INTERNATIONAL INVESTMENT
LAW 3
Admission and Establishment
Admission of Foreign Investment
• General PIL: No state has to admit FI if it has not
promised so in an Investment Treaty
• Longterm admission: establishment
• Right of admission may be granted only for sectors,
regions or particular forms of investment like joint
ventures
• European investment treaties restricted to granting rights
to those investors that have been admitted unilaterally
• US, CND, J: Treaties that grant direct rights of market
access through establishment
• Economic Interest: see Washington ConsensusExport of
Capital
Prof. Dr. Werner Meng, Saarland University, Germany
Foreign Investment
• Authorization (or limitation) of cross-border capital
transactions
– Import of capital
– Export of capital
– Investment authorization
• In the EU, 3.3 trillion € were invested in foreign
countries, compared to 2.4 trillion € coming from
foreign countries in 2008
Prof.
Dr. Werner
Saarland
Prof. Dr.
Werner
Meng Meng,
- Europa
InstitutUniversity,
- Saarland Germany
University
3
Export of Capital
• Authorization or promotion
– Free flow of capital as a basic freedom
– Tax shield (avoiding double taxation)
• Objections or reasons for restrictions
– Capital outflaw
– Export of jobs
– Dependence on the economic development in the foreign
country
– Sanctions for political reasons
– Monetary policy reasons: balance disturbed
Prof.
Dr. Werner
Saarland
Prof. Dr.
Werner
Meng Meng,
- Europa
InstitutUniversity,
- Saarland Germany
University
4
Import of Capital
• Promotion
– Capital increase
– Investment incentives (taxes, infrastructure), „Investment climate“
– Expecting an additional increase in taxes
• Supervision
– Limitations for objective reasons (e.g. for safety reasons)
– Upper limits
– Joint venture requirements
• Inhibition or restriction
–
–
–
–
–
Preferring national investors over foreigners
Reasons of monetary policy
Security policy reasons
Limitation of profit transfer
Fear of dominant influences by TNUs
Prof. Dr. Werner Meng, Saarland University, Germany
5
Losses of Jobs due to FDI
• Study of Copenhagen Economics
– In 2001-2006, the FDI (investment of EU companies outside the
EU) increases the gross domestic product by 20 billion €.
– 13 billion € of these are income increases of labor.
• Relatively mostly of qualified employees
– When100 jobs are exported, 50 are immediately recreated
domestically. In addition, there are indirect profits.
– In addition, a possible loss in competitive capacity has to be
taken into account in the total calculation.
– 50 % of world trade happens between interconnected
companies. I.e.: FDI promotes also the international trade of the
EU.
See Communication from the Commission 7.7.2010
COM(2010)343 final
Prof. Dr. Werner Meng, Saarland University, Germany
6
Aspects of the „Investment Climate“
• Development of interest rates
• Profit transfer possible
• Tax incentives and disincentives
– Tax level, tax relief
– Double taxation
• Infrastructure
• Political risks
• Legal framework
Prof. Dr. Werner Meng, Saarland University, Germany
7
Washington Consensus – 1
• (John Williamson 1989)
• Fiscal policy discipline, with avoidance of large fiscal
deficits relative to GDP;
• Redirection of public spending from subsidies
("especially indiscriminate subsidies") toward broadbased provision of key pro-growth, pro-poor services
like primary education, primary health care and
infrastructure investment;
• Tax reform, broadening the tax base and adopting
moderate marginal tax rates;
• Interest rates that are market determined and positive
(but moderate) in real terms;
• Competitive exchange rates;
Washington Consensus - 2
• Trade liberalization: liberalization of imports, with
particular emphasis on elimination of quantitative
restrictions (licensing, etc.); any trade protection to be
provided by low and relatively uniform tariffs;
• Liberalization of inward foreign direct investment;
• Privatization of state enterprises;
• Deregulation: abolition of regulations that impede
market entry or restrict competition, except for those
justified on safety, environmental and consumer
protection grounds, and prudential oversight of
financial institutions;
• Legal security for property rights.
Prof. Dr. Werner Meng - Europa Institut - Saarland University
9
Standards of Admission
• Most favored nation clause
– No discrimination btw. foreigners
• National treatment
– No discrimination btw. foreigners and nationals
• Restrictions through
– Positive lists or
– Negative lists
• Performance requirements
– E.g. local content, export duties, hiring local workers etc.
– Limited by the TRIMS agreement: Art. III and XI GATT are
applicable
• Lawfulness of the investment
– E.g. no bribes or other corruption
– Waiver by toleration for some time
Prof. Dr. Werner Meng, Saarland University, Germany