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FDI TRENDS AND POLICY OPTIONS IN LDCs:FDI TRENDS AND POLICY OPTIONS IN LDCs:
TRAINING AND CAPACITY-BUILDING TRAINING AND CAPACITY-BUILDING
25 September 200725 September 2007
INVESTMENT PROMOTION IN INVESTMENT PROMOTION IN INTERNATIONAL INVESTMENT INTERNATIONAL INVESTMENT
AGREEMENTS AND LDC AGREEMENTS AND LDC PERSPECTIVE PERSPECTIVE
Joachim Karl and Hamed El-KadyJoachim Karl and Hamed El-Kady
International Arrangements, DITE, UNCTADInternational Arrangements, DITE, UNCTAD
22
The three pillars of UNCTAD’s IIA-The three pillars of UNCTAD’s IIA-related workrelated work
Information provision through IIA Information provision through IIA databasesdatabases
Policy research and analysisPolicy research and analysis
Technical assistanceTechnical assistance
33
I. Recent trends in I. Recent trends in international international
investment rulemakinginvestment rulemaking
44
Core Elements in international Core Elements in international investment agreements (IIAs)investment agreements (IIAs)
PreamblePreamble Definitions (investment/investor)Definitions (investment/investor) Admission and establishmentAdmission and establishment Core standards of protection:Core standards of protection:
Principle of fair and equitable treatmentPrinciple of fair and equitable treatmentPrinciple of non-discrimination (NT/MFN)Principle of non-discrimination (NT/MFN)ExpropriationExpropriationTransfer of fundsTransfer of funds
Dispute settlementDispute settlement
55
Bilateral investment treaties (BITs)Bilateral investment treaties (BITs)
Free trade agreements with investment Free trade agreements with investment provisions (FTAs)provisions (FTAs)
Multilateral agreements dealing with Multilateral agreements dealing with investment (GATS, TRIMs, TRIPs) investment (GATS, TRIMs, TRIPs)
Regional integration agreements Regional integration agreements (EU, CARICOM, MERCOSUR, ASEAN) (EU, CARICOM, MERCOSUR, ASEAN)
The network of IIAsThe network of IIAs
66
Universe of BITs continues to grow Universe of BITs continues to grow rapidlyrapidly
Number of BITs concluded, cumulative, 1995-2006Number of BITs concluded, cumulative, 1995-2006Over 2500 BITsOver 2500 BITs
0
50
100
150
200
Years
An
nu
al B
ITs
0
500
1000
1500
2000
2500
3000
Cu
mm
ula
tive
BIT
s
BITs Annual BITs cumulative
77
"Top ten" economies signatories of BITs, end "Top ten" economies signatories of BITs, end 2006 2006
0 20 40 60 80 100 120 140 160
Korea, Republic of
Belgium and Luxembourg
Netherlands
France
Italy
Egypt
United Kingdom
Switzerland
China
Germany
88
Total BITs concluded as of end 2006, by Total BITs concluded as of end 2006, by country group country group
27%
40%
10%
7%
13% 3%
Between developing countries Between developed and developing countries
Between developing countries and SEE & CIS Between developed countries
Between developed countries and SEE & CIS Between countries of SEE & CIS
99
Proliferation of FTAs with investment provisionsProliferation of FTAs with investment provisions
International investment rules are increasingly being formulated as part of agreements that encompass a broader range of issues (including trade, services, competition, intellectual property)
Such as free trade agreements, regional integration agreements, partnership agreements, or economic cooperation agreements;
The total number of such economic agreements with investment provisions exceeded 250, as of end 2006.
0
50
100
150
200
250
300
Nu
mb
er
of
PT
IAs
By period Cumulative
1010
Active participation of developing Active participation of developing countries in IIAscountries in IIAs
Many developing countries are active Many developing countries are active participants in the process of concluding participants in the process of concluding IIAs. E.g. DCs involved in 75% of all BITsIIAs. E.g. DCs involved in 75% of all BITs
The total number of BITs between developing The total number of BITs between developing countries leaped from 47 in 1990 to over 650 countries leaped from 47 in 1990 to over 650 by the end of 2006by the end of 2006
By end 2006, over 90 other IIAs among By end 2006, over 90 other IIAs among developing countries had been signeddeveloping countries had been signed
1111
Participation of LDCs in the IIA network Participation of LDCs in the IIA network
Over 400 BITsOver 400 BITs
Regional integration groups (ASEAN, Regional integration groups (ASEAN, COMESA, ECOWAS, SADC)COMESA, ECOWAS, SADC)
The involvement of LDCs in bilateral FTAs The involvement of LDCs in bilateral FTAs
remains limitedremains limited
However, many LDCs are involved in However, many LDCs are involved in ongoing negotiations for ongoing negotiations for new economic new economic partnership agreements with the EU partnership agreements with the EU
1212
Top 10 LDCs, BITs concluded, end 2006Top 10 LDCs, BITs concluded, end 2006
0 5 10 15 20 25 30 35
Number of BITs concluded
Cambodia
Mauritania
Guinea
Senegal
Lao People's Democratic Republic
Mozambique
Ethiopia
Bangladesh
Sudan
Yemen
1313
Number of investor-State dispute cases Number of investor-State dispute cases (end 2006)(end 2006)
0
10
20
30
40
50
6019
87
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
An
nu
al n
um
ber
of
case
s
0
50
100
150
200
250
300
Cu
mu
lati
ve n
um
ber
of
case
s
ICSID Non-ICSID All cases cumulative
LDCs are facing at least 14 investor-State cases filled to LDCs are facing at least 14 investor-State cases filled to international arbitration. international arbitration.
1616
Investment promotion in IIAsInvestment promotion in IIAs
The objective of IIAs is to promote foreign The objective of IIAs is to promote foreign investment through the granting of investment through the granting of
investment protection.investment protection.
Thus, IIAs promote foreign investment Thus, IIAs promote foreign investment mainly mainly indirectlyindirectly through the protection through the protection
provisionsprovisions
There are concerns that IIAs do not result There are concerns that IIAs do not result in a substantive increase in FDI flows and in a substantive increase in FDI flows and
therefore do not do enough to promote therefore do not do enough to promote FDI.FDI.
1717
The Impact of IIAs on Domestic The Impact of IIAs on Domestic
Investment PromotionInvestment Promotion Several IIA provisions are relevant, namely: Several IIA provisions are relevant, namely:
Non-discrimination principle (NT/MFN);Non-discrimination principle (NT/MFN); Fair and equitable treatment;Fair and equitable treatment; Performance requirements. Performance requirements.
These provisions give reassurance to These provisions give reassurance to foreign investors about their treatment, but foreign investors about their treatment, but also limit the discretion of host countries in also limit the discretion of host countries in designing investment promotion measures.designing investment promotion measures.
1818
Investment promotion in an evolving IIA Investment promotion in an evolving IIA universeuniverse
The evolving IIA universe with its greater The evolving IIA universe with its greater diversity: diversity:
Offers new options for countries to Offers new options for countries to strengthen the promotional aspect of IIAs; strengthen the promotional aspect of IIAs;
Results in an ever more complex system Results in an ever more complex system with multi-faceted and multi-layered rules with multi-faceted and multi-layered rules that is difficult to manage, in particular for that is difficult to manage, in particular for LDCs.LDCs.
1919
Challenges for investment promotion in Challenges for investment promotion in
IIAsIIAs
They emerge with regard to:They emerge with regard to:
Maintaining policy coherence;Maintaining policy coherence; Preserving regulatory flexibility;Preserving regulatory flexibility; Srengthening the development dimension Srengthening the development dimension
of IIAs;of IIAs; Exploring new ways of investment Exploring new ways of investment
promotion in IIAs;promotion in IIAs;
2020
Forms of Investment promotion Forms of Investment promotion provisions in IIAsprovisions in IIAs
Most IIAs do not contain any specific Most IIAs do not contain any specific investment promotion provisions.investment promotion provisions.
The minority that does include such The minority that does include such provisions shows a great variety of provisions shows a great variety of approaches. approaches.
2121
Forms of Investment promotion Forms of Investment promotion provisions in IIAs (II)provisions in IIAs (II)
Examples of investment promotion provisions are:Examples of investment promotion provisions are:
Fostering transparency and exchange of information Fostering transparency and exchange of information on investment opportunities;on investment opportunities;
Encouraging the organization of investment Encouraging the organization of investment seminars, fairs and exhibitions;seminars, fairs and exhibitions;
Fostering linkages between foreign investors and Fostering linkages between foreign investors and local firms;local firms;
Home or host country fiscal or financial incentives;Home or host country fiscal or financial incentives; Easing informal obstacles to investment.Easing informal obstacles to investment. Follow-up procedures.Follow-up procedures.
2222
Main Alternatives for dealing with Main Alternatives for dealing with investment promotion provisions in IIAsinvestment promotion provisions in IIAs
General IIA language General IIA language on IP;on IP;
Confirmation of Confirmation of existing measures;existing measures;
IP measures of IP measures of host/home countries;host/home countries;
Political commitment;Political commitment; No No
follow-up/monitoring follow-up/monitoring mechanism.mechanism.
Specific IP provisions ;Specific IP provisions ; Agreement on new Agreement on new
measures;measures; Joint IP measures;Joint IP measures; Legally binding;Legally binding; Specific follow-up Specific follow-up
/monitoring /monitoring mechanism. mechanism.
2323
Concluding remarksConcluding remarks
Coping with an increasingly complex IIA Coping with an increasingly complex IIA universe represents a major task for all universe represents a major task for all countries, in particular LDCs.countries, in particular LDCs.
The evolving IIA universe offers new The evolving IIA universe offers new opportunities, but also poses new challenges opportunities, but also poses new challenges concerning investment promotion in IIAs.concerning investment promotion in IIAs.
This underlines the importance of This underlines the importance of multilateral capacity-building and technical multilateral capacity-building and technical assistance.assistance.