Towards G20 Guiding Principles on Investment Facilitation ... · services, the performance of FDI flows has direct implications for the role of services trade in achieving G20 objectives.4

TRADE,INVESTMENTANDGLOBALIZATION

TowardsG20GuidingPrinciplesonInvestmentFacilitationforSustainable

Development*

AxelBerger(GermanDevelopmentInstitute)AhmadGhouri(UniversityofSussex&TurkuInstitutefor

AdvancedStudies)TomokoIshikawa(NagoyaUniversity)

KarlP.Sauvant(ColumbiaUniversity,CCSI)MatthewStephenson(GraduateInstitute,Geneva)

SubmittedonMarch15,2019RevisedonMarch23,2019

*TheauthorsaregratefultoRichardBaldwinandChiManjiaofortheirhelpfulcomments.

Abstract

Thereisgrowingsupportbehindaninternationalframeworktofacilitateinvestmentfor sustainable development. This Policy Brief suggests that the G20 consideradoptingGuidingPrinciplesonInvestmentFacilitationforSustainableDevelopment,tohelpensurethattheseeffortsresultinaneffective,coherent,anddevelopment-orientedoutcome.Tothisend,thisBriefproposesguidingprinciplesto:(1)orientinvestment facilitation, (2) facilitate sustainable FDI, (3) integrate facilitationthroughoutthe investment lifecycle,(4)engage inmultistakeholderconsultations,(5)ensuresharedresponsibilities,(6)encouragecooperativeactivities,(7)adoptawhole-of-governmentapproach,(8) focusonnationaleffortswithinamultilateralframework,and(9)supportcapacitybuildingcoupledwithflexibility.

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Trade,InvestmentandGlobalizationChallenge

TheworldfacesthechallengeofraisinganadditionalUS$2.5trillionannually

to reach the Sustainable Development Goals. 1 At the same time, there are

currentlyoverUS$100trillioninassetsundermanagement,expectedtoriseto

overUS$145trillionby2025.2There is thereforenotadearthofcapital,but

rather a dearth of capital flowing to profitable projects that contribute to

sustainable development. At the same time, global FDI flows have actually

declinedbymorethanonethirdoverthepastthreeyears,fallingfromUS$1.9

trillionin2015toUS$1.2trillionin2018,alowpointlastseenin2009afterthe

global financial crisis.3This decline is all themore deplorable, as FDI—like

trade—isawin-winproposition,especiallyconsideringthatsuchinvestment

notonlyinvolvescapitalflowsbutcanalsoinvolveotherresourcescentralto

development,suchastechnologytransfer,theupgradingofhumanresources,

accesstomarkets,andgrowingexports.Moreover,consideringthatthebulkof

FDI is in the services sector and hence is tightly intertwined with trade in1UNCTAD,“Developingcountriesface$2.5trillionannualinvestmentgapinkeysustainabledevelopmentsectors,UNCTADreportestimates”,24June2014PressRelease.Availableat:https://unctad.org/en/pages/PressRelease.aspx?OriginalVersionID=1942Arezki,Rabah,PatrickBolton,SanjayPeters,FredericSamama,andJosephStiglitz.“Fromglobal savings glut to financing infrastructure: the advent of investment platforms”, IMFWP16/18, 2016, p. 5. Available at:https://www.imf.org/external/pubs/ft/wp/2016/wp1618.pdf. Accessed 8 January 2019.AlsoseePwC,“GlobalAssetsunderManagementsettoriseto$145.4trillionby2025”,30October 2017. Available at: https://press.pwc.com/News-releases/global-assets-under-management-set-to-rise-to--145.4-trillion-by-2025/s/e236a113-5115-4421-9c75-77191733f15f.Accessed8January2019.3UNCTAD,“WorldInvestmentReportAnnexTables”,FDIinflowsbyregionandeconomy,1990-2017. Available at:https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx.Accessed 25 January 2019. Also see UNCTAD, “Investment Trends Monitor”, Issue 31,January 2019. Available at:https://unctad.org/en/PublicationsLibrary/diaeiainf2019d1_en.pdf. Accessed 25 January2019.

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Trade,InvestmentandGlobalizationservices, theperformanceofFDI flowshasdirect implicationsfortheroleof

servicestradeinachievingG20objectives.4

Thisleadstotwocloselyintertwinedgoals:

(1) Howtoincreasetheflowofforeigndirectinvestment;and

(2) Howtoincreasethebenefitsfromforeigndirectinvestment.

Investmentfacilitationprovidesaninnovativeapproachtohelpachieveboth

goals.

Investmentfacilitationisbroadlyconceivedasaninternationalframeworkof

non-controversial, technical measures that can increase the quantity and

quality of investment. Since virtually all economies both receive and export

investment capital, 5 investment facilitation has the potential to benefit all

economies.Yet,giventhatdevelopingandleast-developedcountriesoftenlack

thecapacitytoattractforeigndirectinvestment(FDI)–andthatFDIisoften

their largest source of finance 6 – investment facilitation is particularly

importantforthesecountries.Asinvestmentfacilitationmainlytargetsforeign

4PrimaBraga,Carlos,JaneDrake-Brockman,BernardHoekman,J.BradfordJensen,Patrick Low, Hamid Mamdouh, Pierre Sauvé, Johannes Schwarzer, and SherryStephenson,“ServicesTradeforSustainable,Balanced,andInclusiveGrowth”,T20,2019.5Perea,JoseRamonandMatthewStephenson,“OutwardFDIfromDevelopingCountries”,GlobalInvestmentCompetitivenessReport2017/2018,WorldBankGroup,2018,pp.101-134.Available at: http://pubdocs.worldbank.org/en/550551508856695853/GICR-04.pdf.Accessed4January2019.6UNCTAD,“WorldInvestmentReport2018:InvestmentandNewIndustrialPolicies–KeyMessages and Overview”, Available athttps://unctad.org/en/PublicationsLibrary/wir2018_overview_en.pdf.Accessed4 January2019.

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Trade,InvestmentandGlobalizationdirect.investment, thisbrief focusesonFDI. It isworthnoting,however, that

improvementsindomesticregulatorysystemsthroughfacilitationeffortsare

likelytoalsogeneratesignificantbenefitsfordomesticinvestors.

WhyshouldtheG20takeupthisissue?

• Discussionsoninvestmentfacilitationhavebeenverydynamic–fromthe

nationaltothemultilaterallevels–generatinganeedforhigh-levelguidance

toachieveeffective,coherent,anddevelopment-orientedoutcomes.7

• Theneed forsuchguidancewasalreadyrecognizedandcalled-forby the

T20in2018.8

• G20economiesrepresent88percentofglobaloutwardFDIstockandthus

havebothaninterestinsupportinganinternationalframeworktofacilitate

investmentandthelegitimacytodoso.9

• TheG20adoptedGuidingPrinciplesforGlobalInvestmentPolicymakingin

2016 and launched the Compact with Africa in 2017, both of which7 In December 2017, 69 economies called for discussions at the WTO to develop amultilateral frameworkon investment facilitation fordevelopment. See “JointMinisterialStatementonInvestmentFacilitationforDevelopment”,13December2017,WTOdocumentWT/MIN(17)/59. Available at https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdList=240870&CurrentCatalogueIdIndex=0&FullTextHash=371857150&HasEnglishRecord=True&HasFrenchRecord=True&HasSpanishRecord=True.Accessed4January2019.8Berger,Axel,KarlP.Sauvant,SilviaKarinaFiezzoni,RodrigoPolanco,MatthewStephenson,AkihikoTamura, andPavelTrunin, “Moving theG20’s investment agenda forward”, T20,2018. Available at: https://t20argentina.org/publicacion/moving-the-g20s-investment-agenda-forward/.Accessed14January2019.9 UNCTAD, “FDI outward stock, by region and economy, 2017”. Available at:https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Annex-Tables.aspx.Accessed13January2019.

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Trade,InvestmentandGlobalization

emphasizetheimportanceofinvestmentfacilitationasakeydimensionof

investmentpolicy.10

• TheTradeFacilitationAgreementcame into force in2017,butgiven that

tradeandinvestmentareincreasinglyinterlinked,tradefacilitationwillbe

muchmoreeffectiveifundertakentogetherwithinvestmentfacilitation—

andviceversa.11Infact,someFDI—likeinvestmentintelecommunications,

ports,airports,roads,andrailways—canbethoughtofastradefacilitation.

TheG20GuidingPrinciplesforGlobalInvestmentPolicymakinghaveservedas

an importantsignal for international investmentpolicyreform.TheG20can

draw from this experience and adopt non-binding Guiding Principles on

Investment Facilitation for Sustainable Development, thus providing

orientation,contour,andimpetustodiscussionsinthisemergingarea.

10SeePrincipleVII,“G20GuidingPrinciplesforGlobalInvestmentPolicymaking”,Availableat:https://investmentpolicyhub.unctad.org/Upload/Documents/Annex%20III%20G20%20Guiding%20Principles%20for%20Global%20Investment%20Policymaking.pdf.Accessed30December2018.PrincipleVIIstates:“Policiesforinvestmentpromotionshould,tomaximizeeconomicbenefit,beeffectiveandefficient,aimedatattractingandretaining investment,and matched by facilitation efforts that promote transparency and are conducive forinvestors to establish, conduct and expand their businesses” (emphasis added). Also see“About the Compact with Africa”. Available at:https://www.compactwithafrica.org/content/compactwithafrica/home.html.11 WTO, UNCTAD, OECD and World Bank, “Inter-Relationship between Trade andInvestment:StrengtheningPolicyCoherence”,DiscussionPaperfortheG20,2016.Availableat:http://sherpag20indonesia.ekon.go.id/index.php?r=site/resourceDownload&filename=Inter-relationship%20between%20Trade%20and%20Investment-Strengthening%20Policy%20Coherence.pdf.Accessed4January2019.

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Trade,InvestmentandGlobalizationProposal

The G20 should adopt non-binding Guiding Principles on InvestmentFacilitationforSustainableDevelopment

Withtheobjectiveof(i)leveraginginvestmentforinclusiveeconomicgrowthand sustainable development, (ii) ensuring that investment policy andmeasuresaretransparent,efficient,andeffectivewhilepreservingpolicyspaceandregulatorysovereignty,and(iii)supportingeffortsatthenationalleveltoattractandleverageinvestmentforsustainabledevelopmentwhilecreatinganinternational framework that provides benchmarks, good practices, andorients internationalassistance, theG20maywish toconsider the followingnon-bindingprinciplestoprovideguidancetoeffortsinsupportofinvestmentfacilitation.

1. Orientinvestmentfacilitation

Investment facilitation should be concerned with practical aspects andtechnicalmeasurestosupporttheflowofinvestment.Insodoing,investmentfacilitation should focus on areas where there is generalized interest andsupport–fromfirmsandgovernments–suchasimprovingtransparencyandpredictabilityofinvestmentmeasures,streamliningprocedures,andenhancingcoordinationandcooperationbetweenactors.Facilitationefforts shouldnotinclude the controversial and polarizing areas ofmarket access, investmentprotection, and investor-state dispute settlement. In particular, investmentfacilitationshouldnotbeconceived insuchaway that it restricts thepolicyspaceofnationalgovernmentsandshould leaveconsiderable flexibilitywithimplementation.Whererelevant,investmentfacilitationeffortscandrawfromtheearlierexperienceoftradefacilitationefforts,bothintermsofprocessandsubstance, that led to the successful adoption of the Trade Facilitation

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Trade,InvestmentandGlobalizationAgreement. Investment facilitation efforts can also draw from the analyticalworkundertakenbyinternationalorganizations.12

GuidingPrinciple1: Investment facilitationshould focusonpracticalaspectsandtechnicalmeasurestosupporttheflowofinvestment–andnotdealwithmarketaccess,investmentprotection,andinvestor-statedisputesettlement–therebymaintaining the policy space of national governments. To this end,investment facilitation should draw from both the lessons of the TradeFacilitationAgreementandtheexperienceofinternationalorganizations.

2.FacilitatesustainableFDI

Whengovernmentsfacilitateinvestment,theydonotseekforeigninvestmentforitsownsake,butforitsdevelopmentbenefits.Asaresult,economiesaimnotonlytoincreasethequantityofFDIbutalsoitsquality,asmeasuredbyitscontributiontosustainabledevelopment.Inotherwords:sustainableFDIforsustainable development. 13 Any international framework on investmentfacilitation should therefore promotenot only FDI in general, but especiallysustainable FDI, i.e., FDI that is at once commercially viable and makes amaximumcontributiontoeconomic,social,andenvironmentaldevelopment.14Facilitation efforts should also support FDI that takes place on the basis ofproper governance mechanisms (such as environmental impact studies,stakeholderconsultations,andrisk-managementmechanisms).Inthiscontext,the promotion of linkages between foreign affiliates and domestic firms is12 UNCTAD, “Global Action Menu for Investment Facilitation”, May 2017. Available at: https://investmentpolicyhub.unctad.org/Upload/Documents/Investment-Facilitation_Review%20Note%203%20feb.pdf. Accessed 14 January 2019. Also see Novik, Ana and Alexandre de Crombrugghe, “Towards an International Framework for Investment Facilitation”, OECD Investment Insights, April 2018. Available at: https://www.oecd.org/investment/Towards-an-international-framework-for-investment-facilitation.pdf. Accessed 14 January 2019. 13 Sauvant, Karl P., “International Investment Facilitation: By Whom and for What?”. Presentation to the ICTSD/IDB Roundtable on “Trade Facilitation 2.0 in Regional Trade Agreements: Enabling Trade in the Digital Age”, Geneva, 1 June 2018. Available at SSRN: https://ssrn.com/abstract=3198412 14 Sauvant, Karl P. “We need an international support programme for sustainable investment facilitation,” Columbia FDI Perspectives, no. 151, 6 July 2015, p. 1. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2896212

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Trade,InvestmentandGlobalizationparticularly important.To facilitatesustainableFDI,governments, firms,andother key actors can use an indicative list of FDI ‘sustainabilitycharacteristics’.15

GuidingPrinciple2:Investmentfacilitationshouldbefocusedon‘sustainableFDI for sustainable development’, by especially facilitating FDI that is bothcommercially viable andmakes amaximum contribution to the sustainabledevelopmentofhostandhomeeconomies.

3. Integratefacilitationthroughouttheinvestmentlifecycle

AfocusonsustainableFDIcanshapefacilitationeffortsacrossanFDIlifecyclecomprisedoffivestages:(1)developmentofanFDIvisionorstrategy,(2)FDIattraction, (3) FDI entry and establishment, (4) retention of FDI, includingdispute prevention, and (5) and fostering linkages between foreign anddomestic firms to increase the benefits of FDI. 16 Crucially, investmentfacilitationcanplayarole–andshouldbe integrated– ineachstageof thislifecycle.Untilnow,discussionsaboutinvestmentfacilitationhaveprincipallyfocusedonstage(3),thehosteconomy’spoliciesandproceduresregardingtheentryandestablishmentofforeigninvestment,andhavepaidlessattentiontotheimportanceof facilitationatthepost-establishmentstageandbeyond.Ofparticularimportanceistheroleoffacilitationtopreventinvestmentdisputes,notonlybecause thesedisputescanbecostly inandof themselves,butalsobecause they can discourage both reinvestment and new investment. 17

15 A review of 150 instruments led to the led to the identification of ten common FDI sustainability characteristics and twenty emerging common FDI sustainability characteristics shared across stakeholders. See Sauvant, Karl P. and Howard Mann. “Towards an Indicative List of FDI Sustainability Characteristics”. E15Initiative. Geneva: International Centre for Trade and Sustainable Development (ICTSD) and World Economic Forum, 2017. Available at: https://ssrn.com/abstract=3055961. 16 WBG, “Support Program for Investment Reform and Innovative Transformation: Tools and Diagnostics for Expanding Cross-Border Investment and Maximizing its Impact for the Local Economy”. Available at: http://pubdocs.worldbank.org/en/594381510251482638/SPIRIT-Toolkit.pdf. Accessed 6 January 2019. 17 Allee, Todd and Clint Peinhardt. “Contingent Credibility: The Impact of Investment Treaty Violations on Foreign Direct Investment”, International Organization. Cambridge University Press, 65(3), 2011, pp. 401–432. Available at: https://doi.org/10.1017/S0020818311000099.

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Trade,InvestmentandGlobalizationEconomies canput inplacemechanisms to identify and address investmentirritantsandcomplaintsbeforetheybecomeformaldisputes,andinsodoingavoidtheconcomitanteconomic,reputational,andpoliticalcosts.18

GuidingPrinciple3:Investmentfacilitationshouldintegratefacilitationeffortsacrosseachstageoftheinvestmentlifecycle.

4.Engageinmultistakeholderconsultations

Theinputandguidanceofstakeholdersisessentialtounderstandfacilitationneedsacrossthelifecycle,andforfacilitationeffortstoachieverealimpact.Thereason is that stakeholders – including investors and representatives ofinvestment promotion agencies, but also other stakeholders from academiaandcivilsociety–canhelpidentifytheoperational,ground-levelconstraintstoinvestment that facilitationeffortscanaddress.Thisshouldhelpensurethatmeasures included in any international framework will be designed in amanner that addresses theactual challenges to increasingboth thequantityand quality of FDI, through what has been called a “collective process ofdiscovery”19.Asaresult,whileinvestors,businessassociations,andinvestmentpromotion agencies will likely be the most important constituents of thisconsultative process, other stakeholders should also be included to ensureinputfromallrelevantparties.

18 UNCTAD, “Best Practices In Investment For Development Case Studies In FDI - How to Prevent and Manage Investor-State Disputes Lessons from Peru”, UNCTAD Investment Advisory Series B, 2011. Available at: https://unctad.org/en/Docs/webdiaepcb2011d9_en.pdf. Also see Echandi, Roberto. “Complementing investor–state dispute resolution: A conceptual framework for investor–state conflict management”. In Roberto Echandi and Pierre Sauvé (Editors), Prospects in International Investment Law and Policy: World Trade Forum, 2013, pp. 270-305. Cambridge: Cambridge University Press. Available at: https://doi.org/10.1017/CBO9781139565479.023. 19 Sauvant, Karl P. and Khalil Hamdani. “An International Support Programme for Sustainable Investment Facilitation”, p. 2. E15 Initiative. Geneva: International Centre for Trade and Sustainable Development (ICTSD) and World Economic Forum, 2015. https://ssrn.com/abstract=3143372

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Trade,InvestmentandGlobalizationGuiding Principle 4: Investment facilitation should benefit from a multi-stakeholder process of consultations and cooperation in formulating andimplementingmeasures,especiallyinputfrominvestors,businessassociations,andrepresentativesofinvestmentpromotionagencies.

5.Ensuresharedresponsibilities

Atthesametimeasstakeholdershelpshapefacilitationefforts,theyalsohavea shared responsibility for its implementation. At present, internationalinvestment agreements provide for host country governments to play theleadingroleinmanagingFDI–includingitsattraction,retention,andimpactonthedomesticeconomy–withlittleactiveroleofhomecountrygovernmentsorfirms.However, bothhomecountrygovernments and firmsare increasinglyadoptingmeasurestoshapeoutwardFDIdecisionsandbehaviors.20Ontheonehand, home country governmentshave adoptednational guidelines for howtheirfirmscarryoutoutwardFDI,21andembracedmultilateraleffortssuchastheOECD’sGuidelinesforMultinationalEnterprises.22Ontheotherhand,firmshave adopted their own codes of corporate social responsibility, and alsoembraced multilateral efforts such as the Principles of ResponsibleInvestment.23Home country governments and firms are therefore poised toplay an increasingly active role in facilitating sustainable FDI. A balanced

20 Examples of home-country measures include, inter alia, information on investment opportunities in specific sectors or markets, grants for feasibility studies, support for business missions and matchmaking services, loans or equity investment, financial guarantees, political-risk insurance, and tax exemptions on foreign operations. See Sauvant, Karl P. and Persephone Economou, Ksenia Gal, Shawn Lim and Witold Wilinski. “Trends in FDI, Home Country Measures and Competitive Neutrality”, Yearbook on International Investment Law & Policy 2012-2013, New York: Oxford University Press, 2014, pp. 3-107. Available at SSRN: https://ssrn.com/abstract=2814307. Accessed 14 January 2019. 21 Sauvant, Karl P. and Howard Mann. “Towards an Indicative List of FDI Sustainability Characteristics”. E15Initiative. Geneva: International Centre for Trade and Sustainable Development (ICTSD) and World Economic Forum, 2017. Available at SSRN: https://ssrn.com/abstract=3055961. Accessed 4 January 2019. For one example, see the guidelines issued by the Department of Trade and Industry (DTI) in South Africa: “Guidelines for Good Business Practice by South African Companies Operating in the Rest of Africa”. Available at: http://files.constantcontact.com/8360ff0d101/19a99fde-32e7-41dc-a4ae-f0c1dfba2c75.pdf?ver=1472465496000. Accessed 5 January 2019. 22 See “OECD Guidelines for Multinational Enterprises”. Available at: http://mneguidelines.oecd.org/mneguidelines/. Accessed 5 January 2019. 23 As of January 2019 there were over 2,200 signatories of the Principles of Responsible Investment. See “PRI Signatories”, available at https://www.unpri.org/signatories. Accessed 5 January 2019.

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Trade,InvestmentandGlobalizationapproachwithsharedresponsibilitiesamongtheseandotherstakeholdersismore likely to lead to sustainable development outcomes by boosting trust,increasingcollaboration,andensuringthatinvestmentshavebroadbuy-inandsupport.

Guiding Principle 5: Investment facilitation should strive for sharedresponsibilities among stakeholders, especially host country governments,homecountrygovernments,andinvestors.

6.Encouragecooperativeactivities

Oneof theclearestways to fostersharedresponsibilityanddrivesuccessfulfacilitationisthroughcooperativeactivities,especiallybetweenhostandhomeeconomies. This is the case for at least three reasons. First, cooperativeactivitiesleadtoabetterunderstandingoftherespectivefacilitationneedsandpriorities in each economy, allowing targeted measures to directly andefficiently address these needs and priorities. Second, cooperative activitiescreatepartnershipandmutual learning,buildingafoundationoftrust forallother investment facilitation measures that may be considered. Third,cooperativeactivitieshelpobviate the impression thatoneeconomymaybebenefitingmore from investment facilitation than the other, as cooperativeactivitiesshouldbeguidedbymutualinterestanddesignedformutualbenefit.A cooperative approach is therefore likely to bemost effective in providinginformation, identifying bottlenecks, streamlining regulations, coordinatingmeasures, facilitating two-way investment, and overall generating win-wininvestmentoutcomesbetweeneconomies.Cooperativeactivities arealreadystartingtotakeplace,forinstancethroughoutwardinvestmentagenciesandinvestment promotion agencies (from different economies) organizing jointbusiness missions and promotion activities to support win-win, two-wayinvestment.

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Trade,InvestmentandGlobalizationGuiding Principle 6: Investment facilitation should encourage cooperativeactivities between home and host economies, especially their respectiveagenciespromotinginwardandoutwardinvestment.Cooperativeactivitiescanalso,whereuseful,beundertakenwithotherstakeholdersandberegionalinnature.

7.Adoptawhole-of-governmentapproach

Cooperativeactivitieswithforeigngovernmentscanonlybeeffectiveifthereiscoordination and alignment within the national government. Yet, there arechallenges to coordinating across governmental agencies and acrossgovernment levels. Often challenges arise for foreign investors from theregulatory actions of single domestic agencies that are not aware of thecountry’sinvestmentpolicyorinternationalcommitments.Atothertimes,theactionsofmunicipalandprovincialregulatoryauthoritiesmaynotbealignedwith investment policy set at the national level. A whole-of-governmentapproach can help overcome these unintended ‘horizontal’ and ‘vertical’regulatoryimpedimentstoinvestment,24whichundermineacountry’sabilityto leverage investment for development. A whole-of-government approachensuresthatagenciescooperateacrossportfoliostoachieveconsistencyandcoordination regarding investment policy. This approach brings togetherdifferent government stakeholders to better align efforts, increaseeffectiveness,cutcosts,boostcompetitiveness,andgeneratesynergies.

Guiding Principle 7: Investment facilitation should be based on a whole-of-governmentapproach,ensuringparticipationby,andcooperationamong,alllevelsofgovernmentandallinstitutionsdealingwithinvestment.

24 Ghouri, Ahmad. “What Next for International Investment Law and Policy? A Review of the UNCTAD Global Action Menu for Investment Facilitation”, Manchester Journal of International Economic Law, 15(2), 2018, p. 203. Available at: https://www.electronicpublications.org/stuff.php?id=710.

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Trade,InvestmentandGlobalization8.Focusonnationaleffortswithinamultilateralframework

Theneedforawhole-of-governmentapproachjustdescribedisunderpinnedby the fact that investment facilitation first and foremost takes place at thenationallevelthroughtheworkofgovernmentinstitutions.Theseinstitutionsformulate and implement investment regulations, a primary locus offacilitationefforts.Atthesametime,bilateralandmultilateralapproachescansupportandbuildonnationalactivitiesinwhatcouldbecalleda‘tiered’system.Amultilateral approach, inparticular, ismore likely toproducean inclusiveframeworkthatreflectsthe interestsandneedsofeconomiesatallstagesofdevelopment, and thus ismore legitimate, stable, and impactful. Inaddition,there are two reasons why it is in the interests of economies to extend aninvestmentfacilitationframeworkonamost-favored-nation(MFN)basiseventothoseeconomiesthatmaynotparticipate.First,anMFNbasiswillincreasethelikelihoodofparticipatingeconomiesreceivinginwardinvestment,sinceitwill facilitate inward investment from all economies, irrespective of theirparticipation(non-participatingeconomies, incontrast,willnotbenefit froman increase in inward investment flows generated by facilitation efforts).Second,giventhegrowing integrationof tradeand investment,participatingeconomiesaremorelikelytogainfromtradewithpartnereconomiesiftheyfacilitate investment fromthemaswell, irrespectiveof the tradingpartners’participation in the investment facilitation framework. This same logicmayhavehelpeddeterminethattheTradeFacilitationAgreementbeappliedonanMFNbasis,creatingevenmoreofanincentivetoapplyinvestmentfacilitationonanMFNbasisifthegainsfromtradeandinvestmentaretobefullyrealized.

GuidingPrinciple8:Investmentfacilitationshouldfirstandforemostfocusonnational efforts, but also be multilateral in nature, designed by and for alleconomiesthroughaninclusiveprocess,andwiththeensuingresultsappliedonamost-favoured-nationbasis.

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Trade,InvestmentandGlobalization9.Supportcapacitybuildingcoupledwithflexibility

Thepreceding eight principleswill be ineffectivewithout sufficient capacitybuildingandflexibility.Thereasonisthateconomiesarenotatthesamelevelin terms of identifying, negotiating, adopting, and implementing facilitationmeasures. For an investment facilitation framework to succeed, theremustthusbesupportforcapacitybuildingthroughouttheprocess,crowding-intheparticipationofeconomiesatdifferent levelsofdevelopment.Keytosuccesswillbeacombinationofflexibilityandsupport,asgleanedfromthesuccessfulTradeFacilitationAgreement.DevelopingcountriesandLDCscould(1)decidehow long they require to implement commitments, (2)make commitmentscontingent on technical assistance, and (3) benefit from time windows tochange commitments or grace periods. The Trade Facilitation Agreement,furthermore,providesfortheestablishmentof(4)anExpertGroup,asneeded,toadviseonimplementationormanagementofcommitments,aswellas(5)afacility to provide technical assistance when not provided by donors andinternationalorganizations.Thisrecipeofcapacitybuildingandflexibilityhasworked well for trade facilitation and can be replicated for investmentfacilitation,whileadaptingitasneeded.Thiswouldallowalleconomiesbothtoparticipateindiscussionsandhavetheneededflexibilitytojoinaframework.

GuidingPrinciple9:Investmentfacilitationshouldincludecapacitybuilding–throughouttheprocessofdevelopingandimplementingfacilitationmeasures–toensurethateconomiesatdifferentlevelsofdevelopmentcanparticipateon an equal footing and that all can benefit from these efforts. Investmentfacilitation should also allow for flexibility in the implementation ofcommitmentsforcountriesacrossdifferentlevelsofdevelopmenttojoin.

Wayforward

TheG20maywishtoaddinvestmentfacilitationtotheagendaoftheTradeandInvestmentWorkingGroup(TIWG)andsuggestthattheMinisterialMeetingon

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Trade,InvestmentandGlobalizationTradeandDigitalEconomyon8June2019makeacommitmenttoworkingonthisissue.ThiswouldallowtheTIWGtoexaminehowinvestmentfacilitationcan increase the level and benefits of investment flows, building on theGuidelinesonGlobal InvestmentPolicymakingand theCompactwithAfrica.TheTIWGmay alsowish to request international organizations – especiallyUNCTAD, World Bank Group, WTO, and the OECD – to provide technicalsupport to investment facilitation efforts. TheTIWG could also consider thedraft Guiding Principles on Investment Facilitation for SustainableDevelopment included in this Policy Brief. If adopted, the G20 could thenrequestinternationalorganizationstoassistwiththeirimplementation.

References

• Allee,ToddandClintPeinhardt.“ContingentCredibility:TheImpactofInvestmentTreatyViolationsonForeignDirectInvestment,”InternationalOrganization.CambridgeUniversityPress,65(3),2011.Availableat:https://doi.org/10.1017/S0020818311000099

• Arezki,Rabah,PatrickBolton,SanjayPeters,FredericSamama,andJosephStiglitz."Fromglobalsavingsgluttofinancinginfrastructure:theadventofinvestmentplatforms."IMFWP16/18,2016.Availableat:https://www.imf.org/external/pubs/ft/wp/2016/wp1618.pdf.

• DTI(DepartmentofTradeandIndustry),RepublicofSouthAfrica.“GuidelinesforGoodBusinessPracticebySouthAfricanCompaniesOperatingintheRestofAfrica”.Availableat:http://files.constantcontact.com/8360ff0d101/19a99fde-32e7-41dc-a4ae-f0c1dfba2c75.pdf?ver=1472465496000.

• Echandi,Roberto.“Complementinginvestor–statedisputeresolution:Aconceptualframeworkforinvestor–stateconflictmanagement”.InRobertoEchandiandPierreSauvé(Editors),ProspectsinInternationalInvestmentLawandPolicy:WorldTradeForum,2013.Cambridge:CambridgeUniversityPress.Availableat:https://doi.org/10.1017/CBO9781139565479.023

• EuropeanParliament.“TheEuropeanUnionandtheWorldTradeOrganisation”,Availableat:http://www.europarl.europa.eu/factsheets/en/sheet/161/the-european-union-and-the-world-trade-organisation.

• G20.“GuidingPrinciplesforGlobalInvestmentPolicymaking”,2016.Availableat:https://investmentpolicyhub.unctad.org/Upload/Documents/Annex%20III%20G20%20Guiding%20Principles%20for%20Global%20Investment%20Policymaking.pdf.

• Ghouri,Ahmad.“WhatNextforInternationalInvestmentLawandPolicy?AReviewoftheUNCTADGlobalActionMenuforInvestmentFacilitation”,ManchesterJournal

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ofInternationalEconomicLaw,15(2),2018.Availableat:https://www.electronicpublications.org/stuff.php?id=710

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