Key aspects for a multilateral outcome on investment facilitation: A Brazilian perspective

8 May 2018

This article discusses some of the key features of investment facilitation as a potential issue for a multilateral outcome within the World Trade Organization, focusing specifically on a single electronic window and its national implementing authority.

 

Brazil is a new player in international investment agreements (IIAs). What is more, it joined the field bringing along its own model agreement – the Cooperation and Facilitation Investment Agreement (CFIA) – whose design departs significantly from the traditional bilateral investment treaty (BIT) approach. Still, the model agreement carries an “interoperability” that has enabled Brazil to attract partners that hold BIT portfolios, sometimes considerable ones, without any conflict with the CFIAs signed with Brazil. This feature has also contributed to turn one of its key concepts – that of investment facilitation – into a possible candidate for treatment at the multilateral level in the World Trade Organization (WTO).[1]

Investment is not a new issue in the WTO. On the one hand, it was one of the four “Singapore issues” referred to in the 1996 WTO Ministerial Declaration, although the issue of the relationship between trade and investment was suspended from the WTO’s agenda in 2004. On the other hand, some aspects of the issue are embodied in the General Agreement on Trade in Services (GATS) and the Agreement on Trade-Related Investment Measures (TRIMs), for example.

But investment facilitation – as initially brought to the WTO agenda by India with its proposal on a Trade Facilitation in Services Agreement (TFS) and formalised for the first time by Russia – is a different issue. The main reason is the exclusion of the toxic issues of market access, investment protection, and investor-state dispute settlement (ISDS) from the discussions, as stated in the Joint Ministerial Statement on Investment Facilitation for Development, co-sponsored by 70 WTO members at the margins of the WTO’s 11th Ministerial Conference (MC11) in Buenos Aires in December 2017.[2]

Following the call made in Buenos Aires for the beginning of "structured discussions with the aim of developing a multilateral framework on investment facilitation," Brazil submitted a draft of an Investment Facilitation Agreement (IFA) containing a concrete illustration of a possible WTO multilateral framework for investment facilitation.

Here we discuss some of the key features of investment facilitation as a potential issue for a multilateral outcome within the WTO.

Single Electronic Window

One possible element of a future multilateral outcome regarding investment facilitation could be a single electronic window (SEW). Before elaborating on the usefulness of a SEW, one has to place the issue into a wider perspective and identify what problems a future Investment Facilitation Agreement within the WTO would address.

As a starting point, it might be useful to depict a common scenario faced by investors when investing abroad. Some of the practical challenges that the investor will most likely be confronted with are the following.

  • Lack of a unified source of information. Most probably, the investor would have to use the internet (should the data be available online) in order to put together the maximum amount of information related to its decision to invest in the host country. Even if investment portals might compile broad information regarding investment policies and the macroeconomic environment and basic institutional setting of the host country, the investor would not necessarily be informed about the practical steps required to start the process of setting up the investment or how to fulfil those procedural requirements.
  • Assuming that different agencies are involved in the authorisation process – which is the case almost universally – investors would have to find out by themselves, or through costly consultancies, how many and which agencies are involved in the authorisation process on a case-by-case basis. Institutional websites might provide different, conflicting, or incomplete information in this regard, and, in some cases, might not provide the information in languages other than that of the host country.
  • Application forms and documents might be required in handwriting format, and in some cases multiple copies of the same documents are needed for different purposes. Physical presence of the investor might also be necessary for certain agencies, even in situations in which the fulfilment of the procedural request could be carried out electronically.

These points indicate that not only investors but also governments face important challenges regarding investment flows. For investors, the identification and fulfilment of all procedural requirements can be time-consuming and highly inefficient if carried out by the investor alone. Hiring consultants might be an option for large companies but is most probably out of reach for micro, small and medium enterprises (MSMEs). For governments, the lack of a unified and complete – and  detailed – picture of the national regulatory environment applicable to inward foreign direct investment (FDI) flows makes it harder to design better national policies towards investment and to improve the regulatory environment regarding investment.

Figure 1. Investment facilitation through the single window


Figure 1 helps explain how a single electronic window might facilitate inward FDI flows, both from the investor and the host country perspectives.

The first major advantage for the investor is the electronic “nature” of the interaction with the government of the host country in what concerns the fulfilment of the procedural requirements associated with the setting of the investment. The SEW will reduce – and even eliminate – the need for the investor’s physical presence in the host country in the early stages of the process. A second important aspect is the “one-stop-shop” nature of the SEW, since the single window should become a major channel for the interaction between the investor and the host country government. The system underpinning the SEW will connect the different agencies involved in the authorisation process and distribute the uploaded documents among them. Through the SEW, an investor should be able to: (i) access all necessary and updated information regarding investment policies and the regulatory framework in the host country; (ii) identify clearly how many and which agencies are involved in the authorisation process; (iii) obtain information on the timeframe regarding the processing of each application; (iv) upload all required documents only once; and (v) be directed to systems for paying all fees and taxes associated with the process of setting an investment.

As for governments, a SEW would be a less expensive and more effective tool to concentrate information and a single entry point for investment-related documentation. Moreover, by compiling all the information related to the procedural requirements for investing in the country, the government will find itself in a better position to assess its national regulatory framework, facilitating the task of cutting red-tape, avoiding duplication of requirements, fighting corruption of public officials, and improving the efficiency of national investment policies.

According to UNCTAD, five WTO members operate a full-fledged SEW: Denmark, New Zealand, Estonia, Oman, and Switzerland. In those countries, the SEWs in place already ensure: (a) the possibility to fulfil all administrative procedures related to setting an investment; (b) the payment of all taxes and fees associated with setting an investment; (c) the upload of all required documents; and (d) the fulfilment of the role of an enquiry point.

Other 27 WTO members are already in the process of establishing a SEW with all of these attributes. It is interesting to observe that, out of the 32 members that have already established a SEW or are in the process of putting one in place, 21 are developing countries (Table 1).

Even if a high number of WTO members are not yet in the process of establishing a SEW for investment facilitation, it is worth pointing out that a SEW is similar to a website in several ways. In this regard, 157 WTO members have an official investment web portal and all 164 members have an official website in already in place.

Given that the establishment of a SEW has a sequential nature – establishing an official website is the first step, followed by the official investment web portal, and the four attributes identified by UNCTAD – it can be said that every WTO member is already at some stage in the process of establishing a SEW.

Table 1. WTO members that have or are establishing a single electronic window

In sum, a single electronic window for facilitating investment: (i) would not require changing or merging the competences of different agencies involved in the authorisation of inward FDI, nor would it interfere with the definition of national policies regarding investment; (ii) would set the basic framework within which an investment facilitation approach – a framework or a policy – can be envisaged; and (iii) could be depicted as the “digital face” of the enquiry and contact points already notified by WTO members under articles III:4 and IV:2 of the GATS. Except for Malawi, Tunisia, Senegal and Uganda, every WTO member has notified only one enquiry and contact point for all services sectors and subsectors.

Despite the facilitating role a SEW can play in the investment field, one has to recognise that its implementation will entail a number of different challenges. In the case of federal states, the fact that the legal competence regarding investment can be at the sub-federal level will make it difficult to apply the SEW to all levels of government. A similar challenge was faced when the GATS was negotiated and the solution was to include a best-endeavour clause regarding the observance of obligations and commitments by regional and local governments and authorities (GATS article I.3). A solution would be to design the SEW with a progressive nature, in that the inclusion of sub-federal levels of government could be voluntary and incremental.

Implementing authority

A SEW would require a national authority in order to be implemented and administered. Provided that the implementing authority is capable of performing its assigned duties, an existing authority could become the implementing authority of the single electronic window.

In many countries, a natural candidate for this role could be the investment promotion agencies (IPAs). Even though IPAs could manage the SEW, it is important to note that the basic task of an IPA is related to the promotion of a host country as a destination for FDI,[3] and that investment facilitation goes beyond investment promotion. Investment facilitation involves a variable set of measures, mechanisms, and actions that contribute to a favourable national investment environment, with a strong procedural or practical component.

More important than deciding which agency is going to play the role of the implementing authority is to clarify its attributions and legal competences. If an IPA is assigned the role of being the implementing authority, it would have to be empowered to deliver specific assignments related to investment facilitation, as proposed in the Brazilian draft agreement.

In this regard, several IPAs already provide information – and even assistance – to investors. But the support they provide is sometimes limited by the legal competences of the different agencies involved in the process of authorising investments. In this sense, although IPAs might enjoy some degree of official status, most of the time they are not proper governmental agencies in the sense that they do not necessarily define policies or set internal procedures regarding investment.

Regardless of the choice of the implementing authority, it is fundamental that this agency is prepared to perform a dual set of responsibilities.

The first one relates to investors. Through the SEW and other tools, the implementing authority will serve as a focal point for investors, supplying them with all the information required to proceed with the investment. Moreover, through the SEW the investor should be able to upload required documents and easily directed to systems for paying taxes and fees related to the authorisation process. As importantly, by acting as a connecting tool between investors and regulators throughout the investment lifecycle, the implementing authority will play a major role in avoiding misunderstandings and helping find solutions to difficulties that might hinder the investment. As a result, disputes might be prevented, to the benefit of both investors and host countries.

The second set of responsibilities relates to the interaction with other government agencies with responsibility over different aspects of investments and the improvement/updating of the national regulatory environment affecting investments. This “inward-looking” function of the implementing authority, together with the fact that the SEW compiles information on investment-related procedures and requirements, makes it likely that the implementing authority naturally become the country’s “ombudsperson” of investment, without any prejudice to the right of the state to regulate FDI as it sees fit.

The responsibilities of the national implementing authority go beyond the operation and maintenance of the SEW, as it must be prepared to address complaints or grievances regarding measures adopted or maintained by a member affecting investors and their investment with a view to helping prevent disputes.

Other important issues

Besides a single electronic window and its implementing authority, a fair and balanced investment facilitation approach should also encourage investors to adopt principles of corporate social responsibility so as to build constructive stakeholder relationships in investment policy practice.

It is also important to enable the establishment of investment facilitation and cooperation agendas in areas where further work might improve the investment environment. These agendas could address more technical issues such as payments and transfers, visa concessions, environmental regulations, and institutional exchanges. They would be a dynamic tool to address issues of interest to all WTO members as well as subsets of members interested in investment facilitation.

Finally, since the implementation of a full-fledged SEW would certainly require significant efforts by governments, especially from developing and least developed countries, a variable timeframe for the implementation of the SEW and related obligations should be contemplated. As reflected in the Investment Facilitation Draft Agreement put forward by Brazil, the implementation of a SEW paves the way for cooperation initiatives within the WTO in order to level the playing field for exporters and importers of capital.

Challenges ahead

Although investment facilitation is a recent item on the WTO’s agenda, the increasing engagement witnessed to date suggests that a promising contribution to the reform of international investment rules might emerge. It is important to note that the WTO could play a role in this reform by tackling less politically sensitive issues and structuring technical solutions to the facilitation of investments.

The main challenges ahead are twofold. First to keep market access, investment protection, and ISDS mechanisms out of the discussions in order to avoid falling back into past deadlocks. And second to ensure that the structured discussion provided for in the Joint Ministerial Statement on Investment Facilitation for Development adopted during MC11 moves into a more focused and substantive stage.

 

Felipe Hees, Pedro Mendonça Cavalcante, and Pedro Paranhos are Brazilian diplomats. The opinions expressed in this text are the authors’ and do not necessarily reflect the views of the Brazilian Ministry of Foreign Affairs or the Brazilian government.

[1] Hees, Felipe,and Henrique Choer Moraes. “Breaking the BIT Mould: Brazil’s Pioneering Approach to Investment Agreements.” AJIL Unbound, Blog of the American Journal of International Law, forthcoming, 2018.

[2] The use of a negative definition is pivotal to clarify that all the contentious issues of the past are no longer under consideration. This is basically what renders investment facilitation a different matter from investment as a Singapore issue.

[3] Hees, Felipe, and Pedro Paranhos. “Investment Facilitation: Moving Beyond the Promotion of Investment.” Columbia FDI Perspectives, forthcoming, 2018.