UNCTAD’s programme of public education on a set of topical — often contentious — issues related to the relationship between foreign direct investment (FDI) and development took a significant step forward today, with the publication of the first batch of a series of Issues Papers on the subject of international investment agreements.
The first six — covering the topics of Foreign Direct Investment and Development, Scope and Definition, Admission and Establishment, Most-Favoured Nation Treatment, Investment-Related Trade Measures and Transfer Pricing — were released at a briefing today for member States in Geneva, chaired by Mr. Rubens Ricupero, Secretary-General of UNCTAD. "These papers reflect the state-of-play in this important area, and will undoubtedly assist the investment rule-maker in developing countries and transition economies to conclude satisfactory international agreements," he said.
The papers each examine key concepts and issues in the complex area of international investment agreements, studying in particular the economic implications of such agreements for development. The underlying thrust of UNCTAD’s work in the area is to maximize the developmental impact of FDI and of international investment agreements.
In an effort to demystify a subject that may sometimes be arcane, but is nevertheless of vital importance to most countries, the Issues Papers start from basics: explaining the definitions involved, describing how the concepts and issues have been applied so far in existing international instruments, and spelling out their principal economic implications.
Making the issues more accessible to policymakers and other stakeholders in the private and public sectors concerned with the flow of international investment to developing countries has been a central purpose of this project from UNCTAD’s Division on Investment, Technology and Enterprise Development (DITE).
- The paper on Foreign Direct Investment and Development looks at the direct and indirect effects of FDI, along with the broader role of transnational corporations in this process. It also considers policy issues for national governments inherent in the linkages between FDI, trade and development. The trade effects of FDI depend on whether it is undertaken to gain access to national resources or to consumer markets, or whether FDI is aimed at exploiting locational comparative advantage.
- The Scope and Definition paper focuses in particular on what is meant by investment, as this will define what is covered in an agreement, and what is excluded; for instance, portfolio investment, short-term contracts or investments that do not meet certain capital requirements. Evidently, different types of investment have differing economic and developmental implications.
- Once the scope of an investment agreement and the definition of the investment involved have been determined, the next issues are the legal and policy options available to governments concerning the Admission and Establishment of FDI — a central topic in the negotiation of international agreements. In the face of a continuing overall liberalization of conditions governing the entry and "establishment" of FDI, governments still pursue different policies, ranging from full state control to selective liberalization.
- Most-favoured Nation Treatment (MFN) is one of the central provisions in international investment agreements, together with "national treatment" and "fair and equitable treatment". MFN standards try to prevent discrimination against foreign investors on the grounds of their nationality. This paper concludes that in existing agreements this ingredient is almost invariably included.
- International trade negotiations recently incorporated the impact of FDI policies on trade flows (Trade-Related Investment Measures or TRIMS), but there has been less recognition of the converse effects of trade policies on FDI decisions. The Investment Related Trade Measures paper provides an understanding of how they can be addressed in international discussions.
- Finally, one issue becoming increasingly pressing for government policymakers, as transnational corporations expand their horizons, is that of Transfer Pricing, notably what regulations should govern this practice. Different approaches to transfer pricing directly affect the amount of profit reported by foreign companies in their host countries, and thus the tax revenues of both host and home base countries. This paper examines the extent to which international investment agreements can address this issue.
Briefing government delegates today, Mr. Ricupero pointed out that the topics selected for the initial batch of Issues Papers were among the core questions affecting international investment agreements. "They will fill the evident need for greater information and transparency, as well as proper economic and legal analysis, of these subjects", he added.
UNCTAD’s work on a possible multilateral framework on investment, mandated at UNCTAD IX in May 1996, aims to help developing countries participate as effectively as possible in the international discussions underway in various fora on investment rule-making. The work programme helps countries improve their understanding of the issues at stake; explores the range of important issues involved and identifies critical considerations; and ensures that the development dimensions of investment agreements at all levels — bilateral, regional, plurilateral, or multilateral — are understood and adequately addressed.
Discussions on rule-making are taking place against the background of a proliferation of international agreements. Last year the ASEAN Investment Area was established, and negotiations are currently underway on creating a comprehensive framework of investment rights and obligations in the context of the Free Trade Agreement of the Americas (FTAA). In 1997 alone, over 150 bilateral investment treaties were concluded.