TWN Info Service on Finance and Development (Mar17/04)
16 March 2017
Third World Network
Some reflections on ‘investment facilitation'
Published in SUNS #8421 dated 14 March 2017
Geneva, 13 Mar (Kanaga Raja) -- Regulations related to investment are a very
broad category of measures that are closely intertwined with the development
levels of a country as well as the sector concerned, and addressing such a
broad category of regulations through rules that are designed on the
multilateral level to fit various countries and sectors under a
‘one-size-fits-all' approach would be intrusive on regulatory space.
This is one of the main conclusions highlighted in a South Centre Investment
Policy Brief titled ‘Reflections on the Discussion of Investment Facilitation'
by Kinda Mohamadieh, Senior Researcher of the Centre's Global Governance for
According to the Policy Brief, while ‘investment facilitation' requires
progress towards better linkages between investment flows and development and
industrialization objectives, the answer to such objectives does not lie in
hard rules that establish additional pressures on policy and regulatory space.
Dialogue and exchange at the multilateral level, with the aim of clarifying the
concept and enhancing exchange of experiences among countries could feed more
effectively into national processes, and where appropriate regional level
processes, in order to boost institutional and policy making frameworks.
"Consequently, it is not advisable to proceed towards a rule-making
process on ‘investment facilitation', such as at the World Trade
Organization," says the South Centre paper.
Multilateral discussions on ‘investment facilitation' in other fora ought to
preserve a flexible approach that guards the ability of countries to adapt
proposed actions in accordance with national development frameworks and needs.
This is a highly crucial element in the way forward.
According to the Policy Brief, the concept of ‘investment facilitation' is
broad and could cover a variety of approaches and suggestions made by countries
and multilateral institutions.
Conceptually, it covers a broad set of regulatory actions, institutional roles
and administrative procedures that are usually closely interlinked with
policies and regulations that shape national developmental processes.
As proposed in different fora, the ‘investment facilitation' concept covers
principles of ‘predictability and consistency', ‘transparency' of processes and
engagement with stakeholders, including establishing a mechanism to provide
‘interested parties' with an opportunity to comment on proposed new laws,
regulations and policies or changes to existing ones prior to their
"Emphasizing ‘predictability' in the regulatory environment without
recognizing the need for differentiated approaches in the regulatory processes
among countries and the dynamism that may be required in the regulatory process
in order to attend to changes at the national, regional and global levels,
could result in making such regulatory processes unable to respond to the
regulatory needs posed by a highly globalized and dynamically changing economic
Embedding a deep transparency model, which includes an obligation of prior
consultation with ‘interested parties', under the umbrella of investment
facilitation could amplify existing problematic aspects of investment treaties,
especially those pertaining to the ability of private investors to influence
domestic policy and regulatory processes, leading to a situation of ‘regulatory
chill' in some cases, said the paper.
While the narrative on ‘investment facilitation' draws links with mobilizing
and channelling investment towards sustainable development, an ‘investment
facilitation' model that adversely affects regulatory and policy space would
run counter to national efforts directed towards building linkages between FDI
(foreign direct investment) and sustainable development processes.
In the way forward in the discussion of ‘investment facilitation', it is
important to focus on the implications of the means by which action on
investment facilitation is to be taken with respect to policy and regulatory
Such implications are likely to significantly vary depending on the scenario to
Multilateral convergence over voluntary guidelines that would be implemented as
appropriate by developing countries, taking into account their national
contexts in accordance with development, regulatory, and institutional priorities,
would carry significantly different implications in comparison to negotiating
and having ‘one-size-fits-all' multilateral hard rules that would apply to both
developing and developed countries across varying sectors.
The Policy Brief emphasised that ensuring that investment facilitation efforts
are appropriate to and situated within the framework of a host state's
development policies and objectives are key elements to consider in pursuing
more efforts in this area.
‘Investment facilitation' is a concept repeated in discussions pertaining to
investment policies and treaties, including those addressing the reform of
The discussion on investment facilitation is taking place in various fora and
contexts. Multilateral institutions such as UNCTAD (UN Conference on Trade and
Development), the OECD (Organisation for Economic Cooperation and Development)
and the World Bank have been engaged in this discussion.
Investment facilitation has been on the agenda of the G20 as well. At the regional
level, some country blocs, like the Asia-Pacific Economic Cooperation (APEC),
have developed their Investment Facilitation Action Plan.
Moreover, selected countries have chosen to address this issue bilaterally,
such as through investment treaties. For example, Brazil adopted the
"Investment Co-operation and Facilitation Model".
The term ‘investment facilitation', as used in different fora, remains broad
and unspecific, which allows it to encompass a variety of approaches and
suggestions made by countries and multilateral institutions.
This fluidity in the concept could provide space for discussing different
approaches and thus for nurturing dialogue in regard to the concept.
However, the same conceptual fluidity could lead to lack of clarity or confusion,
especially when participants are not on the same level playing field in the
"While the term ‘facilitation' holds an overall positive connotation,
there may be multiple potential adverse implications for developing countries
of the approaches and rules that could be developed in this area. Such
implications are closely interlinked with the developmental context and
institutional and regulatory frameworks existing in different countries,"
said the paper.
The Policy Brief specifically discusses issues pertaining to whether there
would be an added value from developing hard multilateral rules in the area of
‘investment facilitation', and the potential implications of such rules on
policy and regulatory space.
It noted that the term ‘investment facilitation' has been considered to
encompass a broad set of regulatory actions, institutional roles and
administrative procedures, and that different institutions and fora have chosen
to focus on different angles and approaches to the concept.
For example, in its ‘Policy Framework for Investment', the OECD includes under
investment promotion and facilitation issues pertaining to the business
environment and investment promotion, the role of investment promotion agencies
(IPA) and its performance and dialogue mechanisms, streamlining administrative
procedures, the cost-benefit of investment incentives, issues pertaining to the
promotion of investment linkages, drawing on international expertise, and
information exchange networks in the area of investment.
UNCTAD's Investment and Enterprise Division has developed a more detailed
approach to investment facilitation under the Investment Facilitation Action
It assesses that there is a systemic gap in both national and international
investment policies when it comes to ‘investment facilitation'.
UNCTAD points out that "[a]t the international level, in the overwhelming
majority of the existing 3,300-plus international investment agreements (IIAs),
concrete facilitation actions are either absent or weak".
UNCTAD defines ‘investment facilitation' as encompassing transparent and
predictable rules, efficient administrative procedures, efficient dispute
prevention and resolution, effective stakeholder relations, and investor
services to help deal with rules and procedures.
It explicitly differentiates between investment promotion and facilitation.
UNCTAD anchors promotion in actions of IPAs, image and marketing efforts,
targeting of certain FDI projects, and providing incentives.
The UNCTAD Investment Facilitation Action Menu includes ten lines of action
pertaining to transparency, regulatory process and policies, administrative
procedures, relations with stakeholders, institutional framework, international
cooperation and technical assistance.
According to the Policy Brief, UNCTAD does not specify a manner in which to
advance the efforts pertaining to ‘investment facilitation'.
It points out that the action menu, as an international policy instrument,
reflects flexibility and options to pick and choose from, adapt and adopt for
national and international policymaking.
At the same time, UNCTAD proposes that "the package includes actions that
countries can choose to implement unilaterally and options that can guide
international collaboration or that can be incorporated in IIAs."
The 2016 G20 ministerial meeting held in Shanghai, under China's Presidency,
had agreed a set of non-binding Guiding Principles for Global Investment
The Principles also refer to ‘investment facilitation', providing that
"[p]olicies for investment promotion should, to maximize economic benefit,
be effective and efficient, aimed at attracting and retaining investment, and
matched by facilitation efforts that promote transparency and are conducive for
investors to establish, conduct and expand their businesses".
At a regional level, the Asia-Pacific Economic Cooperation (APEC) had adopted
an investment facilitation action plan, under which "investment
facilitation refers to actions taken by governments designed to attract foreign
investment and maximize the effectiveness and efficiency of its administration
through all stages of the investment cycle... Transparency, simplicity and
predictability are among its most important principles".
‘Investment facilitation' has also been linked to facilitating trade,
specifically efforts under the WTO-led Aid for Trade Initiative and the
recently adopted WTO Trade Facilitation Agreement.
Under this context, it is proposed that the Aid for Trade Initiative could be
expanded to cover investment, or the Trade Facilitation Agreement could be
expanded to cover investment, turning it into an Investment and Trade
It is also proposed that a group of countries could launch a Sustainable
Investment Facilitation Understanding focused on practical ways to encourage
the flow of sustainable FDI to developing countries.
The Policy Brief also highlighted the practices of selected developing
countries such as Brazil and South Africa.
In the context of presenting an alternative to the traditional international
investment treaty model, Brazil developed a model treaty entitled
"Investment Cooperation and Facilitation Model".
The model focuses on a ‘best endeavour' approach to investment facilitation
that is in line with domestic laws.
For example, it provides for provisions on ‘Exchange of information between
Parties' "whenever possible and relevant to reciprocal
It also anchors transparency requirements in ‘best-endeavour' language, whereby
the provisions require the administering of ‘measures that affect investment'
in a ‘reasonable, objective and impartial manner, in accordance with [Parties']
The Policy Brief noted that the Brazilian model does not provide for a system
of investor-state dispute settlement, but sets in place a system of focal
points and joint committees to prevent, manage and resolve disputes, and a
mechanism of arbitration between the States as a last resort if other means do
In the South African experience, the investment framework includes sectoral
programmes and investment facilitation as two core elements.
This investment framework was developed after South Africa withdrew from its
bilateral investment agreements and adopted a revised national investment law
as an alternative.
The sectoral programmes are part of South Africa's industrial policy, which
creates an environment that will attract investors in particular sectors.
South Africa coupled sectoral programmes with actions to facilitate the entry
of targeted investors in the sectoral programmes and to facilitate investments
in these sectors.
A committee chaired by the President oversees the work of the investment
agency. It coordinates with legislative bodies' committees and sets targets for
The Policy Brief said the propositions pertaining to the ‘investment
facilitation' concept encompass principles of ‘predictability and consistency',
‘transparency' of processes and engagement with stakeholders, including
establishing a mechanism to provide interested parties with an opportunity to
comment on proposed new laws, regulations and policies or changes to existing
ones prior to their implementation.
It noted that predictability and consistency are emphasized in the narrative on
investment facilitation. These two principles could be evaluated in multiple
For example, predictability and consistency could be required from the time of
instituting a certain measure, whereby a consecutive change induced by new
evidence, such as environmental or health assessments or exogenous crisis such
as a financial crisis, would be considered a retreat from maintaining
‘predictability and consistency'.
Another approach could be evaluating the predictability of one country's
measures based on the practices by other countries, irrespective of the
domestic developmental context, including institutional framework, within a
Understanding ‘predictability' as the expectation that a certain country will
follow the regulatory practice of other countries or follow international
standards would impose a ‘one-size-fits-all' approach that carries tensions
with developmental considerations.
Indeed, said the paper, there is concern about the potential burden on
developing countries when rules that require converging to a practice
considered ‘best practice' at the international level are imposed.
"In developing countries, where regulatory frameworks and institutions are
still in the process of evolving, and as the government's capacity to regulate
and the economy and society change, such requirements would put strong
constraints on the right of the State to regulate. Overall, this approach would
contradict the nature of regulations, which are supposed to evolve with the
changing local, national, and global contexts."
On the other hand, limiting the requirement of consistency to the application
of investment regulations across relevant institutions, which is the approach
adopted under the UNCTAD Action Menu, could be less intrusive on policy space
if it does not require consistency over an unlimited timeframe.
Thus, emphasizing ‘predictability' in regulatory environment without
recognizing the differentiated approaches in the regulatory process among
countries and the dynamic changes required in the regulatory process in order
to attend to changes at the national, regional and global levels, such as an
unexpected financial crisis or arising climate action, would be detached from
the regulatory needs posed by a highly globalized and dynamically changing global
Moreover, the investment facilitation narrative includes broad approaches to
transparency and stakeholder involvement.
This encompasses publishing laws, regulations, judicial decisions and
administrative rulings; setting a centralized registry of laws and regulations
and single window or special enquiry points; allowing investors to choose their
form of establishment within legislative and legal frameworks; providing
investors with clear and up-to-date information and timely and relevant advice
on changes in procedures, applicable standards, technical regulations and
conformance requirements; providing advance notice of proposed changes to laws
and regulations; and making available screening guidelines and clear
definitions of criteria for assessing investment proposals.
Besides, it includes proposals for setting a requirement that ‘interested
parties', including the business community and investment stakeholders, be
provided with an opportunity to comment on proposed new laws, regulations and
policies or changes to existing ones prior to their implementation.
The category of ‘interested parties' is an undefined open-ended category, which
could include private entities beyond the investors directly concerned with a
specific investment in a specific country.
"Given the significant capacities of private entities, including
multinational corporations, to organize lobbying strategies, such obligations
of prior consultations could have an undue influence on national regulatory and
legislative processes. It could skew the pressure on the regulatory and
legislative processes towards interests defined primarily by private profit and
away from the concerned public interest," said the Policy Brief.
In this regard, it noted that a similar requirement was negotiated under the
Trade Facilitation Agreement (TFA). This was a contested issue; many developing
countries were not supportive of inserting such obligations under the TFA. The
negotiations ended with a ‘best endeavour' provision.
It is also important to underline that the category of "laws and
regulations of general application related to the movement, release, and
clearance of goods, including goods in transit" is more limited than the
category of laws and regulations related to investment.
Thus, such transparency requirement would potentially be more burdensome on the
institutional capacities and regulatory processes of developing countries.
"Setting an obligation on countries to guarantee the participation of
interested parties could potentially serve as another space for foreign
investors to influence domestic policy making, besides their ability to
challenge policy and regulatory steps through investor-State dispute settlement
(ISDS) mechanisms," the paper cautioned.
Investors already use the ISDS mechanism to bring cases or threaten by bringing
costly cases in an attempt to prevent new legislation and other measures from
being adopted or applied, thus effectuating a ‘chilling effect' on the
"Embedding an intrusive transparency model that includes an obligation of
prior consultation with ‘interested parties' under the umbrella of investment
facilitation would enhance existing problematic aspects of investment treaties
in regard to investor-State relations and investor's conduct."
Overall, the narrative on ‘investment facilitation' seeks to link the concept
to efforts in support of mobilizing and channelling investment towards
sustainable development, including building of productive capacities and
Building such linkages between foreign direct investment (FDI) and sustainable
development processes is not a ‘laissez faire' endeavour, but requires active
policy interventions by governments, said the Policy Brief.
An ‘investment facilitation' model that is intrusive on regulatory and policy
space would run counter to efforts directed towards building linkages between
FDI and sustainable development processes.
"Moreover, investment facilitation interventions that are not associated
with reform to the content of the existing investment protection treaties and
investor-state dispute settlement mechanism would be futile in terms of
spilling positively onto the sustainable development front."
In the way forward in discussing ‘investment facilitation', it is important to
delineate the potential implications of various means by which action in this
regard could be taken.
Indeed, the implications on policy and regulatory space would significantly
vary depending on the scenario chosen for the way forward, said the Policy
A scenario where multilateral dialogue seeks convergence over voluntary
guidelines that would be implemented in national contexts in accordance with
development, regulatory, and institutional contexts would carry significantly
different implications in comparison to a ‘one-size-fits-all' multilaterally
binding hard rules established to apply to both developing and developed
countries across varying sectors.
Indeed, turning non-binding principles into binding rules and commitments could
become too intrusive on policy and regulatory space.
In this discussion, it is crucial to underline that regulations related to
investment are a very broad category of measures that is closely intertwined
with the development levels of a country as well as the sector concerned.
Moreover, the difference in institutional capacities is a major determinant of
the way countries design and implement regulations.
"Accordingly, addressing such a broad category of regulations through
rules that are designed on the multilateral level to fit various countries and
sectors, across the board, under a ‘one-size-fits-all' approach would be
intrusive on regulatory space."
Considering the diversity of the regulations related to investment, and which
are imbedded in a country's development levels, focusing on prioritizing
efficiency, predictability and consistency from an investor perspective and
minimizing costs of the investor could imply shrinking the regulatory space
that countries require in order to take into account developmental elements,
including social, economic, and environmental and sustainability implications.
It is crucial that the way forward in investment-related policy making focuses
on the nature of needed reforms that will help reshape investment law and
policy to be more conducive to and supportive of development and
industrialization prospects in developing countries.
These reforms should help establish conditions where FDI (foreign direct
investment) could provide a stable source of support to industrialization and
development, including through supplementing domestic resources, enhancing
productive capacity, and supporting technological progress and industrial
Ensuring an appropriate balance between the rights and obligations of investors,
safeguarding the right to regulate, and ensuring that investment promotion and
facilitation efforts are appropriate to and situated within the framework of a
host state's development policies and objectives are elements that form key
aspects of such needed reforms, said the Policy Brief.
(The Policy Brief can be found at: https://www.southcentre.int/investment-policy-brief-8-march-2017/)