Peer reviewed analysis from world leading experts

A multilateral investment facilitation agreement can help advance development

Reading Time: 5 mins
A worker stands on a construction site in Sihanoukville, Cambodia, 27 February 2020 (Photo: Reuters/Jorge Silva).

In Brief

Negotiations for an Investment Facilitation Framework for Development are proceeding apace in the World Trade Organization (WTO) among over 100 of its members. The objective is to achieve a concrete outcome by the WTO’s Ministerial Conference beginning November 2021 in Geneva.

Share

  • A
  • A
  • A

Share

  • A
  • A
  • A

The pace of progress has been impressive. The idea was launched in 2015 by the author in the E15 Investment Policy Task Force organised by the International Centre for Trade and Sustainable Development and the World Economic Forum. From there, it was taken up in the WTO. After a few years of preparatory discussion, formal negotiations began in September 2020. These are now being conducted based on a consolidated text prepared in April 2021 by the Chair, Chile’s Ambassador Mathias Francke.

Developing countries are driving the negotiations. They know that foreign direct investment (FDI) can make a critical contribution to development and will have to play a significant role in reigniting economies in the wake of the COVID-19 crisis.

The purpose is to arrive at a binding multilateral agreement to facilitate FDI flows for development. The focus is entirely on concrete, technical investment facilitation measures, leaving aside the controversial issues of market access, investment protection and investor-state dispute settlement. Provisions for special and differential treatment of developing countries are being built in to assist implementation and capacity building, responsible business conduct and anti-corruption efforts.

The negotiations centre on raising the transparency of investment measures, streamlining and speeding up administrative procedures, creating focal points for investors, increasing domestic regulatory coherence and strengthening cross-border cooperation on investment facilitation.

These are measures that will make it easier for investors to establish themselves in host countries and operate within them, helping to increase FDI flows and advancing growth and development.

This approach is practical and timely. But it begs the question of whether it could be possible to include not only measures that facilitate FDI flows, but also measures that directly enhance the developmental impact of FDI in host countries.

One way would be to include a strong reference to responsible business conduct in host countries. This should require signatories not only to encourage foreign investors to voluntary incorporate internationally recognised standards into their business practices and internal policies, but also to ensure that these standards are being observed. This could be done by referring explicitly to existing standards and guidelines, especially the UN Guiding Principles on Business and Human Rights, the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy, and the OECD Guidelines for Multinational Enterprises. Alternatively, the agreement could list key elements of responsible business conduct — or some combination of both approaches.

Similarly, it could require home countries to link their outward FDI support measures to internationally recognised standards and guidelines of responsible business conduct. Moreover, since many countries have a variety of measures in place on outward FDI, increasing their transparency would be helpful to investors, especially small and medium-sized enterprises. Transparency is a cornerstone of the agreement and, in providing guidance not only for host countries but also for home countries, it would introduce more balance into the agreement.

Another approach to increasing the developmental impact of investment would be to include concrete measures in the agreement that focus on facilitating sustainable FDI. It could, for example, encourage the establishment of supplier development programs in host countries. As linkages between foreign affiliates and domestic firms are one of the key avenues through which tangible and intangible assets are transferred, programs which build up these linkages would help advance host economies.

Countries could also support the development of marketing strategies that target sustainable FDI. A category of ‘Recognised Sustainable Investor’ could be created and allow WTO members to let recognised investors benefit from additional investment-facilitation measures. This would mirror the Authorized Operators provision in the WTO’s Trade Facilitation Agreement.

Identifying developmental measures and including them is vital for an agreement that is explicitly ‘for development’. It is also important because the implementation of measures would benefit from the technical assistance commitments that an agreement would have to stipulate — the stronger the agreement, the stronger the technical assistance commitments should be. This is critical because the investment facilitation agreement would be an influential commitment device, setting a benchmark for governments on what they are expected to do if they wish to increase FDI flows.

Beyond the WTO negotiations, facilitating FDI is set to become a bigger policy challenge as future economic treaties can be expected to include provisions on investment facilitation. This has been seen already in the recent Regional Comprehensive Economic Partnership agreement. With a noodle bowl of separate provisions and agreements on investment facilitation likely to emerge, a multilateral agreement would define a shared floor for investment facilitation provisions.

Given the importance of the negotiations, countries in Asia should be at the virtual negotiating table and be actively participating. They should ensure that the agreement reflects their interests in facilitating sustainable FDI for sustainable development. If you are not at the table, you risk being on the menu.

Karl P Sauvant is a Resident Senior Fellow at the Columbia Center on Sustainable Investment, Columbia University.

Comments are closed.

Support Quality Analysis

Donate
The East Asia Forum office is based in Australia and EAF acknowledges the First Peoples of this land — in Canberra the Ngunnawal and Ngambri people — and recognises their continuous connection to culture, community and Country.

Article printed from East Asia Forum (https://www.eastasiaforum.org)

Copyright ©2024 East Asia Forum. All rights reserved.