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Columbia FDI Perspectives
Perspectives on topical foreign direct investment issues
No. 235 September 24, 2018
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Marion A. Creach ([log in to unmask])
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The deliberations at the WTO since the second quarter of 2017 on an investment facilitation agreement (IFA) have brought about a new dynamism at the WTO. A past attempt by developed countries to initiate formal negotiations on an investment agreement at the WTO, as part of the Singapore issues, was blocked by developing countries, arguing that investment does not come under the mandate of that Organization and that the relationship between trade and investment is unclear. However, the developing countries now champion the deliberations of an IFA at the WTO, mainly led by China, Brazil, the Republic of Korea, Argentina, and Russia, for two reasons.
First, some developing countries have become prominent sources of outward FDI (OFDI). Out of the 15 countries that originally proposed an IFA in March-April 2017, five economies (Brazil, China, Hong Kong (SAR), Mexico, the Republic of Korea) have substantially increased their share in the global OFDI stock; their combined share has risen from 3% in 1990 to 13% in 2016.[1] China, along with Hong Kong, accounted for about two-thirds (62%) of the OFDI stock of this group of economies in 2016. A multilateral regime focused on the simplification of FDI approval procedures would be of interest to these countries, as it would help their OFDI.
Second, there is a growing need in many developing countries and least developed countries (LDCs) to attract FDI and integrate into global supply chains. Rising populations, a growing demand for jobs and rampant poverty pose critical challenges for them. According to the United Nations, the world population will increase from currently 7.3 billion to 8.5 billion by 2030, and 9.7 billion by 2050.[2] This increase will take place mainly in Africa. Many poor countries that are not able to generate sufficient resources internally to promote growth and create jobs look toward trade and FDI as a means for addressing these challenges. Hence the 2017 Abuja High Level Trade and Investment Facilitation Forum for Development, organized by Nigeria, the Economic Community for West African States and the WTO Friends of Investment Facilitation for Development, sought to mobilize African countries, spelling out in its concluding statement why an IFA is important and what is expected from it.[3]
Some countries also need FDI to sustain their economic growth. In 2017, the countries with the highest GDP growth were developing countries. In some of them, growth is underpinned by public investment which requires borrowing significant amounts of funds, thus resulting in huge public debt. Ethiopia (the fastest growing economy for the past few years), for example, has invested massively in infrastructure. Its public debt rose from 40% of GDP in 2014 to 50% of GDP in 2016. Countries are promoting FDI as a means for sustaining investment by facilitating non-debt creating investments.
The IFA proposal also reflects a critical shift in the position of developing countries on the relationship between trade and investment and the WTO’s adequacy for addressing investment issues. The Abuja statement observed that “trade and investment are inseparable – and remain indispensable 'twin engines' for economic growth, modernization, and development.”[4] Currently, the IFA-supporting developing countries are clear about the relationship between trade and investment. According to Chiedu Osakwe, Director General and Chief Negotiator at the Nigerian Office for Trade Negotiations, the WTO is the most suitable forum for negotiating an IFA because investment facilitation needs to be coupled with trade to be effective; decoupling investment facilitation from trade and the WTO would result only in minimal implementation with perverse outcomes.[5]
This change in the approach of many developing countries and LDCs indicates that their resentment about investment at the WTO is waning. This change in attitude will potentially alter the WTO dynamics on investment matters. Accordingly, developed countries will find it much easier to promote a full-fledged investment agreement instead of a mere IFA, if they choose to do so. That would also help obtain the support of major countries (e.g., the US) which have been keeping themselves away from the deliberations on an IFA, being reluctant to prioritize one area of investment (i.e., facilitation) over other areas such as market access and investment protection.
Moreover, while submissions at the WTO on an IFA and the Joint Ministerial statement on investment facilitation issued during the WTO Buenos Aires Ministerial Conference have emphasized the implications of facilitation for development, the deliberations on an IFA so far have focused only on facilitation. The need to channel FDI into development by screening, selecting and regulating FDI should be brought into the discussions on an IFA with the same vigor.
*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.
**Reji K. Joseph ([log in to unmask]) is Associate Professor at the Institute for Studies in Industrial Development in New Delhi. The author is grateful to Richard Newfarmer, Miguel Rodriguez Mendoza and Pierre Sauve for their helpful peer reviews.
[3] WTO, “Deepening Africa’s integration in the global economy through trade and investment facilitation for development. Abuja statement,” Ministerial Conference, Eleventh Session, WT/MIN(17)/4 WT/GC/186, Nov. 7, 2017
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The material in this Perspective may be reprinted if accompanied by the following acknowledgment: “Reji K. Joseph, ‘Investment facilitation: new dynamism at the WTO on investment,’ Columbia FDI Perspectives, No. 235, September 24, 2018. 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, Marion A. Creach, [log in to unmask].
- No. 234, Jan Knoerich, “Do developing countries benefit from outward FDI?,” September 10, 2018
- No. 233, Meg Kinnear, “Moving with the times: amending the ICSID rules,” August 27, 2018
- No. 232, Kavaljit Singh, “Investment facilitation: Another fad in the offing?,” August 13, 2018
All previous FDI Perspectives are available at http://ccsi.columbia.edu/publications/columbia-fdi-perspectives/.
Other relevant CCSI news and announcements
- On October 11, 2018, CCSI will will launch its Fall 2018 International Investment Law and Policy Speaker Series. We’re delighted to announce that this year’s speakers will include Patricio Grane Labat, Philippe Sands, QC, Eugenio Hernández-Bretón, Ko-Yung Tung, Colin Brown, Ana Novik, and Zoe Williams. This fall, the series will be co-sponsored by Arnold & Porter and Baker McKenzie. The series will be moderated by Grant Hanessian, Maria Chedid, and Kabir Duggal. All talks will take place at Columbia Law School. Select presentations will be webcast; please see our website for the schedule and more details. No registration is required.
- On September 27-28, 2018, CCSI will hold its 13th Annual Columbia International Investment Conference (CIIC) on “Rethinking International Investment Governance: Principles for the 21st Century.” This conference seeks to elaborate principles of a progressive investment agenda. It will reflect on the current investment regime – of the network of over 3,000 investment agreements – and the extent to which the regime aligns with or undermines the principles. We will then re-imagine investment governance, and consider the role that international cooperation could play to advance sustainable, development-oriented investment. Registration is free but required...for more information, and to register, please visit our website here.
- On September 26, 2018, CCSI and the UN Sustainable Development Solutions Network (SDSN), under the guidance of Prof. Jeffrey Sachs, Special Advisor to the UN Secretary-General on the SDGs, and Laurent Fabius, President of the Constitutional Council of the French Republic, will host a conference to discuss the Global Pact for the Environment. The Global Pact for the Environment aims to unify international environmental governance and codify a human right to the environment in international law. For more information, and to register, please see our website here.
- On September 26, 2018, CCSI and the Sabin Center for Climate Change Law will host a conference on "Climate Change, the Courts, and the Paris Agreement." In recent years citizens, sub-national governments and NGOs have turned to litigation to hold governments and corporations accountable for their contributions to climate change. For more information about this event, including registration, please see our website here.
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Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
Ph: (212) 854-0689
Fax: (212) 854-7946
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