Foreign Direct Investment and Policy Space for Sustainable

Foreign Direct Investment and Policy Space for Sustainable Development

European Commission - DG Trade -


Julie RaynalDG TRADE

Unit for Investment and Trade in Services



I. Introduction

II. FDI, the right to regulate and the policy space for development

III. Foreign investors’ behaviour and home and host states policies

IV. Incentives and supporting measures to sustainable investments

V. Conclusion



IntroductionIntroduction

growing number of preferential regional growing number of preferential regional agreements, that go beyond crossagreements, that go beyond cross--border border measures, measures, To cover “new issues” such as services, To cover “new issues” such as services, investments, intellectual property rights, investments, intellectual property rights, government procurement, competition, etc… government procurement, competition, etc…



Introduction Introduction (2)(2)Economic benefits of FDI for developmentEconomic benefits of FDI for developmentIn order to attract FDI, investment provisions in In order to attract FDI, investment provisions in regional trade agreements can be more effective regional trade agreements can be more effective than bilateral treaties.than bilateral treaties.RTAsRTAs entail costs as well as benefits (both to entail costs as well as benefits (both to developed and to developing economies).developed and to developing economies).In negotiating In negotiating RTAsRTAs, the aim should thus be to , the aim should thus be to minimise the costsminimise the costs and to and to maximise the benefitsmaximise the benefits..



Foreign Direct Investment, the right to regulate Foreign Direct Investment, the right to regulate and the policy space for developmentand the policy space for development

Assumptions that bilateral investment treaties Assumptions that bilateral investment treaties would provide more flexibility (and would provide more flexibility (and implicitly more benefits) to their signatories, implicitly more benefits) to their signatories, as opposed to the believed inflexibility (and as opposed to the believed inflexibility (and implied damages) that regional and implied damages) that regional and plurilateral investment rules would impose plurilateral investment rules would impose on their policy space.on their policy space.



Foreign Direct Investment, the right to regulate and Foreign Direct Investment, the right to regulate and the policy space for development the policy space for development (2)(2)

Is the Is the policy spacepolicy space of Contracting States to regulate of Contracting States to regulate impeded mainly by preimpeded mainly by pre--establishment rules?establishment rules?

No. Possibility exists to conciliate investment No. Possibility exists to conciliate investment provisions substantive enough to attract FDI, with provisions substantive enough to attract FDI, with full respect of the regulatory sovereignty of host full respect of the regulatory sovereignty of host States States



Foreign Direct Investment, the right to regulate and Foreign Direct Investment, the right to regulate and the policy space for development the policy space for development (3)(3)

The “positive approach” of investment commitments The “positive approach” of investment commitments (GATS(GATS--type approach): a country freely decides, for each type approach): a country freely decides, for each sector of its economy, whether to open it to foreign investors sector of its economy, whether to open it to foreign investors or notor not..EvenEven wherewhere commitmentscommitments existexist, exceptions , exceptions andand limitations limitations to NT to NT andand MFN are possibleMFN are possibleThis «This « positive positive approachapproach » » enableenable a a creativecreative design design ofof rulesrules



SomeSome concreteconcrete examplesexamples

Policies designed to generate and Transfer TechnologyPolicies designed to generate and Transfer Technology

ex: ex: partnershipspartnerships with local companies through jointwith local companies through joint--ventures as a condition for foreign investorsventures as a condition for foreign investors’’access to the marketaccess to the market

exex: : marketmarket--friendly measures to friendly measures to promote technology promote technology transfertransfer, such as providing incentives for specific , such as providing incentives for specific high technology industrieshigh technology industries



SomeSome concreteconcrete examplesexamples (2)(2)

Policies aimed at protecting the environmentPolicies aimed at protecting the environmentInvestment provisions can offer a framework to Investment provisions can offer a framework to encourage encourage transfertransfer of clean technology and environmentally sound of clean technology and environmentally sound management practices to host countriesmanagement practices to host countries1st ex: 1st ex: exclusionsexclusions oror exceptionsexceptions, to carve out environmental , to carve out environmental and social issues from the agreement’ disciplinesand social issues from the agreement’ disciplines2d: “2d: “nonnon--loweringlowering--standards clausestandards clause” : undertaking ” : undertaking not to not to relax relax environmental and social standardsenvironmental and social standards and legislationand legislationin order to attract FDIin order to attract FDI



SomeSome concreteconcrete examplesexamples (3)(3)

NonNon--binding or declaratory provisions related to the binding or declaratory provisions related to the environmentenvironment

Although nonAlthough non--binding, possible for these “soft” binding, possible for these “soft” commitments, to create, over time, commitments, to create, over time, customary customary norms, and thus norms, and thus enforceable as customary rules enforceable as customary rules of international lawof international law



Investment rules and the debate on Investment rules and the debate on deregulation deregulation

Too often, confusion is made between investment Too often, confusion is made between investment commitments on noncommitments on non--discrimination, and risk of discrimination, and risk of deregulationderegulationInvestment rules embodied in Investment rules embodied in RTAsRTAs aim at providing a aim at providing a stable and transparent regulatory climate, not at weakening stable and transparent regulatory climate, not at weakening the regulatory regimethe regulatory regimeinvestment provision in investment provision in RTAsRTAs should lead to should lead to better better regulation,regulation, not denot de--regulationregulation. .



IIII-- Foreign investors’ behaviour and home Foreign investors’ behaviour and home and host states policies and host states policies

equal attention should be paid to foreign investors’ rights equal attention should be paid to foreign investors’ rights and obligationsand obligationsCorporate Social Responsibility (CSR) is one of the possible Corporate Social Responsibility (CSR) is one of the possible ways to address investors’ dutiesways to address investors’ dutiesBUTBUT: : CSR CSR is not a substituteis not a substitute, but a complement to hard law. , but a complement to hard law. It must not be seen as a substitute to It must not be seen as a substitute to public authorities' public authorities' duty to establish binding rules, at domestic and duty to establish binding rules, at domestic and international level, for the respect of social and international level, for the respect of social and environmental standardsenvironmental standards



Foreign investors’ behaviour and home and Foreign investors’ behaviour and home and host states policies host states policies (2)(2)

International instruments: International instruments: TheThe OECD Guidelines for OECD Guidelines for MNEsMNEsthe only multilaterally agreed benchmark for good corporate the only multilaterally agreed benchmark for good corporate behaviourbehaviourrecommendations by the Governments of all OECD recommendations by the Governments of all OECD Members and nine nonMembers and nine non--Member countries (Argentina, Member countries (Argentina, Brazil, Chile, Estonia, Israel, Latvia, Lithuania, Brazil, Chile, Estonia, Israel, Latvia, Lithuania, RomaniaRomania and Slovenia) to their companies to adopt and Slovenia) to their companies to adopt responsible operations ‘wherever these enterprises operate’responsible operations ‘wherever these enterprises operate’



Foreign investors’ behaviour and home and host Foreign investors’ behaviour and home and host states policies states policies (2)(2)

MonitoringMonitoring: specificity of the GL lies in their : specificity of the GL lies in their effective implementationeffective implementationthrough through National Contact PointsNational Contact Points. Each government has to set up such a . Each government has to set up such a NCP: He should raise awareness on the GL, investigate and act asNCP: He should raise awareness on the GL, investigate and act as a a mediator. Local community representatives, NGOs or trade unions mediator. Local community representatives, NGOs or trade unions from from home/host countries can raise issues related to the implementatihome/host countries can raise issues related to the implementation of the on of the GL through the GL through the NCPsNCPs..

ExEx of of use of GL in trade agreements: use of GL in trade agreements: the the Joint DeclarationJoint Declaration in the in the framework of the framework of the EUEU--Chile Association AgreementChile Association Agreement, which indicates , which indicates that that the trading partners “jointly remind their companies to observe the trading partners “jointly remind their companies to observe the the OECD Guidelines for Multinational Enterprises” wherever they opeOECD Guidelines for Multinational Enterprises” wherever they operaterate. .



IIIIII-- Supporting measures and incentives to Supporting measures and incentives to sustainable investmentssustainable investments

Too often, SD is seen as entailing a high Too often, SD is seen as entailing a high cost, thus jeopardizing competitiveness, or cost, thus jeopardizing competitiveness, or reserved to rich countriesreserved to rich countriesChallenge:Challenge: to demonstrate the to demonstrate the positive linkspositive linksbetween economic efficiency, between economic efficiency, profit and profit and sustainable developmentsustainable development



IIIIII-- incentives to sustainable investmentsincentives to sustainable investments

ex: ex: The Kyoto Protocol and the Clean Development The Kyoto Protocol and the Clean Development mechanism (CDM): mechanism (CDM): the CDM allows industrialised countries and their companies to athe CDM allows industrialised countries and their companies to achieve part of chieve part of their emission reduction commitments by investing in emissiontheir emission reduction commitments by investing in emission--reducing reducing projects abroad.projects abroad.The EUThe EU--Emission Trading Scheme provides an economic incentive for Emission Trading Scheme provides an economic incentive for companies to invest in sustainable projects abroad.companies to invest in sustainable projects abroad.This mechanism also provides opportunities to transfer energyThis mechanism also provides opportunities to transfer energy--efficient efficient and climateand climate--friendly technologies to developing countries friendly technologies to developing countries



IIIIII-- Supporting measures to sustainable Supporting measures to sustainable investmentsinvestments

ex:ex: Sustainable impact assessments Sustainable impact assessments

The EU undertakes The EU undertakes Sustainable Impact AssessmentsSustainable Impact Assessments in parallel to its in parallel to its RTAsRTAs negotiations, to identify the necessary supporting measures. negotiations, to identify the necessary supporting measures. One of the objectivesOne of the objectives: : to create to create synergies between private and public synergies between private and public initiativesinitiatives, , inter aliainter alia between between SIAsSIAs and CSR. Such synergies contribute and CSR. Such synergies contribute to improve to improve SIAsSIAs outcomes, by better integrating in the consultation outcomes, by better integrating in the consultation process the experience of the private sector and develop partnerprocess the experience of the private sector and develop partnership ship activities in the regions covered by activities in the regions covered by SIAsSIAs..Conversely, the Conversely, the design and implementationdesign and implementation of CSR projects will of CSR projects will benefitbenefit from SIAfrom SIA--led capacity building activitiesled capacity building activities. .



IVIV-- ConclusionConclusion

Investment provisions in regional trade Investment provisions in regional trade agreements do not agreements do not per seper se limit the right to limit the right to regulate of host States, regulate of host States,

nor do they harm sustainable development nor do they harm sustainable development objectives objectives



IVIV-- Conclusion Conclusion (2)(2)

There is no “oneThere is no “one--sizesize--fitsfits--all” solution all” solution two main directionstwo main directions are worth being further explored:are worth being further explored:First, the First, the strengthening of the regulatory provisionsstrengthening of the regulatory provisions of of the agreements (ex: a very minimum can consist in the agreements (ex: a very minimum can consist in including a comprehensive “nonincluding a comprehensive “non--loweringlowering--standards standards clause”)clause”)Second, the Second, the development of economic incentivesdevelopment of economic incentives to to sustainable investments.sustainable investments.



IVIV-- Conclusion Conclusion (3)(3)

A further challenge:A further challenge:ToTo develop and widely spread between all develop and widely spread between all stakeholders, the sharing of information on stakeholders, the sharing of information on experiences and best practices reg. the experiences and best practices reg. the design of investment agreements.design of investment agreements.



Further informationFurther informationDG Trade website :DG Trade website :

Contact: Julie RaynalContact: Julie Raynal

European Commission, DG Trade, bEuropean Commission, DG Trade, b--1049 Brussels, Belgium1049 Brussels, Belgiumemail: email: [email protected]@cec.eu.int

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Foreign Direct Investment and Policy Space for Sustainable