Having analyzed the interviewees’ contributions to how the WTO can facilitate in attracting and maintaining sustainable FDI in emerging markets, this following section discusses the main findings.
Firstly, the extent to which the findings reflect the theoretical framework and vice versa is discussed to address how the theoretical and analytical framework answer the research question. Hence, the implications of how sustainable FDI should be perceived, the influence of stakeholders’ actions and the specific means suggested by the interviewees, are discussed. The subsequent section then confer about the practical contributions of this research and the academic contribution to the
existing literature on sustainable FDI. Lastly, a reflection of the limitations is provided together with potential further research.
8.1 How Should We Perceive Sustainable FDI?
The interviews give reason to believe that a big issue of how the WTO perceives sustainable FDI is whether it should be perceived as quality or quantity, so whether the WTO should push to increase more FDI, in general, or more sustainable FDI. On one hand, some interviewees state that in order to focus on sustainability, we also need to increase the amount of investment to facilitate development. On the other hand, the majority of interviewees mention the importance of quality investment over quantity to avoid negative impact. The later aligns with the theoretical idea that the importance is not to attract more FDI but sustainable FDI, which poses a priority of quality over quantity (P. Sauvant & Hamdani, 2015). In this relation, the theory reflects the main findings of the interviewees, namely that the determinants of sustainable FDI should include all sustainable characteristics but at the same time leave room for the specific needs of each emerging market (P.
Sauvant & Mann, 2017). However, according to the theory, sustainable FDI is feasible if the sustainability characteristics are agreed upon (Ibid). This does not reflect the interviewees’
perceptions in which sustainability is seen as aspirational. Sustainability being perceived as aspirational is due to the fact that there are many perceptions of what it should consist of, many obligations that member states need to adhere to and many different needs for the individual member states. Hence, different needs create lack of consensus between member states and pose as a barrier for sustainability to become feasible within the WTO.
8.1.1 Analyzing different needs
In line with the above, in order to increase consensus on how sustainable FDI should be perceived, there is a need for analyzing the individual needs for member states in the WTO. As this research focuses on sustainable development in emerging markets, it is vital that the findings are applicable to emerging markets specifically rather than developed countries, developing countries or least developed countries. Developed countries do already have high quality of life, functioning infrastructure, advanced technology and developed economy (World population review, 2021). It can be stated that there is still potential for more development and perhaps there is a surplus in
resources to focus on optimizing development in making it more sustainable. Developing countries and least developed countries, on the other hand, are lacking these above-mentioned abilities and there are fundamental political, social and governance structures that need to be in place for potential sustainable development (Bizfluent, 2018). As previously accounted for, developing countries have not undergone the same industrial development and their political regimes are typically unstable (IMF, 2021).
Due to the difference between developing countries and emerging markets, the specific incentives to facilitate sustainable FDI are expected to be different. However, when analyzing the findings, it is noticeable that most interviewees do not speak about emerging markets in particular but about sustainable development in general. Despite this being the general tendency, an interviewee from the ITC address the main reasons why investors are prone to make FDI into emerging markets rather than developing countries. The reason is that investors seek greater markets access and attractive conditions such as cheap labor, cheap recourses and easy entry requirements. The interviewee uses China as an example because they combine the two (markets access and attractive conditions).
Some countries, such as the BRICs, (China included), have the ability to attract investors on this basis, whereas other countries attract investors primarily due to lack of regulation, extraction of natural resources, or a combination of both.
The fact that the interviewees speak more about general sustainable development can pose the question of whether the data then facilitates in answering the research question. Despite the difference in emerging markets and developing countries, many of the potential risks are the same in case of an investor causing negative externalities (IMF, 2009). This implies that developing countries and emerging markets have different potentials for sustainable development but the risks of negative investments are the same. This could be in form of negative externalities such as crowding out. It can be stated that one of the potential risks do also lie in the consequences of ‘race to the bottom’ (The Economist, 2013). This is a socio-economic term entailing governments’
attempts to de-regulate the business environment, reduce taxes or de-regulate to attract investors, which is also mentioned by one of the interviewees from the ITC. It can be argued that race to the bottom, where countries compete to be the least regulated, is both identified among emerging
markets and developing countries. Therefore, these countries share some of the same risks of ‘race to the bottom’ and investments with negative impact (The Economist, 2013).
Furthermore, it is the same key actors and stakeholders that engage in sustainable FDI for development. For this reason, incentives to mitigate negative investment and dispute settlements are applicable both for developing countries and emerging markets. However, as stated by multiple interviewees, regarding the level of development in a country, an analysis of specific needs is essential, as there is great difference between individual emerging markets (IMF, 2009).
8.2 Influence of Stakeholders
Viewing the main findings concerning stakeholders, the interviewees agree upon the main stakeholders working together with the WTO and engaging in sustainable FDI. The main actors outlined in the list of actors in the theoretical framework, align with those mentioned by the interviewees. However, the responsibility, influence, limitations and risks of the actors vary both among interviewees and the alignment of the theory.
Following the theoretical framework, “Among stakeholders, it is the government who should know best how, given all relevant variables and constraints, FDI can contribute best to sustainable development. Similarly, the private sector should know best what it can contribute towards this objective” (P. Sauvant & Mann, 2017, p. 8). The perception of the interviewees relies much more on the work conducted by international organizations. An explanation for this perception can partly be due to their profession. The interviewees do all work in international organizations that work with IGOs. The interviewees are not chosen to represent the international organization they work for, but it can be argued that they might increase the relevance and influence of international organizations due to their profession.
Opposite to the theory, most interviewees do not see that it is the governments that know the best what they need. Conferring the influence of international organizations, it is the governments’ main responsibility to detect the country’s needs but for the international organizations to facilitate in analyzing those needs. An analysis can contribute in fostering development as the governments are
able to share their needs and increase transparency based upon the work conducted by international organizations. Having said that, the theoretical framework suggests greater division of responsibility, whereas the interviews give reason to believe that stakeholders have multiple functions and overlap with the influence of other stakeholders. Moreover, their abilities are dependent upon other stakeholders like international organizations and state actors are highly dependent upon civil society to detect demands from the specific emerging markets. Hence, the findings suggest that the influence can be greater when working together and risks are more limited.
The latter argument does also resonate with the theoretical framework of orchestration in which IGOs engage in orchestration, specifically because they cannot reach their goals without intermediaries and other stakeholders (Levy et. al, 2017).
8.2.1 The WTO creating a level playing field
Despite the WTO’s influence being bounded without stakeholders, the WTO could increase the conditions for multilateral negotiations by creating a level playing field. This means that the findings imply an explanation for the lack of consensus, mainly between developed and developing countries. One reason is that developed member states such as the EU seek more binding rules and regulations, whereas developing countries do not have the resources to live up to these binding rules. This poses a barrier for consensus for several reasons. Firstly, it is more difficult for the WTO to enforce rules if member states do not agree what they should entail, which limit the authority and influence of the WTO, (WTO, 2021).
Secondly, it creates a polarization between developed and developing countries in which disputes are claimed from developing countries against developed countries and vice versa. According to the statistics on number of disputes in the WTO, it is seen that there is much less complaints resulting in disputes in 2011 compared to 1995. According to the WTO, this could indicate that the level of trust in the multilateral system has increased (View appendix 12.2).
Opposite to the idea that trust has increased in the WTO, observers of the WTO recognize that the WTO is currently facing a ‘make or break’ point in which there is a need for reformation (European Commission, 2021). This is due to lack of consensus about core WTO bodies, including how to handle
disputes (Ibid). These tables show that developing countries are often involved in disputes, either by being the country that file the complaint or being the country that receives the complaint (Raúl A Torres, 2012). This gives reason to believe that it is not only in the WTO negotiations on investment facilitation where disagreements are between developed and developing countries. This is a more general issue throughout WTO committees. As a result, there is a need for the WTO to inject confidence back into the negotiations, for example by implementing greater capacity building, as suggested by the interviewee from the OECD.
The third argument constitutes that in order to avoid disputes and to succeed in creating rules on investment facilitation, it is vital that member states succeed in creating a level playing field. Thus, it can be argued that the WTO should use more resources or allocate resources more ideally to accommodate the needs of developing countries. This can as an example be done by using already existing WTO incentives such as Special and Differential Treatment (SDT). This is a WTO mechanism
“given to developing countries in the WTO agreements. It can include longer periods to phase in obligations, more lenient obligations etc.” (WTO, SDT glossary, 2021). Making greater use of such incentives might make it possible for the WTO to agree upon more binding regulations if the counter argument is that the developing countries are against incentives because they cannot live up to them.
8.3 Specific Means Used by the WTO
The suggestions made by the interviewees imply that they do not agree entirely on the specific incentives that the WTO should use and the level of compliance. The interviewee from the World Economic Forum suggests that the WTO should use already existing overall frameworks like those from the OECD. An interesting finding shows that the interviewee working for the OECD is very skeptical towards making the frameworks and policy toolkit mandatory. This is due to the lack of consensus, especially from developing countries. For this reason, the interviewee from the OECD does not view it as feasible to make an overall framework binding. The main findings related to the WTO as orchestrator engages in a discussion of whether specific WTO instruments and incentives should be binding. There is a need for greater compliance and more mandatory guidelines, if the WTO is to be able to revitalize and facilitate sustainable development. The WTO’s role as
orchestrator resonates to a great extent with the O-I-T model in which the WTO uses intermediaries to reach their target (Levy et al., 2017). Following one of the main hypotheses of orchestration;
“Intergovernmental organizations are more likely to orchestrate when there is a divergence among their member states, and/or between member states and the intergovernmental organization”
(Abbott et al., 2014 p. 34). The theory is directly applicable to the disagreement among the member states in the WTO. The engagement in orchestration can be used in collaboration with international organizations to create a level playing field for member states to agree on the level of compliance of sustainable FDI characteristics and measurements. However, the theoretical framework distinguishes between soft, hard, direct and indirect instruments used by the IGO. Yet, there is a lack of how typical examples of soft means, such as frameworks, can be exercised as hard regulations (Levy et al., 2017). This would resonate with the interviewees’ suggestion of making already existing frameworks binding instead of voluntary.
8.3.1 The alphabet soup
In line with creating a level playing field, the interviewees mention specific methods in which the WTO can adopt measurements and reporting frameworks. This can both be to attract investors seeking to make sustainable investments as there will be guidelines and frameworks already perceived as legit by recognized organizations. Moreover, specific reporting systems can indeed be used to ensure greater due diligence and compliance from investors in order to maintain a sustainable investment (AI for Good, 2021). Hence, this section discusses the implications of the specific reporting frameworks that the WTO can potentially use and the possible risks of creating new ones.
As the WTO is already familiar with existing frameworks, the WTO would benefit from those, either by adopting initiatives or make voluntary guidelines and frameworks mandatory. As the WTO is an organ under The UN, it naturally seeks to follow UN initiatives such as the UN Global Compact and the SDGs. The UN Global Compact is a UN initiative that promotes activities that contribute to sustainable development goals to create a better world (Investopedia, 2021). It is based upon eight principles that businesses should follow in order to contribute to this development. Moreover, under the UN, the SDG number 17 concerns partnerships to reach common goals (AI for Good,
2021). SDG 17.8 even states “Promote a universal trading system under the WTO” and 17.16 is;
“Enhance the global partnership for sustainable development”. These goals are very specific but in order for the WTO to meet them, they need to have a specific strategy and process to execute. This could as an example be by using some of the international organization’s policy toolkits or framework such as those from OECD or ITC.
The EU union suggests that EU regulation should be implemented in the WTO to meet common goals. There are many EU initiatives but one that could potentially benefit the WTO negotiations is the EU Taxonomy. The EU is currently developing a set of regulatory reporting requirements that all EU funds with a sustainability objective have to comply to (Sustainalytics, 2021). This incentive requires funds to report on any activity regardless of where they are situated (Ibid). Yet, the limitations of implementing this system is primarily the developing countries’ and BRIC countries’
resistance to make it mandatory for all other WTO member states. This can partly be due to the fear of losing their own political leeway. Meaning that it is a combination of not having the resources to live up to the regulation and the fear of losing political freedom by adopting regulation that is tailored to the EU countries. This regulation would furthermore contradict with the principle that there should be room for emerging markets’ individual needs.
Another specific suggestion is to turn towards businesses by implementing more elements of CSR.
On one side, CSR covers environmental, ethical, philanthropic and economic responsibilities which can be stated to be very similar to the sustainability characteristics of this research (Bizfluent, 2019).
One the other hand, CSR is not a reporting system and is not perceived as mandatory but a way for businesses to self-regulate. Hence, businesses can develop extensive CSR strategies to promote themselves and be perceived as contributing to sustainable FDI, but there is a lack of verification to how the business performs in reality (Ibid).
8.3.2 Risk of new reporting frameworks
Drawing from the above suggestions to reporting systems and already existing guidelines, frameworks, policies and regulations, it can be stated that there are various incentives. Some measurements overlap and some contribute to specific aspects that other incentives are missing.
Therefore, it is crucial that the WTO conducts a thorough analysis of respective needs for member states. One might argue that there is currently not one single reporting system or initiative that is perfectly suitable for the WTO. There might be a need to combine different existing measures.
However, the limitation of using a few, can be that it does not cover enough negotiating topics.
Nonetheless, there is a risk of the WTO creating new measurements that is just an add-on to the so-called alphabet soup. This means that all these systems and abbreviations pose the risk of contributing to a confusing assortment rather than making the process more tangible (Alphabet soup, ADEC, 2014). There is not one specific solution, as there is not one size fits it all. The WTO can potentially make use of some reporting frameworks to attract investors, other frameworks to maintain investors. Based on the main findings, a key word for the WTO is “compliance”, instead of pseudo mandatory, in order to increase their ability to facilitate and maintain sustainable FDI.
8.4 Contributions
This research does not seek to outline one specific framework for the WTO and, or to contribute to the alphabet soup, but rather identify the possibilities for the WTO. This research contributes to the existing literature on sustainable FDI by seeking to fill a gap between the already existing literature on sustainable FDI, stakeholders and orchestration by applying this combined framework to the WTO. As presented in the theoretical framework, there is vast literature on FDI. There is also extensive literature on stakeholders and the functionalities of IGOs working through orchestration.
This research contributes as it combines the chosen theories into a theoretical framework and applies it to data conducted from experts within the topic. This way the research contributes through filling a salient gap in the literature of sustainable FDI.
As emphasized by the majority of the interviewees, the WTO is only now starting to consider implementing sustainability to the work on investment facilitation. Hence, this research does in practice contribute to the member states that are part of the WTO. It can be stated that the research can also have potential interest for the employees of the WTO, the organizations related to the WTO and potential investors seeking to engage in sustainable FDI. This interest can be a combination of political interest, economic interest, profit maximizing but first and foremost, the goal is to seek sustainable development through sustainable FDI.
8.5 Limitations and Further Research
Having discussed how the theoretical implications reflect the main findings together with the effect of various reporting frameworks, it is relevant to address the limitations of this research. Firstly, this research seeks to investigate development for emerging markets. Despite some similarities between the risk of developing countries and emerging markets, it can be seen as a limitation that the findings are too broad. Thus, if the interview guide where to be conducted differently, the questions should have been more limited to emerging markets, specifically. This can be seen as a limitation because the initial focus was solely on emerging markets rather than developing countries. It can be argued that this limitation is not possible to mitigate. However, the interviews give reason to deduce that despite the differences between developing countries and emerging markets, the negative impacts from non- sustainable FDI are the same. Hence, the findings still facilitate in answering the research question.
Moreover, the interviewees mention specific frameworks that the WTO could use but they do not go into depth with these specific frameworks and what aspects of them that could attract sustainable FDI and which ones could maintain sustainable FDI. Therefore, an in-depth analysis of specific frameworks would be of great interest to include in further research.
Beyond the main findings and the specific incentives mentioned by the interviewees, it could be possible that other existing frameworks could be beneficial for the WTO. Such frameworks could be Environmental, Social and Governance criteria (ESG) that works as standards for companies’
operations. This is primarily used for socially conscious investors to screen potential investments (Investopedia, 2021). Another existing reporting framework is the Task Force on Climate related Financial Disclosures (TCDF). This is a reporting system created by Financial Stability Board (FSB) to create consistent climate-related financial risk disclosures (UN, 2020). To summarize, further research could consist of more extensive research on the specific effects on already existing frameworks and their potential influence on the WTO negotiations on investment facilitation for development.