Under Secretary Robert D. Hormats World Investment Forum, Doha, Qatar, April 20 23, 2012

Transcription

1 Under Secretary Robert D. Hormats World Investment Forum, Doha, Qatar, April 20 23, 2012 The Continuing Importance of Investment in the Global Economy At the previous World Investment Forum in Xiamen in September 2010, I noted the breathtaking pace of changes in the foreign investment landscape, the many shifts taking place in investment patterns, and the impact of those developments on the global economy. Today in 2012, we can see not only how many of those developments continue to unfold, but also take note of new trends, challenges, and opportunities. While these developments may necessitate careful reflection, diligent analysis, and novel approaches, I believe that the core positions and investment principles I described in Xiamen continue to be valid today, and will be vital to success in fostering greater economic growth and development in the future. Two Years of Change Less than two years ago, I noted that more than 80,000 multinational corporations (MNCs) are operating worldwide with more than 800,000 foreign affiliates. Today there are more than 100,000 MNCs and 900,000 foreign affiliates. The total assets of foreign affiliates as of 2010 are valued at approximately $57 trillion, more than ten times their value in These affiliates are not only the source of fresh capital, technology, competitive spirit, and innovation, but they also bring jobs: nearly 70 million people worldwide are employed by foreign affiliates. Foreign affiliates employ more than three times as many workers as they did in These foreign affiliates also point to a deeper level of economic integration among nations: they show a commitment beyond one-time sales or simple market entry, and they are the vital conduit for technology, know-how, expertise, and capital. FDI is absolutely vital in terms of the delivery of goods and services to international markets. According to UNCTAD s World Investment Report 2011, in 2010 the global sales of the foreign affiliates of MNCs rose to $33 trillion, and such affiliates were responsible for $6 trillion in exports, or one-third of the global total. FDI and the activities of MNCs have become central to the world economy at large. In 2010, foreign affiliates accounted for more than one-tenth of world GDP; in 1990 they accounted for less than one-twentieth. Today, all MNCs account for approximately 25% of world GDP.

2 Not only is the expanding size of foreign affiliates notable, but emerging economies are assuming a much more prominent role on the international investment stage. Most notably, in 2010, for the first time ever, developing and transition economies received more than half of global FDI inflows. At the same time, developing and transition economies have expanded as sources of FDI outflows. We can also note that FDI flows are way below their pre-crisis peak, but a recovery is underway. In its 2011 World Investment Report, UNCTAD reported that FDI inflows rose by five percent to $1.24 trillion in 2010, and that FDI flows would reach $1.7 trillion this year, and $1.9 trillion in While there remains considerable uncertainty in the post-crisis business environment, the rise of FDI flows should help put the global economy on firmer footing, especially as research shows that FDI flows have historically been less volatile than portfolio investment. FDI will spur growth and diversify risk around the world, helping to foster the global economic recovery. Our Commitment to Investment Principles Given the critical role that investment plays in driving global economic prosperity, we must not waver from policies designed to support and protect foreign investment. We must continue advocating for improvements to investment climates that will attract greater investment flows. The investment principles that have proven so successful in the effective functioning of open markets will continue to be vital to success in fostering greater economic growth and development. It is worth reminding ourselves of those principles. It is easier to attract foreign investment when foreign and domestic firms can compete on an equal basis and when there are full intellectual property rights (IPR) protections. In Xiamen, I briefly reviewed some of the academic literature that shows how IPR protections stimulate growth, spur trade, and encourage investment. That line of research continues, and the results are much the same. For example, a recent National Bureau of Economic Research study found that strengthened IPR protections discourage illegal activity in developing and transition economies. This has the effect of encouraging MNCs from developed countries to invest in these economies as production locations. The measures are beneficial not only for investors, but for the target countries as well: stronger IPR protections ultimately increase rates of innovation and improve real wages for workers in these countries. Thus, IPR protections underpin the innovation upon which the growth and upward mobility of all countries depend.

3 Policymakers must remain vigilant in not instituting policies that discriminate against foreign investors. They should resist implementing technology transfer mandates or performance requirements, which discourage investment and hamper development. Ted Moran, of the Peterson Institute for International Economics, has shown research that foreign affiliates of MNCs tend to be more technologyand capital-intensive as well as faster growing in terms of output and employment, when host countries do not constrain affiliate operations through requirements such as local-input sourcing and mandatory technology transfer. Countries must also honor their international obligations under binding agreements. When countries respect the decisions of arbitral investment tribunals and honor commitments to international investment arbitration, they support their own investment climates. The United States strongly believes in the importance of foreign investment in our own country, and a legal and regulatory environment that provides confidence to foreign investors. Our nation s knowledgeable and talented work force, strong IPR protections, world-class education system, laws that provide for a stable and predictable business environment, and robust economic culture are all positive factors for investors. In the United States, foreign investors will find free transferability of capital and profits, advanced physical and financial infrastructure, and nondiscriminatory legal recourse. In short, I can proudly affirm that the United States is most certainly open for business. Investment and Economic Growth It is fitting that the world s investment community has convened in Doha to reflect on the global investment landscape and the many changes that have taken place in the previous two years. Indeed, Qatar itself exemplifies some of the most dramatic and important trends in international investment. For one, it has attracted dramatically increased FDI inflows over the past decade: in 2000 Qatar s total FDI stock stood at $1.9 billion; ten years later it had increased to $31.4 billion. Additionally, it also occupies a role as an increasingly active investor abroad. In 1990, Qatar had only a negligible stock of FDI abroad; in 2010 its outward FDI stock was close to $26 billion. The benefits of Qatar's increased openness to FDI are readily apparent. Qatar s experience demonstrates how countries may harness FDI as a source of economic development and modernization, income growth, and employment.

4 Countries such as Qatar recognize that FDI can trigger technology spillovers, assist human capital formation, contribute to international trade integration, create a more competitive business environment, and enhance enterprise development. As I noted in Xiamen, nations have broadly recognized that foreign investment is critical to economic growth in developing nations, and I believe Doha serves as a continuing affirmation of that fact. Just over ten years ago, more than 50 heads of state and 200 finance ministers took part in the International Conference on Financing for Development in Monterrey, Mexico. At this conference, they recognized the importance of investment as a critical component of development, enshrining their conclusions in the Monterrey Consensus. As the Monterrey Consensus states, countries need to continue their efforts to achieve a transparent, stable and predictable investment climate, with proper contract enforcement and respect for property rights, embedded in sound macroeconomic policies and institutions that allow businesses, both domestic and international, to operate efficiently and profitably and with maximum development impact. We also should not forget the important contributions that FDI can make economic growth, alleviating poverty, fostering political stability, and helping the world achieve the Millennium Development Goals and other important targets. In short, FDI drives development. Ensuring the Freedom of Global Investment With the benefits of open investment in mind, the many changes impacting the global investment landscape merit careful attention. Viewing the shifts occurring around us, we can observe tremendous opportunities, but we should also remain aware of the potential challenges implicit in such developments. While a commitment to key investment principles and efforts to welcome foreign investment will drive global economic growth, this does not mean that we can ignore the changes that present new challenges to global investment. I am pleased to report that it appears that there is a continuing consensus among nations that measures should be undertaken to liberalize and promote FDI. In 2010, roughly two-thirds of the new investment policy measures reported during that year were aimed at investment liberalization. However, the remaining third sought to restrict FDI, raising the specter of mounting investment-related protectionism. It is therefore imperative that we remain focused on sustaining a

5 robust dialogue to advance the further liberalization, and guard against measures that would raise barriers to investment. In Xiamen, I highlighted the increasingly prominent role that state-owned enterprises play in the global economy and their impact on global competition. State-owned enterprises and similar firms are emerging to become commercial actors globally. UNCTAD has noted that state-owned enterprises are the source of 11 percent of global FDI outflows. And 19 of the world s largest MNCs are stateowned enterprises. In some cases, these firms have built market share, in large part because they enjoy financial support, tax preferences, regulatory privileges, and immunities not generally available to their privately-owned competitors. Without competitive neutrality, investors may be less willing to enter foreign markets in countries with government-supported state enterprises. This should be a concern to such countries, especially given that investment carries with it the competitive forces that drive economic growth. Absent a level playing field for investors, nations will find it difficult to realize the full potential of private sector growth, innovation, and productivity. To avoid this, governments can create frameworks to ensure competitive neutrality between state businesses and private firms, thus preserving competition and avoiding discrimination against private initiative. We believe that all countries will have an interest in creating a level playing field for their investors abroad, particularly as investors from emerging markets are increasingly engaged in expanding overseas. I must emphasize here that our goal is not to question whether countries should have state-owned enterprises that is for each government to decide. Rather, I hope that the United States can work with other countries in a collaborative way, to avoid investment-related market distortions. As nations attract foreign investment from a more diverse array of sources, investor credibility is growing in importance. Encouraging the good practices of investors and governments is crucial in giving investment a good name and demonstrating to a wide variety of stakeholders that we should promote global investment. Longstanding guidelines for model corporate conduct have been updated to address the most recent challenges. Last year, the OECD updated the Guidelines on Multinational Enterprises and launched the Due Diligence Guidance for Responsible Mineral Supply Chains from Conflict-Affected and High-Risk Areas. The OECD s Anti-Bribery Convention and the Recommendation for Further Combating Bribery of Foreign Public Officials in International Business

6 Transactions are significant tools for promoting responsible investor conduct, propriety, integrity, and transparency worldwide. In addition to these multilateral agreements, the universe of international investment agreements (IIAs) continues to expand, with 178 new IIAs signed in 2010 alone. We believe that the continued expansion of these instruments signifies the great importance that countries place in securing protections for their investors. However, we understand that some countries have voiced unease at the combined impact of thousands of bilateral investment treaties on countries capacity to understand fully the scope of their commitments and to manage their risks. It is therefore encouraging to see that a robust dialogue is taking place between a wide range of stakeholders to discuss the future of IIAs, share experiences and best practices on key issues, and continue analytical work on this important issue. We appreciate that the underlying issues in such discussions are complex: countries express a desire to balance protecting investors with preserving the appropriate level of flexibility to regulate in the public interest and include specific provisions to advance other policy interests, such as the protection of labor and environmental interests. The United States has completed a review of its model bilateral investment treaty text. This new model text continues to provide core investor protections, while enhancing provisions relating to transparency, labor and environment interests, and market-based investment policies. The United States and the European Union earlier this month reaffirmed our joint commitment to open, transparent, and nondiscriminatory investment policies, including a set of core investment principles that embody a welcoming investment climate and a commitment to competitive neutrality. I should point out that a number of emerging economies large and small are now increasingly important overseas investors. We hope that with their share of global FDI stock on the rise, these countries now have a greater stake in the global system of rules and practices that govern investment. Indeed, developing and emerging economies held overseas investment stock of nearly $3.6 trillion in 2010 more than twenty times their total two decades earlier. We understand that other nations will work to protect and advance the interests of their investors as they should and we look forward to working with them as part of a collaborative process to ensure that global investment is free and fair for all who wish to compete. It should be the role of governments and it is the goal of our government to explore new patterns of cooperation and promote multilateral arrangements that allow for fair competition. A fair and open global economic

7 environment serves not only a nation s interests but also the broader global interest, and drives innovation, competition, and economic growth. Multilateral Response to Challenges and Opportunities On that note, the continuing importance of investment and the attendant opportunities and challenges suggest the need for greater analysis of the changing landscape, continuing reflection on our interests, greater engagement in our bilateral relations, and a reevaluation of how best to improve our multilateral engagement. The OECD and UNCTAD s Investment Division bring great strengths and complementary perspectives on investment. And together they do the research and analysis that provide the backbone necessary for sound policymaking on investment. Through their policy advice, forums for discussion, and technical assistance, these institutions are highly valuable to the global investment community. When they combine their efforts and speak with one voice, they become an even more important contributor to the global dialogue on investment. Both institutions made such a contribution in 2011, when they continued a collaborative effort to jointly monitor measures relevant to G-20 countries pledge to avoid protectionism. Finally, the World Investment Forum organizers should be congratulated on focusing high-level attention on how much of our shared prosperity depends on foreign investment, by attracting senior officials from governments and a broad set of stakeholders. The United States hopes that the serious issues identified by the discussion today will encourage deeper collaboration among multilateral organizations, civil society and academia, and also spur the organization of more frequent international meetings of this caliber to continue these discussions.