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.

1414

The spaghetti bowl of IIAsThe spaghetti bowl of IIAs

1515

II.II. Investment Promotion in Investment Promotion in IIAsIIAs

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.

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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.

2424

Thank you. Thank you.