Foreign Direct Investment as a Key Driver for Trade, Growth and Prosperity: The Case for a Multilateral Agreement on Investment

Transcription

1 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

2 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

3 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

4 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

5 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

6 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

7 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

8 Agenda Executive summary - Key messages Background GAC on Global Trade and FDI

9 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

10 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

11 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

12 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

13 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

14 Subsidies that seek to incentivize investment distort markets and may have other negative effects 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

15 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

16 An holistic approach to the new trade-fdi reality Given the complex and interconnected nature of 21 st 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

17 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

18 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

19 Q&A Visit our website for further information and to download the Report:

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