UNCTAD REVIEWS INTERNATIONAL FRAMEWORK FOR FOREIGN DIRECT INVESTMENT

Press Release
TAD/1836

UNCTAD REVIEWS INTERNATIONAL FRAMEWORK FOR FOREIGN DIRECT INVESTMENT

GENEVA, 3 October (UNCTAD) -- The United Nations Conference on Trade and Development (UNCTAD) published today the most comprehensive compendium of international investment instruments to date. The three-volume, 1337-page publication is entitled International Investment Instruments: A Compendium, and is part of UNCTAD's efforts to provide the background for a meaningful dialogue among countries on foreign direct investment (FDI) policies.

The Compendium contains an introductory analysis of the status and development of international regulatory arrangements for FDI and reproduces, for the first time in one publication, the texts of over 80 of the most important multilateral and regional instruments dealing with FDI. Also included are a selection of model bilateral investment treaties, a complete list of those treaties concluded up to July 1995 -- over 900 treaties have been concluded, nearly half of them in the 1990s alone -- and key instruments prepared by professional and business organizations. An introductory analysis provides a 25-page summary of the evolution of international arrangements on FDI, highlights and lessons from the past.

At the ninth session of the Conference (UNCTAD IX) (Midrand, South Africa, May 1996), governments called on UNCTAD to improve the general understanding of trends in FDI and to analyse implications for development of issues relevant to a possible multilateral framework on investment.

As a follow-up, Ministers and other senior officials, together with chief executive officers (CEOs) of firms from developed and developing countries, will discuss those issues at a high-level meeting of the Trade and Development Board on 10 October. That debate will take place against the background of current negotiations at the Organisation for Economic Cooperation and Development (OECD) on a binding agreement on investment and a proposal that a possible international framework on FDI be discussed at the ministerial meeting of the World Trade Organization, to be held in Singapore in December.

The new publication notes that no comprehensive framework for FDI exists. Rather, what exists is a patchwork of bilateral, regional and multilateral investment instruments that cover specific and limited issues. The FDI rules have evolved substantially over the past half-century: a clear

shift has taken place in basic attitudes during this time, with present international instruments becoming increasingly favourable towards FDI liberalization and encouragement. That evolution, documented in the Compendium, highlights past experiences in rule-making for investment, which will serve as a background to the future evolution of the international framework for FDI.

Highlights of Compendium

In the introduction, the Compendium identifies the main issues addressed by the existing investment instruments. It focuses on a number of substantive areas, including the following:

-- Definition of investment: The definition of an investment determines the scope of application of the instrument. Protection-oriented instruments tend to use broad definitions of investment while capital movement-oriented instruments tend to define FDI more narrowly, since they look primarily at the cross-border investment transaction.

-- Entry and establishment: Despite important changes in policies over the past decade, controls and restrictions on entry of FDI, of widely varying import, are still in effect in many countries. Restrictions may include authorization requirements, closing certain industries to FDI or admission subject to certain conditions. Instruments dealing with regional integration tend to provide for freedom of entry and establishment of FDI within the region.

-- Treatment after admission: Recent instruments tend to provide for non-discrimination after admission. Treatment after admission involves a broad range of topics. Some of the international instruments reviewed have sought to deal with all or most of those topics. Most instruments, however, have addressed particular issues, such as taxation, transfer of technology, intellectual property rights, performance requirements and consumer protection.

-- Transfer of funds: Provisions on transfer of funds are found in instruments dealing with international financial movements as well as in instruments specifically concerned with FDI. Freedom of transfer of funds is more often found in bilateral and regional instruments than in multilateral ones.

-- Investment protection: Historically, expropriation or nationalization was the principal measure against which investors sought international protection. After years of debate, a trend towards higher levels of protection for investors and their investments appears to be reflected in the provisions of many bilateral investment treaties (for example, limitations on property takings and provisions on compensation).

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-- Settlement of disputes: A matter of controversy in the past, international arbitration is an accepted method of dispute-settlement in present international investment instruments, which either specify the arbitration procedures to be followed or refer to procedures and mechanisms established under other international instruments.

-- International obligations of foreign investors: Some international investment instruments have sought to establish international standards for the behaviour of foreign investors. The content of such standards range from broad statements of corporate responsibility to specific standards in such areas as protection of the environment and consumers, competition rules, illicit payments, accounting and reporting, and labour relations.

Lessons Learned

What can the international community learn from the evolution of international investment agreements to date? In a document entitled "Current international arrangements governing foreign direct investment", also prepared for the high-level meeting of the Board on 10 October, UNCTAD draws the following lessons:

-- Progress towards the elimination of restrictions and the implementation of dispute-settlement mechanisms is gradually being made, helped by increasingly greater transparency and monitoring;

-- A common understanding is emerging on the principal issues that need to be addressed internationally in the FDI area;

-- Development issues must and can be addressed in this context: this has been a long-standing and fundamental goal of the international community, and one which has been expressly recognized in a variety of international instruments, including some dedicated exclusively to that end; and

-- The interrelations between investment and trade are seen increasingly in a common framework both by governments and companies.

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Note:For more information, contact Karl P. Sauvant, Chief, Research and Policy Analysis Branch, Division on Transnational Corporations and Investment, UNCTAD, tel: 41 22 907 57 07; fax: 41 22 907 01 94, or e-mail: karl.sauvant@unctad.org.