Developing countries seek foreign direct investment (FDI) in order to promote their economic development. This is their paramount objective. To that end, they have sought to establish – through national legislation and international instruments – a legal framework aimed at reducing obstacles to FDI, while providing foreign investors with high standards of treatment and legal protection for their investments and increasingly putting in place mechanisms to assure the proper functioning of markets.
Developing countries participate in international investment agreements (IIAs) – whether at bilateral, regional, interregional or multilateral levels – because they believe that, on balance, these instruments help them to attract FDI and to benefit from it. At the same time, IIAs, like most international agreements, limit to a certain extent the policy options available to governments to pursue their development objectives through FDI.
A question arises, therefore, how, nevertheless, IIAs can allow developing countries certain policy space to promote their development. This is all the more important since the principal responsibility for the design and implementation of development objectives and policies remains in the hands of the individual countries’ governments. Thus, when concluding IIAs, developing countries face a basic challenge: how to achieve the goal of creating an appropriate stable, predictable and transparent FDI policy framework that enables firms to advance their corporate objectives, while, at the same time, retaining a margin of freedom necessary to pursue their particular national development objectives. A concept that can help link these objectives is "flexibility" which, for present purposes, can be defined as the ability of IIAs to be adapted to the particular conditions prevailing in developing countries and to the realities of the economic asymmetries between these countries and developed countries.