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
The three pillars of UNCTAD’s IIArelated work

Information provision through IIA
databases

Policy research and analysis

Technical assistance
2
I. Recent trends in
international
investment rulemaking
3
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
4
The network of IIAs

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)
5
Universe of BITs continues to grow
rapidly
3000
2500
150
2000
100
1500
1000
50
500
20
06
20
05
20
04
20
03
20
02
20
01
20
00
19
99
0
19
98
19
97
0
Cummulative BITs
Annual BITs
200
Years
BITs Annual
BITs cumulative
Number of BITs concluded, cumulative, 1995-2006
Over 2500 BITs
6
"Top ten" economies signatories of BITs, end
2006
Germany
China
Switzerland
United Kingdom
Egypt
Italy
France
Netherlands
Belgium and Luxembourg
Korea, Republic of
0
20
40
60
80
100
120
140
160
7
Total BITs concluded as of end 2006, by
country group
13%
3%
27%
7%
10%
40%
Betw een developing countries
Betw een developing countries and SEE & CIS
Betw een developed and developing countries
Betw een developed countries
Betw een developed countries and SEE & CIS
Betw een countries of SEE & CIS
8
Proliferation of FTAs with investment provisions
Number of PTIAs
300
250
200
150
100
50
0
67
19
60
19
78
19
68
19
By period
89
19
79
19
00
20
90
19
06
20
01
20
Cumulative
 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.
9
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
10
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
11
Top 10 LDCs, BITs concluded, end 2006
Yemen
Sudan
Bangladesh
Ethiopia
Mozambique
Lao People's Democratic Republic
Senegal
Guinea
Mauritania
Cambodia
0
5
10
15
20
Number of BITs concluded
25
30
35
12
ICSID
Non-ICSID
Cumulative number of cases
2006
2005
2004
2003
2002
2001
0
2000
0
1999
50
1998
10
1997
100
1996
20
1995
150
1994
30
1993
200
1992
40
1991
250
1990
50
1989
300
1988
60
1987
Annual number of cases
Number of investor-State dispute cases
(end 2006)
All cases cumulative
LDCs are facing at least 14 investor-State cases filled to
international arbitration.
13
The spaghetti bowl of IIAs
14
II.
Investment Promotion in
IIAs
15
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.
16
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.
17
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.
18
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;
19
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.
20
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.
21
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 followup/monitoring
mechanism.





Specific IP provisions ;
Agreement on new
measures;
Joint IP measures;
Legally binding;
Specific follow-up
/monitoring
mechanism.
22
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.
23
Thank you.
24