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Columbia FDI Perspectives
Perspectives on topical foreign direct investment issues
No. 202 June 19, 2017
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Matthew Schroth ([log in to unmask])
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Facilitating FDI flows is important, to mobilize resources for development. For this reason, Brazil is concluding bilateral investment treaties that put investment facilitation at its core. This is reflected in the very title of those instruments – Cooperation and Facilitation Investment Agreements. Broader discussions related to investment facilitation and exploring the desirability and feasibility of establishing a common framework in this respect are, therefore, important.
Such a framework was suggested by the E15 Task Force on Investment Policy.[1] Several international organizations have since prepared formal and informal contributions that try to define investment facilitation. For instance, the United Nations Conference on Trade and Development (UNCTAD) published a discussion note on “Investment facilitation and promotion: a global action menu”[2] that guided the work on investment facilitation during the Chinese presidency of the G20 before the issue was withdrawn from discussion, only to be reintroduced during the current German presidency. The OECD also has contributed to the discussion, and a useful working document—“Towards an international framework for investment facilitation”—was circulated among the members of its Investment Committee[3] in which national, bilateral and multilateral investment facilitation measures were reviewed.
Governments too are increasingly concerned with investment facilitation. In October 2016, India submitted to the WTO a concept note on a Trade Facilitation in Services Agreement (TFS).[4] The submission recognized that the Trade Facilitation Agreement (TFA), adopted by WTO members in 2014, was a significant milestone in relation to trade in goods and suggested that there is need for a counterpart agreement in services that can foster the reduction of transaction costs associated with unnecessary regulatory and administrative burdens on trade in services. The concept note was followed in November 2016 by another contribution focusing on possible elements of a TFS.[5] Finally, on the same day the TFA entered into force, February 22, 2017, India submitted a draft legal text of a TFS.[6]
Against this background, India’s proposal moved discussions to the next level: by putting forward legal language encompassing “commercial presence” (“Mode 3” in the parlance of the General Agreement on Trade in Services), the TFS represents, de facto, a proposal on investment facilitation, even though it is confined to the services sector. Still, although the debate on investment facilitation is already on the WTO’s menu, a clearer picture of what investment facilitation in general actually means has yet to be developed. It is hoped that the WTO Informal Dialogue on Investment Facilitation, initiated in May 2017, could contribute in that respect.
Perhaps one of the most appropriate ways of tackling this concept is by means of a negative approach, i.e., by clarifying what is outside the scope of facilitation. In this regard, it is clear that facilitation does not include market access, investment protection and investor-state dispute settlement. In other words, if any multilateral effort in this area is to succeed, it should be strictly circumscribed to the issue of facilitation only.
If a positive approach is used instead, the concept of facilitation would involve a variable set of measures, mechanisms and actions that contribute to a favorable national investment environment, with a strong procedural or practical component. Drawing on the Brazilian experience, examples include:
- transparency/publication of general and sector-specific investment-related laws and regulations;
- corporate social responsibility, as a means to try to rebalance the interests of investors and host countries;
- mechanisms for dialogue, both between governments of host countries and investors, and between governments;
- national focal points for foreign investors, including ombudspersons seeking to resolve any issues;
- a single electronic window for the submission of documents and applications; and
- agendas for less-than-multilateral cooperation on selected issues, enabling interested countries to discuss topics that are only relevant for a specific region, for instance.
The Indian proposal raises the issue of whether, from a public policy perspective, it makes sense to improve domestic institutional arrangements or to adopt regulatory measures to facilitate investment in services only, and not investment in general. Therefore, serious consideration should be given to the establishment of one common framework encompassing investment facilitation in general, i.e., for both services and goods. A comprehensive approach is even more important in a situation in which the distinction between the provision of services and the production of goods is progressively blurring—the so-called “servicification” of the production of goods.
By focusing discussions strictly on investment facilitation, there can finally be a constructive and effective approach to the issue of investment, avoiding the controversies of the past regarding possible multilateral rules for investment protection and dispute resolution. In this regard, the recent contributions by the Russian Federation;[7] Brazil and Argentina;[8] China;[9] and the Friends of Investment Facilitation for Development[10] to the discussions in the WTO stress that the relevance of this discussion is not purely academic. Rather, it is highly political and will have important consequences for the future work of the WTO.
* The Columbia FDI Perspectives are a forum for public debate. The views expressed by the author(s) do not reflect the opinions of CCSI or Columbia University or our partners and supporters. Columbia FDI Perspectives (ISSN 2158-3579) is a peer-reviewed series.
** Felipe Hees ([log in to unmask]) is a counsellor at the Mission of Brazil to the WTO in Geneva; Pedro Mendonça Cavalcante ([log in to unmask]gov.br) is Secretary of the Trade in Services Division of the Brazilian Ministry of Foreign Affairs. The opinions expressed in this Perspective are the authors’ and do not necessarily reflect the views of the Brazilian Ministry of Foreign Affairs or the Brazilian government. The authors are grateful to Herbert Oberhaensli, Miguel Rodríguez Mendoza and one anonymous reviewer for their helpful peer reviews.
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The material in this Perspective may be reprinted if accompanied by the following acknowledgment: “Felipe Hees and Pedro Mendonça Cavalcante, ‘Focusing on investment facilitation - is it that difficult?’, Columbia FDI Perspectives, No. 202, June 19, 2017. Reprinted with permission from the Columbia Center on Sustainable Investment (www.ccsi.columbia.edu).” A copy should kindly be sent to the Columbia Center on Sustainable Investment at [log in to unmask].
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For further information, including information regarding submission to the Perspectives, please contact: Columbia Center on Sustainable Investment, Matthew Schroth, [log in to unmask].
- No. 201, Gabrielle Kaufmann-Kohler and Michele Potestà, “Challenges on the road toward a multilateral investment court,” June 5, 2017.
- No. 200, Saurabh Garg, “The next phase of IIA reforms,” May 22, 2017.
- No. 199, Miguel Pérez Ludeña, “United States corporate tax reform and global FDI flows,” May 8, 2017.
All previous FDI Perspectives are available at http://ccsi.columbia.edu/publications/columbia-fdi-perspectives/.
Other relevant CCSI news and announcements
- On September 20, 2017, CCSI and the UN Sustainable Development Solutions Network (SDSN), under the guidance of Prof. Jeffrey Sachs, Special Adviser to the UN Secretary-General on the SDGs, and Laurent Fabius, President of the Constitutional Council of the French Republic, will host a one-day conference to present and discuss the blueprint for a Global Pact for the Environment. Coinciding with the 72nd Session of the UN General Assembly, this Conference will offer a high-level opportunity to explore the complex legal and political challenges of the Global Pact in light of existing agreements and soft law principles on the environment, and the current global political scene. The event is free and open to the public, but advance registration here is required. For more information, please visit our website here.
- On May 16, 2017, The New Frontiers of Sovereign Investment was published by Columbia University Press. Edited by CCSI Fellow Malan Rietveld and CCSI Head of Extractive Industries Perrine Toledano, the volume combines the insights and experience of academic economists and practitioners from several sovereign wealth funds (SWF) to survey a diverse financial landscape and to establish the challenging topical questions facing a broad range of SWFs today: Should they serve both economic development and financial returns—and how? Will responsible investment will enhance long-term returns? How can fiscal rules for SWFs be improved to meet emerging economic challenges? The book considers these questions as they apply to both long-established and newer SWFs. Featuring contributions from sovereign wealth practitioners from Alberta’s AIMCo, the Nigerian Sovereign Investment Authority and the New Zealand Superannuation Fund, as well as analysis by scholars at the forefront of sovereign investment, this volume provides timely and much-needed information on these rapidly evolving institutions.
- In April 2017, CCSI launched a series of short videos from the authors of Rethinking Investment Incentives: Trends and Policy Options (published by Columbia University Press in July 2016), summarizing the important messages from each chapter. New videos are posted weekly. The use of incentives to attract investment is connected to and impacts the most pressing challenges facing us today, including climate change, corruption, conditions/availability of employment, harmful competition, and inefficient public spending. How, when, where, and why governments use incentives to attract, keep and influence investment is therefore critically important to whether and how society benefits from investments and to other public policy decisions and trade-offs. It is increasingly apparent, however, that the use of incentives is not well understood—including by the policy makers who use them—which necessitates a closer look and, in many cases, a policy response.
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Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
Columbia University
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