Download Foreign Direct Investment as a Key Driver for Trade, Growth and

World Economic Forum’s Global Agenda Council on Global Trade and FDI
Foreign Direct Investment as a Key Driver
for Trade, Growth and Prosperity:
The Case for a Multilateral Agreement on Investment
Insight Report
Agenda
• Executive summary - Key messages
• Background – GAC on Global Trade and FDI
• Report
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Facts and figures
The new relevance of FDI: the GVC perspective
From rejection to hope: different perspectives on FDI
From barriers to facilitators to incentives: different distortions to
FDI
• The current (fragmented) governance of FDI
• A holistic approach to the new trade-FDI reality
• Towards global governance of FDI? Issues in getting to a
multilateral approach
Key messages (1/5)
Increased foreign direct investment (FDI) is
needed to boost the global economy, create
jobs, and promote knowledge and productivity
enhancements
• FDI could reach about $3 trillion annually – or 4% of
world GDP
Key messages (2/5)
Barriers and distortions in both developed
and developing countries prevent the
realization of the full potential of FDI.
•
These include measures to constrain or condition
FDI, to impact the successful operation of FDI, to
restrict access to local markets and/or to raw
materials
•
Investment subsidies also distort FDI
Key messages (3/5)
Current fragmented approach to FDI
governance adds to confusing landscape
faced by investors
• No single, comprehensive multilateral treaty or
institution exists to oversee investment activity
• A complex overlay of disciplines coexist at the
multilateral, plurilateral, regional and bilateral level
Key messages (4/5)
Time has come to negotiate a multilateral
agreement on investment to enhance trade,
growth and prosperity
• FDI and trade are natural complements and the absence
of a multilateral agreement on investment prevents the
system from fully achieving its potential
• Though this has been tried unsuccessfully in the past,
conditions have changed
• Rise of emerging economies and spread of global value
chains (GVCs) have blurred the old North-South debates
• Political, economic and technological conditions have
created the right circumstances for an agreement
Key messages (5/5)
The WTO is the logical home for a multilateral
agreement on investment
• The first step is to establish a working group on
investment with a view to airing the issues and
potentially developing a work programme
Agenda
• Executive summary - Key messages
• Background – GAC on Global Trade and
FDI
Background
• The focus of the Global Agenda Council (GAC)
on Global Trade and FDI is on identifying and
understanding key issues driving world trade and
FDI, with a view to exploring new approaches to
enhancing governance of these issues
• Previous reports have looked into global value
chains and its implications for developing
countries and trade policy, preferential trade
agreements and the world trading system, and a
plurilateral approach to WTO reform and new
issues
Agenda
• Executive summary - Key messages
• Background – GAC on Global Trade and FDI
• Report
•
•
•
•
Facts and figures
The new relevance of FDI: the GVC perspective
From rejection to hope: different perspectives on FDI
From barriers to facilitators to incentives: different distortions to
FDI
• The current (fragmented) governance of FDI
• A holistic approach to the new trade-FDI reality
• Towards global governance of FDI? Issues in getting to a
multilateral approach
Facts and Figures
• FDI and international trade have grown significantly over the
past two decades
• Multinational corporations (MNCs) account for some 80 percent of
world exports
• Origin and destination of FDI flows have seen remarkable
changes in the past years
• Increasing participation of developing countries in both global FDI
flows
• More than a quarter of outflows and almost half of inflows
• Post-2008, FDI (and trade) have been growing at slow rates
• Creeping protectionism
• Neglect of fresh liberalization
• To recover from its growth fall, the world economy needs a
big dose of new FDI
• So as to reach $3 trillion annually –or about 4 percent of world GDP
The new relevance of FDI:
the GVC perspective
• Trade and FDI are two observable facets of international
production sharing
• Linkages between trade and FDI are strong and vary
depending on the type of FDI
From rejection to hope:
different perspectives on FDI
• FDI elicits different reactions in both developed and
developing countries
• Reactions are sometimes of an emotional nature, or
have an ideological underpinning
• Memories of colonization and quest for economic independence
• National interests and strategically sensitive industries
• A variety of different factors come into play as
rationales for limiting inward FDI
• Still, in many places FDI resonates as a potent tool
toward economic development, increased trade,
employment opportunities and poverty reduction
From barriers to facilitators to
incentives: different distortions to FDI
• Barriers to FDI include measures that:
• Constrain FDI in certain sectors
• Constrain flows of capital, technology, people or other resources
necessary to establish successful FDI operations
• Make investment conditional on technology transfer and the like
• Make access to local markets conditional on local content
requirements or the holding of local assets in country
• Restrict the availability of certain raw materials to locally-invested
companies
• Subsidies that seek to incentivize investment
distort markets and may have other negative
effects
The current (fragmented)
governance of FDI
• FDI governance is fragmented
• Previous attempts to bring FDI under multilateral
purview have failed
• Multilateral level: TRIMs, ASCM, GATS
• Plurilateral level: OECD, APEC, others
• 331 Regional trade agreements with investment
provisions
• 2833 Bilateral investment treaties (BITs) – almost
every country in the world has signed one or several
of them
Complex overlay of disciplines at different levels, and
divergent interpretations, contribute to the confusing
landscape faced by investors
An holistic approach to
the new trade-FDI reality
• Given the complex and interconnected nature of
21st century trade, the set of policies underpinning
it must be a “package”
• Barriers on any part of the trade-investment-services-intellectual
property rights nexus becomes a barrier to all aspects
• RTAs and BITs are, de facto, the governance
underpinning GVCs
• World trade and FDI governance is heading for
fragmentation
• GVC disciplines seem to be on track to harmonization by megaregionals and mega-bilaterals
• Countries excluded from these negotiations risk not participating in
the development of a more coherent FDI governance system
Towards global governance of FDI:
issues in getting to a multilateral approach
• Time has come to negotiate a multilateral agreement on
investment
• The rise of GVCs sharpens the need for global and holistic regulations
• There is a proven need for international investment regulation as
evidenced in the explosion of bilateral and regional agreements
• Investment into and out of emerging markets has grown tremendously
in recent years
• Many developing countries have a stake in protecting the investments of their
own MNCs through a rules-based approach
• The stigma attached to FDI historically has sharply abated as many
countries pursued economic liberalization and now recognize the
associated benefits
• By contrast, the fragile and slow recovery of the world economy has led
some countries to adopt protectionist measures against trade and
investment, and there is a risk that this may expand
• Increased FDI by state-owned enterprises and sovereign wealth funds
presents new challenges
Towards global governance of FDI:
issues in getting to a multilateral approach
• The WTO is the logical home for a
multilateral agreement on investment
• Potential for more equitable outcomes
• Non-discrimination
• Access to dispute settlement mechanism
• The first step is to establish a working group
on investment with a view to airing the issues
and potentially developing a work programme
Q&A
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