current WTO negotiations
As previously stated by the interviewee from the D.I.E, the WTO has not been focusing on sustainable FDI until the recent JSI initiative (Interview 2, p. 2). To analyze what the WTO can potentially do to facilitate sustainable FDI, this section seeks to depict the current state of the WTO negotiations, according to the interviewees. It follows that multiple interviewees perceive investment facilitation, and investment in general, to be out of the WTO’s usual trade related topics.
The interviewee from the D.I.E express this about investment; “..Those are not typical WTO agreements – usually WTO facilitate market access agreements. In terms of investment facilitation agreements and trade facilitation agreements, countries do these agreements themselves.”
(Interview 2, p 2). This emphasizes that member states have independently made investment related agreements. The interviewee from the IISD clarifies the WTO’s lack of work on investments;
“Well, up to now, the WTO has not worked specifically on investments… Mostly how to do things and how to regulate things, and also sometimes to de-regulate” (Interview 1 p. 2). The point of views from these two interviewees are that the WTO has not been working on investment facilitation but are now starting to bring the topic into the WTO negotiations.
As stated previously in this research, the WTO has made a JSI with a working group on IFD (WTO, IFD, 2021). As the WTO is part of UN, the aim is to always bear the SDGs s in mind (UN, SDG, 2015).
Target 17.3 which is to “mobilize additional financial resources for developing countries from multiple sources” implies that trade is essential. Even more so, the point 17.3 is that we should
“adopt and implement investment regimes for least developed countries” (UN, SDG, 2015). Multiple interviewees suggest that this is what the WTO is finally seeking to do. However, as stated by one of the interviewees from the ITC; “But there are groups on how they could potentially benefit. These serve investment measures only, and the rest is yet to come” (Interview 6, p. 2). Thus, stating that the JSI group focuses on IFD and not on sustainable FDI, which is an essential part of the Sustainable Development Goals.
Another interviewee from the ITC comments on this negotiation process; “For the first time they are trying to implement the word sustainability in relation to investment. It should not be so
difficult” (Interview 3, p. 1). A fellow ITC interviewee shares the same consideration about sustainability being implemented in the WTO agreements; “The issues of sustainability has not been discussed so much in the WTO. Something that people have not been discussing in the formal forums yet. Why? There is an inherent disagreement” (Interview 7, p. 4). These findings suggest that there is a disagreement about sustainability, which makes it riveting to analyze why there is a so-called inherent disagreement on the topic of sustainability.
Throughout the interviews, two interviewees have possible explanations to particularly this issue of inherent disagreements on sustainability. The interviewee from the World Economic Forum describes the process of consensus in three categories which are illustrated in the model below (Table 8). The interviewee describes it as follows;
“1, is what everyone can agree on and there is consensus, like transparency. You should write down your laws and share them on the internet – but you decide yourself. Everyone agrees on this. 2, would be the things that you want to do and commit to them but do not sign up because it is not feasible yet. You need the time and capacity.. But we want to commit but we do not know how to do it yet – maybe like 10 years but give us the time and the training. Commitment but contingent.
Category 3, would be aspirational. Here we do not commit as it would be really hard to do. These are the goals but we cannot make them hard commitments but we will still put them in writing so we make it a soft commitment and not a hard commitment” (Interview 4, p. 6).
The categorization of the goals in the WTO are not limited to the negotiations on investment facilitation for development. It is an illustration of how most of the negotiations within the WTO are structured (WTO, 2021). These categorizations of topics are the outcome of consensus, or lack of consensus, among the member states. Disagreements can also occur due to lack of resources from some member states. This is explained by an interviewee from the ITC; “The developing countries are not keen as it is difficult for them to comply with, while the developed countries want labor right, wide screen etc. They made a commitment through A, B and C, where A is; yes, we can do it right now. B is yes, we can do it but it will take a while and C is, we can do it but we need some help”
(Interview 6, p. 3).
Table 8, Categorization of consensus in the WTO (Inspired by a drawing from interviewee 6 during the interview)
The above statements put forward that the issue of sustainability falls into the third category of being aspirational. This is partly due to lack of resources and therefor lack of compliance and agreement. To this, the interviewee from the D.I.E states; “Sustainable development should not be an add on or non-binding to do just if you feel like it. It should be a core part of the agreement. But the developing countries will not agree to this. The developing countries really need support in order to implement this and be willing to do so” (Interview 2, p. 3). This statement confers the necessity for binding agreements.
7.1.5 Sub-summary of sustainable FDI
The above findings show that the interviewees mostly agree that the WTO’s perception of sustainable FDI should not just focus on environmental or social factors but should include all sustainability characteristics. Having said that, resorting from the interviews, it is important for the WTO to distinguish between different types of emerging markets and their needs. In doing so, for the WTO to facilitate and attract sustainable FDI, the negotiations should entail need from the emerging market but also from the needs of the potential investor. It is furthermore found that the majority of interviewees see a conflict in the WTO in terms of quantity over quality. Meaning that there is a tendency to prioritize more FDI rather than the ‘good’ quality FDI which is sustainable. A possible explanation for this is that more FDI is perceived as more profitable than less but more sustainable FDI. However, some interviewees highlight the fact that there is a need for an increase
in the amount of FDI before it is possible to make it sustainable. All things considered, the current WTO negotiations show that the WTO has not been working on investment up until now.
Furthermore, according to the categorization outlined by two interviewees, the WTO has three levels of consensus. The first constitutes of topics that are feasible such as more transparency. The second category is based on topics that most countries are willing to commit to such as capacity building for countries with less resources. The third category is an add on to the negotiations of items that are aspirational but perhaps not feasible such as sustainability. As stated by multiple interviewees, based on the categorization of topics and the level of consensus, sustainability seems like an add on and not as implemented in the agreements. Thus, there is a need to help countries with less resources developing in order to increase the willingness to commit and not just perceive sustainability as aspirational.
7.2 Stakeholders
The various actors engaging in sustainable FDI each play an important role in attracting and maintaining sustainable FDI. To specify, the WTO act as a regulator in this process but cannot make any difference without the other key stakeholders (Levy et al., 2017). It is important to note that this section analyzes the relevant actors working with the WTO. However, the function of the WTO as an IGO is analyzed in a later section. As explained in the theoretical framework of stakeholders;”
Among stakeholders, it is the government who should know best, given all relevant variables and constraints, how FDI can contribute best to sustainable development. Similarly, the private sector should know best how it can contribute towards this objective” (P. Sauvant & Mann, 2017, p. 8).
Some actors play a key role in attracting investors, other actors are more important in terms of maintaining investment. For this reason, the following section reveals the findings from the interviews concerning the stakeholders mentioned the most, as illustrated in the table below (Table 9). Thereby this section seeks to analyze the actors’ functions, responsibilities, possible risks and/or limitations.
Table 9, Illustration of actors mentioned by interviewees
7.2.1 Host country governments
Several of the interviewees put great emphasis on the host country governments as they are the countries that are being invested in. The host countries’ governments are in this relation limited to the member states of the WTO. As stated by the interviewee from the IISD; “Obviously the government plays an important role on having the proper regulations in place. Having an environment that attracts responsible investors and not those that exploit and then leave”
(Interview 1 p. 2). This statement aligns with the theory that it is the host country government’s responsibility to detect what the country needs and attract investors accordingly (P. Sauvant &
Mann, 2017). This is specifically done by having policies in place. The interviewee from the IISD clarifies the policies; “The governments promise to put certain things in place in terms of transparency and in terms of, making processes faster. To get a mining permit for example”
(Interview 1 p. 3). The essence of this process is thus to make it more attractive for investors as the process in terms of formalities, procedure and permits should be as transparent and convenient as possible (P. Sauvant & Gabor, 2019).
Throughout the interviews, it is found that some emerging markets even try to de-regulate some areas concerning FDI to make it even more convenient for the investor without having to consider too many regulations. This is explained by an interviewee from the ITC; “Some countries even de-regulate to attract specific industries. The biggest regulator in investment are often the investing companies themselves” (Interview 6, p. 3). This means that the investor can take part in shaping the regulations which is beneficial for them, but can also lead to risks for the host country governments (P. Sauvant & Gabor, 2019).
This may lead to the “negative investment” in which the investments end up causing more harm to society due to lack of sustainability requirements. This process is exemplified by another interviewee from the ITC;
“There is a problem. Let’s say that we have country A and country B. country A wants XYZ for the environment and 1,2,3, for social benefits otherwise they won’t let them invest. And if they do, and they make an audit and see that the facility is performing badly, they can be kicked out. This is stringent. But let’s say that country B does not have that. Then we risk that companies shift away from these requirements and move to country B” (Interview 7, p. 3).
This example underlines the need for sustainable regulations which mitigate the risk of companies shifting away from requirements. Yet, several of the interviewees advocate that there are limitations to imposing binding regulations. This is due to most developing member states of the WTO prefer sustainability to be more aspirational and non-binding, possibly due to their lack of resources (Interview 1 p. 6). On the other hand, member states such as South Korea, EU and Japan want more binding agreements (Interview 1 p. 6). The lack of binding regulation can in some cases attract investors but is not necessarily beneficial for the host country. If investors are being attracted due to lack of consequences and binding regulations, there are several risks for the host country.
One of these can be ‘crowding out’ which is explained by the interviewee from the CCSI; “Some things are crowding out. Foreign enterprises come in. Being more efficient. As a result all sorts of enterprises go bankrupt. Small shops may close. They may engage in restrictive business practices and environmental damage. A case of natural resources, may not pay taxes. A whole list”. (Interview 5, p. 2). Issues such as crowding out is more prevalent in some industries such as manufacturing and
services regarding natural resources. Hence, it is important to consider the context and industry to make appropriate regulations (Interview 5, p. 2).
7.2.2 Home country governments
In line with the literature used for this research, the home countries are the countries where the investing firms originate from (Stephenson & P. Sauvant, 2020). These home countries can set criteria for their companies in terms of specific codes of conduct and work with investment promotion Agencies (IPAs) to form these codes of conduct (P. Sauvant & Mann, 2017). The interviewee from the IISD specifies the responsibility of the home country governments in the following statement; “The home state can support investors going out and also regulate them and ensure that they have due diligence in place to ensure that the investments are conducted in a sustainable way ”(Interview 1, p. 2). This statements align with the literature in which it is also the home countries’ responsibility to both guide and restrict the companies seeking to invest in emerging markets. For this to happen the interviewee from the D.I.E states; “There is a need for more specific provisions and responsibility for the home countries. This could lead to more balanced agreements” (Interview 2, p. 2). Thus, stating that there should be more specific provisions about these responsibilities among member states in the WTO, so the home countries have specific provisions to follow.
An in depth analysis of the interviews give reason to believe that there is a conflict of interest among member states. Here some countries prefer binding rules for home country governments and other countries have other agendas, where they do not wish binding agreements for home country governments but rather guidelines (Interview 2, p. 2). Most interviewees mention that the biggest conflict of interest does again turn out to be the developing and developed countries, as the developing countries do not want too binding agreements because they do not have resources to enforce them. On the contrary, the interviewee from the D.I.E states; “The developing countries perspectives are not the biggest problem. But it is big countries such as China and Brazil which also have their own interest… But there is still a big discussion on which agreements and rules should be binding” (Interview 2, p. 4). The interviewee does here refer to big emerging markets (BRICs) that
the same time, they do not want too binding regulations that limit their own policy space (WTO, IFD, 2020).
7.2.3 The investors
The definition of the investor, previously used in this research, covers both the firm that seeks to invest and private institutional investors that control funds and substantial pools (Stephenson & P.
Sauvant, 2020). Multiple interviewees distinguish between the specific firm seeking to invest and other financiers. On one side, it is the investors’ own responsibility to create positive influence to the market they invest in, for example by creating jobs or knowledge spillover (P. Sauvant & Gabor, 2019). On the other side, there needs to be conditions in place in the emerging market, for the investor to have an incentive to invest. According to an interviewee from ITC, there are four main reasons for investors to be attracted to emerging markets; “The first is, market access. So access to new markets. 2. Attractive factor conditions – cheap labor, cheap resources etc. The reason why China can attract so much investment is that they combine the two. The third is, law and order. 4.
Is extraction of natural resources” (Interview 6, p. 4). This statement aligns with the theoretical idea that there are economic determinants, political frameworks and an ability from the host country to attract investment (P. Sauvant & Gabor, 2019). Furthermore, the first and second reason do also resonate with Dunning’s concept of location specific advantages that attract investors but can at the same time pose risks for the host country, such as crowding out (Dunning, 2009).
According to the interviewee from the ITC; “Market access is typically the least focused on, but the most important” (Interview 6, p. 4). Market access is in particular part of the WTO agreements, as market access is the core of any trade agreement (WTO, 2021). Hence, the interest of the investor as private business should be the breeding ground for the WTO negotiations.
Another key finding in terms of investors is the emphasis on equal requirements and equal responsibilities among investors. The interviewee from the OECD denotes that all investors are not the same and have different needs but they should still play by the same rules (Interview 8, p. 3).
Additionally, an interviewee from the ITC exemplifies a scenario of being an investor from a developed country; “If I am an European investor let’s say investing in Africa. There will be these mandatory guidelines for making sustainable investments. I can be audited and if I am not following