international problems and policies

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INTERNATIONAL PROBLEMS AND POLICIES

Rationale

Historically, the Philippines have been an important centre for commerce for centuries

for its ethnic minority, namely, the Chinese who were also its first occupants. The archipelagohas also been visited by Arabs and Indians for the purpose of trading in the first and early

second millennium.

Since 1980s, the Philippines have opened their economy to foreign markets, and

established a network of free trade agreements with several countries. Much of the countrys

international relations are dominated by ties to its Southeast Asians neighbor, United States,

and the Middle East.

Objectives

1. To provide a background of international problems and policies.2. To identify products that is exports and imports.3. To present the countrys international status.

Main Context

Every government has these three (3) basic economic policies: Fiscal, Monetary, and Trade.

Trade Policies. Refer to theeconomic policies of the government for its import and export

transactions. Thus, this is also known as the Import and Export Policies.

Imports are products ( goods or services) that are bought from other countries while exports

are products that are sold to other countries. These import and export transactions refer toInternational Trade.

In the case of the Philippines, the primary imports- commodities: electronic products,

mineral fuels, machinery and transport equipment, iron and steel, textile fabrics, grains,

chemicals, plastic.

Primary imports partners: Japan (12.5 percent of total imports), US (12 percent), China

(8.8 percent), Singapore (8.7 percent), South Korea (7.9 percent), Taiwan (7.1 percent),

Thailand (5.7 percent).

Total Value of Imports: US$59.9 billion

Japan

Relations between the Philippines and Japan have rapidly improved since the end of

World War II. Modern relations between the Philippines and Japan are very close and Japan is

a key trading, economic and possibly military ally of the Philippines. Japan has also assisted the

Philippines in building tunnels, bridges and highways (motorway) in Metro Manila, and is a

main source of rail equipment and advisor for rail transport development. In 2005/2006 Japan

dropped an US$8 billion debt with the Philippines and after the Leyte Mud slide Japan deployed
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soldiers to Leyte to assist Filipino and foreign workers. There are thousands of Japanese

nationals/citizens (civilians) living in the Philippines (see Ethnic groups in the Philippines for

details). Japanese business people have opened a large number of businesses in the Philippines

offering jobs to Filipino workers.

China

The Philippines recognize the One China Policy but has relations to the Republic of

China (ROC, also known as Taiwan) through the Manila Economic and Cultural Office

in Taipei and Taipei Economic and Cultural Office in Manila. Both offices were established in

1975 and were organized as non-profit and non-stock private corporations.

Total Investment Amount: US$1.1 billion (Taiwan is the 5th largest foreign investor in the

Philippines)

Philippine Exports to Taiwan: US$3.1 billion

Philippine Imports from Taiwan: US$2.3 billion

OFWs in Taiwan: 87,000 (the 2nd largest foreign worker nationality group in Taiwan)

Trips to the Philippines by Taiwanese: 73,000 people (the 5th in foreign tourist arrivals in the

Philippines)

As of 2011 there is no mutual extradition agreement between the ROC and the Philippines.

By early March 2011, the Philippines deported 15 Taiwanese drug pushers to Beijing,China. The

ROC protested with this action. The Philippine government sent Manuel Roxas II to talk with

ROC President Ma Ying-jeou. During the visit, Roxas mentioned that the Philippines "regret"

their actions. But the ROC maintained that the Philippines apologize for their action. The

mission failed, so a second one was sent, headed again by Roxas. The mission, however, failed.

From then on, ROC-Philippine relations became strained.But now the ROC and Philippines are

back to normal.

South Korea

South Korea is one of the Philippines' largest trading partners. The two nations were

especially close as the Armed Forces of the Philippines, under the United Nations command

ofDouglas MacArthur, were pledged to fight for South Korea and its allies in the Korean War.

International trade is exchange ofcapital, goods, and services across international borders or

territories. In most countries, it represents a significant share of gross domestic product (GDP).

While international trade has been present throughout much of history (see Silk Road, Amber

Road), its economic, social, and political importance has been on the rise in recent centuries.
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Primary exports commodities: semiconductors and electronic products, transport

equipment, garments, copper products, petroleum products, coconut oil, fruits.

Primary export partners: US (17.6 percent of total exports), Japan (16.2 percent),

Netherlands (9.8 percent), Hong Kong (8.6 percent), China (7.7 percent), Germany (6.5

percent), Singapore (6.2 percent), South Korea (4.8 percent).

Total Value of Exports: US$50.72 billion

1. Semiconductors & related devices US$2.5 billion (25.3% of Philippine to U.S. exports,up 4.8% from 2005)

2. Cotton household furnishings & clothing $1.34 billion (13.8%, up 12.7%)3. Computer accessories, peripherals & parts $1.31 billion (13.5%, down 11%)4. Non-cotton household furnishings & clothing $605 million (6.2%, up 2.5%)5. Automotive parts & accessories $488.5 billion (5%, up 10.2%)6. Furniture & other household items (e.g. baskets) $277.7 million (2.9%, down 5.8%)7. Electric apparatus $268.9 million (2.8%, up 0.3%)8. Household items (e.g. clocks) $245.7 million (2.5%, up 63.7.6%)9. Fish & shellfish $240.8 million (2.5%, up 2.8%)10.Goods returned then re-exported ... $232.5 (2.4%, up 17.9%).

Fastest-Growing Filipino Exports to U.S.

Below are American imports from the Philippines in 2006 with the highest percentage sales

increases from 2005.

1. Computers US$88 million (up 417% from 2005)2. Automotive tires & tubes $23 million (up 393%)3. Marine engines & parts $2.6 million (up 333%)4. Specialized mining & oil processing equipment $1.1 million (up 208%)5. Miscellaneous material (e.g. hair & waste material) $2.9 million (up 135%).

Philippine Imports from U.S.

Of the $7.6 billion in American exports to the Philippines in 2006, the following product

categories had the highest values.

1. Semiconductors US$4.3 billion (56.8% of Philippine from U.S. imports, up 10.4% from2005)2. Wheat $320.3 million (4.2%, up 18.6%)

3. Measuring, testing & control instruments $218.8 million (2.9%, up 30.4%)4. Telecommunications equipment $211.7 million (2.8%, up 8.1%)5. Electric apparatus $166.6 million (2.2%, up 24.5%)6. Computer accessories $158.4 million (2.1%, up 19.5%)7. Other industrial machines $153.1 million (2%, up 14.9%)8. Animal feeds $124.4 million (1.6%, up 6.4%)


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9. Minimum value shipments $111.2 million (1.5%, up 13.1%)10.Vehicle parts & accessories $105 million (1.4%, up 7.2%).

Fastest-Growing Filipino Imports from U.S.

Below are American exports to the Philippines in 2006 with the highest percentage salesincreases from 2005.

1. Other commercial vehicles US$1.4 million (up 1192% from 2005)2. Civilian aircraft $17.7 million (up 446%)3. Military vehicles (e.g. armored cars & trucks) $3.6 million (up 268%)4. Unmanufactured agricultural items $12.4 million (up 258%)5. Cookware, cutlery & tools $14.2 million (up 256%).

Sources

This analysis is based on latest statistics from the US Census Bureau - Foreign Trade Statistics

and CIA World Factbook as of the date of article publication.

Industrialization, advanced transportation, globalization, multinational corporations, and

outsourcing are all having a major impact on the international trade system. Increasing

international trade is crucial to the continuance of globalization. Without international trade,

nations would be limited to the goods and services produced within their own borders.

International trade is in principle not different from domestic trade as the motivation and the

behavior of parties involved in a trade do not change fundamentally regardless of whether

trade is across a border or not. The main difference is that international trade is typically morecostly than domestic trade. The reason is that a border typically imposes additional costs such

as tariffs, time costs due to border delays and costs associated with country differences such as

language, the legal system or culture.

Another difference between domestic and international trade is that factors of production such

as capital and labour are typically more mobile within a country than across countries. Thus

international trade is mostly restricted to trade in goods and services, and only to a lesser

extent to trade in capital, labor or other factors of production. Then trade in goods and services

can serve as a substitute for trade in factors of production.

Instead of importing a factor of production, a country can import goods that make intensive use

of the factor of production and are thus embodying the respective factor. An example is the

import of labor-intensive goods by the United States from China. Instead of importing Chinese

labor the United States is importing goods from China that were produced with Chinese labor.

One report in 2010 suggested that international trade was increased positively when a country

hosted a network of immigrants, but the trade effect was weakened when the immigrants

became assimilated into their new country.
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International trade is also a branch of economics, which, together with international finance,

forms the larger branch ofinternational economics.

The difference between a countrys volume of imports and exports is called balance of trade;

while the difference between the monetary value of its imports and exports is called balance of

payments.

Ideally, volume of export must be higher than the volume of imports; and the monetary value

of exports receipts must be higher than the imports disbursements.

Trade policy of the government is geared toward having favorable balance of trade (volume of

exports are greater than the volume of imports) and favorable balance of payments (monetary

value of exports receipt must be greater than monetary value of imports disbursements).

If the volume of exports is lower than the volume of imports there is unfavorable balance of

trade; in like manner, if the monetary value of exports is lower than the monetary value of

imports there is unfavorable balance of payments. If these situations occur there must be

problems that must be resolved, thus, the government must have to review and assess its own

trade policy, and eventually enact new policies and come up with new strategies to cope up

with the playing field and situation in the international market.

Among the strategies that can be used are the following, as follows:

Import substitution, economic policy adopted in most developing countries from the 1930s to

the 1980s to promote industrialization by protecting domestic producers from the competition

of imports. Protectionin the form of high tariffs or the restriction of imports through

quotaswas applied indiscriminately, often to inherently high-cost industries that had no hopeof ever becoming internationally competitive. After the early stages of import substitution,

protected new industries tended to be very intensive in the use of capital and especially of

imported capital goodsi.e., tangible items such as buildings, machinery, and equipment

produced and used in the production of other products.

With high levels of protection for domestic industry, and with exchange rates that were often

maintained at unrealistic levels (usually in an effort to make imported capital goods cheap),

the experience of most countries practicing import substitution was that export earnings grew

relatively slowly. The simultaneous sharp increase in demand for imported capital goods (and

for raw materials and replacement parts as well) led to critical foreign-exchange shortages,

eventually forcing most countries to reduce imports. The cutbacks in imports in turn reduced

With growth rates, leading in many cases to recessions.

This result led to the view that economic stagnation was caused primarily by a shortage of

foreign exchange with which to buy essential industrial inputs. However, contrasting the

experience of countries that persisted in policies of import substitution with those that

followed alternative policies subsequently demonstrated that a foreign-exchange shortage was
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a barrier to growth only within the context of the protectionist policies adopted and was not

inherently a barrier to the development process itself.

Export Promotion. A strategy for economic development which encourages industrial growth

within a nation in order to reduce imports of manufactures, save foreign exchange, provide

jobs, and reduce dependency. The United Nations Commission for Latin America promotedimport substitution policies in the 1960s, but they were not successful, and such policies have

been replaced by strategies grounded on export-led industrialization.

Rationale Behind Export Promotion

The capability of Indian MSME products to compete in international markets is reflected in its

share of about 34% in national exports. In case of items like readymade garments, leather

goods, processed foods, engineering items, the performance has been commendable both in

terms of value and their share within the MSME sector while in some cases like sports goods

they account for 100% share to the total exports of the sector. In view of this, export promotion

from the small scale sector has been accorded high priority in Indias export promotion strategy

which includes simplification of procedures, incentives for higher production of exports,

preferential treatments to MSMEs in the market development fund, simplification of duty

drawback rules, etc. Products of MSME exporters are displayed in international exhibitions free

of cost under SIDO Umbrella abroad.

International Exposure to MSME Products

With a view to rendering assistance to Micro & Small Manufacturing Enterprises in the field of

exploring market potential, export promotion, participation in international trade fair exhibition

, the following schemes are being implemented:-

Export Promotion Programmes / Measures

MARKETING ASSISTANCE AND EXPORT PROMOTION SCHEME

(A) Plan Scheme Training and Manpower Development' consists of the following Components

:-

Participation in the International Exhibitions/ Fairs.

Training Programmes on Packaging for Exports

Marketing Development Assistance Scheme for MSME exporters (MSME-MDA)

National Award for Quality Products.

(B) Export Promotion from the small-scale sector has been accorded a high priority in the
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India's export promotion strategy. Apart from the number of incentives and facilities to

small-scale exporters, the following plan schemes are in operation for achieving growth in

exports.

Foreign aid or (development assistance) is often regarded as being too much, or wasted on

corrupt recipient governments despite any good intentions from donor countries. In reality,

both the quantity and quality of aid have been poor and donor nations have not been held to

account.

There are numerous forms of aid, from humanitarian emergency assistance, to food aid,

military assistance, etc. Development aid has long been recognized as crucial to help poor

developing nations grow out of poverty.

In 1970, the worlds rich countries agreed to give 0.7% of their GNI (Gross National Income) as

official international development aid, annually. Since that time, despite billions given each

year, rich nations have rarely met their actual promised targets. For example, the US is often

the largest donor in dollar terms, but ranks amongst the lowest in terms of meeting the stated

0.7% target.

Furthermore, aid has often come with a price of its own for the developing nations:

Aid is often wasted on conditions that the recipient must use overpriced goods andservices from donor countries

Most aid does not actually go to the poorest who would need it the most Aid amounts are dwarfed by rich country protectionism that denies market access for

poor country products, while rich nations use aid as a lever to open poor country

markets to their products

Large projects or massive grand strategies often fail to help the vulnerable as money canoften be embezzled away.

External debt (or foreign debt) is that part of the total debt in a country that is owed to

creditors outside the country. The debtors can be the government, corporations or private

households. The debt includes money owed to private commercial banks, other governments,or international financial institutions such as the IMF and World Bank.

Generally, external debt is classified into four heads:

1. Public and publicly guaranteed debt;2. Private non-guaranteed credits;3. Central bank deposits; and
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4. Loans due to the IMF.However, the exact treatment varies from country to country. For example, while Egypt

maintains this four head classification, in India it is classified in seven heads:

1. Multilateral,2. Bilateral,3. IMF loans,4. Trade credit5. Commercial Borrowings,6. NRI Deposits, and7. Rupee Debt, and8. NPR Debt

External debt sustainability

Sustainable debt is the level of debt which allows a debtor country to meet its current

and future debt service obligations in full, without recourse to further debt relief or

rescheduling, avoiding accumulation of arrears, while allowing an acceptable level of economic

growth. (UNCTAD/ UNDP, 1996)

External-debt-sustainability analysis is generally conducted in the context of medium-

term scenarios. These scenarios are numerical evaluations that take account of expectations of

the behavior of economic variables and other factors to determine the conditions under which

debt and other indicators would stabilize at reasonable levels, the major risks to the economy,

and the need and scope for policy adjustment. In these analysis, macroeconomic uncertainties,

such as the outlook for the current account, and policy uncertainties, such as fiscal policy, tendto dominate the medium-term outlook.

Indicators of external debt sustainability

There are various indicators for determining a sustainable level of external debt. While

each has its own advantage and peculiarity to deal with particular situations, there is no

unanimous opinion amongst economists as to one sole indicator. These indicators are primarily

in the nature of ratios i.e. comparison between two heads and the relation thereon and thus

facilitate the policy makers in their external debt management exercise. These indicators can be

thought of as measures of the countrys solvency in that they consider the stock of debt at

certain time in relation to the countrys ability to generate resources to repay the outstanding

balance.

Foreign direct investment (FDI) or foreign investment refers to the net inflows of investment

to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise

operating in an economy other than that of the investor.[1]

It is the sum of equity capital,

reinvestment of earnings, other long-term capital, and short-term capital as shown in the
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balance of payments. It usually involves participation in management, joint-venture, transfer of

technology and expertise. There are two types of FDI: inward foreign direct investment and

outward foreign direct investment, resulting in a netFDI inflow(positive or negative) and "stock

of foreign direct investment", which is the cumulative number for a given period. Direct

investment excludes investment through purchase of shares.[2]

FDI is one example of

international factor movements.

History

FDI is a measure of foreign ownership of productive assets, such as factories, mines and land.

Increasing foreign investment can be used as one measure of growing economic globalization.

The figure below shows net inflows of foreign direct investment in the United States. The

largest flows of foreign investment occur between the industrialized countries (North America,

Western Europe and Japan). But flows to non-industrialized countries are increasing sharply.

US International Direct Investment Flows:[3]

Period FDI Inflow FDI Outflow Net Inflow

1960-69 $ 42.18 bn $ 5.13 bn + $ 37.04 bn

1970-79 $ 122.72 bn $ 40.79 bn + $ 81.93 bn

1980-89 $ 206.27 bn $ 329.23 bn - $ 122.96 bn

1990-99 $ 950.47 bn $ 907.34 bn + $ 43.13 bn

2000-07 $ 1,629.05 bn $ 1,421.31 bn + $ 207.74 bn

Total $ 2,950.69 bn $ 2,703.81 bn + $ 246.88 bn

Types

A foreign direct investor may be classified in any sector of the economy and could be any one of

the following:[citation needed]

an individual; a group of related individuals; an incorporated or unincorporated entity; a public company or private company; a group of related enterprises; a government body; an estate (law), trust or other social institution; or
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any combination of the above. MethodsThe foreign direct investor may acquire voting power of an enterprise in an economy through

any of the following methods:

by incorporating a wholly owned subsidiary or company by acquiring shares in an associated enterprise through a merger or an acquisition of an unrelated enterprise participating in an equity joint venture with another investor or enterprise

Foreign direct investment incentives may take the following forms:[citation needed]

low corporate tax and income tax rates tax holidays other types of tax concessions preferential tariffs special economic zones EPZ - Export Processing Zones Bonded Warehouses Maquiladoras investment financial subsidies soft loan or loan guarantees free land or land subsidies relocation & expatriation subsidies job training & employment subsidies infrastructure subsidies

MAIN INDEX

Philippine International Regulations

Philippine Foreign Investment Brief

Omnibus Investments Code of 1987

An Act Amending Article 39, Title III of Executive Order No. 226,

Otherwise Known as the Omnibus Investments Code of 1987, As Amended,and for Other Purposes.

Republic Act No. 7918

An Act to Amend Article 7 (13) of Executive Order No. 226, Otherwise
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Known as the Omnibus Investments Code of 1987.


An Act Granting Tax and Duty Exemption and Tax Credit on Capital

Equipment


Foreign Investments Act of 1991

1996 Amendatory Law Liberalizing Foreign Investments

Implementing Rules of the Foreign Investments Act

The 2000 Investment Priorities Plan

Special Economic Zone Act of 1995

The Bases Conversion and Development Act of 1992

An Act Amending Section 8 of Republic Act Numbered Seventy-Two

Hundred and Twenty-Seven, Otherwise Known as the Bases Conversion

and Development Act of 1992, Providing for the Distribution of Proceeds

From the Sale of Portions of Metro Manila Military Camps, and for Other

Purposes.

Further Amending Presidential Decree No. 66 Dated November 20,

1972, Creating the Export Processing Zone Authority.

Presidential Decree No. 1786

Creating the Export Processing Zone Authority and Revising Republic Act

No. 5490.

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Cagayan Special Economic Zone Act of 1995

Zamboanga City Special Economic Zone Act of 1995

An Act Making Mariveles, Province of Bataan, a Port of Entry by

Amendindg Section Seven Hundred One of the Tariff and Customs Code of

the Philippines, as Amended, Providing for the Establishment, Operation

and Maintenance of a Foreign Trade Zone Therein; Creating a Foreign

Trade Zone Authority; and Authorizing the Appropriation of the Necessary

Funds Therefor.

Executive Order No. 139 [October 22, 2002]

(5th Regular Foreign Investment Negative List)

5th Regular Foreign Investment Negative List A - Latest

5th Regular Foreign Investment Negative List B - Latest

Executive Order No. 11 [August 11, 1998]

3rd Regular Foreign Investment Negative - List A - Old

3rd Regular Foreign Investment Negative List B - Old

2nd Regular Investment Negative List A - Old

2nd Regular Investment Negative List B - Old

Export Development Act of 1994

Rules Implementing the Export Development Act

Build-Operate-Transfer Law
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Implementing Rules and Regulations of the Build-Operate-Transfer Law

Magna Carta for Small Enterprises

Liberalizing the Philippine Investment House Industry

Amending Further Presidential Decree No. 129, As Amended, Otherwise

Known as "The Investment Houses Law"


Sponsored by: The ChanRobles Group

Go to:

Board of Investments (BOI) Resources

Medium-Term Philippine Development Plan 2004-2010

Download Copy - PDF format 5.37MB, ZIP file 4.83MB,

Faster Download - PDF Format per Chapter

International Investment Agreement

An International Investment Agreement (IIA) is a treaty between countries that addresses

issues relevant to cross-border investments, usually for the purpose of protection, promotion

and liberalization of such investments. Most IIAs cover foreign direct investment (FDI) and

portfolio investment, but some exclude the latter. Countries concluding IIAs commit themselves

to adhere to specific standards on the treatment of foreign investments within their territory.

IIAs further define procedures for the resolution of disputes should these commitments not be

met. The most common types of IIAs are Bilateral Investment Treaties (BITs) and Preferential

Trade and Investment Agreements (PTIAs). International Taxation Agreements and Double

Taxation Treaties (DTTs) are also considered as IIAs, as taxation commonly has an important

impact on foreign investment.

Bilateral investment treaties deal primarily with the admission, treatment and protection of

foreign investment. They usually cover investments by enterprises or individuals of one country

in the territory of its treaty partner. Preferential Trade and Investment Agreements are treaties

among countries on cooperation in economic and trade areas. Usually they cover a broader set

of issues and are concluded at bilateral or regional levels. In order to classify as IIAs, PTIAs must
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include, among other content, specific provisions on foreign investment. International taxation

agreements deal primarily with the issue of double taxation in international financial activities

(e.g. regulating taxes on income, assets or financial transactions). They are commonly

concluded bilaterally, though some agreements also involve a larger number of countries.

Contents of International Investment Agreements

Countries conclude IIAs primarily for the protection and, indirectly, promotion of foreign

investment, and increasingly also for the purpose of liberalization of such investment. IIAs offer

companies and individuals from contracting parties increased security and certainty under

international law when they invest or set up a business in other countries party to the

agreement. The reduction of the investment risk flowing from an IIA is meant to encourage

companies and individuals to invest in the country that concluded the IIA. Allowing foreign

investors to settle disputes with the host country through international arbitration, rather than

only the host countrys domestic courts, is an important aspect in this context.

Typical provisions found in BITs and PTIAs are clauses on the standards of protection and

treatment of foreign investments, usually addressing issues such as fair and equitable

treatment, full protection and security, national treatment, and most-favored nation

treatment.[1]

Provisions on compensation for losses incurred by foreign investors as a result of

expropriation or due to war and strife usually also form a core part of such agreements. Most

IIAs additionally regulate the cross-border transfer of funds in connection with foreign

investments.

Contrary to investment protection, provisions on investment promotion are rarely formally

included in IIAs, and if so such provisions usually remain non-binding. Nevertheless, the

assumption is that the enhanced protection formally offered to foreign investors through an IIA

will encourage and promote cross-border investments. The benefits that increased foreign

investment can bring about are important for developing countries that aim at using foreign

investment and IIAs as tools to enhance their economic development.

BITs and some PTIAs also include a provision on investor-State dispute settlement. Usually this

gives investors the right to submit a case to an international arbitral tribunal when a dispute

with the host country arises. Common venues through which arbitration is sought are the

International Centre for Settlement of Investment Disputes (ICSID), the United Nations

Commission on International Trade Law (UNCITRAL) and the International Chamber of

Commerce (ICC).

International taxation agreements deal primarily with the elimination of double taxation, but

may in parallel address related issues such as the prevention of tax evasion.
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Types of International Investment Agreements

Bilateral Investment Treaties

Main article: Bilateral Investment Treaty

To a large extent, the international legal aspects of the relationship between countries and

foreign investors are addressed bilaterally between two countries. The conclusion of BITs has

evolved from the second half of the 20th century onwards, and today these agreements

constitute a key component of the contemporary international law on foreign investment. The

United Nations Conference on Trade and Development (UNCTAD) defines BITs as "agreements

between two countries for the reciprocal encouragement, promotion and protection of

investments in each other's territories by companies based in either country."[2]

While the basic

content of BITs has largely remained the same over the years, focusing on investment

protection as the core issue, matters reflecting public policy concerns (e.g. health, safety,

essential security or environmental protection) have in recent years more frequently been

incorporated into BITs.

A typical BIT starts with a preamble that outlines the general intention of the agreement and

provisions on its scope of application. This is followed by a definition of key terms, clarifying

amongst others the meanings of "investment" and "investor". BITs then address issues related

to the admission and establishment of foreign investments, including standards of treatment

enjoyed by foreign investors (minimum standard of treatment, fair and equitable treatment,

full protection and security, national treatment and most-favored nation treatment). The free

transfer of funds across national borders in connection with a foreign investment is usually also

regulated in BITs. Moreover, BITs deal with the issue of expropriation or damage to an

investment, determining that and in what manner - compensation be paid to the investor insuch a situation. They also specify the degree of protection and compensation that investors

should expect in situations of war or civil unrest. Another core element of BITs relates to the

settlement of disputes between an investor and the country in which the investment took

place. Such provisions usually mention the forums to which investors can resort for establishing

international arbitral tribunals (e.g. ICSID, UNCITRAL or ICC) and how this relates to proceedings

in host countries' domestic courts. BITs also typically include a clause on State-State dispute

settlement. Finally, BITs usually refer to the time frame of the treaty, clarifying how the

agreement is extended and terminated, and specifying to what extent investments conducted

prior to conclusion and ratification of the treaty are covered.[3]

Preferential Trade and Investment Agreements

Preferential Trade and Investment Agreements (PTIAs) are broader economic agreements

among countries that are concluded for the purpose of facilitating international trade and the

transfer offactors of production across borders. They can be economic integration agreements,

free trade agreements (FTAs), economic partnership agreements (EPAs) or similar types of

agreements that cover, among many other things, provisions dealing with foreign investment.
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In PTIAs, the section dealing with foreign investment forms only a small part of the treaty,

usually encompassing one or two chapters. Other issues dealt with in PTIAs are trade in goods

and services, tariffs and non-tariff barriers, customs procedures, specific provisions pertaining

to selected sectors, competition, intellectual property, temporary entry of people, and many

more. PTIAs pursue the liberalization of trade and investment in the context of this broader

focus. Frequently, the structure and appearance of the respective chapter on foreigninvestments is similar to a BIT.

There exist many examples of PTIAs. A notable one is the North American Free Trade

Agreement (NAFTA). While the NAFTA agreement deals with a very broad set of issues, most

importantly cross-border trade between Canada, Mexico and the United States, chapter 11 of

this agreement covers detailed provisions on foreign investment similar to those found in

BITs.[4]

Other examples of PTIAs concluded bilaterally can be found in the EPA between Japan

and Singapore,[5]

the FTA between the Republic of Korea and Chile,[6]

and the FTA between the

United States and Australia.[7]

International Taxation Agreements

Main articles: Double taxation, Tax treaty

The main purpose of international taxation agreements is to regulate how taxes imposed on

the global income of multinational enterprises are distributed among countries. In most cases,

this is done through the elimination of double taxation. The core of the problem lies in the

disagreements among countries on who has jurisdiction over the taxable income of

multinationals. Most commonly, such conflicts are addressed through bilateral agreements that

deal solely with taxation on income and sometimes also capital. Nevertheless, a few

multilateral agreements on taxation as well as bilateral agreements that address taxationtogether with other issues have also been concluded in the past.

In contemporary treaty practice, avoidance of double taxation is achieved by concurrently

applying two separate approaches. The first approach is the elimination of definition

mismatches for terms such as "residence" or "income" that could otherwise be a cause of

double taxation. The second approach constitutes the relief from double taxation through one

of three methods. The credit method allows foreign tax to be credited against the tax paid in

the residence country. According to the exemption method, foreign income and resulting

taxation is simply disregarded by the residence country. The deduction method taxes income

net of foreign tax, but it is rarely applied.

[8]

Trends in International Investment Rulemaking

Historically, the emergence of the international investment framework can be divided into two

separate eras. The first era from 1945 to 1989 was characterized by disagreements among

countries about the degree of protection that international law should offer to foreign

investors. While most developed countries argued that foreign investors should be entitled to a
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minimum standard of treatment in any host economy, developing and socialist countries

tended to contend that foreign investors do not need to be treated differently from national

firms. In 1959, the first BITs were concluded, and during the following decade, much of the

content that forms the basis of a majority of the BITs currently in force were developed and

refined. In 1965, the Convention for the Settlement of Investment Disputes Between States and

Nationals of Other States was opened to countries for signature. The rationale was to establishICSID as an institution that facilitates the arbitration of investor-State disputes.

The second era from 1989 to today is characterized by a generally more welcoming

sentiment towards foreign investment, and a substantial increase in the number of BITs

concluded. Amongst others, this growth in BITs was due to the opening up of many developing

economies to foreign investment, which hoped that the conclusion of BITs would make them a

more attractive destination for foreign companies. The mid-1990s also saw the creation of

three multilateral agreements that touched upon investment issues as part of the Uruguay

Round of trade negotiations and the creation of the World Trade Organization (WTO). These

were the General Agreement on Trade in Services (GATS), the Agreement on Trade-Related

Investment Measures (TRIMS), and the Agreement on Trade-Related Aspects of Intellectual

Property Rights (TRIPS). In addition, this era saw the growth of PTIAs, such as regional,

interregional or plurilateral agreements, as exemplified in the conclusion of the NAFTA in 1992

and the establishment of the ASEAN Framework Agreement on the ASEAN Investment Area in

1998. These agreements typically also began to pursue liberalization of investment more

intensively.[9]

Statistics show the rapid expansion of IIAs during the last two decades. By 2007 year-end, the

entire number of IIAs had already surpassed 5,500,[10]

and increasingly involved the conclusion

of PTIAs with a focus beyond investment issues. As the types and contents of IIAs are becoming

increasingly diverse and as almost all countries participate in the conclusion of new IIAs, the

global IIA system has become extremely complex and hard to see through. Moreover, the

number of IIA-based investor-State dispute settlement cases has also been on the rise in recent

years. By the end of the year 2008, the total number of known cases reached 317.[11]

Another new development in the global system of IIAs is the increased conclusion of such

agreements among developing countries. In the past, industrialized countries usually concluded

IIAs to protect their firms when they undertake overseas investments, while developing

countries tended to sign IIAs in order to encourage and promote inflows of FDI from

industrialized countries. The current trend towards increased conclusions of IIAs amongdeveloping countries reflects the economic changes underlying international investment

relations. Developing countries and emerging economies are increasingly not only destinations,

but also significant source countries of FDI flows. In line with their emerging role as outward

investors, and their improved economic competitiveness, developing countries are increasingly

pursuing the dual interests of encouraging FDI inflows but also seeking to protect the

investments of their companies abroad.
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Another key trend relates to the myriad of different agreements. As a result, the evolving

international system of IIAs has been equated with the metaphor of a "spaghetti bowl".

According to UNCTAD, the system is universal, as practically every country has signed at least

one IIA. At the same time, it can be considered as atomized due to the large amount of

individual agreements currently in existence. The system is multi-layered, with agreements

being signed at all levels (bilateral, sectoral, regional etc.). It is also multi-faceted, as anincreasing number of IIAs include provisions on issues traditionally considered only distantly

related to investment, such as trade, intellectual property, labor rights and environmental

protection. The system is also dynamic, as its key characteristics are currently rapidly

evolving.[12]

For example, more recent IIAs tend to include provisions addressing issues such as

public health, safety, national security or the environment more frequently, with a view to

better reflect public policy concerns. Finally, beyond IIAs, there is other international law

relevant for countries' domestic investment frameworks, including customary international law,

United Nations instruments and the WTO agreement (e.g. TRIMS).

In sum, recent developments have made the system increasingly complex and diverse.

Moreover, even to the extent that the principal components of IIAs are similar across most of

the agreements, substantial divergences can be found in the details of these provisions. All of

this makes managing the interaction among IIAs increasingly challenging for countries,

particularly those in the developing world, and also complicates the negotiation of new

agreements.

In the past, there have been several initiatives for the establishment of a more multilateral

approach to international investment rulemaking. These attempts include the Havana Charter

of 1948, the United Nations Draft Code of Conduct on Transnational Corporations in the 1980s,

and the Multilateral Agreement on Investment (MAI) of the Organisation for Economic

Cooperation and Development (OECD) in the 1990s. None of these initiatives reachedsuccessful conclusion, due to disagreements among countries and, in case of the MAI, also in

light of strong opposition by civil society groups. Further attempts of advancing the process

towards establishment of a multilateral agreement have since been made within the WTO, but

also without success. Concerns have been raised regarding the specific objectives that such a

multilateral agreement is meant to accomplish, who would benefit in what way from it, and

what impact such a multilateral agreement would have on countries' broader public policies,

including those related to environmental, social and other issues. Particularly developing

countries may require "policy space" to develop their regulatory frameworks, such as in the

area of economic or financial policies, and one major concern was that a multilateral

agreement on investment would diminish such policy space. As a result, current internationalinvestment rulemaking remains short of having a unified system based on a multilateral

agreement. In this respect, investment differs for example from trade and finance, as the WTO

fulfills the purpose of creating a more unified global system for trade and the International

Monetary Fund (IMF) plays a similar role with respect to the international financial system.
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The Development Dimension

By providing additional security and certainty under international law to investors operating in

foreign countries, IIAs can encourage companies to invest overseas. While there is a scientific

debate on the extent to which IIAs increase the amount of FDI flows to signatory host countries,

policymakers do tend to anticipate that IIAs encourage cross-border investment and therebyalso support economic development. Amongst others, FDI can facilitate the inflows of capital

and technology into host countries, help generate employment and have other positive

spillover effects. Accordingly, developing country governments seek to establish an adequate

framework to encourage such inflows, amongst others through the conclusion of IIAs.

However, despite this potential to generate pro-development benefits, the evolving complexity

of the IIA system may also create challenges. Amongst others, the complexity of today's IIA

network makes it difficult for countries to maintain policy coherence. Provisions agreed upon in

one IIA may be inconsistent with those included in a different IIA. For developing countries with

lower capacity to participate in the global IIA system, this complexity of the IIA framework isparticularly hard to manage. Additional challenges arise from the need to ensure consistency

between a country's national and international investment laws, and from the objective to

design investment policies that best support a county's specific development goals.

Furthermore, even if governments conclude IIAs with general development goals in mind, these

agreements themselves usually do not directly deal with problems of economic development.

While IIAs rarely contain specific obligations on investment promotion, some include provisions

that advocate information exchange about investment opportunities, encourage the use of

investment incentives, or suggest the establishment of investment promotion agencies (IPAs).

Some also contain provisions that address public policy concerns related to development, suchas exceptions related to health or environmental issues, or exceptions related to essential

security. Some IIAs also grant countries specific regulatory flexibility, amongst others when it

comes to making commitments for investment liberalization.

An additional burden arises from the growing amount of investor-State disputes, which are

increasingly lodged against governments from developing countries. These disputes are very

costly for the affected countries, which have to shoulder substantial expenses for the

arbitration procedures, for the payment of lawyer's fees and, most importantly, for the

financial compensation to be paid to the investor in case the tribunal decides against the host

country. The problem is further exacerbated by inconsistencies in the case law that is emergingfrom investor-State disputes. Increasingly, tribunals addressing similar cases come to differing

interpretations and decisions. This increases the uncertainty among countries and investors

about the outcome of a dispute.

One of the key organizations concerned with the development dimension of IIAs is the United

Nations Conference on Trade and Development (UNCTAD), which is the key focal point of the
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United Nations (UN) for dealing with matters related to IIAs and their development dimension.

This organization's program on IIAs supports developing countries in their efforts to participate

effectively in the complex system of investment rulemaking. UNCTAD offers capacity building

services, is widely recognized for its research and policy analysis on IIAs and functions as an

important forum for intergovernmental discussions and consensus building on issues related to

international investment law and development.

Collective Action by Poor countries

Global Collective

Action

by Filomeno S. Sta. Ana III

Monday, 09 March 2009

Sta. Ana coordinates Action for Economic Reforms. This article was published in the March 09,

2009 edition of the Business World at pages S1/4 and S1/5. It is an extension of the article on

global collective action , which BusinessWorld published on 2 March 2009.

Leaders of developed and developing countries all recognize the need for collective action to

tame the worldwide recession.

But collective action is easier said than done. Protectionism is tempting as jobs and incomes at

home are vanishing.

Topnotch economists, including Federal Reserve chair Ben Bernanke and Barry Eichengreen(University of California, Berkeley), say that mercantilist policies during times of world recession

did work. See for example Bernankes Essays on the Great Depression (2000) and

Eichengreens Golden Fetters: The Gold Standard and the Great Depression, 1919-1939 (1992).

That is, mercantilism can work from a limited, purely one- country perspective. Mercantilism

advances one countrys economic interest at the expense of other countries. Bernanke and

Eichengreen found out that the countries that abandoned the gold standard, effectively

devaluing their currencies, had a quicker recovery than those countries that stuck to the gold

standard.

A corollary finding was that the countries with devalued currencies posted higher net exports,arising from a strong export boost even as imports did not significantly decline, in comparison

to other countries. This suggested that the beggar-thy-neighbor practices increased incomes,

enabling home consumers to buy imported goods.

That protectionism worked amidst the depression in the 1930s does not however mean that it

should be applied nowadays. To repeat, mercantilism only benefits one country at the expense
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of other. In abnormal times like a global recession, the effects are catastrophic. In the 1930s,

the protectionism of one country led other countries to follow suit, igniting a vicious cycle.

Just imagine a small community engulfed by a wild fire. Without collective action (the absence

of a fire department), each homeowner insulates his own home. That is to say, everyone is

minding his structure and no one is controlling the spread of the fire. In the end, the fire gutsall houses in the community.

Now substitute that small community with a globally integrated economy. The message is this:

A public bad (a fire or an economic crisis) requires collective or coordinated action. During bad

times, internationally coordinated efforts are superior to country-first approaches.

This is admittedly difficult to do. A president of one country is elected to protect the citizens of

his country, not to serve the whole of humanity. But as the example of the community fire

illustrates, self-interest necessitates collective action.

Even Barack Obama, the calculating, clear-headed, strategic-thinking leader, faces the

dilemmasave the US first or act as a global leader first and foremost. A friend who listened to

Obamas inaugural address quipped that the US presidents speech was inward -looking, best

summarized by his speechs ending: God bless America.

But joking aside, what constitutes global collective action?

The immediate priority measure is to put in place an internationally coordinated fiscal stimulus

plan. Even a large economy like the US cannot solely depend on its own fiscal stimulus. The US

fiscal stimulus will undeniably boost consumption. But given that the US has a relatively high

marginal propensity to import, Americans will tend to use a significant share of new income tobuy imported goods. The marginal propensity to import lowers the multiplier effect of the

fiscal stimulus.

Thus, instead of resorting to protectionism, the US should take the lead to engineer a global

fiscal stimulus. In this manner, US imports are offset by US exports as the global stimulus

encourages citizens of other countries to buy goods from the US and the rest of the world. In a

word, everyone gains.

Despite the G-20s call for coordinated responses to the crisis, the global fiscal stimulus plan is

far from sufficient. A survey on fiscal stimulus plans done by Kelvin Gallagher and his students

at Boston University reveals these facts:

Less than 30 countries are engaged in fiscal stimulus. The majority of these countries are

advanced economies. The big emerging market economies like China, India, Brazil, Mexico,

Argentina, Chile, Egypt, and several Southeast Asian countries also have stimulus programs. By

the way, the Philippines does not appear on Gallaghers list. My naughty mind leads me to ask


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if Gallagher is not convinced about the authenticity of Gloria Arroyos resiliency plan.

The total amount involved in the fiscal stimulus of the countries covered by the Gallagher

survey has reached US$3.067.8 trillion, equivalent to 4.86 percent of the worlds gross domestic

product (GDP). As a percentage of GDP, the fiscal stimulus package of China (16.23 percent),

Brazil (14 percent) Japan (11.7 percent), Hungary (11 percent), or Singapore (8.4 percent)dwarfs the US plan (5.69 percent).

(Some question the Gallagher methodology, for it does not distinguish between fiscal stimulus

and financial stimulus. But this criticism does not deny the finding that the global fiscal

stimulus is far from adequate.)

It appears that many developing countries, especially the poorer ones, do not have the liquidity

or the fiscal ammunition to undertake stimulus plans. Thus, a critical element of internationally

coordinated action is for the advanced economies and the multilateral institutions, especially

the International Monetary Fund (IMF), to support the poor countries.

The IMF has come to the rescue of several countries. But the problem with the IMF funding is

that some of its loan packages especially to high-risk developing countries contain the usual

conditionalities that constrict growth. But what countries need now are expansionary policies.

Hence, the IMF must not only be aggressive in providing loans or allocating special drawing

rights to the developing countries. It must likewise eschew the stiff eligibility criteria and harsh

policy conditionalities.

It is partly their wariness toward IMF packagestheir negative experience during the 1997

financial crisisthat led the Southeast Asian countries (ASEAN) to establish the Chiang MaiInitiative (CMI). The CMI is a regional reserve fund that ASEAN countries can tap in times of

economic turbulence. The funds for CMI mainly come from China, Japan, and Korea. (Thus, the

facility is called the ASEAN + 3 initiative.) As part of the regionally coordinated response to

the global crisis, ASEAN +3 agreed to increase the facility from US$80 billion to US$120 billion.

However, in its transition period, the CMI requires a troubled member country that seeks to

draw from the regional fund to have a program with the IMF. A rule states that 80 percent of

the CMI financial assistance will still be linked to IMF conditions.

Developing countries will need additional sources of international financing, other than the

conventional IMF and official development packages. Dani Rodrik sees the introduction of some

sort of a Tobin tax as a novel way of generating funds at the same time regulating volatile

capital flows. In times of crises, capital suddenly pulls out of higher-risk countries, thus

worsening the distress of the aggrieved countries.

Economists across the ideological spectrum see the soundness of international rules on capital

control. Kenneth Rogoff, former chief economist of the IMF and adviser to Republican John


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McCain, has called for such global rules. Joseph Stiglitz, the nemesis of neo-liberals and

conservatives, has consistently advocated the reshaping of global institutions to fight poverty

and economic crises. Stiglitzs proposals have a wide scope, from introducing innovative

regulation to restore the integrity of financial institutions to increasing and strengthening the

voice of developing countries.

Stiglitz defines the current crisis as a Bretton Woods moment a moment where the

international community may be able to come together, put aside parochial concerns and

special interests and design a new global institutional structure for the twenty first century. It

would

international problems and policies

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