FDI TRENDS AND POLICY OPTIONS IN LDCs: TRAINING AND CAPACITY-BUILDING 25 September 2007 INVESTMENT PROMOTION IN INTERNATIONAL INVESTMENT AGREEMENTS AND LDC PERSPECTIVE Joachim Karl and Hamed El-Kady International Arrangements, DITE, UNCTAD

2 The three pillars of UNCTAD’s IIA- related work  Information provision through IIA databases  Policy research and analysis  Technical assistance

3 I. Recent trends in international investment rulemaking

4 Core Elements in international investment agreements (IIAs)  Preamble  Definitions (investment/investor)  Admission and establishment  Core standards of protection:  Principle of fair and equitable treatment  Principle of non-discrimination (NT/MFN)  Expropriation  Transfer of funds  Dispute settlement

5  Bilateral investment treaties (BITs)  Free trade agreements with investment provisions (FTAs)  Multilateral agreements dealing with investment (GATS, TRIMs, TRIPs)  Regional integration agreements (EU, CARICOM, MERCOSUR, ASEAN) The network of IIAs

6 Universe of BITs continues to grow rapidly Number of BITs concluded, cumulative, Over 2500 BITs

7 "Top ten" economies signatories of BITs, end 2006

8 Total BITs concluded as of end 2006, by country group

9 Proliferation of FTAs with investment provisions   International investment rules are increasingly being formulated as part of agreements that encompass a broader range of issues (including trade, services, competition, intellectual property)   Such as free trade agreements, regional integration agreements, partnership agreements, or economic cooperation agreements;   The total number of such economic agreements with investment provisions exceeded 250, as of end 2006.

10 Active participation of developing countries in IIAs  Many developing countries are active participants in the process of concluding IIAs. E.g. DCs involved in 75% of all BITs  The total number of BITs between developing countries leaped from 47 in 1990 to over 650 by the end of 2006  By end 2006, over 90 other IIAs among developing countries had been signed

11 Participation of LDCs in the IIA network  Over 400 BITs  Regional integration groups (ASEAN, COMESA, ECOWAS, SADC)  The involvement of LDCs in bilateral FTAs remains limited  However, many LDCs are involved in ongoing negotiations for new economic partnership agreements with the EU

12 Top 10 LDCs, BITs concluded, end 2006

13 Number of investor-State dispute cases (end 2006) LDCs are facing at least 14 investor-State cases filled to international arbitration.

14 The spaghetti bowl of IIAs

15 II.Investment Promotion in IIAs

16 Investment promotion in IIAs  The objective of IIAs is to promote foreign investment through the granting of investment protection.  Thus, IIAs promote foreign investment mainly indirectly through the protection provisions  There are concerns that IIAs do not result in a substantive increase in FDI flows and therefore do not do enough to promote FDI.

17 The Impact of IIAs on Domestic Investment Promotion Several IIA provisions are relevant, namely:  Non-discrimination principle (NT/MFN);  Fair and equitable treatment;  Performance requirements. These provisions give reassurance to foreign investors about their treatment, but also limit the discretion of host countries in designing investment promotion measures. These provisions give reassurance to foreign investors about their treatment, but also limit the discretion of host countries in designing investment promotion measures.

18 Investment promotion in an evolving IIA universe The evolving IIA universe with its greater diversity:  Offers new options for countries to strengthen the promotional aspect of IIAs;  Results in an ever more complex system with multi-faceted and multi-layered rules that is difficult to manage, in particular for LDCs.

19 Challenges for investment promotion in IIAs They emerge with regard to:  Maintaining policy coherence;  Preserving regulatory flexibility;  Srengthening the development dimension of IIAs;  Exploring new ways of investment promotion in IIAs;

20 Forms of Investment promotion provisions in IIAs  Most IIAs do not contain any specific investment promotion provisions.  The minority that does include such provisions shows a great variety of approaches.

21 Forms of Investment promotion provisions in IIAs (II) Examples of investment promotion provisions are:  Fostering transparency and exchange of information on investment opportunities;  Encouraging the organization of investment seminars, fairs and exhibitions;  Fostering linkages between foreign investors and local firms;  Home or host country fiscal or financial incentives;  Easing informal obstacles to investment. Follow-up procedures. Follow-up procedures.

22 Main Alternatives for dealing with investment promotion provisions in IIAs  General IIA language on IP;  Confirmation of existing measures;  IP measures of host/home countries;  Political commitment;  No follow- up/monitoring mechanism.  Specific IP provisions ;  Agreement on new measures;  Joint IP measures;  Legally binding;  Specific follow-up /monitoring mechanism.

23 Concluding remarks  Coping with an increasingly complex IIA universe represents a major task for all countries, in particular LDCs.  The evolving IIA universe offers new opportunities, but also poses new challenges concerning investment promotion in IIAs.  This underlines the importance of multilateral capacity-building and technical assistance.

24 Thank you.