Towards a multilateral investment facilitation framework: Elements in international investment agreements

12 October 2018
  • Investment facilitation measures that are correctly designed and effectively implemented have the potential to advance sustainable investment.
  • Certain elements of investment facilitation can be found in existing international investment agreements, including both bilateral investment treaties and regional trade agreements with investment chapters.
  • Commonalities among existing provisions could serve as stepping stones for convergence across international investment agreements and between them and the multilateral trade system.

 

In recent years, an interesting policy debate has taken place in different fora about the need to develop a multilateral framework to facilitate investment, similar to the World Trade Organization’s Trade Facilitation Agreement (TFA).

Although investment activities are generally seen as desirable among developing countries, there is no consensus on the need for an international instrument on investment facilitation; nor on the way in which action on investment facilitation is to be taken – e.g. multilateral or plurilateral legally binding agreement, voluntary guidelines, best practices, or soft law.

One way to further the discussion on this issue is to assess how investment facilitation is currently considered in existing international investment agreements (IIAs), including both bilateral investment treaties (BITs) and regional trade agreements (RTAs) with investment chapters.

This approach would help to identify commonalities that could serve as stepping stones for convergence across IIAs and between them and the multilateral trade system. This does not necessarily imply that similarities are the best or even desired approaches, as shortcomings could also in exist in investment facilitation provisions.

What do we mean when we talk about investment facilitation?

Investment facilitation is an expansive notion, not always clearly defined and sometimes confused with the concepts of investment promotion or investment retention. There are some slight differences in approaches to the content of investment facilitation across institutions, such as the Organisation for Economic Co-operation and Development (OECD), the United Nations Conference on Trade and Development (UNCTAD), the World Bank, and the G20.

From an analytical review of these different approaches, we can conclude that there are at least two different takes on investment facilitation, identified as the normative and functional approaches.

A normative approach focuses on policies, laws, and regulations that enable foreign investors to establish and operate in a specific location, with an emphasis on the policy and procedural aspects of investing.

A functional approach is centred on the activities conducted to support an investor through various phases of the investment process, usually coordinated by investment promotion agencies that organise the support of relevant public or private entities and directly assist the investor, with an emphasis on the practical and operational needs of investors and investments.

Investment facilitation provisions in existing IIAs

Although provisions explicitly on investment facilitation are still not common in investment agreements, certain elements of this concept can be found in BITs and RTAs with investment chapters, without using that denomination.

When facilitation provisions are included, they are usually of general scope. We have identified at least 12 different elements of investment facilitation: (i) provisions on improving the investment climate; (ii) removal of bureaucratic impediments to investment; (iii) facilitation of investment permits; (iv) facilitation of entry and sojourn of personnel related to investment; (v) transparency; (vi) capacity-building on investment issues; (vii) investment financing; (viii) insurance programmes; (ix) pre-establishment investor servicing; (x) post-establishment investor aftercare; (xi) relations with investors and the private sector; and (xii) joint cooperation and treaty bodies on investment facilitation.

From the perspective of convergence, improving the investment climate could be considered a central element, as it is subsumed in all the other different provisions with elements of investment facilitation. The most common of these provisions are on transparency, post-establishment activities, and relations with investors and the private sector. These commitments are also the most specific and binding. Also important are provisions facilitating permits for the establishment of an investment and the entry and sojourn of investment-related personnel, but their level of commitment varies across agreements, being mostly “best efforts” provisions.

However, the level of variation of the content of investment facilitation among a small number of IIAs is important. This has implications for the conceptualisation and implementation of these provisions and, in turn, affects the possibility of convergence and coherence of investment facilitation elements. At the same time, the type of facilitation desirable would differ for different stakeholders, such as foreign investors and affected communities.

Advancing sustainable investment

Given the substantial investment gap that exists to reach the Sustainable Development Goals (SDGs), it would be highly desirable if foreign direct investment (FDI) flows would rise considerably, particularly to developing countries and least-developed countries (LDCs).

But the importance of investment facilitation for sustainable development goes beyond being an essential source of funding. Such an agreement could target to facilitate not only investment in general but also the type of FDI that is beneficial for the host state.

Investment facilitation can also be understood as guidelines to think about domestic institutions and processes, embedding principles such as transparency, publicity, due process, inclusion, and electronic. It can also be used to improve environmental, social, and human rights impact assessments and associated multistakeholder consultations.

Five policies should be considered in the discussion on a multilateral framework for investment facilitation.

  • To include more functional approaches in investment facilitation, it is important to consider the needs of the people that work at ground level on these issues and including best practices.
  • If investment facilitation provisions are included at a multilateral level, it would be necessary to assess the relationship with existing IIAs that do not include such provisions.
  • It is important to consider different levels of implementation of investment facilitation provisions at federal, state, or local levels.
  • It is necessary to define in each case which country is better placed to advance investment facilitation policies, because in some cases home states could also play an important facilitation role for FDI, particularly with respect to LDCs.
  • It is important to define where investment facilitation efforts could be more effective.

Although it is unlikely that a multilateral agreement on investment facilitation will be agreed soon, we believe that it is worthwhile to have such a discussion, as investment facilitation measures that are correctly designed and effectively implemented could advance sustainable investment.

 

Rodrigo Polanco is a Senior Researcher and Lecturer at the World Trade Institute in Bern, Switzerland.

This post is derived from the paper Facilitation 2.0: Investment and Trade in the Digital Age authored by Rodrigo Polanco and commissioned by ICTSD under the RTA Exchange, jointly convened with the Inter-American Development Bank (IDB).