Maximizing the Benefits Maximizing the Benefits of FDI through CSRof FDI through CSR

By Marinus SikkelBy Marinus SikkelUnited Nations Economic and Social Commission for United Nations Economic and Social Commission for

Asia and the PacificAsia and the Pacific

At the International Conference “Expansion of FDI in At the International Conference “Expansion of FDI in Asia and Implications for the Development of Asia and Implications for the Development of

International Rules on Investment” International Rules on Investment” 18 January 2008, NIDA, Thailand18 January 2008, NIDA, Thailand

OutlineOutline

Potential benefits from FDIPotential benefits from FDI Potential risksPotential risks Policy optionsPolicy options Corporate social responsibility (CSR)Corporate social responsibility (CSR) Link to multilateral rule makingLink to multilateral rule making

Potential benefits from FDIPotential benefits from FDI

Increased competitiveness, Increased competitiveness, growth and exportsgrowth and exports

Spill-over effects Spill-over effects Inflows of foreign exchangeInflows of foreign exchange Increased access to capital Increased access to capital Job-creationJob-creation Better environment and social Better environment and social

conditionsconditions

Potential risksPotential risks

Low absorption capacity, limited Low absorption capacity, limited spilloversspillovers

Restrictive business practices Restrictive business practices Tax avoidanceTax avoidance Deterioration of balance of paymentsDeterioration of balance of payments Dutch diseaseDutch disease Exploitation of weak regulationsExploitation of weak regulations Bribery and corruptionBribery and corruption

Policy options IPolicy options I

Conclude investment agreements???Conclude investment agreements???- BITs do not address the risksBITs do not address the risks- Negotiations of multilateral rules failed Negotiations of multilateral rules failed

for good reasonsfor good reasons- Most countries consider it in their own Most countries consider it in their own

interest to liberalize, and do so interest to liberalize, and do so unilaterallyunilaterally

- Domestic regulation can maximize the Domestic regulation can maximize the benefits of FDIbenefits of FDI

Policy options IIPolicy options II

Improve the business climate Improve the business climate Introduce a simple tax systemIntroduce a simple tax system Be careful with tax incentivesBe careful with tax incentives Appropriate regulation on transfer pricingAppropriate regulation on transfer pricing Environmental and labor legislationEnvironmental and labor legislation Good governanceGood governance Establish industrial/free-trade zonesEstablish industrial/free-trade zones Be careful with requirementsBe careful with requirements Encourage CSREncourage CSR

CSRCSR

Soft-law approach to achieving Soft-law approach to achieving social, environmental and good social, environmental and good governance goals governance goals

Increased competitivenessIncreased competitiveness• Customer perception / brandingCustomer perception / branding• New market niches New market niches • Increased productivity Increased productivity

Spill-over effects Spill-over effects

How can governments encourage How can governments encourage CSR?CSR?

Create an enabling environment for Create an enabling environment for responsible business conduct: responsible business conduct: Communication on expected conductCommunication on expected conductTransparency in law enforcementTransparency in law enforcementStrengthen the business case through Strengthen the business case through

partnerships and promotionpartnerships and promotionInternational cooperationInternational cooperation

Link to multilateral rule makingLink to multilateral rule making

CSR is non-binding!CSR is non-binding! Encourage desirable behaviorEncourage desirable behavior Use existing instruments Use existing instruments

Thank you for your attention

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UNITED NATIONS ECONOMIC AND SOCIAL COMMISSION FOR ASIA AND THE PACIFIC

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