Geneva, 8 July 2009 - An UNCTAD review of national and international investment policy developments shows that in response to the crisis, G 20 countries have mostly refrained from taking policy measures that are restrictive towards foreign inward and domestic outward investment. In fact, a substantial number of the policy changes surveyed were in the direction of facilitating investment, UNCTAD experts have determined.
The report which comes at a time of rapidly declining foreign direct investment (FDI) flows around the world, surveys policy measures in the area of investment undertaken by G-20 member countries, including members of the European Union. The report is in response to UNCTAD´s mandate to monitor investment policy developments and their implications for development, which is part of UNCTAD´s reporting for its annual World Investment Report series. It is also meant to contribute to a joint effort by WTO, UNCTAD, OECD and IMF to respond to the 2 April 2009 G-20 Leaders´ request for quarterly reporting on their adherence to maintain an open trade and investment regime and to avoid a retreat into protectionism. The summit called upon international bodies to monitor and report publicly on G 20 members´ adherence to this pledge.
Overall, the study says, recent policy developments (occurring in the period between October 2008 and June 2009) paint a comforting picture. Few new laws and regulations could be characterized as being "restrictive" towards FDI. Instead, the crisis has triggered new efforts by countries to promote and facilitate FDI and to enhance the clarity and stability of their investment frameworks.
However, the report cautions that there is no room for complacency, as economic stimulus packages could give rise to what can be labeled as "smart" protectionism. Furthermore, the study says, protectionist pressures could still arise from the spreading of the crisis to less-affected economic sectors and countries, and a new wave of economic nationalism could occur in the aftermath of the crisis, when the exit of the State from bailed-out flagship industries might lead to the protection of "national champions" from foreign takeovers.
The report notes the importance of foreign investment for financing a recovery from the global crisis and re-achieving growth and stability, both in developed and developing countries. It stresses that any in-depth efforts at institutional reform of the global financial system must also address that system´s interaction with the 5.700 plus international investment treaties between countries.
For the survey, UNCTAD used its established methodology for data compilation as applied in its annual report on changes in national investment-related laws and regulations (part of its flagship World Investment Report) and on international investment agreements. For the timeframe October 2008 - June 2009, the report covers laws and regulations that either specifically address foreign investment or are related to the general legal framework within which foreign investors operate.
The report finds that the 39 of the 42 countries surveyed have undertaken 167 policy measures in these areas. Forty (24%) specifically address foreign investment and 127 (76%) are part of the general legal framework that can apply to foreign investments. Among the measures specific to foreign investment, eight countries have taken measures concerning the entry of foreign investors (15 measures altogether). Five countries have undertaken measures aimed at facilitating investment flows (9 measures), and 7 countries have enacted laws and regulations that concern the operation of foreign affiliates (7 measures). Three countries have changed their relevant tax laws (9 measures). Among the measures related to investment, 11 countries enacted laws and regulations that concern the general legal framework for the operation of companies, including foreign affiliates (17 measures). Furthermore, seven countries adopted new taxation measures (7 measures) and 33 countries enacted State aid measures and/or stimulus packages in response to the crisis (98 measures).
Generally, the investment specific measures reviewed point in a positive direction. Countries have adopted measures that smoothen the entry of foreign investors (e.g., by opening up previously closed sectors to foreign investment or by removing sectoral caps for foreign investment) or facilitate foreign investment projects in host countries (e.g., by granting specific incentives to investments in certain geographical areas). Some countries have relaxed review procedures, clarified responsibilities for project approval or harmonized the fiscal status of "foreign-invested" enterprises within overall national tax regimes.
In addition, some countries have enacted measures specifically aimed at encouraging outward investment by domestic companies, for example by streamlining the approval process, providing financing for their internationalization, or by providing insurance for exports and outward investments.
In the meantime, there are a few policy measures that restrict private (including foreign) participation in certain highly sensitive sectors, or introduce new criteria and tests, such as a national security test for investments that raise national security concerns.
Also, the investment-related measures reviewed point in a positive direction. They include the various State aid or economic stimulus packages enacted by a majority of countries in response to the financial and economic crisis. Among the investment related measures are also those concerning overall taxation issues (e.g., lowering the corporate tax rate or enacting changes in withholding taxes or tax bonuses), as well as changes to bankruptcy laws or corporate laws.
Investment policy developments have also occurred at the international level, where G-20 member countries have concluded 27 bilateral investment treaties (BITs) between October 2008 and June 2009, 36 double taxation treaties (DTTs) and 11 other international investment agreements (IIAs). Generally, such treaties promote, protect and sometimes also liberalize investments amongst the signatory countries.
A continuation of the current reporting on policy trends, as undertaken by UNCTAD, would help policy makers gain needed information, guidance and advice, the report says. Such information can help officials maximize the contribution of FDI to economic and social development, and to a long-term and sustainable economic recovery.
Contact:
Mr. James X. Zhan
Director
Investment and Enterprise Division
UNCTAD
Tel: + 41 22 917 5797
Fax: + 41 22 917 0498
