United Nations Conference on Trade and Development

WorldInvestmentReport

United NationsNew York and Geneva, 2003

2003 FDI Policies for Development:National and InternationalPerspectives

ii

NOTE

UNCTAD serves as the focal point within the United Nations Secretariat for all matters related toforeign direct investment and transnational corporations. In the past, the Programme on TransnationalCorporations was carried out by the United Nations Centre on Transnational Corporations (1975-1992) andthe Transnational Corporations and Management Division of the United Nations Department of Economicand Social Development (1992-1993). In 1993, the Programme was transferred to the United NationsConference on Trade and Development. UNCTAD seeks to further the understanding of the nature oftransnational corporations and their contribution to development and to create an enabling environmentfor international investment and enterprise development. UNCTAD’s work is carried out throughintergovernmental deliberations, technical assistance activities, seminars, workshops and conferences.

The term “country” as used in this study also refers, as appropriate, to territories or areas; thedesignations employed and the presentation of the material do not imply the expression of any opinionwhatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country,territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries.In addition, the designations of country groups are intended solely for statistical or analytical convenienceand do not necessarily express a judgement about the stage of development reached by a particular countryor area in the development process. The reference to a company and its activities should not be construedas an endorsement by UNCTAD of the company or its activities.

The boundaries and names shown and designations used on the maps presented in this publicationdo not imply official endorsement or acceptance by the United Nations.

The following symbols have been used in the tables:

Two dots (..) indicate that data are not available or are not separately reported. Rows in tables have beenomitted in those cases where no data are available for any of the elements in the row;

A dash (-) indicates that the item is equal to zero or its value is negligible;

A blank in a table indicates that the item is not applicable, unless otherwise indicated;

A slash (/) between dates representing years, e.g., 1994/95, indicates a financial year;

Use of a hyphen (-) between dates representing years, e.g., 1994-1995, signifies the full period involved,including the beginning and end years;

Reference to “dollars” ($) means United States dollars, unless otherwise indicated;

Annual rates of growth or change, unless otherwise stated, refer to annual compound rates;

Details and percentages in tables do not necessarily add to totals because of rounding.

The material contained in this study may be freely quoted with appropriate acknowledgement.

UNITED NATIONS PUBLICATION

Sales No. E.03.II.D.8

ISBN 92-1-112580-4

Copyright © United Nations, 2003All rights reserved

Manufactured in Switzerland

iii

PREFACE

� � � Kofi A. AnnanNew York, July 2003 Secretary-General of the United Nations

With its enormous potential to create jobs, raise productivity, enhance exports and transfertechnology, foreign direct investment is a vital factor in the long-term economic development of theworld’s developing countries. Yet global investment inflows have declined significantly, from $1.4trillion in 2000 to $650 billion in 2002, raising considerable concerns about prospects for achievingthe Millennium Development Goals.

The World Investment Report 2003 looks in detail at what lies behind the downturn, how variousregions and countries have fared, and what the chances are for recovery and growth in FDI flows atthe global and regional levels.

The Report also assesses the interaction between national and international FDI policies andthe implications this has for development. As competition for foreign direct investment increases,policies vis-à-vis transnational corporations are evolving. While national policies are the most importantconsideration in attracting such investment and benefiting more from it, they are increasingly beingaffected by rule-making at the international level. The challenge is to find a development-orientedbalance.

Toward that end, the Report highlights some of the key issues, from the perspective of development,that need to be considered in investment agreements. Whether, how and where governments negotiateinvestment agreements is, of course, their own sovereign decision. But if such agreements are negotiated,the need to reduce poverty and stimulate development should take a central place as a guiding principleof such negotiations. Only then will we be able to say that investment can truly achieve its objectives.

iv

ACKNOWLEDGEMENTS

The World Investment Report 2003 (WIR03) was prepared — under the overall direction of KarlP. Sauvant — by a team comprising Americo Beviglia Zampetti, Persephone Economou, Kumi Endo,Torbjörn Fredriksson, Masataka Fujita, Kálmán Kalotay, Michael Lim, Padma Mallampally, AbrahamNegash, Hilary Nwokeabia, Ludger Odenthal, Miguel Pérez-Ludeña, Kee Hwee Wee, Katja Weigl andZbigniew Zimny. Specific inputs were prepared by Rory Allan, Victoria Aranda, Douglas van den Berghe,Sirn Byung Kim, Anh-Nga Tran-Nguyen, Jörg Simon, James Xiaoning Zhan and Yong Zhang.

Principal research assistance was provided by Mohamed Chiraz Baly, Bradley Boicourt, JohnBolmer, Lizanne Martinez and Tadelle Taye. Eva Oskam and Jeroen Dickhof assisted as interns at variousstages. The production of the WIR03 was carried out by Christopher Corbet, Lilian Mercado, LyndaPiscopo, Chantal Rakotondrainibe and Esther Valdivia-Fyfe. Graphics were done by Diego Oyarzun-Reyes. WIR03 was desktop published by Teresita Sabico. It was edited by Bruce Ross-Larson andMeta de Coquereaumont.

Sanjaya Lall and Peter Muchlinski were principal consultants.

The Report benefited from inputs provided by participants in a Global Seminar in Geneva inMay 2003, organized in cooperation with the Development Policy Forum of InWEnt on the specialtopic of WIR03. Participants were Florian Alburo, Sanchita Chatterjee, Benno Ferrarini, Susan Hayter,Yao-Su Hu, Datin Kaziah Abdul Kadir, Nagesh Kumar, Mariano Laplane, Howard Mann, RichardNewfarmer, Farooq Sobhan, M. Sornarajah and Miklos Szanyi.

Inputs were also received from Stanimir A. Alexandrov, Lorraine Eden, David Frans, Xing Houyuan,Mark Koulen, Julia Mikerova, Lilach Nachum, Roger Nellist, Assad Omer, Pedro Roffe, Pierre Sauvé,Frank Roger, Len Trevino and Rob van Tulder.

Comments and feedback were received during various stages of preparation from Robert Anderson,Audo Araújo Faleiro, Yoko Asuyama, Vudayagiri Balasubramanyam, Maria Borga, Peter Brimble, PhilipBrusick, Peter Buckley, José Durán, Richard Eglin, Roderick Floud, Rainer Geiger, Andrea Goldstein,Kathryn Gordon, Charles Gore, Jim Gunderson, Jeffery Heinrich, Barry Herman, Pinfang Hong, Marie-France Houde, Anna Joubin-Bret, Joachim Karl, John Kline, Jesse Kreier, Tatjana Krylova, Sam Laird,Martha Lara, Don Lecraw, Robert Lipsey, Henry Loewendahl, Mina Mashayekhi, Raymond J. Mataloni,Anne Miroux, Hafiz Mirza, Juan Carlos Moreno-Brid, Michael Mortimore, Peter Nunnenkamp, HerbertOberhänsli, Sheila Page, Antonio Parra, Carlo Pettinato, Craig Parsons, Sol Picciotto, Gwenael Quere,Prasada Reddy, Lorraine Ruffing, Hassan Qaqaya, Maryse Roberts, Patrick Robinson, Rodrigo Sabbatini,Nicolo Gligo Saenz, A. Edward Safarian, Magdolna Sass, Christoph H. Schreuer, Prakash Sethi, AngelikaSitz, Marjan Svetlicic, Taffere Tesfachew, Peter Utting, Thomas Wälde, Jörg Weber, Louis Wells, GeraldWest and Christopher Wilkie. Comments were also received from delegates participating in the WTOWorking Group on the Relationship between Trade and Investment.

Numerous officials of central banks, statistical offices, investment promotion and other governmentagencies, and officials of international organizations and non-governmental organizations, as well asexecutives of a number of companies, also contributed to WIR03, especially through the provision ofdata and other information. Most particularly, they include BusinessMap from South Africa and theparticipants of the OGEMID network led by Thomas Wälde, and UNCTAD’s network of experts oninternational investment agreements.

The Report benefited from overall advice from John H. Dunning, Senior Economic Advisor.

The financial support of the Governments of Germany, Norway, Sweden and the United Kingdomis gratefully acknowledged.

Table of contents

Page

PREFACE ..................................................................................................................................... iii

ACKNOWLEDGEMENTS........................................................................................................ iv

OVERVIEW ............................................................................................................................... xiii

PART ONEFDI FALLS AGAIN—UNEVENLY

CHAPTER I. FDI DOWN 21% GLOBALLY ...................................................................... 3

A. The downturn continues ................................................................................................................... 4

B. The unevenness of the downturn ................................................................................................... 5

C. Performance Index captures the downturn’s unevenness ..................................................... 9

D. Why the downturn? ......................................................................................................................... 151. Macroeconomic factors ............................................................................................................................. 152. Microeconomic factors .............................................................................................................................. 173. Institutional factors .................................................................................................................................... 19

E. Softening the impact ........................................................................................................................ 19

F. Towards mega blocks? .................................................................................................................... 23

G. Prospects .............................................................................................................................................. 26

CHAPTER II. UNEVEN PERFORMANCE ACROSS REGIONS ............................... 33

Introduction ............................................................................................................................................... 33

A. Developing countries ....................................................................................................................... 331. Africa ....................................................................................................................................................... 33

a. FDI down by two-fifths .................................................................................................................... 34b. Policy developments—improving the investment climate .......................................................... 36c. Prospects—quick recovery likely ................................................................................................... 37

2. Asia and the Pacific ................................................................................................................................... 40a. FDI down again, but several countries receiving significantly higher flows .......................... 40b. Policy developments—more unilateral measures to improve the investment environment .. 48c. Long-term prospects promising but short-term outlook uncertain ............................................ 49

3. Latin America and the Caribbean ........................................................................................................... 52a. The downturn—concentrated in Argentina, Brazil and Chile .................................................... 52b. Policy developments—linking FDI to development strategies .................................................. 55c. Prospects—not much change ........................................................................................................... 58

B. Central and Eastern Europe ......................................................................................................... 591. Defying the global trend ........................................................................................................................... 602. FDI in the Russian Federation—taking off? ........................................................................................ 623. The challenge of EU enlargement ........................................................................................................... 644. Prospects—mostly sunny .......................................................................................................................... 66

World Investment Report 2003 FDI Policies for Development: National and International Perspectivesvi

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C. Developed countries ......................................................................................................................... 681. FDI down, as cross-border M&As dwindle .......................................................................................... 682. Policy developments—continuing liberalization ................................................................................ 733. Prospects—hinging on economic recovery ........................................................................................... 74

PART TWOENHANCING THE DEVELOPMENT DIMENSION OF

INTERNATIONAL INVESTMENT AGREEMENTS

INTRODUCTION....................................................................................................................... 83

CHAPTER III. KEY NATIONAL FDI POLICIES AND INTERNATIONALINVESTMENT AGREEMENTS ............................................................................................ 85

A. Key national FDI policies .............................................................................................................. 861. Attracting investment ................................................................................................................................ 862. Benefiting more from FDI ........................................................................................................................ 873. Addressing concerns about TNCs ........................................................................................................... 88

B. The growth of IIAs ........................................................................................................................... 881. Bilateral agreements .................................................................................................................................. 892. Regional and interregional agreements ................................................................................................. 913. Multilateral agreements ............................................................................................................................. 91

C. Features of IIAs at different levels ............................................................................................ 931. Bilateral approaches ................................................................................................................................... 932. Regional and interregional approaches ................................................................................................. 943. Multilateral approaches ............................................................................................................................. 94

CHAPTER IV. EIGHT KEY ISSUES: NATIONAL EXPERIENCESAND INTERNATIONAL APPROACHES ........................................................................... 99

A. Definition of investment ................................................................................................................. 991. Why the definition of investment matters ............................................................................................ 992. Scope of definitions ................................................................................................................................. 1003. Options for the future .............................................................................................................................. 101

B. National treatment ......................................................................................................................... 1021. The centrality of national treatment..................................................................................................... 1022. Patterns of national policy ..................................................................................................................... 1023. National treatment and economic impact ............................................................................................ 103

a. Pre-establishment ............................................................................................................................. 104b. Post-establishment ........................................................................................................................... 107

4. National treatment in IIAs ...................................................................................................................... 1075. Options for the future .............................................................................................................................. 109

C. Nationalization and expropriation ............................................................................................ 1101. The sensitivity of indirect takings and national policy dilemmas ................................................ 1102. Coverage in IIAs ....................................................................................................................................... 112

D. Dispute settlement ......................................................................................................................... 1141. National policies on dispute settlement in the investment field ................................................... 1142. Legal effectiveness ................................................................................................................................... 1153. Coverage in IIAs ....................................................................................................................................... 1154. Key issues and options for the future .................................................................................................. 116

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E. Performance requirements .......................................................................................................... 1191. Why use them? .......................................................................................................................................... 1192. Declining incidence .................................................................................................................................. 1193. How effective are they? .......................................................................................................................... 1204. Coverage in IIAs ....................................................................................................................................... 1205. Options for the future .............................................................................................................................. 121

F. Incentives .......................................................................................................................................... 1231. Why use them? .......................................................................................................................................... 1232. Incentives-based competition for FDI intensifies ............................................................................. 1243. Are incentives worth their cost? ........................................................................................................... 1254. Few international agreements restrict the use of incentives—but some do ............................... 1265. Options for the future .............................................................................................................................. 127

G. Transfer of technology .................................................................................................................. 1291. The need for policies to promote technology transfer ..................................................................... 1292. Shifting towards a more market-friendly approach in national policies ..................................... 1303. The right mix of policy instruments and conditions ........................................................................ 1304. International agreements mirror the shift in national policies ...................................................... 131

H. Competition policy ......................................................................................................................... 1341. Policy challenges ...................................................................................................................................... 1342. International cooperation arrangements .............................................................................................. 135

CHAPTER V. THE IMPORTANCE OF NATIONAL POLICY SPACE ................. 145

A. Objectives of IIAs ........................................................................................................................... 147

B. Structure ............................................................................................................................................ 147

C. Content ............................................................................................................................................... 149

D. Implementation of IIAs ................................................................................................................ 151

CHAPTER VI. HOME COUNTRIES AND INVESTORS ........................................... 155

A. Home country measures ............................................................................................................... 1551. Broad scope of measures ......................................................................................................................... 1552. Current use by developed countries ..................................................................................................... 1563. Effectiveness .............................................................................................................................................. 1584. The IIA dimension .................................................................................................................................... 1595. Enhancing the development dimension ............................................................................................... 161

B. Good corporate citizenship ......................................................................................................... 1641. The concept ................................................................................................................................................ 1642. Its international dimension ..................................................................................................................... 166

PART TWO CONCLUSIONS: THE CHALLENGEOF THE DEVELOPMENT DIMENSION ........................................................................ 171

REFERENCES ......................................................................................................................... 173

ANNEX A. ADDITIONAL TEXT TABLES ..................................................................... 185

ANNEX B. STATISTICAL ANNEX ................................................................................... 231

World Investment Report 2003 FDI Policies for Development: National and International Perspectivesviii

PageSELECTED UNCTAD PUBLICATIONS ON TRANSNATIONALCORPORATIONS AND FOREIGN DIRECT INVESTMENT .................................. 299

QUESTIONNAIRE ................................................................................................................. 305

Boxes

I.1. The world’s largest transnational corporations ............................................................................................ 5I.2. FDI booms and busts since 1970 ................................................................................................................. 16I.3. Divestment: factors and evidence ................................................................................................................ 18I.4. Technology payments by developing countries and the FDI downturn ................................................ 20I.5. UNCTAD’s survey of investment promotion agencies ............................................................................ 28I.6. Is a recovery in FDI flows on the way? ..................................................................................................... 30II.1. What Investment Policy Reviews show ...................................................................................................... 36II.2. The need for an integrated approach to attract FDI to Africa and benefit more from it:

an African Investment Initiative .................................................................................................................. 39II.3. The FDI census in Bangladesh ..................................................................................................................... 42II.4. China and India–what explains their different FDI performance? ........................................................ 43II.5. Effects of regional agreements on FDI in Asia ......................................................................................... 47II.6. Indonesia’s Investment Year 2003 ............................................................................................................... 48II.7. The Indo–Lanka free trade agreement and FDI ........................................................................................ 49II.8. Regional integration and TNC production networks in ASEAN ............................................................ 51II.9. A new FDI strategy in Chile ........................................................................................................................ 55II.10. NAFTA and FDI ............................................................................................................................................. 58II.11. What made Luxembourg the world’s largest FDI recipient and investor in 2002? ............................ 69II.12. What reverse flows mean for Germany’s FDI statistics .......................................................................... 73II.13. Measures to promote inward FDI in Japan ................................................................................................ 77III.1. The contents of BITs ..................................................................................................................................... 89III.2. Investment highlights of a new-age economic partnership ..................................................................... 90III.3. The Free Trade Area of the Americas ......................................................................................................... 92IV.1. How serious is crowding out? .................................................................................................................... 105IV.2. The impact of NAFTA on Mexico’s policy on admission and establishment .................................... 109IV.3. Regulatory takings under Chapter 11 of NAFTA—four cases ............................................................. 113IV.4. Calculating compensation—the Santa Elena–Costa Rica arbitration .................................................. 114IV.5. Investment arbitration and the control of claims made by investors .................................................. 117IV.6. The OECD’s checklist on FDI incentives ................................................................................................ 128IV.7. Implementation of transfer of technology provisions ............................................................................ 133V.1. Regulatory discretion in international trade agreements ....................................................................... 145V.2. The right to regulate .................................................................................................................................... 146V.3. Emergency safeguard mechanisms in the area of investment ............................................................... 150V.4. The effect of the MFN clause in BITs—the example of performance requirements ........................ 152VI.1. The Business Linkages Challenge Fund ................................................................................................... 157VI.2. Support for investment and private-sector development in the Cotonou Agreement ....................... 160VI.3. Home country measures to mitigate risk linked to FDI in LDCs ........................................................ 162VI.4. The OECD Guidelines for Multinational Enterprises ............................................................................ 168

Figures

I.1. Total resource flows to developing countries, by type of flow, 1990–2002 ........................................... 4I.2. FDI inflows, private domestic investment and public investment in developing countries

and Central and Eastern Europe, 1990–2000 ............................................................................................... 4I.3. Transnationality index of host economies, 2000 ......................................................................................... 6I.4. Inward FDI flows, by sector, 1999–2000 and 2001 .................................................................................... 8I.5. FDI inflows, by type of financing, 1990–2002 ............................................................................................ 8I.6. Main gainers and losers in Inward FDI Performance ranking, 1998–2000 to 1999–2001 .................11I.7. Inward FDI Performance Index, by main region, 1988–1990, 1993–1995,

1998–2000 and 1999–2001 ........................................................................................................................... 12I.8. The share of cross-border M&As in total M&As worldwide, 1987–2002 ........................................... 17I.9. Profitability of the largest 99 non-financial TNCs, 1990–2002 ............................................................. 17I.10. Types of changes in FDI laws and regulations, 2002 .............................................................................. 21I.11. Number of BITs and DTTs concluded, 1990–2002 .................................................................................. 21I.12. Density mapping on BITs worldwide, 1 January 2003 ............................................................................ 22I.13. Density mapping on DTTs worldwide, 1 January 2003 ........................................................................... 22

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I.14. FDI stocks among the Triad and economies in which FDI from the Triad membersdominates, 1985 and 2001 ............................................................................................................................ 24

I.15. BITs and DTTs between the Triad and their geographical distribution, 2002 ..................................... 25I.16. Reinvested earnings as a percentage of FDI inflows, by region, 1990–2001 ...................................... 28II.1. Africa: FDI inflows, top 10 countries, 2001 and 2002 ............................................................................ 34II.2. Africa: FDI inflows and their share in gross fixed capital formation, 1990–2002 ............................. 35II.3. Total external resource flows to Africa, by type of flow, 1990–2001................................................... 35II.4. Africa: BITs and DTTs concluded, 1992–2002 ......................................................................................... 37II.5. Africa: selected bilateral, regional and interregional agreements containing FDI provisions,

concluded or under negotiation, 2003 ........................................................................................................ 38II.6. Africa: FDI prospects, 2003–2005 .............................................................................................................. 39II.7. Asia and the Pacific: the share of FDI inflows in gross fixed capital formation, 1990–2002 .......... 41II.8. Asia and the Pacific: FDI flows, top 10 economies, 2001 and 2002 .................................................... 41II.9. Asia and the Pacific: host economies defying the downturn in 2002 ................................................... 42II.10. Asia and the Pacific: BITs and DTTs concluded, 1992–2002 ................................................................ 49II.11. Asia and the Pacific: selected bilateral, regional and interregional agreements containing

FDI provisions, concluded or under negotiation, 2003 ........................................................................... 50II.12. FDI prospects in Asia, 2003-2005 ............................................................................................................... 52II.13. Latin America and the Caribbean: shares of the primary, secondary and tertiary

sectors in total FDI flows in selected countries, 1997–2001 and 2002 ................................................ 53II.14. Latin America and the Caribbean: FDI inflows and their share in gross fixed capital

formation, 1990–2002 ................................................................................................................................... 53II.15. Latin America and the Caribbean: FDI flows, top 10 countries, 2001 and 2002 ................................ 54II.16. FDI inflows into Argentina and Brazil, by type of financing, 1999–2002, by quarter ..................... 55II.17. Latin America and the Caribbean: BITs and DTTs concluded, 1992–2002 ......................................... 56II.18. Latin America and the Caribbean: selected bilateral, regional and interregional agreements

containing FDI provisions, concluded or under negotiation, 2003 ....................................................... 57II.19. CEE: FDI inflows and their share in gross fixed capital formation, 1990–2002 ................................ 59II.20. CEE: FDI flows, top 10 countries, 2001 and 2002 .................................................................................. 60II.21. Expansion and reduction of capacity by foreign affiliates in Hungary— the “ins” and the

“outs”, 2002–June 2003 ............................................................................................................................... 62II.22. The Russian FDI roller coaster, 1993–2002 .............................................................................................. 63II.23. Russian Federation: industry composition of inward FDI stock, 2002 ................................................. 64II.24. CEE: BITs and DTTs concluded, 1992–2002 ............................................................................................ 66II.25. CEE: selected bilateral and regional agreements containing FDI provisions, concluded or

under negotiation, 2003 ................................................................................................................................ 67II.26. CEE: forecast mostly sunny, 2003–2005 .................................................................................................... 68II.27. Developed countries: FDI flows, top 10 countries, 2001 and 2002 ...................................................... 70II.28. Developed countries: FDI inflows and their share in gross fixed capital formation,

1990–2002 ....................................................................................................................................................... 71II.29. United States: FDI flows, by major partner, 1990-2002 ......................................................................... 71II.30. United States: FDI flows, by major sector and industry, 1990-2002 .................................................... 72II.31. Developed countries: BITs and DTTs concluded, 1992–2002 ................................................................ 74II.32. Western Europe: selected bilateral, regional and interregional agreements containing

FDI provisions, concluded or under negotiation, 2003 ........................................................................... 75II.33. Canada and the United States: selected bilateral, regional and interregional agreements

containing FDI provisions, concluded or under negotiation, 2003 ....................................................... 76II.34. Developed countries: FDI prospects, 2003–2005 ..................................................................................... 78IV.1. Reservations in the negotiations of the Multilateral Agreement on Investment,

by industry, 1998 .......................................................................................................................................... 103

Tables

I.1. Selected indicators of FDI and international production, 1982–2002 ..................................................... 3I.2. FDI inflows to major economies, 2001 and 2002 ........................................................................................ 7I.3. Outward FDI flows, by geographical destination, 1999–2001 .................................................................. 9I.4. Ranks in the UNCTAD Inward FDI Performance Index, 1999–2001 ................................................... 10I.5. Leading and lagging 20 economies in Inward FDI Performance and Potential Indices,

1998–1990, 1993–1995 and 1999–2001 ..................................................................................................... 13I.6. Matrix of inward FDI performance and potential, 1988–1990, 1993–1995 and 1999–2001 ............ 14I.7. Cross-border M&As with values of over $1 billion, 1987–2002 ........................................................... 17I.8. Changes in national regulations of FDI, 1991–2002 ............................................................................... 21

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I.9. The similarity index between the geographical distribution pattern of BITs and DTTs andthat of FDI outward stocks of the United States, the EU and Japan, 2001 .......................................... 25

I.10. The propensity to sign BITs and DTTs with associate partners and non-associate partnersof the Triad members ..................................................................................................................................... 26

II.1. Intra-regional FDI flows in developing Asia, 1999–2001 ....................................................................... 46II.2. Catching up—inward FDI stock as a percentage of GDP in CEE, 1995 and 2001 ............................. 61II.3. CEE: a car-assembly bonanza, 2003 ........................................................................................................... 61II.4. Who competes with whom? .......................................................................................................................... 63II.5. Inward FDI stock as a percentage of GDP, selected economies, 2001 ................................................. 64II.6. Key greenfield FDI projects started in the Russian Federation, January–April 2003 ........................ 65II.7. Making corporate taxes attractive in the Visegrad-4 countries—rates announced by

June 2003 for the rest of the year and 2004 .............................................................................................. 66II.8. Matrix of specialization between accession countries and non-accession

countries of CEE, 2003 ................................................................................................................................. 67III.1. Host country determinants of FDI ............................................................................................................... 85III.2. How much FDI is covered by BITs—and how much by DTTs, 2000 ................................................... 89IV.1. Examples of IIAs prohibiting various types of performance requirements not covered under

the TRIMs Agreement ................................................................................................................................. 122IV.2. Technology import strategies, policies and conditions .......................................................................... 132V.1. A thought experiment to help analysis—applying the positive list approach to investment .......... 148

Box figures

I.2.1. Growth rates of world FDI flows and GDP, 1980–2002 ......................................................................... 16I.2.2. How big are cross-border M&As? The share of cross–border M&As in the market

capitalization of world stock exchange markets, 1990–2002 ................................................................. 16I.4.1. FDI inflows and royalty and licence fee payments, by region and the world, 1990–2001 ............... 20I.5.1. IPAs perceive that FDI prospects in their countries will be improving ................................................ 29I.5.2. Perceptions of FDI prospects vary from region to region ....................................................................... 29I.5.3. A shift is expected in the industrial composition of FDI ........................................................................ 29II.5.1. Asia and the Pacific: FDI flows to ASEAN and SAPTA, 1990–2002 ................................................... 47II.12.1. Germany: cumulative FDI flows, by component, January 1996-June 2002 ......................................... 73

Box tables

I.1.1. Snapshot of the world’s 100 top TNCs, top 50 from developing economies and top 25 fromCEE, 2001 .......................................................................................................................................................... 5

I.3.1. Divestment after mergers: changes in the number of foreign affiliates and host countriesin selected cases ............................................................................................................................................. 18

I.6.1. World Bank’s estimates of FDI inflows to developing countries, 2002–2004..................................... 30II.4.1. China and India: selected FDI indicators, 1990, 2000-2002 .................................................................. 44II.11.1. FDI flows to and from Luxembourg, by component, 2002 ..................................................................... 69

Annex A. Additional text tables

A.I.1. The world’s top 100 non-financial TNCs, ranked by foreign assets, 2001 ........................................ 187A.I.2. The top 50 non-financial TNCs from developing economies,

ranked by foreign assets, 2001 .................................................................................................................. 189A.I.3. The top 25 non-financial TNCs from Central and Eastern Europe,

ranked by foreign assets, 2001 .................................................................................................................. 191A.I.4. Inward FDI flows, by industry, 1999–2001 ............................................................................................. 192A.I.5. Inward FDI Performance Index rankings, 1990–2001 ........................................................................... 193A.I.6. Inward FDI Performance Index, by region, 1988-1990, 1993-1995,

1998-2000 and 1999-2001 .......................................................................................................................... 196A.I.7. Raw data and scores for the variables included in the UNCTAD Inward

FDI Potential Index, 1999–2001 ............................................................................................................... 197A.I.8. Inward FDI Potential Index rankings, 1990–2001 ................................................................................. 200A.I.9. Cross-border M&A deals with values of over $1 billion completed in 2002 .................................... 203A.I.10. Gross FDI and divestment in France, Germany, the United Kingdom and the United States,

1983–2002 ..................................................................................................................................................... 205

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A.I.11. Germany, Japan and the United States: receipts of royalties and licence fees from affiliatedfirms, by country, 1985–2001 .................................................................................................................... 206

A.I.12. Receipts of royalties and licence fees by affiliated firms and by country, Germany andthe United States, 1998 and 2000–2001 ................................................................................................... 207

A.I.13. Main international instruments dealing with FDI, 1948–2003 ............................................................. 208A.I.14. Bilateral association, cooperation, framework and partnership agreements including investment-

related provisions, signed by the European Community, by the European Free TradeAssociation, by the United States and by Canada with third countries, as of July 2003 ............... 219

A.I.15. Number of parent corporations and foreign affiliates, by area and economy,latest available year ..................................................................................................................................... 222

A.II.1. Asia and the Pacific: sources of FDI finance in selected economies, 1999–2002 ............................ 225A.II.2. Asia and the Pacific: rates of return on FDI, selected economies, 1999–2001 ................................. 226A.II.3. Asia and the Pacific: possible effects of selected regional agreements on FDI ................................ 227A.II.4. Selected cases of expansion and reduction of production capacities by foreign affiliates in

Hungary, 2002-June 2003 ........................................................................................................................... 229A.II.5. Developed countries: components of FDI flows in selected countries, 2001–2002 ......................... 230

Annex B: Statistical annex

Definitions and sources ........................................................................................................................ 231

A. General definitions ......................................................................................................................... 2311. Transnational corporations ..................................................................................................................... 2312. Foreign direct investment ....................................................................................................................... 2313. Non-equity forms of investment ........................................................................................................... 232

B. Availability, limitations and estimates of FDI datapresented in the World Investment Report .............................................................................. 2321. FDI flows .................................................................................................................................................... 232

a. FDI inflows ....................................................................................................................................... 233b. FDI outflows ..................................................................................................................................... 239

2. FDI stocks .................................................................................................................................................. 244

C. Data revisions and updates ......................................................................................................... 247

D. Data verification ............................................................................................................................. 247

E. Definitions and sources of the data in annex tables B.5 and B.6 ................................... 248

F. Definitions and sources of the data oncross-border M&As in annex tables B.7-B.10 ....................................................................... 248

Annex tables

B.1. FDI inflows, by host region and economy, 1991-2002 .......................................................................... 249B.2. FDI outflows, by home region and economy, 1991-2002 ..................................................................... 253B.3. FDI inward stock, by host region and economy,

1980, 1985, 1990, 1995, 2000, 2001 and 2002 ....................................................................................... 257B.4. FDI outward stock, by home region and economy,

1980, 1985, 1990, 1995, 2000, 2001 and 2002 ....................................................................................... 262B.5. Inward and outward FDI flows as a percentage of gross fixed capital formation,

by region and economy, 1991-2002 .......................................................................................................... 267B.6. Inward and outward FDI stocks as a percentage of gross domestic product, by region and

economy, 1980, 1985, 1990, 1995, 2000, 2001 and 2002 ..................................................................... 278B.7. Cross-border M&A sales, by region/economy of seller, 1988-2002 ................................................... 289B.8. Cross-border M&A purchases, by region/economy of purchaser, 1988-2002 ................................... 293B.9. Cross-border M&As, by sector and industry of seller, 1988-2002 ...................................................... 296B.10. Cross-border M&As, by sector and industry of purchaser, 1988-2002 .............................................. 297

World Investment Report 2003 FDI Policies for Development: National and International Perspectivesxii

OVERVIEW

FDI FALLS AGAIN—UNEVENLY

Global FDI flows fall again in 2002amid weak economic performance.

Global FDI inflows declined in 2002 for thesecond consecutive year, falling by a fifth to $651billion—the lowest level since 1998. Flowsdeclined in 108 of 195 economies. The main factorbehind the decline was slow economic growth inmost parts of the world and dim prospects forrecovery, at least in the short term. Also importantwere falling stock market valuations, lowercorporate profitability, a slowdown in the pace ofcorporate restructuring in some industries and thewinding down of privatization in some countries.A big drop in the value of cross-border mergersand acquisitions (M&As) figured heavily in theoverall decline. The number of M&As fell froma high of 7,894 cases in 2000 to 4,493 cases in2002—and their average value, from $145 millionin 2000 to $82 million in 2002. The number ofM&A deals worth more than $1 billion declinedfrom 175 in 2000 to only 81 in 2002—again, thelowest since 1998.

For the largest transnational corporations(TNCs) most indicators of the size of their foreignoperations declined slightly in 2001 (the latest yearfor which data are available), the beginning of theFDI downturn. Despite the burst of the bubble inthe information and communication technologymarket, there has been no significant shift in theindustrial composition of FDI—nor in the rankingof the world’s top 100 TNCs, the top 50 TNCs fromdeveloping countries and the top 25 TNCs fromCentral and Eastern Europe (CEE).

The decline in FDI in 2002 was unevenacross regions and countries. It was also unevensectorally: flows into manufacturing and servicesdeclined, while those into the primary sector rose.The equity and intra-company loan components ofFDI declined more than reinvested earnings. FDIentering host economies through M&As went downmore than that through greenfield projects.

Geographically, flows to developed anddeveloping countries each fell by 22% (to $460billion and $162 bill ion, respectively). Twocountries, the United States and the United

Kingdom, accounted for half of the decline in thecountries with reduced inflows. Among developingregions, Latin America and the Caribbean was hithard, suffering its third consecutive annual declinein FDI with a fall in inflows of 33% in 2002. Africaregistered a decline of 41%; but after adjusting forthe exceptional FDI inflows in 2001, there was nodeclline. FDI in Asia and the Pacific declined theleast in the developing world because of China,which with a record inflow of $53 billion becamethe world’s biggest host country. CEE did the bestof all regions, increasing its FDI inflows to a record$29 billion.

The main developments by region were:

• There was a sizable decline in FDI inflows todeveloped countries, accompanying a continuingslowdown in corporate investment, decliningstock prices and a slowdown in the consolidationof activities in some industries—all influencedby weak economic conditions. In severalcountries, repayments of intra-company loanscontributed to lower FDI flows. For instance,a large part of the decline in the United Stateswas due to repayments of loans by foreignaffiliates to parent companies, presumably totake advantage of the lower interest rates in theUnited States as well as for other reasons (suchas improving the debt-to-equity ratio of parentfirms). The most notable feature of the declinein FDI in the developed countries was the plungein cross-border M&As, especially in the UnitedStates and the United Kingdom. In all, FDIinflows declined in 16 of the 26 developedcountries. Australia, Germany, Finland and Japanwere among the countries with higher FDIinflows in 2002.

FDI outflows from the developed countries alsodeclined in 2002 to $600 billion; the fall wasconcentrated in France, the Netherlands and theUnited Kingdom. Outflows from Austria,Finland, Greece, Norway, Sweden and theUnited States increased. In both outflows andinflows Luxembourg headed the list of largesthost and home countries (for special reasons).The prospects for 2003 depend on the strengthof the economic recovery, investor confidence

World Investment Report 2003 FDI Policies for Development: National and International Perspectivesxiv

and a resumption of cross-border M&As. Withmany TNCs continuing to follow cautiousgrowth and consolidation strategies, M&As arenot yet showing much dynamism. As a group,developed countries are not likely to improvetheir FDI performance in 2003.

• Africa suffered a dramatic decline in FDIinflows—from $19 billion in 2001 to $11 billionin 2002, largely the result of exceptionally highinflows in 2001 (two M&As in South Africa andMorocco, not repeated in 2002). Flows to 23of the continent’s 53 countries declined. FDIin the oil industry remained dominant. Angola,Algeria, Chad, Nigeria and Tunisia accountedfor more than half the 2002 inflows. Only SouthAfrican enterprises made significant investmentsabroad. Oil exploration by major TNCs inseveral oil-rich countries make the 2003 outlookfor FDI inflows more promising.

• The Asia-Pacific region was not spared, either,from the global decline in FDI inflows in 2002.FDI inflows to the region declined for the secondconsecutive year—from $107 billion in 2001to $95 billion, uneven by subregion, country andindustry. All subregions, except Central Asiaand South Asia, received lower FDI flows thanin 2001. Flows to 31 of the region’s 57economies declined. However, several countriesreceived significantly higher flows. Intra-regional investment flows, particularly in South-East Asia and North-East Asia, remained strong,partly as a result of the relocation of productionactivities, expanding regional productionnetworks and continued regional integrationefforts. FDI in the electronics industry continuedto decline due to the rationalization ofproduction activities in the region andadjustments to weak global demand. While long-term prospects for an increase in FDI flows tothe region remain promising, the short-termoutlook is uncertain.

• In Latin America and the Caribbean, FDI flowsdeclined for the third consecutive year, from $84billion in 2001 to $56 billion, affecting allsubregions and 28 of the region’s 40 economies.Factors specific to the region contributed to thisdecline, especially the acute economic crisis inArgentina and economic and politicaluncertainty in some other countries. The servicessector was affected most by the decline.Manufacturing FDI proved to be quite resilient,with barely any change, despite the slowdownfrom the region’s major export destination, theUnited States, and the growing relocation oflabour-intensive activities to Asia. FDI isexpected to remain at the same level in 2003and to start rising thereafter.

• CEE again bucked the global trend by reachinga new high of $29 billion in FDI inflows,compared to $25 billion in 2001. That increasemasked divergent trends, however, with FDIfalling in 10 countries and rising in 9. FDI flowsvaried across industries as well, with theautomobile industry doing quite well, and theelectronics industry facing problems. There wasalso a tendency of firms (including foreignaffiliates) in several CEE countries, particularlythose slated for accession to the EU, to shedactivities based on unskilled labour and toexpand into higher value-added activities, takingadvantage of the educational level of the locallabour force. Led by a surge of flows into theRussian Federation, and fuelled by themomentum of EU enlargement, the region’s FDIinflows are likely to increase further in 2003.Of the two factors determining this trend, thesurge of FDI into the Russian Federation seemsto be more fragile in the medium and long termthan the spur of EU enlargement. In the shortterm, however, both factors are helpingovercome the impact of the completion ofprivatization programmes and the slowdown ofGDP growth expected in some key CEEcountries.

UNCTAD’s Inward FDI Performance Indexranks countries by the FDI they receive relativeto their economic size, calculated as the ratio ofthe country’s share in global FDI inflows to itsshare in global GDP. The Index for 1999–2001indicates that Belgium and Luxembourg remainedthe top performer. Of the top 20 performers, 6 areindustrialized, 2 are mature East-Asian tigereconomies, 3 are economies in transition and theremaining 9 are developing economies, includingthree from sub-Saharan Africa. UNCTAD’s 1999–2001 Inward FDI Potential Index, measuring thepotential—based on a set of structural variables—of countries in attracting FDI, indicates that 16 ofthe 20 leading countries are developed countriesand four of them, mature East-Asian tigereconomies.

Many industrial, newly industrializing andadvanced transition economies are in the front-runner category (with high FDI potential andperformance), while most poor (or unstable)economies are in the under-performer category(with both low FDI potential and performance).Economies in the above-potential category (withlow FDI potential but strong FDI performance)include Brazil , Kazakhstan and Viet Nam.Economies in the below-potential category (withhigh FDI potential but low FDI performance)include Australia, Italy, Japan, Republic of Korea,Taiwan Province of China and the United States.

OVERVIEW xv

Prospects remain dim for 2003, butshould improve thereafter.

All in all, UNCTAD predicts that FDI flowswill stablized in 2003. Flows to the developingcountries and developed countries are likely toremain at levels comparable to those in 2002, whilethose to CEE are likely to continue to rise. In thelonger run, beginning with 2004, global flowsshould rebound and return to an upward trend. Theprospects for a future rise depend on factors at themacro-, micro- and institutional levels.

The fundamental economic forces drivingFDI growth remain largely unchanged. Intensecompetition continues to force TNCs to invest innew markets and to seek access to low-costresources and factors of production. Whether theseforces lead to significantly higher FDI in themedium term depends on a recovery in worldeconomic growth and a revival in stock markets,as well as the resurgence of cross-border M&As.Privatization may also be a factor. FDI policiescontinue to be more favourable, and new bilateraland regional arrangements could provide a betterenabling framework for cross-border investment.

Findings of surveys of TNCs and investmentpromotion agencies (IPAs) carried out by UNCTADand other organizations paint an optimistic picturefor the medium term. IPAs in developing countriesare far more sanguine than their developed worldcounterparts. Developing countries are alsoexpected to be more active in outward FDI. IPAsexpect greenfield investment to become moreimportant as a mode of entry, especially indeveloping countries and CEE. Tourism andtelecom are expected to lead the recovery.

Government policies are becoming moreopen, involving more incentives andfocused promotion strategies…

Facing diminished FDI inflows, manygovernments accelerated the liberalization of FDIregimes, with 236 of 248 regulatory changes in 70countries in 2002 facilitating FDI. Asia is one of themost rapidly liberalizing host regions. An increasingnumber of countries, including those in Latin Americaand the Caribbean, are moving beyond opening toforeign investment to adopting more focused andselective targeting and promotion strategies.

Financial incentives and bidding wars forlarge FDI projects have increased as competitionintensified. IPAs, growing apace in recent years,are devoting more resources to targeting greenfieldinvestors and to mounting after-care services forexisting ones.

… as well as participation in moreinvestment and trade agreements.

More countries are concluding bilateralinvestment treaties (BITs) and double taxationtreaties (DTTs), as part of a longer trend, and notsolely in response to the FDI downturn. In 2002,82 BITs were concluded by 76 countries, and 68DTTs by 64 countries. Many countries areconcluding BITs with countries in their own regionto promote intra-regional FDI. Asian and Pacificcountries, for instance, were party to 45 BITs,including 10 signed with other countries in thatregion.

There has also been an increase in thenumber of trade and investment agreements. Manyrecent trade agreements address investmentdirectly—or have indirect implications forinvestment, a trend conspicuously different fromearlier regional and bilateral trade agreements. Thelargest number in developed countries wereconcluded by the EU, mainly involving partnersin CEE and Mediterranean countries. The EUenlargement through the accession of 10 newmembers in 2004 and the forthcoming negotiationsof ACP-EU Economic Partnership Agreementsmight also have an impact on FDI in the respectiveregions.

In Asia and the Pacific, the number of suchagreements has increased rapidly—to improvecompetitiveness, attract more FDI and better meetthe challenges emanating from heightenedcompetition. ASEAN is taking the lead. In LatinAmerica and the Caribbean, NAFTA has been themost prominent example, leading to increased FDIflows especially into the assembly of manufacturedgoods for the United States market. The Free TradeArea of the Americas, now under negotiation, couldexpand market access, promoting efficiency-seeking FDI. In Africa, progress towards thecreation of functioning free trade and investmentareas has been slow, though several agreements,mostly subregional, have been concluded. AGOA(not a free trade agreement but a unilateralpreference scheme) holds some promise for theexpansion of trade and investment in the region.

For the EU-accession countries of CEE, apolicy challenge is to harmonize FDI regimes withEU regulations, with the twin aims of conformingto EU regulations and maximizing the potentialbenefits from EU instruments, such as regionaldevelopment funds. Successful adjustment to EUmembership in the accession countries will alsodepend on their ability to establish and developthe institutional framework required to administerand properly channel the variety of funds availablefrom European Community sources for assisting

World Investment Report 2003 FDI Policies for Development: National and International Perspectivesxvi

economic development. The non-accessioncountries face the challenge of updating andmodernizing their FDI promotion to optimize thepotential benefits being on a “new frontier” forefficiency-seeking FDI—by attracting firms choosingto switch to lower cost locations within CEE.

Converging patterns of FDI links andinvestment and trade agreements aregenerating mega blocks.

The global stock of FDI, owned by some64,000 TNCs and controlling 870,000 of theirforeign affiliates, increased by 10% in 2002—tomore than $7 trillion. Technology payments, mostlyinternal to TNCs, held steady in 2001 despite thenear halving of FDI flows. Value added by foreignaffiliates in 2002 ($3.4 trillion) is estimated toaccount for about a tenth of world GDP. FDIcontinues to be more important than trade indelivering goods and services abroad: global salesby TNCs reached $18 trillion, as compared withworld exports of $8 tri l l ion in 2002. TNCsemployed more than 53 million people abroad.

The developed world accounts for two-thirdsof the world FDI stock, in both ownership and

location. Firms from the EU have become by farthe largest owners of outward FDI stock, some $3.4trillion in 2002, more than twice that of the UnitedStates ($1.5 trillion). In developing countries, theinward FDI stock came to nearly one-third of GDPin 2001, up from a mere 13% in 1980. OutwardFDI stocks held by developing countries havegrown even more dramatically, from 3% of theirGDP in 1980 to 13% in 2002.

Over time, the concentration of outward andinward FDI in the Triad (EU, Japan and the UnitedStates) has remained fairly stable. By 2002 thepattern of DTTs was quite similar to the Triadpattern of FDI flows, while the pattern of BITs hada weaker resemblance. For both BITs and DTTs,the Triad’s associate partners (countries with morethan 30% of their FDI with a Triad member) scorehigher than non-associate partners. This suggeststhat the “economic space” for Triad members andtheir developing country associates is beingenlarged from national to regional—and thattreaties are making investment blocks stronger. Theemerging nexus of mutually reinforcing trade andinvestment agreements may be providing gains forthe developing countries that are “insiders” in suchmega blocks.

ENHANCING THE DEVELOPMENTDIMENSION OF INTERNATIONAL

INVESTMENT AGREEMENTS

Countries seek FDI to help them grow anddevelop. Their national policies are key toattracting FDI and increasing its benefits.

To help attract FDI, countriesincreasingly conclude IIAs …

Countries conclude international investmentagreements (IIAs)—at the bilateral, regional andmultilateral levels—for various reasons. For mosthost countries, it is mainly to help attract FDI. Formost home countries, it is mainly to make theregulatory framework for FDI in host countriesmore transparent, stable, predictable and secure—and to reduce obstacles to future FDI flows. Ineither case, the regulatory framework for FDI, atwhatever level, is at best enabling. Whether FDIflows actually take place depends in the main oneconomic determinants.

The number of IIAs, especially at thebilateral and regional levels, has greatly increasedin the past decade, reflecting the importance of FDIin the world economy (see Part One of this WIR).

At the bilateral level, the most importantinstruments are bilateral investment treaties (BITs)and double taxation treaties (DTTs), with 2,181BITs and 2,256 DTTs signed by the end of 2002.BITs are primarily instruments to protect investors,although recent agreements by a few countries alsohave more of a liberalizing effect. (They are notconcluded between developed countries.) Theycover an estimated 7% of the stock of world FDIand 22% of the FDI stock in developing and CEEcountries. DTTs are primarily instruments toaddress the allocation of taxable income, includingto reduce the incidence of double taxation. Theycover some 87% of world FDI and some 57% ofFDI in developing and CEE countries.

OVERVIEW xvii

Although a few regional agreements dealexclusively with investment issues, the trend sofar has been to address such issues in tradeagreements. (The same applies to bilateral tradeagreements.) In effect, free trade agreements todayare often also free investment agreements.

At the multilateral level the few agreementsthat exist deal with specific investment-relatedissues (such as trade-related investment measures,insurance, dispute settlement, social policy matters)or they are sectoral (such as the General Agreementon Trade in Services (GATS)). There is nocomprehensive multilateral agreement forinvestment, although issues pertaining to such anidea are currently being discussed in the WTO.

Overall, the growth in the number of IIAsand their nature reflect the fact that nationalpolicies in the past decade have become morewelcoming to FDI. During 1991–2002, 95% of1,641 FDI policy changes had that effect.

Issues relating to IIAs are therefore comingto the fore in international economic diplomacy.This is so irrespective of what will or will nothappen at the multilateral level, simply becauseof what is happening now at the bilateral andregional levels. But if negotiations should takeplace at the multilateral level, these issues willacquire even greater importance. Whethergovernments negotiate IIAs, at what level and forwhat purpose is their sovereign decision. Theobjective of this WIR is simply to throw light ona range of issues that needs to be considered whennegotiating IIAs, seeking to clarify them from adevelopment perspective (and regardless of theoutcome of the ongoing multilateral investmentdiscussions).

Almost by definition, IIAs affect, to a greateror lesser extent, the regulatory framework for FDI,depending on their exact content. As a rule, theytend to make the regulatory framework moretransparent, stable and predictable—allowing theeconomic determinants to assert themselves. Theexpectation is that, if the economic determinantsare right, FDI will increase. In that respect,therefore, IIAs can influence FDI flows when theyaffect their determinants.

… which, by their nature, entail a lossof national policy space.

Experience shows that the best way ofattracting FDI and drawing more benefits from itis not passive liberalization alone. Liberalizationcan help get more FDI. But it is certainly notenough to get the most from it. Attracting types

of FDI with greater potential for benefiting hostcountries (such as FDI in technologically advancedor export oriented activities) is a more demandingtask than just liberalizing FDI entry and operations.And, once countries succeed in attracting foreigninvestors, national policies are crucial to ensurethat FDI brings more benefits. Policies can inducefaster upgrading of technologies and skills, raiselocal procurement, secure more reinvestment ofprofits, better protect the environment andconsumers and so on. They can also counter thepotential dangers related to FDI. For example, theycan contain anticompetitive practices and preventforeign affiliates from crowding out viable localfirms or acting in ways that upset local sensitivities.The instruments needed to put these policies inplace tend to be limited—or excluded altogether—by entering into IIAs.

The challenge for developing countriesis to find a development-orientedbalance…

What are the issues?

For developing countries, the most importantchallenge in future IIAs is to strike a balancebetween the potential contribution of suchagreements to increasing FDI flows and thepreservation of the ability to pursue development-oriented FDI policies that allow them to benefitmore from them— that is, the right to regulate inthe public interest. This requires maintainingsufficient policy space to give governments theflexibili ty to use such policies within theframework of the obligations established by theIIAs to which they are parties. The tension thiscreates is obvious. Too much policy space impairsthe value of international obligations. Too stringentobligations overly constrain national policy space.Finding a development-oriented balance is thechallenge—for the objectives, structure,implementation and content of IIAs.

… when negotiating the objectives,structure and implementation of IIAs…

Many IIAs incorporate the objective ofdevelopment among their basic purposes orprinciples, as a part of their preambular statementsor as specific declaratory clauses articulatinggeneral principles. The main advantage of suchprovisions is that they may assist in theinterpretation of substantive obligations, permittingthe most development friendly interpretation. Thispromotes flexibility and the right to regulate byensuring that the objective of development is

World Investment Report 2003 FDI Policies for Development: National and International Perspectivesxviii

implied in all obligations and exceptions thereto—and that it informs the standard for assessing thelegitimacy of governmental action under anagreement.

The structure of agreements may reflectdevelopment concerns through special anddifferential treatment for developing countryparties. This entails differences in the extent ofobligations of developed and developing countryparties, with the latter assuming, either temporarilyor permanently, less onerous obligations that arealso non-reciprocal. Particularly important is theapproach to determine the scope of commitments.

• Under a “negative list” approach, countries agreeon a series of general commitments and then list,individually, all the areas these commitmentsdo not apply to. This approach tends to producean inventory of non-conforming measures. Italso increases predictability because it locks inthe status quo.

• Under a (GATS-type) “positive list” approach,countries list commitments they agree to makeand the conditions they attach to them. Thisapproach has the advantage that countries canmake commitments at their own pace anddetermine the conditions for doing this. For thesereasons the positive list approach is generallyregarded as more development friendly than thenegative list approach.

In theory, both approaches should arrive atthe same result, if countries had the capacity tomake proper judgments about individualactivities—or, more broadly, about makingcommitments—when concluding an agreement. Inpractice, it is unlikely that developing countrieswould have all the information necessary to makethe necessary judgments at the time of concludingagreements. As a result, the negative list approachmight involve greater liberalization than countriesmay wish to commit themselves to start with. Buteven a positive list approach can lead to significantliberalization—because in practice, negotiationsgenerate pressures on countries to assume higherand broader commitments. And once a commitmenthas been made, it is difficult to reverse it.

The implementation of IIAs can also bedesigned with flexibility for development as theorganizing principle. Two approaches areparticularly relevant here: first, the legal character,mechanisms and effects of an agreement, andsecond, promotional measures and technicalassistance:

• Whether an agreement is legally binding orvoluntary affects the intensity of particular

obligations. Indeed, it is possible to have a mixof binding commitments and non-binding “besteffort” provisions in one agreement. So,development-oriented provisions could be eitherlegally binding or hortatory, depending on howmuch the parties are willing to undertakecommitments.

• The asymmetries between developed anddeveloping country parties to IIAs can be tackledby commitments of the developed countryparties to provide assistance to the developingparties, especially LDCs. An example is theTRIPS Agreement, in which developed countrieshave made commitments to facilitate technologytransfer to LDCs. Also relevant here is the widerissue of home country commitments to promotethe flow of FDI to developing countries, perhapscomplemented by provisions for technicalassistance through relevant internationalorganizations. These are important, given thecomplexity of the subject matter and the limitedcapacity of many developing countries,especially LDCs, to fund FDI-related policyanalysis and development and for human andinstitutional development. Institutionaldevelopment also involves assistance todeveloping countries to attract FDI and benefitmore from it.

... and especially their content …

The quest for a development friendly balanceplays itself out most importantly in the negotiationsof the content of IIAs. Central here is the resolutionof issues that are particularly important for theability of countries to pursue development-orientednational FDI policies—and that are particularlysensitive in international investment negotiations,because countries have diverging views about them.

From a development perspective, these issuesare:

• The definition of investment, because itdetermines the scope and reach of thesubstantive provisions of an agreement.

• The scope of national treatment (especially asit relates to the right of establishment), becauseit determines how much and in what wayspreferences can be given to domestic enterprises.

• The circumstances under which governmentpolicies should be regarded as regulatorytakings, because it involves testing the boundaryline between the legitimate right to regulate andthe rights of private property owners.

• The scope of dispute settlement, because thisraises the question of the involvement of non-State actors and the extent to which the

OVERVIEW xix

settlement of investment disputes is self-contained.

• The use of performance requirements,incentives, transfer-of-technology policies andcompetition policy, because they can advancedevelopment objectives.

Other important matters also arise innegotiations for IIAs, especially most-favoured-nation treatment, fair and equitable treatment andtransparency. But these appear to be lesscontroversial.

For each of these issues, more developmentfriendly and less development friendly solutionsexist. From the perspective of many developingcountries, the preferable approach is a broad GATS-type positive list approach that allows each countryto determine for itself for which of these issuesto commit itself to in IIAs, under what conditions,and at what pace, commensurate with its individualneeds and circumstances.

In pursuit of an overall balance, furthermore,future IIAs need to pay more attention tocommitments by home countries. All developedcountries (the main home countries) already havevarious measures to encourage FDI flows todeveloping countries in place. And a number ofbilateral and regional agreements contain suchcommitments. Developing countries would benefitfrom making home country measures moretransparent, stable and predictable in future IIAs.

TNCs, too, can contribute more to advancingthe development impact of their investments indeveloping countries, as part of good corporatecitizenship responsibili t ies, whether throughvoluntary action or more legally-based processes.Areas particularly important from a developmentperspective are contributing fully to publicrevenues of host countries, creating and upgradinglinkages with local enterprises, creatingemployment opportunities, raising local skill levelsand transferring technology.

… by making development objectives anintegral part of international investmentagreements.

These issues are all complex. Because thepotential implications of some provisions in IIAsare not fully known, it is not easy for individualcountries to make the right choices. Thecomplexities and sensitivities are illustrated by theexperience of NAFTA for the regional level, thatof the MAI negotiations for the interregional leveland that of the GATS and the TRIMs Agreementfor the multilateral level. Given the evolving natureof IIAs, other complexities tend to arise in applyingand interpreting agreements. Indeed, disputes mayarise from these processes, and their outcome isoften hard to predict.

That is why governments need to ensure thatsuch difficulties are kept to a minimum. How? Byincluding appropriate safeguards at the outset toclarify the range of special and differential rightsand qualifications of obligations that developingcountry parties might enjoy. Moreover, theadministrative burden arising from newcommitments at the international level is likely toweigh disproportionately on developing countries,especially the least developed, because they oftenlack the human and financial resources needed toimplement agreements. This underlines theimportance of capacity-building technicalcooperation—to help developing countries assessbetter various policy options before entering newagreements and in implementing the commitmentsmade.

The overriding challenge for countries is tofind a development-oriented balance whennegotiating the objectives, content, structure andimplementation of future IIAs at whatever leveland in whatever context. In short: the developmentdimension has to be an integral part of internationalinvestment agreements—in support of policies toattract more FDI and to benefit more from it.

Rubens RicuperoGeneva, July 2003 Secretary-General of UNCTAD

World Investment Report 2003 FDI Policies for Development: National and International Perspectivesxx

PART ONE

FDI FALLS AGAIN — UNEVENLY

CHAPTER I

FDI DOWN 21% GLOBALLYGlobal foreign direct investment (FDI)

inflows, down by 41% in 2001, fell by another fifthin 2002—to $651 billion, or just half the peak in2000 (table I.1). Driving the most significantdownturn of the past three decades were weakeconomic growth, tumbling stock markets (whichcontributed to a plunge in cross-border mergersand acquisitions (M&As)) and institutional factorssuch as the winding down of privatization inseveral countries. The United States and the UnitedKingdom alone accounted for 54% of the fall inthe countries with reduced inflows. In 2002,

• inflows in the developed world declined by22%, with nine countries experiencing

increases and 16 countries decreases. TheUnited States alone accounted for more thanhalf of the fall in the latter countries;

• the decline in the developing world (23%),which faced even sharper declines in otherprivate external capital flows, was steepestin Africa (41%), followed by Latin Americaand the Caribbean (33%). Flows to the world’smost populous region, Asia and the Pacific,fell only a little, thanks to higher flows to China;

• Central and Eastern Europe (CEE) resisted theglobal decline, with its FDI inflows rising by15%, although flows to 10 countries in theregion fell; and

Table I.1. Selected indicators of FDI and international production, 1982-2002(Billions of dollars and per cent)

Value at current prices Annual growth rateItem (Billion dollars) (Per cent)

1982 1990 2002 1986-1990 1991-1995 1996-2000 1999 2000 2001 2002

FDI inflows 59 209 651 23.1 21.1 40.2 57.3 29.1 -40.9 -21.0FDI outflows 28 242 647 25.7 16.5 35.7 60.5 9.5 -40.8 -9.0FDI inward stock 802 1 954 7 123 14.7 9.3 17.2 19.4 18.9 7.5 7.8FDI outward stock 595 1 763 6 866 18.0 10.6 16.8 18.2 19.8 5.5 8.7Cross-border M&As a .. 151 370 25.9b 24.0 51.5 44.1 49.3 -48.1 -37.7Sales of foreign affiliates 2 737 5 675 17 685c 16.0 10.1 10.9 13.3 19.6 9.2c 7.4c

Gross product of foreign affiliates 640 1 458 3 437d 17.3 6.7 7.9 12.8 16.2 14.7d 6.7d

Total assets of foreign affiliates 2 091 5 899 26 543e 18.8 13.9 19.2 20.7 27.4 4.5e 8.3e

Export of foreign affiliates 722 1 197 2 613f 13.5 7.6 9.6 3.3 11.4 -3.3f 4.2f

Employment of foreign affiliates (thousands) 19 375 24 262 53 094g 5.5 2.9 14.2 15.4 16.5 -1.5g 5.7g

GDP (in current prices) 10 805 21 672 32 227h 10.8 5.6 1.3 3.5 2.6 -0.5 3.4h

Gross fixed capital formation 2 286 4 819 6 422i 13.4 4.2 1.0 3.5 2.8 -3.9 1.3i

Royalties and licences fees receipts 9 30 72j 21.3 14.3 6.2 5.7 8.2 -3.1 ..Export of goods and non-factor services 2 053 4 300 7 838k 15.6 5.4 3.4 3.3 11.4 -3.3 4.2k

Source : UNCTAD, based on its FDI/TNC database and UNCTAD estimates.a Data are only available from 1987 onward.b 1987-1990 only.c Based on the following regression result of sales against FDI inward stock (in mil l ions dollars) for the period 1980-2000:

Sales=934.0435+2.351837*FDI inward stock.d Based on the following regression result of gross product against FDI inward stock (in millions dollars) for the period 1982-2000: Gross

product=436.3332+0.421268*FDI inward stock.e Based on the following regression result of assets against FDI inward stock (in millions dollars) for the period 1980-2000: Assets=

-1 443.239+3.929293*FDI inward stock.f For 1995-1998, based on the regression result of exports of foreign affiliates against FDI inward stock (in millions dollars) for the period

1982-1994: Exports=291.5394+0.453183*FDI inward stock. For 1999-2002, the share of exports of foreign affiliates in world exportin 1998 (33.3 per cent) was applied to obtain the values.

g Based on the following regression result of employment (in thousands) against FDI inward stock (in millions dollars) for the period1982-1999: Employment=13 865.43+5.507718*FDI inward stock.

h Based on data from the International Monetary Fund, International Financial Statistics, June 2003 and World Economic Outlook, April2003.

i Data for 2002 was extrapolated using the share of countries and economies with available 2002 data in 2001 world gross fixed capitalformation.

j 2001.k Based on the International Monetary Fund, World Economic Outlook, April 2003.

Note: Not included in this table are the value of worldwide sales by foreign affiliates associated with their parent firms through non-equity relationships and the sales of the parent firms themselves. Worldwide sales, gross product, total assets, exports andemployment of foreign affiliates are estimated by extrapolating the worldwide data of foreign affiliates of TNCs from Austria, Finland,France, Germany, Italy, Japan, Portugal, Sweden, Switzerland and the United States (for employment), those from Austria, Finland,France, Germany, Italy, Japan, Portugal and the United States (for sales), those from Japan and the United States (for exports),those from the United States (for gross product), and those from Austria, Germany and the United States (for assets) on thebasis of the shares of those countries in the worldwide outward FDI stock.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives4

A. The downturn continues

The decline in FDI flows in 2001–2002—after years of steady growth interrupted by a troughin the early 1990s and a sharp spurt in 1999–2000—was much steeper than that in GDP, exportsand domestic investment (table I.1). FDI remainsthe biggest component of net resource flows todeveloping countries, fluctuating less than portfolioflows and commercial bank lending as measuredby the relative variance of these variables (figureI.1).1 And since 1990, it has been a growing partof total investment in developing countries (figureI.2).

The dramatic fall in FDI flows has slowedthe expansion of international production. Sales,value added, assets, exports and employment offoreign affiliates all registered slower growth in2002 (table I.1) than in 1996–2000 (but higher than

• both manufacturing and services were hit hard,while FDI flows to the primary sector rose.

All this reduces the opportunities for developingcountries to reap the benefits of FDI. The declineshould however not obscure the fact that variationsin flows do not change much the characteristicsof the underlying FDI stock, which defines thestructure of international production and which

remains dominated by the Triad (European Union(EU), Japan and the United States).

The prospects for a recovery in 2003:uncertain at best. Preliminary data do not suggesta rebound. Much will depend on the overalleconomic situation, especially in the main homecountries.

in 2001 for some indicators). For the largesttransnational corporations (TNCs) most indicatorsof the size of foreign operations declined slightlyin 2001, the beginning of the FDI downturn period(box I.1).

The slower growth of the foreign activitiesof TNCs in 2001–2002 could translate into lowerratios of the transnationalization of economicactivities for host countries. In 2000, reflectingthe FDI boom, the transnationality index continuedto rise (figure I.3), with a noticeable increase overthe previous year.2

Figure I.1. Total resource flowsa to developingcountries,b by type of f low, 1990–2002

(Billions of dollars)

Source : UNCTAD, based on World Bank, 2003.a Defined as net liability transactions or original maturity of greater

than one year.b The World Bank’s classification of developing countries is

different from that of UNCTAD. Central and Eastern Europeis included in the former classification.

c Preliminary.

Source : UNCTAD, FDI/TNC database; and Everhart andSumlinski, 2001.

a Data in this figure cover the following countries: Argentina,Azerbaijan, Bangladesh, Barbados, Belize, Benin, Bolivia, Brazil,Bulgaria, Cambodia, Chile, China, Colombia, Comoros, CostaRica, Côte d'Ivoire, Dominica, Dominican Republic, Ecuador,Egypt, El Salvador, Estonia, Grenada, Guatemala, Guinea-Bissau, Guyana, Haiti, India, Indonesia, Islamic Republic ofIran, Kazakhstan, Kenya, Republic of Korea, Lithuania,Madagascar, Malawi, Malaysia, Mauritania, Mauritius, Mexico,Morocco, Namibia, Nicaragua, Pakistan, Panama, Papua NewGuinea, Paraguay, Peru, Phil ippines, Poland, Romania,Seychelles, South Africa, Saint Lucia, Saint Vincent and theGrenadines, Serbia and Montenegro, Thailand, Trinidad andTobago, Tunisia, Turkey, Uruguay, Uzbekistan and Venezuela.

Figure I.2. FDI inflows , private domesticinvestment and public investment in

developing countries and Central andEastern Europe,a 1990–2000

(Billions of dollars)

CHAPTER I 5

B. The unevenness of the downturn

The decline in FDI inflows in 2001 and 2002was uneven in four ways:

• Geographically. Regions fared differently, anda handful of countries accounted for the bulkof the decline worldwide.

• Sectorally. Flows to both manufacturing andservices fell, but not those to the primary sector.Finance, transport, storage and communications

were severely affected, while FDI in otherindustries remained virtually unchanged (healthand social services) or even rose (mining,quarrying and petroleum).

• Financially. The decline in intra-company loansexceeded that in equity flows (in 2001 all thefinancial components of FDI declined abouthalf).

Box I.1. The world's largest transnational corporations

Source: UNCTAD.

After years of expansion, the foreign operationsas measured by foreign assets, sales and employmentof the top 100 TNCs worldwide, stagnated in 2001, thelatest year with complete data (box table I.1.1). Despitethe burst of the bubble in information andcommunication technology, there is no significant shiftin the industrial composition of the top 100 (annex tableA.I.1). Petroleum and automobile companies remainhigh on the l ist , st i l l led by Vodafone, a telecomcompany.

The picture of the 50 largest TNCs fromdeveloping economies is more complex (annex tableA.I.2). Due to the economic downturn, sales (both totaland foreign) declined in 2001. Total assets andemployment also fell. Like many of the largest 100TNCs, they had to undergo a restructuring process inorder to remain competitive in a difficult economicenvironment. However, these TNCs continued to expandtheir production capacities abroad as shown by increasesin foreign assets and employment (box table I.1.1). Theranking remains fairly stable. Hutchison Whampoaconsolidated its top position. And with Singtel rankedsecond, two companies with major interests in telecomswere in the top 10. Petroleum and electrical andelectronic equipment also figure prominently. As inprevious years, the majority of the companies on thetop 50 list are headquartered in Asia. And except forfive companies from South Africa, the remaining firmshail from Latin America.

The 25 largest non-financial TNCs based in CEE,many of them natural-resource based or intransportation, were only marginally affected by theglobal slump (annex table A.I.3). The geographicconcentration of their activities also protected them.Russian TNCs continue to be larger and more globallyspread than the others. With foreign assets of more than$5 billion, Lukoil, the largest Russian TNC, comparedwith the top 10 in developing countries. Tiszai VegyiKombinát (Hungary) and KGHM Polska Miedz (Poland)rolled back their foreign presence in 2001. And SkodaGroup Plzen (Czech Republic) went through bankruptcy,shrinking its assets at home and abroad. Replacing themwere firms expanding rapidly abroad, such as theHungary's pharmaceutical TNC Richter Gedeon.

Box table I.1.1. Snapshot of the world's 100top TNCs, top 50 from developing economies

and top 25 from CEE, 2001(Billions of dollars, number of employees

and per cent)

(a) World’s top 100 TNCs

% change 2001Variable 2001 2000 vs. 2000a

Assets Foreign 2 934 3 113 -5.8 Total 5 914 6 184 -4.4Sales Foreign 2 235 2 356 -5.2 Total 4 352 4 748 -8.3Employment Foreign 6 890 178 6 791 647 1.5 Total 13 383 852 14 197 264 -5.7Average TNI 59.4 55.7 3.7

Source: UNCTAD/Erasmus University database.a The change between 2000 and 2001 is expressed

in percentage points.

(b) Top 50 TNCs from developing economies% change 2001

Variable 2001 2000 vs. 2000a

Assets Foreign 183 155 17.6 Total 515 541 -4.9Sales Foreign 143 186 -22.9 Total 355 393 -9.7Employment Foreign 501 936 403 000 24.5 Total 1 159 476 1 321 449 -12.3Average TNI 45.7 35.3 10.4

Source: UNCTAD, FDI/TNC database.a The change between 2000 and 2001 is expressed

in percentage points.

(c) Top 25 from Central and Eastern Europe% change 2001

Variable 2001 2000 vs. 2000a

Assets Foreign 9.3 8.1 15.2 Total 33.8 30.8 9.7Sales Foreign 13.1 12.1 8.8 Total 30.2 29.8 1.6Employment Foreign 30 053 32 203 -6.7 Total 335 236 353 983 -5.3Average TNI 30.3 32.2 -1.9

Source: UNCTAD survey of the top TNCs in CEE.a The change between 2000 and 2001 is expressed

in percentage points.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives6

Figure I.3. Transnationality indexa of host economies,b 2000(Per cent)

Source: UNCTAD estimates.a Average of the four shares : FDI inflows as a percentage of gross fixed capital formation for the past three years 1998-2000; FDI inward

stocks as a percentage of GDP in 2000; value added of foreign affiliates as a percentage of GDP in 2000; and employment of foreignaffiliates as a percentage of total employment in 2000.

b Only the economies for which data for all of these four shares are available were selected. Data on value added are available onlyfor Finland (1999), France (1998), Italy (1997), Japan (1999), Netherlands (1996), Norway (1998), Portugal, Sweden, United Kingdom(1997), United States, China (1997), India (1995), Malaysia (1995), Singapore and Taiwan Province of China (1994) . For other economies,data were estimated by applying the ratio of value added of United States affiliates to United States outward FDI stock to total inwardFDI stock of the country. Data on employment are available only for Austria, Denmark (1996), Finland (1999), France (1998), Germany,Ireland, Italy (1999), Japan (1999), Netherlands (1996), Norway (1996), Portugal, Sweden, United Kingdom (1997), United States, HongKong (China) (1997), Indonesia (1996) and Singapore (1999). For other countries, data were estimated by applying the ratio of employmentof Finnish, German, Japanese, Swedish, Swiss and United States affiliates

c For Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Estonia, Lithuania, Romania, Serbia and Montenegro, Slovakia, TFYR Macedoniaand Ukraine the employment impact of foreign-owned affiliates was estimated on the basis of their per capita inward FDI stocks. Thecorresponding ratios for employment refer to 1999. With the exception of Belarus, Czech Republic, Hungary, Poland and Slovenia,the value added of foreign-owned firms was estimated on the basis of the per capita inward FDI stocks. The corresponding ratios forvalue added refer to 1999.

CHAPTER I 7

• Mode of entry. Cross-border M&As fell morethan greenfield FDI.

The decline in outflows was also uneven.

Geography

The United States alone accounted fornearly 90% of the decline in inflows to developedcountries in 2002 (as it did in 2001) (table I.2;chapter II). Among developing regions the fallwas steepest in Africa (41%), a return to normalcyafter the exceptionally large inflows registeredby two countries in 2001 (chapter II). Flows toLatin America and the Caribbean dropped for thethird year in a row, this time by a third. Thedecline in flows to the Asia-Pacific region (whichincludes West Asia) was quite small (11%). Andflows to CEE rose by 15%.

Despite the high concentration, thedecline was widespread, with 108 of the total of195 host economies receiving less in 2002 than

in 2001. With FDI inflows of $53 billion, anaverage of $144 million a day, China overtookthe United States ($30 billion) to become theworld’s second largest recipient (afterLuxembourg), strengthening its position in worldmanufacturing exports (chapter II). India andMalaysia also attracted larger FDI flows (chapterII), while flows to the major host countriesdeclined in Latin America (Argentina, Brazil,Chile, Mexico, Venezuela). In Africa, flows toMorocco and South Africa, the two largestrecipients in 2001, fell considerably. In the CEE,the Czech Republic boosted its inflows to morethan $9 billion, thanks to the $4 billion sale ofTransgas to RWE of Germany.

Sector

FDI inflows in 50 countries, which togetheraccounted for roughly 90% of the total, declinedby more than 45% in both manufacturing andservices in 2001, compared with 1999–2000. ButFDI in the primary sector rose by 70%, down indeveloping countries but up significantly in thedeveloped countries (figure I.4; annex table A.I.4).Services are the single largest sector for FDIinflows. In the peak years 1999–2000, most largecross-border M&As were in services (particularlytelecommunications), a pattern sustained in 2001–2002, though at a much lower level.

Financing

The role played by the three modes of FDIfinancing (equity investment, intra-company loansand reinvested earnings) in the decline in 2002(as well as in the preceding year) was also uneven.The 2002 decline in intra-company loans (by77%) was much larger than that in equityinvestments (by 12%) for the 30 countries(accounting for two thirds of total FDI flows) withdata (figure I.5). The 79% fall in FDI flows tothe United States in 2002 involved declines of$50 billion in new equity investment and $80billion in intra-company loans—and a rise of $30billion in reinvested earnings. The fall in intra-company loans was due to large repayments ofloans by foreign affiliates in the United Statesto their parent companies. Interest rates in theUnited States were lower than in other areas,especially the EU.3 And parent firms reducedloans to their foreign affiliates, particularly toEU affiliates in the United States, because of thereduced need to finance M&As in the UnitedStates (see chapter II).4

Table 1.2. FDI inflows to major economies, 2001and 2002

(Bill ions of dollars)

Host region/economy 2001 2002

World 823.8 651.2

Developed countries 589.4 460.3European Union 389.4 374.4

France 55.2 51.5Germany 33.9 38.0Luxembourg .. 125.6United Kingdom 62.0 24.9United States 144.0 30.0

Developing economies 209.4 162.1

Africa 18.8 11.0Algeria 1.2 1.1Angola 2.1 1.3Nigeria 1.1 1.3South Africa 6.8 0.8

Latin America and the Caribbean 83.7 56.0Argentina 3.2 1.0Brazil 22.5 16.6Mexico 25.3 13.6

Asia and the Pacific 106.9 95.1China 46.8 52.7Hong Kong, China 23.8 13.7India 3.4 3.4Korea, Republic of 3.5 2.0Malaysia 0.6 3.2Philippines 1.0 1.1Singapore 10.9 7.7Taiwan Province of China 4.1 1.4Thailand 3.8 1.1

Central and Eastern Europe 25.0 28.7Czech Republic 5.6 9.3Poland 5.7 4.1Russian Federation 2.5 2.4

Source: UNCTAD, FDI/TNC database.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives8

Figure I.4. Inward FDI flows, by sector, 1999-2000 and 2001(Per cent)

Source: UNCTAD, FDI database and annex table A.I.4.

Notes: Data cover 50 countries for which data are available for 1999, 2000 and 2001. They account for 94 % and 89 % of world inwardflows in 1999-2000 and 2001, respectively. In the absence of actual data, approval data were used in some countries.

Figure I.5. FDI inflows, by type of f inancing, 1990-2002 (Per cent)

Source: UNCTAD, based on IMF, Balance of Payments Statistics , April 2003 CD-ROM and UNCTAD FDI/TNC database.

CHAPTER I 9

Mode of entry

M&As declined relative toentry through greenfield projects.Cross-border M&As, down by 48%in 2001, fell another 38% in 2002.The share of cross-border M&Adeals fell from at most 80% of totalFDI flows in 2001 to at most 55%in 2002.5

Outflows

United States outflows ($120billion) rose by 15% in 2002(chapter II) . EU outflows ($394billion) decreased by 13% in 2002and Japan’s fell by 18%. In 2001 thedecline in FDI flows from developedcountries was concentrated primarilyin other developed countries (tableI.3). And in 2002, it is expected tobe smaller. FDI from developingcountries ($43 billion) also declined,but i ts share in world outflowsremained almost the same; 7% eachin 1999–2000, 2001 and 2002(annex table B.2). That from CEE($4 billion) rose, with the RussianFederation, the largest investor fromthe region, accounting for the bulk.Its share in world outflows also roseover the past years and reached 0.6%in 2002.

UNCTAD’s third set of benchmarks forinward FDI performance and potential (followingthose in WIR01 and WIR02) ranks countries by howthey do in attracting inward direct investment andwhat their potential is in that respect. Not a full-blown analysis of the determinants of FDI location,the exercise is meant to provide data forpolicymakers on some variables that can bequantified for a large number of countries.

The Inward FDI Performance Index rankscountries by the FDI they receive relative to theireconomic size, calculated as the ratio of a country’sshare in global FDI inflows to its share in globalGDP. A value greater than one indicates that thecountry receives more FDI than its relativeeconomic size, a value below one that it receivesless (a negative value means that foreign investorsdisinvest in that period). The index thus capturesthe influence on FDI of factors other than market

C. Performance Index captures the downturn’s unevenness6

size, assuming that, other things being equal, sizeis the “base line” for attracting investment. Theseother factors are diverse, ranging from the businessclimate, economic and political stabili ty, thepresence of natural resources, infrastructure, skillsand technologies, to opportunities for participatingin privatization or the effectiveness of FDIpromotion.

The ranks show large variations over timebecause the numerator (FDI shares) and thedenominator (GDP shares) can shift significantlyfrom one year to the next. The variations can beparticularly large for economies with tiny globalGDP shares, where a few large investments (say,for M&As, privatization or resource-extraction)can change the ranking significantly. It is thusimportant to bear in mind that in such cases stronginward FDI performance may be a temporaryphenomenon. Given the nature of the variables

Table I.3. Outward FDI flows,a by geographical destination, 1999-2001(Billions of dollars and percentage distribution)

Value in billion dollars Percentage distribution

Average AverageRegion/economy 1999-2000 2001 1999-2000 2001

Developed countries 924.2 470.1 83.7 74.6Western Europe 640.9 259.7 58.0 41.2

European Union 589.4 236.6 53.4 37.5Other Western Europe 50.9 24.1 4.6 3.8

Unspecified Western Europe 0.6 - 1.0 0.1 -0.2North America 256.2 197.3 23.2 31.3Other developed countries 25.0 9.1 2.3 1.4Unspecified developed countries 2.2 3.9 0.2 0.6

Developing economies 129.2 115.2 11.7 18.3Africa 6.8 8.5 0.6 1.3

North Africa 0.5 1.8 0.0 0.3Other Africa 5.0 6.3 0.5 1.0Unspecified Africa 1.3 0.4 0.1 0.1

Latin America and the Caribbean 84.7 69.1 7.7 11.0South America 39.5 20.3 3.6 3.2Other Latin America and Caribbean 36.4 38.0 3.3 6.0Unspecified Latin America and Caribbean 8.8 10.9 0.8 1.7

Asia 33.9 36.5 3.1 5.8West Asia 0.8 2.8 0.1 0.4Central Asia 1.0 0.1 0.1 0.0South, East and South-East Asia 31.0 32.8 2.8 5.2Unspecified Asia 1.1 0.8 0.1 0.1

The Pacific 1.5 0.8 0.1 0.1Unspecified developing countries 2.4 0.3 0.2 0.1

Central and Eastern Europe 18.0 18.6 1.6 3.0

Unspecified 32.7 26.3 3.0 4.2

Total world 1 104.1 630.3 100.0 100.0

Source: UNCTAD, FDI database.a Totals are based on data for the following countries: Australia, Austria, Belgium

and Luxembourg, Canada, Denmark, Finland, France, Germany, Iceland, Ireland,Japan, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland,United Kingdom and United States.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives10

used, of course, such volatility is to be expected.If a different denominator, like population, wereused, the ranks would be much more stable but thiswould not capture the attractiveness of an economyto FDI as well.

The Inward FDI Potential Index capturesseveral factors (apart from market size) expectedto affect an economy’s attractiveness to foreigninvestors. Because the index relies on variablesthat can be quantified with the available data, itdoes not include the social, political, governanceand institutional factors that may affect FDI butare impossible to compare meaningfully acrosscountries. It also does not include some economicfactors like tax incentives for FDI, quantity andquality of skills, availability and efficiency of localsuppliers or cost of infrastructure services that arein principle measurable but for which data are notavailable.

Performance Index

The leader in the 1999–2001 Inward FDIPerformance Index, Belgium and Luxembourg,retains the rank it attained in the earlier period(1998–2000).7 Of the top 20 performers, six areindustrialized, two are mature East-Asian tigereconomies, three are economies in transition andthe remaining nine are developing economies,including three from sub-Saharan Africa (table I.4).The two lowest-ranked performers in 1999–2001are Suriname and Gabon, followed by Indonesia,badly affected by the 1997 financial crisis. Thelaggards also include several oil-rich economiesfrom the West Asia and North Africa region.

These index ranks are, of course, quitedifferent from the ranks given by the values of FDIinflows. For instance, the largest FDI recipient in

Table I.4. Ranks in the UNCTAD inward FDI performance index, 1999-2001

Rank Economy Rank Economy Rank Economy Rank Economy

1 Belgium and Luxembourg 36 Switzerland 71 Venezuela 106 Ethiopia2 Angola 37 Brazil 72 Mexico 107 Kyrgyzstan3 Hong Kong, China 38 Armenia 73 Costa Rica 108 Russian Federation4 Ireland 39 Germany 74 Austria 109 Italy5 Malta 40 United Republic of Tanzania 75 Romania 110 Egypt6 Singapore 41 Spain 76 Tunisia 111 Sri Lanka7 Sweden 42 Argentina 77 Ghana 112 Turkey8 Netherlands 43 Papua New Guinea 78 Peru 113 Greece9 Denmark 44 New Zealand 79 United States 114 Guinea

10 Brunei Darussalam 45 Togo 80 Colombia 115 Botswana11 Czech Republic 46 Morocco 81 South Africa 116 Pakistan12 Gambia 47 Poland 82 Benin 117 Sierra Leone13 Nicaragua 48 Mongolia 83 Nigeria 118 Kenya14 Bolivia 49 Finland 84 Uzbekistan 119 Burkina Faso15 Kazakhstan 50 Viet Nam 85 Myanmar 120 India16 Congo, Republic 51 Latvia 86 Côte d'Ivoire 121 Niger17 Guyana 52 Portugal 87 Belarus 122 Cameroon18 Moldova, Republic of 53 Hungary 88 Ukraine 123 Haiti19 Chile 54 Jordan 89 Madagascar 124 Zimbabwe20 Cyprus 55 Honduras 90 Philippines 125 Bangladesh21 Estonia 56 Bahrain 91 Australia 126 Rwanda22 Croatia 57 Sudan 92 Korea, Republic of 127 Congo, Democratic Republic23 Jamaica 58 Uganda 93 Tajikistan 128 Japan24 Mozambique 59 China 94 Senegal 129 Oman25 Bulgaria 60 Lithuania 95 El Salvador 130 Nepal26 Slovakia 61 Thailand 96 Lebanon 131 Iran, Islamic Republic27 Trinidad and Tobago 62 France 97 Iceland 132 Kuwait28 United Kingdom 63 Georgia 98 Qatar 133 Malawi29 TFYR Macedonia 64 Zambia 99 Guatemala 134 Libyan Arab Jamahiriya30 Canada 65 Israel 100 Uruguay 135 Saudi Arabia31 Dominican Republic 66 Bahamas 101 Algeria 136 United Arab Emirates32 Panama 67 Albania 102 Taiwan Province of China 137 Yemen33 Azerbaijan 68 Mali 103 Syrian Arab Republic 138 Indonesia34 Namibia 69 Norway 104 Paraguay 139 Gabon35 Ecuador 70 Malaysia 105 Slovenia 140 Suriname

Source: UNCTAD.

CHAPTER I 11

the industrial world in 2001, the United States,ranks 79th in the Performance Index. The largestin the developing world, China, comes 59th.Similarly, strong performers, such as Angolareceive relatively small absolute values of FDI.

The ranks in the 1999–2001 Inward FDIPerformance Index are similar to those in 1998–2000 (the correlation coefficient between them is0.95). The five leaders are the same as the previousperiod (annex table A.I.5). (The top 10 gainers andlosers between the two periods are shown in figureI.6.) The largest jumps are for relatively smalleconomies, but there are also significant changesfor large economies like South Africa (gainer) andMalaysia (loser), reflecting fluctuations in M&Aactivity or the effects of macroeconomic crises.

How do different regions fare in thePerformance Index? Western Europe does best inthe industrial world, raising its index value in thelast two periods (figure I.7; annex table A.I.6).North America just maintains its index value (butat below one) from the early 1990s. In thedeveloping world, Latin America and the Caribbeanremain the best performers in the decade of the1990s, with a better performance in the final period.North Africa and other Africa improve theirposition, but their indices values remain below

unity; note, however, that other (i.e. sub-Saharan)Africa does better than West Asia and South Asia.East and South-East Asia maintains an index valueof over one, but has not recovered its performanceof before the financial crisis. Among the economiesin transition, Central Asia does very well, with thehighest regional index value in the last period. CEElowers its index value from above unity to below.

The preceding section has highlighted theunevenness of the recent decline in FDI. IfPerformance Index values are calculated for theyears 2000 (the FDI peak year) and 2001 (the firstyear in the current FDI downturn period)separately, a similar unevenness appears. Whileone would expect two consecutive years to havefairly similar rankings, there is in fact a great dealof turbulence. The ranks shift more in these twoyears than in 1998–2000 to 1999–2001.8 There are24 countries with rises in ranks of 20 or moreplaces and 25 with falls of a similar magnitude.A big loser is Argentina, a result of i tsmacroeconomic and political crisis. The list ofcountries with major losses in ranking also includesBahrain, Jordan, Germany and Malaysia, with theirinflows particularly affected by the economicslowdown.

Potential Index

The Inward FDI Potential Index, basedmainly on structural variables (see annex table A.I.7for raw data), is far more stable than thePerformance Index. So the ranks for 1988–1990are quite similar to those 12 years later in 1999–2001 (with a correlation coefficient of 0.92). Recentyears show even higher correlation with the finalyear, reaching 0.99 for the preceding period 1998–2000. The ranks, as may be expected, correspondto incomes, with the United States leading in eachthree-year period (annex table A.I.8). But incomesdo not fully reflect potential: Japan, Germany andSweden, for instance, rank below Singapore andthe United Kingdom in the Potential Index. At thebottom of the index are very poor countries, suchas the Democratic Republic of Congo and SierraLeone—but the country with the fourth lowestranking, Zimbabwe, is richer than many countriesthat rank higher.

The leading 20 countries are all developedcountries except for the four mature tigereconomies of East Asia. The largest gains in theindex over the 12 periods are by Guyana (39places), Lebanon (27), El Salvador (26), Yemen(22) and Kuwait (18). Among developed countries,the main gainer is Ireland (13), and among the

Figure I.6. Main gainers and losers inInward FDI Performance ranking,

1998–2000 to 1999–2001(Change in rank)

Source : UNCTAD.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives12

newly industrializing countries the Philippines (10).The largest losers are Zimbabwe (down 55 places),Indonesia (50), Kenya (43), Pakistan (37) andParaguay (37). Among developed countries thecountries down most are Italy (8), France (7) andAustralia (7).

It is not possible to compare ranks over timefor most of the CEE countries because there areno data for the early years. However, the ranks areplausible and interesting. The leader is Slovenia,followed by the Russian Federation and the CzechRepublic.

Comparing performance andpotential

There is a surprising amount of broad overlapbetween the two indices. There are seven countriesin common among the 20 leading countries by eachindex, and seven in the 20 lagging countries (tableI.5). The exceptions are countries like Angola andBrunei Darussalam that have shot up in theperformance ranks because of recent lumpy inflowsof FDI for resource-based activities. Only onecountry, Japan, appears among the leaders in thePotential Index and the laggards in the PerformanceIndex—again, the reason for this is well known.

There may be lessons from comparing thetwo indices, tracing the factors that lead to adiscrepancy between the two ranks by drawing upa four-fold matrix of inward FDI performance andpotential:

• Front-runners: countries with high FDI potentialand performance.

• Above potential: countries with low FDIpotential but strong FDI performance.

• Below potential: countries with high FDIpotential but low FDI performance.

• Under-performers: countries with both low FDIpotential and performance. 9

The first and last groups do not raise any particularissues: the former includes many industrial, newlyindustrializing and advanced transition economies,the latter mainly poor (or unstable) economies.Changes over time in the positioning of economiesin this matrix may also be of interest. Take someinstances of deteriorating performance. The UnitedStates and Taiwan Province of China were front-runners in 1988–1990 and fell back over time; thePhilippines moved from above to below potentialover the 12 years; Nigeria moved from abovepotential to an under-performer; and so on (tableI.6). By contrast, Israel moved from being in thebelow-potential group to front-runner. And so on.Exploring the causes and policy implications ofsuch changes is beyond the scope of this exercise,but clearly there are many issues to be explored,both in terms of what the indices cover and alsowhat they do not.

In policy terms, assuming that countries wantto maintain or improve their FDI positions, thosefalling into the first set in the four-fold matrixpresented above have to ensure their continuingsuccess and those falling into the last, to boost theirperformance in both attracting FDI and enhancingtheir potential. The other two are of more interest.The above-potential countries are “hitting abovetheir weight” in drawing more FDI than theirpotential warrants, and the below-potential ones

Figure I.7. Inward FDI Performance Index, by main region, 1988–1990, 1993–1995,1998–2000 and 1999–2001

Source : UNCTAD.

CHAPTER I 13

are doing the opposite. The former should beconcerned about raising their potential if they areto sustain past FDI performance, the latter aboutaddressing the shortcomings that prevent theirstructural FDI potential from being realized.

In 1999–2001 economies performing belowpotential include such major industrial countriesas Australia, Italy, Japan and the United States, andsuch newly industrializing economies as theRepublic of Korea, the Philippines and TaiwanProvince of China (table I.6). The group alsoincludes the Russian Federation, Saudi Arabia andUnited Arab Emirates, all countries with enormous

resource bases that should be able to attract greaterdirect investment. And it has countries that havemoved from being front-runners in the previousperiod: Australia, Costa Rica and Mexico.

The above-potential group includes Brazil,which scores poorly on recent growth, export sharesand skill creation. The under-performers includeall the South Asian economies and many poor andleast developed countries, along with Turkey, witha weak record on risk and FDI stock. Front-runnersinclude many developed countries such as France,Germany, Sweden and Switzerland and Asian newlyindustrializing economies.

Table I.5. Leading and lagging 20 economies in inward FDI performanceand potential indices, 1998-1990, 1993-1995 and 1999-2001

Inward FDI performance ranks Inward FDI potential ranks

1988- 1993- 1999- 1988- 1993- 1999-Rank Economy 1990 1995 2001 Economy 1990 1995 2001

Leading 20 economies

1 Belgium and Luxembourg 8 24 1 United States 1 1 12 Angola 106 7 2 Singapore 13 4 23 Hong Kong, China 3 14 3 Norway 5 5 34 Ireland 59 51 4 United Kingdom 3 6 45 Malta 21 22 5 Canada 2 2 56 Singapore 1 2 6 Germany 4 3 67 Sweden 50 25 7 Sweden 6 9 78 Netherlands 13 41 8 Belgium and Luxembourg 10 11 89 Denmark 53 43 9 Netherlands 8 10 9

10 Brunei Darussalam 103 18 10 Finland 9 15 1011 Czech Republic .. 30 11 Ireland 24 22 1112 Gambia 9 32 12 Japan 12 8 1213 Nicaragua 96 37 13 Hong Kong, China 17 13 1314 Bolivia 46 27 14 France 7 7 1415 Kazakhstan .. 17 15 Switzerland 11 14 1516 Congo, Republic 84 6 16 Denmark 16 16 1617 Guyana 58 1 17 Iceland 15 19 1718 Moldova, Republic of .. 35 18 Korea, Republic of 20 17 1819 Chile 10 21 19 Taiwan Province of China 21 21 1920 Cyprus 27 79 20 Qatar 22 20 20

Lagging 20 economies

121 Niger 56 118 121 Bangladesh 105 118 121122 Cameroon 114 127 122 Togo 90 124 122123 Haiti 81 135 123 Sudan 116 137 123124 Zimbabwe 113 83 124 Ethiopia 114 125 124125 Bangladesh 104 126 125 Burkina Faso 94 121 125126 Rwanda 61 117 126 Niger 108 128 126127 Congo, Democratic Republic 111 133 127 Kenya 84 101 127128 Japan 105 128 128 Kyrgyzstan .. 134 128129 Oman 32 94 129 Pakistan 92 113 129130 Nepal 97 122 130 United Republic of Tanzania 98 114 130131 Iran, Islamic Republic 112 123 131 Georgia .. 133 131132 Kuwait 102 125 132 Benin 111 135 132133 Malawi 41 129 133 Nepal 109 132 133134 Libyan Arab Jamahiriya 69 136 134 Zambia 100 117 134135 Saudi Arabia 83 131 135 Haiti 115 136 135136 United Arab Emirates 92 92 136 Tajikistan .. 103 136137 Yemen 115 13 137 Zimbabwe 82 102 137138 Indonesia 54 57 138 Rwanda 113 140 138139 Gabon 33 139 139 Congo, Democratic Republic of 103 139 139140 Suriname 117 140 140 Sierra Leone 107 138 140

Source: UNCTAD.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives14

Table I.6. Matrix of inward FDI performance and potential, 1988-1990, 1993-1995 and 1999-2001

High FDI performance Low FDI performance

1999-2001

High FDI potential

Low FDI potential

High FDI potential

Low FDI potential

High FDI potential

Low FDI potential

Front-runners

Argentina, Bahamas, Bahrain, Belgium andLuxembourg, Brunei Darussalam, Bulgaria, Canada,Chile, China, Croatia, Cyprus, Czech Republic,Denmark, Dominican Republic, Estonia, Finland,France, Germany, Guyana, Hong Kong (China),Hungary, Ireland, Israel, Jordan, Latvia, Lithuania,Malaysia, Malta, Mongolia, Netherlands, NewZealand, Norway, Panama, Poland, Portugal,Singapore, Slovakia, Spain, Sweden, Switzerland,Thailand, Trinidad and Tobago and United Kingdom.

Above-potential

Albania, Angola, Armenia, Azerbaijan, Bolivia, Brazil,Ecuador, Gambia, Georgia, Honduras, Jamaica,Kazakhstan, Mali, Morocco, Mozambique, Namibia,Nicaragua, Papua New Guinea, Republic of Congo,Republic of Moldova, Sudan, TFYR Macedonia, Togo,Uganda, United Republic of Tanzania, Viet Nam andZambia.

Front-runners

Argentina, Australia, Bahamas, Bahrain, Belgium andLuxembourg, Brunei Darussalam, Chile, China, CostaRica, Czech Republic, Denmark, DominicanRepublic, Estonia, France, Guyana, Hong Kong(China), Hungary, Indonesia, Ireland, Jamaica,Malaysia, Malta, Mexico, Netherlands, New Zealand,Norway, Panama, Papua New Guinea, Philippines,Poland, Qatar, Republic of Moldova, Singapore,Slovakia, Spain, Sweden and United Kingdom.

Above-potential

Albania, Angola, Azerbaijan, Bolivia, Colombia, Côted'Ivoire, Ecuador, Egypt, Gambia, Ghana, Honduras,Kazakhstan, Kyrgyzstan, Latvia, Mali, Morocco,Mozambique, Myanmar, Namibia, Nicaragua, Nigeria,Paraguay, Peru, Republic of Congo, Tajikistan, Togo,Trinidad and Tobago, Tunisia, Uganda, UnitedRepublic of Tanzania, Viet Nam, Yemen and Zambia.

Front-runners

Argentina, Australia, Bahrain, Belgium andLuxembourg, Botswana, Canada, Chile, China,Colombia, Costa Rica, Cyprus, Denmark, France,Greece, Hong Kong (China), Indonesia, Ireland,Malaysia, Malta, Mexico, Netherlands, New Zealand,Norway, Oman, Portugal, Singapore, Spain, Sweden,Switzerland, Taiwan Province of China, Thailand,Trinidad and Tobago, United Kingdom, United Statesand Venezuela.

Above-potential

Benin, Bolivia, Dominican Republic, Ecuador, Egypt,Gabon, Gambia, Guatemala, Guyana, Honduras,Jamaica, Malawi, Myanmar, Niger, Nigeria, PapuaNew Guinea, Paraguay, Philippines, Sierra Leone,Syrian Arab Republic, Togo, Tunisia, Viet Nam andZambia.

1993-1995

1988-1990

Below-potential

Australia, Austria, Belarus, Botswana, Costa Rica, Egypt,El Salvador, Greece, Iceland, Italy, Japan, Kuwait, Lebanon,Libyan Arab Jamahiriya, Mexico, Oman, Philippines, Qatar,Republic of Korea, Russian Federation, Saudi Arabia,Slovenia, Taiwan Province of China, United Arab Emirates,United States, Uruguay and Venezuela.

Under-performers

Algeria, Bangladesh, Benin, Burkina Faso, Cameroon,Colombia, Côte d'Ivoire, Democratic Republic of Congo,Ethiopia, Gabon, Ghana, Guatemala, Guinea, Haiti, India,Indonesia, Islamic Republic of Iran, Kenya, Kyrgyzstan,Madagascar, Malawi, Myanmar, Nepal, Niger, Nigeria,Pakistan, Paraguay, Peru, Romania, Rwanda, Senegal,Sierra Leone, South Africa, Sri Lanka, Suriname, Syrian ArabRepublic, Tajikistan, Tunisia, Turkey, Ukraine, Uzbekistan,Yemen and Zimbabwe.

Below-potential

Austria, Botswana, Bulgaria, Canada, Cyprus, El Salvador,Finland, Germany, Greece, Iceland, Islamic Republic of Iran,Israel, Italy, Japan, Jordan, Kuwait, Libyan Arab Jamahiriya,Oman, Portugal, Republic of Korea, Russian Federation,Saudi Arabia, Slovenia, South Africa, Suriname, Switzerland,Taiwan Province of China, Thailand, Ukraine, United ArabEmirates, United States, Uruguay and Venezuela.

Under-performers

Algeria, Armenia, Bangladesh, Belarus, Benin, Brazil,Burkina Faso, Cameroon, Croatia, Democratic Republic ofCongo, Ethiopia, Gabon, Georgia, Guatemala, Guinea, Haiti,India, Kenya, Lebanon, Lithuania, Madagascar, Malawi,Mongolia, Nepal, Niger, Pakistan, Romania, Rwanda,Senegal, Sierra Leone, Sri Lanka, Sudan, Syrian ArabRepublic, TFYR Macedonia, Turkey, Uzbekistan andZimbabwe.

Below-potential

Algeria, Austria, Bahamas, Brazil, Brunei Darussalam,Finland, Germany, Hungary, Iceland, Islamic Republic of Iran,Israel, Italy, Japan, Kuwait, Libyan Arab Jamahiriya, Panama,Poland, Qatar, Republic of Korea, Saudi Arabia, South Africa,Suriname, United Arab Emirates and Uruguay.

Under-performers

Angola, Bangladesh, Burkina Faso, Cameroon, Côte d'Ivoire,Democratic Republic of Congo, El Salvador, Ethiopia, Ghana,Guinea, Haiti, India, Jordan, Kenya, Lebanon, Madagascar,Mali, Morocco, Mozambique, Namibia, Nepal, Nicaragua,Pakistan, Peru, Republic of Congo, Rwanda, Senegal, SriLanka, Sudan, Turkey, Uganda, United Republic of Tanzania,Yemen and Zimbabwe.

Source: UNCTAD.

CHAPTER I 15

The FDI downturn in 2001–2002 is a resultof the interplay of factors operating at the macro,micro and institutional levels. The slow recoveryfrom the global economic slump hit FDI in thedeveloped world hardest, especially in its financialservices and telecom industries. Most of the declinein FDI came from a dramatic drop in cross-borderM&As. And with profitabili ty slumping,divestments increased. Reduced reliance on intra-company loans and a slowdown in corporaterestructuring reinforced the impact on FDI. Furtheraggravating the decline: a pause in privatizationsand a loss of confidence in the wake of corporatescandals and the demise of some large corporations.

1. Macroeconomic factors

The most important macroeconomic factorswere the slow growth, even recession in somecountries—linked to the business cycle—in mostparts of the world, particularly the main home andhost countries (United States and the EU), and thedecline in stock market valuations reflectingreduced transactions due to the economic slowdownas well as a correction of the excessively high stockmarket activity of the previous few years. Boththese factors contributed to the steep fall in cross-border M&As, especially in the developed world.The economic slowdown affected greenfield FDIas well.

World real GDP growth is estimated to havedeclined from 4.7% in 2000 to 2.3% in 2001(before increasing to 3.0% in 2002) (IMF 2003a).The United States had overvalued stock markets,a low savings rate, high levels of private sectordebt, low corporate profits and large externaldeficits—aggravated by geopolitical uncertainties(UNDESA and UNCTAD 2003). Japan has yet toemerge from its prolonged slump, now a decadelong, and most European countries have notsucceeded in boosting their growth in recent years.For developing countries as a group, financialcrises (especially Argentina), recessions in majorexport markets and falling commodity prices haveslowed the pace of growth.

The main home and host countries for FDIhad slower growth than other developed countriesand much slower than developing and transitioneconomies, making the latter groups more attractiveto investors. Through a negative “wealth” effect,falling stock market values aggravated the impact

D. Why the downturn?

of the recession on both the FDI downturn and itsunevenness.

Business cycles influence FDI flows (box I.2and WIR93), although not in the same way fordeveloped and developing countries (WIR02). Inperiods of high growth and expansion, firmstypically have higher earnings to invest both athome and abroad. FDI outflows therefore increaseduring a cyclical upturn in line with higherdomestic investment, displaying the same pro-cyclical behaviour that has been documented fordomestic investment (Angell 1941; Gordon 1955;Dunning 1998). Conversely, a slowdown ineconomic growth exerts a negative impact onforeign (as well as domestic) investment.

For the United States, for example, FDIoutflows declined by 27% in 2001 but increasedby 15% in 2002, while gross domestic privateinvestment fell by 3% in each year. Both were upsharply in 1999 and 2000. The decline in FDImirrors a fall in cross-border M&As—the mainmode of FDI entry, especially in the developedworld, in recent years. But a fall in domestic M&Asis not reflected in a decline in domestic investment,because within countries M&As simply representchange of ownership of existing companies and notdomestic investment (or additions to capital stock).In France, Germany and the United Kingdom aswell, both FDI outflows and domestic investmentsmoved in the same direction in response to businesscycles, declining in 2002 (European Communities2003).

The decline in 2002, like that in the previousyear, largely reflected a 38% fall in cross-borderM&As to $370 billion (annex tables B.8–B.10).With the value of stocks traded on the world’s 49stock markets declining by 15% to $22 trillion in2002, after an earlier decline by 16% in 2001, thevalue of M&As tumbled as well. 10 Lower shareprices narrowed the avenue for acquiringcompanies with equity shares. The share of cross-border M&As financed through the exchange ofshares fell to only 11% in 2002, from 44% in 2000,the peak year of cross-border M&As. The declineis also attributable to a significant slowdown incorporate restructuring and consolidation—including that across international locations. Overthe past 15 years cross-border M&As haveconsistently accounted for 25–30% of all M&As(figure I.8).

World Investment Report 2003 FDI Policies for Development: National and International Perspectives16

Since 1970, there have been four majordownturns in FDI inflows (box figure I.2.1): 1976(down by 21%); 1982–1983 (down 14% a year onaverage); 1991 (decline of 24%); and 2001–2002(down 31% a year on average). Each is correlatedwith periods of recession or slow growth in theworld economy, particularly in the principal host/home countries. There is usually a one-to-two yearlag between a setback in world growth and thedecline in FDI flows (box figure I.2.1). The lasttwo major downturns have also been characterizedby sharp declines in cross-border M&A activity.

For developed countries FDI booms and bustsare almost identical to those for the world as awhole. But for developing countries the numberand timing of the FDI downturns often do notcoincide with those for the rest of the world. Thisunevenness between developed and developingcountries explains why the share of developingcountries in world FDI increases in some years,only to fall later. The CEE region has notexperienced any significant busts so far, with smalldeclines in its FDI inflows in some years as theoutcome of “lumpy” privatization or largeinvestment projects.

The FDI downturn that began in 2001 is byfar the most significant in its sharpness and in thedifference between developed and developingcountries, with the M&A bust concentrated in thedeveloped world. The downturn in the early 1990swas also characterized by a prior flurry of cross-border M&A activity that came to an end. But thecross-border M&A wave of the late 1990s was atleast five times larger (in real terms) than itspredecessor; it also involved firms from a greater

Box I.2. FDI booms and busts since 1970

number of industrialized countries and includedmany more services transactions (Evenett 2002).Compared with national stock marketcapitalizations, however, foreign acquisitions ofdomestic firms in this latest wave were small. Theshare of cross-border M&As in the capitalizationof world stock markets was only 3.7% in the peakyear of 2000, declining to 1.7% in 2002 (box figureI.2.2).

That the United States accounted for 38% ofthis global FDI downturn is not unprecedented. Inthe 1982–1983 downturn, the United States aloneaccounted for 76% of the decline; in the 1991downturn it accounted for 51%. But in the 1976downturn the countries with the largest declinesin FDI inflows—such as the Netherlands (by 53%)and Italy (by 83%)—accounted for less than 5%of the decline. The recent global FDI picture seemsto be contingent on the United States, the largestFDI recipient until 2001.

Box figure I.2.2. How big are cross-borderM&As? The share of cross-border M&As in themarket capitalization of world stock exchange

markets, 1990–2002(Billions of dollars and per cent)

Source: UNCTAD.a Includes 49 stock exchange markets in 44 countries.

FDI flows typically recover quickly after adownturn, regaining the strength to reach newheights. Of concern today is not only thedownturn’s severity, but its duration. Only oncebefore (1982–1983) has a downturn lasted twoyears. The latest downturn is poised to exceed that,as suggested by the preliminary data on FDI flowsduring the first few months of 2003a andUNCTAD’s Investment Promotion Agency survey(box I.5).

Source : UNCTAD, based on data obtained from United States Department of Commerce, Bureau of Economic Analysis (http://www.bea.gov/); Evenett 2002.

a For data, for example, see note 57 in chapter II.

Source : UNCTAD, FDI/TNC database and data from IMF,World Economic Outlook , 2003.

Box figure I.2.1. Growth rates of world FDI flowsand GDP, 1980-2002

(Per cent)

CHAPTER I 17

Figure I.8. The share of cross-border M&As intotal M&As worldwide, 1987–2002

(Per cent)

Source: UNCTAD, cross-border M&A database.

The number of cross-border M&Atransactions slid from 7,894 in 2000 to 6,034 in2001 and 4,493 in 2002. The average value pertransaction also slid from $145 million in 2000 to$98 million in 2001 and to $82 million in 2002—as the number of mega deals (worth over $1 billion)fell from 175 in 2000 to 113 in 2001 to only 81in 2002, the lowest since 1998 (table I.7; annextable A.I.9).

2. Microeconomic factors

Lower corporate profits, a decline in TNCs’ability or willingness to finance FDI through intra-company loans and a slowdown in corporaterestructuring contributed to the downturn.

Corporate profits, strong until 2000, weakened in2001 and 2002, reducing the opportunities andfinance for FDI. For a third of the 100 largest TNCsidentified by UNCTAD, profitability (return onassets11 ) was only 2% in 2002, down from 7% inthe late 1990s (figure I.9). TNCs have been hitparticularly hard in Latin America, especially inArgentina and in the financial services industry(ECLAC 2003). Returns on FDI declined from6.3% in 2000 to 4.8% in 2001, the lowest sincethe early 1990s.12 Those returns were consistentlyhigher in developing countries (5.8%) than indeveloped (4.4%) and CEE countries (3.9%) sincethe beginning of the 1990s.

Reinvested earnings, one of the threecomponents of FDI, were down by half for allforeign affiliates in 2001, and they are likely toaccount for a fifth of FDI flows in 2002 (figureI.5). Lower profits may also have led to divestment,but data are not available to gauge its extent (boxI.3).

Figure I.9. Profitabilitya of the top 99non-financial TNCs, 1990–2002

(Per cent)

Source : UNCTAD, based on information provided by ThomsonFinancial.

a Defined as return on assets: net income before preferreddividends + ((interest expense on debt- interest capitalized)* (1-tax rate)) / last year's total assets * 100.

Large repayments of intra-company loanswere the main element in reduced net FDI flowsin many countries, particularly the United States.For 11 out of 30 countries that report the data onFDI inflows by components in 2002, intra-companyloans were negative.13 The runup in the UnitedStates stock market during 1996–2000 allowedcompanies to sustain high debt, while retainingreasonable debt-to-equity ratios. But after thecorrection in 2000–2002, debt ratios for these samefirms, including their foreign affiliates, became toohigh. So foreign affiliates may have had to repayintra-company loans to their parents to restoreappropriate debt-to-equity ratios—and perhaps to

Table I.7. Cross-border M&As with values of over $1billion, 1987-2002

Number of Percentage Value PercentageYear deals of total (Billion dollars) of total

1987 14 1.6 30.0 40.31988 22 1.5 49.6 42.91989 26 1.2 59.5 42.41990 33 1.3 60.9 40.41991 7 0.2 20.4 25.21992 10 0.4 21.3 26.81993 14 0.5 23.5 28.31994 24 0.7 50.9 40.11995 36 0.8 80.4 43.11996 43 0.9 94.0 41.41997 64 1.3 129.2 42.41998 86 1.5 329.7 62.01999 114 1.6 522.0 68.12000 175 2.2 866.2 75.72001 113 1.9 378.1 63.72002 81 1.8 213.9 58.1

Source: UNCTAD, cross-border M&A database.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives18

Has there been less new investment, or hasdivestmenta of existing stock increased? Divestmentcan involve dismantling ownership relationshipsacross national borders, the result of a strategicdecision about the geographic scope of a TNC’sactivities. It can also involve a change in the modeof servicing a foreign market, as from localproduction to exports or licensing. Or it can be acomplete withdrawal from a host country.

Although it is difficult to gauge itsmagnitude, divestment can be important for somecountries. In Portugal during 1989–1998, the annualaverage foreign plant closure rate was 5.9% a year(Mata and Portugal 2000). From the time of theinitial investment 30–60% of FDI is likely to bedivested over 10 years (Larimo 2000). More thanhalf of a sample of foreign affiliates of Norwegiancompanies had divested within 10 years (Benito1997). Divestment has also been significant formajor home countries in recent years (annex tableA.I.10).

The recent closure of many Japanese financialservice affiliates was necessitated by the fact thateconomic difficulties in the home country ofinvesting firms required a restructuring of theirinternational operations. During 2000–2002, therewere 61 closures but no new branches or affiliates,plunging the foreign assets of Japanese banks toonly a third of those at their peak in 1998.b

The process of economic development anda resulting shift in locational advantages may alsogive rise to divestments, but i t is more oftenreflected in a shift in new FDI flows. As localtechnology and human resources are upgraded andwages rise, locational advantages in labour-intensive production may diminish, leading to plant

closures. Recent relocations from developed andsome CEE countries to China are an example.

Also driving divestment are industry-specificchanges in the economic environment, such as thoseassociated with the industry life cycle (Belderbosforthcoming) or with consolidation (Benito 1997).Exit from an industry occurs in cycles, with thenumber of exits highest when industries mature andconsolidate. This can lead to uneven divestmentpatterns across industries. Recent closures in theautomobile industry (Ford divesting out of Portugalin 2000) and in high-tech knowledge-basedindustries can be attributed to rationalization andrestructuring.

Strategic considerations drive divestment aswell:

• When a decision to focus on core businessesleads to outsourcing. United States-basedGateway’s decision to withdraw from Irelandand the United Kingdom in 2002 was in partdriven by the replacement of foreignproduction facilities by outsourcing (Fried2002).

• When TNCs merge, with foreign affiliatesclosed down (box table I.3.1).

• When the mode of servicing foreign marketsshifts from FDI to exports or licensing. In2001 Marks & Spencer franchised thebusiness of i ts 10 stores in Hong Kong(China) to cut costs, a move that has provensuccessful in 30 other countries (Marks &Spencer 2001).

• When affil iates perform poorly. A 2001survey of some 1,000 Japanese foreignaffiliates that had been closed or were to beclosed shows that more than 40% of theseaffiliates were shut down because of theirperformance (Japan METI 2002).

Box table I.3.1. Divestment after mergers: changes in thenumber of foreign affiliatesa and host countries in selected cases

Merger case Number of foreign affiliates and host countries(Partner names) Merger year At the time of merger 2002

Vivendi Universal 2000 904 foreign affiliates 744 foreign affiliates(Vivendi-Seagram) 52 host countriesb 50 host countries

BHP Billiton 2001 184 foreign affiliates 60 foreign affiliates(BHP-Billiton) 30 host countriesb 20 host countries

Unilever 2000 275 foreign affiliates 242 foreign affiliates(Unilever-Bestfoods) 50 host countriesb 44 host countries

Nestlé 2001 428 foreign affiliates 398 foreign affiliates(Nestlé-Ralston Purina) 63 host countriesb 86 host countries

Source: UNCTAD.a Only majority-owned foreign affiliates.b Different host countries only, i.e., counting a country as “one” in which both companies (before the merger)

had an affiliate.

Source: UNCTAD.a FDI statistics on a balance-of-payments basis do not report explicitly the magnitude of divestment from a country as they are reported

in net values. Furthermore, if foreign affiliates are relocated to other host countries, there is no decline in global FDI.b Nihon Keizai Shimbun, 19 and 28 February 2003.

Box I.3. Divestment: factors and evidence

CHAPTER I 19

improve the parent’s earnings per share.Moreover, as mentioned earlier (section B), theinterest rate differentials between the UnitedStates and the EU and the reduced need of EUaffiliates for loans to finance fewer M&As in theUnited States market were other possible factorsbehind the fall in intra-company loans that werecaused by only a few transactions.

The slowdown of corporate expansion insome industries (such as telecoms), carried outmainly through M&A transactions andprivatizations, added to the FDI downturn. Intelecoms, restructuring had been responding tochanges in supply and demand, technologicaladvances and an increase in the number ofsuppliers. But, overcapacity, and the high costsof 3G licences for European firms, led to asignificant decline in profits, almost haltingfurther expansion.

3. Institutional factors

Some important institutional factors havealso contributed to the FDI downturn, among themthe winding down of privatization. In infrastructure,private participation in the form of investment in2001, including that through privatization, was $57billion, the same as in 1995 (World Bank 2002).Former leading FDI-through-privatizationrecipients, such as Brazil, Hungary and Poland,registered declines in FDI inflows in 2002 primarilybecause there were no large privatization deals.Investment following a privatization is unlikelyto be of the same order as the initial investment.

Corporate scandals, the demise of largecorporations and the associated loss of confidencehit industries (energy, telecoms and informationtechnology) that were part of the FDI boom in thelater 1990s. That dampened firms’ willingness toinvest and assume new risks.

E. Softening the impact

The FDI slowdown has naturally translatedinto smaller additions to the stock of FDI capitaland the potential benefits from technology andother factors that accompany internationalproduction. But even minuscule FDI flows add tothe stock of FDI, leaving its ability to generatebenefits largely intact. Technology payments,primarily intra-firm, held almost steady in 2001,even though FDI flows halved (box I.4).

FDI flows accounted for 74% of net capitalflows to developing countries in 2002, and theirdecline contributed to the 9% decline in net capitalflows in that year, reducing the private externalresources for development (figure I.1; World Bank2003a). The impact was greater for countries thathave FDI flows featuring heavily in the balanceof payments. On the financial account (other itemsconstant), lower FDI inflows could accentuate abalance-of-payments deficit. But lower incomeoutflows associated with lower inward FDI couldhave the opposite impact. And lower exportsassociated with lower (export-oriented) FDI couldpush current accounts into deficit unlessaccompanied by offsetting changes in imports.

Competition for FDI, already on the rise, hasintensified further through the proliferation ofinvestment promotion agencies (IPAs), with morethan 160 at the national level. If subnational IPAsare also considered, the number reached more than400 in early 2003. Competition based on financialincentives has intensified, increasing the "biddingwars" for large projects (see Part Two).Competition based on non-financial incentives is

also on the rise, with more countries offeringguarantees (against nationalization or pricecontrols) and protection (import bans on competingproducts) to selected foreign investors.

The current FDI downturn makes it all themore important for countries to retain existing FDI.This is particularly important for investment thatdoes not have high barriers to exit (i.e. with lowsunk costs) and which is not geared towards servingthe domestic market. To prevent a relocation ofexisting investment from taking place, governmentsmust continuously improve their locationaladvantages, although sometimes, as in a situationof changing comparative advantage, they have tolet it go and seek FDI in new activities. Whendivestments are driven by shrinking opportunitiesworldwide due to an economic downturn, oftencoupled with financial difficulties facing the TNCsthemselves, one temptation for some host countriesis to offer TNCs incentives to locate in theirterritories.

Upgrading competitiveness also manifestsitself in greater efforts to target investors orotherwise to attract FDI (witness Indonesia 'sdeclaration of 2003 as an Investment Year). Thetargeting of foreign investors in industries andactivities with higher value added is becoming morewidespread (such as HQ), as is better after-careservices to existing foreign investors, in the hopeof receiving greater sequential investment(Thailand is an example). Countries are alsoseeking to diversify FDI home countries (seechapter II).

World Investment Report 2003 FDI Policies for Development: National and International Perspectives20

The downturn has reinforced the trendtowards the liberalization of FDI policies andregulations. After the record number of favourablechanges in national FDI legislation in 2001, 2002saw another record: of 248 changes in legislation,of which 236 were favourable to FDI (table I.8),with a third related to promotional measures (figure

I.10). These policy developments have helpedsustain FDI flows to developing countries duringthe downturn. Looking at the period 1991-2002,1,551 (95%) out of the 1,641 changes introducedby 165 countries in their FDI laws were in thedirection of greater liberalization (table I.8).

There are close links between inward FDI andoutward payments of royalties and licence fees.TNCs are the leading source of internationaltechnology transfers in all forms: internal (to theiraffiliates) and external (to other companies). Whilea part of TNCs' internal technology transfer is notcharged for separately, the bulk of their royaltyand technical fees earnings come from theiraffiliates (WIR99). Around 76% of royalties andlicense fees earned abroad are intra-firm (basedon data for Germany, Japan and the United States).And the share has risen steadily (annex tablesA.I.11 and A.I.12). This rise reflects:

• The growing cost and risk of innovation-making preferable the internalization of thetransfer of the resulting proprietarytechnologies while also often ensuring,through contractual arrangements withaffiliates, minimum returns to innovation.

• The growth of technology-intensive FDI.• The liberalization of technology policies.• The relocation of high-tech activit ies

overseas (WIR02).

How has the recent FDI downturn affectedtechnology payments? Not much. As global FDIfell by half in 2001, overseas technology paymentsfell by only 4%. This difference is not surprisingbecause technology payments are not expected tobe related to current investment flows but to thelevel of economic activity and the stock ofinvestment already in place. Royalty rates, inparticular, are generally tied to sales. A declinein technology payments may thus reflect theeconomic climate rather than a fall in FDI flows.

There was, however, a striking differencebetween developed and developing countries. Indeveloped countries, inward FDI fell by 47% whiletechnology payments stayed constant. Indeveloping countries, FDI fell by 15% whiletechnology payments fell by 26% (box figureI.4.1). For developed countries, the FDI stock andproduction activit ies giving rise to currenttechnology payments would not be affected by thefall in M&As. But why did technology paymentsfall so sharply in the developing world?

One possibility is that the recession affectedlicensing-based activities more in developing

Box I.4. Technology payments by developing countries and the FDI downturn

countries than in developed countries, as withexport-oriented production of electronics. In 2001world exports of electronics fell by 8.5%, withdeveloping country exports declining by 12%, andindustrial country exports by 6%. But for East Asiathe fall was 18%, if China is excluded. The regionaccounts for around 90% of electronics exportsby the developing world and 77% of thetechnology payments by developing countries(UNIDO 2002).

Box figure I.4.1 FDI inflows and royalty andlicence fee payments, by region and the world,

1990-2001(1990=100)

Source : UNCTAD, FDI/TNC database and IMF, Balance ofPayments Statistics, May 2003 CD-ROM.

Technology payments by developingcountries have grown steadily since the 1980s. In1981-1985 they grew by 4% a year, despite a fallin FDI inflows of 12% a year and in 1991-1995by 13%, growth that continued in the second halfof the 1990s. FDI grew by 15% in developingcountries in the latter half of the 1990s.

The sudden fall in 2001 is evidently adeviation from the long-term trend. Not directlyrelated to the decline in FDI, it may reflect achange in the terms and conditions governinginternational transfers of technology by TNCs indeveloping countries. A switch could be takingplace towards lower reliance on explicit or separatepayments for technology, possibly due to a shifttowards greater foreign ownership of foreignaffiliates.

Source : UNCTAD.

CHAPTER I 21

Many countries also entered bilateralinvestment treaties (BITs) and double taxationtreaties (DTTs) in 2002: 82 BITs were concludedby 76 countries,14 and 68 DTTs by 64 countries.15

This brings the totals to 2,181 and 2,256 at the endof 2002 (figure I.11). The propensity to sign suchtreaties varies greatly (figures I.12 and I.13).Among developing countries and economies intransition, the leader for BITs is China (with 107)and for DTTs, India (with 81). Many countries inthe Pacific have not yet signed a BIT, and Angola,Cambodia and Nicaragua have not signed a DTT.

A rising number of other bilateral andregional agreements address FDI issues (annextables A.I.13 and A.I.14). Such agreements cansoften the impact of the FDI downturn for somecountries. Given the proliferation of investmentagreements, Part Two of WIR03 focuses on nationalFDI policies and international investmentagreements.

Figure I.11. Number of BITs and DTTs concluded, 1990-2002

Source: UNCTAD, BITs and DTTs databases.

Table I.8. Changes in national regulations of FDI, 1991-2002

Item 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Number of countries that introduced changes in their investment regimes 35 43 57 49 64 65 76 60 63 69 71 70Number of regulatory changes 82 79 102 110 112 114 151 145 140 150 208 248 of which: More favourable to FDI a 80 79 101 108 106 98 135 136 131 147 194 236 Less favourable to FDI b 2 - 1 2 6 16 16 9 9 3 14 12

Source : UNCTAD, based on national sources.a Including liberalizing changes or changes aimed at strengthening market functioning, as well as increased incentives.b Including changes aimed at increasing control as well as reducing incentives.

Figure I.10. Types of changes in FDI laws andregulations, 2002a

Source: UNCTAD, based on national sources.a Based on 248 changes.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives22

Figure I.13. Density mapping on DTTs worldwide, 1 January 2003(Total number of DTTs concluded by individual countries)

Figure I.12. Density mapping on BITs worldwide, 1 January 2003(Total number of BITs concluded by individual countries)

Source : UNCTAD, database on BITs.

Source : UNCTAD, database on DTTs.

CHAPTER I 23

The downturn has not changed theimportance of FDI in the integration of globalproduction activity and, barring a sustaineddownturn spanning several years, is unlikely to doso. In 2002 the world FDI stock stood at $7.1trillion, up more than 10 times since 1980. Thatstock is the basis of international production, bysome 64,000 TNCs controlling 870,000 foreignaffiliates (annex table A.I.1). Ebbs and flows inthe yearly value of FDI, while important, augmentthe stock of FDI as long as they are positive. Sothe stock of FDI matters more than flows—for thestructure of global specialization, for deepeningglobal integration through production networks,and for generating the benefits associated with FDIand international production. It also matters fornew FDI capital flows through the reinvestmentof earnings and sequential flows to FDI.

In 2002 the estimated value added of foreignaffiliates, at $3.4 trillion, accounted for about atenth of world GDP, or twice the share in 1982(table I.1). The world stock of FDI generated salesby foreign affiliates of an estimated $18 trillion,compared with world exports of $8 trillion. Nearlya third of world exports of goods and non-factorservices takes place within the networks of foreignaffiliates, but that has not changed much since1982. Employment by foreign affiliates reachedan estimated 53 million workers in 2002, two andhalf times the number in 1982.

The developed world hosts two-thirds ofworld inward FDI stock and accounts for nine-tenths of the outward stock. The most strikingchange is that the EU has become by far the largestsource. In 1980 the outward stocks of the EU andthe United States were almost equal at around $215billion. But by 2002, the EU’s stock (includingintra-EU stock) reached $3.4 trillion, more thantwice that of the United States ($1.5 trillion). Thegap opened in the 1980s and accelerated in the late1990s. Meanwhile, Japan has been stable relativeto the EU, with its outward stock about a tenth thatof the EU.

In 2002 the inward FDI stock of developingcountries was about a third of their GDP, almosttwice the 19% for developed countries. Back in1980 the respective ratios were 13% and 5%, sothe growth of FDI stock exceeded GDP growth inboth groups of countries. Outward FDI stocks havechanged even more for developing countries,increasing from 3% of GDP in 1980 to 13% in2002, the result of new developing country TNCs.

F. Towards mega blocks?

In 1980 the FDI stock originating fromdeveloping countries (at $65 billion) accounted for11% of the global outward FDI stock; by 2002 thecorresponding share was 12%. South, East andSouth-East Asia is the most important developingregion for outward FDI stock, with its stockexceeding Japan’s for the first time in 1997 andbecoming almost twice Japan’s by 2002. The LatinAmerica and Caribbean region registered a three-fold increase in its outward FDI stock between1980 and 2002.

The concentration of FDI within the Triad(EU, Japan and the United States) remained highbetween 1985 and 2002 (at around 80% for theworld’s outward stock and 50–60% for the world’sinward stock). Clusters of non-Triad countries havestrong FDI links to each Triad member (figureI.14). There have, however, been some changes inthe composition of these non-Triad host-countrypartners, especially for the United States and theEU. Over the past 15 years, 10 countries (five fromdeveloping Asia, three from Latin America and theCaribbean, and two from the developed countries)of the 23 countries that were associate partners16

of the United States in 1985 were no longer so by2001, while six new associate partner countriesemerged (Azerbaijan, El Salvador, Israel, RussianFederation, Saudi Arabia and Switzerland) (figureI.14). In the case of the EU, four out of 25 countries(India, Singapore, Viet Nam and Zimbabwe) exited,while 19 countries entered newly during thisperiod; and for Japan, Singapore became a newassociate partner by 2001 (for a total of fourcountries) while Indonesia, Islamic Republic of Iranand United Arab Emirates were no longer associatemembers.

This pattern reveals the emergence of FDIblocks, each comprising one Triad country andseveral associate partner countries. They overlapsomewhat with trade blocks, each comprising aTriad member and a cluster of trading partners withstrong trade links to it.17

The FDI block pattern is also roughlymirrored in—and supported by—internationalinvestment agreements (IIAs)—agreements that,at least in part, address FDI issues (figure I.15).To improve the investment climate in their partners,associate partners and Triad members have beenconcluding DTTs and BITs with them. The 2001picture of the distribution of DTTs had a stronglikeness to the Triad pattern of FDI stocks: thesimilarity index (Finger and Kreinin 1979) between

World Investment Report 2003 FDI Policies for Development: National and International Perspectives24F

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CHAPTER I 25

Figure I.15. BITs and DTTs between the Triad and their geographical distribution, 2002(Number and percentage distribution of totals)

Source : UNCTAD, databases on BITs and DTTs.a The number of treaties with individual countries of the EU.

the distribution pattern of outward FDI stock ofeach of the Triad members and that of their DTTshas a high value (table I.9).18 The correspondingindex for BITs, however, has a lower value,suggesting that their distribution has a weakresemblance to that of Triad outward FDI stock.19

If, however, the propensity of individual Triadmembers to conclude DTTs and BITs with associatepartners is compared with that to conclude themwith non-associate partners, the former score higherfor both DTTs and BITs. In other words, the Triadmembers have a greater propensity to concludesuch IIAs with countries that are part of theirrespective Triad blocks (table I.10).

The similarity occurs for several reasons.Triad members tend to conclude bilateral tradeagreements with their important associate partnersto protect their investment; conversely, associatepartners tend to conclude agreements with Triadmembers that are their main sources of FDI. The

complementary nature of trade and FDI (WIR96)reinforces this relationship. Bilateral and regionaltrade agreements have become de facto investmentagreements as well, in that they typically containinvestment provisions. So, their impact on trade

Table I.9. The similarity index betweenthe geographical distribution pattern of

BITs and DTTs and that of FDI outward stocksof the United States, the EU and Japan, 2001

(Per cent)

Bilateraltreaties United States EU Japan Triad total

BIT 29 13 18 20DTT 73 40 60 51

Source : UNCTAD.

Note: Based on 11 regional classifications (EU, Other WesternEurope, North America, Other developed countries, Africa,Latin America and the Caribbean, West Asia, CentralAsia, South, East and South-East Asia, the Pacific andCEE).

World Investment Report 2003 FDI Policies for Development: National and International Perspectives26

and FDI tends to be in the same direction.Moreover, bilateral and regional trade agreementspave the way for intra-regional FDI, strengtheningthe Triad member-partner FDI relationship.

The similarities among the Triad FDI andBIT/DTT (and, for that matter, regional agreement)patterns have several implications. First, there isa broadening of economic space for both the Triadmembers and their partners from national toregional. Second, there may be an emergence ofTriad-associate partner investment blocks, sinceinvestment positions are supported by both bilateraltreaties and investment provisions in bilateral andregional trade agreements. The patterns feed intoeach other: DTTs, BITs and regional agreementsmay help generate more FDI, but the body of FDIalready in place can also give rise to BITs andDTTs and promote deeper integration through FDI.For developing countries, investment block insiders(Triad members and the other members of theblocks) may gain more than outsiders as “mega”FDI and trade blocks emerge and are strengthenedthrough bilateral and regional agreements—aquestion for further investigation.

In conclusion, the global stock of FDIcontinues to grow, albeit at a slower rate since2001. The developed countries remain dominantas regards its ownership and location, althoughdeveloping countries have made inroads, whileleast developed countries remain marginal. TheTriad pattern continues to manifest itself, includingthrough investment blocks. Bilateral and regionalagreements mirror FDI patterns and reinforce themin mega economic blocks.

G. Prospects

Was the surge in investment flows in the1990s the outcome of short-lived factors, such asthe boom in cross-border M&As? And when willflows begin to rebound? UNCTAD predicts thatFDI flows will stabilize in 2003. Flows todeveloping countries and developed countries arelikely to remain at levels comparable to those of2002, while those to CEE are likely to rise further.(The prospects for the different developing regionsare discussed in chapter II.) In the longer run,beginning with 2004, global flows should reboundand return to an upward trend. As in the case ofthe downturn during 2001–2002, the prospects fora future rise depend on a number of factors at themacro, micro and institutional levels and on thepossible impact of specific recent events oninvestors’ plans. In addition, to the extent thatWTO’s Cancun Ministerial Meeting will improvebusiness confidence and growth prospects, FDIflows could receive further impetus.

Macro factors

The consensus of the main multilateralagencies is that global recovery is already underway, but there are concerns about its sustainabilityand pace in 2003 and beyond (IMF 2003a; WorldBank 2003b; UNDESA and UNCTAD 2003; OECD2003a). Economic growth will pick up in 2003–2004 in both the United States and the Euro area,the two main sources of FDI, but it will continueto be weak in Japan. For developing countries, theprojected growth of 5% in 2003 is about threepercentage points above that for developedcountries (1.9%). But the forecasts for 2003 havebeen revised downward, especially in East Asia,for the negative effects of SARS on the region’seconomy (IMF 2003a). China and India, the mostpopulous developing countries, are forecast to growby 7.5% and 5.1% in the next couple of years (IMF2003a). Strong growth is also forecast for CEE.However, the danger of deflation in major

Table I.10. The propensity to sign BITs and DTTswith associate partners and non-associate partners

of the Triad members

Associate Non-associateTreaty partnersa partnersb

BITsJapan 0.25 0.05c

EUd 3.57 3.5c

United States 0.39 0.24c

DTTsJapan 0.5 0.26EUd 9.1 6.41United States 0.79 0.43

Source : UNCTAD.a Ratio of the number of associate partners that conclude a BIT

or a DTT with a Triad member to the total number of associatepartners.

b Ratio of the number of non-associate partners that concludea BIT or a DTT with a Triad member to the total number ofnon-associate partners.

c Only developing countries and CEE countries are included forBITs as developed countries do not conclude BITs with eachother. (However, all countries are included for DTTs as theyare concluded between any countries.)

d A country can sign bilateral agreements with multiple EUcountries. Thus the ratio is higher than 1.

Note: Based on 183 countries covered by UNCTAD’s FDI/TNCdatabase.

CHAPTER I 27

economies—setting off a downward spiral ineconomic activity—cannot be ruled out.

The index of industrial production in thedeveloped countries, which declined to 118.1 in2002 from 121.2 in 2000, is showing signs ofrecovery in 2003 (OECD 2003a). But the prospectsvary widely by industry—brighter for consumerpharmaceuticals, electronics and semiconductors,but dimmer for automobiles, metals and machineryand aerospace.20 Sharp declines in demand haveweakened prospects in certain high-technologyindustries, especially in the United States. Businessdebt in the United States has risen since 1999, andbusiness insolvencies in Japan and Germany haveescalated. Even so, the Manufacturers AllianceBusiness Outlook Index in the United States roseto 67% in December 2002, its highest quarterlymark in five years (an index of 50% or betterindicates an increase in manufacturing activity inthe coming quarter).

The outlook for the services sector is alsomixed. Major defaults have weakened financialinstitutions in all Triad economies. Excess capacity,especially in Europe, has held telecom firms backfrom new investments both at home and abroad.Sharp declines in demand have weakenedinvestment prospects for air transportation andtourism. But the United States services sectorincreased every month beginning with February2002 with the exception of March 2003.21

According to the Institute for Supply Managementin the United States, the index of non-manufacturing business activity rose to 54.5 in May2003 (above 50 denotes expansion). The outlookfor 2003 for real estate, business services, financialservices and retail trade is optimistic,22 while noupturn is foreseen in insurance, travel andtransportation.23

Micro factors

At the micro level, the recovery in economicgrowth and stronger demand in a range of industriesshould improve corporate profits, release financialconstraints and encourage investments, includingFDI. They will also foster conditions for a recoveryto some extent in stock market performances andportfolio equity flows. That would boost the valueof cross-border M&As through stock markets andincrease the ability of TNCs to raise funds forinvestment by issuing new stock or borrowing onthe value of their assets.

Worldwide M&A activity in 2003, however,continues to be weak, trailing the pace of theprevious year. M&As with values of less than $1

billion in the United States and transatlanticmarkets fell during the first four months of 2003(Baird 2003). They held up better than the overallmarket in 2002. Reflecting this general trend, cross-border M&As are not likely to rebound this year.In fact, the number of cross-border M&Ascompleted during the first six months of 2003 fellby a fifth to some 2,000, compared to 2,500 duringthe same period of 2002. Their value declined byone third to $140 billion.24 Market volatility couldimpede M&A transactions in 2003, but animprovement in market conditions would set thefoundation for a positive trend in the coming years.

Improved market conditions and profitprospects should increase market-seeking FDI ina wide range of countries and expand the scopeof efficiency-seeking FDI that TNCs continued toexplore during the downturn. In the face of theeconomic slowdown, heightened competition forcedTNCs to look for (or expand in) new and thrivingmarkets. China is a case in point, a location whereTNCs felt that they ought to be present, despitenumerous obstacles. Markets need not be national,as the anticipated attractiveness of regionalinitiatives indicates.

The dismantling of trade barriers25 hasallowed TNCs to pursue integrated internationalproduction strategies and structures, driving themto acquire a portfolio of locational assets in badtimes as well as good. This is gathering speed,especially for the relocation of labour-intensiveand some skill-intensive activities to lower-costlocations with transportation and communicationinfrastructure. Consider the decisions of IBM toclose its facilities in Hungary in 2002 and relocateto China (EIRO 2002; Horvath 2002). Small andmedium-sized enterprises are also under pressureto reap the cost-cutting and efficiency benefits ofbusiness process outsourcing. Internationaloutsourcing has grown rapidly in the past coupleof years, with the offshore operations by majorUnited States firms.26

Institutional factors

As regards institutional factors, despite thewinding down of many privatization programmes,there is still potential for privatization in severalcountries and industries. In late 2002 China allowedprivate and foreign investors to acquire controllingstakes in domestically listed companies, includingState enterprises (UNCTAD 2002a). India also hasconsiderable potential for the privatization of State-owned enterprises.27

World Investment Report 2003 FDI Policies for Development: National and International Perspectives28

In some CEE countries, new privatizationsmight start if government announcementsmaterialize. In the Russian Federation, theGovernment approved a February 2003 plan toprivatize more than 3,000 State-owned enterprises,with assets estimated at $2.2 billion.28 Romania’sPetrom, the largest oil company in Eastern Europe,is being privatized this year with foreignparticipation, as are Polskie Huty Stali, a large steelcompany in Poland and several oil companies inthe Russian Federation. Serbia and Montenegro isrequired by law to privatize all State-ownedenterprises by 2005, but progress so far has beenslow.

The liberalization of FDI at the national levelpicked up speed during the downturn (table I.8).Several bilateral and regional initiatives may boostFDI in the years ahead (chapter II). And under thecurrent round of negotiations of the GeneralAgreement in Trade in Services (GATS) in theWTO, scheduled to be completed by 1 January2005, members were supposed to submit theirinitial market opening offers by the end of March2003. The negotiations are tackling many behind-the-border restrictions in services. Liberalizationin this area could boost FDI flows and strengthenthe integration of international production.

The stock of FDI already in place gives riseto two trends that have, to some extent, beensupporting FDI flows. First, it generates revenuesand earnings, a proportion of which is reinvested(figure I.16). Second, it requires additional capitalinvestment to make up for depreciation and ensurethat assets remain in working order.

On the downside, heightened securityconcerns have caused some TNCs to adopt a “waitand see” atti tude, though only a few TNCscancelled planned investments (WIR02; UNCTAD2003a; MIGA 2002). More recent events, includingthe war in Iraq, have also increased securityconcerns, with longer term implications for FDIexpansion.

IPAs are optimistic about the prospects, asrevealed by a survey by UNCTAD in the firstquarter of 2003 (box I.5). Other forecasts rangefrom predicting that the next FDI boom will beginin 2004 to predicting no immediate increase in FDI(box I.6). UNCTAD expects FDI flows to remainstagnant in 2003 and begin to rebound in 2004,barring exceptional circumstances.

Box. I.5. UNCTAD’s survey of investmentpromotion agencies

According to an UNCTAD survey of 106national IPAs worldwide, completed in March2003,a global FDI flows will remain sluggish inthe short term and gain new steam in the mediumterm. The survey also suggests that greenfieldinvestment will gain importance as a mode of entry.Among industries, tourism and telecoms will leadthe recovery, with developing countries more activein outward FDI.

In spite of differences by region, a largeproportion of the IPAs expressed concerns aboutthe short term while a majority were optimisticabout the medium term (box figure I.5.1). Morethan 40% of the respondents expected the FDI

/...

Figure I.16. Reinvested earnings as a percentage of FDI inflows, by region, 1990-2001 (Per cent)

Source: UNCTAD, based on IMF, Balance of Payments Statistics, May 2003 CD-ROM.

CHAPTER I 29

outlook for their countries to remain the same orworsen in 2003–2004. But for 2004–2005, thisdeclined to 16%, leaving 84% of the respondentsexpecting prospects to improve. IPAs in developingcountries were much more optimistic than thosein the developed world (box figure I .5.2).Respondents from Africa and Asia were almostcertain their countries would attract more FDI in2004/2005.

Box fig. I.5.1. IPAs perceive that FDI prospectsin their countries will be improvinga

Source : UNCTAD.a The survey question was: "How do you perceive the prospects

for FDI inflows to your country in the short- and medium-term,as compared to the last two years (2001-2002)?".

Box fig. I.5.2. Perceptions of FDI prospects varyfrom region to regiona

Source : UNCTAD.a The survey question was: "How do you perceive the prospects

for FDI inflows to your country in the short- and medium-term,as compared to the last two years (2001-2002)?".

For investment strategies, there seems to bea shift from M&As to greenfield projects. Morethan 60% of the respondents found that greenfieldinvestment would be the preferred mode of entryinto their countries in 2003–2005, up from 56%in 2001–2002. The view was stronger in developing

regions (68%) (except Asia) and CEE (57%). Theindustrial composition of FDI may change as well.b

Most IPAs felt that tourism and telecoms wouldbe the most important recipients of FDI in 2003–2005 (box figure I.5.3). Agriculture, petroleum,pharmaceuticals and chemicals follow closely. FDIflows to electrical and electronics, textile andclothing, and metals and metal products may alsoincrease in a number of countries.

Box fig. I.5.3. A shift is expected in the industrialcomposition of FDIa

Source: UNCTAD.a The survey question was: " Do you foresee any shift in the

industry distribution of FDI in your country? Please list the threeindustries that have received and are likely to receive moreFDI".

Note: A number of responses have not mentioned specificindustries but only economic sectors in general. Theseresponses are not reflected in this figure.

Developing countries are also gainingimportance in outward FDI. The United States, theUnited Kingdom and Germany remain the mainsources of FDI, but China, India and Saudi Arabiaare emerging as important investors, with a strongpresence in developing economies. And somecorporate functions are more significant as targetsin attracting FDI, with respondents citing corporateHQ functions and R&D outsourcing as additionaltriggers for FDI flows into their countries.

Box. I.5. UNCTAD’s survey of investment promotion agencies (concluded)

Source : UNCTAD.a The UNCTAD questionnaire survey covered 154 countries that have a national IPA or a government entity with an investment-

promotion function. Out of the 154 national IPAs (i.e. one national IPA per country), 106 IPAs responded, for a 69% responserate (72% for developed countries, 64% for developing countries and 79% for CEE countries).

b A number of responses did not mention specific industries but only economic sectors in general. These responses are not reflectedin this figure.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives30

Several recent surveys and publications gaugethe prospects for FDI in the short and medium term.The findings of the main ones are:

• The 2002 survey by the Japan Bank forInternational Cooperation on the outlook forJapanese FDI in manufacturing, conductedin July/August 2002, shows that 80% of 508responding TNCs would strengthen andexpand their foreign operations over the nextthree years, up from 72% in 2001.

• The Japan External Trade Organization, incooperation with the Ministry of Economy,Trade and Industry, carries out monthlysurveys of the business outlook in Asia bysurveying Japanese companies operating inthat region. The latest, published in May2003, reveals an overall deterioration beingexpected during the next two-to-three monthsin Asia, including China, in particular EastChina (because of the effects of SARS)—forthe first time since this survey started in July2002.

• The International Chamber of Commerce andthe IFO research institute conduct a quarterlyWorld Economic Survey of more than 1,000business executives, economists and analystsfrom more than 80 countries. The findingsof the latest, published in December 2002,show that business expectations for the nextsix months suffer from a general fall inconfidence, and only a marginally improvedoutlook is expected thereafter. The three-to-five year outlook is brighter, with economicgrowth expected to improve.

• PricewaterhouseCoopers conducted the fifthGlobal CEO Survey of more than 1,100business executives from over 30 countriesin October 2002–January 2003. It found thatfirms generally are not curtailing expansionprojects that fulfil their long-term strategicobjectives. They are also outsourcing morebusiness processes, especially non-corebusiness functions.

• A survey of 314 leading CEOs of Canadiancompanies between August and November2002 by KPMG and Ipsos-Reid found that86% of the CEOs were optimistic aboutcompeting in the global marketplace, but only40% planned to expand into new markets in2003.

• According to the World Investment Prospects2003, published by the Economist IntelligenceUnit, FDI flows will decline again in 2003but rebound in 2004 and grow strongly over

Box I.6. Is a recovery in FDI flows on the way?

the subsequent four years. The United Statesis expected to regain i ts position as theworld’s top FDI recipient. Another boom isexpected in cross-border M&As. The forcesdriving the next FDI boom are better businessenvironments, technological change,deregulation, industrial consolidation,heightened global competition, the creationof a single financial market in Europe andgood investment opportunities in emergingmarkets.

• In its May 2003 report, Capital Flows toEmerging Market Economies, the Institute forInternational Finance forecast an increase inprivate capital flows into 29 emergingmarkets (developing and CEE countries) for2003, after a decline for the second yearrunning in 2002. FDI flows to emergingmarkets are forecast to fall marginally in2003, to about $109 billion, the lowest levelsince 1996, as TNCs continue to be cautiousabout investment spending under the presentglobal economic outlook and as the pace ofstructural reform and privatization slowsdown in many countries. FDI is expected toincrease in emerging markets in Asia and thePacific from $55 billion in 2002 to $60 billionin 2003, and in Africa/Middle East from $3billion to $4 billion.

• The International Monetary Fund in its WorldEconomic Outlook 2003 predicted that FDIflows to emerging markets would increasemodestly to $148 billion in 2003, from $139billion in 2002, but decline marginally in2004. The World Bank, in i ts GlobalDevelopment Finance 2003, forecast that FDIflows to developing countries will remainvirtually unchanged in 2003, at $145 billion(box table I.6.1).

Source : UNCTAD, based on Economist Intelligence Unit 2003; Institute for International Finance 2003; International Chamberof Commerce/IFO Research Institute 2003; International Monetary Fund 2003a; Japan Bank for International Cooperation2003; JETRO 2003a; PricewaterhouseCoopers (PwC) 2003a; KPMG 2003; World Bank 2003a.

Box table I.6.1. World Bank’s estimatesof FDI inflows to developing countries,

2002-2004(Billions of dollars)

Region 2002 2003 2004

Total 143 145 159 East Asia and Pacific 57 61 69 Europe and Central Asia 29 30 32 Latin America and the Caribbean 42 38 39 Middle East and North Africa 3 3 4 South Asia 5 6 7 Sub-Saharan Africa 7 7 8

Source: World Bank, 2003a.

Note: The geographical coverage of developing countriesin this table is different from that used in this Report.

CHAPTER I 31

Notes

1 The relative variance as measured by the standarddeviation divided by the average of the variable is0.5 for FDI flows, 0.64 for portfolio flows and 5.9for commercial bank loans between 1990 and 2002.

2 The transnationality index of both developed anddeveloping countries in 1999 was less than 20%(WIR02, p. 21), but it rose to more than 20% in 2000in both groups of economies. Similarly the indexfor CEE rose by a few percentage points.

3 The lending rate was 4.68% in the United States,compared with 6.13% in the Euro area in 2002. Butduring 1997-2001 the lending rate was higher inthe United States than in the Euro area, by as muchas two percentage points. Lending rates in Japanwere very low throughout the period—and FDIoutflows from Japan to the United States (small asthey were) increased.

4 EU TNCs engaged in far fewer cross-border M&Atransactions in the United States: from 400 in 2001they fell to 241 deals in 2002. The value ofcompleted cross-border M&As in the United Statesby EU firms halved in 2001 and halved again in2002 to only $47 billion, compared with $203 billionin 2000. The value of cross-border M&As by UnitedStates firms in the EU rose from $34 billion in 2001to $39 billion in 2002, however, these levels wereabout half those in 2000 (data from UNCTAD, cross-border M&A database).

5 This is based on an assumption that a dollar of cross-border M&As corresponds to a dollar of FDI flows.However, due to differences in the nature of data,these two types of data do not match (see WIR00for the nature of the data on cross-border M&As).

6 For further discussion on this subject, including themethodology on the FDI Performance Index and theFDI Potential Index, see www.unctad.org/wir.

7 Data for the last two years allow inflows intoBelgium and Luxembourg to be separated; much ofinward FDI goes to Luxembourg and may be drivenby tax considerations rather than long-termproductive activity.

8 The correlation coefficient for the former is muchlower (0.80) than for the latter (0.95).

9 It goes without saying that under-performance inthis context does not necessarily mean that thecountries are under-performing in general economicterms.

10 Information from the World Federation of Exchanges( h t t p : / / w w w. w o r l d - e x c h a n g e s . o r g / W F E /home.asp?menu=196&document=559). The datacover 49 markets in 44 countries.

11 The profitability as measured by the return on assetsis often used as an indicator of a firm’s performance(Gomes and Ramaswamy 1999; Ruigrok and Wagner2003).

12 Based on inward FDI data. The rates of return onFDI are calculated as income on FDI divided by theaverage value of the stocks at the beginning andthe ending years. The data are from balance-of-payments statistics.

13 These economies are Argentina, Chile, Hong Kong(China), Ireland, Israel , Malaysia, Norway,Paraguay, Singapore, the United Kingdom and theUnited States.

14 Asian and Pacific countries were parties to 45 BITs,including 10 signed between countries within theregion. Developed countries were parties to 44 BITs,

CEE countries to 24 (including 5 signed within theregion), African countries to 20 (including 2between African countries) and Latin American andCaribbean countries to 13.

15 Developed countries were parties to 42 DTTs(including 11 signed between themselves), CEEcountries to 29 (including 6 between themselves),Asian and Pacific countries to 27 (including 4between themselves), African countries to 9(including 3 intra-regional ones) and Latin Americaand Caribbean countries to 5.

16 See figure I.14 for the definition.17 On the basis of the application of the same criterion

as for associate partners in FDI (countries that havemore than 30% of their respective trade (exportsplus imports) with the Triad member, there are 89,28 and three associate trade partners for the EU,the United States and Japan, respectively. Of these,26 countries are common to the two blocks (FDIand trade) for the EU, eight in for the United Statesand one for Japan.

18 The similarity index is measured by:Index= sum ( min(ai,bi)) for all iwhere i = 1…N is the region i and “ai” and “bi”are the corresponding FDI and BIT/DTT shares. Iffor each region the FDI and BIT/DTT shares areequal, then the structures are identical and the indexwill be 100. The higher the index, the greater thesimilarity in the structures of FDI and BIT/DTT.

19 Out of the 19 countries identified as associatepartners of the United States (based on the 2001data), 8 countries have BITs and 15 have DTTs withthe United States. In the case of the EU, thesenumbers reach 35 for BITs and 38 for DTTs out ofthe 40 associate partners. Out of the 4 associatepartners of Japan, one country (Republic of Korea)has a BIT with Japan, and two countries (Republicof Korea and Singapore) have DTTs with Japan.

20 “Industry outlook 2003”, Business Week, 13 January2003.

21 “May non-manufacturing ISM report on business”,Press Release, Institute for Supply Management,4 June 2003.

22 “Expect recovery to continue to second half of 2003say purchasing and supply executives”, PressRelease, Institute for Supply Management, 20 May2003.

23 Business Week, idem.24 Information provided by Thomson Financial.25 According to the World Bank and the IMF 2001,

for industrial countries the post-Uruguay Roundbound simple average tariff rate across all productsis now 4%, while for developing countries it is at25% (with considerable variation across productsand countries).

26 OutsourcingCenter 2003.27 In India, the Government’s plan is to raise about

$2.8 billion by selling State-run companies in thecurrent fiscal year ending March 2004 (“Indians inprivatization strike”, BBC News, 21 May 2003) andsome of that could be through FDI. Recent additionsto the Government’s privatization plans include twoof India’s leading oil companies (“No turning back,oil PSU divestment on: PM”, Economic Times, 23May 2003). However, there is still a need to developa consensus around key issues (“Divestment to misstargets, consensus needed”, Economic Times, 23May 2003).

28 Oxford Analytica Daily Brief, 18 March 2003.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives32

Introduction

CHAPTER II

UNEVEN PERFORMANCE ACROSS REGIONS

To sum up chapter I, FDI in 2002 was downagain for both developed and developing countries.Flows to the United States, the top host countryfrom 1978 to 2001, plunged to a 10-year low in2002. But fairly robust FDI outflows from theUnited States helped sustain global FDI flows,though at levels well below their 2000 peak. FDIinflows to all three host developing regions—Africa, Asia and the Pacific and Latin America andthe Caribbean—fell. Only CEE received higherinflows than in 2001.

Subregions and countries also showedconsiderable diversity in their vulnerability to thedownturn, as did sectors and industries. Threethings made a difference. How much countriessustained their economic performance and growthdespite recession in major developed countries.How much they attracted resource-seeking andespecially efficiency-seeking FDI. And how muchnational and international policy initiativesstrengthened their positions as host countries.

In an FDI downturn policy changesfavourable to FDI and agreements that address FDIissues assume greater importance. Combined withother determinants of FDI, they may help countriessustain or increase the level of FDI. National policy

changes were overwhelmingly in the direction ofliberalization (table I.8). Internationally,agreements on FDI proliferated. Where they createbigger markets, in particular, they can be good forFDI.1

For 2003 the prospects are stagnation at bestfor developed countries, Asia and the Pacific andLatin America and the Caribbean—but reasonablygood for Africa and CEE. In 2004 and beyond, theprospects are promising for all regions.

This chapter discusses recent FDI trends anddevelopments in the various regions. It alsodiscusses international investment agreements(IIAs) involving countries in the different regions,exploring how they have influenced FDI flows.IIAs can influence TNC decision-making dependingon their impact on factors determining the locationof FDI (WIR98). Relevant is the emergence ofregulatory frameworks for FDI that are morepredictable, stable, transparent and secure.Particularly relevant is whether market size isincreased or market access is improved, creatingopportunities to tap larger markets and resourcesin the region and to specialize within corporatenetworks.

A. Developing countries

All developing regions—Africa, Asia and thePacific, Latin America and the Caribbean—hadlower FDI inflows.

The least developed countries (LDCs), aspecial group of 49 economies,2 were not anexception with inflows declining by 7% to $5.2bill ion in 2002 (annex table B.1). Inflows toAfrican LDCs fell by 3% in 2002, and those toLDCs in Asia and the Pacific declined by half, to$0.3 bill ion in 2002. The only LDC in LatinAmerica—Haiti—had higher inflows, particularlyfor textiles, due in part to its entry into CARICOM.The share of LDCs in global FDI flows remainsless than 1% of the world total and 3.2% of thedeveloping country total.

FDI flows to the largest LDC recipients—most of them oil-exporting countries, including

Angola, Equatorial Guinea and Sudan—alsodeclined. Chad is an exceptional case with inflowsgrowing from almost nothing in 2001 to $0.9 billionin 2002 by attracting oil-related FDI. This countrybecame the second largest recipient after Angolaamong LDCs. With more investment in petroleum,FDI flows to LDCs as a group are expected to risein 2003.

1. Africa

Africa’s FDI inflows declined to $11 billionin 2002 after a surge to $19 billion in 2001, mainlyfrom two cross-border M&As. As a result, theregion’s share in global FDI inflows fell from 2.3%in 2001 to 1.7% in 2002, highlighting the smallvolume of FDI flows to the region. Many African

World Investment Report 2003 FDI Policies for Development: National and International Perspectives34

countries marginally sustained or increased theirFDI inflows in 2002. Inflows to the regionremained highly concentrated, with Algeria,Angola, Chad, Nigeria and Tunisia accounting forhalf of the total inflows. The distribution acrosssectors and industries remained largely unchanged.

The downturn in FDI flows could be short-lived, especially with stronger national efforts topromote FDI and ongoing trade and investmentinitiatives by the United States, the EU and Japan.In addition, some TNCs began new activities,notably in petroleum exploration and extraction.Much will depend, however, on the vigour ofAfrican countries in pursuing policies that stimulatedomestic economic growth and encouragesustainable inflows of FDI.

a. FDI down by two-fifths

The most striking feature of the FDIdownturn in Africa in 2002 is its size (41%), a goodpart of which was linked to the absence of largeM&As comparable to those that took place in 2001.Cross-border M&As amounted to less than $2billion, compared with $16 billion in 2001 (annextable B.7). If the large cross-border M&A dealsin Morocco and South Africa in 2001 are excludedfrom FDI figures for that year, FDI inflows in 2002actually increased by 8%. Unevenly distributedacross the continent, FDI inflows amounted to only

8.9% of gross fixed capital formation (figure II.2),compared to 19.4% in 2001.

The downturn also reflects drops in outflowsfrom the major home countries of FDI to Africa—the United States, France and the United Kingdom.United States imports from sub-Saharan Africadeclined by more than 16% in 2002,3 reducing theinterest of TNCs in Africa.

Until 2001, FDI was gaining in importanceas a source of Africa’s external developmentfinance, reaching nearly two-thirds of total netresource flows in 2001, compared with 34%through official flows (figure II.3). Average FDIflows to the region in 1997–2001 were higher thaneither total official flows or the total of portfolioand commercial bank loans. Seen from thisperspective, the downturn in FDI in 2002 was amajor setback, even if short-lived.

In spite of the downturn, 30 countries outof Africa’s 53 attracted higher inflows in 2002 thanin 2001 (annex table B.1), largely throughgreenfield FDI, mainly in petroleum (Algeria,Angola, Chad, Equatorial Guinea, Sudan andTunisia) and to a lesser extent in apparel(Botswana, Kenya, Lesotho and Mauritius). Angola,Nigeria, Algeria, Chad and Tunisia ranked, in thatorder, at the head of the top 10 FDI recipients(figure II.1). Chad registered the largest increase,from zero in 2001 to more than $900 million in2002.

The success stories contrast, however, withexperiences of countries that lag behind. TheLibyan Arab Jamahiriya (with negative inflows)ranked lowest (annex table B.1). Other low FDIrecipients have relatively limited natural resourceendowments. In four of them—Burundi, Comoros,Liberia and Somalia—efforts are still under wayto recover from recent or on-going politicalinstability and civil wars.

There was a flurry of petroleum explorationactivities in the Gulf of Guinea, off the coast ofWest Africa and other areas of Africa, particularlyin Angola, Chad, Equatorial Guinea and Sudan, assome TNCs—Exxon-Mobil (United States),TotalFinaElf (France) and Encana (Canada)—sought to diversify their holdings. Sustained peacein Angola could mean a further consolidation ofsuch activities. In some countries, however,manufacturing attracted considerably more FDIthan natural resources—as in South Africa. Theautomobile industry there, spawned by FDI,employs nearly 300,000 people and is the thirdlargest industry.

Figure II.1. Africa: FDI inflows, top 10countries, 2001 and 2002a

(Billions of dollars)

Source : UNCTAD, FDI/TNC database (ht tp: / /www.unctad.org/fdistatistics).

a Ranked on the basis of the magnitude of 2002 FDI flows.b In 2001, FDI inflows to Chad are zero.

CHAPTER II 35

Almost two-thirds of African IPAs indicatedthat their countries had not experienced acancelling or scaling down of FDI projects or adivestment from existing projects according toUNCTAD’s IPA survey (UNCTAD 2003a). Morethan 40% reported postponed projects, reflectinga “wait-and-see” attitude of some investors. About30% said that they wanted to use additionalincentives. Overall greater promotion and targetingare the prime responses to the more challengingFDI environment.

Aggregate FDI outflows from Africa were$0.2 billion in 2002, compared with negative $2.5billion in 2001. South Africa, home to all three ofthe Africa-based TNCs on UNCTAD’s list of thetop 50 developing country TNCs, is the majorsource, though its outflows registered negativeduring 2001–2002 (i.e. more divestment than newinvestment) (annex table B.2). South African firmshave traditionally invested abroad in mining andbreweries, largely within the region, but some alsoinvested in telecommunications in 2002.

Particularly noteworthy in the FDI activities byAfrican companies in 2002 are:

• MTN and Vodacom SA4 both made significantinroads into the telecommunication industriesof many African countries. Vodacom is SouthAfrica’s largest cellular phone operator,operating new networks in the DemocraticRepublic of Congo, Lesotho, Mozambique andthe United Republic of Tanzania.5 Most ofVodacom’s activities were organized throughjoint venture arrangements with local companiesand businesspersons.

• South African Breweries bought a 64% stakein Miller Brewing (United States) for $5.6billion. After this acquisition, South AfricaBreweries changed its name to SABMiller,which then acquired Birra Peroni (Italy) andHarbin Brewery (China) in 2003.

• South African Airways bought Air Tanzania, aspart of its plan to build an African regionalnetwork.

• The Algerian national oil company SonaTrackparticipated in oil ventures in Egypt andLebanon.

• Ashanti Goldfields from Ghana pressed aheadto bolster its regional presence in gold andplatinum in South Africa. It was the leading goldproducer in Ghana, Guinea, the United Republicof Tanzania and Zimbabwe.

• In 2003 Egypt’s Orascom Telecom won the bidfor Algeria’s global system of mobilecommunication (GSM) at a cost of $737 million.The company plans to invest $500 million overthe next five years.6

All these companies form a cohort of African firmsacquiring an international portfolio of locationalassets.

Figure II.3. Total external resource flowsa toAfrica, by type of f low, 1990–2001

(Billions of dollars)

Source : UNCTAD, based on World Bank, 2003a.a Defined as net liability transactions or original maturity of greater

than one year.

Source : UNCTAD, FDI/TNC database (http://www.unctad.org/fdistatistics).

Figure II.2. Africa: FDI inflows and their share in gross fixed capital formation, 1990–2002

World Investment Report 2003 FDI Policies for Development: National and International Perspectives36

b. Policy developments—improvingthe investment climate

African countries have liberalized regulatoryregimes for FDI, addressing investors’ concerns,privatizing public enterprises and activelypromoting investment (box II.1). In 2002 alone,10 countries introduced 20 changes in theirinvestment regimes, overwhelmingly in thedirection of a more favourable investment climate.7

Many countries had previously abolished, orsignificantly reduced requirements for governmentparticipation in business ventures. Nigeria hasmoved away from mandatory joint ventures inpetroleum and minerals. Ghana expanded the scopefor FDI by reducing the number of industries closedto foreign investors. And some countries recentlyexpedited investment approval procedures bydeveloping one-stop investment centres (Egypt,

Kenya). Investment-related issues, such astechnology transfer, are now subject to lessrestrictive compliance criteria, and the protectionof intellectual property rights has improved in somecountries.

African countries, while liberalizing theirFDI policies, had also concluded 533 BITs (anaverage of 10 per country) and 365 DTTs (about7 per country) by the end of 2002. The total numberof BITs and DTTs is more than that in LatinAmerica and the Caribbean, but fewer than thatin Asia and CEE. During 2001 and 2002, 78 BITsand 15 DTTs were concluded (figure II.4). Progresstowards creating free trade and investment areasis slow, although several agreements, mostlysubregional, have been concluded (figure II.5). Amajority of bilateral and regional agreementsemphasize investment promotion through the

Recently completed Investment PolicyReviews for African countries by UNCTAD showinteresting developments in the regulation andpromotion of FDI.a

Standards of treatment and protection offoreign investors are no longer contentious issues.Good practice is the norm, even in countrieswithout FDI laws. Indeed two countries haverecently decided to formalize their commitment togood standards of treatment and protection byintroducing FDI legislation for the first t ime.Moreover, interest is strong in expanding thenetwork of BITs, including to Asian homecountries. Some country groups are comfortableinjecting common investment standards into theirsubregional agreements.

Countries continue to be reasonably open toFDI entry, with the authorit ies paying moreattention to facilitating investment startup – “fromred tape to red carpet” as one IPA describes it.Privatization with the participation of foreign firmsis an important practical manifestation of openness.But such opening is slower than in other parts of theworld, certainly in utilities and strategic industries.

One higher income country sought to tightenits FDI regime to fast-track local entrepreneurship.This highlights the growing concern about theimpact of FDI on development on the one hand andthe recognition of the need for active policy onfostering positive l inkages between foreignaffiliates and national entrepreneurs on the other.

All the countries, including the LDCs, arekeen to attract FDI in manufacturing. The more

ambitious ones are also targeting FDI in serviceexports, including financial, business andprofessional services for their regions andinternational information and telecom opportunities.

While FDI-specific standards are nowgenerally sound, there is still a highly patchy recordin general regulatory and fiscal measures forbusiness. Recent efforts to attract FDI in labour-intensive manufacturing for export and newopportunities for FDI in services have highlightedthe following:

• First , typical fiscal regimes are notinternationally competitive when countriesseek FDI in export-oriented business. Mostcountries respond with piecemeal incentivesin a process that can be prolonged to a pointof becoming discriminatory and arbitrary.

• Second, good labour regulation, especiallyan effective industrial dispute resolutionmachinery, is lacking in many countries.Progress in this area is important inpresenting an attractive profile for FDI inlabour-intensive export manufacturing.Experience in meeting this challenge varieswidely.

• Third, many countries still have outdatedwork and residence permit systems. Theprocess of obtaining entry and work permitsfor expatriates is lengthy, cumbersome andnon-transparent. This discourages FDI intonew industries in export manufacturing andservices which tend to depend heavily at theoutset on expatriates in management andtechnical positions.

Box II.1. What Investment Policy Reviews show

Source : UNCTAD.a Investment Policy Reviews have been completed for Botswana, Egypt, Ethiopia, Ghana, Lesotho, Mauritius, the United Republic

of Tanzania and Uganda and are under way for Algeria, Benin and Zambia.

CHAPTER II 37

creation and improvement of frameworks. Judgingfrom the experience of member countries, theimpact of such agreements on FDI flows to theirmember countries has been limited. They haveapparently not generated significant locationaladvantages for TNCs from within or outside theregion. And they have not been accompanied bythe establishment of regional FDI frameworks.

Among the schemes involving countriesoutside the region, the African Growth andOpportunity Act (AGOA) (although not a free tradeagreement but rather a unilateral preferencescheme) holds some promise for an expansion oftrade and investment in the region.8 In some of theeligible countries, AGOA has increased exports tothe United States in textiles and garments and FDIin such export-oriented production (United States,International Trade Administration, 2002). Muchof the investment is by Asian TNCs in Kenya,Lesotho and Mauritius. In the two years since itsinception AGOA helped stimulate FDI of $12.8million in Kenya and $78 million in Mauritius—and create some 200,000 jobs in the apparelindustry of the 38 beneficiary countries (UnitedStates, International Trade Administration, 2002).However, the quota and tariff advantages thatcorporations get from operating in AGOA countriesapparently are not enough for most of them toovercome the locational disadvantages of most ofthe countries involved.9

Given the importance of increasing marketsize and providing scale to attract FDI to Africa,efforts at regional integration continue to beimportant. The New Partnership for AfricanDevelopment (NEPAD)10 could be a catalyst in thisrespect, including infrastructure and energyinvestment among its priorities.

c. Prospects—quick recovery likely

The outlook for FDI flows to Africa in 2003is promising. Three major factors—expandedexploration and extraction of natural resources(particularly petroleum), continued and enhancedimplementation of regional and interregional freetrade initiatives and a possible continuation ofprivatization programmes—are likely to lead to amoderate increase in total FDI inflows in 2003.Angola, Chad, Equatorial Guinea, Mauritania,Nigeria, Saõ Tomé and Principe and the Sudan areamong the hopefuls for new FDI flows to thepetroleum industry.11 FDI in natural resources haswell-known shortcomings as a force fordevelopment in host countries, notably limitedlinkages to domestic enterprises. But it is likelyto be a major source of recovery for flows to Africa.Morocco, Nigeria and South Africa in particularmay undertake further privatizations of majorpublic enterprises.12 Botswana, Kenya, Lesotho,Mozambique, Namibia, South Africa and Ugandacan be expected to make gains as TNCs positionthemselves to benefit from the AGOA initiative.13

Investment prospects would further beenhanced by a better investment climate (figureII.6). More than 75% of IPAs in Africa expect animprovement in the investment climate in 2003–2004, 100% in 2004–2005. Tourism was mentionedmost frequently as the most likely target industry.Telecommunications, mining and quarrying, as wellas food and beverages and textiles, leather andclothing were also named. The traditional sourcecountries—France, the United Kingdom and theUnited States—remain the most likely sourcecountries for FDI into Africa for the period 2003–2005. Others are South Africa and China. AfricanIPAs expect to receive most FDI in production,

Figure II.4. Africa: BITs and DTTs concluded, 1992–2002(Number)

Source: UNCTAD, databases on BITs and DTTs.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives38

Figure II.5. Africa: selected bilateral, regional and interregional agreements containing FDIprovisions, concluded or under negotiation, 2003a

Source : UNCTAD.a BITs and DTTs are not included.b UDEAC (Customs and Economic Union of Central Africa) refers to the following instruments: Common Convention on Investments in

the UDEAC (1965); Joint Convention on the Freedom of Movement of Persons and the Right of Establishment in the UDEAC (1972);Multinational Companies Code in the UDEAC (1975). UDEAC comprises Cameroon, Central African Republic, Chad, Congo, EquatorialGuinea and Gabon.

c CEPGL refers to the Investment Code of the Economic Community of the Great Lakes Countries. CEPGL comprises Burundi, Rwandaand the Democratic Republic of Congo.

d ECCAS refers to the Treaty for the Establishment of the Economic Community of Central African States. ECCAS members includeChad, Congo, the Democratic Republic of Congo, Equatorial Guinea, Gabon, Rwanda, Sao Tome and Principe.

e COMESA: Treaty Establishing the Common Market for Eastern and Southern Africa. It comprises Angola, Botswana, Comoros, Djibouti,Ethiopia, Kenya, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Seychelles, Somalia, Swaziland, United Republic of Tanzania,Uganda, Zambia, Zimbabwe. A Charter on a Regime of Multinational Industrial Enterprises (MIEs) in the Preferential Trade Area forEastern and Southern African States was signed in 1990. COMESA replaced the Preferential Trade Area for Eastern and SouthernAfrican States in December 1994. The signatories to the Charter are Angola, Comoros, Djibouti, Kenya, Lesotho, Malawi, Mozambique,Rwanda, Somalia, Sudan, United Republic of Tanzania, Uganda, Zambia, Zimbabwe.

f ECOWAS: the Revised Treaty of the Economic Community of West African States. Its member states include Benin, Burkina Faso,Côte d'Ivoire, Gambia, Ghana, Guinea, Liberia, Mali, Niger, Senegal, Sierra Leone and Togo.

g ACP: African, Caribbean and the Pacific Group of states. ACP signed an agreement, commonly known as the Cotonou agreementon 23 June 2000.

h EAC: Treaty for the Establishment of the East African Community. EAC member States are Kenya, Uganda, United Republic of Tanzania.i AEC: Treaty Establishing the African Economic Community.j SADC: Southern African Development Committee. Its member countries are: Angola, Botswana, the Democratic Republic of Congo,

Lesotho, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, United Republic of Tanzania, Zambia andZimbabwe. FISCU (Finance and Investment Sector Co-ordinating Unit of SADC) has been mandated to produce a Draft Finance andInvestment Protocol for the SADC region.

k WAEMU: West African Economic and Monetary Union, its member States are currently: Benin, Burkina Faso, Côte d'Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo.

l SACU: Southern African Customs Union comprises Botswana, Lesotho, Namibia, South Africa and Swaziland.

CHAPTER II 39

distribution and sales, much less in high value-added corporate functions, such as R&D or regionalheadquarters (HQ) facilities. Not surprisingly,African IPAs expect most FDI in 2003–2005 tocome as greenfield FDI. But some countries havescope for privatization M&As.

Bilateral, regional and interregionalinitiatives can also influence future FDI flows. Twoinitiatives by the EU—the EU-ACP CotonouAgreement and the Everything-but-ArmsInitiative—could have an effect on trade andinvestment in Africa.14 So could a 2001 initiativeby Japan, establishing duty-free and quota-freepreferences for LDCs on 99% of industrial

products, including all textiles and clothing. AGOAII has relaxed the rules of origin restrictions in theapparel industry to the United States market forthe “very poor” countries. However, an immediatefactor constraining the potential benefits of AGOAis the economic slowdown and low demand in theUnited States market. The United States couldfurther enhance the benefits of AGOA bysupplementing the current arrangements withadditional home country measures (see chapter VI).

The expiration of the Multifibre Arrangement(MFA) at the end of 2005 also poses challengesfor African countries currently taking advantagesof AGOA privileges in textile and garmentexports—and thus FDI in export-orientedproduction. Its phasing out would put Africa’sfragile infant apparel firms in direct competitionwith major traditional textile and apparel exporterssuch as China, India, Pakistan and Viet Nam. ButAfrican countries eligible for AGOA will continueto enjoy tariff and quota advantages.

The results of these initiatives andUNCTAD’s recent investment policy reviewssuggest that an African Investment Initiative couldstrengthen the continent’s supply capacity (boxII.2). It would help African countries improve theirnational regulatory and institutional frameworksfor FDI, support their promotion efforts, help inthe dissemination of information on investmentopportunities and facili tate l inkages betweenforeign affil iates and domestic firms—all tostrengthen a vibrant domestic enterprise sector.

Figure II.6. Africa: FDI prospects,a 2003-2005(Per cent)

Source : UNCTAD.a The survey question was: “How do you perceive the prospects

for FDI inflows to your country in the short- and medium-term,as compared to the last two years (2001-2002)?”.

To attract FDI and benefit more from itrequires the right conditions. An AfricanInvestment Initiative would help countries of theregion in creating such conditions. The past fewyears have seen various initiatives that can helpin this respect. I t would be appropriate forinterested intergovernmental and civil societyorganizations to coordinate, with NEPAD, theaspects of their work that deal with FDI—anAfrican Investment Initiative.

Improving the national investment frameworkInvestment Policy Reviews can provide

governments with a tool for assessing where theystand in attracting FDI and benefiting more fromit. Such Reviews also incorporate a medium-to-long term perspective on how to respond toemerging regional and global opportunities. Otheractivities, such as identifying administrativebarriers to investment and reviewing investmentincentive regimes, are relevant as well.

Box. II.2. The need for an integrated approach to attract FDI to Africa andbenefit from it: an African Investment Initiative

Improving the international investmentframework

African countries need to participate aseffectively as possible in discussions andnegotiations of international investmentagreements—to ensure that their interests areproperly reflected. This requires training ofinvestment negotiators and background policyanalysis, including in cooperation with Africanacademia and faculty and institutions of higherlearning, for the purpose of local capacity-building.The negotiation of BITs and DTTs is also relevanthere, as is the negotiation of regional investmentframeworks and assistance to African countriesin investment discussions in WTO. Investmentagreements are becoming increasingly importantas they set the framework for national FDI policies.

Supporting national investment promotionefforts

African IPAs have joined the WorldAssociation of Investment Promotion Agencies,which offers training and capacity building

/...

World Investment Report 2003 FDI Policies for Development: National and International Perspectives40

2. Asia and the Pacific

Like the other developing regions, Asia andthe Pacific was not spared by the downturn. Theregion, however, weathered the downturn betterthan most other regions, with only an 11% FDIdecline. The decline was uneven by subregion,country and industry. Asia is one of the mostrapidly liberalizing host regions for FDI, makingmore national policy changes in a directionfavourable to investors in 2002 than any otherregion. Bilateral and regional arrangementsinvolving countries in the region also proliferated.While the long-term prospects for an increase inFDI flows to the region remain promising, theshort-term scenario continues to be uncertain.

a. FDI down again, but severalcountries receiving significantlyhigher flows

For the region as a whole, FDI flowsdeclined for the second year in a row, down from$107 billion in 2001 to $95 billion in 2002. Thedecline affected all subregions, except for CentralAsia and South Asia. Still 26 out of the region’s57 economies saw higher FDI inflows.

Despite the downturn, however, the share ofAsia and the Pacific—the world’s largestdeveloping region in terms of population and

GDP—in global FDI flows rose to 14% in 2001–2002, compared with 10% during the FDI boomyears of 1999–2000. The region’s share of FDIflows to developing countries in 2002 also rose,to 59%, from 51% in 2001. The ratio of FDI flowsin gross fixed capital formation declined from 10%in 2001 to 7% in 2002 (figure II.7), suggesting amore severe impact of the global economicslowdown on FDI than on domestic investment.

FDI flows continue to be concentrated inChina, Hong Kong (China) and Singapore. The top10 host economies took 93% of the region’s totalinflows in 2002 (figure II.8). The electronicsindustry was most affected by the downturn dueto continued rationalization of production activitiesin the region and adjustments to weak globaldemand. Repayments of intra-company loans byforeign affiliates remained high in some countries.However, reinvested earnings rose,15 an importantsource of financing FDI during the downturn.

Some highlights for the subregions:

• FDI flows to North-East Asia16 dropped from$78 billion in 2001 to $70 billion in 2002. FDIflows to Hong Kong (China) fell by 42%, toTaiwan Province of China by 65% and to theRepublic of Korea by 44%, partly because TNCproduction activities were relocated to lowercost locations, primarily China. The decline inFDI flows was also partly due to slow economicgrowth of these economies. The notable

opportunities to more than 160 IPAs, includingthrough exposure to successful IPAs worldwide.This helps them develop their strategy andpromotion plans, establish information systems andproduce marketing materials. Other activitiesinclude project portfolio preparation and retentionand expansion programmes.

Promoting information dissemination andpublic-private sector dialogue

Lack of information about investmentopportunities in Africa is one factor that holds backthe flow of FDI to the continent. Providinginvestment information is therefore crucial. Actionscould include the preparation and disseminationof investment guides and the creation of web-basedpromotion materials. Also important is promotinga public-private sector dialogue, nationally andinternationally, to draw directly on the expertiseof corporate decision makers in interaction withsenior government officials. For this purposeUNCTAD and the ICC jointly established an

Box. II.2. The need for an integrated approach to attract FDI to Africa andbenefit from it: an African Investment Initiative (concluded)

Source : UNCTAD.

Investment Advisory Council, while Ethiopia,Ghana, Senegal and the United Republic ofTanzania have established such councils at thenational level.

Facilitating business linkagesLinkages between foreign affil iates and

domestic firms are the main avenues to disseminatethe benefits of FDI to the domestic economy andhelp create a vibrant enterprise sector. Many TNCshave built up complex supply chains, involvingcompetitive local SMEs. This has opened up newopportunities for many SMEs. But the vastmajority of them, particularly in African LDCs,remain delinked from TNCs, missing out onpotential gains of technological spillovers andaccess to markets, information and finance. Adviceon the most appropriate policy framework forlinkages, identifying opportunities available tolocal SMEs and foreign affil iates to increasebusiness linkages and deepen them can increasethe contribution of FDI to development.

CHAPTER II 41

exception was China, whose sustained economicgrowth and other advantages attracted increasedinflows of FDI in 2002. FDI flows to Mongoliaalso increased.

• FDI flows to South-East Asia dropped from $15billion in 2001 to $14 billion in 2002, thoughBrunei Darussalam, Lao People’s DemocraticRepublic, Malaysia and the Philippines receivedlarger flows than in 2001. Significantrepayments of intra-company loans by foreignaffiliates were a feature of the decline, as wasthe increased competition from China.

• FDI flows to South Asia increased from $4.0billion in 2001 to $4.6 billion in 2002,17 dueto higher flows to India, Pakistan and Sri Lanka.

FDI flows to Bangladesh and other countriesin the subregion declined. However, in the caseof Bangladesh, FDI flows in 2002 would havebeen higher if investment in kind were included(box II.3).

• FDI flows to West Asia declined in 2002 to $2.3billion, from $5.2 billion in 2001. Despite therecent efforts of some countries in this subregionto relax FDI restrictions, flows continue to below, with geopolitical tensions being a majorfactor. Some countries have large oil reserveswith low extraction costs, which help attract FDIto oil and gas activities, despite the difficultpolitical and business environment. A numberof countries (e.g. Bahrain, Kuwait) received

Figure II.7. Asia and the Pacific: the share of FDI inflows ingross fixed capital formation, 1990–2002

Source : UNCTAD, FDI/TNC database (http://www.unctad.org/fdistatistics).

Figure II.8. Asia and the Pacific: FDI flows, top 10 economies, 2001 and 2002 a

(Billions of dollars)

Source : UNCTAD, FDI/TNC database (http://www.unctad.org/fdistatistics).a Ranked on the basis of the magnitude of 2002 FDI flows.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives42

higher flows. Turkey, however, remained themain recipient.

• FDI flows to Central Asia rose in 2002 dueto significant increases in FDI flows toAzerbaijan, from $227 million in 2001 to $1billion. Kazakhstan received 9% less FDI in2002 but remained the main recipient, withmost going to oil and gas. FDI flows toArmenia and Georgia increased by more than25%.

• The downturn also affected the Pacific islandseconomies, with FDI down from $159 millionin 2001 to $140 million in 2002. They aredisadvantaged by their size and distance frommajor markets. Fiji and Papua New Guinearemained the principal recipients.

Notwithstanding the general downturn, anumber of countries improved their FDIperformance, as these highlights suggest. Inparticular, Malaysia, Azerbaijan, Sri Lanka,Bahrain, Pakistan and a few others receivedsignificantly higher FDI flows in 2002 than in2001 (figure II.9). FDI flows to China rose by13% in 2002, to $53 bill ion, a new recordreinforcing China’s position as the largestrecipient of FDI inflows in the developing world.Indeed, China received more than three timesas much as Brazil . China’s large domesticmarket, strong economic growth, increasingexport competitiveness and accession to theWTO have all increased investors’ interest inlocating operations in that country (WIR02).

Given its locational advantages, it is attractive forresource-seeking, efficiency-seeking and market-seeking FDI. That a large proportion of FDI inChina comes from the overseas Chinese network

The Bangladesh Board of Investment (BOI)conducted a census of foreign direct investors inFebruary 2003 to gather comprehensive primarydata on actual FDI inflows based on projectsregistered with BOI and the Bangladesh ExportProcessing Zones Authority.

Results:

• FDI inflows in 2002 were $328 million(compared with $58 million on a balance-of-payments basis reported by the Central Bankof Bangladesh). Half of it was financed byequity, 31% by reinvested earnings and 19%by intra-company loans.

• While FDI flows have traditionally beenconcentrated in the power and energyindustries, 44% of the total FDI flows in 2002went to the manufacturing sector.

• The major sources of investment in 2002 wereAsia (45%), followed by Europe (32%) and

North America (17%). Norway was the singlelargest investor (19%), followed by theUnited States (17%), Singapore (14%) andHong Kong (China) and Malaysia (9% each).Most of the FDI from Norway was intelecoms and from the United States in theservices sector (e.g. power generation, oil andgas, l iquefied petroleum gas bottl ing,medicare service). Investments from Asia,particularly South, East and South-East Asia,were concentrated in manufacturing.

• The major investors include AES and Unocal(United States), BASF (Germany), Cemex(Mexico), Holcim and Nestlé (Switzerland),Lafarge and Total FinaElf (France), Taiheyo(Japan), Telenor (Norway) and TMI(Malaysia).

This is an example of how careful FDI statisticsneed to be interpreted, given the different waysin which they are compiled.

Box II.3. The FDI census in Bangladesh

Source : UNCTAD, based on information provided by Bangladesh Board of Investment.

Figure II.9. Asia and the Pacific: host economiesdefying the downturn in 2002

(Per cent)

Source : UNCTAD, FDI/TNC database (ht tp: / /www.unctad.org/fdistatistics).

Note: The figure presents percentage increase in FDI inflows in2002 over 2001. Figures in parenthesis are absolute amountsof FDI inflows, in millions of dollars, for 2002.

CHAPTER II 43

and other TNCs less affected by the globaleconomic slowdown, contributed to the increasein FDI flows to China.18

FDI flows to India rose to $3.4 bill ion,sustaining it as the largest recipient in South Asia.The country’s market potential, improved economicperformance, growing competitiveness ofinformation technology industries and impetus ofrecent liberalization are factors attracting more FDIinto the country. Although India and China bothreceived increased FDI flows, their performancehas been strikingly different (box II.4).

Oil and mining do better than manufacturingand services. The primary sector—especially oiland mining—weathered the 2001–2002 downturnbetter than manufacturing and services did, despitegeopolitical tensions and volatile oil prices. In themore developed economies—also more service-oriented—the share of FDI in services rose. In 2002the share of the tertiary sector in total FDI inflowsto the Republic of Korea increased by 13percentage points and to Singapore by 0.8

percentage points. The share of tertiary sector FDIto Hong Kong (China) is expected to remain highin 2002.19 In other countries FDI in manufacturingfell but the sector gained in terms of share. In Chinamanufacturing’s share, already high, rose from 66%in 2001 to 70% in 2002. In the ASEAN subregion,it rose from 23% in 1999 to 45% in 2000 and 49%in 2001. FDI in the other subregions was dominatedby investment in resource-based or oil and gasindustries.

Intra-company loans down sharply. In termsof financial components of FDI, intra-companyloans dropped sharply. For instance, intra-companyloans in Hong Kong (China), the Republic of Koreaand Thailand declined significantly in 2002 (annextable A.II.1). And foreign affiliates in Indonesia,Malaysia, Philippines and Singapore have beenmaking significant repayments.20

Large repayments of intra-company loanshave been noticeable since 1999, particularly incountries affected by the 1997–1998 financialcrisis. One reason might be exchange rate

China and India are the giants of thedeveloping world. Both enjoy healthy rates ofeconomic growth. But there are significantdifferences in their FDI performance. FDI flowsto China grew from $3.5 billion in 1990 to $52.7billion in 2002; if round-tripping is taken intoaccount, China’s FDI inflows could fall to, say,$40 billion.a Those to India rose from $0.4 billionto $5.5 billion during the same time period (boxtable II.4.1).b

Even with these adjustments, China attractedseven times more FDI than India in 2002, 3.2% ofits GDP compared with 1.1% for India.c InUNCTAD’s FDI Performance Index, China ranked54th and India 122nd in 1999–2001.

FDI has contributed to the rapid growth ofChina’s merchandise exports, at an annual rate of15% between 1989 and 2001. In 1989 foreignaffil iates accounted for less than 9% of totalChinese exports; by 2002 they provided half. Insome high-tech industries in 2000 the share offoreign affiliates in total exports was as high as91% in electronics circuits and 96% in mobilephones (WIR02, pp. 162-163). About two-thirdsof FDI flows to China in 2000–2001 went tomanufacturing.

In India, by contrast, FDI has been much lessimportant in driving India’s export growth, exceptin information technology. FDI in Indianmanufacturing has been and remains domesticmarket-seeking. FDI accounted for only 3% ofIndia’s exports in the early 1990s (WIR02, pp. 154-

Box II.4. China and India—what explains their different FDI performance?

163). Even today, FDI is estimated to account forless than 10% of India’s manufacturing exports(UNCTAD forthcoming a).

For China the lion’s share of FDI inflows in2000–2001 went to a broad range of manufacturingindustries. For India most went to services,electronics and electrical equipment andengineering and computer industries.

What explains the differences? Basicdeterminants, development strategies and policiesand overseas networks.

Basic determinantsOn the basic economic determinants of

inward FDI, China does better than India. China’stotal and per capita GDP are higher (box tableII.4.1), making it more attractive for market-seeking FDI. Its higher literacy and education ratessuggest that its labour is more skilled, making itmore attractive to efficiency-seeking investors(World Bank 2003c, p. 234; UNDP 2002). Chinaalso has large natural resource endowments. Inaddition, China’s physical infrastructure is morecompetitive, particularly in the coastal areas (CUTS2003, Marubeni Corporation Economic ResearchInstitute 2002). But, India may have an advantagein technical manpower, particularly in informationtechnology. It also has better English languageskills.

Some of the differences in competitiveadvantages of the two countries are illustrated bythe composition of their inward FDI flows. In

/...

World Investment Report 2003 FDI Policies for Development: National and International Perspectives44

/...

information and communication technology, Chinahas become a key centre for hardware design andmanufacturing by such companies as Acer,Ericsson, General Electric, Hitachi Semiconductors,Hyundai Electronics, Intel , LG Electronics,Microsoft , Mitac International Corporation,Motorola, NEC, Nokia, Philips, SamsungElectronics, Sony, Taiwan SemiconductorManufacturing, Toshiba and other major electronicsTNCs. India specializes in IT services, call centers,business back-office operations and R&D.

Rapid growth in China has increased the localdemand for consumer durables and nondurables,such as home appliances, electronics equipment,automobiles, housing and leisure. This rapid growthin local demand, as well as competitive businessenvironment and infrastructure, have attracted manymarket-seeking investors. It has also encouragedthe growth of many local indigenous firms thatsupport manufacturing.

Other determinants related to FDI attitudes,policies and procedures also explain why Chinadoes better in attracting FDI.

• China has “more business-oriented” and moreFDI-friendly policies than India (AT Kearney2001).

• China’s FDI procedures are easier, anddecisions can be taken rapidly.

Box II.4. China and India—what explains their different FDI performance? (continued)

• China has more flexible labour laws, a betterlabour climate and better entry and exitprocedures for business (CUTS 2003).

A recent business environment survey indicatedthat China is more attractive than India in themacroeconomic environment, market opportunitiesand policy towards FDI. India scored better on thepolitical environment, taxes and financing (EIU2003a). A confidence tracking survey in 2002indicated that China was the top FDI destination,displacing the United States for the first time inthe investment plans of the TNCs surveyed; Indiacame 15th (AT Kearney 2002). A Federation ofIndian Chambers of Commerce and Industry(FICCI) survey suggests that China has a betterFDI policy framework, market growth, consumerpurchasing power, rate of return, labour laws andtax regime than India (FICCI 2003).

Development strategies and policiesThe different FDI performance of the two

countries is also related to the timing, progress andcontent of FDI liberalization in the two countriesand the development strategies pursued by them.

• China opened its doors to FDI in 1979 andhas been progressively l iberalizing itsinvestment regime. India allowed FDI longbefore that but did not take comprehensivesteps towards l iberalization until 1991(Nagaraj 2003).

• The two countries focused on different typesof FDI and pursued different strategies forindustrial development. India long followedan import-substitution policy and relied ondomestic resource mobilization anddomestic firms (Bhalla 2002; Sarma 2002),encouraging FDI only in higher-technologyactivities. Despite the progressiveliberalization, imposition of joint venturerequirements and restrictions on FDI incertain sectors, China has, since its opening,favoured FDI, especially export-orientedFDI, rather than domestic firms (Buckleyforthcoming; IMF 2002). Such policies notonly attracted FDI but led to round-trippingthrough funds channelled by domesticChinese firms into Hong Kong (China),reinvested in China to avoid regulatoryrestrictions or obtain privileges given toforeign investors. In India, round-tripping,mainly through Mauritius, is much smallerand for tax reasons.

It has been suggested that domesticmarket imperfections associated with problemsof outsourcing, regulations and local inputshave led to “excessive internalization” ofproduction activities by TNCs in China. So partof the FDI, occurring because of theimperfections of the domestic market, isundertaken as a second best response bymanufacturing TNCs to the Chinese environment(Buckley forthcoming).

Box table II.4.1. China and India: selected FDIindicators, 1990, 2000-2002

Item Country 1990 2000 2001 2002

FDI inflows China 3 487 40 772 46 846 52 700(Million dollars) India 379 4 029 6 131 5 518

Inward FDI stock China 24 762 348 346 395 192 447 892(Million dollars) India 1 961 29 876 36 007 41 525

Growth of FDI inflows China 2.8 1.1 14.9 12.5(annual, %) India -6.1 16.1 52.2 -10.0

FDI stock as percentage China 7.0 32.3 33.2 36.2of GDP (%) India 0.6 6.5 7.4 8.3

FDI flows as percentage of China 3.5 10.3 10.5 ..gross fixed capital formation(%) India 0.5 4.0 5.8 ..

FDI flows per capita China 3.0 32.0 36.5 40.7(Dollars) India 0.4 4.0 6.0 5.3

Share of foreign affiliates China 12.6 47.9 50.0 ..in total exports (%) India 4.5 .. .. ..

GDP (billion dollars)a China 388 1 080 1 159.1 1 237.2India 311 463 484 502

Real GDP growth China 3.8 8.0 7.3 8.0(%) India 6.0 5.4 4.2 4.9

Source: UNCTAD, FDI/TNC database; IMF, World Economic OutlookDatabase, April 2003.

a At current prices.Note: see note b of this box for explanation for the data on FDI flows

and stocks of India.FDI flows and stocks data for India in 2000 and 2001 are basedon fiscal year 2000/01 and 2001/02.

CHAPTER II 45

Box II.4. China and India—what explains their different FDI performance? (concluded)

For India the situation is somewhat different.A tradition of entrepreneurship has spawned a broadbased domestic enterprise sector (Huang and Khanna2003). This combines with the necessary legal andinstitutional infrastructure and a restrictive FDIpolicies followed until the 1990s. As a result, TNCparticipation in production has often takenexternalized forms (such as licensing and othercontractual arrangements). Even after a significantliberalization of FDI policies, internalization is notnecessarily dominant. Consider informationtechnology, industries where outsourcing to privateIndian firms is efficient and there are qualitydomestic subcontractors.

China’s accession to the WTO in 2001 has ledto the introduction of more favourable FDImeasures. With further liberalization in the servicessector, China’s investment environment may befurther enhanced. For instance, China will allow100% foreign equity ownership in such industriesas leasing, storage and warehousing and wholesaleand retail trade by 2004, advertising and multimodaltransport services by 2005, insurance brokerage by2006 and transportation of goods (railroad) by 2007.In retail trade, China has already opened andattracted FDI from nearly all the big-namedepartment stores and supermarkets such as Auchan,Carrefour, Diary Farm, Ito Yokado, Jusco, Makro,Metro, Pricesmart, 7-Eleven and Wal-Mart(PricewaterhouseCoopers 2002).

In India the Government is planning to opensome more industries for FDI and further relax theforeign equity ownership ceiling (EIU 2003a). Toidentify approaches to increase FDI flows, thePlanning Commission established a steeringcommittee on FDI in August 2001. Following theChinese model, India recently took steps to establishspecial economic zones. China’s special economiczones have been more successful than Indian exportprocessing zones in promoting trade and attractingFDI (Bhalla 2002).

Overseas networksIn addition to economic and policy-related

factors, an important explanation for China’s largerFDI flows lies in its position as the destination ofchoice for FDI by Chinese businesses andindividuals overseas, especially in Asia. The roleof the Chinese business networks abroad and theirsignificant investment in mainland China contrastswith the much smaller Indian overseas networks and

investment in India (Bhalla 2002). Why? OverseasChinese are more in number, tend to be moreentrepreneurial, enjoy family connections (guanxi)in China and have the interest and financialcapability to invest in China—and when they do,they receive red-carpet treatment. Overseas Indiansare fewer, more of a professional group and, unlikethe Chinese, often lack the family networkconnections and financial resources to invest inIndia.

***Both China and India are good candidates for

the relocation of labour-intensive activities byTNCs, a major factor in the growth of Chineseexports. In India, however, this has been primarilyin services, notably information and communicationtechnology. Indeed, almost all major United Statesand European information technology firms are inIndia, mostly in Bangalore. Companies such asAmerican Express, British Airways, Conseco, DellComputer and GE Capital have their back-officeoperations in India. Other companies—such asAmazon.com and Citigroup—outsource services tolocal or foreign companies already established inthe country (AT Kearney 2003). Foreign companiesdominate India’s call centre industry, with a 60%share of the annual $1.5 billion turnover.

Investor sentiment on China as a location forinvestment is improving (MIGA 2002; AT Kearney2002; American Chamber of Commerce in China2002). Nearly 80% of all Fortune 500 companiesare in China (WIR01, p. 26), while 37% of theFortune 500 outsource to India (NASSCOM 2001).Despite the improvement in India’s policyenvironment, TNC investment interest remainslukewarm, with some exceptions, such as ininformation and communication technology (ATKearney 2001).

The prospects for FDI flows to China andIndia are promising, assuming that both countrieswant to accord FDI a role in their developmentprocess — a sovereign decision. The large marketsize and potential, the skilled labour force and thelow wage cost will remain key attractions. Chinawill continue to be a magnet of FDI flows andIndia’s biggest competitor. But, FDI flows to Indiaare set to rise — helped by a vibrant domesticenterprise sector and if policy reforms continue andthe Government is committed to the objective ofattracting FDI flows to the country.

Source : UNCTAD.a FDI flows to China are generally considered to be over-reported due to the inclusion of round tripping (investment from locations

abroad by investors from China) in China’s FDI data, while those to India were under-reported due to the non-inclusion of reinvestedearnings and intra-company loans in that country’s data. Zhan (1995, pp. 91-92) estimated that round-tripping to China was lessthan 25%, the prevailing estimate at the time (Harrold and Lall 1993). However, with China’s accession to the WTO in December2001 and the removal of preferential treatment to foreign investors over domestic investors, round-tripping of Chinese FDI islikely to fall (World Bank 2003a, p. 102). The Bank of China Group indicated in an article that “… the market’s general assessmentis that the ratio (round-tripping to China) has declined from 30% to around 10–20% in recent years.” (“Foreign direct investmentin China”, Hong Kong Trade and Development Cooperation, 1 January 2003 (http://www.tdctrade.com/econforum/boc/boc030101.htm).

b Based on the revised FDI data methodology, which includes the three components of FDI, India reported that FDI flows to thecountry increased from $4.1 billion in fiscal year 2000/01 to $6.1 billion in fiscal year 2001/02. This means that actual inflowswere about 60% higher than those reported earlier. This ratio is applied to arrive at the 1990 and the 2002 data for India. (Thedata in the annex to this report are still old ones, as the new ones arrived after closure of the statistical work).

c The figure for China after taking into account round-tripping (25% of FDI flows). The figure for India is based on the methodologymentioned in note b.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives46

instability, inducing foreign affiliates to make earlyloan repayments to hedge against exchange raterisks. Other reasons relate to the improved financialposition of Asian affiliates in the post-financialcrisis situation and the fact that a great part of intra-company loans provided by parent companies tothe Asian affiliates to overcome the 1997–1998financial crisis are probably due for repayment.In addition, the declining profitability and tightfinancial conditions faced by parent companies andthe need to strengthen their balance sheets couldhave led to early repayment.21

Reinvested earnings rose and remained asignificant source of finance for FDI activities inseveral economies, including China, Hong Kong(China), Malaysia, the Philippines and Singapore.22

Good returns on FDI—in most cases higher thanthe developing country average (annex tableA.II.2)—and a positive economic outlook helpedmitigating the downturn.23 Equity capital, the thirdcomponent of FDI, also declined in most countries,particularly for the newly industrial economies andsome ASEAN countries.

Outward FDI flows from Asia and the Pacificfell in 2002, by marginally more than inflows(annex table B.2). The Asian newly industrialeconomies, China and a few other ASEANcountries are notable sources,24 concentrated onmanufacturing and natural resources. Of the top50 TNCs from developing countries in 2001, rankedby foreign assets, 33 of them were from Asia(annex table A.I.2).

Intra-regional investment in developing EastAsia fell , but its share of total inflows to thesubregion increased from 37% in 1999 to 40% in2001, supported by relocations of investment,growing regional production networks andcontinuing regional integration efforts (table II.1).Intra-ASEAN FDI increased from 7% in 1999 to17% in 2002, reflecting the continuingimprovement in the private sector’s recovery from1997–1998 financial crisis, aided by regionalintegration (box II.5).

Table II.1. Intra-regional FDI flows in developing Asia, 1999-2001(Millions of dollars)

1999 Source economy

Sub-total of Total inHong Kong, Republic of Taiwan Province reporting host reporting host

Host economy ASEAN China China Korea of China economy (A) economy (B)

ASEAN 1 685 78 886 510 347 3 506 25 029China 3 275a .. 16 363 1 275 2 599 23 512 40 318Hong Kong, China 759 4 981 .. 231 171 6 142 24 581Total above 5 719 5 059 17 249 2 016 3 117 33 160 89 928Percentage of A/B 37%

2000 Source economy

Sub-total of Total inHong Kong, Republic of Taiwan Province reporting reporting

Host economy ASEAN China China Korea of China economy (A) economy (B)

ASEAN 1 259 58 1 045 153 580 3 095 18 625China 2 838a .. 15 500 1 490 2 296 22 124 40 715Hong Kong, China 7 703 14 211 .. 69 535 22 518 61 940

Total above 11 800 14 269 16 545 1 712 3 411 47 737 121 280Percentage of A/B 39%

2001 Source economy

Sub-total of Total inHong Kong, Republic of Taiwan Province reporting reporting

Host economy ASEAN China China Korea of China economy (A) economy (B)

ASEAN 2 334 151 - 365 - 304 113 1 929 15 211China 2 970a .. 16 717 2 152 2 980 24 819 46 878Hong Kong, China 1 930 4 934 .. 100 518 7 482 23 776

Total above 7 234 5 085 16 352 1 948 3 611 34 230 85 865Percentage of A/B 40%

Source : UNCTAD, FDI/TNC database.a Covers Indonesia, Malaysia, Philippines, Singapore and Thailand.

CHAPTER II 47

Several studies at the firm level suggest thatthe ASEAN Free Trade Agreement (AFTA) hasinfluenced TNCs’ decisions to invest in the region,especially in the automotive and electronicsindustries (Baldwin 1997; Dobson and Chia 1997;Japan Research Institute Limited 2001). But itappears that some rationalization in the automotiveindustry has occurred as well, with implications forthe distribution of flows (Farrell and Findlay 2001).

A cross-sectional regression analysis of UnitedStates outward FDI suggested that the major ASEANhost countries (Malaysia, the Philippines, Singaporeand Thailand) received more FDI than the analysispredicted for 1994 (Lipsey 1999). This could implypositive effects of AFTA on FDI flows from theUnited States.

In another econometric study of United StatesFDI flows to the ASEAN-5 and 26 other countries,market size (GDP) was found to be positivelyrelated to FDI flows. And some evidence of anegative relationship between FDI and tariff rateswas found over the entire 31-country sample(Parsons and Heinrich 2003). While the “AFTAeffect” was ambiguous in this study, a moreintegrated market and lower duties on vital importedintermediate goods may have encouraged moremarket-seeking and efficiency-seeking FDI to theregion.

FDI flows to the ASEAN subregion haveincreased steadily, particularly after the signing ofAFTA and until the 1997–1998 Asian financial crisis(box figure II.5.1). In the South Asian Associationfor Regional Cooperation (SAARC) PreferentialTrading Arrangement subregion, FDI has beenincreasing since the signing of the agreement in1993.

Although these regional tradingarrangements may be stimulating FDI,ASEAN has consistently attracted onlyabout 5% of world FDI over the past20 years. With so many tradingarrangements being signed and at thesame time new markets opening up toFDI (such as CEE and China), it isdifficult to sift out the effects on FDIflows to the region from those forindividual members.

Most of the recent regionalarrangements in Asia tend towards freetrade areas (AFTA, Singapore–UnitedStates, ASEAN–China, Republic ofKorea–Chile) and regional investmentcooperation (ASEAN InvestmentArea). These arrangements provideassurances of market access, involvea deeper tariff-cutting programme ona more extensive range of products,

address non-tariff barriers, facilitate easier sourcingof production inputs and resources and coverinvestment matters. The attractiveness of these freetrade agreements for FDI is enhanced by theseelements, which could affect operations seekingmarkets, resources and efficiency (Heinrich andKonan 2001).

A recent JETRO survey of 1,519 Japanesemanufacturers in Asia indicated that 50% of therespondents expect a Japan–ASEAN free trade areaand 25% expect the ASEAN–China free trade areato benefit them. A large majority of the firmsindicated that they would benefit from reductionof customs duties and simplification andharmonization of customs clearance procedures.And about 20% expect to benefit from thesimplification of mutual recognition (JETRO2003b).

This survey of Japanese manufacturers alsofound that AFTA and the proposed ASEAN-Japanfree trade area are expected to increase theinvestment and networks of Japanese operationsin ASEAN (JETRO 2003b). Another survey by theJapan Bank for International Cooperation showsthat more than half of the Japanese manufacturingTNCs surveyed held the view that AFTA stimulatesintraregional trade through corporate regionalproduction networks (JBIC 2003).

Efficiency-seeking FDI is likely to rise asTNCs position themselves to take advantage of aregional division of labour and productionupgrading through network operations. The mainquestion for policymakers is not whether regionalagreements and liberalization efforts attract moreFDI. It is what kinds of investment a regionalintegration arrangement has the greatest capacityto generate for each member and for the region.

Box II.5. Effects of regional agreements on FDI in Asia

Source : UNCTAD.

Box figure II.5.1. Asia and the Pacific: FDI flows to ASEANand SAPTA,a 1990–2002

(Billions of dollars)

Source : UNCTAD, FDI/TNC database.a SAARC Preferential Trading Arrangement (SAPTA).

World Investment Report 2003 FDI Policies for Development: National and International Perspectives48

b. Policy developments—moreunilateral measures to improvethe investment environment

Many countries introduced unilateral policymeasures to further liberalize their FDI regimes.They relaxed limitations on foreign equityownership, l iberalized sectoral restrictions,streamlined approval procedures, grantedincentives, relaxed foreign exchange controls andoffered investment guarantees. For instance, Chinarelaxed foreign shareholding limitations in thedomestic airlines industry from 35% to 49%; theShenzhen Municipal Government in Chinaestablished a centre to handle and coordinateforeign investors’ complaints; India announced in2002 a plan to allow foreign companies to own upto 74% equity in print media business; the Republicof Korea offered new tax incentive to attract FDI;Lao People’s Democratic Republic streamlined itsinvestment application procedures; Malaysiaannounced incentives for operational headquartersand R&D centers; Thailand relaxed the conditionsgoverning the location of promoted projects in thecountry; and Viet Nam further relaxed conditions

regarding foreign equity ownership in local privatecompanies. ASEAN members are taking steps topromote FDI jointly to the region by holdinginvestment fairs together and organising an ASEANBusiness and Investment Summit in October 2003.Under the ASEAN Investment Area Agreement, theASEAN countries have phased in the TemporaryExclusion List of manufacturing sectors on 1January 2003, opening more industries and grantingnational treatment to ASEAN investors. Indonesiadeclared 2003 as the “Indonesia Investment Year”,with a number of favourable policy changes to beintroduced (box II.6). And investment promotionis receiving more attention: 64% of the Asian andPacific IPAs surveyed indicated that they haveintensified their promotion efforts in 2002 inresponse to the downturn (UNCTAD 2003a). Halfthe countries made more use of investmenttargeting, 25% reported additional incentives and36% further liberalization.

Bilateral treaties have further strengthenedthe region’s policy framework. By the end of 2002,countries in the Asia and Pacific region were partyto 1,003 BITs (an average of 18 BITs per countryfor 57 economies) and 842 DTTs (an average of15 DTTs per country)—more than any otherdeveloping region (figure II.10). Bilateral free tradeagreements have also been increasing, withSingapore as the main hub and the EU and theUnited States as the main partner (figure II.11).They contain (at times substantial) investmentprovisions, underlining that investment has becomea key consideration in economic cooperation.

For example, the Republic of Korea–Chileand the Singapore–United States free tradeagreements contain a range of investmentprovisions. And the ASEAN–China arrangementcontains provisions on investment liberalization,transparency and facilitation. In many negotiationsASEAN is taking the lead. By 2005 the Asia andPacific region is likely to have a dense web ofbilateral and regional free trade agreements—mostof them likely to include investment provisions,a trend that differs conspicuously from earlierregional and bilateral arrangements.

Thus, countries in the region are takingsteps—unilaterally, bilaterally and collectively—to enhance their investment policy frameworks andsupport their regional integration process. Theyare forging closer economic cooperation in anuncertain multilateral environment. They arepromoting FDI flows to countries in the regiongenerally, especially in the light of China’s success.And they are strengthening trade and productionlinkages to enhance access to complementaryresources and strengthen competitiveness.

Box II.6. Indonesia’s Investment Year 2003

To promote FDI and increase investorconfidence, the President of the Republic ofIndonesia declared the “Indonesia Investment Year2003”. The new National Investment Team,chaired by the President, includes key cabinetministers. An Investment Working Group, chairedby the Chairperson of the Investment CoordinatingBoard, provides technical support to the NationalInvestment Team.

A “one roof service”, supervised by theInvestment Coordinating Board, will expediteinvestment approvals for all investors, existingand new, foreign and domestic. It will simplifyprocedures and improve the coordination ofvarious agencies, including regional governments.In parallel, the Board will improve its pre- andpost-investment services at the national andregional levels.

The Board has a detailed action plan tosupport Investment Year activities. Its objectivesare to support institutional and legal changes forinvestment, improve investor relations andcommunications and promote foreign investment.Noting the importance of investment advocacyand the involvement of the general public insupporting investment efforts, the Governmentwill improve communication and collaborationwith investors, parliament and regionalgovernments.

Source : UNCTAD.

CHAPTER II 49

Some countries that so far have largelyremained outside the proliferating treaty networkare beginning to join in. For example, Japanrecently concluded a treaty with Singapore (boxIII.2) and is negotiating other bilateral agreements.And India is negotiating a free trade agreement withASEAN. It is important to emphasize that bilateraland regional arrangements (with one exception, theASEAN Investment Area) were not established forthe primary purpose of attracting FDI. Theirobjective is broader: to increase trade flows,enhance regional economic integration, facilitatea division of labour and increase competitiveness—also improving the locational attractiveness of themembers. Perhaps because of their broader focus,regional arrangements can be more effectiveinstruments for attracting FDI than BITs and DTTs.

How do these arrangements influence FDIflows to the region? How do they strengthen thelocational advantages of the region and itsmembers? And how will TNCs adjust theirinvestment strategies? Because most of theagreements are recent, it is difficult to assess theireffects on FDI flows (box II.5, annex table A.II.3).One thing is clear, though: to the extent that theyliberalize trade (and regardless of whether theyaddress FDI or not), they encourage FDI (box II.7)and they facilitate the emergence of a regionaldivision of labour and production in the frameworkof corporate regional production networks (boxII.8).

c. Long-term prospects promisingbut short-term outlookuncertain

Prospects for a rise in FDI inflows in 2003are slim, and the short term continues to beuncertain. Developments in West Asia and the

economic impact of the severe acute respiratorysyndrome (SARS) add to this uncertainty.25 Despitethese factors and a possible increase in competition,the Asia and Pacific region will continue to be thelargest FDI recipient among developing regionsin 2003. This view is supported by studies by theWorld Bank (2003a, p.102) and the Institute ofInternational Finance (2003).

Figure II.10. Asia and the Pacific: BITs and DTTs concluded, 1992-2002(Number)

Source: UNCTAD, databases on BITs and DTTs.

Box II.7. The Indo–Lanka free tradeagreement and FDI

Signed in December 1998, the Indo–LankaFree Trade Agreement gives duty-free marketaccess to India and Sri Lanka on a preferentialbasis. Covering 4,000 products, it foresaw agradual reduction of import tariffs over threeyears for India and eight years for Sri Lanka.

To qualify for duty concessions in eithercountry, the rules of origin criteria spelled outvalue added at a minimum of 35% for eligibleimports. For raw materials sourced from eithercountry, the value-added component would be25%.

The effect? Sri Lankan exports to Indiaincreased from $71 million in 2001 to $168million in 2002. And India’s exports to Sri Lankaincreased from $604 million in 2001 to $831million in 2002.

Although the agreement does not addressinvestment, it has stimulated new FDI for rubber-based products, ceramics, electrical andelectronic i tems, wood-based products,agricultural commodities and consumer durables.Because of the agreement, 37 projects are nowin operation, with a total investment of $145million.

Source : UNCTAD.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives50

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CHAPTER II 51

In the medium term, as the growth of theworld economy resumes and the developing Asianregion grows at expected rates of 6.3% in 2003 and6.5% in 2004,26 the prospects for FDI flows to theAsia and Pacific region remain good, particularlyfor automobiles and electrical and electronicsproducts. In addition, weak global demand, shakencorporate confidence and adjustments insemiconductors and electronics are likely toimprove in the near future.

The 28 IPAs responding to UNCTAD’s IPASurvey indicated that one in five Asian countrieshad suffered from a scaling-down of investmentprojects or a divestment by TNCs in 2002(UNCTAD 2003a). Just over half of the respondentsclaimed that planned investments had beenpostponed. Looking ahead, about two-thirds of therespondents expected improved FDI prospects for2003–2004, and almost all even better prospectsfor 2004–2005 (figure II.12). The United States,

ASEAN, through AFTA, provides a regionalmarket with more than 500 million people, acombined GDP of $560 billion in 2001 and aninternal tariff rate of no more than 5%. ASEANis also integrating through the ASEAN InvestmentArea, the ASEAN Framework Agreement onServices and infrastructure linkages. Regionalproduction networks are not new in the region(Dobson and Chia 1997), but the recent integrationis leading more TNCs to explore the creation ofmore such networks, particularly in the automobileand automotive components industries as well asthe electronics industry (ASEAN Secretariat 2001):

• Japanese and other automakers areconsolidating their production in the regionand adopting regional production networkstrategies and plant specialization to servicethe AFTA market (Japan Research InstituteLimited 2001).

• Honda Motor Company plans to streamlineits production in ASEAN, with some modelsto be centralized in Thailand.

• Toyota has a network of operations linkingdifferent functions—such as regional HQ,assembling facilities, financing and trainingcentres and parts suppliers—in differentASEAN countries.

• Nissan is sett ing up regional networkstructures in ASEAN to capitalize on thegreater production efficiency made possibleby AFTA. It plans to build a “Southeast Asianparts sourcing company” in Thailand, tosource component parts in ASEAN and decidewhich models should be built in which plantsin the region.

• Ford also has a regional strategy to servicethe ASEAN market and allow the variousplants in the region to specialize. Rather thanhave two plants producing the same productin the two countries, Ford has its plant forpickup trucks in Thailand and that forpassenger cars in the Philippines.

• Isuzu Motors Co. (Thailand), Isuzu EngineManufacturing (Thailand) and Isuzu Mesin(Indonesia); Volvo (Malaysia) and Volvo

(Thailand) are producing and exchangingautomotive completely-knocked-down packsthrough the affiliates in these countries.

• Samsung Corning (Malaysia) provides tubeglass as a major input to Samsung Display’sMalaysian factory for colour picture tubes,selling intermediate products to SamsungElectronics (Thailand) and affil iates inIndonesia and Viet Nam for colour televisionsand in Malaysia for computer monitors.

• Samsung Electro-Mechanics (Thailand)supplies tuners, deflection yokes, and fly-back transformers to affiliates in Malaysia,Thailand and Viet Nam. It also supplies tunersto Indonesian operations for VCRs, oilcapacitors to the Malaysian operation formicrowave ovens and deflection yokes toSamsung Display Devices (Malaysia) forcolour picture tubes.

The ASEAN Industrial Cooperation schemealso encourages TNCs to establish regionalproduction networks. For instance:

• Denso affiliates in Indonesia, Malaysia andThailand exchange automotive components.

• Matsushita affiliates in Indonesia, Malaysia,Philippines and Thailand are part of aproduction network to exchange electronicsparts and components.

• Nestlé’s affiliates in Indonesia, Malaysia,Philippines and Thailand are part of aregional production network involving intra-firm trade in food processing.

• Sony Electronics (Singapore) and Sony (VietNam) produce and exchange electronics partsand components among themselves. SonyDisplay Devices (Singapore) and Sony SiamIndustries (Thailand) are involved in a similarproduction arrangement, exchangingelectronics parts and components.

Such production networks strengthen regionalintegration through production and supply linkagesand the intra-firm sourcing of parts andcomponents.

Box II.8. Regional integration and TNC production networks in ASEAN

Source: UNCTAD, based on information from Nihon Keizai Shimbun, 31 December 2002; “Nissan sets up ASEAN sourcing HQin Thailand”, AutoAsia, 27 February 2003; http://www.auto-asia.com/viewcontent.asp?pk=8131; Jakarta Post, 20 June2002, p. 17; Jun 2001, p. 306; and information from the ASEAN Secretariat.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives52

Japan and the United Kingdom are predicted to bethe top investors in most of the countries (in thatorder). Interestingly, six IPAs cited China as beinglikely to be among the top three investors in theircountries in 2003–2005, twice the number in 2001–2002. More countries (eight) expect to receive moreR&D investment in 2003–2005 as compared to2001–2002 (three). About one-third of therespondents expected more TNCs to locate“regional functions” to Asia, contributing toregional production networks—consistent withgreater network investment in East and South-EastAsia. TNCs are also predicted to shift fromgreenfield investments to M&As, unlike in otherregions.

Prospects for different countries and groupsof countries in the region will continue to vary.China will remain the largest recipient of FDI flowsamong the developing countries. Other countriesin the region may adjust to this through increasingregional cooperation, moving up the value chainand improving competitiveness:

• India has the potential to attract significant FDIflows, depending on the course of policy reformsand privatization.

• Other South Asia countries will continue toattract modest FDI flows, with their locationaladvantages enhanced by the South Asian FreeTrade Area, now being negotiated.

• Iraq and other countries in West Asia mayexperience a rapid increase in FDI flows, drivenby FDI in oil and gas, depending on politicaldevelopments, economic reforms andperceptions of security.

• Oil and gas will also dominate the picture inCentral Asia. In addition, the reconstruction inIraq27 and Afghanistan could lead to an increase

in FDI flows in construction and infrastructureand perhaps beyond, depending on theprivatization programme.

• The Pacific island economies will continue toreceive a modest level of FDI flows in the nearfuture. For the lower income countries of theAsia and Pacific region, the phasing out of somepreferential arrangements may further weakentheir competitive position in such industries astextiles.

Intra-regional investment between North-East and South-East Asia is likely to increase asmore TNCs continue to relocate their efficiency-seeking FDI to lower cost locations and expandtheir market-seeking FDI to the rapidly expandingeconomies of the region. The more developedeconomies—China, Hong Kong (China), Malaysia,Republic of Korea, Singapore and Taiwan Provinceof China—will continue to be an important sourceof FDI for others in the region. And regionalproduction networks will grow, partly because ofthe influence of bilateral and regional agreements.Overall, however, competition for FDI within Asiaand with other regions will intensify.28

3. Latin America and the Caribbean

FDI inflows to Latin America and theCaribbean declined in 2002 for the thirdconsecutive year, falling by a third to $56 billion—the lowest since 1996. The decline was widespreadacross the region, mostly concentrated in services.Economic crises and political uncertainties madea difference, as did devaluations that affectedmarket-seeking FDI. Governments are increasinglypursuing investment promotion policies that gobeyond simply opening to foreign investment—bytargeting investments in line with their developmentstrategies. Bilateral and regional agreements areconcluded in the hope that they will help attractinvestment to the region.

a. The downturn—concentrated inArgentina, Brazil and Chile

FDI inflows have been on a downward trendsince 2000. The decline was concentrated inservices (figure II.13), especially in the SouthAmerican countries where TNCs had beenattracted, before that, by the deregulation oftelecom, utilities and banking, macroeconomicstability and prospects of a growing market in thesecond half of the 1990s. FDI flows intomanufacturing were similar to those in 2001, aswere flows into natural resources. The exception:Venezuela, where political instability affected flowsto the oil industry. Due to a larger decline in FDIinflows than in domestic investment, FDI as a

Figure II.12. FDI prospectsa in Asia, 2003-2005(Per cent)

Source: UNCTAD.a The survey question was: “How do you perceive the prospects

for FDI inflows to your country in the short- and medium-term,as compared to the last two years (2001-2002)?”.

CHAPTER II 53

percentage of gross fixed capital formation declinedin 2001 and continued to do so in 2002 as well(figure II.14).

The decline in FDI was concentrated inArgentina, Brazil and Chile, where FDI intoservices was more important. The AndeanCommunity, where natural resources are the maindriver, was less affected. The largest host in 2002was Brazil, followed by Mexico (figure II.15).Mexico’s FDI inflows would have been 10% higherif the Banamex acquisition were excluded from2001. FDI inflows into Costa Rica rose by 41%.But they were among the exceptions, with only 11out of the region’s 40 economies seeing an increase(annex table B.1).

GDP in the region fell by 0.1% in 2002 (IMF2003a), and currency devaluations took place,especially in Argentina, Brazil and Venezuela,reducing markets substantially in dollar terms and

hitting the profitability of foreign affiliates inservices. Devaluations also increased the debtburden (denominated in dollars) of these affiliatesrelative to their revenues (earned in localcurrency).29

Privatization initiatives were postponed orcancelled due to a lack of political support or directopposition, as in Ecuador, Paraguay and Peru. Insome of the smaller markets, governments couldnot attract bidders for util i t ies slated forprivatization. Foreign investment in electricity inBrazil and Mexico continued to be deterred by theeffects of the devaluation in the first place andunfavourable regulations in the second. Thisatti tude has coincided with a more cautiousapproach by the TNCs in the industries affected,such as telecom. So, privatization is not at presentan important source of FDI in the region. Animportant exception in 2002 was the privatizationof the third largest insurer in Mexico, Aseguradora

Figure II.14. Latin America and the Caribbean: FDI inflows and their share in gross fixed capitalformation, 1990–2002

Source : UNCTAD, FDI/NC database (http://www.unctad.org/fdistatistics).

Figure II.13: Latin America and the Caribbean: shares of primary, secondary andtertiary sectors in total FDI flows in selected countries,a 1997–2001 and 2002

Source: UNCTAD, FDI/TNC database. a Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, Mexico and Venezuela.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives54

Hidalgo, acquired by MetLife (United States) for$962 million, reflecting the interest of foreigncompanies in Mexico’s financial services.

Even though the slowing United Stateseconomy halted the growth of manufacturingexports from Mexico and the Caribbean basin, FDIinto export-oriented manufacturing was largelyunchanged. Mexico’s manufacturing exports didnot recover from the drop in 2001 and were 2%below their level in 2000.30 The decline wasconcentrated in consumer goods, while exports ofcomponents kept growing, suggesting that theintegration of Mexican manufacturing into theNorth American production system by way of intra-firm trade remained largely unaffected.

More than 200,000 jobs were lost in themaquila industries in Mexico 2000-2001, with norecovery from this loss in 2002, though value addedwas up by 11%,31 suggesting a shift from labour-intensive activities into higher value-added ones.Competition was evident from China and otherlower cost countries as export platforms to theUnited States. According to the Comisión Nacionalde la Industria Maquiladora de Exportación, 60%of the plants that closed in 2002 moved to Asia,the rest relocated to Central America.32 Electronicswas affected most. Canon (Japan) relocated itsproduction from Mexico to Thailand, Philips(Netherlands) to Viet Nam and China. Even so, theproductivity of medium- and high-tech industriesin Mexico and some other Latin American countriesrivals that of their developed country counterparts,

and the prospects for FDI in new industries arepromising, exemplified by the Ford manufacturingplant in Hermosillo.

Brazil’s FDI inflows fell by 36%, butmanufacturing received more, led by food,automobiles and chemicals. This trend began afterthe 1998 devaluation and continued amidst theeconomic uncertainty of the past two years. Brazil’sautomobile industry has suffered from weakdemand in MERCOSUR, but the devaluation,combined with high FDI in some of the mostmodern plants in the world, increased the industry’scompetitiveness. Automobile exports rose by 45%in 2002 and are expected to go up another 20% in2003, according to the manufacturers association.33

They are now directed more towards NAFTA (52%of exports in 2002), benefiting from a recentagreement that reduces tariffs on trade inautomobiles between Brazil and Mexico. Ford,Toyota and Volkswagen have all increased theirinvestment in Brazil , to export outsideMERCOSUR. Toyota has also announced a $200million project in Argentina, where the drasticdepreciation brought costs down enough to considerexporting to the rest of Latin America (ECLAC2003).

FDI inflows to Argentina in 2002 were only10% of the average received during 1992–2001,when Argentina received 13% of the region’sinflows. Despite the impact of the debt defaultcrisis on TNCs in Argentina (see WIR02), very fewof them left the country. However, there were large

Figure II.15. Latin America and the Caribbean: FDI flows, top 10 countries, 2001 and 2002 a

(Billions of dollars)

Source: UNCTAD, FDI/TNC database (http://www.unctad.org/fdistatistics).a Ranked on the basis of the magnitude of 2002 FDI flows.

CHAPTER II 55

negative flows in the reinvested-earnings and intra-company loan components of FDI, revealing thatestablished TNCs have been reducing theirinvestments. The reaction was similar in Brazil,though smaller, as the country went through aperiod of financial instability and politicaluncertainty (De Barros 2002). TNCs reacted to thecrisis and poor local prospects by cutting loans totheir Brazilian affiliates, especially in telecoms,electricity and gas (figure II.16). The decline inintra-company loans accounted for the entiredecline in FDI inflows in Brazil in 2002.34

These economic factors as well as politicaluncertainties also affected domestic investment inLatin America and the Caribbean, which declinedin 2001 and 2002. In 2002, total investment (bothpublic and private) declined in most majoreconomies, but MERCOSUR countries andVenezuela were particularly affected (ECLAC 2002).

Outward FDI from Latin American countriesalso declined in 2002 by 28%, to $6 billion. MostLatin American TNCs are expanding within theregion, which for Mexican companies includes theUnited States. But Argentine firms divested morethan they invested abroad, to the tune of $1 billion,as companies in that country sold assets abroadto help overcome the crisis at home. The

Argentinean crisis was also an opportunity toacquire Argentine assets more cheaply. Brazil’sState-controlled Petrobras acquired a majority stakein Pérez Compac for $1.1 billion in August 2002,the largest acquisition of the year in the region.América Móvil (Mexico) invested $2.2 billion inacquiring companies in Argentina, Brazil andEcuador, becoming a key player in the telecomindustry of Latin America.

b. Policy developments—linkingFDI to development strategies

Over the past decade, national FDI policiesin Latin America and the Caribbean haveemphasized liberalization and opening to FDI.There is now the perception that more emphasisshould be placed on FDI policies that support anoverall development strategy. Although opennessto FDI is not being reversed, the enthusiasm forprivatization has diminished. There is also growingawareness that more sophisticated policies needto be pursued to attract the right type of FDI andto benefit more from it. The survey of IPAs carriedout by UNCTAD (box I.5) found that mostcountries in the region were planning to increasepromotion and targeting efforts to attract FDI.Costa Rica has had the most important national FDIinitiative going beyond liberalization and opening(WIR02) . Chile recently developed such aninitiative (box II.9). Proceeding along similar lines,the Mexican State-owned bank Bancomextlaunched an investment promotion service in 2003.

By the end of 2002, the cumulative numberof BITs (413, with an average of 10 BITs percountry for 40 economies) and DTTs (262, withan average of 7 DTTs per country for 40economies) concluded by countries in the regionwas less than half that concluded by the economies

Box II.9. A new FDI strategy in Chile

Chile’s high technology investmentprogramme targets the software industry andservices that are intensive users of informationtechnology, such as call centres, support centres,shared services and back offices. It is attractingFDI to transform the country’s production base ina direction consistent with the country’s changingeconomic conditions and comparative advantage.The programme is promoting Chile as a place forhigh-tech investment (the President inauguratedthe establishment of an office in Silicon Valley).So far, it has attracted regional technology centresand back offices for Air France, Banco Santander,Hewlett-Packard, Motorola and Unilever, amongothers.

Source : UNCTAD, based on information fromwww.hightechchile.com.

Figure II.16. FDI inflows into Brazil andArgentina, by type of f inancing,

2001-2002, by quarter

Source : UNCTAD, FDI/TNC database.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives56

of South, East and South-East Asia, and the pacehas slowed (figure II.17). But, the negotiation ofbilateral free trade agreements—Chile and Mexicoare particularly active—has picked up considerably,with most of them covering investment issues aswell (figure II.18).

NAFTA and MERCOSUR are the mostimportant regional agreements. But negotiationsare under way for a Free Trade Area of theAmericas (FTAA), meant to cover all states in theregion (except Cuba)(box III.3). Its implicationsfor FDI flows cannot be assessed at this time. ForMexico, there is concern that its current privilegedaccess to the United States market may be dilutedinside the FTAA, though companies based therewill also gain access to other markets (Levy Yeyatiet al . 2002). The agreement may make theregulatory framework for FDI in individualcountries more transparent and simplifyoverlapping subregional and bilateral agreements.

The impact of these agreements on FDI isunclear. Countries have been changing theirregulatory frameworks in favour of FDIunilaterally, so the effects of bilateral and regionalagreements are hard to assess separately. Marketaccess provided by trade or trade and investmentagreements has increased FDI when the UnitedStates market became more accessible, but notunder agreements among smaller economies, suchas those in Central America and CARICOM.Regional agreements can in some instances enhancethe locational advantages of countries, but Chileand Costa Rica have attracted FDI without thesupport of such agreements. Coverage is alsocritical. Compare the impact of NAFTA’s rules oforigin on the Mexican garment industry with thatof the more restrictive production-sharing

mechanism incorporated into the agreementsbetween the United States and the Caribbean andCentral American economies.

The proliferation of bilateral agreementscomplicates the assessment of regional ones.Mexico has signed bilateral agreements withBolivia, Chile, Costa Rica, the EU membercountries and Nicaragua, and is negotiating onewith Japan (figure II.18). Chile has bilateralagreements with Canada, Mexico and the UnitedStates and associate member status withMERCOSUR.

Although FDI boomed in both Argentina andBrazil after the MERCOSUR agreement came intoforce in 1991, i t was mainly because ofmacroeconomic stabilization and openness toforeign investors (including privatization) (LevyYeyati et al. 2002). FDI into the smaller membersof MERCOSUR (Paraguay and Uruguay) has notrisen substantially, though there is some evidencethat FDI is becoming more export-oriented,especially to other MERCOSUR members (López2002).

Mexico has received substantial FDI sinceNAFTA came into force, mainly from the UnitedStates, concentrated on the assembly ofmanufactured goods for the United States market(box II.10). The combination of better marketaccess and locational advantages such as cheaplabour attracted TNCs to locate manufacturingactivities in Mexico, especially in areas close tothe United States border. The integration of Mexicointo the production system of the United States,already present with the maquila, was extendedand deepened. NAFTA also consolidated policyreforms that started in the mid-1980s and openedthe economy to foreign investors.

Figure II.17. Latin America and the Caribbean: BITs and DTTs concluded, 1992-2002(Number)

Source: UNCTAD, databases on BITs and DTTs.

CHAPTER II 57F

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World Investment Report 2003 FDI Policies for Development: National and International Perspectives58

c. Prospects—not much change

UNCTAD estimates that 2003 FDI flows tothe region are likely to remain similar to those in2002.35 Although the political and economicclimate in the region is improving (except inVenezuela), the recovery is likely to be slow. Thefactors that deterred market-seeking FDI in 2002are persisting in 2003—and will recover only

slowly. But TNCs will continue to be attracted bynatural resources, especially if high oil pricespersist. And efficiency-seeking FDI in Mexico andthe Caribbean basin will likely remain at the samelevel in 2003. FDI will continue to flow into themanufacturing sector of Brazil and is likely toresume in Argentina. Only Colombia has animportant privatization plan for the year, thoughimplementation could be delayed.

Negotiated by Canada, Mexico and the UnitedStates, NAFTA came into force in January 1994,creating the first north-south regional integrationagreement in the Western hemisphere. TheAgreement opens the three economies to furthercross-border trade in goods, services andintellectual property and to investment from oneanother in almost all industries. The final roundof tariff cuts under NAFTA was on 1 January 2003,with some exceptions for agricultural products until2008.

NAFTA caused a marked jump in intra-regional trade. North American intra-regionalexports of goods and services stood at 56% of totalexports from North America in 2002, up from 49%in 1996 and 34% in 1980 (Rugman and Brain 2003,pp. 5, 16). But the impact has been strongest inCanada and Mexico. In the late 1980s three-quarters of Canadian and Mexican trade was withthe United States, and by 2002, more than 85%—with a similar pattern for Canadian and Mexicanimports from the United States. But the pattern doesnot hold for the United States, whose trade withthe two other economies over 1996–2001 wasremarkably similar to that in 1980.

An increase in FDI flows to the three membercountries has also been observed since the late1980s, but it is unclear to what extent this was dueto NAFTA. FDI flows, declining over 1988–1993,rose rapidly after 1994, peaking at $383 billionin 2000, before falling back to $64 billion in 2002.The gains appeared to come primarily from FDIinto the United States, not to Canada or Mexico,however. The United States’ share of NorthAmerican FDI rose from 71% in 1994 to a peakat 88% in 1999, before falling back to 47% in 2002.The pattern is similar for North American FDI asa percentage of gross FDI inflows for all OECDcountries—and as a percentage of worldwideinflows.

Stil l , Mexico benefited from increasedinflows (MacDermott 2002; Andresen and Pereira2002). But there is no evidence of increased intra-regional FDI intensity, particularly becauseMexico’s outward FDI flows to the United Stateswere small over 1980–1998 (Globerman 2002).

Intra-NAFTA FDI fell from 30% of theoutward FDI stock in 1986 to 18% in 1999 (Edenand Li 2003). The Canadian share of United Statesoutward stock appears to have been a key factor,down from 17% in 1989 to 10% in 2000 (Rugmanand Brain 2003). NAFTA appears to have causedUnited States TNCs to close some plants in Canadaand use United States exports to supply theCanadian market. Industries characterized by largeeconomies of scale, low transportation costs andlittle product differentiation were expected to seesuch locational shufflings once tariffs wereremoved (Eaton and others 1994).

The most important industry in NorthAmerica is automobiles and automotivecomponents, accounting for between a third anda half of intra-regional trade, depending on howbroadly the industries are defined. The Canadianand United States automobile industries had beenintegrated since the 1965 Auto Pact. NAFTA thusfurthered the integration of the Mexican automobileindustry into an already deeply integrated NorthAmerican automotive industry (Weintraub andSands 1998).

Comparing the position of the United Statesas an insider in NAFTA and an outsider toMERCOSUR, one study found a significant positiverelationship between United States FDI andNAFTA, but no relationship between United StatesFDI and MERCOSUR (Bertrand and Madariaga2002). Another study found that Central Americancountries (except Costa Rica) lagged behindMexico after 1994 (Monge-Naranjo 2002). Mostaffected were textiles and apparel, accounting formost of the FDI flows to El Salvador, Guatemalaand Honduras.

The definitive study of NAFTA’s impact onFDI has yet to be done. The presumption is thatNAFTA benefited its member economies in termsof international trade in goods and services, butless is known about its impact on FDI, for membersand non-members. Better linking of micro-levellocational strategies of individual firms to macro-level shifts in FDI flows and stocks is probablythe key to solving this puzzle.

Box II.10. NAFTA and FDI

Source : UNCTAD.

CHAPTER II 59

FDI inflows to CEE reached a new high of$29 billion in 2002 (figure II.19), rising in 9countries, falling in the other 10 (figure II.20;annex table B.1). Firms in several CEE countries,particularly those slated for accession to the EU,tended to shed activities based on unskilled labourand to expand higher value-added activities, takingadvantage of the educated local labour force. Thatmakes training and retraining important tools ofemployment policy.

The region’s EU-accession countries willhave to harmonize their FDI regimes with EUregulations. The non-accession countries have to

update and modernize their FDI promotion tobenefit from being a “new frontier” for efficiency-seeking FDI (UNCTAD 2003c).

The stability in FDI inflows in 2001–2002can be attributed partly to the positive impact ofthe anticipated EU enlargement on investment, inboth accession and non-accession CEE countries(for TNC strategies responding to EU enlargement,see also section C). This is a major asset for futureFDI flows because the momentum should keep FDIflows strong once the current wave of largeprivatization deals is over in Czech Republic,Slovakia, Slovenia and to a less extent Poland.

B. Central and Eastern Europe

In the medium term, there is scope forincreased flows, even if they do not reach the 1999record level for a few years. Some industries arealready dominated by TNCs, such as telecoms inSouth America and banking in Mexico, but cross-border M&As may resume as soon as the economicclimate improves. Privatization is almost completedfor some of the larger markets and most attractiveassets, but investors might be attracted to smallermarkets (Costa Rica or Ecuador) or to newindustries (transport infrastructure).

Facing stiffer competition from China andelsewhere, most labour-intensive manufacturinghas an uncertain future in Mexico and theCaribbean basin. But manufacturing in Mexico andto less extent in Costa Rica has reached levels ofproductivity and technological sophistication thatmake the threat of relocation to lower cost countriesless imminent. A recent study estimated that 40%

of maquiladora plants in the Mexican state of BajaCalifornia can be classified as “third generation”,with intensive use of information technology andwell-developed R&D capacities (Carrillo andGerber 2003). The automobile industry, thoughfacing excess global capacity, is expanding itsplants in Mexico (ECLAC 2003). In MERCOSUR,TNCs might benefit from flexible exchange ratesand the quality and excess capacity of plants,especially in the automobile industry—turningArgentina and Brazil into export platforms for therest of the region and beyond.

With FDI flows likely to remain below theirpeak in the coming years, governments in LatinAmerica will need to pay more attention to the wayinvestment best helps their development objectives.The new emphasis on more sophisticated policyinstruments for attracting and benefiting from FDIis likely to intensify.

Figure II.19. CEE: FDI inflows and their share in gross fixed capital formation, 1990–2002

Source: UNCTAD, FDI/NC database (http://www.unctad.org/fdistatistics).

World Investment Report 2003 FDI Policies for Development: National and International Perspectives60

1. Defying the global trend

The steady performance of FDI in CEEsuggests that it is viewed as a stable and promisingregion for FDI, especially within the division oflabour across the integrating European continent,improving the efficiency of operations in Europeas a whole.36 FDI inflows have also benefited froma catch-up effect, with a ratio of FDI stocks to GDPin CEE moving from half the world average in 1995to close to it in 2002 (table II.2).

Cross-border M&As, both privatization-related and others, were important for CEE’sinflows in 2002, with the ten largest cross-bordersales37 amounting to $12 billion in 2002 and thetotal reported exceeding $16 billion. These dataare, however, imperfect indicators of FDI-relateddevelopments, because the values of various cross-border deals remain undisclosed and some cross-border M&A sales do not have counterparts in theFDI inflow data.38

Inflows rose in 9 countries and declined in10 (figure II.20; annex table B.1). Growth wasparticularly strong for countries with privatizationpeaks (Czech Republic, Slovakia and Slovenia) andthat had lagged behind in privatization (Belarusand Serbia and Montenegro).

FDI flows into the Czech Republic andSlovakia rose—driven by the takeovers of Transgasby German RWE and Slovensky PlynarenskyPriemysel by Gazprom, Ruhrgas and Gaz deFrance—while those into Estonia, Hungary and

Poland declined. So the trends in 2002 were relatedto the lumpiness of privatization-related FDI,causing large upswings or downswings.

The anticipated positive impact of EUenlargement stimulated FDI inflows (see alsosection C). In other cases, a wait-and-see attitudeby investors may explain the lower than expectedlevel of FDI, as accession countries are adjustingtheir FDI regimes to the requirements of EUmembership (e.g. Hungary).

As a result of the changing dynamics of FDIand the catching up of some latecomer countries,the traditional dominance of the Czech Republic,Hungary, Poland and the Russian Federation isstarting to change, with only the Czech Republicstil l growing, while the other three countriesdeclined. For various reasons discussed below,Hungary was only the eighth largest recipient in2002.

The share of FDI inflows in gross fixedcapital formation approached 18% in 2002 (figureII.19), with Bulgaria, the Czech Republic, TFYRMacedonia and the Republic of Moldova, theregion’s leaders over 1999–2001 (annex table B.5).Most of the high ratios reflect small nationaleconomies, except the Czech Republic, where ahigh ratio reflects massive privatization-related FDIinflows.

The automobile industry in CEE—a majorrecipient of FDI—is still on a growth path. Theannouncement of new projects in early 2003 inSlovakia (by PSA) and the Russian Federation (by

Figure II.20. CEE: FDI flows, top 10 countries, 2001 and 2002 a

(Billions of dollars)

Source: UNCTAD, FDI/TNC database (http://www.unctad.org/fdistatistics).a Ranked on the basis of the magnitude of 2002 FDI flows.

CHAPTER II 61

Renault) and the announcement of the expansionof existing projects (e.g. by Audi and Suzuki inHungary) ensure that growth continues this year(table II.3).

By contrast, the electronics industry in CEE,both local and foreign, faces global overcapacity,sluggish demand and cost competition from EastAsia, especially China. Electronics firms shedactivities based on unskilled cheap labour andexpanded activities based on higher skills.Hungary—as the middle income economy in theregion with the “oldest” electronics foreignaffil iates—is the first to face the pressure ofrestructuring towards higher value-added activities(figure II.21). Flextronics, IBM and Philips areundertaking both closures and capacityexpansions—but in different product segments(table II.4).

In the middle income countries such as theCzech Republic, Hungary, Poland, Slovakia andSlovenia, inward FDI increasingly targets logisticalcentres and R&D. Paradoxically, the emergenceof foreign affiliates in some knowledge-intensivecorporate services—such as regional HQ, callcentres and back offices—has not helped the

volume of FDI inflows because they can be established withsmall capital investments. The move to FDI based on higherlabour skills makes the EU accession countries directcompetitors with other emerging locations.

The Czech Republic, Estonia and Poland have toprepare for a time when privatizations are no longer a majorsource of FDI inflows. An increasing number of greenfieldprojects (including ones financed by reinvested earnings)may indicate that such projects can at least in partcompensate for the end of privatization-related FDI inflows.In Estonia reinvested earnings accounted for 40% of FDIinflows in 2002. In the Czech Republic in 2002, 11 foreignaffiliates39 reported capacity expansion in the automotivesupplier industry (CzechInvest 2003).

Judging from registered values, outward FDI ($4billion) recovered in 2002 but was still much lower thaninward FDI. The Russian Federation accounted for the bulkof the outflows (figure II.19), with Yukos’ acquisitions ofMazeikiu Nafta (Lithuania) and Transpetrol (Slovakia), aswell as Eurochem’s acquisition of the Lithuanian chemicalfirm Lifosa. Its outflows exceeded registered inflows at arelatively low GDP per capita. This may be explained bythe difficult business environment at home and theaspirations of Russian natural-resource-based firms tobecome global players. The first four months of 2003 saw

Table II.2. Catching up— inward FDIstock as a percentage of GDP

in CEE,a 1995 and 2001(Per cent)

Country/region 1995 2001

Estonia 14.4 65.9Czech Republic 14.1 64.3Moldova, Republic of 6.5 45.0Slovakia 4.4 43.2Hungary 26.7 38.2Latvia 12.5 32.4Lithuania 5.8 28.9Croatia 2.5 28.4Bulgaria 3.4 25.0Poland 6.2 24.0TFYR Macedonia 0.8 23.9Slovenia 9.4 23.1Albania 8.3 21.0Romania 2.3 20.5Serbia and Montenegro 2.7 20.1Bosnia and Herzegovina 1.1 15.8Ukraine 2.5 12.9Belarus 0.5 8.7Russian Federation 1.6 6.5

Memorandum:Central and Eastern Europe 5.3 20.9World 10.3 22.5

Source: UNCTAD, FDI/TNC database (http://www.unctad.org/fdistatistics).

a Ranked on the basis of the magnitude of 2001Inward FDI stock as a percentage of grossdomestic product.

Table II.3. CEE: a car assembly bonanza, 2003

Location Manufacturer

Czech Republic

• Kolin Toyota/PSA (2005)

• Mlada Boleslav Volkswagen/SkodaHungary • Esztergom Suzuki (Swift, Wagon R+)

• Györ Audi Hungaria MotorPoland

• Bielsko Biala Fiat• Gliwice General Motors/Opel (Opel Agila)• Lublin Daewoo FSOa

• Poznan Volkswagen (T4)• Warsaw Daewoo FSO• Zeran Daewoo (Lanos)

Romania• Craiova Daewoo (Matiz)a

• Pitesti Renault (Dacia Nova)Russian Federation

• Kaliningrad BMW (3 series)• Moscow Renault (X-90) (2005)• Togliatti GM/AvtoVAZ joint venture (Niva 4x4)• Vsevolozhsk Ford (Focus)

Slovakia• Bratislava Volkswagen (Tuareg, Polo, Golf 4x4,

Variant 4x4, Bora 4x4)• Trnava PSA/Peugeot (2006)

Slovenia• Novo Mesto Renault (Clio)

Source: UNCTAD, based on Figyelö 2003, and press reports.a Project discontinued/closed.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives62

31 outward FDI projects by Russian firms (up from27 in the same period in 2002).40 These projectsare now going to the Commonwealth ofIndependent States (five of the top eightdestinations), with Ukraine as the number one host.More than 60% of them were in energy (Gazprom,Zarubezhneft), followed by machinery (SylovyeMashini).

2. FDI in the Russian Federation—taking off?

With its size and natural resources, theRussian Federation has the potential to attractresource-seeking, market-seeking and efficiency-seeking FDI. Until recently its inflows were belowpotential (annex table A.I.8). But there are distinctsigns of greater investor interest.

In February 2003 British Petroleumannounced its intention to acquire a 50% stake ina joint venture combining Tyumen Oil Company,the fourth biggest petroleum firm of the RussianFederation, with its affil iate Sidanco. (BPpreviously owned 25% of Sidanco.) Once fullymaterialized, this will be by far the largest FDIproject in the Russian Federation since 1991—at$6.5 billion, giving a major boost to the sluggishFDI inflows. The deal is worth more than twicethe average inflows for 2000–2002 and a third morethan the peak of $4.9 billion in 1997 (figure II.22).

The growing number of greenfield FDIprojects announced in the first four months of 2003is another indication of a possible takeoff, with

160 firms starting projects, for a value of $9 billion,up from 77 and $3 billion in the same period of2002.41 The Russian Federation’s 7% share inprojects worldwide in 2003 made it the third mostimportant location worldwide, after China and theUnited States.

Forecasting a rapid takeoff may bepremature. The seeming takeoff in 1997 wasfollowed by the Russian financial crisis in 1998,when FDI inflows plummeted (figure II.22). Andin 2001 and 2002, outflows exceeded inflows,unusual for a lower middle income country.

The sustainability of FDI inflows higher thanthose in 2002 depends how the Russian Federationattracts FDI based on the full range of i tscompetitive advantages. It has a sizable untappedpotential (table II.5).The demonstrated potentialfor FDI in natural resources is significant—ifforeign investors are allowed to take equity sharesand are not confined to production sharing or othercontractual arrangements short of ownership (figureII.23).

The Russian Federation has also been hostto some major market-seeking investments,especially in food (Cadbury, Mars, Stollwerck),beverages (Baltika Brewery, Efes Brewery),tobacco (Philip Morris, Liggett) and telecoms(beside the contentious investment of Cyprus-basedMustcom Consortium into Svyazivest, DeutscheTelekom’s participation in mobile phone providerMTS is the most notable). But the scope for suchinvestment has been limited by the low purchasingpower of the Russian population.

Figure II.21. Expansion and reduction of capacity by foreign affi l iates in Hungary—the “ins”and the “outs”, 2002–June 2003

Source: UNCTAD, based on annex table A.II.10.a Data for employment are not available.

CHAPTER II 63

Some technology-based, efficiency-seekingprojects have been started recently, most of themin the automobile industry. The main examples areBMW’s plant in Kaliningrad in 1999, Volvo Truck’sassembly project in the Moscow region in 2001,General Motors’ export-oriented joint venture in2001 with AvtoVAZ to produce off-road vehicles,Ford’s car factory opened in the Leningrad regionin 2002 and Renault’s car-manufacturing projectin Moscow (table II.6).

Information collected in 2003 from 26 firmsinvesting in the Russian Federation confirmsnatural-resource and market-seeking motives.42

More than half the respondents indicated apromising domestic market potential as a motive,

Table II.4. Who competes with whom? a

Economies categorized by GDP per capita in 2000 (dollars)

Selected developingIncome group EU accession Other developed economies as(Dollars) countries Other CEE EU-15 countries benchmarks

>20,000: Luxembourg Japan Hong Kong, China (+)high income Denmark Norway Singapore (+)

Sweden United StatesIreland (+) SwitzerlandUnited Kingdom (+) CanadaFinland Australia (+)AustriaNetherlandsGermanyBelgiumFrance

5,000-19,999: Cyprus Italy (-) Israel Taiwan Province of Chinaupper middle Malta Spain New Zealand Korea, Republic ofincome Slovenia Greece Uruguay (+)

Portugal Mexico (+)

2,000-4,999 Czech Republic Croatia Chilemiddle income Hungary Malaysia

Poland Costa RicaEstonia BrazilSlovakia BotswanaLithuania (+) South AfricaTurkey b Dominican Rep. (+)Latvia (+) Peru (+)

500-1,999: Romania c TFYR Macedonia Thailandlow income Bulgaria c Russian Federation (-) Egypt

Albania KazakhstanBosnia and Herzegovina MoroccoBelarus (+) PhilippinesSerbia and Montenegro TurkmenistanUkraine (+) China (+)

IndonesiaAzerbaijanGeorgiaArmenia (+)

<500: Moldova, Republic of Indiavery low Viet Namincome Bangladesh

UzbekistanUgandaKyrgyzstanTajikistan

Source: UNCTAD, Handbook of Statistics 2002 On-line, http://unctad.org/fdistatistics.a This table is based on Michalet’s idea (Michalet, 1999) that each economy competes for FDI with other economies at a similar level

of development only. CEE countries are shown in italics.b In a pre-accession stage. Candidate status for EU to be confirmed.c Envisaged to join EU in 2007.

Notes: (+) means a country moved upwards in categories from 1992 to 2000.(-) means a country moved downwards in categories from 1992 to 2000.Countries are listed in the order of GDP per capita.

Figure II.22. The Russian FDI roller coaster,1993–2002

(Billion dollars)

Sources: UNCTAD FDI/TNC database (http://www.unctad.org/fdistatistics) and UNCTAD estimates.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives64

with proximity to regional markets mentionedsecond. A closer look at the projects started inJanuary–April 2003 confirms that the greatestprospects are still in natural resources, followedat a distance by electronics, automobiles and R&D.

The Russian Federation could multiply itsinward FDI stock in a short period. But, if the aimwere to match China in its FDI stock per capita,it would need to quadruple the flows received in2000. And if the aim were to match Poland, itwould need to triple its FDI stock.

3. The challenge of EU enlargement

EU-accession countries have to harmonizetheir FDI regimes with EU regulations, with thetwin aims of conforming to EU regulations andmaximizing the benefits from EU instruments, suchas regional development funds. Examples ofnonconforming FDI instruments are Slovakia’sspecial incentives for foreign investors andHungary’s 10-year tax holidays granted only tolarge investors. Both countries changed theirinvestment incentives in 2002 to conform to EUrules, while seeking to provide a framework no lessfavourable for investors. In their search forinternational competitiveness under EUmembership, some accession countries are alsolowering their corporate taxes. By 2004 these taxeswill be significantly below the average of currentEU members, although still higher than those ofsome FDI front runners such as Ireland (table II.7).

Accession countries have to learn how tomake the best use of facilities now available tothem for promoting investment, such as EUregional development funds (which are morelimited than those for actual EU members).43 Theaccession countries also have to develop theinstitutional framework to administer and properlychannel the variety of funds available fromEuropean Community sources for assistingeconomic development. Originally designed forhigh income countries, these funds requiresophisticated administrative capabilities. Reachingsimilar levels of public administration in the shorttime left until accession will test human andfinancial resources.

For several countries, particularly the non-accession countries, the task is to modernize FDIpromotion policies and measures. Only by doingso can they get the most from efficiency-seekingFDI.

UNCTAD’s survey of IPAs confirms thatpromotion efforts (named by 53%) and targeting(60%) are the preferred policy responses. Only athird of the respondents reported additionalincentives.

Since the early 1990s, CEE countries havebeen very active in signing BITs and DTTs, havingconcluded more than 700 BITs and more than 600DTTs by the end of 2002 (figure II.24). Theregion’s share in the global universe of BITs (33%)and DTTs (27%) was much higher than its sharein United Nations members (10%). Almost half theBITs signed in 2002 were with developing countries(13 of 29), especially those in Asia and the Pacific(10 BITs). CEE countries are thus completing thegeographical coverage of their BIT network, havingfirst signed treaties with neighbours or with

Table II.5. Inward FDI stock as a percentage of GDP,selected economies, 2001

Rank in world Economy Per cent

45 Viet Nam 48.451 South Africa 44.052 Brazil 43.658 Nigeria 41.661 Indonesia 39.570 China 33.281 Argentina 28.393 Thailand 24.6

103 Mexico 22.7100 Poland 22.3107 Egypt 22.1136 Philippines 14.7147 Turkey 12.0149 Taiwan Province of China 11.4163 Korea, Republic of 11.2161 Pakistan 9.9172 Russian Federation 7.0175 India 4.7

Source: UNCTAD Handbook of Statistics On-line 2002,http://unctad.org/statistics; and UNCTAD FDI/TNC database onl ine, ht tp: / /unctad.org/fdistatistics.

Figure II.23. Russian Federation: industrycomposition of inward FDI stock, 2002

(Per cent)

Source : UNCTAD, based on data provided by the StateCommittee of the Russian Federation on Statistics.

CHAPTER II 65

developed countries. Most DTTs were signed withdeveloped countries.

Additionally, all bilateral and regionalagreements concluded by CEE countries with theEU (figure II.25) contain investment clauses,reflecting the priorities of international economicrelations of both parties. Of the 19 countries ofthe region, all but 4 (Albania, Belarus, Bosnia andHerzegovina and Serbia and Montenegro) havesigned such agreements. The investment-relatedclauses cover a wide range of issues, reflecting thedepth of economic integration between the twoparties. All offer guarantees for transfer, protectionof intellectual property rights and State-Statedispute settlement mechanisms. Most also providefor the liberalization of admission andestablishment, national treatment, prohibition ofsome performance requirements going beyond theTRIMs Agreement and investment promotionclauses.

At the regional level, EU enlargement is themost important policy development affecting FDIinflows to CEE. It also affects FDI in non-accession

countries, but in a different manner. All accessioncountries but Bulgaria and Romania are uppermiddle income or high income (Slovenia) countries.All non-accession countries but Croatia are lowermiddle income countries (table II.4). This leadsto an increase in FDI in services and highercorporate functions in accession countries, attractedfrom current EU members and third countries (tableII.8). EU enlargement also offers opportunities tonon-accession countries, because assembly-typemanufacturing may shift to them from higher costaccession countries (table II.8). With therestructuring of middle income countries, labour-intensive FDI may move to lower-cost locations,in CEE or in Asia.

New EU member countries may becomemajor sources of skill-intensive assets, combiningtheir advanced education with competitiveproduction costs. The legal regime of the EUprovides the necessary framework for the freemovement of persons, goods and capital within theregion, in offering national treatment and in aimingfor competitive equality within the grouping. In

Table II.6. Key greenfield FDI projects started in the Russian Federation,January-April 2003

ValueIInvestor Home country ($ million) Project description Main motivation

Royal Dutch Shell Netherlands/ 5 500 Investment into the second phase of a Natural resourcesUnited Kingdom Sakhalin oil and gas project

TotalFinaElf France 2 500 Exploration and development of the Natural resourcesVankorksy oil field

Pfleiderer Germany 647 Investment into chipboard production in Efficiency/exportsNovograd

Segura Consulting Assoc., Spain 319 Hotel and office complex in Moscow Market seekingFerrovial and Caixa Bank

Renault France 250 2000-job passenger car plant in Moscow Market seeking/efficiency

Philip Morris United States 240 Cigarette factory in St. Petersburg Market seeking

Baltic Beverages Denmark 50 Brewery in Khabarovsk exporting to China Exports/marketseeking

Krka Slovenia 20 R&D centre for new generic pharmaceuticals Strategic assets

Tex Development United Kingdom 12 Expansion of clothing production to be Efficiency/exportsexported to Europe and China

Outocoumpu Finland 4.5 Auto components plant in Kurgan exporting Efficiency/exportsto Europe

Bank Austria Austria .. R&D team in Moscow to improve Strategic assetsback-office system

Nuclear Solutions United States .. R&D centre in Moscow to evaluate viability Strategic assetsof various technologies

Source: LOCOmonitor, OCO Consulting.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives66

this integrating European continent, market sizeand market growth will increasingly denote theenlarged EU as a whole, providing benefits mostlyto new member countries, particularly those withlimited domestic purchasing power.

Liberalization in non-accession countriesmay be more limited. But their trade agreementswith EU (preferential or association agreements)may affect market size, one of the key determinantsof FDI. And the use of the European cumulationarea in the EU rules of origin can add to theflexibility in organizing production across thecontinent. Trade agreements with non-accessioncountries will also facilitate access to naturalresources, with the most important resourcesoutside the enlarged EU, notably in the RussianFederation.

The emerging specialization of FDI betweenthe accession and non-accession countries does notyet follow a “flying-geese” pattern.44 Labour-intensive activities relocated from accessioncountries now go more to developing Asia(especially China) than to lower income CEEcountries. And the low outflows of FDI fromaccession countries limit the scope for restructuringto non-accession countries.

4. Prospects—mostly sunny

Led by the surge in flows to the RussianFederation, and fuelled by the momentum of EUenlargement, UNCTAD expects the region’s FDIflows to rise somewhat in 2003 to close to $30billion.45 The surge of FDI in the RussianFederation seems more fragile in the medium orlong term than the spur of EU enlargement. Butin the short term both are helping overcome thecompletion of privatizations and the slowdown ofGDP growth expected in the Czech Republic,Hungary, the Russian Federation and Slovakia.

Realizing the potential of natural-resource-seeking FDI largely depends on the willingness ofgovernments to allow foreign ownership in naturalresources. Much depends also on whether localprivate companies are ready to take foreigners asminority, or eventually, majority shareholders intheir ventures.

For market-seeking investment, prospectsdepend mostly on the speed of economic recoveryin the Russian Federation and the rise in disposableincome. The improvement of the general businessenvironment and progress with intellectual propertyprotection in such industries as pharmaceuticalscould also boost FDI inflows.

Figure II.24. CEE: BITs and DTTs concluded, 1992-2002(Number)

Source: UNCTAD, databases on BITs and DTTs.

Table II.7. Making corporate taxes attractivein the Visegrad-4 countries: ratesa

announced by June 2003 forthe rest of the year and 2004

(Per cent)

Country 2003 2004

Czech Republic 31 24b

Hungaryc 18 18Poland 27 19Slovakia 25 19

Memorandum items:EU average 32 ..Ireland 12.5 ..

Source: “Adólicit Közép-Európában”, Magyar HírlapOnline (Budapest), 30 June 2003, http://www.magyarhirlap.hu/cikk.php? cikk=68662.

a Excluding local/municipal taxes.b Gradual reduction until early 2006.a In addition, Hungary levies a “trade tax”, although

this is often waived for major investment projects.

CHAPTER II 67

For efficiency-seeking FDI the RussianFederation has the biggest untapped potential. Withits technological capabilities and skilled workforce,it could become a major international engineeringhub. Under local ownership alone, however, mostRussian industries have failed to connect with thetechnology and knowledge flows of the worldeconomy. (It is less an issue of connecting to theworld economy proper, as many of the largeRussian firms are already major internationalplayers, but they do not always benefit from state-of-the-art technology flows.) Changing thatdepends partly on measures to improve the business

environment, the stability of the economyand the rule of law. But that may not beenough. The country also needs to upgradeits investment promotion efforts.

The momentum provided by EUenlargement is expected to remain strongin the medium term. The process ofreorganizing economic activities across theintegrating European continent is still inan early stage. Access to additionalfinancial resources by the accessioncountries, though less than originallythought, can still attract economic activitiesto new EU members. EU enlargement canalso stimulate outward FDI flows fromaccession countries, with non-accessioncountries possibly among the prime targets.

Results from UNCTAD’s survey of15 IPAs in CEE countries indicate optimismabout the prospects for FDI in the comingtwo to three years (figure II.26). Nearlytwo-thirds of the respondents expectedbetter FDI prospects in the short run (2003-2004), and four-fifths by 2004-2005. Giventhe region’s record of steady FDI inflows,

Figure II.25. CEE: selected bilateral, regional and interregional agreements containing FDIprovisions, concluded or under negotiation, 2003a

Source : UNCTAD.a BITs and DTTs are not included.

Table II.8. Matrix of specialization between accessionand non-accession countries of CEE, 2003

Countries FDI patterns FDI policies and measures

Accession Upgrading of FDI activities How best to adjust FDIcountries promotion to EU

instruments (regional andcohesion funds etc.)

Non-accession “New frontier” for How to adjust policies/countries efficiency-seeking FDI measures to the status of

new frontier, question ofbusiness environment

Source: UNCTAD.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives68

that optimism may be too pessimistic. Surprisingly,the IPAs in CEE appear to be slightly lessoptimistic than their counterparts from developingcountries, which have had declines in inflows.Perhaps explaining this mismatch are thecomposition of the samples and the culturaldifferences of IPA officers in different regions.

A majority of respondents (53%) reportedrecent increases in FDI projects. On the difficulties,most (54%) refer to postponements of projectspreviously planned but not yet realized. Fewerrespondents reported major setbacks incancellations (40%), scalings-down (24%) ordivestments (23%). Confirming the trendsdocumented for Hungary, IPAs expect a gradualshift towards higher value-added FDI, especiallyfor R&D projects. Among developing countryregions, only the Asian IPAs predicted a similarshift in their FDI. Reflecting the end ofprivatization in the Czech Republic and Poland,CEE agencies expected a shift in the mode of entrytowards greenfield projects for the period to 2005.

C. Developed countries

Figure II.26. CEE: forecast mostly sunny,a

2003–2005(Per cent)

Source: UNCTAD.a The survey question was: “How do you perceive the prospects

for FDI inflows to your country in the short- and medium-term,as compared to the last two years (2001-2002)?”.

FDI inflows to developed countries in 2002declined by 22%, to $460 billion, from $590 billionin 2001.46 Despite the second year of decline, theyremained above the average for 1996–1999. TheUnited Kingdom and the United States accountedfor half of the decline in the countries with reducedinflows in 2002. All three economic sectors(primary, manufacturing and services) suffereddeclines, but such industries as finance andbusiness services activities saw higher FDI inflows.The major factors? A continuing slowdown incorporate investment, caused by weak economicconditions and reduced profit prospects, a pausein the consolidation in some industries anddeclining stock prices were the major factorsbehind the fall in FDI flows that occurred inparallel with, and largely in the form of, a declinein cross-border M&As. Large repayments of intra-company loans were the main element in reducednet FDI flows for some major host countries. IPAsin developed countries reported major setbacks intheir efforts to attract FDI, including divestmentsor the scaling down of planned projects.

1. FDI down, as cross-borderM&As dwindle

FDI inflows to developed countries declinedfor the second year in a row, with the share ofdeveloped countries in world FDI inflowsremaining almost the same as in the previous year(more than 70%) (annex table B.1). If inflows are

adjusted to exclude transshipped investment inLuxembourg (box II.11), that share would declineby a further 15 percentage points. What lays behindthe continuing downturn? The slow recovery of theUnited States and other host economies affectedprofit prospects, making companies more cautiousabout FDI, especially the market-seeking type. Thesignificant expansion or consolidation in someindustries, including cross-border M&As, reducedthe opportunities for FDI. Declining stock marketsand the need for cost-cutting measures constrainedthe financial capacity of corporations to engagein FDI.

Intra-company loans47 declined sharply forseveral countries: of the 19 countries that reportcomponents of inward FDI, intra-company loansturned negative in 4 and declined in 6 countriesin 2002. That offset increases or added to decreasesin reinvested earnings and equity, the othercomponents of FDI (annex table A.II.5). Interestrate differentials between countries might havebeen one factor in this (see chapter I). Another wasthe fall in cross-border M&As. And a third couldbe recalibrations of debt-to-equity ratios byrecalling loans (see chapter I).

Despite the overall decline, about a third ofdeveloped countries experienced an increase in FDIinflows in 2002 (9 countries out of 26). The topFDI recipients were Luxembourg, France andGermany (figure II.27).48 The United States—thelargest recipient in 2001—did not make it to theregion’s top three in 2002. FDI inflows also fell

CHAPTER II 69

In 2002 Luxembourga was the world’s largestoutward investor and largest FDI recipient,accounting for about 19% ($126 billion) of worldinflows and 24% ($154 billion) of outflows—anda more than a third of the combined EU inflowsand outflows. The country’s share of EU GDP isonly 0.2%. Compared with domestic investmentof $4.4 billion in 2002, its FDI is impressive.

What explains these numbers?

Interestingly, Luxembourg’s FDI inflows andoutflows are relatively close in value, concentratedin manufacturing and services (box table II.11.1).A significant part of inflows and outflows in thefirst quarter of 2002 can be explained by largecross-border M&As that took place to establish thesteel group Arcelor, formed by Arbed(Luxembourg), Aceralia (Spain) and Usinor(France) in late 2001 and headquartered inLuxembourg.

Inflows and outflows in roughly the sameperiod could reflect a transfer of funds betweenaffiliates within the same group located in differentcountries—or a channelling of funds to acquirecompanies in different countries through a holdingcompany established in Luxembourg to takeadvantage of favourable intra-firm financingconditions.b Luxembourg offers favourable

Box II.11. What made Luxembourg the world’s largest FDI recipient and investor in 2002?

conditions for holding companies and for corporateHQ, such as certain tax exemptions (EIU 2003b).In 2000 a transaction along these lines in telecom(the Vodafone-Mannesmann deal) resulted also insignificant FDI inflows to and outflows fromBelgium and Luxembourg, making it the secondmost important investor and FDI recipientworldwide.

Equity, intra-company loans and reinvestedearnings of firms are recorded as FDI if they areconsidered to be for the purpose of acquiring long-term interest in an enterprise abroad; this appliesalso in the case of special purpose entities suchas holding companies (IMF 1993, paragraphs 365,372-373). The latter might however be involvedin transfer of funds to foreign affiliates in oneeconomy for further transfer as FDI elsewhere. In2002 such transshipped investment, or fundsinvested in the country for further transfer as FDIelsewhere, is estimated at about 80% of the inflowsto and outflows of FDI from Luxembourg,according to the Luxembourg Central Bank. Suchflows, which take place to some extent in othercountries as well, have little economic impact onthe countries involved. This highlights the fact thatFDI statistics need to be interpreted carefully, withsufficient attention paid to the underlyingmethodology.

Source : UNCTAD.a The Belgium-Luxembourg Economic Union, formed in 1921 primarily as a monetary union, came to an end in 2002, with the

coming into force of the Euro as a common currency for several EU member countries (including Belgium and Luxembourg).Until 2002, only aggregate Union data had been reported and it is difficult to compare 2002 FDI flows for Luxembourg with thosefor previous years.

b In a country’s balance-of-payments statistics, all transactions between residents and non-residents are recorded (concept ofresidence, IMF 1993, paragraphs 57-58). This concept is not based on legal criteria or nationality but the transactor’s centreof economic interest. In FDI statistics, as part of the financial account in the balance-of-payments statistics, transactions withthe first foreign counterpart (as opposed to the ultimate beneficial owner, or debtor/creditor principle) are recorded. As a result,the initial source or the final destination of FDI flows might be different from the immediate partner to the transaction, in particular,in the case of special purpose entities (such as holding companies and regional HQ).

Box table II.11.1. FDI flows to and from Luxembourg, by component, 2002(Mill ions of Euro)

Outflows

Equity Reinvested earnings Intra-company loans

Financial Other Financial Other Financial OtherPeriod Total industries industries industries industries industries industries

1st quarter -45 446 30 -25 593 - 20 - 88 4 -19 7782nd quarter -23 385 96 -7 003 - 20 - 88 - 9 -16 3613rd quarter 133 - 49 -5 165 - 20 - 88 0 5 4564th quarter -95 011 712 -86 950 - 20 - 88 139 -8 8052002 -163 710 789 -124 711 - 81 - 353 134 -39 488

Inflows

Equity Reinvested earnings Intra-company loans

Financial Other Financial Other Financial OtherPeriod Total industries industries industries industries industries industries

1st quarter 34 072 244 21 353 322 316 - 4 11 8422nd quarter 7 315 - 51 6 293 322 316 5 4293rd quarter 4 423 80 5 920 322 316 - 3 -2 2134th quarter 87 709 - 23 84 359 322 316 - 3 2 7382002 133 520 250 117 925 1 289 1 264 - 5 12 796

Source: UNCTAD, based on data from BCL/STATEC.Note: Up to 2001, data on FDI flows for the Belgium-Luxembourg Economic Union (BLEU) were reported

by the National Bank of Belgium. Data on Luxembourg are not available separately before 2002.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives70

significantly (relative to the size of the country’sinflows) in Greece and Austria (with the divestmentof Telecom Italia). FDI inflows as a ratio of grossfixed capital formation in developed countries fellto 12 % on average, compared with 13% in 2001(figure II.28). Inward FDI stock as a ratio of GDPreached on average 19%, compared with 18% in2001 (annex table B.5 and B.6).

IPAs in the majority of developed countriesfaced difficulties in their efforts to attract FDI(UNCTAD 2003a). A majority of the IPAs reportedcancellation or postponement of FDI projects, aswell as divestment (45% of respondents) or ascaling down of planned projects (40%).

The 80% decline in inward FDI flows for theUnited States in 2002 accounted for 55% of thedecline in developed countries with reduced inflowsin 2002 (figure II.27). FDI from the EU into theUnited States plummeted, with fewer cross-borderM&As:49 major sources of FDI in the United Statesin 2002 were France, the United Kingdom, Japanand Australia, in that order (figure II.29). Byindustry, the largest declines in the United Stateswere financial services (figure II.30) as well ascomputer-related services and chemicals. With theUnited States current account deficit at $481billion, the $100 billion decline in inward FDImakes financing the balance-of-payments deficitmore difficult.

Inflows to the EU declined by 4%. But ifLuxembourg’s transshipped investment is excluded,inflows would decline by 30%. The decline in EU

flows stemmed, like that in the United States,largely from reasons related to the economicdownturn and, in that context, the decline in cross-border M&As. In 2001, 49% of EU outflowsremained within the EU; that share rose to 66%in 2002 (ECB 2003a).50 The largest decline wasin the United Kingdom (60%). Inflows increasedin Luxembourg, Finland (mainly due to largetransactions, such as the merger of Sonera (Finland)and Telia (Sweden)), Ireland (partly due to theacquisition of Jefferson Smurfit Group) andGermany (reflecting increased intra-company loansby foreign TNCs to their affiliates in Germany, aswell as some large acquisitions, such as AOL(United States) acquiring additional stakes in AOLEurope) (annex table A.I.9). As economic activitieshave become more services-oriented in the EU, theservices sector continues to attract a rising shareof FDI flows to the EU (annex table A.I.4).

FDI inflows to other Western Europeancountries also fell in 2002. Those to Norwaydeclined dramatically, while inflows to Iceland andto Switzerland rose (in the latter, by 5% and as inthe past, related mainly to services).

Flows into other developed countries wereuneven. In Japan, FDI inflows increased (by 50%),mainly for the acquisition of Japanese financialcompanies by United States firms. Inflows fromthe EU almost doubled, mainly in automobiles andfinancial services. FDI inflows into Australiaalmost tripled—to a record high. Those to NewZealand were the lowest since the early 1980s, withlarge divestments by investors from the

Figure II.27. Developed countries: FDI flows, top 10 countries, 2001 and 2002 a

(Billions of dollars)

Source: UNCTAD, FDI/TNC database (http://www.unctad.org/fdistatistics).a Ranked on the basis of the magnitude of 2002 FDI flows.b In 2001, data for Belgium and Luxembourg are not separately available.

CHAPTER II 71

Netherlands, the United Kingdom and the UnitedStates. And despite a decline in 2002 as comparedwith 2001, inflows to Canada were similar to thosein 1998–1999.

An important aspect of the inward FDIperformance of most of these countries was theuneven performance in cross-border M&As. Thetotal value of cross-border M&As in the developedcountries fell by 37% in 2002, from $496 billionto $311 billion (annex table B.7), with their numberdown from 4,482 to 3,234.51 As the M&A boom

came to a halt in 2000, cross-border equity flowsfell, especially among developed countries. Butinflows of equity investments to developedcountries in 2002 were still above the 1996–1999average. The decline in the value of cross-borderM&As can be attributed, in part, to the reductionin investment abroad by TNCs for the reasonsalready mentioned. It can also be seen as acorrection of the exceptional surge in M&As thatparalleled high FDI flows into developed countriesduring 1999–2000.52

Figure II.28. Developed countries: FDI inflows and their share in gross fixedcapital formation, 1990-2002

Source : UNCTAD, FDI/TNC database (http://www.unctad.org/fdistatistics).

Note: The 2002 data for gross fixed capital formation are estimates.

Figure II.29. United States: FDI flows, by major partner, 1990-2002(Billions of dollars)

Source: UNCTAD, FDI/TNC database, based on the Uni ted States Department of Commerce, Bureau of Economic Analysis(www.bea.doc.gov), data retrieved in June 2003.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives72

Cross-border M&As in utilities (electricity,gas and water) reached a record high in 2002, withthe acquisition of Innogy Holdings (UnitedKingdom) by RWE (Germany) for $7.4 billion andthat of PowerGen (United Kingdom) by E.on(Germany) for another $7.4 billion (annex tableA.I.9). Several large companies reduced theiractivities in some fields while expanding operationsin their core competencies. Aventis (France) soldits agrochemicals unit. Novartis (Switzerland) soldits food and beverage business to Associated BritishFoods. Cadbury Schweppes (United Kingdom)acquired Adams, a confectionary subsidiary ofPfizer (United States), and Squirt (Mexico). TNCsalso strengthened their operations in more stableor growing markets (South-East Asia, CEE), toreduce costs or slow a decline in turnover. Dealsof $1 billion or more included the acquisitions bydeveloped country firms of Daewoo Motor(Republic of Korea), Hyundai Merchant-Car Carrier(Republic of Korea), Pannon GSM (Hungary) andTransgas (Czech Republic) (annex table A.I.9).53

FDI outflows from developed countriesdropped by 9%, from $661 billion to $600 billion.Japan overtook Germany (box II.12) among the tophome countries for FDI, ranking fifth afterLuxembourg, the United States, France and theUnited Kingdom (figure II.27). Outflows from 8out of 25 countries rose, with Norway, Sweden andAustria registering the largest increases. About one-

third of outflows from Austria—which almosttripled—went to the CEE. Outflows from theUnited States rose by about 15% in 2002; butoutflows to developing countries fell by about one-fifth, particularly to Latin America (figure II.29).Companies from the United States have notinvested much in the CEE. In contrast, EUcompanies were investing more in CEE and China,as were those from some other developed countries,such as Switzerland.54 The Netherlands andSweden increased their outflows to other EUmembers, with those from Sweden almost doubling,thanks in part to the Telia-Sonera transaction noted.Foreign affiliates of other developed country TNCsseeking access to the EU market were often locatedin the periphery (Ireland, Portugal and Spain) inthe early 1990s, for tax reasons or lower labourcosts (Barry 2003; Nunnenkamp 2001). But theywere shifting to locations in countries scheduledto join the EU in 2004 (UNCTAD 2003c, see alsosection B of this chapter).55

For other developed countries, there werefew changes: for FDI outflows from Japan, thelargest host country was again the United States,up by about 10% over the previous year. Flows todeveloping Asia also increased (by 8%), whilethose to the EU almost halved, mainly due to adecline of 80% in flows to the United Kingdom.Canada further diversified its outflowsgeographically. Companies from Australia and New

Figure II.30. United States: FDI flows, by major sector and industry, 1990-2002(Billions of dollars)

Source: UNCTAD, FDI/TNC database, based on the Uni ted States Department of Commerce, Bureau of Economic Analysis(www.bea.doc.gov), data retrieved in June 2003.

Note: Data for average 1990-1994 and average 1995-1999 are not fully comparable to those for 2000-2002 as the coverage of industries/sectors are not the same. For 1990-1994 and 1995-1999, petroleum includes mining, quarrying and petroleum in the primarysector and coke, petroleum and nuclear fuel in the secondary sector; manufacturing covers the secondary sector except coke,petroleum and nuclear fuel; unspecified services relate to the tertiary sector except finance; and other industries include industriesnot specified elsewhere. In 2000-2002, petroleum refers to chemicals for inflows and mining, and for chemicals for outflows;manufacturing excludes chemicals; unspecified services include wholesale and retail trade, information, real estate, rental andleasing and professional, scientific, and technical services for inflows and utilities, wholesale trade, information, professional,scientific and technical services and other services for outflows; and other industries include industries not specified elsewhere.

CHAPTER II 73

Zealand continued to concentrate on investmentin their subregion.

Most outward investment was in services.56

Although outward FDI in skill-intensivemanufacturing activities (automobiles,pharmaceuticals) was on the rise in severalcountries, it generally fell in manufacturing becauseof weak growth prospects and low profit margins.Exceptions include outflows from Austria andNorway.

2. Policy developments—continuingliberalization

Developed countries have been liberalizingtheir FDI rules and concluding bilateral andregional agreements since the 1950s. In a flurryof such activity 12 developed countries madechanges to their FDI regimes in 2001 and 19 didso in 2002, with 45 regulatory changes in 2002alone. More than 95% of the new national policy

Between April and June 2002, German FDIoutflows were only �1.6 billion, compared with�36 billion in the same period the previous year.Part of this decline can be explained by the morecautious approach of German TNCs during theglobal economic slowdown. But the numbers alsoconceal important acquisit ions of equityshareholdings by German companies abroad,amounting to �21 billion, largely offset by loansby German affil iates abroad to their parentcompanies in Germany (perhaps for the samereasons that foreign affiliates in the United Statesrepaid loans to theirEuropean parent firms).These credit transactions,designated reverse flows,reduced Germany’s outwardFDI (box figure II.12.1).

The IMF recommendsincluding cross-borderfinancial loans and tradecredits between affiliatedenterprises under intra-company loans (or othercapital) . With loansclassified according to thedirectional principle aGerman parent companygranting a loan to i tsaffiliate abroad increasesGerman outward FDI. Anda German parent receivinga loan by one of i tsaffiliates abroad decreasesGerman outward FDI,because it is considered areverse flow. Not allcountries have adopted thisrecommended principle.

These loans can take different forms, suchas funds raised from securities issued by Germanaffiliates abroad on international financial markets

and subsequently passed on to the parent firm inGermany. They also reflect different economiccircumstances. From January 1996 (when Germanystarted to report FDI data according to thedirectional principle) until June 2002, reverse flowsrepresented an important component of outwardflows (�128 billion, as compared to equity capitalof �318 billion). But their sudden significance inthe first half of 2002 is striking (box figure II.12.1).

Aggregate FDI figures thus do not reflect thecomplexity of underlying economic transactions.

To assess the impacts on host and home economies,it is important to analyse each component of FDIand to apply uniformly the recommended standardsfor compiling FDI statistics.

Box II.12. What reverse flows mean for Germany’s FDI statistics

Source: UNCTAD, based on Deutsche Bundesbank, 2002.

Box figure II.12.1. Germany: cumulative FDI flows, by component,January 1996-June 2002

Source: UNCTAD, based on Deutsche Bundesbank, 2002.

Note: Loans refer to credits from German investors (outflows) and credits to foreign investorsin Germany (inflows). Reverse flows refer to net borrowing by German parentcompanies from their affiliates abroad (outflows) and foreign parents from their affiliatesin Germany (inflows).

World Investment Report 2003 FDI Policies for Development: National and International Perspectives74

measures were more favourable to FDI. Theyinvolved tax incentives (as in Belgium, Canada andIreland), guarantees (as in Belgium, Ireland andNew Zealand), the removal or relaxation ofrestrictions on entry (as in Japan and Norway) andthe establishment of IPAs or one-stop informationcentres (as in the Netherlands and Portugal).

The proliferation of BITs and DTTscontinued, with 1,169 BITs (49 BITs per countryon average) and 1,663 DTTs (64 DTTs per countryon average) concluded by the end of 2002, a yearin which developed countries signed 44 BITs and42 DTTs (figure II.31). Primary partners for bothtypes of treaties were countries in Asia and thePacific, followed by CEE for BITs and the EUcountries for DTTs. Bilateral and regionalinstruments involving investment-related provisionsalso increased, with the largest number concludedby EU countries, followed by the United States andCanada. The EU countries have shown a preferencefor entering into agreements with CEE andMediterranean countries (figure II.32), and theUnited States for doing so with African and Asianones (figure II.33). Japan is a late starter, with anagreement with Singapore in 2003—its only FTAso far—covering trade, FDI and other economicmatters (box III.2). Japan is also negotiating withMalaysia, Mexico, the Philippines and Thailand,and negotiations with the Republic of Korea maystart in 2003 (figure II.11). Almost all of theseagreements cover the principal issues normallycontained in international investment agreements.

IPAs in developed countries increased theirpromotion efforts, with targeting among the mostfrequent policy responses, according to UNCTAD’sIPA survey. Remarkably, none of the agenciessuggested that they offered additional incentives,

unlike developing countries many of whichincreased their incentive packages. Japan launcheda most comprehensive programme in April 2003to double the stock of inward FDI in five years (boxII.13).

3. Prospects—hinging on economicrecovery

UNCTAD expects FDI inflows to increasein some countries in 2003, but the developedcountries as a group are not likely to exceed theirperformance in 2002, even though several surveysexpect FDI to recover in 2003 (World Bank 2003a;EIU 2003a).57 What will happen depends on theeconomic recovery, especially in developedcountries, and on the success of efforts tostrengthen investors’ confidence. Low profitability,falling equity prices, concerns about corporate debtand cautious commercial bank lending (as well asinvestors’ evaluation of future demand growth)might all dampen prospects for increased FDI(UNDESA and UNCTAD 2003; World Bank2003a). To weather adverse conditions, TNCs arecontinuing to restructure, concentrate on corecompetencies, relocate to lower-cost locations andtap emerging markets. That will reduce investmentin some markets and increase it in others.

For the EU and the United States, prospectsfor economic growth continue to be modest in2003. Germany and Japan—both with higher FDIinflows in 2002—have declined in attractiveness,according to some surveys (IMD 2003; AT Kearney2002). In Japan, Citigroup and other foreignfinancial companies plan large divestments in2003.58 In Switzerland—which expects little GDPgrowth in 2003 and only about 1% in 2004—a

Figure II.31. Developed countries: BITs and DTTs concluded, 1992-2002(Number)

Source: UNCTAD, databases on BITs and DTTs.

CHAPTER II 75

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CHAPTER II 77

In his general policy speech on 31 January2003, the Prime Minister of Japana announced thecountry’s goal to increase FDI through 74 measuresin five specific areas: disseminating information,improving the business environment, reforming theadministration, improving employment and livingconditions, and upgrading national and localgovernment support systems. The measures include(Japan Investment Council 2003):

• Conducting economic research to analyze thebenefits of FDI for Japan and the perceivedobstacles to inward FDI.

• Examining the possibility of financing cross-border M&As through the exchange of stock.

• Establishing a “one-stop” information centrein JETRO to serve as the focal point forforeign companies intending to invest inJapan, providing a variety of informationrelating to FDI in Japan (e. g. about the

investment climate, laws and regulations).This initiative is based on (and reinforces)existing measures such as the portal site ofthe Investment in Japan Information Centre(IJIC)b and JIC.

• Improving the quality of technology-orienteduniversity graduate business schools andprofessional business schools—to improvemanagement, technology and language skills.

• Supporting regional activities to attract TNCsin five local areas.

National authorit ies implementing thesemeasures include the Office of the Prime Minister’sCabinet, JETRO, the Ministry of Economy, Tradeand Industry and the Ministry of Finance. TheExpert Committee of Japan Investment Council willmonitor the implementation, provide periodicreports and conduct further policy planning.

Box II.13. Measures to promote inward FDI in Japan

Source: UNCTAD, based on Japan, Ministry of Economy, Trade and Industry (www.meti.go.jp); JETRO (www.jetro.go.jp); JIC(www5.cao.go.jp); and Investment in Japan Information Centre (www.investment-japan.net).

a “Foreign direct investment in Japan will bring new technology and innovative management methods, and will also lead to greateremployment opportunities…We will take measures to present Japan as an attractive destination for foreign firms in the aimof doubling the cumulative amount of investment in five years”, General Policy Speech by Prime Minister Junichiro Koizumito the 156th Session of the Diet, 31 January 2003 (http://www.kantei.go.jp/foreign/koizumispeech/2003/01/31sisei_e.html).

b IJIC was established in July 2000 to provide support to potential investors, mainly through information on business opportunitiesand legal issues.

recent FDI survey expected a further slowdown ofFDI in manufacturing in 2003 and a moderateincrease in FDI in services (KOF 2003). So thelikelihood of developed countries attracting moreFDI in 2003 is low.

TNCs from the developed countries willcontinue to invest in EU-accession countries. Theymight also pay more attention to growing andlower-cost markets, such as other CEE countries,Central Asian countries and some developingeconomies, similar to the 1980s when countries atthe EU periphery joined the Common Market.Services requiring large investments (telecom,media, banking and so on) are expected to accountfor a significant share of the EU’s FDI in theseregions. Automobile manufacturing, computer-related activities, medical devices andbiotechnology are likely to remain importantrecipients.

Cross-border M&As continue to beimportant, but there are signs of a shift towardsgreenfield projects.59 The value of cross-borderM&As in the United States in the first half of 2003was slightly above that in the first half of 2002 (by3%). This suggests that TNCs continue to followmore cautious growth strategies, with decliningprofits and less financing available for additionalM&As, and expansion might remain limited. But

there are exceptions.60 In the pharmaceuticalindustry, while the value of deals is expected toremain low (risk aversion to mega deals), thenumber of transactions is expected to remain high,supported partly by pressure for consolidation inthe European biotech industry and acceleratedconsolidation in Asia (PwC 2003b). Several (mainlysmaller) deals are expected in medical devices,motivated by strategic considerations.61

Developed country IPAs see prospects intheir region as rather bright for 2003–2004, butthey are much more cautious than their counterpartsfrom developing regions. About 45% expect FDIfor their region to improve in 2003–2004 (63% indeveloping countries), while only 15% forecast adeterioration and 40% expect no change. Optimismrises for the longer term, with 58% of respondentsexpecting an improvement in 2004-2005 (93% indeveloping countries) (figure II.34).

Corroborating these findings is a survey ofGerman firms by the Deutsche Industrie- undHandelskammertag (DIHK 2003).62 About a quarterof investors from Germany plan to continueinvesting abroad in 2003–2005—while about 15%plan divestments. The survey revealed that the mainmotives for planned outward FDI in 2003–2005were high costs of skilled labour (45%) and hightaxes (37%) in Germany. Planned investments

World Investment Report 2003 FDI Policies for Development: National and International Perspectives78

Figure II.34. Developed countries: FDIprospects,a 2003-2005

(Per cent)

Source: UNCTAD.a The survey question was: “How do you perceive the prospects

for FDI inflows to your country in the short- and medium-term,as compared to the last two years (2001-2002)?”.

mainly include manufacturing projects butincreasingly extend to the services sector (such asR&D and administrative and HQ functions).Preferred locations include the accession countriesin CEE, but also the EU and some Asian economies,particularly China.

UNCTAD’s IPA survey suggests that theUnited States will be the most important sourceof FDI during 2003–2005, followed at a distanceby Germany, France, Japan and the UnitedKingdom. IPAs expect that FDI will be distributedfairly evenly across all economic sectors—butpharmaceuticals and chemicals (includingbiotechnology) and services (particularly telecom)are expected to receive more attention frominvestors.

Notes

1 For an analysis of the l inks between regionalintegration schemes (including trade agreements) andFDI, see WIR98, pp. 117-125; UN-TCMD 1993, pp.8-14. They have been described as being part of the“new regionalism”; see Ethier 2001; Iglesias 2002;Eden and Li 2003. See also chapter III.

2 For the definition of LDCs see UNCTAD 2002b. Forprofiles of each LDC regarding FDI, see UNCTAD2003b.

3 “U.S.–African trade profile”, United StatesDepartment of Commerce (www.agoa.gov), March2003.

4 Both MTN and Vodacom SA have non-South Africanshareholders.

5 EIU’s country profile of the United Republic ofTanzania (source: www.db.eiu.com/report_full.asp).

6 Information from ORASCOM press release, dated 24September 2002 (www.orascomtelecom.com/docs/news/press.asp).

7 Information from the UNCTAD database on changesin national laws.

8 As of April 2003, African countries eligible forpreferential treatment under AGOA were: Benin,Botswana, Cameroon, Cape Verde, Central AfricanRepublic, Chad, Republic of Congo, Côte d’Ivoire,Democratic Republic of Congo, Djibouti, Eritrea,Ethiopia, Gabon, Gambia, Ghana, Guinea, Guinea-Bissau, Kenya, Lesotho, Madagascar, Malawi, Mali,Mauritania, Mauritius, Mozambique, Namibia, Niger,Nigeria, Rwanda, Saõ Tomé and Principe, Senegal,Seychelles, Sierra Leone, South Africa, Swaziland,Uganda, the United Republic of Tanzania and Zambia.

9 Caribbean countries, in particular, enjoy cheapertransport costs.

10 NEPAD was concluded in 2001 by African leadersas a vision to extricate the region from the malaiseof underdevelopment and exclusion in a globalizingworld.

11 EIU Country Profiles (http:/ /db.eiu.com/report_full.asp).

12 Data from allAfrica (www.allafrica.com) and theFinancial Express.

13 Information from EIU’s Country Profiles of Botswana,Kenya, Lesotho, Mozambique, Namibia, South Africaand Uganda (http://db.eiu.com/report_full.asp).

14 During 2003–2008, the European Investment Bankis expected to channel �3.9 billion to ACP projects

that promote business or to public sector projectsoperated on a private sector footing. (�1.7 billionwill be from the Bank’s own resources and �2.2billion from a new investment facility.) These fundsare provided by EU member States to encourageprivate sector development (in particular SMEs),support the local savings markets and facilitate FDI.

15 Based on eight countries that reported the three FDIcomponents.

16 Comprising China, Democratic People’s Republic ofKorea, Hong Kong (China), Macau (China),Mongolia, the Republic of Korea and Taiwan Provinceof China.

17 India has revised its FDI data (see box II.4). The newdata were released on 30 June 2003, after the closingof the data collection for WIR03.

18 In 2001 FDI from Hong Kong (China), Macau(China), Singapore and Taiwan Province of Chinaaccounted for about 47% of the total FDI flows toChina. Part of this investment, however, is by foreignaffiliates in these economies, especially in the casesof Hong Kong (China) and Singapore.

19 The tertiary sector accounted for about 99% of thetotal FDI flows to Hong Kong (China) in 2000 and2001.

20 Repayments of intra-company loans by Asianaffiliates in some countries exceeded disbursementsof intra-company loans from parent companies to theirAsian affiliates.

21 Many TNCs now seem to be making good profits inChina, and a few companies have turned to theirforeign affiliates in China to support parent companiesthat have hit hard times (“Made in China, bought inChina: multinational inroads”, The New York Times,5 January 2003).

22 In China, Hong Kong (China), Malaysia andSingapore, reinvested earnings accounted for morethan a third of the value of FDI flows in 1999–2002(annex table A.II.1).

23 A JETRO survey of 1,519 Japanese manufacturersin Asia in 2002 indicated that 71% of the firmsexpected to post an operating profit in 2002 (up twopercentage points from the previous survey byJETRO) (JETRO 2003b) and 51% expected 2002profits to improve over 2001 (23% expected nochange). Samsung saw its profits in China soar to70% in 2001 to $228 million, after years of making

CHAPTER II 79

losses operating there (“How Samsung plugged intoChina: it’s finally making gains by selling high-endproducts”, Business Week , 4 March 2002 (http://www.businessweek.com/magazine/content/02_09/b3772138.htm).

24 See UNCTAD press release on “China: an emerginghome country for TNCs”, 2003.

25 Economies affected by SARS (such as China andHong Kong (China)) may have declining FDI flowsin 2003—as investments are postponed—contributingto a weaker regional FDI inflows performance. TheASEAN region will also be affected, but to a lesserextent.

26 Based on real GDP growth as reported in IMF 2003a.27 See “Global firms scramble for Iraq work”, BBC

News , 12 June 2003 (http://www.bbc.co.uk/2/hi/business/2983054.stm).

28 The World Bank (2003a, p.101) forecast that FDIflows to Asia and the Pacific will increase marginallyin 2003.

29 Half the $45 bil l ion in external debt owed bycompanies in Argentina is estimated to belong toforeign affiliates (ECLAC 2003).

30 Data from INEGI (www.inegi.gob.mx).31 Data from INEGI (www.inegi.gob.mx).32 EIU, Business Latin America, 24 February 2003.33 EIU, Business Latin America, 24 March 2003.34 In fact, some foreign affiliates established to serve

local or regional markets had to start exporting toother markets to pay off their loans in Brazil .Managers at Ford, General Motors and Volkswagenexpressed this view in interviews conducted byMariano Laplane.

35 World Bank and EIU studies forecast a slight decreasein FDI flows for 2003, with a slow recoveryafterwards (World Bank 2003a; EIU 2003a).

36 For example, for Flextronics, the existence of R&Din Austria and Germany makes sense only ifcomplemented by some manufacturing operations inCEE (especially Hungary and to some degree inPoland); if production were to move to othercontinents, so would R&D (Figyelö 2002).

37 The gas utility Transgas (Czech Republic) was soldto RWE (Germany); the gas uti l i ty SlovenskyPlynarensky Priemysel (Slovakia) to Gazprom(Russian Federation), Ruhrgas (Germany) and Gazde France (France); KPN’s (Netherlands), Sonera’s(Finland) and Tele Danmark’s (Denmark) shares inmobile telecom provider Pannon GSM (Hungary)were taken over by Telenor (Norway); thepharmaceutical firm Lek (Slovenia) was acquired byNovartis (Switzerland); the bank Ceska Sporitelna(Czech Republic) by Erste Bank (Austria); theinformatics firm GTS Central Europe (Poland) wastaken over by KPN (Netherlands); the Kredyt Bank(Poland) was sold to KBC Bank (Netherlands);Zagrebacka Banka (Croatia) to UniCredito Italiano(Italy) and Allianz (Germany); the beer producerBravo International (Russian Federation) to Heineken(Netherlands) and the Nova Ljubljanska Banka(Slovenia) to KBC Bank (Belgium).

38 This is why the cross-border M&A sales of Hungaryin 2002 were significantly higher than FDI inflows.For a discussion of the data on cross-border M&Asand its correspondence with FDI flows, see WIR00,pp. 105-106.

39 Automotive Lightning, Federal Mogul, F.X. Meiller,HP Pelzer, Rieter, Ronal, SAI Automotive, TIAutomotive, Toyoda Gosei and VDO.

40 Data on FDI projects are from OCO Consulting.

41 According to data on FDI projects collected by OCOConsulting.

42 According to a survey carried out by OCO Consultingamong investors.

43 After accession in 2004 new EU member countrieswill be entitled to 25% of the Common AgriculturalPolicy funds and 30% of the regional developmentfunds available to current EU members. Subsequently,those shares will increase by 10% per annum till theyreach the level of 100% around 2014.

44 The basic idea of the “flying-geese” paradigm,developed for the case of TNC-led growth by K.Kojima (1973), is that, as host countries industrializeand go through industrial upgrading and learning inan open-economy context, the type of FDI flowingfrom home countries changes in character towardshigher skills; in turn, simpler activities will graduallyflow out from relatively advanced host countries tonewcomer host countries. This process reinforces thebasis for, and the benefits from, trade. For a detaileddiscussion, see WIR95, pp. 258-260.

45 This estimate is higher than that of the World Bank,which forecast FDI inflows of $30 billion for its“Europe and Central Asia” region that includes CEEand Turkey (World Bank 2003a, p. 101).

46 The decline could be as large as 39% (an estimated$230 billion) if transshipped investment to and fromLuxembourg are excluded. The term “transshippedinvestment” is used here to refer to investment inforeign affiliates in Luxembourg that subsequentlyinvest abroad. For details, see box II.11.

47 Intra-company loans are one of the three componentsof FDI, as recommended by international guidelines,consisting of short- and long-term loans and tradecredits between affiliated enterprises, as well asfinancial leasing (IMF 1993).

48 Data for Belgium and Luxembourg before 2002 arenot separately available.

49 In 2001 about 95% of FDI inflows to the UnitedStates were from the EU and Switzerland. The valueof cross-border M&As by EU companies in the UnitedStates declined by 52% in 2002 (UNCTAD, cross-border M&A database; see also chapter I).

50 However, in some countries, the share of intra-EUinflows declined: in Sweden from 80% in 2001 to66% in 2002, in Denmark from 60% to 38% and inIreland from 99% to 95%.

51 UNCTAD, cross-border M&A database.52 For conceptual issues related to cross-border M&As

and their valuation in FDI statistics, see WIR00.53 See footnote 37 for the largest M&A sales of CEE.

For motivations of M&As, see WIR00.54 For example, the acquisit ion by Novartis

(Switzerland) of Lek (Slovenia) for $0.9 billion wasamong the largest cross-border M&As undertaken inthe CEE region in 2002.

55 Because “EU enlargement is not a zero sum game inwhich the new member states will compete againstcurrent incumbents for a fixed pool of FDI” (Barry2003, p.189), it remains to be seen how much currentEU members have to fear a deviation of FDI towardsthe accession countries.

56 More than a third of the cross-border provision ofservices is undertaken through the establishment offoreign affiliates in the host economy (mode threeof the GATS classification, accounting for a shareof about 38% of total services delivered by the fourmodes of supply described in GATS (WTO 1995;Karsenty 1999). In major host developed countries,turnover in services by foreign affiliates accounted

World Investment Report 2003 FDI Policies for Development: National and International Perspectives80

for between 9% and 30% of the national total(UNCTAD, FDI/TNC database).

57 During the first quarter, or the first four months of2003, inflows for two of the top five FDI recipients(in 2002), the Netherlands and the United States,increased by 122%, and 200%, respectively, over thesame period of 2002. On the other hand, FDI inflowsduring January-April to France declined by 26%, toGermany by 61% and to Japan by 37%.

58 Nihon Keizai Shimbun, 16 March 2003.59 Participants in UNCTAD’s IPA survey expect

greenfield investment to play an important role asa mode for FDI.

60 Announcements include, for example, the acquisitionsof Wella (Germany) by Procter & Gamble (United

States) for $6.1 billion, Sunoco’s plasticizer businessin Neville Islands (United States) by BASF (Germany)for an undisclosed amount and Alstom’s (France)industrial turbines business by Siemens (Germany)for $1.2 billion.

61 Recent examples are the offers by Zimmer (UnitedStates) and Smith & Nephew (United Kingdom) forthe Swiss medical devices company Centerpulse(formerly Sulzer Medica): both companies have madean offer in the range of $3 bil l ion (“Ein schöninszeniertes Theater”, Neue Züricher Zeitung, 25 May2003).

62 The survey, carried out in January 2003, coveredabout 10,000 German companies, mainly inmanufacturing.

PART TWO

ENHANCING THE DEVELOPMENT DIMENSION OFINTERNATIONAL INVESTMENT AGREEMENTS

UNCTAD has been working on issues related to bilateraland regional investment agreements for some time, focusing onpolicy analysis and technical cooperation,a and involving a widerange of countries. WIR03 draws on this experience.

With the number of treaties that address FDI proliferating,issues relating to international investment agreements (IIAs)—agreements that, in their entirety or in part, address investmentissues—have come to the forefront of international economicdebate.

Part Two of WIR03 seeks to throw light, from thedevelopment perspective, on certain issues that arise in IIAs—irrespective of the ongoing multilateral investment discussions.Whether governments negotiate IIAs—and, if so, at what leveland for what purpose—is their sovereign decision. And whateverthe outcome of the investment discussions in the WTO, the issuesraised here remain important, precisely because of bilateral andregional treaty-making.

a The results of this work are contained in various UNCTAD publications listed inthe references. For the coverage of technical cooperation, see UNCTAD 2003e.

Countries seek FDI to help them to grow anddevelop—and their national policies are key toattracting FDI and increasing benefits from it.

Many countries have also concludedinternational investment agreements (IIAs)—especially agreements at the bilateral, subregionalor regional levels that address investment issues,at least in part. In doing so, they seek to make theregulatory framework for FDI more transparent,stable, predictable and secure—and thus moreattractive for foreign investors. If frameworksliberalize FDI entry and operations, they reduceobstacles to FDI. At the same time IIAs limit the“policy space”—and thus flexibility—governments,especially of developing countries, need to pursuepolicies to attract FDI and increase benefits fromit to further their development. The challenge fordeveloping countries entering IIAs is to find theright balance between the attractiveness providedby IIAs and the loss of policy autonomy that theyentail. This year’s WIR seeks to identify the mainissues.1

There has been significant liberalization ofFDI policies over the past decade (table I.8). FDIflows have risen rapidly, partly in response. Still, FDIis only a complement to domestic investment, themain driver of growth. But since FDI is becomingmore important in total investment, most developingcountries and economies in transition are followingthe developed countries in removing restrictionsto FDI entry and operations and improvingstandards of treatment of foreign affiliates. Theresults have been mixed. Opening has not, in manycases, led to the magnitude of FDI inflows thatmany developing countries expected. And evenwhen inflows rose, the development benefits of FDIwere often below expectations.

Why? Once an enabling framework has beenestablished, economic factors—the maindeterminants of FDI flows—assert themselves. Hostcountries may not have the size of markets, growthrates, skills, capabilities or infrastructure that wouldmake investment in productive capacity attractive—either for the domestic market or as export bases.Foreign investors may not have been well informedof the opportunities available—perhaps becausehost countries did not promote themselveseffectively in an intensely competitive worldmarket for FDI or were ambiguous about how muchFDI they really wanted and on what terms.Prospective investors, in turn, may have found theinvestment environment deficient, difficult orrisky—despite the liberalization.

INTRODUCTION

More serious, the investment may not havehad a substantial developmental impact on the hosteconomy—expanding the export base, addingtechnology value to exports, contributing to easingbalance of payment constraints, increasing locallinkages, transferring technology and upgradingskills and management capabilities. Particularlyfor large TNCs, there might have been conflictsbetween the interests and needs of the hosteconomy and the global corporate strategies of theinvesting firms, largely independent of concernsassociated with specific locations.

Most countries—including developed ones—have tended to combine liberalization with moreproactive measures to attract the right kind of FDI,including by setting up IPAs. They also havepolicies to draw greater benefits from FDI andreduce its negative effects.2

IIAs are put forward as an additional meansto attract investment. They send a clearer signalto international investors, especially when they lockin the regulatory status quo, and they indicate astronger commitment to the stability of rules. Thenumber of IIAs has grown apace, and at all levels:bilateral (the most popular), regional (such asNAFTA and ASEAN) and multilateral (such as GATSand TRIMs). Many more IIAs are in the making.

But what about the loss of national policyspace implicit in the rules that IIAs set? For a hostcountry, finding the right balance in negotiatingIIAs involves understanding two things:

• Host country policies and measures that areparticularly important for attracting FDI andincreasing benefits from it.

• Ways in which international agreements affectnational policies.

Part Two of WIR03 seeks to advance suchunderstanding. Chapter III identifies key nationalpolicies and measures in inward FDI. It alsoreviews the rise, impact and features of IIAs.Chapter IV discusses eight issues that have passeda double filter: they are particularly important fornational FDI policies and international investmentnegotiations, and they are particularly sensitivein the context of such negotiations. Chapter Vfocuses on one particular important issue: nationalpolicy space. Part Two also examines in chapterVI what else can be done in future IIAs to enhancethe effectiveness of key national policies inpromoting development. Concluding this Part isa summary of key messages.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives84

CHAPTER III 85

Host country determinants

I . Pol icy f ramework for FDI

• economic, pol i t ica l and socia l s tabi l i ty• ru les regard ing entry and operat ions• standards of t reatment of fore ign aff i l ia tes• pol ic ies on funct ion ing and st ructure of

markets (especia l ly compet i t ion and M&Apol ic ies)

• in ternat ional t rade and investmentagreements

• pr ivat izat ion pol icy• t rade pol icy ( tar i f fs and non- tar i f f barr iers)

and coherence of FDI and t rade pol ic ies• tax pol icy

I I . Economic determinants

I I I . Business fac i l i ta t ion

• investment promot ion ( inc luding image-bui ld ing and investment-generat ingact iv i t ies and investment- fac i l i ta t ionserv ices)

• investment incent ives• hassle costs ( re lated to corrupt ion,

adminis t rat ive ef f ic iency, etc . )• soc ia l ameni t ies (b i l ingual schools ,

qual i ty of l i fe , e tc . )• af ter - investment serv ices

Type of FDI classif ied Principal economic determinantsby motives of TNCs in host countr ies

A. Market-seeking • market s ize and per capi ta income• market growth• access to regional and g lobal markets• country-speci f ic consumer preferences• st ructure of markets

B. Resource/ • raw mater ia lsasset-seeking • low-cost unsk i l led labour

• sk i l led labour• technologica l , innovatory and other

created assets (e.g. brand names),inc luding as embodied inindiv iduals , f i rms and c lusters

• physica l in f rast ructure (por ts , roads,power, te lecommunicat ion)

C. Eff iciency-seeking • cost of resources and assets l is tedunder B, adjusted for product iv i ty forlabour resources

• other input costs, e .g. t ranspor t andcommunicat ion costs to / f rom andwi th in host economy and costs ofother in termediate products

• membership of a regional in tegrat ionagreement conducive to theestabl ishment of regional corporatenetworks

CHAPTER III

KEY NATIONAL FDI POLICIES ANDINTERNATIONAL INVESTMENT AGREEMENTS

National policies are key for attracting FDI,increasing benefits from it and assuaging theconcerns about it. Those policies have to be seenin the broader context of the determinants of FDI,among which economic factors predominate (tableIII.1). Policies are decisive in preventing FDI fromentering a country. But once an enabling FDIregulatory framework is in place, the economicfactors become dominant. Even then, the regulatoryregime can make a location more or less attractivefor foreign investors and for maximizing thepositive development effects of FDI, whileminimizing negative ones.

Many policies affect FDI. This chapter dealsonly with those directly related to it, such as settingentry conditions for foreign investors, improvingstandards of treatment, enhancing benefits fromFDI and coping with its less desirable effects.

Table III.1. Host country determinants of FDI

Source : WIR98, p. 91.

Countries seek FDI to promote their growthand development. With its package of tangible andintangible assets, FDI can contribute directly andindirectly to building national capabilities. Thegrowing appreciation of the benefits of FDI reflectsseveral factors. Concessional aid is declining, andvarious financial crises have created a preferencefor long-term and more stable capital inflows.Access to innovative technologies is moreimportant. And some of the earlier fears about FDImay have been exaggerated, given the economicbenefits that many developing countries have drawnfrom FDI (WIR99). Many governments are nowmore confident in dealing with TNCs. And TNCshave learned to be more responsive to the concernsand priorities of host countries.

The best way of attracting and drawing benefitsfrom FDI is not always passive liberalization (an

World Investment Report 2003 FDI Policies for Development: National and International Perspectives86

“open door” policy). Liberalization can help getmore FDI, but alone it is not enough. AttractingFDI in a highly competitive market for investmentnow requires stronger locational advantages andmore focused efforts at promotion. Getting FDI intechnologically advanced or export-orientedactivities is even more demanding.

Having attracted foreign investors into acountry, policies are crucial to ensure that FDIbrings more benefits. Policies can induce fasterupgrading of technologies and skills, raise localprocurement, secure more reinvestment of profits,protect the environment and consumers and so on.They can also help counter the potential dangersof FDI—say, by containing anticompetitivepractices and preventing foreign affiliates fromcrowding out viable local firms or acting in waysthat upset local sensitivities.

Free markets do not always ensure efficientand equitable outcomes, particularly in developingcountries with weak markets and institutions.Hence, the need for policy intervention. Thegroundwork for making markets work well—soundlegal systems, clear and enforceable rules of thegame, responsive market institutions, a vibrantdomestic enterprise sector and the like—has to belaid down by the host country government. Buteven then, the strategic objectives of TNCs maynot match the development goals of hostgovernments. Policies need to bring them more inline with those goals.

The list of market failures and policyresponses is long. The basic point here is that, inthe real world of imperfect markets, governmentshave a major role. They can influence FDI in manyways with varying degrees of intervention, controland direction.

A. Key national FDI policies

Developed countries have moved towards“market-friendly” policies—pursuing sound macromanagement, having stable and non-discriminatoryrules on business entry and exit , promotingcompetition, building human capital, supportinginnovation and so on. But even the most market-friendly countries have not given up promotionalmeasures to attract foreign investors. Several usesophisticated promotion techniques as well as largegrants and subsidies to target particularly valuableinvestments.

Developing countries are also trying toattract FDI and increase the benefits from it. Andthey, too, are moving towards market-friendlypolicies. But they have to be careful doing so, sincetheir market structures are weaker and theirdevelopment needs more pressing. That is why theyare more concerned about preserving their nationalpolicy space for investment, to be able to use thepolicy instruments that can address their specialneeds.

The discussion here focuses on threeobjectives—attracting FDI, benefiting more fromit and addressing concerns about TNCs. Someobjectives and measures overlap, but they areconsidered separately for convenience.

1. Attracting investment

Countries can attract FDI in many ways.They can simply liberalize the conditions for theadmission and establishment of foreign investorswithout doing much more. They can promote FDIinflows in general, without trying to attractparticular kinds of investment—say, according to

their technology content. Or they can promote FDImore selectively, focusing on activities,technologies or investors. Measures are often usedtogether—by leaving most activities open to foreigninvestors, creating a better investment climategenerally and putting special effort into bringingin particularly desirable investment.

The economic attractiveness of a country forFDI depends primarily on its advantages as alocation for investors of various types. Market-seeking investors look for large and growingmarkets. Resource-seeking ones look for amplenatural resources. And efficiency-seeking ones lookfor a competitive and efficient base for exportproduction.3

More general factors affect all prospectivehost economies: polit ical stabili ty, a soundmacroeconomic framework, welcoming attitudesto foreign investment, adequate skills, low businesstransaction costs, good infrastructure and the like(table III.1).

Given these factors it is still useful to usepromotional policies to attract investors,particularly as competition for FDI mounts andinvestors become choosier. The information forbasing investment decisions is not perfect, andsubjective perceptions matter. Good marketing canmake a difference (of course, only if otherconditions are in place). And it is possible for hostcountries to create conditions that makeinvestments more viable (rather than simplymarketing what they already have). This maysimply involve removing constraints to foreignaffiliate operations. But it may also involve creatingnew skills, infrastructure or support institutions.

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How much promotion is needed depends onthe kind of FDI and the basic attractions of a hosteconomy. A large and dynamic economy needs topromote itself less than a small and less dynamicone. The bulk of the massive inflows into Chinaare not the result of active FDI promotion. Andpromotion can only go so far. If the economic baseis weak or unstable, no amount of persuasion willattract large and sustained FDI inflows.

The main ways countries have sought toattract FDI and the key sensitive issues that arisein IIAs are:

• Reducing obstacles to FDI by removingrestrictions on admission and establishment, aswell as on the operations of foreign affiliates.The key issues here are how investment is tobe defined for liberalizing entry or offeringprotection (direct and portfolio capital flows maybe treated differently) and what kind of controlshould be exercised over FDI admission andestablishment.

• Improving standards of treatment of foreigninvestors by granting them non-discriminatorytreatment vis-à-vis domestic or other foreigninvestors. The key issue here is what degree ofnational treatment should be granted to foreignaffiliates once they are established in a hostcountry.

• Protecting foreign investors through provisionson compensation in the event of nationalizationor expropriation, on dispute settlement and onguarantees on the transfer of funds. A key issuehere is how far the right to expropriate ornationalize extends (especially to what extentcertain regulatory actions of governmentsconstitute takings of foreign property). Anotheris the acceptability of the kind of disputesettlement mechanisms available to foreigninvestors and countries. Third is whatrestrictions, if any, are acceptable on the abilityof governments to introduce capital controls toprotect the national economy.

• Promoting FDI inflows through measures thatenhance a country’s image, provide informationon investment opportunities, offer locationincentives, facilitate FDI by institutional andadministrative improvements and render post-investment services. Host countries do most ofthis, but home countries may also play a role.The key issues here relate to the use of financial,fiscal or other incentives (including regulatoryconcessions) and the actions that home countriescan take to encourage FDI flows to developingcountries.

The general trend is to reduce obstacles,create investor-friendly settings and promote FDI.But the nature and balance of policies applied bycountries varies. Why? Because locationaladvantages differ. Because the cost of somemeasures is much higher than others. And becausegovernments differ in their perceptions of how bestto attract FDI.

2. Benefiting more from FDI

Attracting FDI may not be enough to ensurethat a host country derives its full economicbenefits. Free markets may not lead foreigninvestors to transfer enough new technology or totransfer it effectively and at the depth desired bya host country. But policies can induce investorsto act in ways that enhance the developmentimpact—by building local capabilities, using localsuppliers and upgrading local skills, technologicalcapabilities and infrastructure. The main policiesand measures used for this include:

• Increasing the contribution of foreign affiliatesto a host country through mandatory measures.The objective is to prescribe what foreignaffiliates should do to raise exports, train localworkers or transfer technology. The key issuehere relates to the use of performancerequirements.

• Increasing the contribution of foreign affiliatesto a host country by encouraging them to actin a desired way. The key issue here, as inattracting FDI, is using incentives to influencethe behaviour of foreign affiliates. (Incentivesmay be tied to performance requirements.4)Particularly important here is enticing foreignaffiliates to transfer technology to domestic firmsand to create local R&D capacity.

Countries are learning that foreign affiliateactivity can be influenced to enhance host countrybenefits only if they strengthen their capabilities.New technologies can be diffused in a hosteconomy only if the skill base is adequate or ifdomestic suppliers and competitors can meet TNCneeds and learn from them. Export activity cangrow only if the quality of infrastructure so permits.Governments need to mount policies to builddomestic capabilities, drawing on foreign affiliatesand their parent firms in this effort. And again homecountries can help in various ways throughmeasures of their own. Indeed, even TNCs can tryto increase the benefits to host economies.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives88

3. Addressing concerns aboutTNCs

Despite the general shift of atti tudes infavour of FDI, significant concerns remain aboutpotential negative effects.5 Some major areas ofconcern:

• Anticompetitive practices by foreign affiliates.

• Volatile flows of investment and relatedpayments deleterious for the balance ofpayments.

• Tax avoidance and abusive transfer pricing byforeign affiliates.

• Transfers of polluting activities or technologies.

• Crowding out local firms and suppressingdomestic entrepreneurial development.

• Crowding out local products, technologies,networks and business practices with harmfulsociocultural effects.

• Concessions to TNCs, especially in exportprocessing zones, allowing them to skirt labourand environmental regulations.

• Excessive influence on economic affairs anddecisionmaking, with possible negative effectson industrial development and national security.

Voiced in the past by developed anddeveloping countries, these concerns arediminishing in intensity. But they remain strongenough so that many governments feel the needto control inward FDI and the operations of foreignaffil iates. Most important are concerns aboutanticompetitive practices of TNCs, especiallyrestrictive business practices.

* * *To sum up: governments in developing

countries and economies in transition use a rangeof policies and measures to attract FDI, increase

benefits from it and address concerns about it. Themain ones address the ability of countries to pursuedevelopment-oriented national FDI policies andare particularly sensitive in the context ofinternational investment negotiations:6

• Long-term investment flows that add toproduction capacity (the definition ofinvestment).

• How to treat FDI entry (national treatment inthe pre-establishment phase) and the subsequentoperations of foreign affiliates (nationaltreatment in the post-establishment phase).

• Circumstances under which government policiescould be regarded as regulatory takings.

• The nature of dispute settlement.

• The use of performance requirements.

• The use of incentives.

• The encouragement of technology transfers.

• The role of competition policy.

When entering into international agreements,countries therefore face some difficult decisionsto find the right balance between retaining policyspace and flexibility and reaping the benefits frominternational cooperation.7 Some policies ormeasures may be required to facilitate greater FDIinflows (such as opening up and raising standardsof treatment). But applying restrictions andconditions to such inflows may be necessary toensure that investment brings the desired outcomes.Finding the right balance is not easy—and it variesfrom country to country.

In the past two decades or so, governmentshave been concluding more agreements at thebilateral, regional and multilateral levels thataddress investment issues, at least in part. Theseare referred to here as “international investmentagreements” (IIAs).8 They complement nationalFDI policies—and interact with them.

B. The growth of IIAs

Investment rules are multifaceted, rangingfrom the voluntary to the binding. The obligationsthey set out differ in geographical scope andcoverage. Some of them address only certainaspects of FDI policies. Others address investmentpolicies in general, including policies that affectboth domestic and foreign investors (competitionrules or anticorruption measures). Still others covermost or all important elements of an FDIframework, ranging from admission andestablishment, to standards of treatment to disputesettlement mechanisms. Rising in number (annex

table A.I.13 and A.I.14), IIAs have created anintricate web of commitments that partly overlapand partly supplement one another, creating acomplex set of investment rules.

The most important effort to createinternational rules for investment in the early yearsafter World War II was multilateral—in theframework of the Havana Charter. It failed. Thebilateral level proved to be most productive interms of producing investment rules. It focused firston protection and then on liberalization. The firstinstruments of choice were treaties for the

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protection and promotion of foreign investment—bilateral investment treaties (BITs). Later, free tradeagreements took up the matter as well.

1. Bilateral agreements

BITs are spinoffs from general treatiesdealing with economic relations between countries(such as Friendship, Commerce and Navigationtreaties). Since 1959, the year of the first BIT, theirnumber has grown steadily—to 385 by 1989 andto 2,181 by 2002 (figure I.11).9 Since the secondhalf of the 1990s, their number almost doubled.Now encompassing 176 countries, more BITs arebeing concluded between developing countries aswell as between them and economies in transition(see chapter I), reflecting the emergence of firmsfrom these countries as foreign investors. Today,more than 45% of the BIT universe does notinclude developed countries. They are the mostwidely used international agreement for protectingFDI (table III.2).10 For the world, roughly 7% ofthe FDI stock was in countries party to a BIT, 88%in those party to a DTT. For developing and CEEcountries alone, these figures were, respectively,27% and 64%.11

BITs have remained much the same over time(box III.1). The early focus on protection, treatmentand dispute settlement—the reason for these

Table III.2. How much FDI is covered by BITs—andhow much by DTTs, 2000

Proportion of outward stock protecteda

Home countriesb BITs DTTs

United StatesTotal outward FDI stock 6 96Stock in developing countries and CEE 19 87

EUc

Total outward FDI stock 9 93Stock in developing countries and CEE 73 73

JapanTotal outward FDI stock 7 89Stock in developing countries and CEE 26 61

World d

Total outward FDI stock 7 88Stock in developing countries and CEE 27 64

Source : UNCTAD.a As mentioned earlier, BITs are not concluded between developed

countries.b To the extent that data on outward FDI for specific recipient

countries are not available, the percentage shares areunderestimated. However, these countries are typically relativelysmall FDI recipients.

c The data cover nine EU countries that account for 72% of totalEU outward FDI stocks.

d Based on 27 countries for which data on outward FDI stockby destination are available. They account for more than three-four-fifths of the world FDI stock.

treaties—remains at their centre. But a fewcountries extend them with provisions for the rightto establishment, performance requirements andemployment of key foreign personnel. Thesechanges—mainly in recent BITs, including thosebeing renegotiated—are giving rise to a newgeneration of BITs with greater obligations, withmore far-reaching implications.12

The number of bilateral free trade agreementscovering investment issues is rising as well, withmost early ones involving neighbouring countriesand newer ones tending to be concluded betweendistant countries in different regions and havinginvestment commitments in a separate chapter.Among the main issues addressed: pre-establishment and post-establishment nationaltreatment; most-favoured-nation (MFN) treatment;prohibitions of performance requirements (oftengoing beyond that contained in the Trade-relatedInvestment Measures (TRIMs) Agreement);promotion and protection, including that forexpropriation and compensation; dispute settlement,both State-State and investor-State and transferclauses guaranteeing the free transfer of payments,including capital, income, profits and royalties. Anexample of such a recent agreement is the Japan–Singapore Agreement for a New-Age EconomicPartnership (box III.2).

What has been the impact of BITs on FDIflows? An aggregate statistical analysis does notreveal a significant independent impact of BITsin determining FDI flows (UNCTAD 1998a). Atbest, BITs play a minor role in influencing globalFDI flows and explaining differences in their sizeamong countries.13 Aggregate results do not mean,however, that BITs cannot play a role in specificcircumstances and for specific countries. Forexample, they could signal that a host country’s

Box III.1. The contents of BITs

The scope and content of BITs havebecome more standard over the years. Today,the main provisions deal with the scope anddefinition of foreign investment; admission andestablishment; national treatment in the post-establishment phase; MFN treatment; fair andequitable treatment; guarantees andcompensation in the event of expropriation;guarantees of free transfers of funds andrepatriations of capital and profits; and disputesettlement provisions, both State-State andinvestor-State. But given the sheer number ofBITs, the formulations of individual provisionsremain varied, with differences in the languageof the BITs signed some decades ago and thosesigned more recently.

Source: UNCTAD.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives90

The 2002 Agreement between Japan andSingapore for a New-Age Economic Partnershipis an example of a recent bilateral agreement thatcovers a range of issues, comprising trade ingoods, rules of origin, customs procedures, mutualrecognition, trade in services (including financial,courier and telecoms services), investment,movement of natural persons and governmentprocurement. It also sets out elements forpartnership and cooperation: paperless trading,intellectual property, competition policy, financialservices, information and communicationstechnology, science and technology, humanresource development, trade and investmentpromotion, SMEs, broadcasting and tourism.

The salient features of i ts chapter oninvestment are:

Definition. A broad, asset-based open-endeddefinition of investment: “every kind of assetowned or controlled, directly or indirectly, by aninvestor, including: ….”.

National treatment. National treatment (savethe exceptions scheduled in the annex ofreservations) for the establishment, acquisition,expansion, management, operation, maintenance,use, possession, l iquidation, sale or otherdisposition of investments.

Movement of persons . Facili tating themovement of natural persons between the twocountries for business purposes and mutualrecognition of professional qualifications.

Transfers . Free transfer of payments,including initial capital and additional amountsto maintain or increase investments; profits,capital gains, dividends, royalties, interests andother current incomes accruing from investments;proceeds from the total or partial sale orliquidation of investments; payments made undera contract including loan payments in connectionwith investments; earnings of investors who workin connection with investments, payments arisingout of the settlement of a dispute.

Expropriation and compensation .Investments and investors of both countriesreceive equitable treatment and full protectionand security in many respects, includingguarantees from expropriation or nationalizationof investments, except for a public purpose, ona non-discriminatory basis, in accord with dueprocess of law and upon payment of compensationequivalent to the fair market value of theexpropriated investments.

Box III.2. Investment highlights of a new-age economic partnership

Prohibited performance requirementsbeyond those prohibited by the TRIMs Agreement.Requirement to locate headquarters for a specificregion or the world market; requirement to exporta given level or percentage of services;requirement to supply goods or services providedto a specific region of the world marketexclusively from a given territory; requirementto transfer technology, production processes orother proprietary knowledge; requirement toachieve a given level or value of R&D;requirement to purchase or use services providedin its territory, or to purchase services fromnatural or legal persons in i ts territory; andrequirement to appointment to senior managementpositions individuals of any particular nationality.Certain exceptions apply.

Dispute settlement. Comprehensive disputesettlement mechanism, both State-State andinvestor-State. In this regard, the Agreement, asa rule, encourages amicable settlement throughconsultations between the parties to an investmentdispute. If such dispute cannot be settled throughsuch consultations within five months and if theinvestors concerned have not submitted theinvestment dispute for resolution underadministrative or judicial settlement, or in accordwith any applicable, previously agreed disputesettlement procedures, they may either requestthe establishment of an arbitral tr ibunal inaccordance with the procedures set out in theAgreement, or submit the investment dispute toconciliation or arbitration in accord with theprovisions of the ICSID Convention or under theArbitration Rules of the United NationsCommission on International Trade Law.

Monitoring (implementation). Establishesa monitoring system for the purpose of effectiveimplementation of the chapter on investment. Tothis end, a joint committee on investment is tobe set up, entrusted with reviewing and discussingthe implementation and operation of the chapteron investment; reviewing the specific exceptionsrelated to national treatment and the prohibitionof performance requirements for the purpose ofcontributing to the reduction or elimination ofsuch exceptions and encouraging favourableconditions for investors of both countries; anddiscussing other investment-related issues.

There are also provisions on investment inthe services chapter.

Source: UNCTAD.

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attitude towards FDI has changed and its investmentclimate is improving—and to obtain access toinvestment insurance schemes. Indeed, investorsappear to regard BITs as part of a good investmentframework.

Why this finding? The policy framework isat best enabling, having by itself little or no effecton FDI flows. It has to be complemented byeconomic determinants that attract FDI, especiallymarket size and growth, skills, abundantcompetitive resources and good infrastructure. Asa rule, IIAs tend to make the regulatory frameworkmore transparent, stable, predictable and secure—that is, they allow the economic determinants toassert themselves. And when IIAs reduce obstaclesto FDI and the economic determinants are right,they can lead to more FDI. But it is difficult toidentify the specific impact of the policy frameworkon FDI flows, given the interaction and relativeimportance of individual determinants.

2. Regional and interregionalagreements

The universe of regional and interregionalagreements dealing directly with investment mattersis growing as well (annex table A.I.13).14 But onlyfew are devoted exclusively to investment, withthe OECD liberalization codes covering capitalmovements and current invisible operations (1961)and the OECD Declaration on InternationalInvestment and Multinational Enterprises (1976)being particularly noteworthy. Recent examplesinvolving developing countries include theFramework Agreement on the ASEAN InvestmentArea and the Andean Community’s Decision 291.Unlike BITs and bilateral free trade agreements,not all regional instruments are binding. Normsof a non-binding nature relating to foreigninvestment in the Asia–Pacific EconomicCooperation (APEC) have been adopted in the 1994APEC Non-Binding Investment Principles.

The trend is towards comprehensive regionalagreements that include both trade-related andinvestment-related provisions, even extending toservices, intellectual property rights andcompetition. Indeed, most regional free tradeagreements today are also free investmentagreements, at least in principle. NAFTA and theMERCOSUR Protocols are examples. So is the FreeTrade Area of the Americas, now under negotiation(box III.3). The general aim is to create a morefavourable trade and investment framework—through the liberalization not only of regional tradebut also of restrictions to FDI and through areduction of operational restrictions, all to increasethe flow of trade and investment within regions.

Generally addressing a broader spectrum ofissues than bilateral agreements, regionalagreements allow tradeoffs across issue areas. Andthose between developed and developing countriestypically use the panoply of traditional internationallaw tools—such as exceptions, reservations andtransition periods—to ensure flexibility in cateringto the different needs, capacities and policyobjectives of countries.

As with BITs it is difficult to identify theimpact on FDI of regional or interregionalagreements dealing only with the harmonizationof investment frameworks of member countries.They improve the enabling framework. And wherethey reduce obstacles to FDI (as most regionalagreements do), they can increase investmentflows—again, if the economic determinants arefavourable. The main economic determinant thatinfluences FDI flows in regional agreements ismarket size. But that is the result of reducingbarriers to trade—not of FDI.

3. Multilateral agreements

Renewed efforts to create comprehensivemultilateral rules for FDI, even non-binding onesundertaken occasionally in the postwar period, haveshared the fate of the first effort—and failed. Mostprominent among them were the United NationsCode of Conduct on Transnational Corporations(in the late 1970s and 1980s) and a MultilateralAgreement on Investment by the OECD (in the late1990s). But the World Bank Guidelines on theTreatment of Foreign Direct Investment, a non-binding instrument, set down (in 1992) certainstandards of treatment for investors on which alevel of international consensus could be said toexist.

Some efforts dealing with specific investmentaspects bore fruit as well. The Convention on theSettlement of Investment Disputes between Statesand the Nationals of other States provides aframework for the settlement of investmentdisputes. The ILO Tripartite Declaration ofPrinciples Concerning Multinational Enterprisesand Social Policy deals with a range of labour-related issues. The Convention Establishing theMultilateral Investment Guarantee Agency (MIGA)enhances the legal security of FDI bysupplementing national and regional investmentguarantee schemes with a multilateral one.

The WTO Agreement on TRIMs prohibitscertain trade-related investment measures (adoptedas part of the Uruguay Round). And the GeneralAgreement on Trade in Services (GATS), alsoconcluded as part of the Uruguay Round, offersa comprehensive set of rules covering all types of

World Investment Report 2003 FDI Policies for Development: National and International Perspectives92

By May 2003 the countries participating inthe negotiation of a Free Trade Area of theAmericas (FTAA) had completed three negotiatingphases, with the fourth to be concluded by ameeting of FTAA ministers responsible for tradein November 2003. Two results are important: thepreparation of a draft agreement and the launchingof market access negotiations.

The single most important achievement is thedraft agreement covering the issues addressed bythe FTAA negotiating groups, including theNegotiating Group on Investment. The first draftAgreement was prepared for the FTAA MinisterialMeeting held in Buenos Aires on 7 April 2001, thesecond draft for the Quito Ministerial Meeting on1 November 2002. Both drafts are available on theofficial FTAA website (http://www.ftaa-alca.org).A third draft is being prepared for the November2003 Ministerial.

The Negotiating Group on Investment is oneof the negotiating groups (market access,agriculture, services, government procurement andinvestment) instructed by FTAA ministers to initiatemarket access negotiations on 15 May 2002. Asagreed by the FTAA Trade Negotiations Committee,init ial offers had to be presented between 15December 2002 and 15 February 2003, withsubmissions of requests for improvements of theoffers to be made between 16 February 2003 and15 June 2003. The process for the presentation ofrevised offers began on 15 July 2003. In the caseof the Negotiating Group on Investment theCommittee stated that the initial offer had to becomprehensive and in accordance with current lawsand regulations. A negative list approach had tobe used. The Committee also agreed that investmentoffers for the supply of services throughcommercial presence may be submitted anddiscussed in the Negotiating Group on Services,in the Negotiating Group on Investment or in both.The Negotiating Groups on Services and Investmentshall, as general rule, continue to meet separately.However, if deemed necessary, both groups maymeet to hold joint discussions on issues in common,particularly commercial presence. At its April 2003meeting, the Committee instructed the Chairs ofthese Negotiating Groups on Services andInvestment to hold a joint meeting to discusscommercial presence and investment in services.

All of the text in the Investment Chapter ofthe November 2002 FTAA draft Agreement isbracketed—that is, participating countries have yetto agree on its language. Issues covered in thechapter include scope, basic definitions, nationaltreatment, MFN treatment, exceptions to nationaltreatment and MFN treatment, standard oftreatment, fair and equitable treatment, performancerequirements, key personnel, transfers,expropriation, compensation for losses, generalexceptions and reservations, dispute settlement,transparency, the commitment not to relax domesticlabour or environmental laws to attract investment,the relationship with other chapters, extraterritorial

Box III.3. The Free Trade Area of the Americas

application of laws on investment-related issuesand special formalities and informationrequirements.

The 2002 FTAA draft Agreement containsseveral proposals on the definition of investment,most adopting a broad asset-based definitioncovering not only FDI but also portfolio andintellectual property, among other elements. As thedraft text suggests, the discussion in theNegotiating Group on Investment focuses onwhether to adopt a broader definition based on theterm “asset” or a narrow “FDI-only” definition,whether to include an illustrative or exhaustive listof elements covered in the definition of investmentand whether to include a list that clarifies whatshould not constitute an investment.

There are two different approaches to nationaltreatment. One implies a market access componentwith a l ist of reservations (country-specificexceptions). Some proposals under this approachspecify all phases of an investment (establishment,acquisition, expansion, management, conduct,operation, sale or other disposition of investment)and require that national treatment be accorded “inlike circumstances”. In the other approach, nationaltreatment is granted in accordance with the lawsand regulations of the host country. The draftAgreement also includes a provision on nationaltreatment at the subnational level.

On performance requirements, there are twomain views in the draft Agreement. One is to adopta list of prohibited performance requirements(operation and incentives) covering goods andservices, the other to favour a much narrower view,not going beyond the WTO TRIMs Agreement. Asin NAFTA the issue of investment incentives isaddressed under performance requirements only.Some performance requirements, prohibited whenmandatory, are allowed when they are combinedwith an advantage or a subsidy. Examples includerequirements to locate production, provide aservice, train or employ workers, construct orexpand particular facilities or carry out R&D.

The section on expropriation in the seconddraft of the FTAA Agreement contains languagefound in many other investment agreementsprohibiting a party from directly or indirectlynationalizing or expropriating an investment of aninvestor of another party—except for a publicpurpose, on a non-discriminatory basis, inaccordance with due process of law and on paymentof prompt, adequate and effective compensation.Most relevant here is how the next drafts of theFTAA Agreement take into account the experienceof free trade agreements signed in the past decade,such as NAFTA and the Chile–United States FreeTrade Agreement. The same can be said of otherissues such as fair and equitable treatment andinvestor-State dispute settlement.

With new governments having taken officethis year, some modalities of the negotiations maybe reviewed.

Source : UNCTAD.

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international services delivery, including“commercial presence”, akin to FDI. The GATSleaves member countries considerable flexibilityon the scope and speed of liberalizing servicesactivities. It allows them to inscribe, within theirschedules of commitments, activities that they wishto open and the conditions and limitations for doingthis—the positive list approach.

In their Declaration at the Fourth Session ofthe WTO Ministerial Conference in Doha inNovember 2001, members of the WTO agreed ona work programme on the relationship betweentrade and investment (paragraphs 20–22).15 Indoing so, they recognized (in paragraph 21) theneed for strengthened technical assistance in thepursuance of that mandate, explicitly referring toUNCTAD.16 In response, the WTO Working Groupon the Relationship between Trade and Investment(set up at the WTO’s 1996 Ministerial Conference

in Singapore) has been deliberating on the sevenissues17 listed in paragraph 22 of the Declarationas well as technology transfer. In its meeting on1 December 2002, the Group discussed its annualreport and an intervention by a group of developingcountries dealing with home country measures andinvestor obligations.

The discussions of the Working Group arereported to the WTO General Council. Recognizedat Doha was “the case for a multilateral frameworkto secure transparent, stable and predictableconditions for long-term cross-border investment,particularly foreign direct investment, that willcontribute to the expansion of trade” (paragraph20). It was also agreed “that negotiations will takeplace after the Fifth Session of the MinisterialConference on the basis of a decision to be taken,by explicit consensus, at that Session on modalitiesof negotiations” (WTO 2001b, paragraph 20).18

C. Features of IIAs at different levels

What are the advantages and disadvantagesof bilateral, regional and multilateral approachesto negotiating IIAs?19 There is no straightforwardanswer, since the three approaches serve differentpurposes. The main objective of most BITs is toprovide investor protection at the internationallevel. Bilateral and regional approaches thatcombine investment and trade seek to reap thebenefits of larger markets through tradeliberalization accompanied by investmentliberalization and sometimes protection. Amultilateral approach can aim at both protectionand liberalization. Presented here is a summary ofarguments relating to the advantages anddisadvantages of IIAs at different levels. They arepresented without judgments about which countriesshould follow. It is their sovereign right to decidethe approach that is best for them, if they wish tonegotiate IIAs at all.

1. Bilateral approaches

The bilateral approaches, mainly BITs andfree trade agreements with an investmentcomponent, have the advantage of allowingcountries the freedom of choosing the partners toenter into an agreement and how to tailor theagreement to their specific situations. They offercountries flexibility in designing their networksof IIAs, concluding them with countries that arekey investors, avoiding countries that are lessinteresting or that may insist on unwantedprovisions. Allowing each treaty to be negotiatedseparately gives developing countries moreflexibility than under a multilateral approach. In

addition, BITs can be negotiated quickly. Importantis also that the overwhelming number of BITs coveronly the post-establishment stage of investment,leaving admission and establishment—which havethe greatest development implications—to bedetermined autonomously by host countries.

On the other hand, asymmetries in bargainingpower put weaker economies at a disadvantage inthe negotiations of bilateral agreements. Althoughthis applies in all negotiating situations, it isparticularly relevant in agreements between largedeveloped countries and small and poor developingones—and when bilateral agreements go beyonda narrow coverage. In some recent cases, theprincipal objective of investor protection has beencomplemented with liberalization clauses relatedto the right of establishment and an expanded listof restricted performance requirements. So, theother side of the “flexibility” of the bilateralapproach is that developing countries may beentering IIAs of broader scope. The implicationsof this are—for example because of the MFNclause—still far from fully understood (box V.2).

Moreover, imagine the negotiation ofbilateral investment agreements (hypothetically)involving all combinations of members of theUnited Nations. More than 18,000 agreementswould be needed to obtain complete coverage. Suchan extensive network would be costly and achallenge to administer. In addition, the extensionof bilateral treaty coverage and the freedom of pairsof countries to define their provisions, could leadto uncertainty, potentially inconsistent rules andlegal conflicts.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives94

2. Regional and interregionalapproaches

Regional and interregional approachestypically deal with a range of issues, so there ismore room for tradeoffs and bargaining. With theoverall purpose of expanding the regional market,they often include the liberalization of foreign entryand establishment—and reduce operationalrestrictions. They offer—indeed require—moreflexibility in how treaty provisions are applied tothe different countries. Hence, the frequent use ofexceptions, reservations, transition periods and thelike, intended to ensure flexibility and cater to theneeds and capacities of parties at different levelsof development (see also chapter V).

Where regional agreements include rules oforigin, insiders may benefit in attracting FDI. Thedownside is that they are discriminatory. Countriesoutside the integrating region may be hurt by thediversion of investment. Investment by thirdcountries in such a region may also divert trade.

3. Multilateral approaches

The advantages and disadvantages ofmultilateral approaches are difficult to assess. Thebalance of advantages and disadvantages dependson the objectives, structure, content andimplementation. One of the first arguments putforward in favour of a multilateral framework forinvestment was that it would facilitate furtherexpansion of FDI. It was argued that legallybinding multilateral disciplines in investment wouldimprove the enabling environment—by contributingto greater transparency, stability, predictability andsecurity for investment in sectors not yet coveredby multilateral rules. International obligationswould also help reduce investor risk perceptionsand narrow the gap between the actual risk ofpolicy instability that may be suggested by a hostcountry’s domestic legislation, and the risk asperceived by foreign investors (Eglin 2002).20 Ifmultilateral disciplines further reduced obstaclesto FDI beyond what other IIAs do, this (plus theright economic determinants) would presumablylead to higher investment flows.

Even then, however, multilaterally agreedinvestment rules would not by themselvesguarantee higher FDI flows.21 Nor would it bepossible to predict the geographical distributionof FDI flows, because this would be determinedfirst and foremost by the economic fundamentalsof individual locations.22

So, is a new framework needed in the firstplace? Since the GATS allows selectiveliberalization to the opening of services (the sectorwith most restrictions), investment is alreadycovered, and with that some two-thirds ofworldwide FDI (although less in the case of thedeveloping countries). Rules for primary andmanufacturing industries would of course completethe existing rules on services. But FDI inagriculture is insignificant, and that in naturalresources is largely covered by individual contractsbetween investors and governments. Andmanufacturing is already open to FDI, withcountries competing among themselves to attractinvestors, providing various incentives. Moreover,a multilateral framework for investment insurancealready exists, with MIGA—and for disputesettlement, with ICSID, UNCITRAL, the New YorkConvention on the Recognition and Enforcementof Foreign Arbitral Awards and various othermechanisms.

Some countries see multilateral disciplinesas an important complement to the bilateral andregional IIAs, to create a common legal basis.23

Indeed, a multilateral agreement could create the“floor” of standards applicable to IIAs in general(though this would not necessarily be uniform ifa GATS-type positive list approach were used).Some fear that the floor would be too low,providing lower standards of protection and marketaccess than BITs and regional agreements. Othersfear that the floor could be too high (even whenexceptions, derogations and the like are allowed),constraining national policy space too much.

Whether the floor is low or high, amultilateral framework would lock in whateverwould be agreed. But it would not constitute aceiling of rules in the investment area24 becausecountries would sti l l be free to go beyondmultilateral standards when they negotiatebilaterally or regionally. In other words, amultilateral framework would most likely notreplace the large and rapidly growing number ofIIAs. And it could well be that a multilateralinstrument would serve as a starting point for morefar-reaching bilateral and regional negotiations inthe future.

One reason it may be difficult to reach ahigh-standard agreement is that the negotiatingdynamics of multilateral negotiations often leadto lowest-common-denominator compromises.25

But there is also a substantive reason: developingcountries are concerned that their policy spacewould be unduly restricted—and that the balance

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of rights and responsibilities would be tilted againstthem. By their nature, multilateral negotiations tendto seek uniform one-size-fits-all solutions, thoughexceptions and other provisions can be built in.It is in this context that flexibility, special anddifferential treatment and specific developmentprovisions become pertinent (chapter V).

One also needs to consider that multilateralnegotiations may open opportunities for tradeoffs.In reaching explicit consensus on the modalitiesof investment negotiations, developing countriescould put a few issues of their own on thebargaining table (apart from the ones that arealready there, beginning with agriculture):

• Broadening mode 4 of the GATS (movement ofnatural persons).

• Increasing flexibility for the use of prohibitedTRIMs and clarifying the precise scope of theTRIMs Agreement’s illustrative list to containits extension.

• Committing to reduce gradually certaininvestment-related trade measures (UNCTAD1999e), such as tariff peaks, tariff escalation andanti-dumping rules adopted by developedcountries.

• Committing home countries to bind a range ofmeasure to encourage FDI flows to developingcountries and increase their benefits.

• Committing to encourage good corporatecitizenship by TNCs.

• Agreeing on a substantial and sustained technicalcooperation effort in investment.

It is difficult to assess the feasibility of anyof these ideas at this stage. But they could be partof a positive investment agenda by developingcountries—in an effort to be prepared, if need be,to discuss investment matters on the basis of theirown needs and priorities.

Ultimately, the case for a multilateralframework on investment may rest on the extentto which countries judge multilateralism to be amore attractive approach. It has been argued thatmultilateralism can be a way for weaker countriesto pool their influence to give them a better positionvis-à-vis stronger ones. However, this does notmean that differences in power disappear. As withbilateral and regional agreements, multilateralnegotiations involve bargaining power andnegotiating capabilities, with the built-in risk thatstronger parties can gain over weaker ones.Moreover, multilateralism in the investment areais not necessarily the same as in the trade area,

where the defining characteristics includereciprocity, non-discrimination and special anddifferential treatment:

• Reciprocity in trade is based on the fact thatevery country imports and exports. Ininvestment, every country attracts at least someinvestment, but for the great majority ofdeveloping countries, outward FDI is negligible.

• In trade non-discrimination applies to thetreatment of goods and services in markets andis fairly clearly circumscribed, at least inprinciple. In investment it relates to a broad setof policies—in principle all those bearing onthe production (indeed development) process.So it is much more intrusive and sensitive andthus more difficult to tackle.

• The principle of special and differentialtreatment is well established in trade, findingits expression there in a number of ways,although even here it is not fully implemented.It still needs to be developed further ininvestment, and put in operation.

So, a multilateral approach to investment, ifpursued, raises distinctive questions of its own—questions that also arise for bilateral and regionalapproaches.

In this respect, multilateral negotiationscould in principle give developing countries greaterleverage than regional or bilateral ones, at leastfor those substantive issues on which they canreach common positions. In particular, by poolingtheir influence, developing countries might be ableto obtain what seems to be more difficult to obtain(or protect) at the bilateral and regional levels,foremost more development friendly outcomes onkey issues and development provisions. Amultilateral framework could also serve as abenchmark for agreements at the bilateral andregional levels, helping countries in this respectby offering an accepted model to consider. And itcould be of help to those governments that mightwant to use multilateral disciplines to supportdomestic investment reforms.

With investment conflicts likely to becomemore frequent as FDI grows, it might also bedesirable for developing countries to carry outdisputes in a framework based on the “rule of law”as opposed to “the rule of power”. But bringinginvestment issues into the WTO increases the riskof developing countries finding themselves at thereceiving end of retaliatory, trade-related actionsin the WTO dispute settlement mechanism. Unlessways are found to insulate them from cross-

World Investment Report 2003 FDI Policies for Development: National and International Perspectives96

retaliation,26 the mechanism could be used topenalize countries in non-investment areas forbreaches of investment rules.

There are also broader concerns, mostnotably that launching multilateral negotiations oninvestment in the WTO could divert attention frommore pressing issues on the already fullinternational economic agenda. If investmentliberalization is already happening on a unilateral,bilateral and regional basis, should not the WTOfocus on such areas as agriculture, theimplementation of existing agreements and specialand differential treatment? The negotiation of amultilateral framework within the WTO requiresparticular attention to coherence across the wholerange of WTO agreements and their relation toother agreements in both trade and investment—a difficult task.

To reiterate, these are arguments advancedin the discussions of a multilateral framework forinvestment. Each country has to decide for itselfwhich of these (and others) reflect its own interestand, in the light of this, decide its own course ofaction.

* * *

All in all, the proliferation of IIAs at alllevels means that national FDI policies take placein a very different context from just 20 years ago.The various approaches to international rule-making all have their merits and weaknesses, theirbenefits and costs. Whether it is desirable for acountry to pursue one approach thus dependsprimarily on what it seeks from an agreement—investor protection, l iberalization, broaderinternational cooperation. Finally, the developmentorientation of any agreement depends on itsobjectives, structure, substantive provisions andimplementation. What is clear is that agreementsaffect, and interact with, the eight key nationalpolicy issues identified at the beginning of thischapter. How and how much are the subject ofchapter IV.

Notes

1 For an earlier treatment of many of the issuesdiscussed here see WIR96; UNCTAD’s Series onIssues in International Investment Agreements(Geneva: United Nations, various years); UNCTAD1998a; and the reports submitted by the WTOSecretariat to the Working Group on the Relationshipbetween Trade and Investment, as well as the reportson its meetings (Geneva: WTO, various years).

2 Economic considerations have to be seen in thepolitical, social, cultural and historical context inwhich host country policies are being pursued, thoughthere has been a tendency for economic factors to

become more important in influencing policyobjectives.

3 For a fuller discussion of various types of FDI andtheir determinants, see WIR98, chapter IV.

4 Performance requirements are linked more to theprovision of incentives, making them behaviouralincentives as distinguished from locational incentives.

5 For a full discussion of such concerns, see WIR99.6 Each of these issues is mentioned in paragraph 22

of the Doha Declaration or was brought up in thediscussions of the WTO Working Group on theRelationship between Trade and Investment. Theexceptions are regulatory takings and incentives. Theformer issue has played an important role in theNAFTA context, a role that contributed to thereference to the right to regulate in the DohaDeclaration. Incentives are closely l inked toperformance requirements and, in any event, partlysubject to the WTO’s Subsidies and CountervailingMeasures Agreement. Restrictive business practiceswere the aspect of competition policy most discussedin the Working Group.

7 There may be a difference between what kind ofpolicies governments pursue at the national level andwhat they are prepared to agree to at the internationallevel. For example, a government may have laws andregulations in place that open certain industries toforeign investors; at the same time, it may not bewilling to enshrine the right of establishment inIIAs—precisely to maintain the flexibility to changeits policy if need arises. The same phenomenon existsin the trade area where actual tariffs are often lowerthan bound tariffs.

8 Unless otherwise specified, the IIAs referred to inthis chapter and the next ones are contained inUNCTAD, International Investment Instruments: ACompendium (Geneva: UNCTAD, various years). Thecreation of the European Union influenced manyregional schemes that would like to repeat its success,even though they do not go as far as the EU on someelements of supranationality. Since the EU is anestablished supranational legal order dedicated to theintegration of i ts member countries in the fieldcovered by EU law, it will not be discussed in thefollowing chapters.

9 BITs are not concluded between developed countries,as their legal systems reflect investor protectionstandards evolved over many years of experience withsuch issues. Parallel to BITs, countries have alsoconcluded agreements for the avoidance of doubletaxation (DTTs), 2,256 by the end of 2002 (figureI.11). They address, among other things, the allocationof taxable income, reducing incidents of doubletaxation.

10 They are, however, a far cry from a full geographicalcoverage: 18,145 BITs would be needed to ensurefull coverage of the world’s 191 economies.

11 Based on 27 countries for which data on outward FDIstock by destination are available. They account formore than three-quarters of the world FDI stock.

12 The title of the “Agreement between the Governmentof the Republic of Korea and the Government ofJapan for the Liberalisation, Promotion and Protectionof Investment”, signed 22 March 2002, is perhapsindicative.

13 A more recent test similar to UNCTAD’s also foundthat “there was little independent role for BITs inaccounting for the increase in FDI” by the end of the1990s and that “countries that had concluded a BIT

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were no more likely to receive additional FDI thanwere countries without such a pact” (World Bank2003, p. 129). But a study of determinants of FDIin CEE found that “bilateral investment treaties, thedegree of enterprise reform and repatriation rulestended to stimulate FDI” (Grosse and Trevino 2002,p. 22).

14 Most of these instruments (or relevant excerpts) havebeen published in UNCTAD, International InvestmentInstruments: A Compendium (Geneva: UNCTAD,various years).

15 “Ministerial declaration” (WTO 2001b).16 For the text of the relevant paragraphs, see WIR02,

chapter I . For a progress report on UNCTAD’sactivities in this area, see UNCTAD, 2002h, 2003e.

17 The Doha Declaration provides in paragraph 22: “Inthe period until the Fifth Session, further work inthe Working Group on the Relationship BetweenTrade and Investment will focus on the clarificationof: scope and definition; transparency; n o n -discrimination; modalities for pre-establishmentcommitments based on a GATS-type, positive listapproach; development provisions; exceptions andbalance-of-payments safeguards; consultation and thesettlement of disputes between Members”.

18 In an explanatory statement at the end of the DohaMinisterial, the Chair observed: “I would like to notethat some delegations have requested clarificationconcerning paragraphs 20, 23, 26 and 27 of the draftdeclaration. Let me say that with respect to thereference to an ‘explicit consensus’ being needed,in these paragraphs, for a decision to be taken at theFifth Session of the Ministerial Conference, myunderstanding is that, at that session, a decision wouldindeed need to be taken by explicit consensus, beforenegotiations on trade and investment and trade andcompetit ion policy, transparency in governmentprocurement and trade facilitation could proceed.In my view, this would also give each member theright to take a position on modalities that wouldprevent negotiations from proceeding after the FifthSession of the Ministerial Conference until thatmember is prepared to join in an explicit consensus.”(www.wto.org/english/thewto_e/minist_e/min01_e/min01_chair_speaking_e.htm)

19 There is a wide range of literature on this subject.NGOs have been particularly active in thediscussions. See, most recently, for example ActionAid 2003; Chang and Green 2003; CUTS 2003;Hardstaff 2003; Khor 2002; Oxfam 2003a; Oxfam et

al. 2003b; World Development Movement and Friendsof the Earth 2003.

20 On the other hand (and this applies to the bilateraland regional levels as well), risk reduction can alsobe achieved through investment contracts betweenTNCs and host countries (as is common practice insome primary industries). These contracts typicallyhave legally binding protection provisions over andabove those in applicable bilateral or regionalagreements, not to say in domestic legislation. Inmulti-country investment projects l ike largeinfrastructure developments, host countries mayenhance investor security by supplementing existingBITs with an intergovernmental agreement committingthem to certain standards and incorporating these intothe investment contracts with the investors.

21 To quote a “Communication from Canada, Costa Ricaand Korea” to the WTO Working Group on theRelationship between Trade and Investment:“Similarly, a multilateral framework for investmentin the WTO would not guarantee greater investmentflows” (WTO document WT/WGTI/W/162, p. 2). Arecent World Bank report (World Bank 2003b, p.XVII) concludes similarly: “International agreementsthat focus on establishing protections for investorscannot be expected to expand markedly the flow ofinvestment to new signatory countries”.

22 In this connection, i t has been suggested that amultilateral system of rules rather than a network ofbilateral and regional agreements would contributeto a level playing field worldwide. This would allowinvestment decisions to be taken more on the basisof economic efficiency and actual opportunities indifferent host countries. Distort ions caused byconflicting rules, incentives, subsidies and marketaccess discrimination could be reduced by closermultilateral cooperation. This would ensure a betterallocation of FDI, which would release additionalresources that would otherwise be used inefficientlydue to distortions.

23 One could also argue that multilateral negotiationsmay be more transparent (as compared to bilateralnegotiations) in that they are more likely to receivescrutiny from the public, including civil societygroups, given their higher profile.

24 Unless explicitly agreed upon in a variation of theGATT Article XXIV economic integration clause.

25 But not necessarily so: see the TRIPS Agreement.26 Cases of cross-retaliation authorized by the WTO

Dispute Settlement Body are rare.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives98

CHAPTER IV

EIGHT KEY ISSUES: NATIONAL EXPERIENCESAND INTERNATIONAL APPROACHES

As countries engage more in internationalrule-making in investment, they confront complexissues arising from the interaction between nationalpolicy making and international investment rule-making. Eight stand out as being particularlyimportant and sensitive:

• How to define investment.

• How to treat the entry of FDI and the subsequentoperations of foreign affiliates.

• Where the dividing line should be betweenlegitimate policy action and regulatory takings.

• What mechanisms should be used for disputesettlement.

• How to use performance requirements andincentives.

• How to encourage the transfer of technology.

• How to ensure competition, including the controlof restrictive business practices, by foreignaffiliates of TNCs.

These eight issues are not all the importantissues that deserve attention from negotiators whendevising national FDI policies or negotiating IIAs.Others include MFN treatment, fair and equitabletreatment, transparency, extraterritoriality concernsand taxation.1 On balance, there is less controversysurrounding them.2 There are also broader issues,including the approach to liberalization. With the“negative list” approach, countries list industriesthey want to keep exempted from liberalization.With the “positive list” (or “GATS-type”) approach,countries list the industries to which specificprovisions of an agreement apply and theconditions for applying them. These issues (andothers) will be discussed below (chapter V).

A. Definition of investment

The definition of “investment” ininternational investment agreements (IIAs),combined with the substantive provisions, hasprofound developmental implications, because itdefines their scope and reach. For developingcountries the key issue is whether investment isdefined narrowly, focusing on FDI, or broadly,including virtually every asset connected withforeign investors. Developing countries haveindicated a preference for a narrow definition inthe discussions of the WTO Working Group on theRelationship between Trade and Investment, butthe trend in IIAs has been towards a broad asset-based definition. Even a broad definition can benarrowed, for example, through reservations,affording countries the right to exclude certaintypes of investment (such as portfolio investment)or by limiting the applicability of specificoperational provisions. Another approach is to giveeach government the choice, when negotiating anIIA, to commit to either a narrow or a broaddefinition.

1. Why the definition ofinvestment matters

The definition of investment on its own hasno direct impact on attracting FDI or benefitingmore from it. But defining a certain capital flowor asset as “investment” bestows certain rights onforeign investors and thus facili tates foreigninvestment. The definition also raises concerns.Obligations to meet financial transfer requirementscould for many developing countries at times bedifficult to fulfil. Possible complications could arisefor macroeconomic management of capital flowsof a type and magnitude that may be beyond thecontrol of national governments. And volatilecapital flows have implications for domesticfinancial stability.

Thus, the definition of investment isfundamental to national laws and internationalagreements pertaining to FDI, since it delineateswhich assets or investment flows are covered by

World Investment Report 2003 FDI Policies for Development: National and International Perspectives100

the operational provisions of those laws and IIAs,for example, as they relate to national treatment.The main question is not whether FDI should bedefined as investment—it is. The question is whatother investment should be granted the same status:portfolio investment (both equity and debtcomponents), other capital flows (bank loans, non-bank loans and other flows) and various investmentassets (both tangible and intangible, includingintellectual property rights).3

“Investment” does not have a generallyaccepted meaning. The internationally acceptedmethod for classifying and recording cross-borderforeign investment flows for balance-of-paymentsstatistics divides them into direct investment,portfolio investment, financial derivatives and otherinvestment.4 National laws and IIAs also providedefinitions of “investment” and “foreigninvestment”, which often differ considerably fromthe balance-of-payments definition. They caninclude, in addition to some types of cross-borderinvestment flows, a wide variety of assets, bothtangible and intangible. Indeed, the definitionsutilized in these laws and agreements varyconsiderably.5 Note that the legal interpretationof investment cannot be predicted with certaintyin the course of the settlement of disputes.

Different types of capital flows have differentimplications for a host economy: some are long-term flows not normally prone to quick reversalor to speculative movements, and some are highlyliquid flows that can easily be reversed. The policyimplications of fully liberalizing highly liquid flowsmay be far reaching. Indeed, the degree of capitalaccount liberalization that may be required ofsignatories to a given IIA is important for somedeveloping countries.

Developed countries, with relatively well-developed financial markets and regulatoryframeworks, relatively stable macroeconomicconditions and convertible currencies, have movedto full liberalization of their capital accounts,covering all forms of capital flows and other typesof investment. In negotiations with developingcountries, they often seek a broad definition ofinvestment to protect assets generated byinvestment and to promote liberalization. Privateinvestors also prefer a broader definition, notnecessarily because they wish to hedge or speculatebut because they want more security.

But many governments of host developingcountries, at least in multilateral discussions, arewary. They wish to retain policy tools to deal withdifferent types of flows in different ways ratherthan define them all as investment in a way thatconstrains their use. Because portfolio investmentinstruments and derivatives can be used for

speculative purposes that destabilize foreignexchange markets or domestic financial markets,a government may prefer to exclude them from thedefinition. This allows governments flexibility toimplement policies to maintain financial stability—hence many developing countries prefer (at leastin multilateral discussions) to confine the definitionof “investment” to long-term flows and excludepotentially volatile capital flows.

The inclusion of non-FDI forms ofinvestment is thus a difficult matter for manycountries. Some of these difficulties can beaddressed through special provisions, exceptionsand safeguards.6 But the broader the definition,the more complicated it is to do so. Safeguards fortraditional balance-of-payments crises, speculativeattacks and contagion from crises abroad areimportant here.7

In conceptual terms, FDI and foreignportfolio investment are distinct. Direct investmentinvolves both a long-term interest in, andsignificant management influence over, a foreignaffiliate. Portfolio investment may include a long-term interest, but it seldom involves managerialcontrol. For statistical purposes, a threshold of 10%of share ownership has been established todifferentiate equity holdings of direct and portfolioinvestors.8 But in practice, the line betweendifferent types of investment is sometimes difficultto draw. In some circumstances, foreign investorsmay use their assets as collateral to borrow fromlocal capital markets and use the proceeds forhedging or speculation.9 Conversely, venturecapitalists can take a significant managementinterest in a venture without a large shareholding—and their activity, conventionally defined asportfolio investment, is similar to direct investment.But for the bulk of investment flows, a distinctionbetween FDI and non-FDI is possible.

2. Scope of definitions

The general trend towards a broad definitionof investment is not universal, and there aresignificant differences by level of development.A number of developed countries do not havespecific legislation or policies on FDI and so donot need to define it . Developing countries,concerned about the effects of volatile capitalflows, have narrow definitions (in practice if notin the legal terminology). The financial crises ofthe 1990s strengthened the case for adoptingdefinitions with great care.

The definition can magnify or reduce thescope of an IIA. But because it is exercised throughthe substantive provisions of an IIA, it cannot beconsidered in isolation.

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IIAs have used three types of definitions ofinvestment: asset-based, transaction-based orenterprise-based:

• Asset-based definitions are the most commonin investment protection agreements. They tendto be broad—including assets and capital flows,movable and immovable property, interests incompanies, claims to money, intellectualproperty rights and concessions. They can,however, be deliberately limited. Governmentshave, for instance, limited the coverage toinvestment made in accordance with the lawsof the host country or on the basis of previousadministrative approval. They have alsoexcluded investment made before the conclusionof the IIA, as well as types of investment, suchas portfolio investment. And some place limitson the minimum size of an investment.

• Transaction-based definitions protect not assetsbut the financial flows through which foreigninvestors create or acquire domestic assets. Forexample, the OECD Code of Liberalisation ofCapital Movements does not define investment,but it has a list of capital transactions betweenresidents and non-residents that are subject toliberalization commitments, including inwardand outward investment.

• Enterprise-based definitions confineliberalization and protection to the enterprisesestablished by foreign investors in a hostcountry. Used in the Canada–United States FreeTrade Agreement of 1988, for example, thisdefinition appears to be narrower than an asset-based definition, which includes assets otherthan companies and capital flows. Coverage mayextend to all investments by the enterprisefollowing establishment, potentially a very broadspectrum.

The way IIAs deal with the definition ofinvestment depends primarily on the scope andpurpose of each instrument. Some IIAs aim at theliberalization of investment regimes—and someat protecting investment.10 In reality the distinctionis not always clear-cut. For example, bilateralinvestment treaties (BITs) generally aim atinvestment protection, but they may also have aliberalizing effect—say, through their nationaltreatment provision.

IIAs aimed at investment protection, whichinclude BITs but also some regional agreements,tend to use a broad, open-ended, asset-baseddefinition “covering virtually all proprietary rightslocated in the host State which have a financialasset value” (Wälde 2003) (although it may bequalified, for example, by excluding certain typesof investment). The trend has been in this direction.

In particular, most BITs use such an approach. TheASEAN Agreement for the Protection andPromotion of Investments, a regional investmentprotection treaty (like a BIT in aim and function),has a broad definition covering “every kind ofasset”.

Other regional agreements have followed adifferent approach, depending on the purpose ofthe investment provisions. Some aimed at theliberalization of investment regimes have used arelatively narrow definition. For example, the 1998Framework Agreement on the ASEAN InvestmentArea explicitly excludes portfolio investment, asdoes the 2000 free trade agreement between theEuropean Free Trade Association members andMexico.

The GATS does not define investment,instead defining a commercial presence as “anytype of business or professional establishment”.In effect the GATS uses an enterprise-baseddefinition. The TRIMs Agreement does not defineinvestment, either.11

3. Options for the future

The way an investment agreement definesinvestment should have a direct bearing on thepurpose of the agreement:

• Protecting investment—say, againstexpropriation.

• Liberalizing investment flows—say, by grantingthe right of admission and establishment or bylowering equity restrictions.

• Promoting investment—say, through theprovision of investment insurance.

• Regulating investment—say, in the context ofprohibiting corrupt practices.

Where agreements serve several of thesepurposes, the challenge is to achieve an acceptablebalance between (a) permitting flexibility for firmsto organize and finance their investments and (b)giving developing countries the flexibility to dealwith potentially volatile capital flows. The degreeof integration sought by the parties to an agreementmay also bear on how investment is defined: thegreater the integration sought, the greater can bethe expected protection and liberalization soughtand the wider the definition that might be adopted.

Under these circumstances, the options12

available to negotiators range between adoptinga narrow definition (focused on FDI) and a broaddefinition subject to the right to screen inwardinvestment, granting of conditional entry or limitingan agreement’s substantive provisions:

World Investment Report 2003 FDI Policies for Development: National and International Perspectives102

• If the concern is that portfolio investment maybe withdrawn quickly, IIAs might includeportfolio investment, but the currency-transferprovision could apply only to investment thathad been in the host country for some minimumperiod.

• Another option is to adopt a hybrid of broad andnarrow definitions for different purposes in agiven agreement. For example, a broad asset-based definition can be used for protectinginvestment—a narrower transaction-baseddefinition for dealing with cross-borderinvestment liberalization.

• The scope of IIAs can be narrowed throughlimitations on the types of investment subject

to disciplines—through reservation lists orlimited specified commitments.

• One can allow each government to decidewhether, for the purposes of a particularagreement, it wants to commit itself to a broador to a narrow definition. A positive list approachprovides this flexibility.

What underlies these considerations? Theultimate effect of an IIA results from the interactionof its definition provisions with its operativeprovisions. There should be enough flexibility inthe use of the definition to assist in achievingdevelopmental objectives.

B. National treatment

“National treatment” has the greatestdevelopment implications. It is also of keyimportance to foreign investors.13 In today’s usage,it combines two constructs that used to be dealtwith separately:

• “Right of establishment” (or “admission andestablishment”) or, now, “national treatment inthe pre-establishment phase”, and broadlyspeaking “market access”.14

• “National treatment in the post-establishmentphase” of the investment process, the traditionalapplication of “national treatment”.

Despite a considerable (unilateral) openingof host economies, most non-OECD governmentspreserve their right to control FDI admission andestablishment in IIAs. National treatment in thepost-establishment phase is more widely accepted.

1. The centrality of nationaltreatment

National treatment can be defined as “aprinciple whereby a host country extends to foreigninvestors treatment that is at least as favourableas the treatment that it accords to national investorsin like circumstances” (UNCTAD 1999b, p. 1). Theconcept is central to the worldwide strategies ofTNCs. Entry is the first (essential) step totransnational operations, allowing enterprisesaccess to the markets and resources they need toestablish a portfolio of locational assets to increasetheir international competitiveness. Post-entrynational treatment then allows them to compete onan equal footing with domestic enterprises.15 Ofthe two, non-discrimination after establishment isparticularly important because it requires treatmentthat is at least as favourable as the treatment given

to national investors in like circumstances and,therefore, affects directly the day-to-day operationsof foreign affiliates.

For host countries, national treatment offoreign investors is directly related to policies topromote national enterprises and build and upgradedomestic capabilities. In international law, a Statehas the absolute right to control the admission andestablishment of investors in its territory, the settingof conditions under which this occurs and thenature of ownership and control rights (UNCTAD1999a). Control measures can range from total orsectoral exclusion of FDI to a variety ofrestrictions—for example, on the equity shareallowed foreign investors, the requirements of jointownership or management with local personnel andthe screening of entry by a designated agency.

Once foreign investors are established, hostcountries generally provide national treatment toforeign affiliates (UNCTAD 1999b). But a typicalcondition for such treatment is that foreignaffiliates are in “like circumstances”16 to localenterprises, leaving open the possibili ty forgovernments to provide special support to nationalfirms in different circumstances. But there aredifferences in policy even here, with exceptionsin both developed and developing countries. Sosensitive is this issue that the developed countriestook almost 25 years after adopting the OECD Codeof Liberalisation of Capital Movements in 1961to accept, between themselves, the right ofestablishment for their foreign investors.17

2. Patterns of national policy

The right to control admission andestablishment remains the single most importantinstrument for the regulation of FDI. No surprise,

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then, that national restrictions remain two decadesafter opening up. In fact, no country presentlyoffers an unconditional right of admission toforeign investors (WTO 2002b). But there aresignificant differences by industry or sector. Inmanufacturing relatively few restrictions remainon admission and establishment. In naturalresources the situation is more varied, reflectingthe fact that the factors of production are notmobile. In the past the sector was tightly controlled,with a significant incidence of nationalizations andnational control laws during the 1970s. Now,despite some restrictions, policies tend to be morerelaxed. In services, too, there is a trend towardsgradual liberalization, though the control overadmission and establishment varies for servicessupplied, depending on regulation required toensure effective operation. For example, tourismtends to be quite open to FDI, while foreignownership in media is generally restricted.Governments also retain a high level of control infinancial services.

After entry, national treatment is not usuallyguaranteed expressly in national FDI laws. Someconstitutions contain a general provisionprohibiting discrimination.18 Other national lawsrefer to this standard in investor-investmentguarantee provisions.19 Whether post-establishmentnational treatment is granted explicitly orimplicitly, i t does not provide grounds forrestricting national regulations. It is usuallyaccepted that, as long as national regulations donot introduce a distinction on the basis ofnationality, they are a normal exercise of a

Figure IV.1. Reservations in the negotiations of the Multilateral Agreement on Investment,a

by industry, 1998

country’s right to regulate (see chapter V). Thisinterpretation can also be valid for special rightsto minorities, ethnic groups, indigenous people orother disadvantaged groups within the host country.If those rights apply to all businesses, they cannotbe interpreted as a breach of post-establishmentnational treatment.20

In the pre- and post-establishment stages,national treatment is subject to a range ofexceptions, especially in the services sector (figureIV.1). There is also a tendency, especially in OECDcountries, to apply the same or similar reservationsor exceptions at both stages.

3. National treatment andeconomic impact

National treatment measures have to beassessed against the objectives of FDI policy.Because it is difficult to evaluate how well someof the non-economic objectives are achieved, thissection focuses on economic considerations in somedetail, given the centrality of national treatmentfor development. The economic analysis of nationaltreatment revolves around three questions:

1. What is the economic case for the liberalizationof FDI policies?

2. What is the case for exercising control on FDIadmission and establishment?

3. What are the main considerations for nationaltreatment once TNCs have been allowed to enteran economy?

Source : UNCTAD, based on Sauvé, 2002.a MAI reservations relate to the application of the following principles and areas: national treatment, MFN treatment, performance requirements,

key personnel, national regulations and dispute settlement.b Reservations relate almost exclusively to performance requirements and nationality/citizenship requirements for companies' boards

of directors.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives104

a. Pre-establishment

The case for liberalizing FDI is similar tothat for l iberalizing trade: under the rightconditions, freer FDI leads to a more efficientallocation of resources across economies and,where markets are not distorted, within a hosteconomy.21 But this case rests on the oftenquestionable assumption that markets are efficientand that the institutions to make markets work existand themselves operate efficiently—particularlyin developing countries. Many markets areinefficient, and some may be only emerging.Institutions and legal systems tend to be weak. Andeconomies, saddled with rigidities, areunresponsive to (or unprepared for) the challengesof a globalizing world economy.

Market and institutional failures are thus thebasic reason for restricting free FDI flows. But theirexistence is not sufficient for intervening in FDIentry. In the theory of international investment,TNCs exist because of their ability to overcomemarket imperfections. They have (ownership)advantages that other firms do not possess, and theyinternalize these advantages rather than sell themin open markets—both violating the precepts ofperfect competition. Because FDI rests onexploiting such advantages, there is a case forrestricting it only if the use of the advantages harmsthe host economy—say, if TNCs engage inanticompetitive business practices. This can happenbecause of the possible divergence between theglobal interests of TNCs and the interest of anygiven host economy: TNCs might well maximizetheir profits worldwide (i.e. overcome “marketimperfections”), but the host economy might notbe better off. Even where market failures lead freerFDI to be harmful, there may be a case forrestricting it only if a host government has thecapacity to design and mount effectiveinterventions that result in a socially oreconomically better result. The cost of governmentfailure must not outweigh market failure; if it does,the economy is worse off.

A case can also be made to control FDIadmission and establishment: under free marketconditions, unrestricted FDI entry may curtail localenterprise development and not enhance beneficialexternalities:

• Infant domestic entrepreneurship. The mostcommon fear is that FDI harms the developmentof local entrepreneurship by deterring potentialdomestic investors from entering activities witha strong foreign presence—crowding them outwhere they exist (box IV.1). The infant enterpriseargument is similar to the infant industryargument: building competitive capabilities by

domestic firms takes time, and investment isrisky and learning is costly.22 Faced with foreignaffiliates that have recourse to the skills, capital,technology and brand names of parentcompanies, local firms may not be able to buildsuch capabilities. They may then be forced towithdraw to less complex activities or those witha lower foreign presence—perhaps selling theirearlier facilities to foreign entrants, as happenedin the automotive components industry in Braziland Mexico (Mortimore 1998).

Note, however, that protecting infantentrepreneurs (and infant industries) is soundonly if protected enterprises become fullycompetitive within a reasonable period. Ifprotection leads to permanent “cripples” ratherthan healthy infants that grow up, it imposesunjustifiable costs on the host economy. Thepromoted enterprises must also have thecapability to stay competitive. They must masterthe technology and organizational skills usedat the start and stay abreast of subsequentdevelopments. Outstanding examples of thisapproach are the Republic of Korea and TaiwanProvince of China, which in their earlydevelopment severely restricted FDI inflows tonurture domestic entrepreneurship.

• Local technological deepening. A strong foreignpresence may deter local competitors frominvesting in risky innovation (or other)capabilities, as opposed to buying ready-madetechnologies or skills from abroad. Moreover,new technologies can be expensive and difficultto obtain, as firms from the Republic of Koreafound when they became threats to technologysuppliers in export markets. If FDI deters R&Din local firms, the technological gap betweenthem and TNCs can grow, marginalizing themin technology-intensive activities. Foreignaffiliates may be reluctant to invest in local R&Dbecause of their established innovative activitiesabroad, with strong links to home countrytechnology institutions and other enterprises(WIR99).

• Exploitation of new technology. Where both localand foreign firms engage in R&D activity andcreate new technologies, local firms may exploitthe benefits of innovation within the hosteconomy more than foreign affiliates, which maytransmit the knowledge to parent companies toexploit them elsewhere.

• Greater spillovers. Even where local and foreignfirms are similar in other respects, local firmsmay create greater spillover benefits becausethey have better local knowledge and strongerlocal commitment. They may procure moreinputs locally, use more local skills, interactmore intensely with local technology andtraining institutions and so on.

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The possibility of domestic enterprises beingcrowded out by inward FDI is a concern for somegovernments of host developing countries.a Howfrequently does it occur? What does it mean foreconomic efficiency? And what policy tools cangovernments use to mitigate i ts negativerepercussions?

Empirical evidence is mixed. In aneconometric test covering 39 economies for a longperiod (1970–1996), some crowding out orcrowding in could be detected in 10 countries, butin 19 the effect was neutral (WIR99, pp. 172-173).Crowding out was non-existent in Asia but wasfairly frequent in Latin America. Earlier studiesfor Canada (Van Loo 1977) and for 69 developingcountries (Borensztein et al. 1995) concluded that,on balance, FDI had stimulated additional domesticinvestment—had a crowding-in impact. A morerecent test (Kumar and Prakash Pradhan 2002) for83 countries over the period of 1980–1999 foundno impact of FDI on domestic investment for 31,net crowding out for 29 and net crowding in for23.

This diversity may be due to the fact thatdifferent countries attract different types of FDI.Countries attracting mostly domestic market-seeking FDI would be more likely to experiencecrowding out as the establishment of foreignaffiliates results in head-on competition with localfirms. But for export-oriented FDI, this may be lessso.

The empirical studies shed little light on thedevelopment implications of crowding out—or thepolicy options to deal with them. Crowding out maytake place because of two main reasons, which, intheory, can be differentiated from each other: (1)when local firms disappear because of higherefficiency and better product quality of foreignaffiliates; and (2) cases when they are wiped outbecause foreign affiliates have better access to

Box IV.1. How serious is crowding out?

financial resources and/or engage in anti-competitive practices. Unfortunately, empiricalevidence is scarce in this respect, although thepolicy implications of the two scenarios may bedifferent. In the first case, the initial net impacton welfare is positive, hence the economicjustification for governmental intervention mustbe based on the possible negative effects of adenationalization of industry for the stability andeconomic activity generally through time. In thesecond case, there is a welfare loss, andgovernments would need to intervene throughvarious channels. For example, they may need toestablish or subsidize financing for local SMEs.In the case of anti-competitive practices, it wouldbe the task of competit ion authorities to takeremedial action.

If the net impact of an FDI project can beforeseen to be negative from the outset,governments may consider action at the entry phase(by denying entry or allowing it only under certainconditions). If the net impact turns out to benegative in the post-establishment phase, thecompetition authorities or the regulatory agenciesof the given industry can usually alleviate theextent of crowding out.

In all cases of crowding out, governments canuse tax policy to stimulate the reinvestment ofmoney withdrawn from closed down activities intonew investment projects. Moreover, even when theshort-term static impact of crowding out isnegative, its dynamic impact on efficiency in thehost economy may be positive. The issue has notyet been settled one way or the other, and furtheranalysis is required to shed additional light on therelevant issues, in particular: under whatcircumstances is crowding out more likely to occurand what are the development implications? A moredetailed analysis could also help governmentsdesign appropriate policy responses in light of theirnational development objectives.

Source: UNCTAD.a Such crowding out is different from domestic firms being taken over by foreign investors (cross-border M&As) (see WIR00),

although in some cases they are presented together.

• Footloose activity. Foreign investors are likelyto relocate to other countries more readily thandomestic firms as conditions change, at leastwhere sunk costs are low. Domestic firms arelikely to have a stronger commitment to thehome economy—and so are likely to invest morein improving the local competitive base.

• Loss of economic control. Foreign affiliatesrespond to signals from international marketsand to strategies of decisionmakers basedoverseas. They may also be responsive topressures from home country governments.Where local and foreign interests or perceptions

diverge or where sensitive technologies oractivities (say, related to national security) areinvolved, this may impose a cost on the hosteconomy.

Many governments also want FDI for suchspecific advantages as advanced technology orexports. Where foreign investors do not offer suchadvantages, governments may feel that localenterprises need not face unnecessary competitionfrom FDI.23 Many countries restrict FDI in low-technology manufacturing, retailing and similaractivities where local enterprises are thought to

World Investment Report 2003 FDI Policies for Development: National and International Perspectives106

be adequate. Some are particularly sensitive aboutopening activities populated by SMEs that generateconsiderable employment and that may embodystrong community, craft, design or other traditions.

These arguments for restricting FDI, usedby developed and developing countries, havemerits. But the evidence of their practicalsignificance and the success of governments incountering the potential costs by restricting FDIis again mixed.

For promoting infant entrepreneurship andinnovative capabilities in developing economies,the most successful cases have been the Republicof Korea and Taiwan Province of China. Theyrestricted FDI entry (but not necessarily non-equitylinks with TNCs, such as technology agreements)and fostered world-class enterprises with stronginnovative capabilities. But similar restrictions inmany more developing countries did not have theseresults. These policies did foster local firms, butonly a few of them became world-class enterprises.Many of the protected local firms weretechnologically weak and internationallyuncompetitive—and many could not surviveexposure to competition when the protection wasremoved. Conversely, there are also cases ofeconomies with dynamic local firms that benefitedfrom a strong foreign presence—as competitors,buyers or suppliers of their products. Examplesinclude Hong Kong (China) and the second tier ofnewly industrializing economies in East Asia.

Neither FDI restrictions nor FDIliberalization can foster healthy enterprisedevelopment unless other conditions are met. Forrestrictions, the government must be able to selectactivities in which local firms have the potentialto become and remain competitive. Protection fromcompetition must be supported by strengtheninginstitutions and infrastructure and by upgradinglocal inputs, such as skills, information, technicalsupport and risk capital. And enterprises must haveincentives to build world-class capabilities; ifprotection is open-ended, such incentives may notwork.

Few developing country governments haveshown the capacity to blend FDI with institutional,infrastructure and industrial policies. Theirinterventionist policies have tended to be rigid,prone to “hijacking” by vested interests and opento rent seeking with li t t le improvements inefficiency or skills. So, the costs of governmentfailure can be as high as those of market failure.

On the costs of FDI from “losing”innovations to parent companies and having lowerspillover benefits, the evidence is again unclear(WIR99). Foreign affiliates that do R&D tend to

interact with capable R&D institutions anduniversities in the host economy. Although thetrend—slow as it is—for TNCs to set up globalR&D centres in developing countries (where theskills exist) is growing, R&D activities remainconcentrated in home countries and other developedcountries. Indeed, it is in their interest to deploythe most efficient technologies where this furtherstheir competitive advantage. Over the longer term,it is not necessarily the case that foreign affiliatesstrike fewer local linkages than comparable localfirms. On the contrary, their new supply chainmanagement and training techniques often serveas a model.

The specific advantages of R&D by foreignaffiliates must also be remembered. Affiliates cangain from the access they have to R&D in theparent firm’s networks. Local firms can capturespillover benefits from R&D in foreign affiliatesby learning from their research methods, hiringtheir trained employees and collaborating with themon specific projects or as suppliers. Note thatIreland and Singapore have induced foreignaffiliates to increase local R&D greatly, using amix of policy tools, including incentives. Foreignfirms in Ireland account for around 80% of nationalenterprise-financed R&D (WIR02).

Footloose FDI was much feared some threedecades ago when the massive relocation of labour-intensive processes in clothing, footwear,electronics and similar activities started. It was feltthat the facilities were temporary and would moveelsewhere in response to wage hikes or the end oftax incentives. The fears have generally turned outto be exaggerated. Typically, only very simpleassembly activities (primarily apparel and someelectronics) have been footloose. Others,particularly in the automobile industry, built localcapabilities, with the sunk costs inducing them toupgrade technologies rather than relocate as wagesand other costs rise. Large shifts in comparativeadvantage would force facilities to close or move,but it is not clear that foreign affiliates are moreprone to do this than comparable local firms.

Loss of economic control remains a risk, buthow much of a risk is difficult to assess. Mostgovernments seem to consider it less importanttoday—the “tolerance threshold” for FDI has risenwith experience. That threshold varies by country,region and over time, but there is a general trendfor i t to rise. Stil l , countries have legitimateconcerns about the vulnerability of their domesticeconomies to changes in attitude or strategy byTNCs that can impact on their economic prospects.

Also affecting policy on FDI entry today: theworld has changed. When the Republic of Koreaor Taiwan Province of China used FDI restrictions

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to promote domestic firms some 20–30 years ago,technical change was slower and nationalproduction systems were not so highly integrated.The costs of keeping FDI out have risenconsiderably. Technical change is faster. FDI is thedominant form of technology transfer. Andintegrated production systems are much moreprominent, particularly in the most dynamic exportproducts (WIR02). So restricting FDI can reduceaccess to technology and some of the other maindrivers of competitiveness.

The conclusions, therefore, must benuanced. The evidence suggests that there may begood economic reasons for restricting FDI orliberalizing entry selectively and gradually. Butthat tool has to be used carefully. In the new globalsetting, strong regulations on market-drivenresource allocation may deter FDI and createundesirable distortions in the host economy.

b. Post-establishment

Political and social preferences apart, therecan be an economic case for restricting nationaltreatment for foreign investors, resting on marketand institutional failures. First, foreign affiliatesmay be more efficient, and denying them nationaltreatment is a version of the infant enterpriseargument. But denying foreign affiliates nationaltreatment on infant enterprise grounds is justifiedonly if the differentiation is limited in duration andlocal enterprises are able to become fullycompetitive. There is little economic justificationfor a long-term or open-ended policy of treatingfirms differently because of ownership. Hostcountries can also tap into the greater efficiencyof foreign affiliates by insisting on local equityparticipation or high-level employment.

Second, foreign affil iates may haveadvantages over local firms—not because they aremore efficient but because markets for credit andskills and so on are segmented, with foreignaffiliates getting better terms simply because oftheir foreign ownership. Offering better treatmentto local firms offsets the adverse effects ofsegmentation. But factor market segmentationshould be tackled at source rather than bysuppressing its symptoms (what economists calla “second best” response). If foreign affiliates aretreated better in credit markets because banks arepoorly informed about local borrowers, the solutionis to improve banking practices. Preventing banksfrom lending to foreign affiliates may not ensurethat credit is efficiently allocated. Note, too, thatsegmentation is difficult to distinguish from healthycommercial practice: banks may prefer foreignaffiliates because they may be better credit risks

or cost less to service. The use of a discriminatingnational treatment policy thus has to be carefullymanaged.

Third, foreign affiliates may need to berestricted from privileges that give them access tosensitive strategic information or technologies—or to activities of cultural and social significance.Resting on non-economic premises, this is difficultto evaluate. But it is an important argument, andmany otherwise FDI-friendly governments, suchas the United States, grant certain subsidies (say,for defence) for national firms.

Fourth, foreign affil iates may becomedominant and abuse their market power. Preventingthis is another “second best” solution. The bestmight be to strengthen competition policy ratherthan hold back some firms on grounds ofownership.

*****

In all this, government capacities are central.Discretionary instruments of any kind call forconsiderable skills, information, speed andflexibili ty in implementation. Moreover, FDIrestrictions cannot be mounted in isolation fromother capacity-building measures. Simply openingto FDI and removing restrictions is unlikely to beenough to stimulate sustained development. Tobenefit fully requires policies that encourage TNCsto make the best possible contribution to economicdevelopment. These policies go beyond nationaltreatment in the post-establishment phase andinvolve encouraging the dissemination of thetangible and intangible assets of foreign affiliatesto domestic enterprises and, more generally,national enterprise development policies.

4. National treatment in IIAs

The great majority of IIAs preserve full host-government control over admission andestablishment, while granting national treatmentin the post-establishment phase of an investment.This is the approach in most BITs: to encouragethe contracting parties to promote favourableinvestment conditions, while leaving the preciseconditions of admission and establishment tonational laws and regulations (Dolzer and Stevens1995, pp. 50–57; UNCTAD 1998a, pp. 46–48).

Early regional IIAs between developingcountries also used this approach, but some wentfurther in introducing a coordinated or commoninvestor-screening regime (Andean Pact and theCustoms and Economic Union of Central Africa).24

The 1967 OECD Draft Convention on theProtection of Foreign Property (UNCTAD 1996b,vol. II, pp. 113–119) left the matter of admission

World Investment Report 2003 FDI Policies for Development: National and International Perspectives108

and establishment to the discretion of membercountries. More recently, the Energy Charter Treatyextended national treatment to the post-entry stage,but left i ts application before entry to asubsequently negotiated supplementary agreement(UNCTAD 1999a, pp. 41–42; Wälde 1996; Wäldeand Weiler 2002; Andrews-Speed and Wälde 1996).

Some recent IIAs contain the right ofestablishment based on a combined nationaltreatment and MFN standard. These include theBITs between the United States and developingcountries (and, more recently, between Canada anddeveloping countries), the 2002 economicpartnership agreement between Japan andSingapore and the free trade agreement betweenthe United States and Singapore. Exceptions aredealt with through a negative list of industries, forwhich rights of admission and establishment donot apply. An increasing number of regionalagreements offer full reciprocal rights of admissionand establishment to firms from member countries,as with MERCOSUR and ASEAN. NAFTA’sliberalization also combines national and MFNtreatment with negative lists.

So far the GATS is the only multilateralagreement that allows countries to bind themselveson admission and establishment. It does so flexibly,by using a positive list of service activities to whichthe right applies. The right to national treatmentthen applies only to those scheduled activities—and only to the extent specified by the host countryin its schedule of national treatmentcommitments.25

The great majority of IIAs provide fornational treatment in the post-establishment phaseof an investment. There are, however, twoimportant issues: the situation to which nationaltreatment applies and the definition of the standard.The standard in many IIA provisions is applied to“like situations”, “similar situations” or “likecircumstances”; what constitutes a “like” or“similar” circumstance or situation is an issue thatneeds to be determined case-by-case. But someIIAs do not contain an explicit reference to “likecircumstances”. Instead, they may refer to specificactivities to which national treatment applies. Otheragreements are silent on this, offering a wider scopefor comparison without any limitation to “likecircumstances” or specific activities (UNCTAD1999b, pp. 29–34).26

On the second issue, the dominant trend isto offer treatment “no less favourable” thanaccorded to domestic investors, though someagreements refer to “same” or “as favourable as”treatment (UNCTAD 1999b, pp. 37–40).27 Thelatter offers a lower standard of investor protection

in that, to meet the standard, the host country needonly accord treatment that is no worse than thatoffered to domestic investors in like or similarcircumstances. The “no-less-favourable” standardgoes beyond that: where treatment accorded todomestic investors falls below certain internationalminimum standards, the foreign investor may betreated more favourably.

Current developments in international legalpractice are seeing a shift in dispute settlementfrom expropriation to national treatment. Threemain questions arise. When are two situations reallyalike? When is treatment “less favourable” to theforeign investor? What is the policy justificationfor the alleged difference in treatment? A fourthquestion is whether there is a need for proof of theintention to discriminate by a host country.

Recent decisions under NAFTA havefollowed WTO jurisprudence on national treatmentin trade cases and treated the first question as oneof fact, to be decided case-by-case, centring onwhether the foreign and domestic investors are inthe same economic or business sector. The secondquestion requires that the treatment, under the “no-less-favourable treatment” formulation in NAFTA,be no less favourable than the best treatmentaccorded to the domestic competitor.

The third question has been approachedthrough a consideration of the objective, designand architecture of the measure as indicating theintention of the host government (Weiler 2002).28

This case law approach has difficulties. How farshould rules dealing with discrimination againstgoods based on national origin apply todiscrimination against an investor on the groundsof their nationality? In addition, the factual contextsof several cases involved an inhibition on theability of the claimant to provide a cross-bordergood or service.29 They did not involve animpairment of the ability to manage, operate,control or dispose of i ts investment. Perhapsexplaining this is that individuals have no rightsto bring claims against parties to NAFTA underthe trade rules, but only under the investment rules(Menaker 2002).

Both pre- and post-establishment nationaltreatment are generally subject to exceptions.General exceptions may be based on nationalsecurity, public health or morals. Specificexceptions may be in fields requiring reciprocaltreatment by the home countries of investors, aswith taxation or intellectual property. Exceptionscan also relate to national policy measures likeculture or the environment, incentives or publicprocurement and specific industries.30 Exceptionsbased on economic development are particularly

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important for developing countries. Generalexceptions can apply to both pre- and post-establishment phases; country-specific and“generic” exceptions apply to pre-establishmentonly. There are also differences among sectors:services in general are more prone to exceptionsto national treatment than manufacturing industries.Leading examples of a wide-ranging use ofexceptions are NAFTA and the OECD Code ofLiberalisation of Capital Movements.

5. Options for the future

The core development issues here are, first,the extension of national treatment to the pre-establishment phase of an investment and, then,how much flexibility developing countries shouldhave in the application of the principle in the post-entry phase. The liberalization of foreign admissionand establishment has until now been largelyunilateral. While developing countries have gonefar in opening their economies to FDI, most remaincautious about binding themselves in IIAs topreserve flexibili ty in pursuing developmentobjectives. Enshrining systematically an extensionof national treatment to the pre-establishment phasein future IIAs would represent a major policy shift.

But even if that should occur, IIAs can be framedto permit countries to retain flexibility on allowingentry—they can specify the industries into whichforeign investors can enter freely (the positive list)or at a minimum they can exclude selectedactivities from entry (the negative list). In eithercase limitations and conditions can be attached.

It is, however, common to offer nationaltreatment in the post-establishment phase. The keyissue here is what scope exists for exceptions,especially on development grounds.

The two forms of national treatment arefurthermore independent of each other: grantingpre-establishment national treatment does not affectthe post-establishment treatment offered to foreigninvestors.

Maintaining flexibility is an important matterfor many countries. At its core is the desire topreserve their ability to determine the pace andconditions of liberalization. The mechanisms toprotect this abili ty include best-endeavourcommitments, a GATS-type positive list approachand exceptions (box IV.2). Decisions need to bemade in the context of the development objectivesthat countries pursue and the tradeoffs that haveto be considered.

NAFTA membership contributed to Mexico’slong-term policy of liberalizing the admission andestablishment of FDI in the context of a broaderpolicy to increase the role of FDI in economicdevelopment. NAFTA’s investment provisionsallowed Mexico to retain certain FDI admissionand establishment restrictions for economic andnon-economic purposes (protecting domesticSMEs and national culture). Because investmentwas part of a much broader set of issues,agreement on it needs to be seen in this widercontext.

Before NAFTA

Mexico started to liberalize its FDI regimeprior to NAFTA. But it still restricted foreign entryand foreign equity shares of Mexican companiesin some activities for cultural, security andpolitical reasons and for such socioeconomicobjectives as the protection of domestic SMEs,income distribution and domestic enterprisedevelopment.

The bans and restrictions fell into threecategories:

• Activities reserved for the State in whole orin part: petroleum and other hydrocarbons;basic petrochemicals; telegraphic and radio-telegraphic services; radioactive materials;

Box IV.2. The impact of NAFTA on Mexico’s policy on admission and establishment

electric power generation; nuclear energy;coinage and printing of money and postalservices.

• Activities reserved for Mexican nationals:retail sales of gasoline and liquid petroleumgas; non-cable radio and television services;credit unions, savings and loan institutions;development banks; certain professional andtechnical services and non-rail landtransportation within Mexico of passengersand freight, except for messenger orpackage delivery services (but foreignmajority stakes in companies providingpoint-to-point-trucking services werepermitted).

• Activities with ownership restrictions: themost important among these were airlines(25%) and cable-TV (49%). Approval wasneeded for foreign ownership to exceed49% in cellular telephone services, banking,and oil and gas pipelines.

When NAFTA negotiations began, FDIrestrictions were scattered through many piecesof legislation. There was nothing mentionedspecifically about standards of treatment offoreign investors in the 1989 FDI regulations andlittle is known about the practice with respectto treatment (Graham and Wilkie 1999).

/...

World Investment Report 2003 FDI Policies for Development: National and International Perspectives110

Nationalizations and expropriations (“takingsof property”) are the oldest issue in FDI regulation.Indeed, major takings of foreign-owned propertyin the 20th century led to rules of customaryinternational law that sought to establish theconditions under which such takings could belawful. Taking property is lawful if it fulfils threebasic criteria: it must be for a public purpose, benon-discriminatory and give rise to the paymentof compensation. These basic principles have beenuniversally accepted, and many countries refer tothem these days as the legal basis for their nationallaws and practices. They are also extensivelyreferred to in the provisions of IIAs. In addition,some IIAs require that a taking must be inaccordance with due process of law.

Until recently, the main controversy was overthe precise compensation payable onnationalization or expropriation. This has now beenjoined by the extent to which indirect takings,including so-called “creeping expropriation” and

NAFTA’s effect on Mexico’s policy onadmission and establishment

NAFTA took Mexico’s FDI liberalizationa step further, using the negative list approach.It introduced national treatment standards andextended them to the pre-establishment phase(except in areas reserved for Mexican nationalsand the State). Now, all investors (exceptfinancial institutions) benefit from nationaltreatment. NAFTA also made Mexico’s policiesmore transparent, giving United States andCanadian investors greater security (Rugman1994, p. 53). It also gave Mexico the opportunityto consolidate many of the changes to i tsadmission, establishment, treatment andprotection of foreign investment in a new ForeignInvestment Law enacted in 1993.

How did NAFTA affect Mexico’s right toretain existing bans and ownership restrictionson FDI and introduce new ones in the future?NAFTA incorporated existing restrictions in thelists of specific country reservations taken by allNAFTA parties. Mexico reserved the right toadopt any measures (including FDI measures) inentertainment, telecommunication and socialservices. But i t could not introduce anydiscriminatory admission or establishmentmeasures in “unreserved” activities, particularlyagainst United States and Canadian investors,without breaching the agreement.

Increasing the economic benefits

One of the Mexico’s objectives in NAFTAwas to increase the economic benefits from FDI.NAFTA did this in two ways. First, it raised theconfidence of United States and Canadianinvestors and so encouraged their investment inMexico. Second, by giving free access to theUnited States and Canadian markets (coupledwith the rules of origin), it created an incentivefor other investors (apart from Canadian andUnited States ones) to set up facilities in Mexico.The result: FDI in Mexico rose significantly,especially into export-oriented manufacturing(WIR02, pp. 173–176). Bear in mind, however,that NAFTA is a broad regional integrationscheme, not just an IIA—so several factors comeinto play.

Did NAFTA hinder Mexico’s FDI policies,especially its right to regulate? It did not stopMexico from retaining existing restrictions orintroducing new ones in the areas agreed onduring negotiations. It did prohibit Mexico (andthe other two countries) from making existingregulations on admission and establishment morerestrictive for United States and Canadian FDI,except in reserved areas.

Source: UNCTAD.

Box IV.2. The impact of NAFTA on Mexico’s policy on admission and establishment (concluded)

C. Nationalization and expropriation

“regulatory takings”, should be covered byprotection standards.

1. The sensitivity of indirect takingsand national policy dilemmas

Direct takings of property, involving thetransfer of the physical possession of an asset aswell as the legal title, can take various forms,ranging from outright nationalizations in alleconomic sectors or on an industry-wide basis, tolarge-scale takings of land by the State, or specifictakings (expropriations).31 Indirect takings includecreeping expropriations, involving an incrementalbut cumulative encroachment on one or more ofthe range of recognized ownership rights until themeasures involved lead to the effective negationof the owner’s interest in the property (UNCTAD2000b, pp. 11–12; Dolzer 2002). They also includeregulatory takings, in which the exercise ofgovernmental regulatory power—the power to tax

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or to control operations for environmentalprotection—diminishes the economic value of theowners’ property without depriving them of formalownership. Distinguishing between the two typesis not always easy (Sornarajah 1994, pp. 278–294).

In addition, the notion of indirect takings isitself problematic, given the ever increasing andchanging conception of property rights and, inparticular, of the social function of property.Against this background, governments have broadpowers of regulatory intervention so as to ensurethe subjection of private property to the publicinterest. These powers are highly complex. In thecircumstances, indirect takings may be betterunderstood by looking at the results of agovernmental action rather than defining theprocess by which the result is reached.32

It is fairly easy to identify acts of outrightnationalization or expropriation. They are normallycarried out on a given date and on the basis of anexplicit national policy. Not so for creepingexpropriations. They are usually carried out underthe guise of a policy in which the deprivation ofthe owner’s property is not an explicit purpose,and they do not necessarily have a clear date whenit can be said that the owners have been deprivedof their title to the expropriated property.

For example, the Iran–United States ClaimsTribunal had to assess whether emergency measurestaken in 1978–1979 in the wake of the revolutionin the Islamic Republic of Iran to preserve UnitedStates-owned commercial property, after its UnitedStates managers had fled, amounted to an indirecttaking by the State.33 Another example may be theaction of a host country to intervene in a failingforeign-owned company to protect variousstakeholders against an impending bankruptcy(Sornarajah 1994, pp. 306–307). If this effectivelydeprives the owners of their ability to control thecompany can this be said to amount to a “creepingexpropriation”?

The major difficulty that such cases createis how to identify the point at which a process ofgovernmental action changes to an incrementaldeprivation of an owner’s rights, such that thedeprivation becomes the subject of a duty tocompensate.34 If that definition is drawn too widelyit will catch entirely legitimate regulatory andadministrative action.

Regulatory takings are particularly sensitivebecause many government regulations can have animpact on the value of private property. So anexpansive interpretation of “regulatory takings”can limit the national policy space by hinderinga government’s right to regulate, creating the riskof “regulatory chill”, with governments unwilling

to undertake legitimate regulation for fear oflawsuits from investors. 35

The three main criteria of the lawfulness oftakings may give rise, in principle, to certaindisagreements between investors, both foreign anddomestic, and host countries. In some cases, forexample, investors challenge the public purposeof a taking before an arbitral tribunal or the courts.In most cases, however, it is difficult to prove atotal lack of public purpose. In addition, potentialdisagreement can arise from the way non-discrimination is interpreted and applied in the caseof individual takings.

As for the issue of compensation, adistinction must be made between the standard ofcompensation on the one hand and the method ofcalculation on the other. The former issue ispractically always addressed in IIAs, whereas thelatter issue has received less attention. There isno hard and fast agreement among States as to theappropriate level and method of calculating thecompensation payable upon a nationalization orexpropriation. The approach taken under nationallaw is within the discretion of the State concerned.However, this can lead to disputes overcompensation at the international level where Statesmay differ over the correct approach tocompensation (UNCTAD 2000b, pp. 13–14).

In relation to regulatory takings, the nationalpractice of countries does not always provide clearanswers to the questions raised (Dolzer 2002, pp.68–69). Even in a deregulated, liberal marketenvironment, investors need to observe certainbasic standards of good market behaviour, asprescribed for example by competition rules, andsound practices in areas of concern to public policywhether these involve the protection of theenvironment, public health, morals, consumers orthe promotion of development. Given that publicpolicy goals may not always be achieved throughvoluntary compliance on the part of private ownersof productive assets, a degree of regulation by theState is inevitable.36

The major problem today is to distinguishbetween a legitimate exercise of governmentaldiscretion that interferes with the enjoyment offoreign-owned property and a regulatory taking thatrequires compensation. This requires a balance tobe struck between:

• Achieving the public policy goals of a regulatoryregime, which could reduce property values—or values potentially generated in the absenceof regulation by unregulated business entities.

• Preserving the economic value of the productiveassets of those entities.

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Where the interference with private propertyrights violates the legitimate rights or expectationsof owners, the State may need to providecompensation. But where a measure is undertakenas part of the right to regulate in the public interest,compensation may not be due. Similarly, where ameasure is penal, confiscation withoutcompensation may be a part of the sanction to bevisited on the owner because they violate requiredregulatory or criminal standards.

2. Coverage in IIAs

Most IIAs contain provisions on takingproperty, generally defining a “taking” as includingtraditional notions of nationalization orexpropriation as well as creeping expropriationsand regulatory takings (UNCTAD 2000b, pp. 19–24). The indirect taking may or may not bequalified by a carve-out for normal regulatorypowers, as in the areas of taxation, intellectualproperty rights and public debt. If such a clauseis included, it may subject the carve-out to anobligation that the regulatory powers must be non-discriminatory (UNCTAD 2000b, p. 23).37

Furthermore, the majority of such agreementsrequire observance, by the contracting parties, ofthe principal elements of a lawful taking: publicpurpose, non-discrimination and compensation(UNCTAD 2000b, pp. 24–26). In addition, someagreements refer expressly to the need forobservance of due process. 38

However, there is no uniformity on thestandard of compensation to be applied, reflectingan absence of full consensus among States on thisissue and, also, the relative bargaining positionsof parties to IIAs. Some agreements refer to“appropriate” or “just” compensation, while othersrefer to “prompt, adequate and effective”compensation or similar phrasing. The trend inrecent years has moved towards the latter approach,in both bilateral or regional agreements (UNCTAD2000b, pp. 26–31).

From a developmental perspective, recentpractice in IIAs suggests that developing countriesstrive to strike a balance between offeringreasonable protection to investors and retainingtheir right to regulate. The util i ty of IIAs inreferring to takings of property has usually beenjudged for the effect on the investment climate indeveloping countries. Treaty-based controls overthe scope and legal requirements of a valid takingof foreign-owned property are assumed to havebeen good for investment conditions. Butinternational disciplines have sometimes beencriticized as imposing too much control over thesovereign discretion to limit the enjoyment ofprivate property in the public interest. Where a host

country wishes to preserve discretion todiscriminate, this may need to be protected underlimited and transparent circumstances. The questionremains whether the rules of expropriation or otherstandards of protection, such as non-discrimination,are the best way to offer some protection toinvestors while preserving the right to regulate.

The issue of compensation may attractrenewed interest in light of the emergence ofregulatory takings as an important issue. Ifregulatory measures give rise to compensation, twoquestions arise: first, when is compensation dueand, secondly, how to measure the right amount?For example, if environmental measures weresubject to a duty of compensation, could this not,in effect, insure the investor against compliancecosts, or the costs of causing environmental harm,if the regulatory measure in question was seen asa regulatory taking? Equally, such a duty tocompensate might inhibit a host country fromenforcing its laws or from complying withinternational environmental agreements (UNCTAD2000b, pp. 15–16).39 These dilemmas leadgovernments to protect themselves throughinterpretative provisions, carve-outs or internationalreview mechanisms—to permit a legitimateexercise of regulatory power.41 So how willinternational arbitral tribunals develop theapplicable principles in the course of settlingdisputes brought before them?

There is no one settled approach, but two areemerging (Dolzer 2002, pp. 79–90). The first isthat the only relevant criterion for determiningwhether a regulatory taking requires compensationis the effect on the investor ’s property rights,without consideration of the public policy purposebehind the regulatory measure in question. Thatapproach can be discerned in the Metalclad case(box IV.3) and the Santa Elena Case (box IV.4).The second is to consider both the effect on aninvestor’s property rights and the public purposebehind the measure and to balance the two. Thiscan be discerned in the S.D. Myers and the Feldmancases, in which the measure was not seen as aregulatory taking (box IV.3). The former approachgives more protection to the investor’s propertyrights, while the latter allows more considerationof the regulatory intent.

Provisions on taking property can beexpected in future IIAs. Indeed, given the need todetermine the proper balance between legitimateregulation and undesirable interference with privateproperty rights through regulatory acts, suchprovisions are likely to gain in importance. Theyare closely linked to the “right to regulate” in thecontext of the development priorities of hostcountries.41

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The problems associated with the issue ofregulatory takings for national policy space canbe illustrated by four cases brought by investorsagainst host countries under Chapter 11 ofNAFTA.

Case 1: Ethyl. In 1997 the Government ofCanada passed legislation banning the use of thegasoline additive MMT from inter-provincial tradeand importation into Canada. In 1998 the EthylCorporation, a United States importer of MMT intoCanada, brought a claim challenging the legislationunder Chapter 11 of NAFTA. The Government ofCanada settled the claim out of court (without anaward being issued by the arbitral tribunal), paying$13 million to Ethyl, the reasonable andindependently verified costs and lost profits inCanada. Ethyl dropped its claims against theGovernment. The Ethyl case caused alarm overwhether the investor protection provisions ofNAFTA could be used to limit host country powersto regulate in the field of environment, publichealth or similar areas (UNCTAD 2000b, pp. 7–8).

Case 2: Metalclad . These fears werereinforced by the Metalclad Corporation vs.Mexico case. The claimant alleged (among otherissues) that an investment in a landfill facility inMexico had been taken by a measure tantamountto expropriation. Having been assured by thefederal Government that the project had compliedwith all applicable environmental and planningregulations, it had been subsequently denied aconstruction permit by the local municipalauthorities and the land in question had beendeclared a national area for the protection of rarecactus by the regional government. The Tribunalupheld this claim on the ground that the actionsof the municipal and regional governments haddenied the use of the property to the claimant,contrary to the assurances given by the federalGovernment, depriving the owner of the expectedbenefit in the property. This conduct alsoamounted to a denial of fair and equitabletreatment. The Tribunal awarded a sum of $16.7million in compensation. But the Government ofMexico launched a judicial review of theTribunal’s decision before the Supreme Court ofBritish Columbia, the place of arbitration. Thatcourt set aside the award but upheld the findingthat the regional government’s decision to make

Box IV.3. Regulatory takings under Chapter 11 of NAFTA—four cases

the landfil l si te an ecological reserve wasexpropriation.

Case 3: S.D. Myers . Not all regulatorytakings have been seen as measures tantamountto expropriation by NAFTA tribunals. In 2000 S.D.Myers, a United States company specializing inthe remediation of PCB waste, brought a claimagainst the Government of Canada, alleging thatit had violated Chapter 11 of NAFTA bypromulgating an export ban on PCB waste,denying the claimant the opportunity to undertakePCB remediation business based on imports, fromCanada, of such waste to i ts United Statesremediation facilities. The claimant argued thatthe ban had been applied in a discriminatory andunfair manner, in effect, favouring Canadian rivalsnot subject to the ban. The Tribunal found thatCanada had violated the national treatment andfair and equitable treatment provisions of NAFTA.But i t did not find this to be a case of anexpropriation, as regulatory action was not usuallyto be treated as an expropriation. That did not ruleout the possibility of a legitimate complaint onthis ground. On the facts the border closure wasa temporary postponement of the claimant’s entryinto the Canadian market for some 18 months.

Case 4: Marvin Feldman. Marvin Feldman,a United States national, brought a claim againstMexico alleging that his investment in a Mexico-based export company had been indirectlyexpropriated because he was forced to pay exporttaxes on exports of cigarettes from Mexico whilehis only appreciable Mexican-owned andcontrolled competitor received rebates on suchtaxes. The Tribunal did not uphold the claim ofindirect expropriation, though it did find aviolation of the national treatment standard. Onthe indirect expropriation claim, the Tribunal heldthat not every business problem of a foreigninvestor is an expropriation under NAFTA.NAFTA and principles of customary internationallaw did not require a State to permit a “greymarket” in the export of cigarettes. At no time hadthe relevant law, as written, afforded Mexicancigarette resellers a right to export cigarettes. Theclaimant’s business remained under his controland he was able to profit from the export of otherproducts. While none of these factors wasconclusive on its own, together they tipped thebalance away from a finding of expropriation.

Source: UNCTAD, based on ICSID Case No. Arb. (AF)/97/1; 30 August 2000 (www.worldbank.org/icsid/cases/mm-award-e.pdf);Supreme Court of Br i t ish Columbia, “The Uni ted Mexican States v. Metalc lad Corporat ion”, 2 May 2001(www.courts.gov.bc.ca/jdb-txt/sc/01/06/2001bcsc0664.htm); “North American Free Trade Agreement (NAFTA) arbitration:S.D. Myers, Inc. v. Government of Canada: text of the decision” Award of 12 November 2000, International LegalMaterials, 40, 6 (2001), pp. 1408–1492; ICSID case no. Arb (AF)/99/1, 16 December 2002; see www.naftaclaims.com.

One of the key policy choices is thedefinition of takings. The traditional “narrow”approach covers only the classical instances ofdirect takings. A more comprehensive definitionincludes some forms of indirect takings. Closelyrelated is the boundary between the legitimateexercise of governmental regulatory activity, andregulatory takings (which require compensation).

An affirmation of the right to regulate is thegoverning principle here. Another policy choiceis how far IIAs should permit international reviewof takings by host country authorities: should thesebe subject to a prior requirement to exhaustdomestic remedies or should international reviewbe available as a matter of right?

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The two key issues in dispute settlementconcern the role of investor-State procedures infuture IIAs and the extent to which the investmentdispute settlement process is self-contained. IIAsnormally have State-State dispute settlementprovisions, but investor-State procedures are nowbeing included more as well. That raises fears offrivolous or vexatious claims that could inhibitlegitimate regulatory action by governments.Another issue is balancing national andinternational methods of dispute settlement. Thesecond key issue concerns the isolation ofinvestment disputes from existing State-Statesystems of dispute settlement, such as that in theWTO. Questions also arise as regards open andwell-functioning procedures that can deal betterwith the developmental aspects of investmentdisputes.

1. National policies on disputesettlement in the investmentfield

The settlement of disputes between investorsand host countries is central to national FDI policy.Usually, a host country provides dispute settlementprocedures and remedies as a part of the generallaw of the land. But investors may, in somecircumstances, prefer an internationalized approachto dispute settlement, usually arbitration betweenan investor and a host country. This can be ad hoc,

D. Dispute settlement

with a panel and procedure agreed between theinvestor and the host country. Or there may be aninstitutional system of international arbitration forthe dispute in question.

National policies on investor-State disputesettlement differ. Some require the exclusive useof national procedures and remedies.42 Somerequire the prior exhaustion of domestic remediesin the host country before recourse tointernationalized dispute settlement systems ispermitted.43 And some offer the investor freechoice between national and international disputesettlement (UNCTAD 2003i).

National investment laws often expresslypermit such internationalization of investmentdisputes by enshrining investor choice in a specialdispute settlement provision in the FDIlegislation.44 But many FDI laws are silent onthis.45 In such cases, the investor is required touse the internal legal remedies available to themunder host country law. The same is true ofcountries that have no FDI laws. In these casesinternational remedies may be available under theinternational treaty obligations of the host countryin IIAs.

So a dispute settlement clause in a BIT thatallows the investor choice between national andinternational procedures binds the host country asa matter of international legal obligation. Such aninternational obligation can also be made

Consider the calculation of compensationin the ICSID arbitration between the Companiadel Desarrollo de Santa Elena, a predominantlyUnited States-owned company, and the Republicof Costa Rica. In 1978 the Government of CostaRica expropriated land owned by the claimantunder national regulations with the aim ofexpanding the Santa Rosa National Park—to makeit large enough to act as a reserve for rare floraand fauna. There was no dispute about whethercompensation was payable. The main issuesconcerned the date and the amount ofcompensation payable.

The Tribunal held that the proper date forcalculating compensation was the date of thetaking, 5 May 1978, not the present value of theproperty (regardless of any act of expropriation),as argued by the claimant. The parties agreed thatthe compensation should be based on fair marketvalue but differed on the actual amount. Theclaimant asserted $6.4 million while the

Box IV.4. Calculating compensation—the Santa Elena-Costa Rica arbitration

Source: UNCTAD, based on ICSID Case No. ARB/96/1, Award of 17 February 2000.

Government asserted $1.9 million. The Tribunalassessed the value of the assets at the relevantdate as $4.15 million. Adding compound interestlost by the claimant as a result of theexpropriation, the final award was $16 million.

In the course of the award the Tribunal notedthat the fact that the measure was taken for thepublic purpose of environmental protection madeno difference to the legal character of the takingfor which full compensation, based on the fairmarket value of the expropriated land, had to bepaid. Expropriation for environmental purposeswas held to be no different from any otherexpropriatory measures. The Tribunal added thata measure that gradually deprives owners of thevalue of their property over time can be identifiedas the starting point of the expropriation, evenwhere the deprivation of the economic value ofthe property to its owner does not take effectwithin a reasonable period of time.

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enforceable before national tribunals where theinvestment contract between the investor and hostcountry includes a dispute settlement clause thatincorporates the country’s international treatyobligations to allow the use of internationalizedsystems of dispute settlement.

2. Legal effectiveness

The effective settlement of any dispute, notjust an investment dispute, often requires adoptingthe most speedy, informal, amicable andinexpensive method available. In recent years theemphasis has been on “alternative disputeresolution” mechanisms—avoiding proceduresprovided by the public courts of a country or ofan international court. They usually include directmethods of settlement through negotiation orinformal methods employing a third party, such asthe provision of good offices, mediation orconciliation.46 Arbitration can be an alternativedispute resolution mechanism, but its practicalconduct may be only marginally different from thatof a court proceeding (Merills 1998; Asouzu 2001,pp. 11–26).

So the first step in the resolution of anyinvestment dispute is to use direct, bilateral,informal and amicable means of settlement. Onlywhere such informal means fail to resolve a disputeshould the parties contemplate informal third-partymeasures, such as good offices, mediation orconciliation. The use of arbitration should becontemplated only where bilateral and third-partyinformal measures have failed to achieve anegotiated result. Indeed, this gradation of disputesettlement methods is commonly enshrined in thedispute settlement provisions of IIAs.

The choice of a dispute settlement methodis but one choice that the investor and State haveto make when seeking to resolve a dispute. Anotherconcerns the forum. Most recent BITs provide forsome type of international dispute settlementmechanism to be used in relation to investmentdisputes. Foreign investors have traditionallymaintained that, in developing countries, investor-State disputes should be resolved byinternationalized dispute settlement governed byinternational standards and procedures. But hostcountries may perceive such an emphasis oninternational systems as a sign of low investorconfidence, which may or may not be justifiable.

The willingness of the host country to acceptinternationalized dispute settlement may bemotivated by a desire to show its commitment tocreating a good investment climate. This may beof importance where the country has followed arestrictive policy on FDI and wishes to change that

policy. In so doing, it should be entitled to expectthat the internationalized system is impartial andeven-handed.47

An institutional system of arbitration maybe a more reliable means of resolving a disputethan an ad hoc approach. Once the parties haveconsented to its use, they have to abide by thesystem’s procedures. These are designed to ensurethat, while the parties retain a large measure ofcontrol over the arbitration, they are constrainedfrom any attempt to undermine the proceedings.Furthermore, an award made under the auspicesof an institutional system is more likely to beconsistent with principles of procedural fairnessapplicable to that system—and so is more likelyto be enforceable before municipal courts. Indeed,recognition of awards may be no more than aformality. One system has been developed forinvestment disputes between a host country anda foreign investor: the conciliation and arbitrationprocedures available under the auspices of ICSID.

3. Coverage in IIAs

Dispute settlement has evolved significantlyin IIAs. In trade agreements, disputes centre onState-State issues pertaining to either a violationof trade rules under an applicable agreement or tothe nullification or impairment of benefits arisingfrom the agreement. For investment, State-Statedisputes arise over the interpretation andapplication of an IIA agreement. But IIAs differfrom trade agreements in that they recognizedisputes between investors and States, virtuallyunknown before the introduction of the ICSIDsystem in 1965. Most bilateral and many regionalagreements now include provisions on investor-State dispute settlement.

Provisions for State-State dispute settlementappear in almost all IIAs.48 Some regionalagreements contain provisions only for disputesarising between the parties, thus not coveringdisputes between a party and an investor of anotherparty. This is the case for the 1997 EU–MexicoPartnership Agreement, the 1998 FrameworkAgreement on the ASEAN Investment Area andmany of the Europe Agreements, AssociationAgreements and Partnership and CooperationAgreements recently concluded by the EU.

The usual approach to investor-State disputesin IIAs is to specify that the parties to the disputemust seek an amicable negotiated settlement. Onlywhere such an approach fails to resolve the disputecan they resort to arbitration. Most BITs and someregional agreements provide for the possibility ofsettling disputes by consultation and negotiation.49

Some bilateral agreements also have as one of their

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main purposes the provision of a consultationmechanism in a bilateral body.50

If amicable negotiations fail to resolve adispute, international arbitration is usually the nextstep—either on an ad hoc or institutional basis.Agreements differ on the extent of choice. Theprecise terms of the agreement must be perusedto determine which types and systems of arbitrationare permitted.

Agreements also differ on the extent ofinvestor choice over the applicable means ofdispute settlement. Some agreements requireagreement by both parties on the applicablemethod. But more IIAs now permit unilateralinvestor choice of a method if amicable means failto resolve the dispute (UNCTAD 2003i). For this,many agreements refer to the ICSID system ofinvestor-State dispute settlement. That systemoffers a structured procedure for internationalinvestment disputes covering jurisdiction, initiationof proceedings, establishment and selection ofpanels, choice of applicable law, rules of procedureand evidence and recognition and enforcement ofawards (see UNCTAD 2003i; Schreuer 2001). Themajority of BITs refer to ICSID arbitration or toa choice between ICSID and other internationalarbitration systems, most commonly theUNCITRAL Arbitration Rules (UNCTAD 1998a,pp. 94–95).

For regional agreements, Articles 1115–1138of NAFTA provide for international arbitration ofdisputes between a party and an investor of anotherparty. An investor may submit to internationalarbitration a claim that another party has breachedan obligation under Chapter 11, or under certainprovisions of the chapter on monopolies and Stateenterprises—and that the investor has incurred lossor damage from that breach. Article 1122 containsthe unconditional consent of the parties to thesubmission of a claim to arbitration.

The investor can elect to proceed under theICSID Convention, the Additional Facility Rulesof ICSID or the UNCITRAL Arbitration Rules.Detailed rules are contained in these provisionson matters such as the constitution of arbitraltribunals, consolidation of claims, applicable law,nature of remedies, and finality and enforcementof arbitral awards. Several regional agreementsfollow this approach with certain modifications andwith varying detail.51

Some other regional agreements—such as the2000 Agreement between New Zealand andSingapore on Closer Economic Partnership and the1994 Colonia Protocol on Reciprocal Promotionand Protection of Investments withinMERCOSUR—also provide for international

arbitration of disputes between a party and aninvestor of another party under the ICSIDConvention but do not include as detailed rules asin the NAFTA.

After the choice of ad hoc or institutionalarbitration, some further issues must be resolved:the procedure for the initiation of a claim, theestablishment and composition of the arbitraltribunal, the admissibili ty of claims and thedetermination of the applicable law. Such issuesmay be directly addressed in the investor-Statedispute settlement clause in an IIA. Or they maybe left to determination either by the parties to thedispute when ad hoc procedures are chosen or bythe instrument that governs the institutional systemchosen by the parties. In addition, the resultingaward must be a final determination, and it mustconform to the requirements of a properlydetermined decision to be enforceable. Institutionalsystems of arbitration may provide procedures forenforcement and for the review of an award byanother panel of arbitrators when there is an errorclaimed in the original award.

Last, the costs of arbitration must bedetermined, clarifying the allocation between aninvestor and the host country. Generally, the losingparty bears the costs or they are shared. But ininstitutional systems of arbitration, the costs maybe pre-determined by the administrative organs ofthat system. Even so, considerable discretion mayremain.

4. Key issues and options for thefuture

The issues identified at the outset are takenup again here.

Including investor-State dispute settlement.In attracting FDI the inclusion of investor-Statedispute settlement clauses in IIAs can help improvethe investment environment by giving somereassurance to investors that their rights under theagreement can be backed up through third-partyprocedures of dispute settlement when amicableresolution proves elusive. For many investors aninvestor-State dispute settlement system is anessential part of an effective protection framework.

Indeed, recourse to investor-State arbitrationmay offer an alternative to the traditionalinternational remedy of diplomatic protection. Thelatter converts an investor-State dispute into aState-State dispute, possibly, leading to anincreased politicization of the dispute. Suchpoliticization could hinder good relations betweenthe home and host country—and between the hostcountry and the investor—to the long-termdetriment of the investment. Because the remedy

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is discretionary, there is no guarantee for investorsthat the claim will be taken up by theirgovernments. And in a complex TNC system, itmay even be difficult to ascertain whichgovernment is entitled to exercise diplomaticprotection, with the nationality of the investorbeing hard to establish. Because most disputesinvolve the host country and a locally incorporatedaffiliate of a foreign owned firm, the affiliatenormally possesses the same nationality as the hostcountry, making diplomatic protection difficult.52

An investor-State dispute settlement system mayalso be in a better position to give awards. Why?Because it is better suited to assessing the issuesand valuing compensation than a more generaldispute settlement body with less experience inthese types of claims.

The case for an investor-State system’senhancing a good investment climate can beoverstated. Investors may be prepared to invest inhost countries that do not offer such remedieswhere the return on investment could be high.Similarly, since diplomatic protection isdiscretionary and politically sensitive, it may beused with greater restraint. Conversely, becauseinvestor-State dispute settlement is a remedy ofright in contemporary IIA practice, investors mightinitiate more disputes. That is why internationalizedsystems of dispute settlement must guard againstfrivolous or vexatious claims—safeguards that areusual in national courts and tribunals. There is littlereason to depart from this practice in investor-Statedispute settlement (box IV.5).

Dispute settlement cases have become veryexpensive. It is important that the award ofdamages against a host country be commensuratewith the actual loss. Some recent arbitral tribunalshave awarded large sums, so there is concern aboutthe ability of developing countries to pay them.53

The development impact of an award should betaken into account.

International arbitration itself can demandmuch in resources and expertise, possibly puttingdeveloping country parties at a disadvantage. Anyinternational body must also be truly independent,not perceived as favouring investors over hostcountries or vice versa. Arbitrators should thus bedrawn from a wide pool of experience and origin,to ensure a body representative of all the majorinterests in the investment process.

The trend towards internationalization needsto be balanced against the loss of sovereign controlover dispute settlement. Local settlement might beleft underused, retarding the development of localexpertise, while increasing the costs (Asouzu2001). So, requiring the prior use of localprocedures (whatever the difficulties), beforerecourse to international procedures, becomesimportant. But recent IIA practice generally hasnot followed this approach. A possible disadvantagein requiring the prior exhaustion of domesticremedies is that the investor, after an unsatisfactoryoutcome, may have recourse to internationalarbitration, subjecting the host country’s nationalcourt system to possible “second guessing”.

In the NAFTA case of Azanian v Mexico(ICSID Case No ARB(AF)/97/2, 1 November1999), the termination of a contractual concessionto supply solid refuse collection and disposalservices to a local authority in Mexico wasclaimed to be an expropriation. The tribunal heldthat the termination could not amount to anexpropriatory taking in violation of Chapter 11of NAFTA because the Mexican authorities hadnot violated the international law standardembodied in NAFTA. The alleged breach had beenreviewed by three levels of Mexican courts, andin none was the alleged breach affirmed. Withoutproof that the Mexican courts had breachedChapter 11, by violating international standardsof due process through a denial of justice or apretence of form, the claimant’s case failed.

The case suggests that an investor-Statemechanism should operate within the limits ofinternational law and that its rules should be theonly ones that determine whether a claim is valid.

If a claim fails to show that an internationalstandard, embodied in an IIA, has been breachedby a host country, it has no right to success beforean international tribunal. International law maythus check excessive claims by investors againsthost countries. Only the most serious claims,involving violations of international standardsembodied in IIAs, should be brought beforedispute settlement bodies.

Perhaps a penalty could be imposed on aclaimant who brings a clearly unmeritorious claimbefore a tribunal. Or perhaps safeguards could bebuilt into the procedure for determining theadmissibility of a claim. Under the ICSIDConvention a preliminary review by the SecretaryGeneral of ICSID determines whether the requestfor arbitration is manifestly outside the jurisdictionof ICSID. But this power relates to jurisdiction only.There is no power to determine whether the claimis sufficiently meritorious to warrant a full hearing.That is for the tribunal to decide.

Box IV.5. Investment arbitration and the control of claims made by investors

Source : Schreuer 2001, pp. 458–459; Muchlinski 2000, pp. 1051–1052.

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Dealing with cross-retaliation. The foregoingconcerns are particularly relevant for IIAs that onlyhave State-State dispute settlement mechanisms.To allow investor-State procedures would requirea substantial reorientation, as for the WTO, shouldmodalities be agreed upon to negotiate investmentin that Organization. (The Doha Declarationexpressly refers only to “disputes betweenMembers” as a subject for clarification.54) Toinclude investment dispute settlement proceduresunder these circumstances raises the possibility ofcross-retaliation—for example, of increasing tariffsor introducing quotas to enforce compliance withan award against the losing State. This could haveadverse consequences for the economic welfare ofa developing country, doing disproportionatedamage to its export earnings.

Countries could protect themselves againstcross-retaliation by limiting it or indeed by notallowing it.55 It is also possible to establish aseparate self-contained dispute settlementmechanism (with appeal possibili t ies) forinvestment matters. Although ICSID already existsas a self-contained mechanism, it does not providesuch wide-ranging functions, focusing instead onthe settlement of individual disputes that comebefore it. In addition it has limited powers to reviewand annul the award of a tribunal that does notallow for a full appeal process (Schreuer 2001, pp.891–893). Still, if governments so decide, it maybe possible to broaden the competence of ICSID.

Procedures could also be established toprevent the use of retaliatory measures until allother alternative methods of enforcement have beenexhausted. Such measures could be excluded untilparties have held consultations over compliance,both bilaterally and with the intervention of therelevant dispute settlement body—to arrive at amutually agreed compliance process. This wouldseek to reconcile the winning party’s interest inenforcement with the losing party’s essentialdevelopment needs. In a climate of intensecompetition for FDI, as well as greater scrutinyof investor action, both parties have an interest insettling disputes amicably.

There is also a broader consideration: State-State procedures may be preferable to investor-State ones because a government could look at adispute in the broader context of its entire relationswith another government, rather than focusing onthe narrower concerns of the investor claimant. Buta problem could arise if only State-State proceduresare available: an investor-State dispute could beintroduced under the guise of a State-Statedispute.56 In this situation, the investor has all theresources of its home government at its disposaland (vice versa). (But even in this case, it is the

government’s decision to proceed with a case and,if i t does, in what way.) Furthermore, if theclaimant country is successful, how should theaward be made, and would the home governmentpass on any advantages to the investor?57

Considering third parties. A final set ofissues, raised especially by NGOs, concerns theparticipation of third parties who have a stake inthe outcome of dispute settlement cases. Forexample, where an investor and a host country arein dispute over the application of environmentalregulations to the investment, local communitiesaffected by the environmental performance of thatinvestment might wish to participate as interestedthird parties. This can be accommodated throughrights of audience before national tribunals incountries in which there is a strong tradition ofaccess to justice by interested third-partyindividuals or groups.

Where the investor exercises a treaty-basedright to international arbitration, interested thirdparties may have no standing before such a bodyand will be denied the possibility of a hearing. Buta limited right of third-party representation beforeinternational arbitral tribunals is beginning toemerge. The WTO Appellate Body has accepteda limited right for third-party participation throughthe submission of information and technical advicewhere the WTO panel feels this appropriate, thougha panel is obliged to consider only the submissionsmade by the parties to the dispute (WTO AppellateBody 1998).

Given the significance of stakeholderperspectives on investment issues and disputes,particularly to the development dimension, this issuecould be important in future IIAs. But if wider third-party rights of access to tribunals continue to grow,some safeguards against the manipulation of thoseprocesses might also be required—to prevent theraising of costs by way of “piling on” third-partyinterventions on one side or the other of the dispute.

Other measures could aim at enhancing goodarbitral practice and the fullest possible review ofthe development dimension in investment disputes.For example, cases of disputes under IIAs, could bemade public, as by ICSID. Procedures could also bemore open and transparent, including public accessto hearings, the full publication of awards and theirreasons and the possibility of an appeal for awardsthat do not take place within an institutional systemthat already provides for this. Such issues are alreadybeing addressed by arbitral tribunal themselves.

Investment disputes are likely to increase,making dispute settlement procedures more important.But they need to safeguard against frivolous andvexatious claims, as well as cross-retaliation.

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E. Performance requirements

Performance requirements can be animportant policy tool to enhance the benefits ofinward FDI, so developing countries seek topreserve their right to use them. But developedcountries associate them with interventioniststrategies of the past and question theireffectiveness. The use of performance requirementshas declined, and they are typically linked to somekind of incentives. Because there are valideconomic arguments for using performancerequirements in some circumstances, they areimportant in the negotiation of IIAs.

1. Why use them?

Performance requirements are stipulationsimposed on foreign affil iates to act in waysconsidered beneficial for the host economy. Themost common ones relate to local content, exportperformance, domestic equity, joint ventures,technology transfer and employment of nationals.58

The requirements can be mandatory (say, as a pre-condition for entry or access to the local market)or voluntary (as a condition for obtaining anincentive). Requirements can be non-discriminatory, applied to all companies (local andforeign) or they can discriminate betweencompanies by ownership (as an exception tonational treatment) or even by particular nationality(as an exception to the MFN standard).

Their purpose is to induce TNCs to do moreto promote local development—by raising localcontent, creating linkages, transferring managerialtechniques, employing nationals, investing in lessdeveloped regions, strengthening the technologicalbase and promoting exports. TNCs may beunwilling to use a location as an export base sinceit might compete with other parts of theirproduction systems.59 Or they may not be fullyaware of local potential and so are less willing toinvest in using local resources (instead of usingproduction bases abroad). Performance requirementscan induce them to explore local resources and, wherenecessary, invest in improving them.

Moreover, some countries following importsubstitution strategies tried to counterbalance theanti-export bias of the trade regime by introducingexport performance requirements. Local contentand joint venture and other requirements have beenused to offset or pre-empt restrictive businesspractices by TNCs.60 They have also been used topursue such non-economic objectives as politicalor economic independence, shifting the distributionof power or securing rents from the exploitationof natural resources (UNCTAD 2003f).

2. Declining incidence

Performance requirements have been usedextensively by a wide range of countries.61 Indeveloped countries, performance requirementswere particularly used in the 1970s and 1980s inindustries in which FDI was concentrated:electrical, transport equipment (especiallyautomobiles), chemicals, non-electrical machineryand primary sector industries such as mining andpetroleum.62 For several reasons, the incidence ofperformance requirements by developed countrieshas declined over time (UNCTAD 2003f).63 Thisdoes not mean, however, that developed countriesstopped trying to influence the trade and investmentbehaviour of TNCs. To achieve similar objectives,they now use other strategic trade and investmentpolicy instruments, such as rules of origin andlocational incentives.64 In the 1980s and early1990s, voluntary export restraints were also usedextensively by developed countries (Messerlin1989; Prusa 1992).65 These instruments, too, mayhave distorting effects on international trade andinvestment (Belderbos 1997; Moran 1998, 2002;Safarian 1993).

Developing countries also use performancerequirements (UNCTAD 2003f; OECD 1989; WTO/UNCTAD 2002),66 particularly because of theirdesire to promote infant industries and addressbalance-of-payments problems (UNCTC 1991;Bora 2002). A survey of some 400 Europeanbusiness executives recently noted that the highestincidence of performance requirements was inBrazil , China, India and Russia, all largedeveloping countries or economies in transition(Taylor Nelson Sofres Consulting 2000). But thegeneral policy trend resembles that of thedeveloped countries: there is a declining incidenceof performance requirements and a shift frommandatory requirements on investors torequirements l inked to investment incentives(UNCTAD 2003f).67

The general trend to reduce mandatoryperformance requirements reflects several factors:

• WTO rules oblige members to abandon somemeasures—notably those covered by the TRIMsAgreement.

• Falling trade barriers and a more competitiveenvironment for FDI make it more difficult toimpose performance requirements withoutincreasing the risk of deterring FDI and affectingcompetitive performance. Thus, mandatoryrequirements are now rarely applied in activitiesin which host countries are in a relatively weak

World Investment Report 2003 FDI Policies for Development: National and International Perspectives120

bargaining position for FDI, such as efficiency-seeking export-oriented FDI. Similarly, they areless used to promote local linkages in activitiesthat feed into exports. Countries have generallyshifted from sticks to carrots—they useincentives to induce foreign affiliates (anddomestic firms) to operate in a way thatpromotes the type of development that is desired.

• There is a growing preference amonggovernments for more market-friendly tools tomeet development objectives.

• Some of the development objectives thatgovernments sought to promote throughperformance requirements may now have beenrealized (UNCTAD 2003f).

3. How effective are they?

Broad comparisons of growth or exportperformance do not show whether the economicbenefits of particular performance requirementsoutweigh their costs (administration, incentives andpossible distorting effects). Comparisons withcounterfactuals (what would have happened hadcertain performance requirements not been appliedin a given situation) are even more difficult.

Even so, there is evidence that performancerequirements can be effective. A number of studieshave found positive effects of local contentrequirements (Balasubramanyam 1991; Wong 1992;Halbach 1989; Dahlman and Sananikone 1990),export performance requirements (Moran 1998;Rosen 1999; Kumar 2002), employment andtraining requirements (UNCTAD 2001i, 2003f) anddomestic equity or joint venture requirements(UNCTAD 2003f, chapter III). By contrast, otherstudies have found that the measures imposedconsiderable costs on host countries, suggestingthat the results have been inefficient (Moran 2002;Ernst and Ravenhill 2000; Ramachandran 1993;Urata and Kawai 2000; Hackett and Srinivasan1998; UNCTAD 2003f). It appears that somecountries used performance requirementsuneconomically, forcing firms to act in a mannerthat led to higher costs and inefficiencies. But thereare also cases where performance requirementswere both effective and efficient— namely whenlocal capabilities were high and the supply responsewas dynamic. And if the host country had strongattractions for FDI, it could impose more stringentrequirements without putting off foreign investors.

Countries have to balance the potentialbenefits of performance requirements against thecosts of creating inefficiency and the risks ofdeterring FDI. The evidence suggests that achievingthe objectives of performance requirements depends

largely on the clarity of these objectives, and thebroader industrial and trade policies in which therequirements are set (UNCTAD 2003f). Particularlyrelevant are strong local enterprises, flexible andwell-managed institutions and policies that supportlocal capability development.

Also important are the capacity of officialsto enforce requirements pragmatically, respond tochanging conditions and needs and monitor theirimpact—not easy, even in advanced economies.Take Canada. The predecessor to the InvestmentCanada Agency, the Foreign Investment ReviewAgency, was responsible for implementing andmonitoring performance requirements. Even withmore than 130 employees, half of whom wereprofessional or technical staff, it had difficultyperforming its tasks properly (Safarian 1993).

From an international perspective, the impactof performance requirements on the patterns oftrade and investment in third countries needs tobe taken into consideration. The growth of localcontent in one host country, for instance, canadversely affect producers in other countries (whichmay be more efficient). And export performancerequirements imposed by large countries may divertexport-oriented FDI from smaller competinglocations, which may not be in as strong a positionto bargain with a potential investor. Such effectsare relevant for IIAs.

4. Coverage in IIAs

Performance requirements have receivedmore attention in IIAs over the past decade. Theyfall into three categories: those explicitly prohibitedat the multilateral level; those prohibited,conditioned or discouraged by interregional,regional or bilateral (but not by multilateral)agreements and those not subject to control by anyinternational agreement.

At the multilateral level, the WTO TRIMsAgreement prohibits certain performancerequirements considered to be trade distorting: localcontent requirements, trade-balancing requirements,restrictions on foreign exchange inflowsattributable to an enterprise and export controls.68

The Agreement prohibits not only mandatoryTRIMs but also those linked to an advantage. Itapplies equally to measures imposed on domesticand foreign enterprises. With the transition periodsfor phasing out measures agreed for developingcountries and LDCs having expired, theAgreement’s provisions apply to all WTO members,except those granted an extended transitionperiod.69 Export performance requirements linkedto the receipt of a subsidy are furthermore restricted

CHAPTER IV 121

under the WTO Agreement on Subsidies andCountervailing Measures. They are prohibited fordeveloped countries and generally for middleincome developing countries as of 1 January 2003,with some exceptions.70

Both these agreements apply only tomeasures related to trade in goods. In services, bycontrast, the scheduling approach of the GATS(based on a “positive list” combined with the abilityof individual countries to schedule specificlimitations to market access and national treatment)gives countries the flexibility to use performancerequirements.71

At the bilateral and regional levels, IIAstraditionally have not addressed performancerequirements. But this has started to change.72

Some countries restrict a wider range ofperformance requirements than those in the TRIMsAgreement (table IV.1). For example, NAFTAforbids domestic equity requirements, exportperformance requirements (in goods and services)and requirements to transfer technology, productionknow-how or other proprietary knowledge forinvestments by investors from both parties and non-parties.73 MERCOSUR bans requirements to exportand source goods or services locally. BITs and freetrade agreements involving the United States andCanada restrict the use of additional performancerequirements.

5. Options for the future

The treatment of performance requirementsin IIAs remains controversial, and there is noconsensus either on their effectiveness in helpingcountries to promote development, or converselyon their distorting effects. Some host developingcountries consider performance requirements to bean effective development tool and perceive thedisciplining of performance requirements as undueinterference with their policy space. Others, mostlydeveloped home countries, believe that suchrestrictions are necessary to avoid distortingpatterns of trade and investment.

As part of the review of the TRIMsAgreement (as stipulated in Article 9), countriesmay leave the treatment of performancerequirements unchanged or renegotiate i tsprovisions.74 Such renegotiations could change thecoverage of investment measures in the Agreement.But to do that, countries would first have to agreeon a modification of the coverage of Article 2 forthe types of measures that would be subject to theprohibition set out in this Article. Currently, Article2 refers only to measures deemed inconsistent withArticles III and XI of GATT 1994.75

Renegotiation could also focus on ways toextend the transition period or to allow for a newtransition period, including criteria for phasing outinconsistent measures that could be applied tocountries at different levels of development. (Onesuch criterion could be reaching a certain level ofGNP per capita.) As noted, the phase-out periodsestablished under Article 5.2 have already expiredfor all WTO members. But eight WTO membershave been granted an extension of the transitionperiod, which will in turn have expired by the endof 2003. These extensions were given on thecondition that the remaining TRIMs be effectivelyeliminated at the end of the extended period.76

There is a considerable divergence of viewson how best to proceed. Some developing countrygovernments advocate reopening the TRIMsAgreement to reduce its coverage, make it moreflexible and allow greater policy space forgovernments to decide whether to use performancerequirements. For example, in a communicationto the WTO, Brazil and India advocated reopeningthe TRIMs Agreement to increase policy flexibilityand to allow developing countries greater freedomin implementing their development policies topromote domestic manufacturing capabilities,technology transfer and competition, for example.The proposal notes that one option could be toextend the range of situations in which developingcountries are allowed to deviate from Article 2.77

Some developed country governmentsmaintain that further international regulation ofperformance requirements under the TRIMsAgreement is desirable. The United States, forexample, has argued in favour of an expansion ofthe list of restricted TRIMs to include exports,technology transfer and product mandatingrequirements.78

Some academic experts (such as Moran2002) maintain that the banning of additionalmandatory requirements would be in the interestof developing countries since such policyinstruments can deter inward FDI, although asindicated above there is no conclusive evidencefor this proposition. Other scholars take theopposite view and caution against further regulationon the ground that host countries may deliberatelychoose to use performance requirements and takethe risk of reducing FDI for the sake of specificdevelopment objectives (Balasubramanyam 2002).They also note that the incidence of mandatoryrequirements has declined even in the absence ofmultilateral rules restricting their use. This maysuggest that developing countries are themselvesbest positioned to determine the usefulness ofvarious requirements in the light of their specific

World Investment Report 2003 FDI Policies for Development: National and International Perspectives122

Ta

ble

IV

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Ex

am

ple

s o

f II

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pro

hib

itin

g v

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join

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with

dom

estic

par

ticip

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nx

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eadq

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fic re

gion

or t

he w

orld

mar

ket

xx

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equi

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to e

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iven

leve

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ser

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men

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xx

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sup

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pro

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of t

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xx

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act

as

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excl

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prov

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xx

xx

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sfer

tech

nolo

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oces

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Draft MAI

US-Croatia BIT, 1996a

Canada-Chile FTA, 1996b

El Salvador-Peru BIT, 1996

US-Jordan BIT, 1997

Canada-Croatia BIT, 1997b

Mexico-Nicaragua, FTA, 1997

US-Bahrain BIT, 1999

US-El Salvador BIT, 1999

Dominican Republic-Ecuador BIT, 1998

Chile-Mexico FTA, 1999

Mexico- El Salvador, Guatemala, and Honduras FTA, 2000

Japan-Republic of Korea BIT, 2001

Chile-US FTA, 2003

EFTA-Singapore, 2002

Japan-Singapore Economic Partnership, 2002

Chile-Republic of Korea, FTA, 2003

United States-Singapore FTA, 2003

Chile-EU Asssociation, 2003

CHAPTER IV 123

resource endowments and developmentobjectives.79

Another relevant question relates to theinteraction between the rules governing the use ofperformance requirements and the application ofnon-discrimination clauses in IIAs (see also boxV.4). The scope of governmental discretion ingranting performance requirements is regulated byinvestor protection standards voluntarily adoptedby a country party to the IIA. In particular, non-discrimination standards normally require thatperformance requirements be applied in a way thatdoes not discriminate between different investorsin like circumstances. But this general standardcan be subject to qualifications and exceptions thatpreserve a degree of policy space for differentialtreatment in appropriate cases. So, much dependson the actual content of the IIA and on the balanceof obligations undertaken by the host country inthis regard.

International rules on performancerequirements are linked to other trade andinvestment policies that may also give rise todistortions. This is particularly true of locationincentives. There is now a regulatory imbalancein IIAs between provisions that limit the use of

performance requirements (applied mainly bydeveloping countries) while omitting provisionsto discipline the use of location incentives (notablyin the form of up-front grants provided mainly bydeveloped host countries) (Moran 2002). Asdiscussed in the next section on investmentincentives, incentive-based competition for FDImay put developing countries at a disadvantage(WIR02).

The use of rules of origin and other strategicpolicies also affects third countries, so these needto be taken into account when discussingperformance requirements in future IIAs. It maysometimes be more difficult for developingcountries to have recourse to other policyinstruments (such as strategic trade policies) toinfluence TNC behaviour.

As long as governments are aware of thepossible costs of performance requirements, theycould be left free to weigh their benefits and costs,subject to existing international commitments.Indeed, further discussions on the treatment ofperformance requirements in IIAs need to recognizethe right of developing countries to regulate andallow sufficient policy space for the pursuit ofdevelopment objectives.

F. Incentives

Investment incentives induce new investorsto establish a presence, to expand an existingbusiness or not to relocate elsewhere. They mayalso be provided to increase the benefits from FDIby stimulating foreign affiliates to operate indesired ways or to direct them into favouredindustries or regions. As the use of investmentrestrictions has declined, incentives have becomemore prevalent across the world, especially becausethe market for FDI in some industries has becomeglobal.

In general, IIAs do not address the use ofincentives directly, though the principle of non-discrimination may apply to them. The WTOAgreement on Subsidies and CountervailingMeasures may also apply to subsidies offered toforeign investors if they relate to activities in tradein goods. And a few agreements have “no-lowering-of-standards” clauses. Still, host countries usuallyretain considerable discretion in the use ofincentives, permitting them to differentiateinvestment by industry, size and location, forexample. In addition, IIAs may include exceptionsto allow for differential treatment of investors inlike circumstances.

1. Why use them?

Governments use three main categories ofinvestment incentives to attract FDI and benefitmore from it (UNCTAD 1996a): financial incentives(such as outright grants and loans at concessionalinterest rates), fiscal incentives (such as taxholidays and reduced tax rates) and other incentives(such as subsidized infrastructure or services,market preferences and regulatory concessions,including exemptions from labour or environmentallaws). Incentives can be used for attracting newFDI to a particular host country (locationalincentives)80 or for making foreign affiliates in acountry undertake functions regarded as desirablesuch as training, local sourcing, R&D or exporting(behavioural incentives). Most incentives do notdiscriminate between domestic and foreigninvestors, but they sometimes target one of the two.In some countries, such as Ireland, the entireincentive scheme was geared to FDI for a longperiod.81 Incentives may also favour small firmsover large, or vice versa. They are offered bynational, regional and local governments.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives124

The main reason for providing incentives isto correct for the failure of markets to capture widerbenefits from externalities of production. Suchexternalities may be the result of economies ofscale, the diffusion of knowledge or the upgradingof skills. They may justify incentives to the pointthat the private returns equal the social returns (adifficult calculation). Major incentive packageshave also been justified on the grounds that theattraction of one or a few “flagship” firms wouldsignal to the world that a location has an attractivebusiness environment and lead other investors tofollow.82 From a dynamic perspective, incentivescan reflect potential gains that can accrue over timefrom declining unit costs and learning by doing.They can also compensate investors for othergovernment interventions, such as performancerequirements, or correct for an anti-export bias inan economy arising from tariffs or an overvaluedexchange rate. And they can compensate for variousdeficiencies in the business environment thatcannot easily be remedied (UNCTAD 1996a, pp.9–11).83

When considering incentives, governmentsneed to take various cost aspects into account—of different kinds.

• One risk is offering incentives to TNCs thatwould have invested anyway, so the incentiveis a mere transfer from governments tocompanies (or, in some circumstances, to thetreasuries of the home countries).

• Where a fiscal incentive is offered, costs mayinclude revenues forgone by the government,84

while financial incentives imply a disbursementof public funds to the investor in question,closing the opportunity to use those funds forother purposes, such as improving theinfrastructure or training the workforce(locational determinants that enhance the abilityof countries to attract sustainable FDI).

• Incentives give rise to administrative costs,which tend to increase as the discretion andcomplexity of schemes increase.

• There are potential efficiency losses if firms areinduced to locate where incentive-basedsubsidies are most generous and not wherelocational factors might otherwise be mostfavourable to an efficient allocation of resources.

• Incentives may sometimes give rise tounintended distortions by discriminatingbetween firms that are relatively capital-intensive and those that are relatively labour-intensive, between projects of different cash-flow profiles or between large and small firms(UNCTAD 1996a; Moran 1998).

• Tax incentives may induce TNCs to use transferpricing to shift profits to locations with the mostgenerous tax conditions, eroding the tax basein several host countries.

2. Incentives-based competition forFDI intensifies

The use of locational incentives to attractFDI has considerably expanded in frequency andvalue. The widespread and growing incidence ofboth fiscal and financial incentives is welldocumented until the mid-1990s (UNCTAD 1996a;Moran 1998; Oman 2000), and anecdotal evidencesince then suggests that this trend has continued(WIR02; Charlton 2003). In general, developedcountries and economies in transition frequentlyemploy financial incentives, while developingcountries (which cannot afford a direct drain onthe government budget) prefer fiscal measures(UNCTAD 1996a, 2000g).85

The expanded use of incentives reflects moreintense competition, especially between similar andgeographically proximate locations. Governmentsseeking to divert investments into their territoriesoften find themselves part of various “biddingwars”, with investors playing off different locationsagainst each other, leading them to offer ever moreattractive incentive packages to win the investment.Bidding wars are typically regional or local,reflecting competition between different countries,or between regions, provinces or cities within acountry. For example, in the United States, morethan 20 States have sometimes competed for thesame FDI project, and more than 250 Europeanlocations competed for a BMW plant, which in2001 ended up in Leipzig, Germany. Fordeveloping countries and economies in transition,bidding wars have been documented, for example,in Brazil and among ASEAN countries, amongprovinces of China as well as in CEE (Charlton2003).

An emerging trend in certain industries, inwhich investment projects can be located anywhere,is that competition over investment incentives hasbecome global, adding a new layer to suchcompetition, which previously had mainly beenregional or national.86 A further consequence ofglobal investment competition has been theincreased use of regulatory concessions, frequentlyused in export processing zones (EPZs). Such zonesoften create “policy enclaves” in which the normalregulatory rules and practices of the host countrymay not apply (or are implemented moreefficiently) to reduce investment costs.

CHAPTER IV 125

3. Are incentives worth their cost?

The effectiveness of locational incentives canbe assessed for their economic desirability or theirsuccess in actually attracting new investment—andthat of behavioural incentives, for inducing foreignaffiliates to operate in particular ways.

Start with the economic desirabili ty oflocational incentives, for which there is a long-standing debate on the economic benefits (Charlton2003). Do they distort the allocation of resources(and so reduce global welfare, including that ofdeveloping countries)? And do their costs toparticular host countries offset their benefits? Theymay be economically justifiable if they offsetmarket failures—that is, if they allow a hostcountry to close the gap between social and privatereturns,87 to overcome an initial “hump” inattracting a critical mass of FDI or a flagshipinvestor that attracts other investors or to attractinvestors to efficient but otherwise little knownlocations.

Locational incentives can be economicallyinefficient if they divert investment from otherlocations that would have been selected oneconomic grounds. And once the incentive ends,the investor may move on if the underlying causefor poor competitiveness still persists. If the offerof incentives by one country leads to a “biddingwar” for FDI, host countries lose to the TNC (orto its home country, if i t can tax away theconcessions). If incentives are used to addressmarket failures, the first best policy may often beto correct the failure rather than to compensate forit; for example, if the incentive intends to overcomean overvalued exchange rate, it may be better torealign the currency than to add a new distortionthrough the incentive. Moreover, if the incentivetries to offset a decline in the locational advantagesof a country (such as rising wages in a labour-intensive activity), i t just delays the day ofreckoning at considerable cost to the taxpayer.

Another problem is that the asymmetrybetween developed and developing countries canbias FDI flows, at least where they compete forthe same investment. Rich countries can afford tooffer more incentives, and in more attractive(upfront grant) forms, than poorer countries. Withno constraints on incentives, the richer can out-compete the poorer, or force them into veryexpensive competition for FDI projects.

There is an emerging consensus amongeconomists that countries should try to attract FDInot so much by offering incentives but by buildinggenuine economic advantages (and offering stable,low and transparent tax rates). Incentives should

not be a substitute for building competitivecapabilit ies. Many governments realize thatincentive competition can be costly (particularlyagainst better-endowed rivals). But in the absenceof international cooperation on location incentives,each wishes to retain the right to offer them. Asa result, all or most countries involved are worseoff, and TNCs benefit from the lack of cooperation.

Next comes the issue of whether locationalincentives are effective in attracting significant newFDI. It is generally accepted that locationincentives are seldom the main determinant oflocation decisions by TNCs. But where all else isequal, incentives can tilt the balance in favour ofa particular location. This is most likely for export-oriented projects seeking a low-wage location inEPZ facilities, where many host countries offersimilar conditions and other attributes (UNCTAD1996a, 2000g; Wells and Allen 2001; Morisset andPirnia 2001).

Some evidence suggests that locationalincentives have become more important as themobility of firms has increased. Econometricstudies that previously found incentives ineffectivenow find that they have become more significantdeterminants of FDI flows (Clark 2000; Taylor2000).88 For domestic market-seeking or naturalresource-seeking FDI, however, locationalincentives are not as important—and they areharder to justify.

Activity-specific and behavioural incentivesare generally considered more effective. Exportsubsidies have been frequently used to promoteexport-oriented FDI, particularly in EPZs (WIR02).Incentives to encourage foreign affil iates toincrease employee training and assistance to localsuppliers seem to have worked well in Hungary,Malaysia, Republic of Korea, Singapore and SouthAfrica (WIR01; UNCTAD 2003f). But this does notmean that they should be used indiscriminately.Some incentives can be wasted if foreign affiliateswould have undertaken the activity anyway, or ifthey would have been happy with much smallerincentives. Yet even generous incentives may nothave much effect if the setting is wrong. Forexample, R&D incentives are unlikely to raiseaffiliate spending on R&D in an economy withoutthe local capabilit ies and technical skills toundertake design and innovation. In general,incentives alter slightly the ratio of benefits to costsof a particular activity—they cannot change itdramatically.

For regulatory concessions, labour andenvironmental standards are sometimes loweredin EPZs to attract FDI. Wages on average tend tobe higher in the zones than in the rest of the

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economy, but working conditions are at timesaffected by lax labour, safety and healthregulations. Trade unions are often barred fromorganizing to improve those conditions (ILO 1998;WIR99, box IX.5). But there is no systematicevidence suggesting that lowering standards helpsto attract quality FDI. On the contrary—the costof offering regulatory concessions as incentivesis that countries may find themselves trapped ona “low road” of cost-driven competition involvinga race to the bottom in environmental and labourstandards.

Countries that pursue more integratedapproaches for attracting export-oriented FDI—placing FDI policies in the context of their nationaldevelopment strategies and focusing onproductivity improvements, skills development andtechnology upgrading—have tended to attracthigher quality FDI. Ireland and Singapore havepursued such integrated policy approaches, andboth made efforts to promote training, facilitatedialogue between labour and management andprovide first-class infrastructure for investors. Theyhave demonstrated that good labour relations andthe upgrading of skills enhance productivity andcompetitiveness (WIR02).

In sum, incentives can be effective inattracting and influencing the location andbehaviour of TNCs. But the economic desirabilityof locational incentives is not clear, particularlyif they detract from building competitivecapabilities and encourage bidding wars. The casefor incentives at the site, activity and behaviourallevel is stronger, but only when the setting isappropriate. To increase the chances of efficientlyapplying both locational and behaviouralincentives, governments also use “claw back”provisions that stipulate the return of incentivesawarded if conditions are not met.89 Moreover,behavioural incentives are more likely to beeffective in inducing benefits from FDI whencomplemented with other policy measures aimed,for example, at enhancing the level of skills,technology and infrastructure quality.

4. Few international agreementsrestrict the use of incentives—but some do

IIAs have not, in the main, coveredincentives specifically (UNCTAD 2003h). But therehave been a few endeavours at the internationallevel to limit explicitly the use of incentives. Themost important instrument in this respect is theWTO Agreement on Subsidies and CountervailingMeasures (SCM), which may apply to subsidiesgranted to foreign investors if they relate to their

activities in trade in goods. The SCM Agreementin principle covers a wide range of incentives (seeWIR02 for a detailed discussion). It prohibits exportsubsidies and subsidies aimed at increasing localcontent of manufactured goods. Moreover, otherfirm-, industry- or region-specific subsidies areactionable under the SCM Agreement if they causeinjury to another WTO member’s domestic marketor serious prejudice in world markets. Thedefinition of subsidy is fairly broad (see Article1), including possibly fiscal and financialincentives as well as the provision of land andinfrastructure at less than market prices.

Recognizing what subsidies can do foreconomic development, the SCM Agreementcontains some important exceptions to the generalrule. The prohibitions concerning export-relatedsubsidies (Article 3.1(a)) do not fully apply to alldeveloping countries: WTO members listed inAnnex VII of the SCM Agreement are exempted,and WTO members have agreed to extend thetransition period for some additional membercountries.90 Special provisions for developingcountries also exist for actionable subsidies.91

The disciplines of the SCM Agreement maynot be easily applied to all kinds of investmentincentives, particularly locational incentives. Forexample, if a locational incentive is provided asa cash grant before production commences, it canbe difficult to prove, at a later stage, that theincentive has led to adverse effects on anotherWTO member’s industry. A similar issue arises forremedies. By the time production and export havecommenced, the incentives aimed to attract theinvestment may have ended. In this situation,neither a recommendation to withdraw or modifya subsidy under the WTO dispute settlementmechanism, nor the application of a countervailingduty to the exported goods in the context of adomestic action, would be likely to “undo” orchange an investment already made (WIR02).

At the regional and bilateral levels, IIAsdiscourage the use of regulatory concessions (forexample, in social and environmental standards)to attract investment. For instance, Article 1114of NAFTA discourages the contracting parties touse regulatory incentives to attract investment.92

In a similar vein, certain free trade agreementsconcluded between Latin American countriescontain a “no-lowering-of-standards” clausepreventing a contracting party from relaxingregulatory standards in the fields specified in theclause as an incentive for attracting FDI.93 Similarprovisions or commitments on “not loweringstandards” in environment, health and safety havebeen included in APEC’s Non-binding Investment

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Principles, whereas the ILO’s Tripartite Declarationof Principles Concerning Multinational Enterprisesand Social Policy contains various positivecommitments to certain principles and achievingcertain goals over and above minimum standards(Wilkie 2002).94 The OECD (2002) Guidelines forMultinational Enterprises also stress theresponsibili ty of enterprises, which should“[r]efrain from seeking or accepting exemptionsnot contemplated in the statutory or regulatoryframework related to environmental, health, safety,labour, taxation, financial incentives, or otherissues” (chapter II, paragraph 5).

Some international agreements stipulate thatparties shall enter future negotiations to establishmultilateral disciplines on incentives. Examplesare in Article XV of the GATS, which notes thatincentives may have distortive effects on trade inservices and that WTO members will negotiateways to avoid such trade diversion effects.95 TheOECD Declaration and Decisions on InternationalInvestment and Multinational Enterprises includesa chapter on “International Investment Incentivesand Disincentives”, which establishes such aconsultation mechanism. And Article 10.8 of theEnergy Charter Treaty contains a review clauseconcerning specific incentives.96

Even when IIAs do not explicitly restrict theuse of incentives by the parties to an agreement,the non-discrimination principle may have an effecton their use and application. The issue is herewhether incentives could be given to domesticinvestors only, and not to foreign investors in likecircumstances, raising the question of non-discrimination. The GATS does allow countries topreserve the right to provide subsidies in adiscriminatory manner in scheduled sectors. Wherea host country wishes to offer incentivesselectively, it has to ensure that such selectivitydoes not fall foul of the national treatment andMFN standards. The difference in treatment canbe justified by referring to the differingcircumstances that apply to the favoured investors,as opposed to those not benefiting from theincentive (such as incentives reserved to a specificindustry or to SMEs). Or it can be justified byreserving an exception to those standards in thehost country schedule of exceptions, where sucha practice is permitted under the IIA. NAFTA isthe most relevant instrument in this context. Ratherthan limiting the use of fiscal or financialincentives, it includes important exceptions fromthe principle of non-discrimination. Following theNAFTA model, some bilateral agreements involvingthe United States or Canada include exceptionsfrom the non-discrimination principle on subsidies.In United States agreements, the exceptions relate

only to the principle of national treatment; the MFNprinciple remains applicable. On the other hand,Canadian agreements exclude both principles, inline with the NAFTA approach.

Moreover, most BITs contain legally bindingrules only for the post-establishment treatment offoreign investors. This means that the applicationof the principle of non-discrimination is limitedto behavioural incentives once an investment hasbeen made—it does not extend to locationalincentives in connection with the establishment ofa foreign affiliate.

To alert policymakers to some of thequestions that arise for jurisdictions that decideto use incentives, the OECD’s Committee onInternational Investment and MultinationalEnterprise adopted (April 2003), after considerabledebate, a checklist for assessing FDI incentivespolicies, with operational criteria in six categories(box IV.6). One of these, the extra-jurisdictionalconsequences of FDI incentives, may be ofparticular relevance to IIAs. And the checklist callson individual authorities to take into account therisk that their actions may trigger policy responseselsewhere that could lead to potentially wastefulbidding wars. According to the Committee, carefulevaluation of the checklist and its applicationwould help minimize potential harmful effects ofincentives both for those that employ them and forother governments seeking to attract FDI (OECD2003b).

5. Options for the future

Most IIAs do not contain explicit provisionson incentives, though the principle of non-discrimination may apply. The SCM Agreement’sprovisions limit the use of investment incentivesto the extent that they fall under the definition ofexport subsidies. At the same time, in response tothe need among developing countries to influencethe activities of investors to enhance the benefitsfrom FDI, there may be a case for making certainincentives “non-actionable” in the WTO if they canbe shown to have a clear developmental impact indeveloping countries (WIR01, p. 171). This couldinvolve, for example, the creation of more anddeeper linkages, the provision of technology andthe training of local suppliers and their personnel.

In general, however, host countries retainconsiderable freedom to develop and applyincentive programmes to attract FDI and increasethe benefits from it. This also gives countriesconsiderable discretion in conducting theirdevelopment policies. There does, however, seemto be an emerging practice to control regulatory

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concessions in certain areas by way of a no-lowering-of-standards clause. Furthermore, theuse of locational incentives might become morecontrolled, if the recent practice in some IIAstowards extension of the non-discriminationprinciple to the pre-establishment phase of aninvestment continues.

Increasing competition for export-orientedFDI risks accelerating the incentives race amongcompeting locations. The difference in financialresources available for public support to privateinvestment suggests that developing countrieswould be at a disadvantage in such a race. Thatmay further suggest the need to rectify this

In April 2003 the OECD Committee onInternational Investment and MultinationalEnterprise agreed on a checklist to serve as a toolto assess the costs and benefits of using incentivesto attract FDI; to provide operational criteria foravoiding wasteful effects and to identify thepotential pitfalls and risks of excessive relianceon incentives-based competit ion. Under sixcategories, 20 questions are raised:

The desirability and appropriateness of offeringFDI incentives

1. Are FDI incentives an appropriate tool in thesituation under consideration?

2. Are the l inkages between the enablingenvironment and incentives sufficiently wellunderstood?

Frameworks for policy design andimplementation

3. What are the clear objectives and criteria foroffering FDI incentives?

4. At what level of government are theseobjectives and criteria established, and whois responsible for their implementation?

5. In countries with multiple jurisdictions, howdoes one prevent local incentives fromcanceling each other out?

The appropriateness of strategies and tools

6. Are the linkages between FDI attraction andother policy objectives sufficiently clear?

7. Are effects on local business of offeringpreferential treatment to foreign-ownedenterprises sufficiently well understood?

8. Are FDI incentives offered that do not reflectthe degree of selectiveness of the policy goalsthey are intended to support?

9. Is sufficient attention given to maximising

Box IV.6. The OECD’s checklist on FDI incentives

effectiveness and minimising overall long-term costs?

The design and management of programmes

10. Are programmes being put in place in theabsence of a realistic assessment of theresources needed to manage and monitorthem?

11. Is the time profile of incentives right? Is itsuited to the investment in question, but notopen to abuse?

12. Does the imposition of spending limits onthe implementing bodies provide adequatesafeguards against wastefulness?

13. What procedures are in place to deal withlarge projects that exceed the normalcompetences of the implementing bodies?

14. What should be the maximum duration ofan incentive programme?

Transparency and evaluation

15. Have sound and comprehensive principlesfor cost-benefit analysis been established?

16. Is cost-benefit analysis performed withsufficient regularity?

17. Is additional analysis undertaken todemonstrate the non-quantifiable benefitsfrom investment projects?

18. Is the process of offering FDI incentives opento scrutiny by policymakers, appropriateparliamentary bodies and civil society?

Extra-jurisdictional consequences

19. Have authorities ensured that their incentivemeasures are consistent with internationalcommitments that their country may haveundertaken?

20. Have authorities sufficiently assessed theresponses that their incentive policies arelikely to trigger in other jurisdictions?

Source: OECD 2003b.

imbalance by restricting in the SCM Agreementthe use by developed countries of financiallocation incentives. A reduction of investmentsubsidies would help governments allocate moreresources for the development of skills,infrastructure and other areas that attract export-oriented activities. Given the nature of theproblem, any approach to dealing with incentives,including increasing transparency, would have tobe regional or multilateral. But furtherinternational cooperation remains controversial.There does not seem to be interest among eitherdeveloped or developing countries to reach anagreement on the use of incentives beyond whatis already addressed in the SCM Agreement.

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The transfer and dissemination oftechnology and the promotion of innovation areamong the most important benefits that hostcountries seek from FDI. TNCs are the dominantsource of innovation. Direct investment by themis an important mode of international technologytransfer, possibly contributing to local innovativeactivities in host countries. But attractingtechnology and innovative capacities andmastering, upgrading and diffusing themthroughout the domestic economy requiregovernment support—through national policiesand international treaty making.

The policies on technology transfer havechanged. Most governments have moved fromdirect controls and restrictions to market-friendlyapproaches—improving the business and FDIenvironment, strengthening legal and otherinstitutions and enhancing the skills and raisingthe capabilities of local enterprises. Market-friendly approaches are themselves shifting—fromproviding an enabling environment to strongerpro-innovation (technology seller) regimes, whilecontinuing to encourage technology transfer. Inthe international arena, national market-friendlyapproaches are complemented by TRIPS,restrictions on performance requirements and anumber of other agreements (UNCTAD 2001h).

Important choices remain on the rightbalance between regulation and markets in thetransfer of technology. The realization thatdeveloping countries, particularly the LDCs, needspecial support has led to some mandatoryrequirements on technology transfer. Butimplementation remains an issue.

1. The need for policies topromote technology transfer

In a world of rapid technological changeand intense competition, creating, acquiring andefficiently using new technologies is a vitalingredient of growth. In the generation anddissemination of new technologies, TNCs canprovide them in many forms: internalized in FDI,through non-equity forms (such as strategicalliances) and at arm’s length (licensing and othercontracts and arrangements). The rising cost ofinnovation, the perceived need to protect andcontrol intangible assets and the liberalization ofpolicies are leading TNCs to use FDI as the mainmode for allowing access to valuable technologies(WIR99). As a result , the role of FDI in

international technology transfer is growing.Indeed, many new technologies, particularly thoseused in integrated production systems, areavailable only through FDI (WIR02).

Making the best use of FDI-mediatedtechnology transfer requires policy support in thehost economy. To start with, TNCs with the mostsuitable technologies have to be attracted. Thenthey have to be induced to transfer thetechnologies that offer the best potential for localdevelopment. If TNCs start with simpletechnologies suited to the low wage and low skillsetting of many developing countries, they haveto be persuaded to upgrade them as wages andskills rise. In more advanced economies, they haveto be induced to transfer the technologydevelopment process itself, undertaking moredesign and R&D locally (WIR99). Thedevelopment impact of technology transferthrough FDI goes well beyond what happenswithin foreign affiliates—it extends to diffusingtechnology and technological capabilities to localsuppliers and buyers and contributing to localinnovation capacity.

In all these areas, there is a risk that marketswill not by themselves optimize technologytransfer and development. Internationaltechnology markets are imperfect and fragmented,dominated by a few large enterprises, mostlyTNCs. Once transferred, the efficient use oftechnology faces problems that may call for policyintervention.97 Some imperfections are inherentto transactions in information; others arise fromweak institutions and markets in host countries,from a legacy of inefficient policies (say, on tradeand competition) or from the strategies oftechnology suppliers. For these reasons, mostcountries have used policies to influencetechnology transfer by TNCs.

The measures span a wide range, from thoseaffecting technology transfer through FDI—thefocus here—to broader policies on enterprisedevelopment, skill creation, inter-firm linkagesand the promotion of innovation. Some measuresaffecting technology transfer through FDI arecovered elsewhere in this Part (in the discussionsof incentives, performance requirements, targetingand promotion). This section covers directcontrols on technology transfer, stipulations onthe extent of foreign ownership, technologytransfer requirements in FDI contracts,competition law and the protection of intellectualproperty rights (IPRs).

G. Transfer of technology

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2. Shifting towards a moremarket-friendly approach innational policies

Developed and developing countries havediffered in their technology transfer policies. Mostdeveloped countries are significant innovators andboth sell and buy new technology. Their concernshave been mainly to strengthen the technologicalposition of their firms—through more stringentIPRs, though several countries, such as Japan andSwitzerland, did not fully protect and enforceIPRs at crit ical stages of development—andencourage local innovative activity by foreignaffiliates. Developing countries, as importers oftechnology, have tried to improve the terms andconditions of technology transfer, strengthen thebargaining position of local firms and promotetechnology diffusion and generation, sometimesby a relaxed application of IPRs (Kim 2002). Theyhave also used incentives and performancerequirements to induce greater technology transferand diffusion by TNCs (see sections E and F) andto encourage technology generation by local firms.

This pattern is changing: countries areconverging in their policies on technologytransfer. Developed countries are strengtheningIPR protection, while reducing remaining barriersto TNC activities. (But competition policies stillcounter the abuse of market power by large firms.)Developing countries have moved from the directregulation of technology transfer towards a moremarket-friendly approach. Most policy changeshave been national, but IIAs mirror this pattern(see below). There are now few developingcountries with comprehensive systems for vettingtechnology contracts, either between independentfirms or between TNCs and their affiliates.

Many countries—developed and developing—had slack IPR systems until recently, in partto encourage technological capability developmentin local firms. Most now offer stronger IPRprotection, with the TRIPS Agreement providingthe international setting. But the case forstrengthening IPRs in countries with a weaktechnological base remains in dispute. The caseis more valid for developing countries whoseenterprises are launching into innovation or thathost (or would like to host) high-technology TNCactivities (sensitive to weak IPRs). But non-innovative poor countries may not receive greatertechnology inflows and yet have to pay more forpatented products and technologies (Lall andAlbaledejo 2001; United Kingdom, Commissionon Intellectual Property Rights 2002).

Another set of measures on FDI-relatedtechnology transfer is less obvious. In the past,many economies restricted FDI as the mode oftechnology transfer while encouraging importsin other forms to promote local R&D capabilities.Of the ones that succeeded, Japan, the Republicof Korea and Taiwan Province of China are thebest-known examples (Lall 2001; Kim 2002). Butsuch strategies did not work well in othercountries, largely because the context and the waystrategies were applied differed.

Controls on inward FDI (used, among otherthings, to regulate technology transfer) havedeclined in recent years. But governments useother policy tools more actively to promotetechnology transfer and development by TNCs.These include targeting technology-intensiveactivities and functions by promotion agenciesseeking to attract new FDI (WIR02), incentivesfor existing foreign affil iates to upgradetechnologies and undertake more R&D and theencouragement of greater local content andstronger local linkages by TNCs (WIR01).

The development and refinement ofinvestment promotion tools—this can cover boththe attraction of new investments and theupgrading of existing ones—is perhaps the cuttingedge of FDI policies for technology transfer.Mature industrial countries use them as activelyas developing countries. Ireland and Singaporeare cases in point, showing how this is done andhow it needs to be combined with improvementin local capabilities. Policies directed only atforeign investors are unlikely to work if theenvironment is not conducive to more advancedtechnological activity.

3. The right mix of policyinstruments and conditions

Direct controls . Direct controls ontechnology transfer and FDI did not fully succeedlargely because they did not address two issues:the information and administrative requirementsof technology regulation, and the absorption andupgrading of imported technology. Take the first.It is difficult for any government to dictateeffectively to private enterprises the besttechnology to buy, the most economical terms forprocuring it and the optimal structure of transfersover time. On the FDI front, it is similarly difficultfor governments to dictate which technologies totransfer or how much to restrict entry to encourageinfant local enterprises. The difficulties are fargreater in developing countries, where informationand skills are more scarce, institutional structures

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more rigid and local enterprises and institutionsless developed.

Controls thus tended to impose uniform,inflexible rules across industries, stipulating theduration of contracts, payment terms, foreignshares and the like without taking the specificcircumstances into account. This led in some casesto the transfer of older, less valuable technologies,sometimes barring access to new technologies.The transfer process itself tended to be shallowand incomplete, because the seller had littleincentive to transfer more complex segments ofthe technology or to help the buyer continuouslyto upgrade technologies over time. The outrightprohibition of restrictive clauses in technologytransfer contracts by a number of countries oftenraised the price of the technology and reinforcedthe propensity to provide less valuabletechnologies (Contractor 1982; Desai 1988;Correa 1995).

The second issue was that regulationsfocused on the cost of the transfer, not on theconditions needed for the effective absorption andupgrading of imported technology. It was simplyassumed that the technology would be usedefficiently and would keep abreast of newdevelopments. This often turned out to beoptimistic. It imposed costs on host countries,saddling them with technological lags andinefficiencies. Moreover, the settings forimplementing restrictive technology transferpolicies—protected regimes that gave fewincentives to firms to master and upgradeimported technologies—concealed theseinefficiencies and added to the ineffectiveness ofsuch policies (Desai 1988; Lall 1987).

Stipulating greater local ownership—orrequiring transfers. Many countries sought toencourage technology absorption by stipulatingforeign equity shareholding or insisting onminority joint ventures. The presumption was thatgreater local ownership would lead to betterabsorption and diffusion of technology. Whereimposed on reluctant technology sellers, however,the results were often not in accordance withexpectations.98 The strategy worked best incountries that had strong local firms, a large skillsbase and an export-oriented environment.99 It alsoworked in some large developing countries. Forinstance, in India, joint ventures—stipulated bydomestic equity ownership requirements—werefound to have generated substantial local learningand transfers of technology (UNCTAD, 2003f).

The scant evidence on technology transferrequirements suggests that, for the reasonsmentioned above, they too did not work well

(Kumar 2002).100 The requirements tended toraise the cost of transfer to TNCs, inducing themto provide less valuable knowledge or invest lessin rooting the technology locally.101 They thusappeared to be less effective than joint venturerequirements.

Providing behavioural incentives . Theeffectiveness of incentives for technology transferto host countries depends on the competitiveenvironment and the capabilities of local suppliers(WIR99). Where the host economy is open tocompetition and local suppliers are capable,incentives enhance technology transfer. Somecountries used incentives not only to attract TNCsinto high-technology activities but also toencourage foreign affiliates to move into morecomplex technologies and R&D (WIR99). But theywere successful not because they gaveexceptionally generous incentives—but becausethey created other preconditions for TNCs todeepen technological activity (such as moreadvanced skills, better local suppliers, more activeand innovative research institutions).

Strengthening IPRs. The strengthening ofIPRs can be beneficial for some types oftechnology transfer, but implementing the IPRregime can be costly and challenging. And itseffects on development and on FDI flows arecontroversial.102 Stronger IPRs can increase thescope for the abuse of market power bytechnology owners, and developing countries withweak competition policies may not be able to copewith this effectively. Stronger IPRs may also raisethe cost of technologies without the compensation,at least in LDCs, of stimulating local innovationor international technology transfer. However,strong IPRs are likely to benefit developingcountries with an advanced industrial sector,stimulating local innovation and increasing TNCtransfer of technology-intensive activities or R&Dfunctions.

In sum, policies to regulate and stimulatetechnology transfer through FDI can work, butunder special conditions (table IV.2). Where theseconditions do not exist , attempts to controlcontracts and transfer arrangements may notproduce the desired results.

4. International agreementsmirror the shift in nationalpolicies

International agreements reflect the shiftin national technology transfer policies from aregulatory to a market-friendly approach.103 Theregulatory approach was characteristic of

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international agreements in the 1960s and 1970s.It concentrated on deficiencies in internationalmarkets for technology and sought to reduce itstransfer costs rather than promote its absorption,development or diffusion. The prime example wasthe Andean Community’s Decision 24.104 Underthat Decision the Community’s countries adoptedstringent controls on technology transfer,scrutinizing the terms of individual contracts,setting limits on cost, duration and coverage andintervening to improve the bargaining position oflocal enterprises. Other international initiativesbased on the regulatory approach include the draftUNCTAD Code on Transfer of Technology, whichdid not materialize into an international agreement(Patel, Roffe and Yusuf 2001).

Market-friendly policies at the national andinternational levels have replaced controls andregulations used earlier to promote technologytransfer through FDI. This does not mean, however,that current international agreements do notenvisage any policy interventions. But the market-friendly approach largely leaves technologycontracts to the enterprises concerned, treatingtechnology as a private asset that is traded on

market principles, subject, among others, to generalcompetition rules that control abuses. In otherwords, the inclusion of such practices in licensingarrangements is never entirely out of the reach ofcompetition law.

For example, the TRIPS Agreement addressessome licensing practices pertaining to intellectualproperty rights, which restrain competition, mayhave adverse effects on trade and may impede thetransfer and dissemination of technology. In doingso, the Agreement provides, for the first time ina binding international instrument, rules onrestrictive practices pertaining in licensingcontracts (Roffe 1998; UNCTAD 2001f, p. 83;UNCTAD-ICTSD 2003). Enhancing the capacityof developing host countries to undertakeregulatory activities and making a commitment tohome and host country cooperation in the controlof anticompetitive practices would also help tostrengthen the international regime for technologytransfer to developing countries.

The current approach accepts the potentialinequality of market power between sellers andbuyers—and that between developed anddeveloping countries—in the market for

Table IV.2. Technology import strategies, policies and conditions

Strategy objective Policy Policy instrument Condition

Promote domestic technological - Conditions on FDI - Foreign ownership restrictions - Exposure to internationalcapabilit ies by minimizing - Incentives to partnership - Financial and tax incentives competition (as by strongreliance on FDI agreements to local firms export orientation)

- Government support to - Technical support, R&D - Availabil ity of skil led labourdomestic firms promotion programmes - Financial resources

- Foster national flagship firms - Effective export promotion - Entrepreneur ’s will ingness and- Encourage hiring of foreign ability to undertake risky

experts, l icensing and capital technology investmentgoods imports - Institutions able to support

skil l, technology and exportactivity

Promote FDI with minimal - Encourage large FDI inflows - Remove FDI restrictions or - Efficient and crediblegovernment intervention in the - Relax FDI restrictions provide incentives institutions to administerexpectation that it wil l involve - Ensure macroeconomic - Liberalize trade market-friendly policiestechnology transfer stability - Foster competition and - High local absorptive

well-structured IPR regimes capacity- Provide good infrastructure- General FDI promotion

Promote technology transfer by - Target specific TNCs - Industrial parks and advanced - Institutions able to handleFDI with proactive government - Provide incentives for TNCs infrastructure incentivesintervention to upgrade their technologies - Well structured IPR regimes - Institutions able to select

- High level skil ls and strong technologiestraining system geared to - Institutions for technologyactivities promoted support and skil l formation

- Rigorous quality standards- Targeted incentives for activities

and/or firms

Mixed strategy - Promote linkages with - Business incubators - Institutions able to bargaindomestic economy - Information clearinghouses with TNCs

- Build local technological - Industrial parks - Institutions able to plancapabilit ies - Supporting R&D strategically

- Encourage deepening of - Supporting joint ventures, - Ability to integrate skil ls,TNC activity licensing and collaboration financial markets,

- Supporting training of domestic infrastructure and technologicallabour force capability development

Source : Adapted from WTO 2002a.

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technology. It thus includes provisions to encouragecooperation with—and provide assistance to—developing countries in building a technologicalbase. It also encourages TNCs to transfertechnology and innovative capacity to developingcountries, and it uses incentives to TNCs by theirhome countries to encourage technology transfer.For instance, the OECD Guidelines of 1976 notedthe need for TNCs to transfer innovative activitiesas well as technology to developing countries, tohelp diffuse technology locally and to grantlicences on reasonable terms. Various IIAs andagreements concluded by the EU with developingcountries also encourage technology transfer.105

Perhaps the best example is the TRIPSAgreement, which considerably strengthened IPRsat the international level. While protecting theinterests of technology sellers, Article 66.2 of theTRIPS Agreement stipulates that “developedcountry Members shall provide incentives toenterprises and institutions in their territories forthe purpose of promoting and encouragingtechnology transfer to least developed country

Members in order to enable them to create a soundand viable technological base”. This is a mandatoryprovision on developed countries to promotetechnology transfer to LDCs. It does not specifywhat kind of technology transfer is to be supportedand how, but it potentially strengthens the positionof technology buyers in poorer countries.106 TheDoha Ministerial Conference then decided that thisobligation needed to be strengthened through amonitoring mechanism (WTO 2001a, paragraph11.2). This led in February 2003 to a reportingmechanism on actions taken or planned inpursuance of the commitments undertaken bydeveloped countries under this article (box IV. 7).

An area receiving special attention concernsenvironmentally sound technologies, withprovisions for their transfer to developing countriesare more common in international environmentalagreements.107 These instruments, while market-friendly, accept the need for the commercialtransfer of technology but seek to ensure thattransfers are not harmful in environmental terms.They encourage TNCs to transfer environmentally

An example of how transfer of technologyprovisions in an agreement can be implemented isthe 19 February 2003 Decision of the WTO Councilfor TRIPS, which provided for the following:

• “Developed country Members shall submitannually reports on actions taken or plannedin pursuance of their commitments under Article66.2. To this end, they shall provide newdetailed reports every third year and, in theintervening years, provide updates to their mostrecent reports. These reports shall be submittedprior to the last Council meeting scheduled forthe year in question.

• The submissions shall be reviewed by theCouncil at its end of year meeting each year.The review meetings shall provide Members anopportunity to pose questions in relation to theinformation submitted and request additionalinformation, discuss the effectiveness of theincentives provided in promoting andencouraging technology transfer to least-developed country Members in order to enablethem to create a sound and viable technologicalbase and consider any points relating to theoperation of the reporting procedure establishedby the Decision.

• The reports on the implementation of Article66.2 shall, subject to the protection of businessconfidential information, provide, inter alia,the following information:(a) an overview of the incentives regime put

in place to fulfil the obligations ofArticle 66.2, including any specific

Box IV.7. Implementation of transfer of technology provisions

legislative, policy and regulatoryframework;

(b) identification of the type of incentive andthe government agency or other entitymaking it available;

(c) eligible enterprises and other institutionsin the territory of the Member providing theincentives; and

(d) any information available on the functioningin practice of these incentives, such as:- statistical and/or other information on

the use of the incentives in question bythe eligible enterprises and institutions;

- the type of technology that has beentransferred by these enterprises andinstitutions and the terms on which ithas been transferred;

- the mode of technology transfer;- least-developed countries to which these

enterprises and insti tutions havetransferred technology and the extentto which the incentives are specific toleast-developed countries; and

- any additional information availablethat would help assess the effects of themeasures in promoting and encouragingtechnology transfer to least-developedcountry Members in order to enablethem to create a sound and viabletechnological base.

• These arrangements shall be subject to review,with a view to improving them, after threeyears by the Council in the l ight of theexperience.”

Source : WTO 2003a.

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The Declaration of the first ministerialmeeting of the WTO in Singapore in 1996recognized the relationship between investment andcompetition policy. FDI, particularly in developingcountries, may have undesirable effects, stemmingespecially from restrictive business practices,abuses of dominant positions and cross-borderM&As. Competition law and policy are particularlyimportant for FDI, because economic liberalizationresults in greater reliance on market forces todetermine the development impact of that FDI. Hostcountries want to ensure that the reduction ofregulatory barriers to FDI and the strengtheningof standards of treatment of foreign investors arenot accompanied by the emergence of privatebarriers to entry and anticompetitive behaviourof firms.

Where countries choose to open theireconomies and, as part of this process, remove thescreening of FDI at the point of entry, competitionpolicy may acquire special importance. The majordifficulty in developing countries is adoptingeffective legal frameworks and monitoring andenforcement systems. International cooperation hasa role in this, especially when national policiescannot deal with the full range of cross-bordereffects of anticompetitive behaviour. Nevertheless,competition issues are typically not addressed inIIAs.

1. Policy challenges

Competition policy deals, among otherthings, with the anticompetitive effects ofrestrictive business practices, the abuse of adominant positions and M&As. Each presentsdifferent issues and challenges. The control ofrestrictive practices is a major issue for developingcountries because restrictive arrangements by TNCscan limit the positive developmental impact ofFDI—say by reducing exports or limiting the useof technology. This can happen if a parent companylimits the external markets of i ts individualaffiliates (Puri and Brusick 1989; Correa andKumar 2003). A possible abuse of dominantpositions can occur as a result of large cross-borderM&As. Indeed, the main interface betweencompetition law and FDI occurs when foreignaffiliates are established by significant M&As.108

When foreign entry is accomplished bycross-border M&As, the probability of ananticompetitive impact increases for two reasons:first, because the number of competitors may bereduced; second, because cross-border M&As donot necessarily add new capacities. So countriestend to screen those transactions and often regulatethem both at the entry and post-entry phases.Regulation at entry considers the potential marketeffect of the acquisition of a local enterprise bythe foreign investor on competition in the host

sound technologies to developing countries thatmay otherwise not be able to use them.

Overall, most provisions consist of “bestendeavour” commitments rather than mandatoryrules. These have on the whole proven to besomewhat ineffective. International instrumentswith built-in implementation mechanisms,including finance and monitoring, have a betterimplementation record—but these are scarce, usedmainly for such “public goods” as environmentalprotection rather than technology transfer. Oneindicator of the continuing importance of thesubject is that the WTO Doha MinisterialDeclaration set up a Working Group on Trade andTransfer of Technology in 2001 to examine therelationship between trade and transfer oftechnology and to recommend measures to increaseflows of technology to developing countries.

This indicates that the concerns promptingearlier interventions in technology transfer havenot disappeared, since market and institutional

failures remain to be addressed. What has changedis the perception of how best to tackle them. Thecurrent thinking is that measures to strengthen localcapabilities, markets and institutions are morelikely to promote technology transfer anddevelopment than interventions in the contractualprocess. There is, however, a need to retainpreferential treatment for developing countries.Indeed, the requirement that TRIPS places ondeveloped countries to promote transfers to LDCssuggests that this is generally accepted.

Some questions to be tackled in the future:how to operationalize transfer-of-technologyprovisions for developing countries in internationalagreements? How to further encourage technologytransfer? How to handle the anti-competitive effectsof technology transactions? And how to strengthennational innovative capacity? There is thus a needto consider stronger international cooperation intechnology generation, transfer and diffusion.

H. Competition policy

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country industry, where the foreign investor mightacquire sufficient market dominance to warrantsuch review. The control of potential post-entryanticompetitive behaviour by TNCs may benecessary to deal with the conflicting objectivesof effective competition and local capacitybuilding. Such action may be particularly neededfor a host developing country in which the free playof market forces does not always bring the desireddevelopment results (WIR97, pp. 229–231).

Developed countries were the first to adoptcompetition laws and set up regulatory agencies.In 1980 fewer than 40 countries—mostlydeveloped—had competition laws (WIR97, p. 189).Since then more developing countries andeconomies in transition have adopted competitionlaws as well and set up agencies to administer them.By 1996 the number of economies with competitionrules and authorities in place had reached 77(WIR97, p. 290). By the first half of 2003 some93 economies had adopted competition rules andestablished competition agencies—in other words:almost half the world’s economies (UNCTAD,forthcoming c).

Some national laws in developing countriesand economies in transition have followeddeveloped country models. A significant numberof laws in CEE, moreover, have replicated the mainprovisions of the competition rules of the EuropeanCommunity. This is especially so for economiesin transition that have entered associationagreements with the EU and that aspire, in duecourse, to full EU membership. For other countries,however, it is fully recognized that a “one size fitsall” competition law is not advisable. Developingcountries, based on the commentary in UNCTAD’sModel Law on Competition (UNCTAD 2002g),have adopted different models to suit their needs,taking into account their juridical systems, levelsof development, business customs and the like.

In addition, having a competition law andauthority in place does not necessarily meaneffective action by governments. Competitionauthorities in poorer developing countries may lackthe resources and the expertise to work efficiently,especially when large-scale cross-border M&As,abuse of a dominant position or vertical restraintsto competition are involved.

Current models of competition law andpolicy do not distinguish firms by their nationality.Only their impact on competition matters.Moreover, they assume that maintaining andstrengthening competition would lead to moredevelopment. Indeed, a shielding from marketforces may become counter-productive in the longerterm if it prevents enterprises from responding

positively to market stimuli, if it brings about aloss of productive efficiency and innovation or ifit allows collaborative R&D activity that is a frontfor anticompetitive collusion between enterprises.

A host country can limit the application ofits competition policy when the expected benefitsoutweigh the welfare loss due to anticompetitiveeffects—say, for nurturing particular enterprises,or new and innovative R&D—by providingtemporary protection and exclusivity. The aimbehind such an exception is to reduce the risk toinfant enterprises—and to the undertaking ofinnovative research that may not be easilyundertaken in full competitive conditions, or whichrequires a degree of inter-firm cooperation thatmight be otherwise incompatible with rules againstanticompetitive collaboration between enterprises.Other reasons for l imiting the application ofcompetition policy—typically arising fromcompeting objectives—include ensuring theprovision of basic services, reducing foreignexchange shortages, safeguarding national securityand culture and avoiding negative externalitiesthrough tightly regulating pollution, to mention afew (WIR97, pp. 229–233).

Exceptions need to be treated with care, sothat an exception unwarranted by market conditionsis not permitted to continue indefinitely.

2. International cooperationarrangements

Most IIAs do not cover competition issues.It is usually assumed that the international elementof competition law and policy is dealt with in aseparate, specialized instrument. At the multilaterallevel, the only instrument to cover all aspects ofcompetition regulation is the 1980 UNCTAD Setof Multilaterally Agreed Equitable Principles andRules for the Control of Restrictive BusinessPractices.109 This instrument stresses the closerelationship between the control of restrictivebusiness practices and development policies.Indeed, the UNCTAD Set is the only majorinternational instrument that makes a significantlink between the economic policy concerns ofdeveloping countries and the control ofanticompetitive practices. But some trends aredeveloping for competition provisions in IIAs andfree trade agreements.

First, as a supplement to national competitionrules and as a response to the unilateral applicationof competition rules outside the territory of theregulating country, there has been moreinternational cooperation by way of proceduralagreements covering competition policy issues

World Investment Report 2003 FDI Policies for Development: National and International Perspectives136

To conclude, all eight areas reviewed hereare key sensitive issues that arise in the interfacebetween national and international rule-making—as countries seek to attract FDI and benefit morefrom it. In each case, governments face options fortreating each individual issue in the context offuture IIAs. The option that is most developmentfriendly is specific to the issue under consideration.

However, looking at individual issues orprovisions—these eight as well as others—doesnot offer enough guidance for assessing the overallstrengths and weaknesses of agreements. IIAs arepackages in which acceptance of one provision maybe balanced with concessions on other provisions.So their orientation and impact are informed bythe inclusion or exclusion of certain issues, by theirobjectives, by their overall design (that is, their

structure), by the way provisions are drafted andimplemented in practice and by the various andcomplex interactions among provisions and withother agreements.

IIAs need to strike a balance between thediverging interests and priorities of the countriesthat negotiate them in light of the goals they seekto achieve. From a developing country perspective,it is important that IIAs are negotiated with thegoal of promoting their development. Several issuesthat cut across individual provisions deserveattention in this regard, notably the importance ofnational policy space—and thus policy flexibility—to meet development objectives and the specialneeds of developing countries, especially leastdeveloped countries. These cross-cutting issues areaddressed in the next chapter.

(Woolcock 2003; WIR97). Initially, few of thesecooperation agreements involved developingcountries, with the exceptions of the AndeanCommon Market Commission Decision 285 of1991, the MERCOSUR Protocol on the Protectionof Competition of 1996 and certain EU AssociationAgreements with various southern Mediterraneancountries concluded since 1995. More recently, theCotonou Agreement of 2000 included acommitment, in Article 45, to implement nationalcompetition rules in the developing country partiesand to further cooperation in this field.

A second trend is the gradual adoption, byregional economic integration organizations, ofcompetition policies administered by asupranational competition authority. Following themodel of the EU, other regional organizations thattook this step include MERCOSUR, the CaribbeanCommunity and ECOWAS.

A third trend is that some agreements seekto ensure the appropriate application of competitionlaws in support of trade, development and consumerwelfare. Some go even further and seek toharmonize national laws for competition. TheRecommendation of the OECD Council concerningEffective Action against Hard Core Cartels (OECD1998b) is an example of the former, as is NAFTA’sChapter 15.110 The EU Association and Europe

Agreements that require the non-EU contractingparties to bring their national laws into conformitywith the acquis of EU law are an example of thelatter.

A fourth trend arises in free trade agreementsrequiring parties to regulate anticompetitivepractices that may interfere with the conduct ofcross-border trade between the signatory States.Such provisions are a significant feature of tradeagreements of EFTA and Turkey with somecountries in CEE and between some CEE countries.

Partly as a result of these trends, the WTOhas included trade and competition issues in itswork programme, beginning with the 1996Ministerial Meeting. At that time, the link betweencompetition and investment was explicitlyrecognized.111 At the subsequent Doha MinisterialMeeting, this explicit l ink was dropped,112

suggesting perhaps that—despite the links betweenFDI and competition identified earlier—competition issues are considered to be sufficientlyself-contained to warrant separate attention. Still,an effective competition policy is an importantregulatory tool to ensure that FDI contributes fullyto development, paying special attention torestrictive business practices and anticompetitiveeffects of cross-border M&As.

* * *

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Notes

1 They are examined in UNCTAD 1999c, 1999d, 2000a,2001e and forthcoming b.

2 Extraterritoriality was quite controversial in the MAInegotiations.

3 In addition, a new question is emerging from recentarbitral decisions under NAFTA as to whethermeasures relating to investment (such as, for example,bans on certain types of cross-border trade) that affectthe operation of transnational supply and distributionactivities of a foreign investor, should be includedin any definition of “investment”.

4 IMF 1993 and OECD 1996. Direct investment is thecategory of international investment that reflects theobjective of obtaining a lasting interest by a residententity in one economy in an enterprise resident inanother economy. The lasting interest implies theexistence of a long-term relationship between thedirect investor and the enterprise and a significantdegree of influence by the investor on themanagement of the enterprise. It consists of equity(at least 10% of total equity), reinvested earningsand inter-company debt transactions; the last of theseincludes loans, debt securities and suppliers’ creditsbetween direct investors and their affiliates. Portfolioinvestment includes equity up to or below 10%ownership (shares, stocks, preferred shares andpreferred stock and depositary receipts) and debtsecurit ies not included under direct investment(bonds, debentures, notes and money marketinstruments). Financial derivatives include options(on currencies, interest rates, commodities, indicesand the like), traded financial futures, warrants andarrangements such as currency and interest rateswaps. Other investments include trade credits, loans(including financial leases and repurchaseagreements), currency (notes and coins in circulation),deposits and other assets and liabilities (such asmiscellaneous accounts payable and receivable). In1999 the IMF Committee on Balance of PaymentsStatistics created the new functional category of“financial derivatives” in the financial account ofthe balance of payments and excluded them from“portfolio investment”. For a general description ofFDI terms and concepts, see IMF/OECD, n.d.

5 An example of a broad, open-ended definition is thefollowing. “The term ‘investment’ shall mean everykind of asset and in particular shall include thoughnot exclusively:a) movable and immovable property and any otherproperty rights such as mortgages, liens and pledges;b) shares, stocks and debentures of companies orinterests in the property of such companies;c) claims to money or to any performance undercontract having a financial value;d) intellectual property rights and goodwill;e) business concessions conferred by law or undercontract , including concessions to search for,cult ivate, extract or exploit natural resources”(ASEAN Agreement for the Promotion and Protectionof Investments, article 1(3), from UNCTAD 1996b,volume II, p. 294).

6 In the GATS, the Annex on Financial Servicesexcludes from the agreement “services supplied inthe exercise of governmental authority”, covering,among other things, activities conducted by a centralbank or monetary authority or by any other public

entity in pursuit of monetary or exchange rate policies(Article 1(b) of the Annex on Financial Services ofthe GATS Agreement). It also includes a provisionon domestic regulation providing for a carve-out forprudential regulations, notably to ensure the integrityand stability of the financial system (Article 2(a) ofthe Annex on Financial Services of the GATSAgreement).

7 See, for example, Article XII of the GATS and Article1109 of NAFTA for examples of traditional balance-of-payments safeguards.

8 The inter-agency task force that produced the Manualon Statistics on International Trade in Services in2002 recommended using majority ownership (morethan 50% share ownership) in defining foreign-controlled affiliates for collection of statistics onforeign affiliates’ trade in services. These statisticsare designed to provide data categorized along thelines of the four modes of services delivery underthe GATS. The threshold used in these statistics toidentify foreign affiliates (more than 50%) is muchhigher than the 10% threshold used for FDI statistics.

9 Moreover, the definition of FDI includes reinvestedearnings and loans between parent companies andforeign affi l iates. These can be used for rapidfinancial transactions.

10 The OECD Code of Liberalisation of CapitalMovements seeks specifically to liberalize capitalflows between members and to encourage suchliberalization between members and non-members.

11 There have been discussions within the WTO WorkingGroup on Trade and Investment on the issue ofdefinition. The Doha Declaration (paragraph 20)makes reference to particular types of investment forconsideration under trade and investment: “long-termcross-border investment, particularly foreign directinvestment, that will contribute to the expansion oftrade”. Within the Working Group, various WTOmembers have put forward a range of proposals fordefining investment: including FDI only, includingFDI and long-term foreign portfolio investment,including FDI and foreign portfolio investment andusing a broad, asset-based definition.

12 For an elaboration, see UNCTAD 1999f, pp. 61–66.13 Related standards pertain to MFN treatment and fair

and equitable treatment. While important, thesestandards raise fewer sensitive questions, so they arenot examined here. For a discussion, see UNCTAD1999c and 1999d.

14 The GATS uses “market access”.15 For why a dist inction between pre- and post-

establishment national treatment is not advisable, seeWilkie 2001. Note that there is a difference betweenthe “right of establishment” and “national treatmentin the pre-establishment phase”. The former refersto an absolute obligation of a host government toadmit an investor. The latter remains a relativestandard, even in the pre-establishment phase. In otherwords, where a host country grants a “right ofestablishment”, it offers a right to set up a permanentbusiness operation (which may be subject toexceptions and restrictions), regardless of how otherinvestors are treated, while the latter conditions theright to enter a host economy on granting treatmentthat is at least as favourable as the treatment ofdomestic investors.

16 “Like circumstances” can apply to pre-establishmentprovisions too (for example, in NAFTA).

World Investment Report 2003 FDI Policies for Development: National and International Perspectives138

17 The 1984 amendment of the OECD Code ofLiberalisation of Capital Movements reads as follows:“The authorities of Members shall not maintain orintroduce: Regulations or practices applying to thegranting of l icences, concessions or similarauthorisations, including conditions or requirementsattaching to such authorisations and affecting theoperations of enterprises, that raise special barriersor l imitations with respect to non-resident (ascompared to resident) investors, and that have theintent or the effect of preventing or significantlyimpeding inward direct investment by non-residents”.

18 National laws may include a general law prohibitingdiscrimination based, say, on nationality, such as theUnited States Civil Rights Act, Tit le VII. Legalpersons could use such laws to challenge what theymight perceive as nationality-based discrimination.Thus, in principle, a foreign investor treated moredisadvantageously than other investors could say thatthis is based on nationality and amounts to unlawfuldiscrimination. In the European Union, this wouldbe possible for intra-EU investors under the ECTreaty, Article 12. In any event, in many jurisdictions,foreign affiliates are considered to be domestic firmsonce they are established.

19 See, for example, the Federal Law on ForeignInvestment in the Russian Federation (9 July 1999),Article 4: International Legal Materials, 39 (4), 2000,p. 894-906.

20 The BITs of Canada and the United States treat specialprogrammes directed to minorities as exceptions tonational treatment.

21 The benefits that FDI offers are well known but worthreiterating. It can add to physical investment. It canprovide new technology, skills and organizational andmanagerial techniques (WIR99). It can stimulate localcompetitors and assist local suppliers (WIR01). It cantake over and upgrade ailing local private or publicenterprises (WIR00) . I t can transfer high valuefunctions like design and development to countrieswith the requisite skills. It can provide the “missingelements” to develop manufactured exports ineconomies with weak domestic capabilities (in labour-intensive activities); i ts traditional strengths, ofcourse, lie in resource-based exports. It can provideaccess to new global markets, some of which areinternal to the TNC (WIR96) and so not accessiblein any other way. These include the high technologyexports organized in integrated production systemsthat provide the basis of export dynamism in severalnewly industrializing countries (WIR02).

22 The infant industry case applies to all enterprisesregardless of ownership, and the threat to localcapacity-building comes from exposure to importsfrom countries that have already undergone thelearning process. I t may therefore also apply toforeign affiliates that need to create new capabilitiesin a host developing country. But there is arelationship between infant entrepreneurship andinfant industry policies: the case for the former (byrestricting competition from FDI) is likely to be madeonly where local enterprises are also protected fromimport competition. In a liberal trading environment,local enterprises able to cope with import competitionare unlikely to need protection from their overseascompetitors setting up local affiliates. On the contrary,local enterprises should lead in the learning processbecause they know local conditions better and havebeen there longer than a new foreign entrant.

23 Note that this is based on an implicit preference forlocal ownership. It is also sometimes argued that FDIshould be restricted from entering highly protectedindustries because TNCs would make, and repatriate,“excessive” profits. This may well be the case, butthe fault lies not necessarily with the foreign affiliatesbut with the trade and tax regimes that al lowexcessive profits—it is a secondary matter if theprofits are made by foreign rather than local firms.

24 For examples, see UNCTAD 1999a, pp. 18–19.25 Under Article I of the GATS, trade in services is

defined as the supply of a service, among other things,through the commercial presence of a service supplierof one member in the territory of any other member.By Article XXVIII(d) “commercial presence” isdefined as meaning “any type of business orprofessional establishment, including through (i) theconstitution, acquisition or maintenance of a juridicalperson or (ii) the creation or maintenance of a branchor a representative office within the territory of aMember for the purpose of supplying a service”.

26 However, it should be noted that in these latter twocases an objective element of comparison betweenthe domestic and foreign investor is inherent in thestandard itself. Thus they do not remove the need toshow an objective justification for any difference intreatment between a foreign and domestic investorthat are in a competitive situation with each other.

27 A further issue of substantive content, but oneaddressed in only a few IIAs, is whether nationaltreatment extends not only to laws and practices thatare on their face discriminatory as between nationaland foreign investors (“de jure”), but also to measuresthat are not expressly discriminatory but are appliedin a manner that leads to de facto discriminationbetween national and foreign investors. This approachis taken in Article XVII (3) of the GATS, whichasserts that: “Formally identical or formally differenttreatment shall be considered to be less favourableif it modifies the conditions of competition in favourof services or service suppliers of the Membercompared to like services or service suppliers of anyother Member”.

28 According to OECD publications on nationaltreatment the issue needs to be determined in goodfaith and in full consideration of all relevant facts.Among the most important matters are whether theenterprises are in the same industry, the impact ofthe policy objectives of a host country and themotivation behind the measure involved. A keyquestion in such cases is whether the difference intreatment is motivated, at least in part, by fact thatthe enterprises are under foreign control (UNCTAD1999b, pp. 28–34; OECD 1985, pp. 16–17; OECD1993, p. 22).

29 See further the NAFTA cases S.D. Myers v Canada,Pope and Talbot v Canada, ADF Group v UnitedStates and Methanex v United States available onwww.naftaclaims.com.

30 See UNCTAD 1999b, pp. 43–46. A good example ofa national law that uses a range of such exceptionsis the 1993 Foreign Investment Act of Mexico,International Legal Materials , 33, p. 207 (1994),discussed in Muchlinski 1999, pp. 195–196. Theseexceptions are, in turn, reserved from the operationof the non-discrimination provisions of NAFTA inMexico’s schedule of exceptions to that agreement,as are the corresponding exceptions of the UnitedStates and Canada.

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31 The term “nationalization” refers to takings in wholeindustries or the entire national economy, while“expropriation” denotes takings of individual firms(UNCTAD 2000b, p. 4).

32 In the United States–Singapore Free Trade Agreement(2003), an exchange of letters contains, in paragraph4 of the United States letter to Singapore (which wasaccepted by Singapore), the following: “…4. Thesecond situation addressed by Article 15.6.1(Expropriation) is indirect expropriation, where anaction or series of actions by a Party has an effectequivalent to direct expropriation without formaltransfer of title or outright seizure.(a) The determination of whether an action or seriesof actions by a Party, in a specific fact situation,constitutes an indirect expropriation, requires a case-by-case, fact-based inquiry that considers, amongother factors:(i) the economic impact of the government action,although the fact that an action or series of actionsby a Party has an adverse effect on the economicvalue of an investment, standing alone, does notestablish that an indirect expropriation has occurred;(i i) the extent to which the government actioninterferes with distinct, reasonable investment-backedexpectations; and(iii) the character of the government action.(b) Except in rare circumstances, nondiscriminatoryregulatory actions by a Party that are designed andapplied to protect legitimate public welfare objectives,such as public health, safety, and the environment,do not constitute indirect expropriations.”

33 See for a full discussion Khan 1990, pp. 171–202.34 In the Santa Elena Case (box IV.4), the ICSID

Tribunal held that a measure that gradually deprivesowners of the value of their property over time canbe identified as the starting point of the expropriation,even where the deprivation of the economic valueof the property to its owner does not take effect withina reasonable period of time.

35 Indeed, the difficulty of drawing a clear line betweengeneral regulations, which investors must complywith, and regulatory takings, for which compensationmust be paid if they are to be lawful, was one of thecontroversial issues of the Multilateral Agreementon Investment (MAI) negotiations. In addition, therisk of “regulatory chill” was a major focus of theopposition voiced by civil society groups to the MAI,especially after the proceedings in the case of EthylCorporation v Canada (Geiger 2002, pp. 97, 100–101). It should be noted that, during the course ofthe MAI negotiations an interpretative note to Article1 of Annex 3 explained that the reference to measures“tantamount to expropriation” did not establish “anew requirement that Parties pay compensation forlosses which an investor or investment may incurthrough regulation, revenue raising and other normalactivity in the public interest undertaken bygovernments” (OECD 1998a, p. 13).

36 For example, in 1993 the Bavarian State Courts ruledthat a claimant, who owned property on a lakefrontthat had become encompassed in a new State-regulated nature reserve, could not receivecompensation even though this re-designation of thesite meant that he could no longer leave the roads,camp, swim or use any watercraft (Dolzer 2002, p.77). Some national regulatory takings have given riseto a number of recent arbitral awards under NAFTA;see box IV.3 for examples.

37 For example, Article 11 of the MIGA Conventionexpressly excludes from the covered risk ofexpropriation “non-discriminatory measures ofgeneral application which the governments normallytake for the purpose of regulating economic activityin their territories”.

38 Only United States agreements expressly use thisterminology. Many agreements require the availabilityof judicial review before national tribunals, thoughthis is usually restricted to a review of the taking afterit has occurred. It does not extend to a review of aproposed taking (UNCTAD 2000b, pp. 31–32).Related to this is whether, and how far, IIAs shouldpermit international review of takings by host countryauthorit ies: should these be subject to a priorrequirement to exhaust domestic remedies or shouldinternational review be available as a matter of right?This issue is discussed further in relation to disputesettlement.

39 Notwithstanding such concerns, the possibility ofgovernmental action, conducted under the guise ofenvironmental regulation, which actually abuses therights of investors, cannot be ignored. In such cases,the payment of compensation may well beappropriate, especially where the legit imateexpectations of the investor have been underminedthrough arbitrary governmental action (Wälde andKolo 2001).

40 Policy dilemmas may also arise from the area ofpunitive takings. If a punitive taking has beenproperly and lawfully imposed, resulting in a legallysanctioned confiscation of the investor’s assets, wouldthe investor nevertheless be enti t led to sue forcompensation under international obligations? Inorder to avoid such an eventuality, some instrumentsexplicitly exclude such takings, for example, punitivetax measures, from the compensation obligation(UNCTAD 2000b, pp. 14–15).

41 As mentioned earlier, the issue of takings was notmentioned in paragraph 22 of the Doha Declaration,nor has it been suggested to be discussed by the WTOWorking Group on the Relationship between Tradeand Investment.

42 In keeping with tradit ional perspectives, somedeveloping countries, and especially Latin Americanones among them, have historically maintained thatdisputes between an investor and a host countryshould be settled exclusively before the tribunals orcourts of the latter (referred to as the Calvo Doctrine;see Shea 1955). This viewpoint was manifested notonly in the domestic legislation of individualcountries; i t also prevailed in certain regionalagreements that prohibited parties from accordingforeign investors treatment more favourable than tonational investors—and demonstrated a decidedlyclear preference for dispute settlement in domesticcourts. The United Nations Charter of EconomicRights and Duties of States of 1974 also took suchan approach. More recently, Latin American countrieshave departed from this doctrine, for instance in theirBITs and in MERCOSUR. Mexico abandoned theCalvo Doctrine when it entered NAFTA.

43 China, for example, requires recourse to localtribunals.

44 See for example the Nigerian Investment PromotionCommission Law 1995, section 26.

45 See for example the Federal Law on ForeignInvestment in the Russian Federation (9 July 1999),International Legal Materials, 39 (4), 2000, pp. 894–904.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives140

46 The concept of negotiation as a technique of disputesett lement used directly by each party is self-explanatory and requires no further definit ion.However, the other terms used in the text have somespecialized connotations and may be defined asfollows: good offices involves the use of a third partyto liaise with the disputing parties and to convey toeach party the views of the other on the dispute. Thethird party plays no part in suggesting solutions tothe dispute. By contrast mediation and conciliationinvolve the third party in a more active role, in thatthey may intervene with suggestions as to how thedispute might be resolved, thereby helping thedisputing parties towards a negotiated settlement. Inpractice it may be difficult to differentiate betweenmediation and conciliation on a functional basis, andthe two terms can be used interchangeably (Asouzu2001, p. 20). But they differ from arbitration in thatthe third party has no right or authority to determinethe dispute independently of the parties.

47 Such impartiali ty has at t imes been questioned(Dezaly and Garth 1996).

48 This issue is discussed further in UNCTAD 2003d.49 See for instance the 2002 Agreement between

Singapore and Japan for a New-Age EconomicPartnership, the 2000 Free Trade Agreement betweenMexico and El Salvador, Guatemala and Honduras,the 1994 Colonia Protocol on Reciprocal Promotionand Protection of Investments within MERCOSURand the 1997 EU–Mexico Partnership Agreement.Many of the Europe Agreements, AssociationAgreements and Partnership and CooperationAgreements recently concluded by the EU providefor consultation through the body (cooperation orassociation councils) entrusted with the monitoringand implementation of the specific agreement.

50 See the Trade and Economic CooperationArrangements between Canada and, respectively theAndean Community (1999), Australia (1995), Iceland(1998), MERCOSUR (1998), Norway (1997),Switzerland (1997) and South Africa (1998), as wellas the Agreements Concerning the Development ofTrade and Investment Relations between the UnitedStates and, respectively, Egypt, Ghana, South Africaand Turkey (all concluded in 1999) and with Nigeria(concluded in 2000).

51 See, for instance, the 1994 Mexico–Costa Rica FreeTrade Agreement, 1994 Treaty on Free Trade betweenColombia, Venezuela and Mexico, the 1997 Canada–Chile Free Trade Agreement, the 1997 Mexico–Nicaragua Free Trade Areas, the 1998 Chile–MexicoFree Trade Agreement, the 1998 Free TradeAgreement between Central America (Costa Rica, ElSalvador, Guatemala, Honduras and Nicaragua) andthe Dominican Republic, the 2000 Free TradeAgreement between Mexico and El Salvador,Guatemala and Honduras, the 2000 Agreementbetween the United States and Viet Nam on TradeRelations and the 2002 Agreement between Singaporeand Japan for a New-Age Economic Partnership (boxIII.2).

52 In this regard Article 25 (2)(b) of the ICSIDConvention establishes that the local affiliate maybe treated as a national of a foreign contracting partywhere i t is controlled by nationals of that othercontracting party, and it has been agreed between theparties that it should be treated as a foreign nationalfor the purposes of the Convention.

53 For example in the case of Central European MediaEnterprises Ltd., Bermuda v the Czech Republic (14March 2003), an award of $269,814,000 was made,together with $1,007,750 of costs plus interest andlegal costs. This amounted to a total of $354,943,542.See www.cetv-net.com.

54 The Dispute Settlement Understanding deals withinvestment related questions under the GATS andTRIMs Agreement.

55 Article 23 of the WTO Dispute Sett lementUndertaking requires the members to use cross-retaliation only in accordance with the proceduresset down in Article 22 and only upon a finding ofa violation of the WTO agreements or of anullification or impairment of benefits by a WTOPanel. Article 24 introduces special provisions forapplication in the case of LDC members. It requiresdue restraint in asking for compensation or in the useof cross-retaliation in cases where such members arefound to have nullified or impaired the benefits ofanother member.

56 For example the WTO Kodak Fuji case was basedon a claim on the part of Kodak that it was beingsystematically excluded form the Japanese marketby the restrictive business practices of its major rival,Fuji. The case was brought before the WTO Panelby the United States, alleging that the restrictivepractices of Fuji had been sanctioned by theGovernment of Japan in breach of its obligationsunder Article XXIII (1)(b) of the GATT.

57 Typically, awards in the investment area have takenthe form of monetary compensation. But it is alsoconceivable that they could take the form of furthermarket opening on the part of the loosing disputant,requiring it to open its market in certain areas to theassessed monetary value of the losses caused.

58 Joint venture and domestic equity requirements couldalso be classified as ownership restrictions.

59 Surveys of foreign investment in India report a highincidence of export restriction clauses imposed onforeign affi l iates (Kumar 2001). Another studyconcluded that foreign parent f irms actuallydiscouraged their affiliates from exporting from Indiain view of the large domestic market (NCAER 1994).

60 These restrictive practices could take the form ofmarket allocation, price fixing, exclusive dealing andcollusive tendering (Puri and Brusick 1989). It wasfelt that local participation in management would leadto more competitive business practices. But suchperformance requirements sometimes allowed localpartners to appropriate the rents from anticompetitivepractices at the expense of the larger public.

61 See WTO/UNCTAD 2002; Moran 1998; Kumar 2001;Safarian 1993; UNCTAD 2003f.

62 Local content requirements have been employed bymost of the developed countries from time to time,especially in the automotive industry. For instance,Italy required 75% local content on the MitsubishiPajero, the United States imposed a 75% rule on theToyota Camry and the United Kingdom 90% on theNissan Primera (Sercovich 1998). Australia imposedan 85% local content rule on motor vehicles until1989 (Pursell 1999). See also OECD 1989; Safarian1993; Guisinger et al. 1985; Chang 2002.

63 By the end of the 1980s, seven developed countriesstill had local equity requirements, six had localcontent requirements, three had export requirements,three had R&D requirements, two applied product

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mandate requirements and one a trade-balancingrequirement (UNCTC 1991, table 8).

64 Rules of origin are used by, say, the EU and NAFTAmember countries to determine the extent of domesticor regional content a product must have to qualifyas an internal product in a regional trading area and,hence, have similar effects as local contentrequirements for the region as a whole. The EuropeanCommission has applied various measures to regulateimports of a wide range of consumer-electronic goodsand office equipment products from Japan and South-East Asia (Messerlin 1989), and the United Stateshas used measures such as anti-dumping andvoluntary export restraints in trade and investmentwith Japan and other countries. In the United States,provisions of the Buy American Act have acted aslocal content requirements (Krugman and Obstfeld2000, p. 205).

65 According to Article 11(1b) of the WTO Agreementon Safeguards, voluntary export restraints are nolonger permitted.

66 In a 1989 study as many as 23 of 31 developingcountries surveyed used local content requirements,17 applied local equity requirements, 16 used exportperformance requirements, 11 had technology transferrequirements and 5 countries imposed R&Drequirements (UNCTC 1991, table 8).

67 In India, for example, the overall incidence ofperformance requirements on FDI approvals hasdeclined sharply over the 1990s. In 1991, 33% of FDIapprovals contained performance requirements. Thisproportion has come down gradually to 18% in 1996and to just about 9% by 2000 (UNCTAD 2003f,chapter III).

68 These measures were seen as being inconsistent withthe national treatment obligation in trade in goodsand the prohibition against quantitative restrictionsin the GATT (UNCTAD 2001i, pp. 17–26).

69 Argentina, Colombia, Malaysia, Mexico, Pakistan andThailand have been granted extensions of thetransition period until December 2003, the Philippinesuntil June 2003 and Romania until May 2003 underthe Agreement’s Article 5 provisions (see WTOdocuments G/L/497 through G/L/504 and documentWT/L/441). The implication is that , for thosecountries to which the TRIMs Agreement applieswithout any transitional exception, any attempt toreverse the right to impose performance requirements,prohibited by that Agreement through provisions inbilateral or regional IIAs, would be inconsistent withtheir obligations under the TRIMs Agreement.

70 LDCs and other countries listed in Annex VII of thisAgreement are exempted (see footnote 90 in sectionIV.F).

71 Indeed, the GATS article XIX:2 states that “Thereshall be appropriate f lexibil i ty for individualdeveloping country Members for […] progressivelyextending market access in l ine with theirdevelopment situation and, when making access totheir markets available to foreign service suppliers,attaching to such access conditions aimed at achievingthe objectives referred to in Article IV.”

72 The way performance requirements are treated inbilateral or regional IIAs varies. Some prohibit certainrequirements that are currently not covered by theTRIMs Agreement (with or without exceptions); somemake cross-reference to provisions included in otherIIAs; some include hortatory provisions on measuresnot covered by the TRIMs Agreement and many do

not make any reference to performance requirements,save those covered by the TRIMs Agreement, bindingon all parties that are also WTO members.

73 NAFTA allows for reservations against theperformance requirement article. This can be seenas an embodiment of flexibility that does not applyin some other agreements, including the TRIMsAgreement.

74 Article 9 of the TRIMs Agreement provides that notlater than five years after the date of entry into forceof the WTO Agreement, the Council for Trade inGoods shall review the operation of the Agreement.No concrete progress has been made so far. Positionsremain quite polarized between, on the one hand,some developing countries who want to amend theAgreement so as to allow the use of TRIMs ondevelopmental grounds, and the developed countrieson the other hand, who want to maintain the statusquo.

75 Article III relates to national treatment and stipulatesamong other things that “No contracting party shallestablish or maintain any internal quantitat iveregulation relating to the mixture, processing or useof products in specified amounts or proportions whichrequires, directly or indirectly, that any specifiedamount or proportion of any product which is thesubject of the regulation must be supplied fromdomestic sources.” Article XI is related to the generalelimination of quantitative restrictions.

76 Only those TRIMs that were notified in accordancewith Article 5.1 of the TRIMs Agreement wereeligible to benefit from the transition period in thefirst place.

77 See the Communication by Brazil and India on theneed for an amendment to the TRIMs Agreement(WTO Document G/C/W/428).

78 See the Communication from the United States (WT/GC/W/115).

79 It has, for example, been suggested that local contentand trade balancing requirements should instead beexamined case-by-case to determine whether theyhave a significant and adverse effect on trade thatoutweighs their beneficial development impact(Mashayekhi 2000).

80 A variation of locational incentives are site incentivesseeking to influence the choice of a site within aneconomy, for instance, inducing investors to locatein a backward area or away from a congested area.Similarly, incentives can be used to attract FDI intocertain industries.

81 The application of the corporate tax regime in Irelandhas never explicitly distinguished between foreignand domestic companies. However, most analystsagree that it was more beneficial to TNCs, becauseof their greater level of exports and profits.

82 In this case, there are likely to be diminishing returnsfrom the use of incentives.

83 As noted in section IV.E, countries are increasinglyusing incentives to influence firm behaviour with aview to achieving objectives related to development.

84 Obviously, a tax holiday would not constitute a costif an investment would not have been attracted in theabsence of the incentive scheme, in which case theremight not have been a base to tax.

85 CEE countries tend to use a mix of fiscal and financialincentives (Mah and Tamulaitis 2000).

86 For example, when Intel decided to locate its sixthsemiconductor assembly and test plant in Costa Rica,it did so after having evaluated sites not only in Latin

World Investment Report 2003 FDI Policies for Development: National and International Perspectives142

America but also in China, India, Indonesia,Singapore and Thailand (Spar 1998).

87 These gaps may arise from the general benefit ofattracting TNCs to integrate the host economy moreclosely into global value chains, from specifictechnological and skill benefits of FDI, the stimulusto local competition or from launching a cumulativeprocess of building industrial capabili t ies oragglomerations.

88 On the other hand, investments that are largelydetermined by incentives are more likely to leaveas soon as the financial or fiscal benefits expire.In Botswana, for example, which offered generousinvestment incentives for the duration of five yearsfor individual projects, many companies, bothdomestic and foreign, decided to close down theiractivities after the incentives had expired (UNCTAD2003g).

89 For example, economic development agencies inthe United States have included claw back clausesin incentive agreements, stating that, if the companyconcerned did not maintain this many jobs or spendthat much capital, then the development agencieshad the right to ask for the money back. While thisright has traditionally seldom been exercised, thereare signs that things are changing. For example, inresponse to such claims, Alltel, a large telecomcompany, volunteered to repay $11.5 million of the$13 million it got from the state of Georgia twoyears ago to set up a call centre in the state (FDIMagazine , “No more Mr nice guy”, 2 February2003).

90 LDCs and members listed in Annex VII until theirper capita GNP reaches $1,000 are exempted. Thelist of “other countries” consists of Bolivia,Cameroon, Congo, Côte d’Ivoire, DominicanRepublic, Egypt, Ghana, Guatemala, Guyana,Honduras, India, Indonesia, Kenya, Morocco,Nicaragua, Nigeria, Pakistan, Philippines, Senegal,Sri Lanka and Zimbabwe. In addition, extendedtransition periods were granted in December 2002for specific programmes in Antigua and Barbuda,Barbados, Belize, Colombia, Costa Rica, Dominica,the Dominican Republic, El Salvador, Fiji, Grenada,Guatemala, Jamaica, Jordan, Mauritius, Panama,Papua New Guinea, Saint Kitts and Nevis, SaintLucia, Saint Vincent and the Grenadines, Thailandand Uruguay. These extensions can be annuallyrenewed until 2007 (WTO Documents G/SCM/50through G/SCM/102).

91 According to Article 27.8, there shall be noautomatic presumption that certain subsidies grantedby a developing country (i.e. those listed in Article6.1 of the SCM Agreement) result in seriousprejudice. Rather, such prejudice needs to bedemonstrated. (However, the legal status of thisprovision remains unclear given the expiry of Article6.1.) Finally, Article 29 granted some temporaryexemptions for transition economies.

92 “The Parties recognize that it is inappropriate toencourage investment by relaxing domestic health,safety or environmental measures…”

93 See for example, Article G.14 of the 1997 Canada–Chile Free Trade Agreement. Similar restrictionsexist in other Latin American free trade agreementsthough they are not as detailed as this provision.

94 For example, the ILO (2000) Tripartite Declaration“sets out principles in the fields of employment,training, conditions of work and life and industrialrelations which governments, employers’ and

workers’ organizations and multinational enterprisesare recommended to observe on a voluntary basis”(paragraph 7). Similarly, in paragraph 41, it statesthat “Multinational enterprises should observestandards of industrial relations not less favourablethan those observed by comparable employers inthe country concerned”.

95 Very l i t t le progress has been made under thisnegotiating mandate.

96 Accordingly, the modalities of the application ofthe non-discrimination principle in relation toprogrammes under which a contracting partyprovides grants or other financial assistance, orenters into contracts, for energy technology R&Dshall be reserved for a “Supplementary Treaty”. Asof June 2003, this agreement had not yet beenconcluded. Each contracting party shall, throughthe ECT Secretariat, keep the Charter Conferenceinformed of the modalit ies i t applies to suchprogrammes.

97 The technology “product” may be difficult to define.Its price often depends on the skills, informationand bargaining power of the parties involved. Oncetransferred, the product is difficult to use withoutbuilding new capabilities and it needs constantupgrading to remain competitive. Where the hosteconomy does not provide the skills needed, theimported technology may not be upgradedsufficiently. The technological functions transferredalso may not be upgraded: TNCs may transfer theoperational end of technology but not i ts R&Dstages, because the costs of doing so in newlocations, particularly developing countries withoutstrong technology systems, can be high (Lall 2002).The local diffusion of technology may be held backby the lack of capable local enterprises. TNCs mayhem the transfer, use and diffusion of the technologyby clauses to protect and maximize their returns.And stringent government restrictions on foreignownership, operations and so on may deter TNCsfrom transferring their most valuable technologies.

98 A study of FDI in CEE found that joint venturesin R&D intensive activities led to less technologytransfer than wholly owned foreign affi l iates(Smarzynska 2000). Another study found that joint-venture obligations affected adversely the qualityof technology transferred by foreign firms (Lee andShy 1992). Moran (2002) argues that mandatoryjoint ventures are not effective because thetechnology employed is on average 10 years olderthan the most advanced technology in the industry,and training by TNCs in joint ventures is a fractionof that in wholly owned affiliates.

99 Only a few countries managed to interveneeffectively in the transfer process by providinginformation and assistance to local enterprises inthe context of strong export orientation and massiveinvestments in skills creation and development (Kim1997, 2002). Technologies from TNCs to theRepublic of Korea, for example, were transferredmainly through imports of capital goods, reverseengineering in the 1960s and 1970s and various non-equity forms, given the restrictive FDI regime.

100 A number of foreign operations failed to meetgovernment requirements because affiliates wereunable to achieve full economies of scale, utilizethe most advanced techniques or implement rigorousquality control (Moran 2002). A study of UnitedStates affi l iates in 33 countries found thattechnology transfer requirements were negatively

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correlated with technology flows to host countries(Blomström and Kokko 1995). Another found thatintra-firm technology transfer by Japanese TNCswas discouraged when host authorities imposedtechnology transfer requirements as a condition ofentry (Urata and Kawai 2000).

101 For example, technology transfer laws in Nigeriahave not led to greater transfers of moderntechnology (Muchlinski 1999), largely because localcapabilities and skills are weak and the businessand trade environment is not conducive totechnology upgrading (Okejiri 2000).

102 The empirical evidence on the impact of strongerIPRs is mixed. One study, based on firm-level datafrom economies in transition, indicates that a weakIPR system in a host country may discourage allinvestors, not only those in sensitive industries(Smarzynska-Javorcik, forthcoming). Another studysuggests that stricter contract enforcement makesTNCs better off , while the outcome for hostcountries depends on TNCs’ reactions to suchenforcement (Markusen 2001). The host country’swelfare improves if TNCs switch from exportingto the country to undertaking local production;however, a host country may be made worse off iflocal production exists and stricter IPRs affect itadversely. Furthermore, referring to various otherstudies, Kumar (2003) concludes that, in general,there is no strong link between stronger IPRs andFDI inflows and that the strength of patentprotection does not appear to be a significant factorin determining the location of TNCs’ R&D activitiesin host economies. See also UNCTAD 1993 and1997.

103 For a compilation of instruments containing transfer-of-technology provisions, see UNCTAD 2001g.

104 Decision 24 was superseded by Decision 220, whichwas, in turn, superseded by Decision 291 of 21March 1991, which now represents AndeanCommunity policy in this area (UNCTAD 1996b).

105 Thus the Lomé Convention of 1989 containednumerous commitments on the part of the EU toassist in the transfer and acquisition of technologyby developing countries in a variety of f ields,including agriculture, industry, energy and tourism.The more recent Cotonou Agreement of 2000 revisesthis approach, further emphasizing market-ledtechnology transfer. In a similar vein, agreementsconcluded between the EU and Latin Americaneconomic integration groups contain a commitmentto economic cooperation that includes theencouragement of technology transfer.

106 Under Article 67 of TRIPS Agreement, developedcountry members are to provide, on request and onmutually agreed terms and conditions, technical andfinancial cooperation in favour of developing andleast developed countries to facil i tate theimplementation of the Agreement. A similarapproach is found in Article 8 of the Energy CharterTreaty, Article IV of the GATS Agreement and therevised OECD Guidelines for MultinationalEnterprises, which state (in section VIII) that TNCsshould “endeavour to ensure that their activities arecompatible with the science and technology (S&T)policies and plans of the countries in which they

operate and as appropriate contribute to thedevelopment of local and national innovativecapacity”. For a detailed discussion see UNCTAD2001f, pp. 64–67.

107 See UNCTAD 2001g, pp. 41–50.108 For an extensive discussion of this issue, see WIR97.109 Updated information is available from:

www.unctad.org/en/subsites/cpolicy/docs/CPSet/cpset.htm.

110 NAFTA’s Articles 1502 and 1503 seek to ensure thatmonopolies and State enterprises do not act in adiscriminatory fashion towards investments ofinvestors of another party.

111 “Investment and CompetitionThese groups shall draw upon each other ’s workif necessary and also draw upon and be withoutprejudice to the work in UNCTAD and otherappropriate intergovernmental fora…” (WTO 1996,paragraph 20). It should be noted that Article 9 ofthe 1995 TRIMs Agreement also made theconnection between investment policy andcompetition policy by requiring the Council forTrade in Goods to consider whether the TRIMsAgreement should be complemented with provisionson these two issues in the course of its five-yearreview of the TRIMs Agreement.

112 The Doha Ministerial Declaration stated, in itsparagraphs 23–25:“INTERACTION BETWEEN TRADE AND COMPETITION POLICY

23. Recognizing the case for a multi lateralframework to enhance the contribution ofcompetit ion policy to international trade anddevelopment, and the need for enhanced technicalassistance and capacity-building in this area asreferred to in paragraph 24, we agree thatnegotiations will take place after the Fifth Sessionof the Ministerial Conference on the basis of adecision to be taken, by explicit consensus, at thatSession on modalities of negotiations.24. We recognize the needs of developing and leastdeveloped countries for enhanced support fortechnical assistance and capacity-building in thisarea, including policy analysis and development sothat they may better evaluate the implications ofcloser multilateral cooperation for their developmentpolicies and objectives and human and institutionaldevelopment. To this end, we shall work incooperation with other relevant intergovernmentalorganisations, including UNCTAD, and throughappropriate regional and bilateral channels, toprovide strengthened and adequately resourcedassistance to respond to these needs.25. In the period until the Fifth Session, further workin the Working Group on the Interaction betweenTrade and Competition Policy will focus on theclarification of: core principles, includingtransparency, non-discrimination and proceduralfairness and provisions on hardcore cartels;modalities for voluntary cooperation and supportfor progressive reinforcement of competit ioninstitutions in developing countries through capacitybuilding. Full account shall be taken of the needsof developing and least-developed countryparticipants and appropriate flexibility provided toaddress them” (WTO 2001b, p. 5).

World Investment Report 2003 FDI Policies for Development: National and International Perspectives144

CHAPTER V

THE IMPORTANCE OFNATIONAL POLICY SPACE

The preceding analysis revealed that IIAsneed to accommodate different perspectives on thepolicy priorities in the investment process. Thecommon goal, shared by all parties to IIAs, is toincrease the flows of FDI. In addition, homecountries (and their investors) seek transparency,stability, predictability and security—and greatermarket access. And host developing countries, fortheir part, want to advance their development byincreasing the benefits from FDI. To do so, theyneed to have enough flexibility to use a range ofdevelopment-oriented policies. In the final analysis,IIAs have to be acceptable to all parties, many indifferent development situations with widelydiffering endowments. IIAs therefore need to strikea mutually advantageous balance of rights andobligations between the diverging interests andpriorities of various groups of countries.

The concept of “national policy space” andthe flexibility it affords to governments to pursuedevelopment-oriented FDI policies is theoperational bridge between the differingperspectives of host countries, home countries andinvestors (UNCTAD 2000d). (Although the focus

here is on developing countries, developedcountries also need policy space to pursue theirown national objectives.) Its foundation is the rightto regulate, a sovereign prerogative that arises outof a State’s control over its own territory and thatis a fundamental element in the international legalregime of State sovereignty. Although hostcountries already limit their regulatory autonomyas a result of liberalization policies—and have theirautonomy limited as part of the wider process ofeconomic globalization—IIAs create distinctiveissues in this connection. Such internationalagreements, like other legal texts, are specificationsof legal obligations that l imit the sovereignautonomy of the parties. Given that internationallegal obligations generally prevail over domesticrules, tension can arise between the will tocooperate at the international level through bindingrules and the need for governments to dischargetheir domestic regulatory functions.1 This challengeis not unprecedented: similar issues of therelationship between a country’s commitments andits regulatory discretion have arisen in tradeagreements (box V.1).

Box V.1. Regulatory discretion in international trade agreements

The scope of a country’s regulatory discretionhas been debated and litigated in the GATT/WTOsystem, where the dispute settlement process hasbeen used to review domestic regulatory measuresthat have an impact on trade. The main instrumentfor reviewing regulatory discretion in the WTO isfound in Article III of the GATT, which containsa non-discrimination (national treatment) obligationas complemented by the exceptions contained inArticle XX. Article III provides that internal taxesand regulations must not treat imports lessfavourably than domestic products in l ikecircumstances. If a domestic regulatory measureis found to discriminate against imports, theregulating government may attempt to justify thediscrimination by proving that it is necessary toachieve some legitimate purpose. Article XXexceptions include those necessary to protect publicmorals; to protect human, animal and plant life or

/...

health and those relating to the conservation ofexhaustible resources.

It should be noted that this list of policiesis “closed” and thus provides limited scope forclaiming an exception in many areas in whichcountries may want to pursue regulatory action.It is also subject to the general requirement thatthe exception does not constitute a means ofarbitrary discrimination or a disguised restrictionon international trade. This requirement has beeninterpreted as introducing a principle ofproportionality, in that a country must apply theleast trade-restrictive exception compatible withits regulatory policy.

The WTO Agreement on Technical Barriersto Trade explicit ly calls for an integratedexamination of the purpose of the measures inquestion and its trade-restricting effects. TheAgreement requires a balancing of the degree of

World Investment Report 2003 FDI Policies for Development: National and International Perspectives146

For investment the right to regulate hasrecently gained renewed prominence in investmentprotection from expropriation and in nationaltreatment. It was evoked as a “shield” against anexpansive use of expropriation claims by investorsthat have threatened to encroach on a sovereigngovernment’s right to regulate in the public interest,with the possible effect of “regulatory chill”. Itinvolves the determination of where the propertyrights of investors could be legitimately subjectedto the regulatory power of governments and wherethey could not. (This was discussed in IV.C.)

The right to regulate arose concretely in thecontext of investor-State disputes under NAFTA,particularly in environmental protection. The threemember countries of NAFTA adopted in 2001 a“Note of Interpretation of Certain Chapter 11Provisions” (NAFTA 2001) to clarify the provisiongoverning the minimum standard of treatment tobe accorded to foreign investors under the fair andequitable treatment provision in Article 1105 (1).They determined that the NAFTA’s standard is thecustomary international law minimum standard oftreatment. The concept of the “right to regulate”was also included in the GATS, the WTO DohaMinisterial Declaration and the draft MultilateralAgreement on Investment (MAI). And it washighlighted in intergovernmental deliberationswithin the context of UNCTAD’s Commission onInvestment, Technology and Related FinancialIssues (box V.2).

The language in these instruments is asfollows:

The GATS (Preamble):

“Recognizing the right of Members toregulate, and to introduce new regulations,on the supply of services within theirterritories in order to meet national policyobjectives and, given asymmetries existingwith respect to the degree of development ofservices regulations in different countries, theparticular need of developing countries toexercise this right;” (UNCTAD 1996b, I, p. 287).

WTO Doha Ministerial Declaration (paragraph22):“Any framework should reflect in a balancedmanner the interests of home and hostcountries, and take due account of thedevelopment policies and objectives of hostgovernments as well as their right to regulatein the public interest.” (WTO 2001b, p. 5).

Draft Multi lateral Agreement on Investment:

Article 3Right to Regulate a

“A Contracting Party may adopt, maintain orenforce any measure that i t considersappropriate to ensure that investment activityis undertaken in a manner sensitive to health,safety or environmental concerns, providedsuch measures are consistent with thisagreement…” (OECD 1998a, p. 14).

Box V.2. The right to regulate

/...

Box V.1. Regulatory discretion in international trade agreements (concluded)

trade restriction against the regulatory purposeof the disputed measure. Furthermore, theanalysis of the regulatory aim is part of thereview of the legality of the measure itself, withan illustrative (not closed) list of legitimateobjectives. In this context, there is no need firstto establish a violation (which requires aconclusive determination of likeness), followedby a review of the regulatory justification by wayof exception. The balancing analysis also callsfor an appreciation of the trade effects in lightof existing less restrictive alternatives and of therisk of non-fulfilment of the regulatoryobjectives.

The WTO Agreement on Sanitary andPhytosanitary Standards adopts a similarapproach to the control of regulatory discretionas the Technical Barriers to Trade Agreement andArticle XX of GATT. It affirms the right of WTOmembers to impose sanitary or phytosanitarymeasures, provided that they are applied “onlyto the extent necessary” and that they are basedon scientific principles and evidence. Where thescientific evidence is insufficient, members may

Source: UNCTAD.

adopt such measures on the basis of “availablepertinent information”.

While the GATS recognizes the sovereignright of a country to regulate services forlegitimate purposes (box V.2), Article VI seeksto prevent the use of administrative decisions todisguise protectionist measures. Generally appliedmeasures that affect trade in services for whicha country has made commitments must be appliedreasonably, objectively and impartially.Applications to supply services under suchcommitments must receive a decision within areasonable period. The Council for Trade inServices is called on to develop rules to preventrequirements governing qualifications for servicesuppliers, technical standards or licensing frombeing unnecessary barriers to trade. Until suchrules are ready, governments are to follow (inactivities in which they have undertaken specificcommitments) the same principles in applyingtheir requirements and standards, so that thesedo not nullify or impair specific commitments(on market access and national treatment).

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Box V.2. The right to regulate (concluded)

UNCTAD Commission on Investment, Technologyand Related Financial Issues:

“Many delegates stressed that policies neededto reflect the special circumstances prevailingin a country and that they should evolve overtime. In this context, many delegates underscoredthe need to ensure sufficient policy space for thepursuit of national policy objectives and theimportance of the right to regulate. Specificreference was made to the LDCs’ need of specialand differential treatment in the context ofvarious international agreements” (paragraph 50).

“The right to regulate was relevant in thiscontext, in particular the recognition of the publicinterest to pursue objectives related to security,health, morals, and so forth. Exceptions were alsoimportant, especially those related to balance-of-payments safeguards” (paragraph 57)(UNCTAD 2003j, pp. 14 and 16).

a Text as contained in Chairperson’s proposed package onLabour and Environment.

As these references suggest—and thisis consistent with the sovereign prerogativeof States to regulate the entry and behaviourof aliens into their own territories—the rightto regulate is broader in its conceptual scopethan the specific context in which it recentlygained renewed prominence. It is, in effect,the principle on which the notion of“national policy space” and hence flexibilityis based.

Ensuring sufficient flexibility is adifficult balancing act. In IIAs it is the resultof negotiations in the light of overlapping—but not identical—objectives between homeand host countries. It finds expression in theobjectives of IIAs, their structure, contentand implementation, including through therecognition of the concept of special anddifferential treatment, and the use ofexceptions and the like, to furtherdevelopment goals. Each is considered inturn (UNCTAD 2000d).

A. Objectives of IIAs

Many IIAs incorporate the objective ofdevelopment among their basic aims, purposes orprinciples, as a part of their preambular statementsor as specific declaratory clauses articulatinggeneral principles. For example, the Preamble tothe GATS Agreement (which covers FDI inservices) includes among its objectives “theexpansion of [services] trade under conditions oftransparency and progressive liberalization and asa means of promoting the economic growth of alltrading partners and the development of developingcountries”. It also expresses a desire for the “earlyachievement of progressively higher levels ofliberalization of trade in services throughsuccessive rounds of multilateral negotiationsaimed at promoting the interests of all participantson a mutually advantageous basis and at securingan overall balance of rights and obligations, while

giving due respect to national policy objectives”.It continues, by expressing a further desire, “tofacilitate the increasing participation of developingcountries in trade in services and the expansionof their service exports including, inter alia ,through the strengthening of their domestic servicescapacity and its efficiency and competitiveness”.

The main advantage of such provisions isthat they may assist in the interpretation of othersubstantive obligations, permitting adoption of themost development friendly interpretation. This inturn assists in the promotion of flexibility and theright to regulate by ensuring that the objective ofdevelopment is implied in all obligations andexceptions thereto—and that it informs the standardfor assessing the legitimacy of governmental actionunder an agreement.

The structure of agreements may reflectdevelopment concerns through the application ofspecial and differential treatment for developingcountry parties. This entails differences in theextent of obligations undertaken by developed anddeveloping country parties, with the latter assumingless onerous obligations, either on a temporary orpermanent basis, that are also non-reciprocal. Thismay be achieved in a number of ways:

B. Structure

• Agreements can distinguish between developedand developing countries, with differentobligations for both. MIGA, for example,restricts its investment insurance to investmentin developing countries only, listed in an annexto the MIGA Convention.

• Differences may be introduced for stages anddegrees of participation by developing countryparties, with accession less onerous for them

World Investment Report 2003 FDI Policies for Development: National and International Perspectives148

or allowing for association rather than fullcommitment to treaty obligations.

Particularly important is the approach toarrive at commitments:

• Under the “negative list” approach, countriesagree on a series of general commitments andthen list individually all those areas to whichthese commitments do not apply. For example,the NAFTA parties have agreed to grant the rightof establishment; at the same time, each of theparties lists those activities to which this rightdoes not apply. To all other activities, it applies.This approach tends to produce an inventory ofall non-conforming measures. It also locks inthe status quo.

• Under the (GATS-type) “positive list” approach,countries list commitments they agree to make,and the conditions they attach to them.2 Forexample, the GATS parties list all activities thatthey agree to make subject to the provisions ofthe Agreement concerning, for example,commercial presence, and the conditions underwhich this is the case (such as only a certainnumber of foreign affiliates can be establishedin a particular industry). The implication is thatthe same provisions do not apply to all otheractivities—that is, they remain “unbound”. Thisapproach has the advantage that countries cantake commitments at their own pace anddetermine the conditions under which thisoccurs. For these reasons, the positive list

approach is generally regarded as moredevelopment friendly than the negative listapproach.

In theory, both approaches should arrive atthe same result, if countries had the capacity tomake proper judgments about individualactivities—or, more broadly, about the taking ofcommitments—at the time of concluding anagreement. In practice, the negative list approachtends to involve greater liberalization. In practice,too, even a positive list approach can lead toliberalization, because negotiations put pressureon countries to assume higher and broadercommitments, particularly since those negotiationsare bilateral.3 Under both approaches countriesoften use various devices to keep options openwhen scheduling their commitments. Moreover,once a commitment has been made, it is locked in,making it virtually impossible to reverse it.

Table V.1 presents graphically how a broadpositive list approach could work for investmentshould countries decide on modalities to negotiateand should they consider a positive list approach.It is “broad” because it applies not only to activitiesbut also to other issues addressed in IIAs. It isstructured along the two main fracture lines thatemerged during the analytical discussions in theWTO’s Working Group on Trade and Investment:

• National treatment in the pre-establishmentphase versus national treatment in the post-establishment phase.

Foreign Foreignportfolio portfolio

Issue/measure FDI investment FDI investment

Definition

National treatment

MFN

Fair and equitable treatment

Transparency

Nationalization and expropriation

Home country measures

Good corporate citizenship

Dispute settlement (State-State, investor-State)

Incentives

Transfer of technology

Competition policy

Other

Table V.1. A thought experiment to help analysis—applying the positive list approach to investment

Source : UNCTAD, based on Eglin 2002.

National treatment in the National treatment in the pre-establishment phase post-establishment phase

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• FDI versus foreign portfolio investment,financial derivatives and other investment—thatis, the scope of an agreement.

In this approach, countries would need todecide, cell by cell, whether they would want tocommit themselves and, if so, under whatconditions. For example, a country prepared to offerhigh standards could do so by filling out every cellattaching few conditions to its commitments; acountry that wants to commit itself only to certainstandards as regards FDI (for example, nationaltreatment in the post-establishment phase) coulddo so as well, including by attaching the conditionsit requires to promote its development. In otherwords, each country would fill out the table as bestsuits its own interests. (Certain cells that do notapply would remain empty.) In principle, a party

to such an agreement could also refrain from fillingout any cell.

A variation of this approach is that certaincommitments are taken by all parties for a limited

number of issues.4 Such commitments would beeasiest in areas that are important but notparticularly sensitive in international investmentnegotiations—such as MFN treatment andtransparency. This approach could be combinedwith a general commitment to extend, in due courseand through negotiations, such strongercommitments to other issues, such as nationaltreatment in the post-establishment phase.

Whatever the approach chosen, theexperience of international economic agreementssuggests that countries in most cases prefer agradual approach.

C. Content

As to the substantive content of agreements,the key substantive issues were addressed in thepreceding chapter. Central to IIAs, they determinetheir effect on national policies. For each of them,more development friendly or less developmentfriendly solutions exist. (For example, as discussedearlier, national treatment at the pre-establishmentphase—market access—is perhaps the single mostdifficult issue for developing countries to acceptin IIAs.) And given their importance, they requirethe full attention of negotiators.

When negotiating content, flexibility can alsobe introduced through various means:

• Flexibility can be ensured by excluding someissues altogether. For example, excludingprovisions on incentives from the draft MAIwould have allowed countries to have maximumpolicy flexibility in this area (consistent withother international obligations). Most IIAsexclude taxation issues (covered in doubletaxation treaties).

• Circumscribing the scope of key provisions—say, by limiting the definition of investment toFDI only.

• Agreements can include provisions of specialinterest to developing countries, such as thosepertaining to transfer of technology or homecountry measures.

• Various traditional methods can preserve policyspace. These range from various kinds ofexceptions, reservations, derogations and waiversto transition arrangements that aim to ensure thatsignatories retain their prerogative to apply non-conforming domestic regulations in certain areas.Examples include exclusions from the non-discrimination principle;5 safeguards aimed atpreserving the right to regulate (box V.3), as inbalance-of-payments difficulties; and generalexceptions for reasons of public security and order,public health and morality.

Note that the provisions of IIAs interact withone another to complement, clarify, expand, limitor elaborate on the rights and obligations of parties.For example, general exclusion or exceptionclauses have the effect of limiting the scope of anagreement or modifying the application of itsprovisions. Similarly, general standards oftreatment, such as national treatment or fair andequitable treatment, affect and complement thesubstance of more specific standards dealing with,for example, operational conditions orexpropriation. These interactions offer multiplepossibili t ies for structuring and combiningprovisions in IIAs to achieve the desired overallbalance of rights and obligations, and accommodatediverging country interests (for examples of thesecombinations, see UNCTAD 2000d).

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To preserve the right of countries to regulatein the public interest, various safeguards are oftenused in international agreements. Safeguards, or“escape clauses”, are provisions that allow partiesto take action otherwise not permitted by anagreement, to cope with exceptional events arisingafter its adoption. Relevant provisions normallyset definite l imits, in t ime and substantivemeasures, on the action to be taken. The mostcommon situations contemplated in safeguardclauses in IIAs relate to balance-of-paymentssafeguards.

In trade, if a production sector in a countrysuffers because of increased imports, the WTOAgreement on Safeguards authorizes WTOmembers to restrict imports temporarily byimposing higher tariffs or by directly limitingimport quantities under certain conditions whichmay cause or threaten to cause serious injury tothe domestic industry that produces l ike orindirectly competit ive products. The mainrationale for this provision is that the particularsector in the country should be allowed time toadjust to the new competition from imports.

If similar emergency safeguard mechanisms(ESMs) were included in IIAs, some complexissues would have to be addressed. Whatconditions would have to be met, and whatprocedures would have to be observed in orderto invoke the ESM in the context of an investmentagreement? What would be the equivalent of animport surge in the investment context, and howwould one address emergency situations arising,for example, from the “crowding out” of SMEs?Could emergency situations also be consideredin case of sudden withdrawal of investment (asopposed to a surge in inflows)? Moreover, sinceit may be difficult to distinguish between foreignaffiliates and domestic firms once the former areestablished, would an ESM have to focus on newinvestment only?

The complexities can be seen from the lackof progress on this for trade in services. ArticleX of the GATS states that: “There shall bemultilateral negotiations on the question ofemergency safeguard measures based on theprinciple of non-discrimination. The results ofsuch negotiations shall enter into effect on a datenot later than three years from the date of entryinto force of the WTO Agreement”. Still, aftermore than seven years of discussions, the WorkingParty on GATS Rules has failed to produce anagreement. These discussions are relevant to thearea of investment, since Mode 3 of trade inservices (commercial presence or establishmenttrade) involves FDI.

So, very few IIAs include ESMs other thanthose associated with balance-of-payments

Box V.3. Emergency safeguard mechanisms in the area of investment

difficulties. One example is Article 14 of theASEAN Investment Area Agreement (AIA), whichstates that:

“1. If, as a result of the implementation ofthe liberalisation programme under thisAgreement, a Member State suffers or isthreatened with any serious injury and threat, theMember State may take emergency safeguardmeasures to the extent and for such period as maybe necessary to prevent or to remedy such injury.The measures taken shall be provisional andwithout discrimination.

2. Where emergency safeguard measures aretaken pursuant to this Article, notice of suchmeasure shall be given to the AIA Council within14 days from the date such measures are taken.

3. The AIA Council shall determine thedefinition of serious injury and threat of seriousinjury and the procedures of instituting emergencysafeguards measures pursuant to this Article.”

Although the ESM in the ASEAN Agreementhas never been used, it serves the purpose ofproviding an assurance to countries that ifexceptional consequences seriously or adverselyaffect their economies as a result of liberalizationmeasures undertaken by them, they could resortto safeguard measures. Liberalization is somethingthat some countries are cautious about in viewof the possible impact on domestic industries.

If countries wish to include an ESM whennegotiating IIAs, another approach could be alongthe lines of the Europe Agreements between theEU and various Central and Eastern Europeancountries. In the Europe Agreement with Poland(1991), for example, Article 50 provides for theuse of “safeguards” during specified transitionalperiods if certain industries are undergoingrestructuring; are facing serious difficulties; facethe elimination or a drastic reduction of the totalmarket share held by Polish companies ornationals in a given sector or industry in Polandor are newly emerging industries in Poland.Safeguard measures (not specified) used shallcease to apply, at the latest two years after theexpiration of the first stage or upon the expirationof the transitional period; they relate only toestablishments in Poland to be created after theentry into force of such measures and shall notintroduce discrimination concerning the operationsof Community companies or nationals alreadyestablished in Poland. The Agreement furthernotes that Poland shall, prior to the introductionof these measures, consult the AssociationCouncil. Upon the termination of the first stageor of the transitional period, Poland may introducesuch measures only with the authorization of theAssociation Council and under conditionsdetermined by the latter.

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D. Implementation of IIAs

A number of features of the approachtaken in the Europe Agreements are worthnoting. “Serious injury” is not stipulated asa test or condition, nor is “causation” (of theinjury or of any of the circumstancesspecified), nor is “unforeseen developments”or “unforeseeability”, nor is “sudden surge ininvestment or imports”. The article simply listscircumstances or situations that would besufficient to justify, during the transitionalperiod, derogations from a specific obligation.The language also avoids the problem ofdiscrimination by limiting the derogation tocompanies that have not yet establishedthemselves in Poland. Notification andauthorization requirements are intended toprevent protectionist abuse. Many developingcountries could identify with the situationslisted in Article 50. Moreover, developingcountries could enjoy such “safeguards” orderogations only during a transitional period—that is, until their rising incomes andcompetitiveness led to their disqualification.

Source: UNCTAD.

Box V.3. Emergency safeguardmechanisms in the area of investment

(concluded)

The implementation of IIAs can also bedesigned with flexibility for development as itsorganizing principle. Two approaches areparticularly relevant here: first, the legal character,mechanisms and effects of an agreement, andsecond promotional measures and technicalassistance:

• Whether an agreement is legally binding orvoluntary affects the intensity of particularobligations. Indeed, it is possible to have a mixof binding commitments and non-binding “besteffort” provisions in one agreement. Thus,development- oriented provisions could be eitherlegally binding or hortatory, depending on theextent to which the parties are willing toundertake commitments in this area. Evidently,“best effort” development provisions are ofconsiderably less value to developing countriesthan legally binding ones.

• The asymmetries between developed anddeveloping country parties to IIAs can be tackledby commitments addressed to the developedcountry parties to undertake measures ofassistance to the developing and especially LDCparties. A leading example is the technologytransfer commitment by developed country

parties to the TRIPS Agreement towards LDCs.(The wider issue of home country commitmentsin IIAs to promote the flow of FDI to developingcountries is discussed further in chapter VI.)Such developed country commitments can becomplemented by provisions for technicalassistance through relevant internationalorganizations. These are particularly important,given the complexity of the subject matter andthe limited capacity of many developingcountries, and especially the LDCs, to undertakeFDI related policy analysis and development,as well as human and institutional development.The last of these also involves assistance todeveloping countries to attract FDI and benefitmore from it.

Beyond that, each IIA is part of a larger setof investment agreements at bilateral, regional,inter-regional and global levels—and addresses abroad range of issues related to investment and theoperations of TNCs. When the same partiesparticipate in various agreements, their respectiveprovisions also interact, to complement, elaborate,expand or limit these parties’ obligations. It istherefore important, when designing IIAs, to bearin mind this broader context, and ensure that thestandards, exceptions and the like that the partiesseek to negotiate in agreements would not bemodified or otherwise affected by other agreementsin ways that were not intended. One example isthe question of how investor protection standardsinteract with the environmental obligations ofcountries in multilateral environmental agreements.

In case of possible conflict betweenprovisions in different agreements, i t is alsoimportant to consider how IIAs can ensure theircompatibility with conflicting obligations arisingfrom these agreements. In principle, questions ofcompatibility between agreements are resolved inaccordance with the principles set out by Article30 of the Vienna Convention on the Law ofTreaties. When the parties desire to ensure that noconflict of compatibility arises between an IIA andother treaties to which the signatory States maybe a party, they can do so by inserting clauses inthe agreement expressing this intent. Examples ofsuch clauses include the “regional economicintegration organization” clause, which ensures thatthe benefits of membership of such an organizationare not extended to non-member countries that arealso partners to the IIA on the basis of the MFNclause, and the preservation of rights clause foundin bilateral investment treaties (BITs). Difficultquestions remain however in this area, notably theoperation of MFN clauses in BITs (box V.4).

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The MFN standard in IIAs seeks to preventdiscrimination between different foreign investors.It does so by requiring that the foreign investorprotected by the standard enjoys treatment no lessfavourable than that enjoyed by the mostfavourably treated foreign investor. Theapplication of this standard raises some particularproblems for the operation of IIAs. The exampleof performance requirements is used here toillustrate these problems. The national treatmentstandard is also discussed so as to give a morecomplete analysis of how non-discrimination canoperate in this context.

The great majority of IIAs, particularly BITsconcluded by countries other than the UnitedStates or Canada, do not contain specific rules onthe use of performance requirements. But suchIIAs may nevertheless constrain the flexibility ofgovernments to impose and implementperformance requirements. The reason is thatvirtually all IIAs contain non-discriminationprovisions, typically national treatment and MFNtreatment. Thus, even if governments are otherwisefree to impose performance requirements, theymay not do so in a way that treats differentlyforeign and domestic investors—or foreigninvestors from different countries—in likecircumstances. Such restrictions may, in turn, besubject to conditions and qualifications, describedhere.

National treatment standard

The national treatment standard (in both thepre- and post-establishment phases) precludesgovernments from discriminating between foreignand domestic enterprises in like circumstanceswhen they impose performance requirements. Agovernment may impose different performancerequirements on investors that are not in likecircumstances. This flexibility, however, is notunlimited: “like circumstances” are typicallyunderstood to refer to broad, objectivecharacteristics of a business, such as its economicsector, the size of the entity or its geographiclocation.

So performance requirements could beimposed on foreign investors to ensure compliancewith national development policies. These couldbe specifically geared to the particular benefitshoped to be obtained from their investments,investments that domestic investors may be unableor unwilling to undertake. Equally, preferentialtreatment of domestic investors could be justifiableon the basis of their actual economic condition—for example, with firms classified as “infantenterprises”. The scope of protection thus needsto be determined case-by-case. Discriminationbased on “circumstances” related only to the

Box V.4. The effect of the MFN clause in BITs—the example of performance requirements

investors’ nationality usually violates the nationaltreatment obligations of IIAs.

Governments concluding IIAs often do nottake commitments or negotiate to exempt certainactivities or certain geographic regions from themarket access and national treatment provisionsof those agreements—as is the case under the“opt-out” provisions on national treatment inNAFTA, under which even entire industries (suchas air transport) can be excluded. Articles XVIand XVII of the GATS allow governmentsselectively to liberalize particular industries ofthe economy by way of an “opt-in” provision andthen to delimit the scope of national treatmentin those industries. In such cases, or wherenational treatment is restricted in its application,a government could impose different performancerequirements on foreign and domestic entitieswithout breaching its treaty obligations to providenational treatment. Outside such situations anyperformance requirements must be imposed in aneven-handed manner on foreign and domesticenterprises that are similarly situated.

MFN standard

The MFN provisions of IIAs have a similareffect. Even if the IIAs to which a country is aparty do not preclude the imposition ofperformance requirements as such, the governmentwill not be able to impose different requirementson investors from different foreign countries thatare otherwise in like circumstances. Here, as withnational treatment, “like circumstances” refer toneutral characteristics, such as industries, scaleof operations, geographic regions and so forth.Where a government intends to discriminatebetween foreign investors from different countries,it can seek to include an exemption from MFNtreatment for particular industries whennegotiating an IIA. In most cases, it is difficultto justify such exemptions, but there are cases inwhich granting more favourable treatment toinvestors from certain countries is necessary. Forexample, a common exemption from the MFNstandard is the one that permits preferentialtreatment for fellow members of a regionaleconomic organization. Under the GATS, membercountries can exempt specific measures from theMFN provision.

A particular issue that arises in the contextof the MFN standard, but not in relation to thenational treatment standard, is whether investorsfrom a home country that has concluded a BIT(BIT A) with a host country, without a specificclause prohibiting the use of performancerequirements, could nonetheless benefit from sucha prohibition in a BIT between the host countryand a second home country (BIT B), on the basis

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Notes

1 There is no common understanding of the notion ofregulation. In the OECD context “regulation refersto the instruments by which governments placerequirements on enterprises, citizens, and governmentitself, including laws, orders and other rules issuedby all levels of government and by bodies to whichgovernments have delegated regulatory powers.Economic regulation intervenes directly in enterpriseand market decisions such as pricing, competition,

market entry or exit. Social regulation protects valuessuch as health, safety, the environment and socialcohesion. Administrative regulation concernsgovernment formalities and paperwork, so-called ‘redtape’” (OECD 2001c, p. 2).

2 In a sense, the conditions attached to anycommitments imply a negative l ist approach toconditions—unless a country does not take anycommitments in the first instance. To quote Oxfam

Box V.4. The effect of the MFN clause in BITs—the example ofperformance requirements (concluded)

of the MFN obligation in BIT A. Investors fromhome country A could assert that they have beendiscriminated against, in violation of the MFNstandard, because they are subject to performancerequirements that cannot be extended to investorsfrom home country B by virtue of the prohibitionagainst such requirements in BIT B. The successof such a claim would initially depend onestablishing that the investors from country A andthose from country B are in fact in l ikecircumstances. Assuming this to be so, the nextquestion is whether such a claim can be sustainedon the terms of the BITs themselves. This questionhas not yet been faced or resolved in disputesettlement proceedings under IIAs.

The BIT with each home country is aspecifically negotiated instrument. According tothe ICSID Tribunal in the case of Maffezini v Spain(Case No.Arb/97/7 Decision on Objections toJurisdiction, 25 January 2000), if the third-partytreaty deals with matters not dealt with in the basictreaty applicable between the parties, those matterscannot be transferred to the basic treaty throughthe MFN clause. But where the third-party treatydoes deal with the same subject matter, MFNtreatment can apply to extend the better treatmentin that treaty to investors under the basic treatythat is under review. Thus, in the Maffezini case,MFN was applied to the procedural question ofthe scope of the dispute settlement provision inthe BIT between the parties. It was held that theMFN clause allowed the application of the higherstandard of treatment offered by third-party treaties.

This was a special case. But it opens theissue of whether i t is possible to argue thatprovisions other than procedural provisions mightbe subject to MFN review. An investor fromCountry A may seek to use the MFN provision inBIT A and argue, on the basis of Maffezini, thatthe prohibition of performance requirements inBIT B should also extend to investors fromCountry A and that i t has been denied thatprotection. This is a question that stands to bedetermined by reference to the intention of theparties to the BIT, as expressed in the actual termsand text of the agreement—and in the subsequent

investment treaty practice of the parties. This wasa matter that the Tribunal in Maffezini consideredin some detail as regards the approach of thecountries concerned, Argentina and Spain, to thescope of dispute settlement clauses in their BITpractice.

Could it be said that, in concluding BIT A,the host country intended the more beneficialinvestment protection terms that it concluded inBIT B automatically to extend to investors andinvestments from country A? It is within thediscretion of host countries to conclude BITs onmore or less favourable terms with different homecountries as they see fit. So, in the absence ofclear evidence of such an intention, it is unlikelythat BIT A could be interpreted on its face toextend the specific prohibition againstperformance requirements negotiated by homecountry B in favour of i ts investors andinvestments, to those of home country A, whichdid not negotiate a similar prohibition. The MFNstandard does not confer benefits on the investorsfrom country A in view of the substantive scopeof BIT A. One case in which such an argumentcould succeed is where the host country adoptsa general policy that prohibits the use ofperformance requirements, at the national level,or through a long and consistent practice ofprohibition of such requirements in its BITs, butstill applies such requirements to investors andinvestments from home country A. Here, there isdiscrimination as the application of therequirements would not be in accordance with ageneral policy, and only investors from A arebeing affected by the imposition of prohibitedrequirements. So long as the host countrycontinues to apply performance requirements ingeneral, it is free to offer preferential treatmentto certain foreign investors if it so wishes.

The foregoing makes it obvious that theapplication of the non-discrimination provisionsof IIAs, and of the MFN standard in particular,has considerable implications for the interactionsbetween different IIAs. The issue needs to beborne in mind in the conclusion, application andinterpretation of these agreements.

Source: UNCTAD.

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et al. (2003b, p. 4): “It requires governments to know,in advance, al l the possible GATS-incompatibleregulations they, or successive governments, mightwant to use in future in order to list exemptions atthe time of making commitments”.

3 The matter is further complicated by the fact that mostdeveloping countries are only host countries and not(or only marginally so) home countries. In request-offer bargaining situations these countries maytherefore not have much to request when it comes

to commercial presence.4 This, for instance, is the case in the GATS.5 For example, development considerations play a role

in the case of Germany’s approach in bilateralinvestment treaties (BITs) to national treatment inthe post-establishment phase, insofar as Germany hasaccepted certain exceptions to the national treatmentprinciple provided that these are undertaken fordevelopment purposes only (for example, to developsmall-scale industries) and that the measures do notsubstantially impair investments by German investors(see the BIT between Germany and Papua NewGuinea, 1980).

CHAPTER VI

HOME COUNTRIES AND INVESTORS

The investment process involves hostcountries, home countries and TNCs makinginvestments. In general only the host country hasbeen addressed in IIAs, with the most importantand sensitive aspects reviewed in the precedingchapters. In future IIAs consideration shouldespecially also go to home countries, actual partiesto such agreements, to encourage FDI flows todeveloping countries and help increase the benefitsfrom them. It is against this background that thischapter takes up home country measures and goodcorporate citizenship.

Home country measures (HCMs) seek tofacilitate—partly in the interest of home countriesthemselves—FDI flows into developing countriesby helping to overcome various problems thatdeveloping countries face when seeking to attractFDI and increasing benefits from it. Good corporatecitizenship makes relations harmonious betweeninvestors and the economies they operate in—andit can help advance development. How future IIAswill deal with these matters is an open question.The analysis here explores options for governmentsto consider.

A. Home country measures

Outward FDI from developing countriesincreased rapidly in the late 1990s, but they remainnet importers of FDI. Developed countries, bycontrast, have a more balanced pattern of inwardand outward flows.1 So the focus for mostdeveloping countries and economies in transitionis to attract inward FDI and benefit more from it.Measures that facilitate more and better FDI intodeveloping countries—and that address concernsrelated to such investment—would do more thanhelp developing countries. They could also beundertaken by “self-enlightened” home countriesto create new investment and trade opportunitiesfor their business communities.

Many developed home countries already havein place a wide range of unilateral policies andmeasures in this area. But IIAs have traditionallypaid limited attention to them. Possible optionsrange from hortatory policy declarations thatrecognize the need for home countries to promoteFDI into developing host countries—to mandatoryassistance and cooperation obligations set out in theagreements themselves. Binding commitments mightmake HCMs more transparent, stable and secure thanif they are entirely voluntary, the norm today.

1. Broad scope of measures

Many types of HCMs can influence themagnitude and the quality of FDI flows todeveloping host countries.

• General aid-based development assistance tostrengthen a host country’s businessenvironment.

• Improving the access of goods and servicesproduced by developing countries to the marketsof the developed countries.2

While aid-based measures and market accessare important, the focus here is on measuresdirectly related to FDI,3 many of them alreadyundertaken by home countries (UNCTAD 2001a,pp. 8–11):

• Liberalizing outflows. Home countries canremove obstacles to FDI outflows.

• Providing information. They can assistdeveloping countries in collecting anddisseminating information related to investmentopportunities through cooperation withinvestment promotion agencies (IPAs), theprovision of technical assistance, theorganization of investment missions andseminars and the like.

• Encouraging technology transfers. Homecountries can promote technology transfer byproviding assistance to strengthen a hostcountry’s technological base, its capacity to actas a host to FDI in technology-intensiveindustries and its capacity in reaching specifictechnology-intensive goals.

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• Providing incentives to outward investors.Various forms of financial and fiscal incentivescan be provided to outward investors or tosupport feasibility studies and environmentalassessments.

• Mitigating risk. Home countries can help tomitigate risk—say, by providing investmentinsurance against losses arising from politicalor other non-commercial risks that may notnormally be covered through the privateinsurance market.

In addition, some new issues are beingraised. These require the use of a home country’slegal and regulatory system to ensure that TNCsbased there conform to certain standards of goodcorporate citizenship through the sanctions of suchhome country laws and regulations. Of significancehas been the increasing demand to apply homecountry liability rules to parent companies for thewrongful acts of their foreign affil iates indeveloping countries (Muchlinski 2001a, 2001b).This has already occurred in the course oflitigation, mainly in the United States and UnitedKingdom, where foreign claimants have soughtredress for wrongs allegedly committed againstthem in the host country by foreign affiliates(United States Court of Appeals Second Circuit1987; United Kingdom House of Lords 2000).Cases have been brought in the United States foralleged violations of fundamental human rightsstandards by United States-based TNCs in theirforeign operations, under the Alien Tort Claims Act(Muchlinski 2001a, 2001b, 2002; United StatesCourt of Appeal for the Ninth Circuit 2002).4

Other areas of concern to home countries,as the principal regulators of parent companyactivities, may include combating corruption bypenalizing TNCs that use corrupt practices tofurther their FDI activities and regulatingfraudulent behaviour and unacceptable corporateaccounting practices that may adversely affect theglobal operations of TNCs.5 Other possible actionarises for the global environmental practices ofTNCs, ranging from control over trade in hazardoustechnology to determining responsibili ty forenvironmental damage.

In addition, it might be possible for currentpolicies of international cooperation to evolve inways that assist developing countries. For example,if developing countries could gain access to thecompetition enforcement systems of the EU andthe United States, this would empower them, indealing with anticompetitive practices of TNCs,to use the stronger regulatory and institutionalframeworks of developed countries. And developed

home countries could perhaps do more to assistdeveloping countries by sharing information aboutthe “track record” of an investor, to alert hostcountries about firms with a poor record of businessprobity.

Such approaches do have problems. Underwhat conditions do claimants in a host country havethe right to bring a claim before courts in the parentcompany’s home country? Can they show that theparent firm was sufficiently involved in the allegedwrongdoing to be itself liable? Or in the absenceof direct involvement in an alleged wrongdoing,can the parent firm nonetheless be held liable onthe basis of “piercing of the corporate veil”between itself and its overseas affiliate?6 Suchlitigation could however undermine the attractionof the home country as a base for TNCs, indeedencourage “floods of litigation” that the courts ofa given home country might be unable to deal with(Lord Hoffmann 1997).

On some of these measures, a potentialproblem is that action by a home country involvesan assertion of an extraterritorial jurisdiction toprescribe legal standards for operations that, bydefinition, occur in the territory of anothersovereign State. This increases the risk ofconflicting requirements, especially where policiesand laws in the home and host countries diverge.The problem arises not only where there is adivergence of approach to the resolution of acommon problem, but where different proceduralpolicies apply. For example, disputes have arisenbetween the United States, European countries andJapan over extraterritorial prescription andenforcement of United States regulatory laws onforeign affiliates of United States companies andon non-United States companies that were allegedlyinvolved in breaches of United States laws(Muchlinski 1999, chapter 5; Wallace 2002).

2. Current use by developedcountries

All home countries have measures that affectFDI flows to developing countries. In general,developed countries have removed most nationalobstacles on outward FDI. But policy declarationsaimed at encouraging outward FDI are seldomlinked to specific international commitments to thateffect (UNCTAD 2001a). With some exceptions,assistance remains at the discretion of each countryand is commonly shaped to serve a home country’sbusiness interests and general developmentobjectives. This home country perspective isespecially evident in the design of financial orfiscal assistance programmes as well as preferentialmarket access measures.

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Information on the investment climate is animportant element for FDI decisionmaking. Homecountry assistance can be offered to gather, publishand disseminate basic information on a country’sregulatory framework, macroeconomic conditions,sectoral conditions and other factors that affectinvestment opportunities. Although host developingcountries do compile many of these data, theirefforts can be supported, particularly in thedissemination stage, by home country governmentsand relevant international institutions. Indeed, anumber of home countries provide assistance ofsuch a kind. For example, the Swiss Organisationfor Facilitating Investments facilitates matchmakingbetween Swiss and foreign enterprises indeveloping countries and economies in transitionand supports the transfer of know-how. At theinternational level, various programmes strengthenthe capabilities of developing country IPAs anddisseminate information about investmentopportunities.7

Some HCMs are geared specifically tofacilitating the transfer of technology (see IV.G),and several international agreements contain

clauses in this regard. The measures include(UNCTAD 2001f):

• Supporting technology partnerships betweenfirms from developed and developing countriesto strengthen the technological capabilities ofthe latter, either through facilitating access toadvanced technology or learning in theinteraction between firms. Supported by variousinitiatives, such partnerships can take manyforms, ranging from sharing technology on anad hoc basis to entering long-term contractualor business engagements. The Business LinkagesChallenge Fund of the United Kingdom is onesuch approach (box VI.1).

• Promoting the transfer of specific technology(such as telecommunications, energy productionand environmental protection technologies) isat the heart of several developed countryinitiatives.

• Targeting measures for R&D at specifictechnological problems of developing countriescan provide a venue for public-privatecooperation in promoting transfers oftechnology.

Established by the Department forInternational Development in the United Kingdom,the Business Linkages Challenge Fund providesgrants for the development of innovative businesslinkages that transfer the technology, skills,information and market access necessary for LDCenterprises to compete in the global economy andbring benefits to the poor. Grants of £50,000 to £1million are allocated on a competitive basis, andbids must be led by private sector partners. All grantawards have to be matched by an equal or greatercontribution from the linkage partners.

Projects must be implemented in LDCs. Thetarget are countries in central and southern Africaand in the Caribbean. One leg of the partnershipmust fall within a targeted country. But because theUnited Kingdom qualifies as a targeted country,linkage partnerships between United Kingdomcompanies and developing country counterparts canbe supported. Similarly, partnerships betweencompanies in South Africa and companies indeveloping countries outside the Fund’s target regionsare also eligible, hence the project in the UnitedRepublic of Tanzania linking with BP South Africa.

The programme has been running in sub-Saharan Africa and the Caribbean since 2001. Todate, 32 projects have been supported, with totalgrants of £8 million and more than £10 million of

Box VI.1. The Business Linkages Challenge Fund

private sector resources mobilized. In the UnitedRepublic of Tanzania, the Fund supports a projectthat aims to develop links between BP Tanzaniaand other major local corporations, and local SMEsuppliers. The project builds on BP’s experienceworking with local suppliers in South Africa todevelop their capacity to latch onto the supplychains of large corporations. BP Tanzania’s majorpartners include Kahama Mining Corporation,Kolombero Sugar Company, National MicrofinanceBank, Sumaria Group, Tanga Cement Company andTanzania Breweries. In 2002 the eight participatingcorporations spent 35% of their $60 millionpurchasing budget on supplies from SMEs. Theobjective of the project is to increase this proportionand gradually ratchet up the quality and complexityof goods and services bought locally, developing the“missing middle” of the Tanzanian economy.

Other project examples include linkagesbetween a sports management company in theUnited Kingdom and South African partners, toexpand the capacity in South Africa to host andstaff major sporting events; linkages between smallfruit farmers in Mozambique and South Africa toincrease access to export markets in Europe; andlinkages between a large cocoa cooperative in theDominican Republic and a Swiss chocolatemanufacturer to develop a supply of high-qualityorganic cocoa.

Source: United Kingdom, Department for International Development (DFID).

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Many developed countries have specializedagencies to provide long-term financing for privatesector development in developing and transitioneconomies.8 This assistance is usually channelledthrough development finance institutions thatprovide both loan and equity financing for FDIprojects in developing countries, sometimes bytaking minority equity positions. For example, themission of the Overseas Private InvestmentCorporation (OPIC) of the United States is tomobilize and facilitate the participation of UnitedStates private capital and skills in the economicand social development of developing countriesand economies in transition to complement thedevelopment assistance objectives of the UnitedStates. OPIC’s main instruments are investmentfunds and medium- to long-term financing, but italso provides political risk insurance (see below).Several public organizations in developed countriessupport outward FDI by SMEs. The Swiss “Start-up Fund”, for example, offers loans for studies,pilot projects, purchases of machinery andtechnology transfer.

Complementing these unilateral efforts arevarious schemes of international institutions thatprovide financial assistance for projects indeveloping countries (for a summary see Hughesand Brewster 2002). Within the World Bank Group,the International Finance Corporation and itsdecentralized instruments for the Caribbean andthe South Pacific provide various forms of financialand technical assistance to promote privateenterprise. The regional development banks usea range of instruments to facilitate investment indeveloping countries.9 The Commonwealth PrivateInvestment Initiative has established severalinvestment funds.

In mitigating risk, investment insurance toalleviate non-commercial risk is particularlyimportant. Some of the largest official bilateralinsurers are OPIC (United States), the ExportInsurance Department of the Ministry of Trade andIndustry (Japan), HERMES and Treuarbeit(Germany), the Compagnie Française d’Assurancepour le Commerce Exterieur (France) and theExport Credit Guarantee Department (UnitedKingdom). Similar institutions exist in Australia,Canada, Italy, the Netherlands, Spain and Sweden(Mistry and Olesen 2003, pp. 212–213). In general,such insurers will only insure investment indeveloping countries with which their owncountries have a bilateral investment treaty (BIT).In 2001, bilateral institutions insured outward FDIof some $20–25 billion (ibid.).

Of multilateral institutions, the MultilateralInvestment Guarantee Agency (MIGA) is the mostimportant, with a capital base of almost $2 billion

in 2001.10 The regional development banks andother institutions, such as the Inter-Arab InvestmentGuarantee Agency, also provide non-commercialrisk insurance. In the EU, the European InvestmentBank has established an “Investment Facility” toprovide risk capital and guarantees in support ofdomestic and foreign investment, loans and credits(Cotonou Agreement, Article 76, Annex II, Article 2).

The trade policies of home countries—eventhough not FDI-specific—can also have animportant effect on the scope for especially export-oriented FDI in developing countries. Non-reciprocal preferential schemes are particularlyimportant here, including the Generalized Systemof Preferences, and trade preferences under theCotonou Agreement, the Caribbean Basin Initiative,the EU’s Everything-but-Arms Initiative and theUnited States’ African Growth and Opportunity Act.The Government of Japan also grants certain LDCexports (corresponding to 99% of industrialproducts) duty-free and quota-free access to itsmarket. Such schemes remain important for thelocation of export production but do not—in andby themselves—provide either a sufficient or asustainable basis for developing competitive exportindustries. Home countries also use a variety oftrade and industry policies to restrict access to theirmarkets. These include anti-dumping and safeguardmeasures as well as targeted subsidies in developedcountries.

3. Effectiveness

Lack of information and difficulties inisolating the influence of other factors complicatethe evaluation of the effectiveness of the widerange of HCMs. In addition, the use and impactof HCMs is a vastly under-researched area. Butsome important considerations can be identifiedfor enhancing the effectiveness of HCMs as adevelopment tool.

A stronger link between the explicit needsof developing countries and the design andexecution of HCMs would likely enhance thebeneficial impact of such programmes ondevelopment. As noted earlier, most HCMs remainat the discretion of each developed country andare commonly shaped to serve a home country’sown business interests along with generaldevelopment objectives. Moreover, the awarenessamong developing countries of HCMs is generallylow. Interviews with IPAs from developingcountries indicate that HCMs are not yet regardeda strategic complementary element to their ownpromotion efforts. This may imply that themeasures have not been well advertised or that theyare not perceived to be very effective. It may also

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suggest a need for closer developing countryinvolvement in the design and execution of futureHCMs.

For the dissemination of investmentinformation, there is a clear need for assistance,especially for the least known FDI locations (suchas LDCs) and for informing SMEs. For the 49LDCs, investment guides of the sort produced byinternational consulting firms are available onlyexceptionally.11 Nor do available sources alwaysmatch the requirements of investors. Theinformation revolution has in some waysaggravated the situation by sharpening the contrastbetween the LDCs and other countries—which canupdate information available through the Internet,for example.

On mitigating financial cost and risks, thereare many examples of investments that havebenefited from home country or internationalschemes for financing and investment insurance.12

But it has also been argued that such efforts oftendo not trickle down to those countries that needassistance the most (Hughes and Brewster 2002).While most international finance institutions havepolicy statements that acknowledge the need tofocus on such countries, LDCs tend to lag farbehind the rest of the developing world in the useof finance and insurance schemes. One of thereasons is that many of the investment funds arepublicly funded only in part and therefore tend tobe managed on commercially based criteria, withless focus on the least developed investmentlocations as a result.

Interestingly, there seems to be a trendtowards making HCMs more development-oriented.For example, the Government of Norway hasobliged the Norwegian Investment Fund forDeveloping Countries to invest at least a third ofits capital in LDCs, with the obligation to haveNorwegian co-investors abolished.13 A similar shifthas been noted for OPIC (United States), whichspecified in its 2003 budget request that it wouldcontinue to refocus its efforts on providing supportto projects in locations and sectors in which thedevelopmental impact will be greatest.

HCMs could result in policy conflictsbetween host and home countries. One generalissue is the potential for extraterritorial control.For example, home country tax policies and transferpricing regulations sometimes influence FDI flowsto developing countries. Some countries employa residence-based system of taxing foreign sourceincome and claim tax revenues on income generatedworldwide. Such extraterritorial tax policies arebased on a general principle that tax reductions

should not encourage FDI from the home country—and may in effect offset the impact of lower taxrates or tax holidays offered by developingcountries as an incentive to attract FDI. To countersuch effects, several developed countries haveadopted tax-sparing treaty practices. A contractingState agrees to grant relief from residence taxationfor source taxes that have not actually been paid(taxes that have been “spared”). Because suchclauses may induce firms to engage in sophisticatedtax planning and avoidance behaviour, OECDguidelines include the specific inclusion in treatiesof an anti-abuse clause and the setting of time limitsfor any tax-sparing relief (OECD 1998c).

4. The IIA dimension

Traditionally, HCMs have attracted littleattention in IIAs, which have instead emphasizedthe obligations of host countries to protect inwardFDI through their standards and guarantees. Butwith the investment process involving homecountries, it is relevant to consider if and howHCMs are—and could be—addressed in IIAs. Thisquestion has implications for the potentialdevelopment impact of such agreements and forthe effectiveness of various HCMs. Arguably, thestronger the policy commitments in internationalagreements—running along a continuum fromhortatory declarations to binding obligationsaccompanied by detailed implementation plans(backed by financial resources) and monitoringmechanisms—the bigger the likely impact ofHCMs. Just as countries see advantages incomplementing unilateral efforts in trade andinvestment liberalization with commitments ininternational agreements, IIA provisions addressingHCMs could lend greater transparency,predictability and stability to the way HCMs addressdevelopment concerns (UNCTAD 2001a, p. 53).

Some emerging trends may be the basis forfurther developments in this field. These go beyondsimple general exhortations for the parties to anIIA to promote investment through appropriatemeasures, which may, by implication, includeinvestment-promoting HCMs.14 They encompass,first , the emergence of a cooperation processexpressed through international agreementsinvolving multiple developed and developingcountries and containing specific provisions onHCMs. Second, a number of IIAs containcooperation provisions concerning technologytransfer, possibly the most common type of HCMprovision in these agreements. Third, regional andmultilateral investment insurance schemes (suchas that of MIGA) complement national insuranceschemes.

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For instruments involving multipledeveloping country participants, the key exampleis the Cotonou Agreement between the EU and theACP countries, the successor to the Fourth LoméConvention (UNCTAD 2001c, p. 441). It includesdetailed provisions related to investment promotion,investment finance and support and investmentguarantees (box VI.2). Moreover, in the area of

investment protection, the Community and the ACPStates affirm the need for such protection and theimportance of concluding investment promotionand protection agreements, which could alsoprovide the basis for investment insurance andguarantee schemes (Article 78). The parties alsoagree that special agreements on particular projectsmay be concluded, with the Community and

Article 74

“Cooperation shall, through financial and technicalassistance, support the policies and strategies forinvestment and private-sector development as setout in this Agreement.”

Article 75: Investment promotion

“The ACP States, the Community and its MemberStates […] shall:

(a) implement measures to encourage participationin their development efforts by privateinvestors […];

(b) take measures and actions which help to createand maintain a predictable and secureinvestment climate as well as enter intonegotiations on agreements which willimprove such climate;

(c) encourage the EU private sector to invest andto provide specific assistance to its counterpartsin the ACP countries under mutual businesscooperation and partnerships;

(d) facilitate partnerships and joint ventures byencouraging co-financing;

(e) sponsor sectoral investment fora to promotepartnerships and external investment;

(f) support efforts of the ACP States to attractfinancing, with particular emphasis on privatefinancing, for infrastructure investments andrevenue-generating infrastructure critical forthe private sector;

(g) support capacity-building for domesticinvestment promotion agencies and institutionsinvolved in promoting and facilitating foreigninvestment;

(h) disseminate information on investmentopportunities and business operatingconditions in the ACP States;

(i) promote […] private-sector business dialogue,cooperation and partnerships […].”

Article 76: Investment finance and support

“1. Cooperation shall provide long-term financialresources, including risk capital , to assist inpromoting growth in the private sector and helpto mobilise domestic and foreign capital for thispurpose. To this end, cooperation shall provide,in particular:

Box VI.2. Support for investment and private sector development in the Cotonou Agreement

(a) grants for financial and technical assistanceto support policy reforms, human resourcedevelopment, institutional capacity-buildingor other forms of institutional support relatedto a specific investment, measures to increasethe competitiveness of enterprises and tostrengthen the capacities of the privatefinancial and non-financial intermediaries,investment facilitation and promotion andcompetitiveness enhancement activities;

(b) advisory and consultative services to assistin creating a responsive investment climateand information base to guide and encouragethe flow of capital;

(c) risk capital for equity or quasi-equityinvestments, guarantees in support of domesticand foreign private investment and loans orlines of credit […];

(d) loans from the Bank’s own resources. […].”

Article 77: Investment guarantees

“[…] 2. Cooperation shall offer guarantees andassist with guarantees funds covering the risks forqualified investment. Specifically, cooperation shallprovide support to:

(a) reinsurance schemes to cover foreign directinvestment by eligible investors; against legaluncertainties and the major risks ofexpropriation, currency transfer restriction, warand civil disturbance, and breach of contract. […]

(b) guarantee programmes to cover risk in the formof partial guarantees for debt financing. […]

(c) national and regional guarantee funds, involving,in particular, domestic financial institutions orinvestors for encouraging the development ofthe financial sector.

3. Cooperation shall also provide support tocapacity-building, insti tutional support andparticipation in the core funding of national and/or regional initiatives to reduce the commercialrisks for investors […].

4. […] The ACP and the EC will within theframework of the ACP-EC Development FinanceCooperation Committee undertake a joint study onthe proposal to set up an ACP-EC GuaranteeAgency to provide and manage investmentguarantee programmes.”

Source: UNCTAD 2001c, pp. 452–454.

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European enterprises contributing to theirfinancing. These provisions represent the mostcomprehensive instrument on HCMs concluded todate at the international level. But a carefulevaluation of the implementation of theseprovisions (and the corresponding ones under LoméIVbis) has still to be made. The prime instrumentsare the Investment Facility and Proinvest of theEuropean Investment Bank.

Apart from the Cotonou Agreement, certainintra-regional cooperation agreements betweendeveloping countries introduce various homecountry commitments to promote investment in hostcountries party to the agreement. For example, theTreaty Establishing the Caribbean Communitydifferentiates between the more and less developedcountries among its membership, establishing aspecial regime for financial assistance “with a viewto promoting the flows of investment capital to theLess Developed Countries” (chapter VII, article59(1)). The Agreement on Investment and FreeMovement of Arab Capital Among Arab Countriesendorses a policy in article 1(a) that “Every Arabstate exporting capital shall exert efforts to promotepreferential investments in the other Arab statesand provide whatever services and facili t iesrequired in this respect”. As a follow-up mechanismto this commitment, the Convention Establishingthe Inter-Arab Investment Guarantee Corporationprovides investment insurance as well as otherpromotional activities designed to stimulate FDI.

Provisions encouraging development-oriented transfer of technology go beyond thesharing of know-how in most developmentassistance programmes and require a moresubstantial application of technology to businessoperations.15 Most provisions dealing with thisissue have tended to be non-binding hortatoryprovisions (see section IV.G).

For regional, interregional and multilateralinvestment insurance schemes, an early andcontinuing example is the Convention Establishingthe Inter-Arab Investment Guarantee Corporation,which established an intra-regional insurancescheme for use by investors from an Arab homecountry in an Arab host country. More recently,as noted, the Cotonou Agreement has reaffirmedthe importance of investment guarantee insurance.To this end, the Agreement calls for the ACP-EUDevelopment Finance Cooperation Committee to“undertake a joint study on the proposal to set upan ACP-EU Guarantee Agency to provide andmanage investment guarantee programmes” (Article77(4), Cotonou Agreement in UNCTAD 2001a, p.38). The only multilateral instrument in this fieldis the MIGA Convention approved in 1988. Itsobjective, under Article 2, is “to encourage the flow

of investments for productive purposes amongmember countries, and, in particular to developingmember countries”. This is done by reducinginvestor concerns about non-commercial riskthrough a multilateral investment insurance fundto arrange cover against such risk.16

5. Enhancing the developmentdimension

Greater attention in IIAs to the role of HCMsby developed countries would help incorporate the“second point” of the triangular relationshipbetween host countries, home countries andTNCs—and enhance the development dimensionof FDI.17 In the WTO Working Group on Trade andInvestment, for example, some developingcountries put the issue on the table. It has beenargued that “Home governments should undertakeobligations: (1) to refrain from policies or measuresthat influence [TNCs] originating in their territoriesto have operations or behaviour in host membersthat are adverse to the interests of the hostmembers; (2) to institute measures that influenceand oblige [TNCs] originating in their territoriesto behave and operate with full corporateresponsibility and accountability in their operationsin host members, and to fulfil their […] obligationsto the host member and government, in accordancewith the objectives and policies of the latter.”18

In a non-binding, hortatory approach ageneral expression of commitment to improvinginvestment flows to developing country partiescould be included, though its practical effect mightbe questioned. More concrete, but still non-binding,would be to link general policy language with morespecific commitments to HCMs, possibly project-by-project. And commitments could be made on“soft” cooperation such as cooperative informationexchange, assisted outreach to home-countrybusiness groups, FDI seminars and generaleducation on business opportunities in developingcountries.

An alternative approach is to introducebinding obligations to give assistance to hostdeveloping countries in promoting FDI. As noted,many developed countries—either unilaterally orthrough intermediaries—are already offeringvarious measures. But such a step would give IIAsmore balance in the distribution of rights andobligations of parties involved and could strengthentheir impact as development-promotinginstruments—while in most cases also serving theself-interest of home countries. In this situation,home countries would accept obligations,recognizing the real difficulties associated withturning the aspiration of host developing countries

World Investment Report 2003 FDI Policies for Development: National and International Perspectives162

for more investment into reality. The inclusion ofobligations would seek to offset some of thelocational disadvantages of developing host countryparties not only through—in a defensive way—enhanced investor protection provisions of IIAs,but through proactive economic and commercialpolicies aimed at facilitating more and better FDIto developing countries, particularly the leastdeveloped.

Where possible, commitments should belinked to follow-up implementation programmesand specific mechanisms to monitorimplementation. Practical outcomes are more likelyif an agreement’s general statement of policyprinciples is followed by provisions containing amore detailed list of measures or a specificimplementation process that will translate policyinto practice, including actions involving othertypes of HCMs. Some IIAs include for this purposea provision for a “Supervisory Committee” toensure the proper implementation of what has beenagreed.19 A forum is put in place for the futuredevelopment of more specific policies of homecountry assistance for investment in host

developing countries. The recent decision tointroduce a monitoring mechanism to implementArticle 66.2 of the TRIPS Agreement is aninteresting step in this direction (box IV.7). Reviewand monitoring through follow-up mechanisms helpcreate an organic progression in policydevelopment through dialogue and the sharing ofcommon experience. Indeed, as cooperationproceeds, more “hard” commitments, involvingspecific or general assistance through fundedprogrammes, could become feasible. The utilityof the organic development of cooperation in thisfield should not be overlooked.

A further issue is whether HCMs should bedirected to a particular group of developingcountries, such as the LDCs, under special anddifferential treatment provisions. LDCs are likelyto need disproportionate help from home countriesin attracting FDI. One recent study identifiedmeasures that home countries can take in the short,medium and long terms to mitigate risks andunblock FDI flows to LDCs by addressing both theentry-cost and post-entry risk barriers for investors(box VI.3). The Commonwealth Secretariat has

In a study commissioned by the Governmentof Sweden on ways to mitigate risk associated withinvesting in LDCs, a number of measures wereidentified, some of them listed here:

Short-term measures to extend risk mitigationcapabilities

• Increase funding of multilateral risk insuranceagencies (such as MIGA and the political riskinsurance facili t ies being opened up inregional banks) specifically to cover LDCpolitical and other non-commercial riskthrough a special purpose capital or guaranteepool provided.

• Create more effective regional risk covercapacity either by: (a) regionalizing moreeffectively the operations of MIGA andtransforming it into a more independent globalfacility; or (b) create separate MIGA-likeregional multilateral political risk insurancecapacity affil iated with the regionaldevelopment banks.

• Increase the non-commercial risk insurancecapacity of bilateral Export Credit Agenciesand Official Bilateral Insurers through specificfunding or subsidies for covering a muchwider range of non-commercial risks in LDCs.

• Provide project-related subsidies to cover partof the premium costs for PRI or NCRI forspecific projects being undertaken by OECDsource country or eligible developing countryfirms in LDCs.

Box VI.3. Home country measures to mitigate risk linked to FDI in LDCs

• Encourage the development of public-publicpartnerships between official bilateral insurersand their nascent counterparts in keydeveloping countries that are becoming majorhome countries for FDI in neighbouring LDCs.

• Establish credit enhancement arrangements formobilizing available domestic funding (inorder to reduce currency risk) in developingcountries (particularly LDCs).

Other short-term measures to increase FDI to LDCs

• Provide full (100%) or large partial (50–80%)tax credits, rebates or deductions for the equityinvested by home country companies in LDCsagainst their tax l iabili t ies in their homecountries.

• Establish special-purpose “FDI-in-LDCs”investment promotion departments (withcommensurate budgets) within bilateral aidor investment agencies thus ensuring thatsupport for FDI flows would be as importanta bilateral priority as any other in aidprogrammes. They could extend the limitedcapacity of LDC-IPAs by enabling them toleverage their l imited resources. Theiractivities could include: determininginvestment priorit ies; targeting specificcompanies in their home countries; informingthem of opportunities in LDCs; helping tofinance environmental and social impactassessments; helping to prepare documentation

/...

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Box VI.3. Home country measures to mitigate risk linked to FDI in LDCs (concluded)

(such as Memoranda of Understanding, Lettersof Intent) and institutional capacity buildingin partner-IPAs.

• Explore the possibility of establishing a smallspecial purpose LDC Infrastructure InvestmentFund that would provide equity and debtfinancing as well as mobilize domesticcurrency resources for lending to infrastructureprojects in LDCs.

Medium-term initiatives by home countries

• Working with multilateral partners and theprivate sector to develop financial systems andcapital markets of LDCs more rapidly thancurrently envisaged.

• Bilateral aid agencies can make a uniquecontribution over multilateral counterparts inengaging in intensive “regulatory-partnership”arrangements between financial systemregulators in particular donor countries withregulatory agencies in LDCs to ensure not onlythat sound laws, rules and regulations aredeveloped, but that they are applied andenforced.

• Bilateral aid agencies can provide seed fundingto encourage their non-banking institutions toestablish a presence in LDC financial systemsthat would be shunned by the private sector.

• Bilateral donors (especially members of theEU) can do more to provide open access totheir domestic consumer markets to allproducts of LDCs; encourage their domesticfirms through favourable tax treatment orthrough grant support for partial cost coverageto develop supply sources so that LDCs cantake advantage of the preferential access theyhave but are not availing of and encouragedeveloping country investors to invest inLDCs to take advantage of privileged accessto donor markets.

• Set up an International Commercial Courtspecifically designed to resolve disputesbetween LDCs (not all developing countries)and foreign investors, especially wherecomplex infrastructure investments involvingregulatory risk are concerned.

Long-term options for home countries to consider

• Providing sustained long-term institutional andhuman capacity building assistance for LDCaccounting, legal and judicial systems toimprove their performance and capacities whenit comes to dealing with foreign investorsswiftly, impartially and equitably. Suchassistance could be provided throughcounterpart accounting, legal firms andjudiciaries in partner donor countries throughlong-term partnership programmes that wouldbe partly funded by aid.

• Providing similar support for political andbroader governance insti tutions, that is ,government machinery and ministries,especially the law and justice ministries aswell as for parliament and parliamentaryinstitutions for the effective functioning ofdemocracy and representative civil societyinstitutions that can exert additional checksand balances in ways that even parliamentarysystems in developed countries cannot. Insome LDCs it may be appropriate to take apause in pushing through successive roundsof fur ther economic reforms that are unlikelyto work unless they can be embedded inpolitical and judicial reform.

• Supporting the future evolution anddevelopment of political and non-commercialrisk insurance capacity in their own domesticmarkets and in the wider regional Europeanmarket through more productive public-privatepartnerships between official bilateral insurersand private risk insurers

Source: Mistry and Olesen 2003.

suggested that a new facility be set up in the formof a dedicated and separate fund owned byinternational finance institutions but legally distinctfrom them. The fund would focus specifically onLDCs and other small and vulnerable economies.It would assist private investment in the productionof traded goods and services in eligible States byoffering domestic-currency loans, quasi-equityinvestment capital and guarantees—and by retailinga specially simplified form of MIGA cover forpolitical risk (Hughes and Brewster 2002).

Dealing with HCMs is a new but potentiallyimportant aspect of how to make the evolvingarchitecture of IIAs more development friendly.

It is by no means an easy task, especially becausethe degree and extent of binding commitments onthe part of home countries in IIAs have been ratherlimited. But all developed countries have alreadyput various HCMs in place on their own. At themultilateral level, the Doha Declaration (paragraph22) recognizes the need for any framework to“reflect in a balanced manner the interests of homeand host countries”. The same principle could applyto IIAs at other levels as well. This suggests thatfuture IIAs should contain commitments for homecountry measures, building on the experience todate.

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To what extent can foreign investorsthemselves complement the efforts of host (andhome) countries and help especially developingcountries to reap maximum benefits from FDI?There has been an increasing number ofinternational instruments on this, but most of themare voluntary. Moreover, most instruments dealwith social and environmental issues, leavingeconomic development issues out of their scope.Indeed, there has been a notable lack of debate onissues pertaining directly to the economicdevelopment interests of developing countries.

Even so, there are rising expectations thatTNCs can contribute directly to the advance ofdevelopment goals as one aspect of good corporatecitizenship. Such firms are expected not only toabide by the laws of the host country, but also paygreater attention to contributing to public revenues,creating and upgrading linkages with localenterprises, creating employment opportunities,raising skill levels and transferring technology. Buthow could IIAs contribute to enhancing such goodcorporate practices, especially with internationaltreaties normally focusing on State conduct, noton the conduct of non-State actors?

1. The concept

With liberalization and globalization, thereis a greater mutual interest for host countrygovernments and TNCs to cooperate with eachother to achieve their public and private goals.Firms benefit from the more open, market-orientedand business-friendly policy frameworks of therecent decade. Host countries expect, in return, todraw net economic and social benefits from thepresence of TNCs. As these firms havetransnationalized, their impact on host countrieshas increased. A case can be made therefore thatthe increased role of TNCs, as the most importantactors in the global economy, should beaccompanied by an increased recognition of theirresponsibilities towards the countries in which theyoperate.

The concept that captures the essence of acooperative relationship between TNCs and theirhost countries, aimed at achieving a balance ofpublic and private objectives and benefits, is goodcorporate citizenship. It can complement actionsof developing countries and home countries tomaximize the benefits of FDI, while minimizingthe costs. To ensure full support, however, thecontent of this concept should be defined with thefull involvement of all stakeholders, beginning ofcourse with business.

B. Good corporate citizenship

Good corporate citizenship encompassesstandards of business behaviour that apply todomestic companies as well as TNCs. Still, TNCsare seen to have special responsibilities (especiallyin developing countries) because of their economicpower and because they get rights under IIAs thatcan go beyond those available to domestic firmsand because the capacity of many host developingcountries to introduce and implement certain lawsis limited.20 Good corporate citizenship differsfrom the concept of “corporate socialresponsibility”21 in that it addresses economicaspects more explicitly.22 Normally, a company isa legal entity and thus the subject of direct rightsand obligations under the law. But compliance withthe law is little more than a minimum standardnecessary for a company’s existence and operation,especially in developing countries. Corporatecitizenship commitments that extend beyondcompliance with the letter of the law areparticularly important to meet societal expectations,especially in the absence of fully developed legalframeworks and the capacity to enforce them.23

The discussion of how the responsibilitiesof companies should be defined is as old as the ideaof free enterprise, evolving over t ime. Theemergence of an increasingly diverse civil societyillustrated by a growing number of interest groupsin developed and developing countries confrontsfirms with growing societal expectations.Increasingly, companies are held responsible notonly to shareholders but also to other stakeholders,including creditors, employees, consumers—andmore generally to those directly or indirectlyaffected by their business activities (WIR99, chapterXII). For TNCs, the underlying intellectualfoundation for good corporate citizenship iscomplicated by the fact that they operate inmultiple societies around the world and thus haveto respond to different—sometimes conflicting—expectations.

The global goals of TNCs do not alwayscoincide with the social and developmental goalsof the individual countries they operate in. In fact,the responsibility of foreign affiliates is not onlyto their host countries, but also to their parentfirms. Yet governments welcome TNCs with theexpectation that they contribute to nationaleconomic and social objectives, while benefitingfrom their global strategies and capabilities. TNCs,on their part, have a self-interest in maintaininga mutually supportive relationship with their hostcountries—to avoid revocation of their enhancedrights and freedoms. They also have a self-interest

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in keeping a good reputation and the value of theirbrands, to prevent competitors from gainingadvantages from irresponsible behaviour.

The range of issues considered under theumbrella of good corporate citizenship is broad.It includes developmental responsibilities, socio-political responsibilities, environmental protection,employment and labour relations, ensuringcompetition and refraining from restrictive businesspractices, consumer protection, corporategovernance, corruption, disclosure and reportingrequirements and respect for human rights(UNCTAD 2001b, pp. 4–12; OECD 2001a). But thediscussion focuses on environment, human rightsand labour rights, at least in developed countries.24

Their dominance may be a function of the societalpreferences of these countries, the emergence ofinfluential civil society interest groups thatchallenge companies to engage in a dialogue ontheir policies and performances and the fact thatglobally agreed standards on these issues exist. Anumber of companies accept this challenge as thesegroups are often able to influence the decisionsof consumers, business partners, financiers andemployees. Even if companies do not feelresponsible for certain issues, they might need toengage in a dialogue with stakeholders as to howthey handle certain issues, being aware thatrefusing to do so might have economicconsequences for their core businesses.25

There is, however, little debate about issuespertaining directly to the economic developmentinterests of developing countries.26 This is curiousfor at least two reasons. One, the first and foremostimpact of companies is economic—after all, theyare business entities. Two, this impact has increasedin recent years with the expansion of FDI,particularly for developing countries (WIR99). Thematter is complicated, however, by the fact thatthere is no single model for successfuldevelopment. Nor is there a single internationallyagreed instrument from which one could derivespecific development obligations, as in humanrights. But there are societal expectations aboutthe potential developmental contributions of TNCs,not often fully captured by either competitivemarket disciplines or (insufficient) governmentregulation. The resulting governance void posesa challenge for good corporate citizenship (WIR99,chapter XII).

The starting point is that TNCs (like otherfirms) need to respect in good faith the laws of theirhost countries. They should not be tempted to takeadvantage of weak legal and administrativesystems—say, by engaging in anticompetitivepractices (especially restrictive business practices)

or corrupt practices.27 On the contrary, they mightbe expected to go beyond the local law to meetimportant needs of host developing countries wherelegal norms relating to good corporate citizenshipmay be absent or underdeveloped.

Beyond that, TNCs can make a differencein advancing development goals by making aneffort in addition to what they already do, whilestill serving their own corporate objectives:

• Contributing to the public revenues of hostcountries. Domestic public revenues are one ofthe principal sources of financing development,especially when it comes to infrastructure andbasic services. Tax minimization can haveserious repercussions for the development needsof host developing countries. TNCs are thusexpected to abide by the spirit of a country’stax law and to meet their tax obligations in goodfaith—and not purposely shift revenues throughabusive transfer pricing to deny the governmentsof taxes on income originating in theirterritories.28 To that end, they are expected tocooperate with the tax authorities of relevantcountries and provide appropriate accountingdata and tax reconciliation records for taxinspections when required.

• Creating and upgrading linkages with domesticfirms. Forging linkages between foreign affiliatesand local firms—for example, through supplierand other sub-contractual relations—enhancesthe competitiveness of the domestic enterprisesector, especially where this is consistent witha dynamic comparative advantage. This requiresa strong and long-term commitment by foreignaffiliates to integrate into the local economy,source locally and increase over time thetechnological sophistication of their productionin developing countries. An often-cited exampleof a proactive, long-term collaboration betweenpublic authorities, local business and TNCs hasbeen the electronic industry cluster in Penang,Malaysia (WIR01). In this case, foreign affiliatesalso made a considerable contribution toMalaysia’s exports.

• Creating employment opportunities and raisinglocal skills level. In addition to employing andtraining people directly, TNCs that createlinkages with local companies can have amultiplier effect in creating jobs and raising skilllevels. Corporate commitments in these respectscan generate important positive spillovers forthe host economy and thus enhance itsdevelopment prospects. Parent companies arealso expected to cooperate to reduce negativeeffects that would result, for example, fromdecisions to close down large existing operations

World Investment Report 2003 FDI Policies for Development: National and International Perspectives166

(WIR99, chapter IX). This is also recognizedin the OECD Guidelines.29

• Transferring technology. TNCs can help bringimportant developmental benefits to hostcountries by cooperating with local suppliers,private institutions and host governments in thetransfer and dissemination of technologies andmanagement skills. They can contribute toupgrading local technological capabilitiesthrough various modalities that do not put at risktheir technological edge vis-à-vis competitors(WIR99, chapter VII).

There are, of course, other ways for TNCsto make a positive contribution to development.For example, they can seek to influence homecountry governments to open their markets morefor imports from developing countries. They canhelp create a business-enabling environment byactively participating in public-private fora onimproving investment conditions in a given country.And they can also serve on advisory panels tonational governments and regional bodies.30

2. Its international dimension

In many respects, good corporate citizenshipis l inked to liberalization and globalization(Picciotto 2002). The more that companies expandtheir operations beyond national boundaries, themore the debate about good corporate citizenshipshifts from the national level to the international.The growth of civil society groups around theglobe, with enhanced means of sharing informationon corporate activities, facilitates this process.

Yet the issue is not new. The ILO adoptedits Tripartite Declaration of Principles ConcerningMultinational Enterprises and Social Policy in1977. The purpose of the declaration (article 2)is “to encourage the positive contribution whichmultinational enterprises can make to economicand social progress and to minimize and resolvethe difficulties to which their various operationsmay give rise […]”. But the OECD Guidelines forMultinational Corporations, adopted in 1976, areprobably the most comprehensive instrument forcorporate citizenship issues of interest to developedand developing countries alike.31 The Guidelineshave been revised over the years (the latest revisiondates from 2000) and adapted to reflect changingpriorities (box VI.4).

Developmental standards—stressing dutiesof enterprises to contribute to economic and socialdevelopmental objectives, encouraging localcapacity building or encouraging human capitalformation, among others—can also be found in theInternational Chamber of Commerce Guidelines

for International Investment of 1972, as well asthe World Development Movement’s CoreStandards of 1999. But responsibilities on economicmatters, which were prominent in the past, arereceiving less attention in recent internationalinstruments, reflecting the general tendency toleave economic matters to the discipline of marketforces (WIR99; UNCTAD 2001b, p. 11).

International standards of good corporatecitizenship are for the most part embodied involuntary instruments or codes of various types,including those prepared by NGOs and individualcompanies. The scope, content and formality ofthese instruments vary considerably, especially thearrangements for monitoring compliance.32 Andthere are few legally binding provisions, mainlybecause treaties normally entail binding obligationson States not firms. Even though they can also bedrawn up to create obligations for individuals, theprocedure for creating binding law for individualsor firms at the international level is cumbersomeand uncertain (Picciotto 2002, p.16). The growingnumber of international conventions anddeclarations dealing with labour, human rights,environmental, ethical and other social issues—as well as regional efforts to harmonize relevantnational laws—shows that companies are operatingunder clearer national and international frameworkson key good corporate citizenship issues. They arethus bound (directly or indirectly) by relevantminimum standards. This aspect is stressed in the1999 initiative by the Secretary-General of theUnited Nations for “A Compact for the NewCentury”. The Global Compact calls on worldbusiness to embrace and enact—both in theirindividual corporate practices and in support oftheir appropriate public policies—nine universallyagreed values and principles derived from UnitedNations instruments (Kell and Ruggie 1999).

The question is whether and how IIAs canaddress the issue of good corporate citizenship ofTNCs in a way that combines best the interests ofhost developing countries and TNCs. Severalapproaches and instruments, direct and indirect,can be considered:

• To enshrine good corporate citizenshipprinciples in non-binding instruments. TheOECD Guidelines for Multinational Enterprisesare an example of an inter-governmentalinstrument containing voluntaryrecommendations for TNCs. Similarly, the AsiaPacific Economic Cooperation (APEC) Non-Binding Principles contain specific provisionsfor investor behaviour. This “soft-law” approachoffers advantages to countries that recognize theneed for international standards in this area, but

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are not ready to negotiate binding rules. It alsooffers advantages to TNCs by allowing themflexibility in adapting to different conditionsand practices in developing countries, rather thanbeing locked into one standard to be appliedeverywhere. Voluntary standards can bemonitored through formal and informal means.

• To link voluntary instruments to legally bindingones. For example, countries adhering to theOECD Guidelines for Multinational Enterprisescould sign a binding commitment to promotethem among TNCs operating in or from theirterritories. The same approach was, at one point,proposed for the draft OECD MultilateralAgreement on Investment. The Joint Declarationin the Chile–EU Agreement reminds, inhortatory language, the TNCs of these countries“of their recommendation to observe the OECDGuidelines for Multinational Enterprises,wherever they operate”.

• To prescribe that treaty benefits are granted onlyto investments made in accordance with thenational laws and regulations of the hostcountry. Alternatively, a treaty can prescribe thatthe admission, establishment and operation offoreign investors is subject to the national lawsand regulations of the host country. The modelBIT used by the People’s Republic of China,for example, in article 1.1, states that“‘investment’ means every kind of asset investedby investors of one Contracting Party inaccordance with the laws and regulations of theother Contracting Party in the territory of theLatter…” (UNCTAD 1996b). In this approach—reflected in the majority of BITs—goodcorporate citizenship issues are not explicitlymentioned in an IIA. Nor are voluntary corporateactions—an integral part of good corporatecitizenship—affected. But to the extent that thelaws of the countries parties to an IIA reflectcertain good corporate citizenship standards,these become part of the obligations investorshave to observe if they want to benefit fromtreaty coverage (which may even becomerelevant in dispute settlement procedures). Asmentioned earlier, firms may even be expectedto exceed the requirements of local laws. Andthe inclusion of this type of provision in anIIA—however indeterminate and indirect—offers guarantees to foreign investors that such

standards would need to be applied in a mannerconsistent with the protection standards (suchas non-discrimination, fair and equitabletreatment) granted in the same agreement.

• To include a reference to the importance theparties attach to observing good corporatecitizenship objectives in the preamble of IIAs.Preambular language is not part of theoperational provisions of an agreement. Instead,it reflects the context, objectives and philosophybehind it. It can therefore influence theinterpretation of provisions in a mannerconsistent with development concerns.

• To create mandatory procedural obligations forgovernments to encourage firms to comply withsubstantive good corporate citizenship standardsand to provide a mechanism for follow-up. Thisis the case with the OECD Guidelines forMultinational Enterprises.

• To incorporate legally binding provisions intoIIAs to deal with good corporate citizenshipissues. Transfer-of-technology provisions invarious international agreements are examples(chapter IV.G).

Both binding and voluntary approaches havetheir advantages and shortcomings. Theeffectiveness of both approaches depends onappropriate monitoring mechanisms (which publicpressure may increasingly demand). In the future,it is likely that both will be pursued in parallel orin combination with each other, on the national andinternational levels. IIAs cannot be expected to setout comprehensive rules for business activities. Norcan they substitute for voluntary corporatecitizenship actions, NGO instruments or specificinternational agreements. But IIAs are theinstruments that focus on the investment process,and that process involves TNCs. So IIAs could inprinciple address all relevant actors.

How that is done, and how far negotiationscan go, is a function of the interests of the actorsand the negotiating process. But in a time whenthe societal implications of corporate actions arereceiving more attention and scrutiny, goodcorporate citizenship—especially when it combinesthe interests of host countries and firms—deservesa careful examination in future IIAs.

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Notes

1 The stock of outward FDI from developing countriesincreased rapidly since the 1990s and stood at $849billion in 2002. (It was, however, only about a thirdof the inward stock of about $2.3 trillion.) The 10largest developing economy sources—with HongKong (China), Singapore, Taiwan Province of Chinaand the Republic of Korea in the top four positions—accounted for 85% of the outward stock. Only 13 of116 developing economies for which data areavailable reported outward stocks of more than $10billion in 2002.

2 Market access regulations in home countries canaffect—negatively or posit ively—the scope forexport-oriented FDI in developing countries.Measures that inhibit domestic market access forexports from overseas facilities (such as anti-dumpingregulations, countervailing measures and technicalbarriers to trade), or conversely grant favouredtreatment to imports from selected countries, affectthe comparative profitabil i ty of FDI in variousdeveloping country locations.

“II. General Policies

Enterprises should take fully into accountestablished policies in countries in which theyoperate and consider the views of otherstakeholders. In this regard, enterprises should:

• Contribute to economic, social andenvironmental progress with a view toachieving sustainable development.

• Respect the human rights of those affectedby their activities consistent with the hostgovernment’s international obligations andcommitments.

• Encourage local capacity building throughclose co-operation with the local community,including business interests, as well asdeveloping the enterprise’s activities indomestic and foreign markets, consistentwith the need for sound commercial practice.

• Encourage human capital formation, inparticular by creating opportunities andfacili tating training opportunities foremployees.

• Refrain from seeking or acceptingexemptions not contemplated in the statutoryor regulatory framework related toenvironmental health, safety, labour,taxation, financial incentives or other issues.

• Support and uphold good corporategovernance principles and develop and applygood corporate governance practices.

• Develop and apply effective self-regulatorypractices and management systems thatfoster a relationship of confidence and

Box VI.4. The OECD Guidelines for Multinational Enterprises

mutual trust between enterprises and thesocieties in which they operate.

• Promote employee awareness of, andcompliance with, company policies,including through dissemination of thesepolicies, including through trainingprogrammes.

• Refrain from discriminatory or disciplinaryaction against employees who make bonafide reports to management or, asappropriate, to the competent authorities,on practices that contravene the law, theGuidelines, or the enterprise’s policies.

• Encourage, where practicable, businesspartners, including suppliers andsubcontractors, to apply principles ofcorporate conduct compatible with theGuidelines.

Abstain from any improper involvement inlocal political activities.”

Other chapters of the Guidelines deal withdisclosure, employment and industrial relations,environment, combating bribery, consumerinterests, science and technology and competitionand taxation. The science and technology chapterreads as follows:

“...endeavour to ensure that their activities arecompatible with the science and technology(S&T) policies and plans of the countriesin which they operate and as appropriatecontribute to the development of local andnational innovative capacity.”

Source : UNCTAD 2001c, p. 34 and p. 40; OECD 2002.

3 Issues related to foreign affiliates themselves willbe dealt with in the next section on good corporatecitizenship.

4 Such cases may be of particular relevance whereevidence exists of a systematic abuse of fundamentallabour rights or the abuse of child labour contraryto international law and international conventions.

5 For example, the United States Sarbanes-Oxley Act(2001) has been passed to deal with such practiceson an international level in the wake of the Enronscandal.

6 To date only one case, decided in the United Statesin 1984, has found the parent to be liable for thewrongs of i ts foreign affi l iates, both as a directwrongdoer and as a result of the parent subsidiaryrelationship between i tself and i ts operatingsubsidiaries: Amoco Cadiz (1984). In recent casesin the United Kingdom claimants have been grantedthe right to bring proceedings against a UnitedKingdom-based parent company where the hostcountry’s courts and legal system can be shown notto be capable of ensuring that substantive justice isdone to the claim (United Kingdom, House of Lords,2000).

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7 Assistance is provided, for example, by UNCTAD,the World Bank (MIGA and FIAS) and the WorldAssociation of Investment Promotion Agencies. The“Proinvest” programme of the EU is dedicated tomaking IPAs in the ACP countries more effective andefficient in attracting FDI and making FDI achievenational development objectives. One of its tasks isto link outward investment promotion agencies inEurope with IPAs in the ACP countries.

8 In Europe alone, there are at least 12 developmentfinance insti tutions (see, for example, http:/ /www.edfi.be).

9 The regional development banks include the AfricanDevelopment Bank, Asian Development Bank,Caribbean Development Bank and the Inter-AmericanDevelopment Bank.

10 MIGA was established in 1988 and works as acomplement to national and regional FDI guaranteeprogrammes as well as private insurers to issueguarantees, including co-insurance and re-insurance.Since 1990 MIGA has provided $11 bil l ion incoverage and has facilitated $45.8 billion in FDI todeveloping countries. Other relevant World Bankinsti tutions include the International FinanceCorporation and ICSID.

11 A compilation by UNCTAD found only fiveexceptions in 1999—hence UNCTAD’s project (withthe ICC) to produce such guides; see UNCTAD-ICC2000a– Ethiopia, 2001a – Mali, 2000b – Bangladesh,2001c – Uganda, 2001b – Mozambique, 2003–Nepal,and forthcoming – Cambodia.

12 For example, the Norwegian Norfund has committed265 million kroners to 17 projects across 15 countries,many of which are in Africa, Asia and Latin America(Torp and Rekve, 2003). The Overseas Privateinvestment Corporation has reportedly helped hostdeveloping countries develop more than 600,000 jobsover its 30-year history and as of September 2001was managing a portfolio of 133 active financeprojects and 254 active insurance contracts. AndMIGA has issued more than 500 guarantees forprojects in 78 developing countries since 1988.According to the MIGA website, total coverage issuedexceeded $9 bil l ion in June 2001, bringing theestimated amount of FDI facilitated since inceptionto more than $41 billion. The agency mobilized anadditional $153 million in investment coverage infiscal 2001 through its Cooperative UnderwritingProgram, encouraging private sector insurers intotransactions they would not have otherwiseundertaken, and helping the agency serve moreclients.

13 The corresponding financing institutions in Denmarkhave 12% and of their investments in LDCs and thosein Sweden 7% (Torp and Rekve 2003).

14 For examples of such general policy exhortations,see UNCTAD 2001a, pp. 13–18.

15 For a compilation of provisions in internationalarrangements for the transfer for technology, seeUNCTAD, 2001h.

16 See further the MIGA website at www.miga.org.17 Although a number of developing countries too have

emerged as home countries, the principal purpose ofHCMs in the context of IIAs is to enhance investmentflows from developed to developing countries.

18 See “Investors’ and home governments’ obligations”,Communication from China, Cuba, India, Kenya,Pakistan and Zimbabwe (WTO doc. WT/WFTI/W/152).

19 See for example Chapter 1, Article 8 of the Agreementbetween Japan and Singapore for a New AgePartnership (box III.2).

20 This raises an issue that deserves consideration,namely that private entities (primarily from developedcountries) are implicit ly called upon to take onfunctions (such as upholding certain norms) that arenormally reserved for governments.

21 For a fuller discussion on the nature, scope andcontent of the corporate social responsibilities ofTNCs, see WIR99, chapter XII, and UNCTAD 2001b.

22 The Monterrey Consensus (paragraph 23), adoptedin 2002 by the Financing for DevelopmentConference, uses “good corporate citizenship”. Thisis not to say that issues relating, for example, to theenvironment and social matters (such as industrialrelations) are not also an integral part of development.Here, the focus is on economic issues themselves.In any event, it should be noted that that the conceptdoes not cover corporate philantrophy as this has ina strict sense l i t t le to do with a company’s corebusiness.

23 Good corporate citizenship should be distinguishedfrom “corporate governance”, which is limited toissues of how a corporation should be structured ororganized to achieve effective control over i tsactivities in the interests of shareholders and otherdirect stakeholders such as employees and creditors.But corporate governance is beginning to interact with“corporate social responsibility” to the extent thatthe interests of indirect stakeholders—that is, groupsaffected by the activities of a company, but withoutdirect economic ties to it—may seek a formal rolein the organizational structure of a company.

24 In these areas the elaboration of good corporatecitizenship standards has received increased attentionin recent years, both in general instruments (such asthe OECD Guidelines) as well as specialized onesdeveloped by international and regional organizations(such as the United Nations and i ts specializedagencies, the OECD, international federations ofbusiness, trade unions, professional associations andindividual companies). Examples of increasinglydetailed and sector-specific standards are numerous(UNCTAD 2001b, g; Karl 1998). The development ofcorporate standards in these areas is facilitated bybroadly accepted international conventions andsupported by civil society groups. A current effortin this area is being undertaken by the Working Groupon the Working Methods and Activit ies ofTransnational Corporations of the Sub-Commissionon the Promotion and Protection of Human Rights,see i ts draft “Norms on the Responsibil i t ies ofTransnational Corporations and Other BusinessEnterprises with Regard to Human Rights” (E/CN.4/Sub.2/2002/13, annex).Several new issues are emerging in the internationalgood corporate citizenship sphere. One is corporategovernance for which standards are being clarifiedand strengthened in, for example, the OECDPrinciples of Corporate Governance (1999). ThePrinciples aim at reinforcing the rights of minorityshareholders, while giving increasing recognition tothe rights of other stakeholders and stressing dutiesof proper reporting and consultation.

25 The way parts of the good corporate cit izenshipagenda is set may consti tute a problem forpolicymakers in developing countries. While somestandards (such as ILO labour standards) are globally

World Investment Report 2003 FDI Policies for Development: National and International Perspectives170

set, there is also a tendency towards the establishmentof standards involving only companies or industryassociations on the one hand, and NGOs on the other.Governments are sometimes bypassed when thesestandards are set . At the same time, however,standards negotiated without government participationmight have concrete effects on where companies arelocating their investments, with which suppliers theychoose to do business and other decisions with aconcrete bearing on a country’s trade and investmentperformance and, ult imately, their economicdevelopment. An example of this is the United StatesFair Labor Association (FLA). This body was formedby 11 leading apparel companies (including Nike,Patagonia and Liz Clairborne) as well as NGOs suchas the Lawyers Committee for Human Rights and theNational Consumers League. FLA members havedeveloped a code that prohibits forced as well as childlabour and supports freedom of association, minimumwages, limits on working hours and a plethora ofsimilar rights (Garten 2002). While such codes andstandards are often meant to raise and harmonizeproduction standards in the industry worldwide, theycan have side effects, too. The negotiated standardsmight help to divert trade and investment flows fromcountries that do not yet meet these standards without,however, their being involved in setting them. Whilesome countries may benefit from such business-NGOpartnership initiatives in terms of additional FDI,other countries might loose out. Thus, the emergenceof these non-governmental standard setting initiativesposes a challenge to policymakers particularly indeveloping countries.

26 A number of companies, in their own materials,however, make reference to such matters as taxreturns, local development and local businesspartners.

27 This is actually one of the most common commitmentsthat TNCs make publicly; see OECD 2001b. Thesituation is, however, more difficult when nationallaws do not reflect the spiri t of internationallyaccepted standards, such as in the case of theapartheid regime in South Africa. Good corporatecitizenship would, in these cases, require differentbehaviour than just “playing by the rules”.

28 The OECD and ISAR, for example, have guidelinesconcerning transfer pricing (OECD 2001b; UNCTAD/ISAR 1998). It should be noted that tax competitionbetween countries invites TNCs to shift tax burdensacross borders.

29 “Enterprises should:… In considering changes in theiroperations which would have major effects upon thelivelihood of their employees, in particular in the caseof the closure of an entity involving collective lay-offs or dismissals, provide reasonable notice of suchchanges to representatives of their employees, and,where appropriate, to the relevant governmentalauthorit ies, and co-operate with the employeerepresentatives and appropriate governmentalauthorities so as to mitigate to the maximum extentpracticable adverse effects.” (UNCTAD 2001c,Section IV (6)).

30 Such advisory councils exist in Malaysia, Singaporeand South Africa, as well as for ASEAN. UNCTADand the International Chamber of Commerceestablished an Investment Advisory Council for LDCs.

31 Other instruments were negotiated during the 1970sand early 1980s but not completed. These includethe draft United Nations Code of Conduct onTransnational Corporations and the draft Code ofConduct on the Transfer of Technology. They tendedto reflect the concerns of developing countries at thattime.

32 For a comprehensive review of voluntary codes ofconduct, their current status and prospects of futureexpansion and effectiveness, see Sethi 2003.

PART TWO CONCLUSIONS

THE CHALLENGE OF THEDEVELOPMENT DIMENSION

Most host countries conclude internationalinvestment agreements (agreements that address,at least in part, investment issues) mainly to helpattract FDI to further their development. Most homecountries conclude them mainly to make theregulatory framework for FDI in host countriesmore transparent, stable, predictable and secure—and to reduce obstacles to future FDI flows.Because the regulatory framework for FDI—atwhatever level—is at best enabling whether FDIactually flows depends mainly on the economicdeterminants in host countries.

The number of IIAs has greatly increased inthe past decade, particularly at the bilateral andregional levels, and more are under negotiation.They reflect and complement national policieswhich have become more welcoming to FDI. Theyalso set parameters for national policies, puttinginvestment at the interface of national andinternational policies in the globalizing worldeconomy.

Issues relating to IIAs are coming to the forein international economic diplomacy regardless ofwhat will or will not happen at the multilaterallevel, simply because of what is happening nowat both the bilateral and regional levels. But ifnegotiations should take place at the multilaterallevel, these issues will acquire even greaterimportance. Whether governments negotiate IIAs—and, if so, at what level and for what purpose—is their sovereign decision. This WIR has soughtto throw light on issues that need to be consideredwhen negotiating IIAs, seeking to clarify them froma development perspective.

What are the issues?

The most important challenge for developingcountries in future IIAs is to strike a balancebetween the potential for IIAs to increase FDIflows and the abili ty of countries to pursuedevelopment-oriented FDI policies—as anexpression of their right to regulate in the publicinterest. This requires maintaining sufficient policyspace to give governments the flexibility to usesuch policies within the framework of the

obligations established by the IIAs they are partiesto. The tension is obvious. Too much policy spacereduces the value of international obligations. Toostringent obligations overly constrain the nationalpolicy space. Finding a development-orientedbalance is the challenge.

When negotiating IIAs, this challenge isaddressed in respect to the objectives of IIAs, theirstructure, content and implementation. Theircontent is central as the quest for a developmentfriendly balance plays itself out in the resolutionof issues that are particularly important for theability of countries to pursue development-orientednational FDI policies and that are particularlysensitive in international investment negotiations,because countries have diverging views about themin light of their own predominating objectives.

From a development perspective, these issuesare: the definition of “investment”, because itdetermines the scope and reach of the substantiveprovisions of an agreement; the scope of nationaltreatment (especially as it relates to the right ofestablishment), because it determines how muchand in which ways preference can be given todomestic enterprises; the circumstances underwhich government policies should be regarded asregulatory takings, because this involves testingthe boundary line between the legitimate right toregulate and the rights of private property owners;the scope of dispute settlement, because this raisesthe question of the involvement of non-State actorsand the extent to which the settlement of investmentdisputes is self-contained and the use ofperformance requirements, incentives, transfer-of-technology policies and competition policy, becausethey can advance development objectives. (Otherimportant matters also arise in negotiations of IIAs,especially MFN, fair and equitable treatment andtransparency. But these appear to be lesscontroversial in investment negotiations.)

For each of these issues, more developmentfriendly and less development friendly solutionsexist. From the perspective of many developingcountries, the preferable approach is therefore a

World Investment Report 2003 FDI Policies for Development: National and International Perspectives172

broad GATS-type positive list approach that allowseach country to determine for itself for which ofthese issues to commit itself to in IIAs, under whatconditions, and at what pace, commensurate withits individual needs and circumstances.

In pursuit of an overall balance, furthermore,future IIAs need to pay more attention tocommitments by home countries. In fact, alldeveloped countries (the main home countries), outof their own self-interest, already have variousmeasures to encourage FDI flows to developingcountries in place. And a number of bilateral andregional agreements contain commitments.Developing countries would benefit from makinghome country measures more transparent, stableand predictable in future IIAs.

TNCs too can contribute more to advancingthe development impact of their investment indeveloping countries, as part of good corporatecitizenship responsibili t ies, whether throughvoluntary action or more legally-based processes.Areas particularly important from a developmentperspective are contributing fully to publicrevenues of host countries; creating and upgradinglinkages with local enterprises; creatingemployment opportunities; raising local skill levels;and transferring technology.

These issues are all complex. Because thepotential implications of some provisions in IIAsare not fully known, it is not easy for individualcountries to make the right choices. Thecomplexities and sensitivities are illustrated by theexperience of NAFTA for the regional level; that

of the MAI negotiations for the interregional leveland that of the GATS and the TRIMs Agreementfor the multilateral level. Given the evolving natureof IIAs, other complexities tend to arise in applyingand interpreting agreements. Indeed, disputes mayarise from these processes, and their outcome isoften hard to predict.

That is why governments need to ensure thatsuch difficulties are kept to a minimum. How? Byincluding appropriate safeguards at the outset toclarify the range of special and differential rightsand qualifications of obligations that developingcountry parties might enjoy. Moreover, theadministrative burden arising from newcommitments at the international level is likely toweigh disproportionately on developing countries,especially the least developed, because they oftenlack the human and financial resources needed toimplement agreements. This underlines theimportance of capacity-building technicalcooperation to help developing countries assessbetter various policy options before entering newagreements and in implementing the commitmentsmade.

The overriding challenge for countries is tofind a development-oriented balance whennegotiating the objectives, content, structure andimplementation of future IIAs at whatever leveland in whatever context. The developmentdimension has to be an integral part of internationalinvestment agreements—in support of nationalpolicies to attract more FDI and to benefit morefrom it.

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World Investment Report 2003 FDI Policies for Development: National and International Perspectives184

ANNEXES

World Investment Report 2003 FDI Policies for Development: National and International Perspectives186

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9 9

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p.U

nite

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as a

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28.2

So

urc

e:

UN

CTA

D/E

rasm

us

Un

ive

rsity

da

tab

ase

.a

All

data

are

bas

ed o

n th

e co

mpa

nies

' ann

ual r

epor

ts u

nles

s ot

herw

ise

stat

ed.

bT

NI i

s th

e ab

brev

iatio

n fo

r "t

rans

natio

nalit

y in

dex"

. The

tran

snat

ionl

ity in

dex

is c

alcu

late

d as

the

aver

age

of th

e fo

llow

ing

thre

e ra

tios:

fore

ign

asse

ts to

tota

l ass

ets,

fore

ign

sale

s to

tota

l sal

es a

nd fo

reig

n em

ploy

men

t to

tota

l em

ploy

men

t.c

Indu

stry

cla

ssifi

catio

n fo

r co

mpa

nies

fol

low

s th

e U

nite

d S

tate

s S

tand

ard

Indu

stri

al C

lass

ifica

tion

as u

sed

by t

he U

nite

d S

tate

s S

ecur

ities

and

Exc

hang

e C

omm

issi

on (

SE

C).

dIn

a n

umbe

r of

cas

es c

ompa

nies

rep

orte

d on

ly p

artia

l for

eign

ass

ets.

In

thes

e ca

ses

the

ratio

of

the

part

ial f

orei

gn a

sset

s to

the

par

tial (

tota

l) a

sset

s w

as a

pplie

d to

tot

al a

sset

s to

cal

cula

te t

he t

otal

for

eign

ass

ets.

In

all c

ases

the

resu

lting

fig

ures

hav

e be

en s

ent

for

conf

irm

atio

n to

the

com

pani

es.

eF

orei

gn s

ales

are

bas

ed o

n th

e or

igin

of

the

sale

s un

less

oth

erw

ise

stat

ed.

fD

ata

wer

e de

rive

d fr

om t

he c

ompa

ny a

s a

resp

onse

to

an U

NC

TAD

sur

vey.

gF

orei

gn e

mpl

oym

ent

data

cal

cula

ted

by a

pply

ing

the

ratio

of

fore

ign

asse

ts a

nd t

otal

ase

ts t

o to

tal e

mpl

oym

ent.

hD

ata

for

outs

ide

Eur

ope.

iF

orei

gn s

ales

are

bas

ed o

n cu

stom

er lo

catio

n.j

In 2

001

the

com

pany

cha

nged

yea

r-en

d fr

om J

une

to D

ecem

ber.

Sal

es c

alcu

late

d by

sum

min

g th

e ha

lf ye

ar r

esul

t fo

r 20

01 a

nd 5

0% o

f 20

00/0

1 sa

les.

kD

ata

for

outs

ide

Nor

th A

mer

ica.

No

te:

Th

e li

st in

clu

de

s n

on

-fin

an

cia

l TN

Cs

on

ly.

In s

om

e c

om

pan

ies,

fo

reig

n in

vest

ors

ma

y h

old

a m

ino

rity

sh

are

of

mo

re t

ha

n 1

0 p

er

cen

t.

ANNEX A 189

An

ne

x t

ab

le A

.I.2

. T

he

to

p 5

0 n

on

-fin

an

cia

l T

NC

s f

rom

de

ve

lop

ing

ec

on

om

ies

, ra

nk

ed

by

fo

reig

n a

ss

ets

, 2

00

1a

(Mill

ion

s o

f d

olla

rs a

nd

nu

mb

er

of

em

plo

yee

s)

Ran

kin

g b

y

Ass

ets

Sal

es

Em

plo

ymen

t

Fo

reig

nT

NI

b

ass

ets

T

NIb

Co

rpo

ratio

nH

om

e e

con

om

yIn

du

stry

cF

ore

ignc

Tota

lF

ore

ign

eTo

tal

Fo

reig

nTo

tal

(Pe

r ce

nt)

11

2H

utc

his

on

Wh

am

po

a L

td.

Ho

ng

Ko

ng

, C

hin

aD

ive

rsif

ied

40

98

9f

55

28

16

09

211

41

55

3 4

78

77

25

36

5.6

211

Sin

gte

l L

td.

Sin

ga

po

reTe

leco

mm

un

ica

tio

ns

15

59

41

9 1

08

1 3

62

4 0

54

17

57

4g

21

53

56

5.6

39

Ce

me

x S

.A.

Me

xico

No

n-m

eta

lic m

ine

ral p

rod

uct

s1

2 6

45

16

28

24

39

06

73

01

7 4

49

25

51

97

0.4

42

2L

G E

lect

ron

ics

Inc.

fK

ore

a,

Re

pu

blic

of

Ele

ctri

cal

& e

lect

ron

ic e

qu

ipm

en

t11

56

12

0 3

04

10

00

92

2 5

28

21

01

74

2 5

12

50

.35

41

Pe

tró

leo

s D

e V

en

ezu

ela

Ve

ne

zue

laP

etr

ole

um

exp

l./r

ef.

/dis

tr.

7 9

64

h5

7 5

42

19

80

1d

46

25

05

48

04

6 4

25

22

.86

42

Pe

tro

na

s -

Pe

tro

liam

Na

sio

na

l B

erh

ad

Ma

lays

iaP

etr

ole

um

exp

l./r

ef.

/dis

tr.

7 8

77

37

93

35

35

91

7 6

81

4 0

06

25

72

42

2.2

74

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ew

Wo

rld

De

velo

pm

en

t C

o.,

Ltd

.H

on

g K

on

g,

Ch

ina

Div

ers

ifie

d4

71

51

6 2

53

56

52

93

38

00

26

10

01

7.1

84

Ne

ptu

ne

Ori

en

t L

ine

s L

td.

Sin

ga

po

reT

ran

spo

rt a

nd

sto

rag

e4

67

4f,

h4

95

12

97

04

73

71

0 4

12

f11

77

7f

81

.89

16

Cit

ic P

aci

fic

Ltd

.H

on

g K

on

g,

Ch

ina

Div

ers

ifie

d4

18

4h

7 7

98

1 1

09

d2

21

27

35

411

73

35

5.5

10

14

Jard

ine

Ma

the

son

Ho

ldin

gs

Ltd

.H

on

g K

on

g,

Ch

ina

Div

ers

ifie

d4

08

0h

7 1

66

6 2

97

d9

41

36

2 6

29

g11

0 0

00

60

.311

28

Sa

msu

ng

Ele

ctro

nic

s C

o.,

Ltd

.K

ore

a,

Re

pu

blic

of

Ele

ctri

cal

& e

lect

ron

ic e

qu

ipm

en

t3

84

0h

41

69

22

5 1

12

d3

7 1

55

23

95

3f

73

68

23

6.4

12

2G

ua

ng

do

ng

In

vest

me

nt

Ltd

.H

on

g K

on

g,

Ch

ina

Div

ers

ifie

d3

69

44

04

28

54

93

26

86

97

64

19

1.0

13

5S

ha

ng

ri-L

a A

sia

Ltd

.H

on

g K

on

g,

Ch

ina

Ho

tels

an

d m

ote

ls3

60

64

56

54

58

56

01

3 0

33

g1

6 5

00

79

.91

41

0S

ap

pi

Ltd

.S

ou

th A

fric

aP

ap

er

3 4

63

h4

50

43

22

34

18

41

0 4

29

18

23

17

0.4

15

46

Hyu

nd

ai M

oto

r C

om

pa

ny

Ko

rea

, R

ep

ub

lic o

fM

oto

r ve

hic

les

3 2

10

33

21

66

94

33

3 1

99

55

16

91

95

81

2.2

16

8F

lext

ron

ics

Inte

rna

tio

na

l Ltd

.S

ing

ap

ore

Ele

ctri

cal

& e

lect

ron

ic e

qu

ipm

en

t2

98

3h

4 1

15

5 3

63

d6

69

15

07

34

g7

0 0

00

75

.01

71

3C

ity

De

velo

pm

en

ts L

td.

iS

ing

ap

ore

Ho

tels

2 8

70

6 4

54

85

71

30

211

45

7g

14

33

76

3.4

18

44

Sa

msu

ng

Co

rpo

rati

on

fK

ore

a,

Re

pu

blic

of

Ele

ctri

cal

& e

lect

ron

ic e

qu

ipm

en

t2

80

09

40

05

80

03

2 3

00

..4

16

41

7.4

19

26

Ch

ina

Na

tio

na

l C

he

mic

als

, Im

p.

& E

xp.

Co

rp.h

Ch

ina

Div

ers

ifie

d2

78

84

92

89

14

51

6 1

65

35

07

95

03

9.2

20

18

So

uth

Afr

ica

n B

rew

eri

es

Plc

So

uth

Afr

ica

Fo

od

& b

eve

rag

es

2 7

85

f4

39

9f

2 4

33

4 3

64

15

45

0f

33

23

05

5.2

21

34

Am

éri

ca M

óvi

lM

exi

coTe

leco

mm

un

ica

tio

ns

2 3

23

10

13

79

19

4 3

85

7 1

42

14

78

63

0.7

22

31

Pe

rez

Co

mp

an

cA

rge

nti

na

Pe

tro

leu

m e

xpl.

/re

f./d

istr

.2

15

46

24

44

71

1 6

55

1 1

82

3 4

27

32

.52

33

Gu

an

gzh

ou

In

vest

me

nt

Co

mp

an

y L

td.

Ho

ng

Ko

ng

, C

hin

aD

ive

rsif

ied

2 1

29

2 5

59

36

24

33

12

92

0g

13

12

08

8.4

24

49

Taiw

an

Se

mic

on

du

cto

r M

an

ufa

ctu

rin

g C

o.,

Ltd

.Ta

iwa

n P

rovi

nce

of

Ch

ina

Ele

ctri

cal

& e

lect

ron

ic e

qu

ipm

en

t2

03

3h

10

44

6..

3 7

51

...

g1

3 6

69

7.0

25

1F

irst

Pa

cifi

c C

om

pa

ny

Ltd

.H

on

g K

on

g,

Ch

ina

Ele

ctri

cal

& e

lect

ron

ic e

qu

ipm

en

t2

00

7h

2 0

46

1 8

52

1 8

52

47

99

84

8 0

46

99

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65

0P

etr

ole

o B

rasi

leir

o S

.A.

- P

etr

ob

ras

Bra

zil

Pe

tro

leu

m e

xpl.

/re

f./d

istr

.1

71

53

6 8

64

0 8

48

24

54

91

79

0g

38

48

34

.32

72

0A

cer

Inc.

Taiw

an

Pro

vin

ce o

f C

hin

aE

lect

rica

l &

ele

ctro

nic

eq

uip

me

nt

1 6

86

3 3

44

2 1

98

3 7

54

2 2

59

4 4

80

53

.12

84

7P

osc

oK

ore

a,

Re

pu

blic

of

Me

tal

an

d m

eta

l p

rod

uct

s1

58

91

8 1

64

1 3

78

10

49

71

94

9f

28

61

9f

9.6

29

33

Sa

n M

igu

el C

orp

ora

tio

nP

hili

pp

ine

sF

oo

d &

be

vera

ge

s1

,58

4 3

20

3

74

3 2

38

4 3

46

0 2

6 6

97

31

.23

04

8C

LP

Ho

ldin

gs

Ho

ng

Ko

ng

, C

hin

aE

lect

rici

ty,

ga

s a

nd

wa

ter

1 5

59

6 7

98

93

3 2

05

36

4 0

85

8.9

31

17

Pa

na

mco

kM

exi

coF

oo

d &

be

vera

ge

s1

54

92

69

31

36

22

65

11

49

55

26

00

05

5.5

32

32

Me

talu

rgic

a G

erd

au

S.A

.B

razi

lM

eta

l a

nd

me

tal

pro

du

cts

1 4

88

h4

37

99

88

d2

49

53

77

41

6 0

00

32

.43

33

9U

nit

ed

Mic

roe

lect

ron

ics

Co

rpo

rati

on

Taiw

an

Pro

vin

ce o

f C

hin

aE

lect

rica

l &

ele

ctro

nic

eq

uip

me

nt

1 4

62

9 1

40

96

62

08

11

00

78

54

32

4.7

34

40

Ke

pp

el C

orp

ora

tio

n L

td.

Sin

ga

po

reD

ive

rsif

ied

1,4

22

6 3

32

66

13

28

34

50

71

6 2

23

23

.53

51

9B

arl

ow

orl

d L

td.

So

uth

Afr

ica

Div

ers

ifie

d1

40

92

40

32

02

73

52

11

0 2

22

23

23

35

3.4

36

21

Fra

ser

& N

ea

ve L

td.

Sin

ga

po

reF

oo

d &

be

vera

ge

s1

22

94

28

29

49

1 6

60

7 9

20

f11

45

55

1.7

37

25

Sim

e D

arb

y B

erh

ad

Ma

lays

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ive

rsif

ied

1 2

25

h3

29

01

911

d3

17

46

82

7f

26

38

44

1.1

38

6O

rie

nt

Ove

rse

as

Inte

rna

tio

na

l L

td.

lH

on

g K

on

g,

Ch

ina

Tra

nsp

ort

an

d s

tora

ge

1 1

70

h2

13

62

29

02

37

94

01

74

68

67

8.9

39

15

Gru

ma

S.A

. D

e C

.V.

Me

xico

Fo

od

& b

eve

rag

es

1 1

18

1 8

28

1 2

05

1 8

89

8 6

64

15

58

56

0.2

40

27

Na

spe

rs L

td.

So

uth

Afr

ica

Me

dia

97

91

47

03

32

1 0

59

1 5

23

g1

0 7

06

37

.4

/...

World Investment Report 2003 FDI Policies for Development: National and International Perspectives190

An

ne

x t

ab

le A

.I.2

. T

he

to

p 5

0 n

on

-fin

an

cia

l T

NC

s f

rom

de

ve

lop

ing

ec

on

om

ies

, ra

nk

ed

by

fo

reig

n a

ss

ets

, 2

00

1a

(Mill

ion

s o

f d

olla

rs a

nd

nu

mb

er

of

em

plo

yee

s)

Ran

kin

g b

y

A

sset

s

Sal

es

Em

plo

ymen

t

Fo

reig

nT

NIb

ass

ets

T

NIb

Co

rpo

ratio

nH

om

e e

con

om

yIn

du

stry

cF

ore

ignc

Tota

lF

ore

ign

eTo

tal

Fo

reig

nTo

tal

(Pe

r ce

nt)

41

43

Co

pe

c -

Co

mp

an

ia D

e P

etr

ole

os

De

Ch

ileC

hile

Pe

tro

leu

m e

xpl.

/re

f./d

istr

. 9

69

6 4

32

1 1

18

3 5

77

75

4 8

36

71

8.4

42

7S

avi

a S

A D

e C

VM

exi

coD

ive

rsif

ied

96

11

58

5

63

5

68

3 5

98

3 8

08

57

5.9

43

30

Am

ste

el C

orp

ora

tio

n B

erh

ad

Ma

lays

iaD

ive

rsif

ied

95

93

17

1

58

5 1

48

0 8

08

4g

26

74

53

3.3

44

38

Joh

nn

ic H

old

ing

s L

td.

So

uth

Afr

ica

Tele

com

mu

nic

ati

on

s

83

9 2

60

6

33

6 1

68

7 2

13

8 9

40

82

4.9

45

35

Gru

po

Im

saM

exi

coM

eta

l a

nd

me

tal

pro

du

cts

8

28

3 0

41

8

24

2 2

33

4 4

57

g 1

6 3

73

30

.44

62

4G

rea

t E

ag

le H

old

ing

s L

td.

Ho

ng

Ko

ng

, C

hin

aB

usi

ne

ss s

erv

ice

s

78

1 3

72

1

17

7

34

3 1

61

3 2

65

64

4.4

47

23

De

lta

Ele

ctro

nic

s In

c.Ta

iwa

n P

rovi

nce

of

Ch

ina

Ele

ctri

cal

& e

lect

ron

ic e

qu

ipm

en

t

77

4 1

51

0

48

7 1

27

3 5

88

3 1

1 4

80

46

.94

82

9G

en

tin

g B

erh

ad

Ma

lays

iaH

ote

ls7

40

h2

69

03

06

82

95

611

g1

5 2

00

33

.84

93

6G

rup

o B

imb

o S

A D

e C

vM

exi

coF

oo

d &

be

vera

ge

s7

38

2 4

43

88

33

58

82

1 4

48

g7

1 0

00

28

.35

03

7A

dva

nce

d S

em

ico

nd

uct

or

En

gin

ee

rin

g I

nc.

Taiw

an

Pro

vin

ce o

f C

hin

aE

lect

rica

l &

ele

ctro

nic

eq

uip

me

nt

73

23

03

82

71

10

96

4 8

70

15

68

12

6.6

So

urc

e:

UN

CTA

D/E

rasm

us

Un

ive

rsity

da

tab

ase

.

aA

ll d

ata

is b

ase

d o

n t

he

co

mp

an

ies'

an

nu

al r

ep

ort

s u

nle

ss o

the

rwis

e s

tate

d.

bT

NI

is t

he

ab

bre

via

tion

fo

r "t

ran

sna

tion

alit

y in

de

x".

Th

e t

ran

sna

tion

lity

ind

ex

is c

alc

ula

ted

as

the

ave

rag

e o

f th

e f

ollo

win

g t

hre

e r

atio

s: f

ore

ign

ass

ets

to

to

tal

ass

ets

, fo

reig

n s

ale

s to

to

tal

sale

s a

nd

fo

reig

ne

mp

loym

en

t to

to

tal e

mp

loym

en

t.c

Ind

ust

ry c

lass

ifica

tion

fo

r co

mp

an

ies

follo

ws

the

Un

ited

Sta

tes

Sta

nd

ard

In

du

stri

al C

lass

ifica

tion

as

use

d b

y th

e U

nite

d S

tate

s S

ecu

ritie

s a

nd

Exc

ha

ng

e C

om

mis

sio

n (

SE

C).

dIn

a n

um

be

r o

f ca

ses

com

pa

nie

s re

po

rte

d o

nly

pa

rtia

l fo

reig

n a

sse

ts.

In t

he

se c

ase

s th

e r

atio

of

the

pa

rtia

l fo

reig

n a

sse

ts t

o t

he

pa

rtia

l (to

tal)

ass

ets

wa

s a

pp

lied

to

to

tal a

sse

ts t

o c

alc

ula

te t

he

to

tal f

ore

ign

ass

ets

. In

all

case

s, t

he

re

sulti

ng

fig

ure

s h

ave

be

en

se

nt

for

con

firm

atio

n t

o t

he

co

mpa

nie

s.e

Fo

reig

n s

ale

s a

re b

ase

d o

n t

he

ori

gin

of

the

sa

les.

In

a n

um

be

r o

f ca

ses

com

pa

nie

s re

po

rte

d o

nly

sa

les

by

de

stin

atio

n.

fD

ata

wa

s d

eri

ved

fro

m t

he

co

mpa

ny

as

a r

esp

on

se t

o a

n U

NC

TAD

su

rve

y.g

Fo

reig

n e

mp

loym

en

t d

ata

ca

lcu

late

d b

y a

pp

lyin

g t

he

ra

tio o

f fo

reig

n a

sse

ts a

nd

to

tal a

sets

to

to

tal e

mp

loym

en

t.h

Fo

reig

n a

sse

ts a

re c

alc

ula

ted

by

ap

ply

ing

th

e r

atio

of

part

ial f

ore

ign

ass

ets

an

d t

ota

l ass

ets

to

th

e b

ala

nce

to

tal a

sse

ts.

iD

ata

fo

r o

uts

ide

Ea

st a

nd

So

uth

Ea

st A

sia

.k

Da

ta f

or

ou

tsid

e M

exi

co,

Co

sta

Ric

a,

Nic

ara

gu

a a

nd

Gu

ate

ma

la.

lD

ata

fo

r o

uts

ide

Asi

a.

ANNEX A 191

An

ne

x t

ab

le A

.I.3

. T

he

to

p 2

5 n

on

-fin

an

cia

l T

NC

s f

rom

Ce

ntr

al

an

d E

as

tern

Eu

rop

e,a

ra

nk

ed

by

fo

reig

n a

ss

ets

, 2

00

1(M

illio

ns

of

do

llars

an

d n

um

be

r o

f e

mp

loye

es)

Ran

kin

g b

y

Fo

reig

n

A

sset

s

Sal

es

Em

plo

ymen

t

TN

I b

ass

ets

TN

I b

C

orp

ora

tion

Ho

me

co

un

try

In

du

stry

Fo

reig

nTo

tal

Fo

reig

n

To

tal

F

ore

ign

Tota

l(P

er

cen

t)

11

0L

uko

il O

il C

o.

Ru

ssia

n F

ed

era

tion

Pe

tro

leu

m a

nd

na

tura

l ga

s5

83

0.0

15

85

9.0

8 7

71

.0d

14

89

2.0

13

00

01

40

00

03

5.0

24

No

vosh

ip C

o.

Ru

ssia

n F

ed

era

tion

Tra

nsp

ort

99

8.9

1 1

33

.6 3

02

.3 3

92

.1 8

56

97

65

5.5

31

La

tvia

n S

hip

pin

g C

o.

La

tvia

Tra

nsp

ort

..e

49

1.2

..e

17

2.9

1 3

13

1 7

62

77

.74

5P

liva

Gro

up

Cro

atia

Ph

arm

ace

utic

als

28

1.1

96

7.6

47

7.3

63

2.2

2 9

00

7 2

08

48

.35

25

Hrv

ats

ka E

lekt

rop

rivr

ed

a d

.d.

Cro

atia

En

erg

y 2

72

.02

35

7.0

8.0

77

5.0

-1

5 0

71

4.2

62

Pri

mo

rsk

Sh

ipp

ing

Co

.R

uss

ian

Fe

de

ratio

nT

ran

spo

rt 2

67

.3 4

37

.9 1

14

.9 1

45

.71

30

52

62

96

3.2

77

Go

ren

je G

rou

pS

love

nia

Do

me

stic

ap

plia

nce

s 2

31

.5 4

86

.1 4

75

.4 6

61

.3 6

70

8 1

86

42

.68

6K

rka

d.d

.S

love

nia

Ph

arm

ace

utic

als

19

0.8

47

6.6

23

5.4

29

6.0

59

53

52

04

5.5

91

5F

ar

Ea

ste

rn S

hip

pin

g C

o.

Ru

ssia

n F

ed

era

tion

Tra

nsp

ort

12

3.0

37

7.0

10

1.0

31

8.0

23

35

60

82

2.8

10

21

Me

rca

tor

d.d

.S

love

nia

Re

tail

tra

de

11

2.7

86

8.5

53

.01

17

1.5

1 2

79

13

69

28

.911

20

MO

L H

un

ga

ria

n O

il a

nd

Ga

s P

lc.

Hu

ng

ary

Pe

tro

leu

m a

nd

na

tura

l ga

s 9

5.9

3 2

43

.2 8

19

.23

85

0.0

77

61

5 2

18

9.8

12

14

Po

dra

vka

Gro

up

Cro

atia

Fo

od

an

d b

eve

rag

es/

ph

arm

ace

utic

als

69

.3 3

57

.2 1

34

.3 3

03

.5 7

90

6 8

85

25

.01

32

2P

etr

ol G

rou

pS

love

nia

Pe

tro

leu

m a

nd

na

tura

l ga

s 6

6.9

47

8.4

80

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12

2.8

24

1 5

72

7.5

14

3Z

ala

kerá

mia

Rt.

Hu

ng

ary

Cla

y p

rod

uct

an

d r

efr

act

ory

65

.0 1

20

.0 3

9.0

64

.01

88

92

92

15

9.9

15

19

Ric

hte

r G

ed

eo

n L

td.

Hu

ng

ary

Ph

arm

ace

utic

als

55

.9 4

96

.5 4

3.5

30

9.6

88

45

00

71

4.3

16

11M

alé

v H

un

ga

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n A

irlin

es

Ltd

. c

Hu

ng

ary

Tra

nsp

ort

41

.4 1

87

.0 2

99

.0 3

83

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92

95

23

3.9

17

17

Inte

reu

ropa

d.d

.S

love

nia

Tra

de

34

.0 2

00

.0 2

5.0

16

3.0

66

22

23

02

0.7

18

12

Le

k d

.d.

Slo

ven

iaP

ha

rma

ceu

tica

ls 2

8.1

33

2.4

21

9.7

28

1.2

25

22

66

33

2.0

19

24

Pe

tro

m S

A N

atio

na

l Oil

Co

.cR

om

an

iaP

etr

ole

um

an

d n

atu

ral g

as

28

.03

15

1.0

30

3.0

2 4

23

.0 1

49

77

63

04

.52

01

3C

roa

tia A

irlin

es

d.d

.C

roa

tiaT

ran

spo

rta

tion

26

.3 3

28

.4 9

0.4

14

1.8

63

97

72

6.1

21

23

Me

rku

r d

.d.

Slo

ven

iaT

rad

e 2

6.1

39

7.9

44

.8 4

36

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92

82

46

.72

29

Bu

dim

ex

Ca

pita

l Gro

up

Po

lan

dC

on

stru

ctio

n 2

3.8

37

2.6

50

.4 6

10

.01

07

61

18

93

5.0

23

8B

LR

T G

rup

p A

SE

sto

nia

Sh

ipb

uild

ing

22

.6 8

3.7

31

.5 8

3.8

1 5

21

3 4

15

36

.42

41

6Is

kra

em

eco

d.d

.S

love

nia

Ele

ctri

cal m

ach

ine

ry 1

9.0

86

.5 3

2.8

11

5.0

26

72

11

42

1.0

25

18

Tis

zai V

eg

yi K

om

bin

át

Ltd

.H

un

ga

ryC

he

mic

als

16

.64

62

.52

45

.64

89

.91

82

2 9

87

19

.9

A

vera

ge

s 3

73

.21

35

0.1

52

5.2

1 2

09

.41

25

21

3 4

09

30

.3C

ha

ng

e f

rom

20

00

(in

pe

r ce

nt)

15

.2 9

.7 8

.8 1

.6-

10

.6-

5.3

- 1

.9

So

urc

e:

UN

CTA

D s

urv

ey

of

top

TN

Cs

in C

en

tra

l an

d E

ast

ern

Eu

rop

e.

aB

ase

d o

n s

urv

ey

resp

on

ses.

bT

he

tra

nsn

atio

na

lity

ind

ex

(TN

I) is

ca

lcu

late

d a

s th

e a

vera

ge

of

the

fo

llow

ing

th

ree

ra

tios:

fo

reig

n a

sse

ts t

o t

ota

l ass

ets

, fo

reig

n s

ale

s to

to

tal s

ale

s a

nd

fo

reig

n e

mp

loym

en

t to

to

tal e

mp

loym

en

t.c

20

00

da

ta.

dIn

clu

din

g e

xpo

rt s

ale

s b

y th

e p

are

nt

firm

.e

Da

ta n

ot

reve

ale

d b

y th

e f

irm

; e

stim

ate

s h

ave

be

en

ma

de

usi

ng

se

con

da

ry s

ou

rce

s o

f in

form

atio

n.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives192A

nn

ex

ta

ble

A.I

.4.

Inw

ard

FD

I fl

ow

s,

by

in

du

str

y, 1

99

9-2

00

1(B

illio

ns

of

do

llars

an

d p

erc

en

tag

e d

istr

ibu

tion

)

Valu

e in

bill

ion

dolla

rs

Per

cent

age

dist

ribut

ion

19

99-2

000

(ann

ual a

vera

ge)

200

1

199

9-20

00 (a

nnua

l ave

rage

)

2

001

Dev

elop

edD

evel

opin

gD

evel

oped

Dev

elop

ing

Dev

elop

edD

evel

opin

gD

evel

oped

Dev

elop

ing

Sect

or/in

dust

ry c

ount

ries

eco

nom

ies

Tota

la c

ount

ries

eco

nom

ies

Tota

laco

untri

es e

cono

mie

sTo

tala

cou

ntrie

s e

cono

mie

sTo

tala

Prim

ary

22.

2 1

7.8

40.

9 5

5.9

13.

0 6

9.4

2.1

8.9

3.3

10.

2 7

.6 9

.6Ag

ricul

ture

, hun

ting,

fore

stry

and

fish

ing

0.3

1.1

1.4

0.4

1.3

1.7

0.0

0.5

0.1

0.1

0.8

0.2

Min

ing,

qua

rryi

ng a

nd p

etro

leum

21.

2 1

6.2

38.

3 5

5.5

11.

7 6

7.6

2.0

8.1

3.1

10.

1 6

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nspe

cifie

d pr

imar

y 0

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0.3

0.1

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Seco

ndar

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17.2

61.

8 2

80.5

91.

4 5

6.0

148

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1.0

30.

8 2

2.6

16.

6 3

3.0

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5Fo

od, b

ever

ages

and

toba

cco

7.5

3.9

12.

4 4

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.0 1

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.5 1

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xtile

s, c

loth

ing

and

leat

her

5.4

1.6

7.0

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2 0

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0.5

0.8

0.6

- 0

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Woo

d an

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ood

prod

ucts

5.9

0.4

6.4

6.3

0.3

6.7

0.6

0.2

0.5

1.1

0.2

0.9

Publ

ishi

ng, p

rintin

g an

d re

prod

uctio

n o

f rec

orde

d m

edia

5.1

- 5

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0.4

0.7

0.1

0.5

Cok

e, p

etro

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pro

duct

s an

d nu

clea

r fue

l 3

6.1

0.3

36.

4-

1.8

0.2

- 1.

5 3

.5 0

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0.1

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2C

hem

ical

s an

d ch

emic

al p

rodu

cts

32.

6 7

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9.7

13.

3 2

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5.9

3.1

3.6

3.2

2.4

1.5

2.2

Rub

ber a

nd p

last

ic p

rodu

cts

2.3

0.2

2.5

- 0.

4 0

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0.2

0.2

0.1

0.2

- 0.

1 0

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Non

-met

allic

min

eral

pro

duct

s 4

.8 0

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.0 0

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etal

and

met

al p

rodu

cts

13.

4 1

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5.0

7.0

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8.5

1.3

0.8

1.2

1.3

0.8

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Mac

hine

ry a

nd e

quip

men

t 3

2.9

8.6

41.

6 1

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14.

6 3

.2 4

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ectri

cal a

nd e

lect

roni

c eq

uipm

ent

39.

2 9

.5 4

8.7

12.

6 4

.7 1

7.3

3.8

4.7

3.9

2.3

2.8

2.4

Prec

isio

n in

stru

men

ts 1

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1.3

- 0.

4 0

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0.1

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otor

veh

icle

s an

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her t

rans

port

equi

pmen

t 1

7.0

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19.

9 7

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ther

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nspe

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cond

ary

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8 0

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3 6

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Tert

iary

734

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13.2

849

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57.4

99.

1 4

59.4

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0 5

6.3

68.

5 6

4.9

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4 6

3.3

Elec

trici

ty, g

as a

nd w

ater

16.

8 9

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4 1

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onst

ruct

ion

2.5

1.9

4.4

2.0

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4.4

0.2

0.9

0.4

0.4

1.3

0.6

Trad

e 5

4.4

16.

3 7

1.5

27.

1 1

2.9

40.

9 5

.3 8

.1 5

.8 4

.9 7

.6 5

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otel

s an

d re

stau

rant

s 2

.7 2

.4 5

.1 2

.2 2

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.4 0

.4 1

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.7Tr

ansp

ort,

stor

age

and

com

mun

icat

ions

126

.2 1

5.8

143

.0 5

2.9

20.

1 7

4.2

12.

2 7

.9 1

1.5

9.6

11.

8 1

0.2

Fina

nce

284

.8 2

4.4

309

.3 1

11.0

28.

9 1

40.3

27.

5 1

2.1

24.

9 2

0.2

17.

0 1

9.3

Busi

ness

act

iviti

es 2

13.2

33.

8 2

47.1

113

.8 1

6.9

130

.7 2

0.6

16.

8 1

9.9

20.

7 9

.9 1

8.0

Hea

lth a

nd s

ocia

l ser

vice

s 0

.2 0

.1 0

.3 0

.4 0

.1 0

.5-

0.1

- 0

.1 0

.1 0

.1C

omm

unity

, soc

ial a

nd p

erso

nal s

ervi

ce a

ctiv

ities

3.7

2.4

6.1

4.2

2.7

7.0

0.4

1.2

0.5

0.8

1.6

1.0

Oth

er s

ervi

ces

26.

3 4

.9 3

1.2

33.

6 3

.7 3

7.3

2.5

2.4

2.5

6.1

2.2

5.1

Uns

peci

fied

terti

ary

3.6

1.5

5.2

4.8

2.0

6.8

0.4

0.8

0.4

0.9

1.2

0.9

Priv

ate

buyi

ng a

nd s

ellin

g of

pro

pert

y 0

.4-

0.4

0.5

- 0

.5-

--

0.1

- 0

.1

Uns

peci

fied

60.

1 8

.1 6

8.3

45.

3 1

.7 4

7.2

5.8

4.0

5.5

8.2

1.0

6.5

Tota

l 1

034

.2 2

00.9

1 2

39.9

550

.5 1

69.8

725

.2 1

00.0

100

.0 1

00.0

100

.0 1

00.0

100

.0

So

urc

e:

UN

CTA

D,

FD

I d

ata

ba

se.

aIn

clu

de

s co

un

trie

s in

Ce

ntr

al a

nd

Ea

ste

rn E

uro

pe

.

No

tes:

Da

ta c

ove

r 5

0 c

ou

ntr

ies

for

wh

ich

da

ta a

re a

vaila

ble

for

19

99

, 20

00

an

d 2

00

1.

Th

ey

acc

ou

nt f

or

94

% a

nd

89

% o

f wo

rld

inw

ard

flo

ws

in 1

99

9-2

00

0 a

nd

20

01

, re

spe

ctiv

ely

. In

the

ab

sen

ce o

f act

ua

l da

ta,

ap

pro

val d

ata

we

re u

sed

in s

om

e c

ou

ntr

ies.

Fo

r o

the

r n

ote

s, p

lea

se s

ee

fig

ure

I.4

.

ANNEX A 193

An

ne

x t

ab

le A

.I.5

. I

nw

ard

FD

I P

erf

orm

an

ce

In

de

x r

an

kin

gs

, 1

99

0-2

00

1a

Econ

omy

1988

-199

019

89-1

991

1990

-199

219

91-1

993

1992

-199

419

93-1

995

1994

-199

619

95-1

997

1996

-199

819

97-1

999

1998

-200

019

99-2

001

Alb

ania

....

7727

2229

3549

6999

8867

Alg

eria

101

9911

311

612

913

012

411

911

411

210

910

1A

ngol

a10

632

307

127

1818

92

32

Arg

entin

a36

4244

4956

5555

5061

4040

42A

rmen

ia..

..27

7411

410

299

7922

1919

38Au

stra

lia15

2437

4551

4856

5990

104

9591

Aus

tria

7780

8282

7987

7589

8693

8074

Aze

rbai

jan

....

....

116

284

11

110

33B

aham

as66

101

132

9894

6254

3339

4752

66B

ahra

in23

43

410

461

22

3643

56B

angl

ades

h10

410

712

512

512

712

613

113

013

112

512

112

5Be

laru

s..

..12

412

211

211

911

392

9477

9287

Bel

gium

and

Lux

embo

urg

86

99

1424

2526

203

11

Ben

in16

57

1743

105

9510

210

089

8482

Bol

ivia

4641

3937

3427

2010

77

1314

Bot

swan

a24

4770

136

139

138

8877

8795

104

115

Bra

zil

7889

9393

103

101

9083

6654

4537

Brun

ei D

arus

sala

m10

310

611

510

711

518

74

34

810

Bul

garia

....

103

8989

9586

6044

3027

25Bu

rkin

a Fa

so93

9811

811

410

299

100

112

120

120

117

119

Cam

eroo

n11

411

713

512

012

412

712

712

412

511

912

412

2C

anad

a35

5565

7269

7166

7567

6331

30C

hile

1016

2831

2321

1414

1515

2019

Chi

na44

5142

189

1116

2030

4351

59C

olom

bia

4045

5051

4865

5739

3861

8280

Con

go84

6572

1213

637

3162

1414

16C

ongo

, Dem

. Rep

.11

111

012

611

713

013

313

413

613

213

311

812

7C

osta

Ric

a18

2121

2631

3833

4340

5065

73C

ôte

d’Iv

oire

8086

8469

6650

4442

4553

7186

Cro

atia

....

..94

8489

6964

5038

3022

Cyp

rus

2731

4154

6379

9252

5629

2620

Cze

ch R

epub

lic..

..40

3032

3030

4037

2215

11D

enm

ark

5352

6364

4443

5984

7231

129

Dom

inic

an R

epub

lic26

3036

3839

4058

5559

3432

31E

cuad

or30

3948

3629

3438

4843

5150

35E

gypt

1428

5647

4052

7299

105

106

102

110

El S

alva

dor

8984

9997

117

115

128

126

4749

5495

Est

onia

....

5929

1915

2324

1416

1821

Eth

iopi

a99

9711

111

911

911

611

971

5762

8310

6Fi

nlan

d65

8710

095

7277

8295

9880

5549

Fran

ce43

4951

5664

6770

8088

7976

62G

abon

3311

467

133

137

139

140

140

140

140

140

139

Gam

bia

97

1422

2732

2822

2618

1612

Geo

rgia

....

....

122

121

8935

2526

3863

Ger

man

y87

8311

212

112

111

211

511

611

610

147

39G

hana

9085

9666

3639

4381

104

9089

77G

reec

e34

4854

6168

8287

103

117

121

120

113

/...

World Investment Report 2003 FDI Policies for Development: National and International Perspectives194A

nn

ex

ta

ble

A.I

.5.

In

wa

rd F

DI

Pe

rfo

rma

nc

e I

nd

ex

ra

nk

ing

s,

19

90

-20

01

a

(co

nti

nu

ed

)

Econ

omy

1988

-199

019

89-1

991

1990

-199

219

91-1

993

1992

-199

419

93-1

995

1994

-199

619

95-1

997

1996

-199

819

97-1

999

1998

-200

019

99-2

001

Gua

tem

ala

2257

6463

7593

106

113

9392

9699

Gui

nea

6060

6976

108

124

123

120

121

111

111

114

Guy

ana

5833

11

11

25

821

2117

Hai

ti81

8210

411

013

613

513

513

113

412

412

212

3H

ondu

ras

3136

4646

6060

6257

7068

6155

Hon

g Ko

ng, C

hina

314

1715

814

1215

1213

23

Hun

gary

6325

168

158

1013

3244

5353

Icel

and

8581

108

124

134

132

117

100

8998

100

97In

dia

9810

311

611

311

110

710

410

511

311

611

912

0In

done

sia

5456

5759

6557

5253

8012

813

713

8Ira

n, Is

lam

ic R

ep.

112

116

129

126

131

123

132

132

137

136

134

131

Irela

nd59

3525

2535

5141

4621

94

4Is

rael

8288

9788

9281

7173

8581

7265

Italy

6479

9199

105

109

120

123

130

127

115

109

Jam

aica

2512

813

2036

3144

3535

2823

Japa

n10

510

511

712

312

812

813

313

313

613

513

012

8Jo

rdan

7691

8012

912

613

412

666

5556

3754

Kaz

akhs

tan

....

8924

3017

2117

2324

2315

Ken

ya74

6892

111

125

120

125

127

129

126

116

118

Kore

a, R

epub

lic o

f75

7794

104

113

113

118

114

111

100

9192

Kuw

ait

102

108

130

130

133

125

111

117

124

132

131

132

Kyr

gyzs

tan

....

..96

4723

2423

3333

6710

7La

tvia

....

6242

1720

1311

1323

3351

Leba

non

9495

106

108

110

114

114

107

108

105

9996

Liby

an A

rab

Jam

ahiri

ya69

7488

102

123

136

136

137

138

138

135

134

Lith

uani

a..

..10

777

8080

6851

2727

3460

Mad

agas

car

7366

7380

9911

012

212

512

811

410

189

Mal

awi

4110

213

413

510

612

913

013

513

511

512

913

3M

alay

sia

43

43

55

912

1832

4970

Mal

i86

9213

313

113

247

3941

7783

8668

Mal

ta21

1732

3226

2211

2116

105

5M

exic

o38

4452

5849

4536

3851

6779

72M

oldo

va, R

epub

lic o

f..

..13

2138

3545

3649

4829

18M

ongo

lia..

9410

279

8276

7367

7673

6248

Mor

occo

6259

6048

4564

7770

8470

9046

Moz

ambi

que

8872

6857

5454

5361

4125

2524

Mya

nmar

5734

2939

5853

3219

1937

7085

Nam

ibia

7927

1519

2831

2734

6076

6834

Nep

al97

100

110

112

118

122

121

121

127

130

132

130

Net

herla

nds

1313

2340

4241

3437

2417

98

New

Zea

land

610

1011

1112

1925

5369

5944

Nic

arag

ua96

4334

2833

3726

1610

1211

13N

iger

5663

4568

7811

896

9710

911

812

712

1N

iger

ia7

822

167

1017

2734

5881

83N

orw

ay49

6412

712

877

6361

5865

5557

69O

man

3240

5560

7394

112

122

123

123

126

129

Pak

ista

n72

6974

7583

8579

9110

610

911

411

6/..

.

ANNEX A 195

An

ne

x t

ab

le A

.I.5

. I

nw

ard

FD

I P

erf

orm

an

ce

In

de

x r

an

kin

gs

, 1

99

0-2

00

1a (

co

nc

lud

ed

)

Econ

omy

1988

-199

019

89-1

991

1990

-199

219

91-1

993

1992

-199

419

93-1

995

1994

-199

619

95-1

997

1996

-199

819

97-1

999

1998

-200

019

99-2

001

Pan

ama

116

2931

3524

2622

95

817

32Pa

pua

New

Gui

nea

22

623

259

57

1746

4643

Par

agua

y55

5043

5352

6867

7264

7585

104

Per

u91

9610

567

2119

1529

3659

7578

Phi

lippi

nes

2846

4943

3744

4765

7885

8790

Pol

and

100

9381

6250

4240

4546

4542

47P

ortu

gal

1211

1933

4673

8085

7386

6952

Qat

ar11

090

8673

6769

4647

4274

9798

Rom

ania

....

109

103

8584

8369

5252

6475

Rus

sian

Fed

erat

ion

....

120

109

109

108

107

104

110

107

105

108

Rw

anda

6176

9810

110

711

712

912

913

313

112

812

6Sa

udi A

rabi

a83

7376

9198

131

137

134

9594

125

135

Sen

egal

6775

8511

590

9091

7883

7194

94Si

erra

Leo

ne47

2347

132

138

137

105

101

112

129

133

117

Sin

gapo

re1

12

54

23

36

57

6S

lova

kia

....

7165

6156

6486

7984

4126

Slo

veni

a..

..83

7076

8894

9310

110

811

210

5So

uth

Afric

a10

810

911

911

812

010

610

390

103

102

113

81S

pain

1922

2434

4161

7494

9687

6041

Sri L

anka

6870

6655

5574

8582

9291

106

111

Sud

an10

911

313

112

710

110

010

811

891

7266

57S

urin

ame

117

118

1113

714

014

013

813

881

134

139

140

Sw

eden

5038

5852

5325

2928

296

67

Sw

itzer

land

2937

5390

9596

8487

6857

3536

Syria

n Ar

ab R

epub

lic51

6787

8670

7276

109

118

110

103

103

Taiw

an P

rovi

nce

of C

hina

4858

7584

9798

101

108

122

117

110

102

Tajik

ista

n..

..90

8181

5963

6882

8893

93TF

YR

Mac

edon

ia..

....

..10

411

111

612

810

297

7329

Thai

land

1719

2641

5975

7876

5442

4461

Togo

4261

9513

413

570

4863

7466

5845

Trin

idad

and

Tob

ago

2015

2010

64

86

411

2227

Tuni

sia

5253

3320

1833

5074

7178

7476

Turk

ey70

7178

8710

010

310

911

512

612

212

311

2U

gand

a10

711

112

878

5749

5156

6365

6358

Ukr

aine

....

6171

8697

9896

9996

9888

Uni

ted

Arab

Em

irate

s92

112

122

8393

9210

211

111

913

713

613

6U

nite

d Ki

ngdo

m11

1835

5062

6665

6248

4124

28U

nite

d R

epub

lic o

f Tan

zani

a95

104

114

105

8858

4954

7560

4840

Uni

ted

Stat

es39

6279

8591

9193

9897

8278

79U

rugu

ay71

7810

192

8786

9710

611

511

310

710

0U

zbek

ista

n..

..12

310

674

104

110

110

107

103

108

84Ve

nezu

ela

3726

3844

7178

6032

3139

5671

Viet

Nam

4520

126

33

68

1120

3650

Yem

en11

554

52

213

139

139

139

139

138

137

Zam

bia

59

1814

1616

4230

2828

3964

Zim

babw

e11

311

512

110

096

8381

8858

6477

124

So

urc

e:

UN

CTA

D.

aT

hre

e-y

ea

r m

ovi

ng

ave

rag

e.

No

te:

Co

veri

ng

14

0 e

con

om

ies.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives196

Annex table A.I.6. Inward FDI Performance Index, by region, 1988-1990,

1993-1995, 1998-2000 and 1999-2001a

Region 1988-1990 1993-1995 1998-2000 1999-2001

World 1.00 1.00 1.00 1.00Developed countries 1.03 0.76 0.99 1.00

Western Europe 1.33 1.11 1.62 1.77European Union 1.33 1.12 1.63 1.80Other Western Europe 1.33 0.95 1.37 1.29

North America 1.13 0.77 0.86 0.78Other developed countries 0.29 0.20 0.12 0.12

Developing countries 0.99 1.98 1.04 1.01Africa 0.80 1.11 0.52 0.67

North Africa 0.85 1.05 0.39 0.47Other Africa 0.76 1.15 0.62 0.82

Latin America and the Caribbean 0.90 1.62 1.42 1.41South America 0.74 1.21 1.33 1.31Other Latin America and the Caribbean 1.26 2.57 1.60 1.59

Asia 1.06 2.30 0.92 0.87West Asia 0.27 0.36 0.14 0.11Central Asia .. 2.93 1.53 1.63South, East and South-East Asia 1.31 2.70 1.08 1.02 East and South-East Asia 1.74 3.22 1.30 1.22 South Asia 0.11 0.41 0.16 0.16

The Pacific 4.49 4.22 0.75 0.58Central and Eastern Europe 1.02b 1.31 1.01 0.99

Source: UNCTAD.

a Three-year average. b 1992-1994. As most of the countries in this region did not exist in their present form before 1992, the period for the index is adjusted.

ANNEX A 197

An

ne

x t

ab

le A

.I.7

. R

aw

da

ta a

nd

sc

ore

s f

or

the

va

ria

ble

s i

nc

lud

ed

in

th

e U

NC

TA

D I

nw

ard

FD

I P

ote

nti

al

Ind

ex

, 1

99

9-2

00

1

Im

ports

of p

arts

/

S

tude

nts

Exp

orts

of

acc

esso

ries

of

C

omm

erci

al

R

&D

in th

e

natu

ral

e

lect

roni

cs a

nd

Expo

rts in

Inw

ard

R

eal G

DP

grow

th

G

DP

per c

apita

Tota

l exp

orts

Tel

epho

ne m

ainl

ines

Mob

ile p

hone

s

ener

gy u

se

e

xpen

ditu

res

te

rtiar

y le

vel

Cou

ntry

risk

r

esou

rces

aut

omob

iles

serv

ices

F

DI s

tock

Aver

age

As

of

19

91-2

001

Aver

age

1999

-200

1

199

9

Dec

embe

r 200

1

Ave

rage

199

9-20

01Pe

rPe

rAs

a %

As a

As a

As a

As a

1000

1000

of t

otal

Com

po-

% o

f %

of

% o

f %

of

Scor

eSc

ore

As %

Scor

ein

habi

-Sc

ore

inha

bi-

Scor

ePe

rSc

ore

As %

Scor

e p

opu-

Scor

esi

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World Investment Report 2003 FDI Policies for Development: National and International Perspectives198A

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0 /...

ANNEX A 199

An

ne

x t

ab

le A

.I.7

. R

aw

da

ta a

nd

sc

ore

s f

or

the

va

ria

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in

th

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Ind

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ports

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/

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Exp

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of

C

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in

the

na

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l

ele

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and

Ex

ports

in

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P gr

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G

DP

per c

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As

of

1

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2001

Aver

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1

199

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2828

2828

2831

32B

ulga

ria..

..42

5360

4859

7458

6368

64Bu

rkin

a Fa

so94

9811

411

011

612

111

912

411

811

011

512

5C

amer

oon

7999

119

124

131

130

129

127

119

118

122

115

Can

ada

22

22

22

22

54

55

Chi

le41

4147

4341

4039

3944

4444

45C

hina

4543

5256

5955

4541

4242

4240

Col

ombi

a58

5671

7180

8686

100

9089

8694

Con

go73

8511

211

410

510

610

012

610

810

810

210

4C

ongo

, Dem

. Rep

.10

311

113

113

713

913

913

913

913

913

813

913

9C

osta

Ric

a50

4755

5454

5857

5759

5657

60C

ôte

d’Iv

oire

9694

102

107

111

112

104

105

9896

109

110

Cro

atia

....

..11

710

682

8077

5753

5146

Cyp

rus

3333

3737

3837

3738

3941

4142

Cze

ch R

epub

lic..

..58

5048

3940

4040

3938

37D

enm

ark

1616

1415

1616

1616

1615

1616

Dom

inic

an R

epub

lic66

6873

6766

6765

5966

6259

65E

cuad

or69

7283

8586

9597

9095

103

104

103

Egy

pt67

6588

8279

8587

8769

7171

70El

Sal

vado

r80

7586

7673

5152

4751

5455

54E

ston

ia..

..76

9083

6560

5547

4039

38E

thio

pia

114

117

135

129

128

125

122

112

126

126

120

124

Finl

and

99

1114

1515

1414

1210

1010

Fran

ce7

75

56

79

910

1212

14G

abon

6063

8077

8479

7969

7676

8277

Gam

bia

6366

8474

9397

8882

8585

8787

Geo

rgia

....

....

129

133

137

137

137

136

135

131

Ger

man

y4

44

43

35

66

76

6G

hana

9188

100

100

103

110

111

110

109

114

116

113

Gre

ece

3434

3438

3938

3837

3535

3636

/...

ANNEX A 201

An

ne

x t

ab

le A

.I.8

. I

nw

ard

FD

I P

ote

nti

al

Ind

ex

ra

nk

ing

s,

19

90

-20

01

a (

co

nti

nu

ed

)

Econ

omy

1988

-199

019

89-1

991

1990

-199

219

91-1

993

1992

-199

419

93-1

995

1994

-199

619

95-1

997

1996

-199

819

97-1

999

1998

-200

019

99-2

001

Gua

tem

ala

102

100

108

108

108

108

105

102

103

102

100

101

Gui

nea

8990

104

105

109

115

115

113

105

106

111

111

Guy

ana

101

101

9489

7061

5556

5658

6062

Hai

ti11

511

513

213

313

613

613

613

513

513

513

613

5H

ondu

ras

8379

9697

9999

101

9994

9094

96H

ong

Kong

, Chi

na17

1718

1613

1313

1313

1313

13H

unga

ry47

5063

6363

5754

5448

4545

41Ic

elan

d15

1517

1820

1921

1919

1918

17In

dia

7271

9794

9593

8492

8887

9184

Indo

nesi

a42

4454

5153

6058

7291

8485

92Ira

n, Is

lam

ic R

ep.

5146

5149

4956

5661

6777

7274

Irela

nd24

2429

2828

2219

1818

1815

11Is

rael

2726

3130

3026

2625

2421

2223

Italy

1818

1920

1923

2222

2525

2526

Jam

aica

6162

7472

6566

7068

7274

8178

Japa

n12

1212

98

87

711

1111

12Jo

rdan

6569

6868

6462

6260

6265

6768

Kaz

akhs

tan

....

6175

8592

9897

9697

9383

Ken

ya84

8910

110

410

210

110

311

411

412

312

312

7Ko

rea,

Rep

ublic

of

2020

2624

2117

1717

1717

1718

Kuw

ait

4649

4040

3232

3231

3434

2928

Kyrg

yzst

an..

....

126

133

134

134

134

132

132

130

128

Latv

ia..

..43

6689

8791

8671

6663

55Le

bano

n85

8060

5255

7769

6453

5050

58Li

byan

Ara

b Ja

mah

iriya

5551

4645

5163

6670

4547

4647

Lith

uani

a..

..70

9192

8985

8161

6061

56M

adag

asca

r99

102

122

119

126

127

126

120

113

117

114

114

Mal

awi

8891

103

109

115

111

107

104

106

104

112

120

Mal

aysi

a38

3639

3937

3131

3232

2932

33M

ali

106

107

120

113

114

119

113

108

102

9910

511

7M

alta

3539

3835

3633

3334

3838

4044

Mex

ico

4445

4441

4253

5150

5252

4849

Mol

dova

, Rep

ublic

of

....

3536

4046

9698

107

120

125

109

Mon

golia

..57

9192

8884

7678

7367

6669

Mor

occo

7174

8180

7791

9296

9292

9693

Moz

ambi

que

112

110

126

127

127

129

130

133

122

122

124

108

Mya

nmar

117

118

128

130

132

126

125

115

115

111

106

100

Nam

ibia

8782

9086

7476

6867

7775

7779

Nep

al10

910

812

512

813

013

213

112

913

313

413

413

3N

ethe

rland

s8

88

79

1011

108

88

9N

ew Z

eala

nd23

2525

2524

2527

2727

2727

27N

icar

agua

9597

116

123

121

120

121

119

123

115

113

112

Nig

er10

810

912

112

012

512

812

812

812

812

111

912

6N

iger

ia68

6077

8387

9899

9193

9389

89N

orw

ay5

56

65

54

43

54

3O

man

3638

4546

4752

4951

5559

5650

Pak

ista

n92

8710

710

310

111

310

911

712

512

812

912

9/..

.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives202A

nn

ex

ta

ble

A.I

.8.

In

wa

rd F

DI

Po

ten

tia

l In

de

x r

an

kin

gs

, 1

99

0-2

00

1a (

co

nc

lud

ed

)

Econ

omy

1988

-199

019

89-1

991

1990

-199

219

91-1

993

1992

-199

419

93-1

995

1994

-199

619

95-1

997

1996

-199

819

97-1

999

1998

-200

019

99-2

001

Pan

ama

5455

6755

5042

4442

4648

5253

Papu

a N

ew G

uine

a77

7893

8875

7067

7680

8384

98P

arag

uay

7067

7573

7883

8385

9998

9910

7P

eru

7883

9598

9494

9588

8382

7980

Phi

lippi

nes

7676

7870

7268

6158

6461

6966

Pol

and

4952

5957

5654

5353

4143

4343

Por

tuga

l39

3536

3434

3534

3333

3233

34Q

atar

2222

1617

1720

2424

2222

2120

Rom

ania

....

8593

9788

8910

197

101

9891

Rus

sian

Fed

erat

ion

....

3333

3534

3636

3736

3535

Rw

anda

113

116

130

135

140

140

140

140

140

139

138

138

Saud

i Ara

bia

3127

2221

2529

2929

2931

2830

Sen

egal

9396

117

118

124

122

123

122

120

119

117

119

Sier

ra L

eone

107

113

133

134

137

138

135

138

138

140

140

140

Sin

gapo

re13

1315

137

43

32

22

2S

lova

kia

....

6262

6147

4848

4949

4948

Slo

veni

a..

..89

7869

4342

4330

3030

29So

uth

Afric

a52

5357

6158

5963

6275

7073

72S

pain

2523

2122

2627

2526

2626

2625

Sri L

anka

9792

115

111

104

105

106

106

104

107

107

116

Sud

an11

611

413

413

613

813

713

813

613

113

012

712

3S

urin

ame

4342

6464

5745

4345

6579

7676

Sw

eden

66

78

129

88

76

77

Sw

itzer

land

1111

1012

1414

1515

1414

1415

Syria

n Ar

ab R

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lic74

7387

8176

7373

7381

8890

90Ta

iwan

Pro

vinc

e of

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na21

2127

2322

2123

2323

2020

19Ta

jikis

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....

105

116

119

103

116

121

136

137

137

136

TFYR

Mac

edon

ia..

....

..11

010

411

210

911

010

510

110

2Th

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nd40

4050

4444

4141

4950

5153

52To

go90

9511

812

512

312

411

894

112

116

121

122

Trin

idad

and

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ago

5764

7279

8280

7865

7069

6561

Tuni

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6470

8284

8178

7775

7872

7473

Turk

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5965

5868

7574

8082

8178

86U

gand

a10

410

612

411

511

310

710

210

310

095

9599

Ukr

aine

....

4965

6764

7579

8486

8885

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ted

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s29

2924

2723

2420

2120

2324

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d Ki

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d R

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9310

910

611

211

411

411

812

112

912

813

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d St

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11

11

11

11

11

11

Uru

guay

5654

6660

6269

6463

6364

6267

Uzb

ekis

tan

....

5659

5272

9495

101

100

9795

Vene

zuel

a37

3741

4243

4446

4454

5754

57Vi

et N

am86

8611

110

210

010

081

8487

8075

75Ye

men

110

104

9896

9681

8293

8694

9288

Zam

bia

100

105

110

112

117

117

124

116

127

127

131

134

Zim

babw

e82

8199

9998

102

108

107

117

112

133

137

So

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UN

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D.

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d b

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con

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nd

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ANNEX A 203

An

ne

x t

ab

le A

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. C

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s-b

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va

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g co

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vend

i Uni

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phon

e co

mm

unic

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2 8

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rmat

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radi

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11 4

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ing

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s an

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s33

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Seeb

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PLC

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ted

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35 2

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42 1

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U-E

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World Investment Report 2003 FDI Policies for Development: National and International Perspectives204A

nn

ex

ta

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.9.

Cro

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48 1

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ANNEX A 205

An

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1983

....

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1984

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31

631

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31 5

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1985

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20

24 0

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1986

....

....

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1987

....

....

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43 9

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1988

....

....

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1989

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1990

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1996

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1997

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1999

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2000

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World Investment Report 2003 FDI Policies for Development: National and International Perspectives206

Annex table A.I.11. Germany, Japan and the United States: receipts of royalties andlicence fees from affiliated firms, by country, 1985-2001

(Millions of dollars)

Germany Japan United States Intra-firm Intra-firm Intra-firm

German Foreign Country Japanese Foreign Country United States Foreign Countryparent affiliates as a parent affiliates as a parent affiliates in the as a

Year firms only in Gernany TNCs whole firms only in Japan TNCs whole firms only United States TNCs whole

1985 464 83 .. 617 .. .. .. 723 .. .. .. 6 6801986 597 122 .. 919 .. .. 617 906 5 994 180 .. 8 1131987 698 146 .. 1 165 .. .. .. 1 293 7 668 220 .. 10 1741988 883 124 .. 1 265 .. .. .. 1 637 9 238 256 .. 12 1391989 1 122 106 .. 1 341 .. .. 1 034 2 016 10 612 349 12 800 13 8181990 1 547 236 .. 1 987 .. .. .. 2 479 12 867 383 .. 16 6341991 1 515 345 .. 1 888 .. .. .. 2 866 13 523 583 .. 17 8191992 1 680 472 .. 2 072 .. .. 2 335 3 061 14 925 733 .. 20 8411993 1 629 501 .. 2 058 .. .. .. 3 861 14 936 752 .. 21 6951994 1 720 496 .. 2 403 .. .. .. 5 185 19 250 1 025 33 957 26 7121995 2 231 617 .. 3 134 .. .. 3 919 6 005 21 399 1 460 .. 30 2891996 2 457 655 .. 3 365 .. .. .. 6 681 22 719 1 837 .. 32 4701997 2 321 518 .. 3 222 .. .. .. 7 303 23 091 1 374 .. 33 2281998 2 652 750 .. 3 346 .. .. 5 499 7 388 24 362 1 951 .. 35 6261999 2 321 629 .. 3 108 .. .. .. 8 190 24 807 1 700 .. 36 9022000 2 214 642 .. 2 884 .. .. .. 10 227 24 585 2 231 .. 39 6072001 2 404 745 .. 3 149 .. .. .. 10 462 23 502 2 371 .. 38 6682002 2 904 1 010 .. .. .. .. .. .. .. .. .. ..

Source: UNCTAD, based on WIR99; IMF, Balance of Payments Statistics CD-ROM (January 2003); Germany, DeutscheBundesbank (various issues); Japan, METI, 2002 and United States, Department of Commerce, 2002.

ANNEX A 207

Annex table A.I.12. Receipts of royalties and licence fees by affiliated firmsand by country, Germany and the United States, 1998, 2000-2001

(Millions of dollars)

Germany United States

Intra-firm Intra-firm

German parent Foreign affiliates Country United States Foreign affiliates CountryCountryRegion firms only Germany as a whole parent firms only in the United States as a whole

1998

TOTAL WORLD 1 707 748 3 346 24 362 1 951 35 626Developed Countries 1 300 636 .. 20 993 2 037 26 853

European Union 482 267 .. 13 192 1 108 17 525North America 601 284 .. 1 287 41 1 657Japan 137 22 .. 3 200 220 5 776

Developing countries 353 51 .. 3 601 279 6 535Africa 24 4 .. 185 25 311Latin America and the Caribbean 99 14 .. 1 423 156 2 552Asia and Pacific 230 .. .. 1 993 98 3 672South, East and South-East Asia .. .. .. 1 984 94 3 593

2000

TOTAL WORLD 2 194 640 2 884 24 585 2 231 39 607Developed Countries 1 856 568 .. 18 293 1 803 28 931

European Union 597 201 .. 11 942 964 17 080North America 677 100 .. 1 520 49 2 259Japan 212 20 .. 3 416 331 7 120

Developing countries 224 36 .. 4 818 239 8 188Africa 37 3 .. 190 - 393Latin America and the Caribbean 104 18 .. 2 500 188 3 279Asia and Pacific 83 15 .. 2 128 51 4 516South, East and South-East Asia .. .. .. 2 113 51 4 374

2001

TOTAL WORLD 2 290 666 3 149 23 502 2 371 38 668Developed Countries 1 900 555 .. 17 318 1 872 28 214

European Union 549 134 .. 11 252 952 16 333North America 803 116 .. 1 503 58 2 255Japan 165 30 .. 3 173 248 6 972

Developing countries 251 86 .. 4 759 349 7 996Africa 46 20 .. 212 - 327Latin America and the Caribbean 98 21 .. 2 483 266 3 368Asia and Pacific 108 45 .. 2 064 83 4 301South, East and South-East Asia .. .. .. 2 039 83 4 164

Source: UNCTAD, FDI/TNC database.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives208

Annex table A.I.13. Main international instrumentsa dealing with FDI, 1948-2003

Yearb Title Setting Level Form Status

1948 Havana Charter for an International International Multilateral Binding Not ratifiedTrade Organization Conference on Trade

and Employment

1948 Draft Statutes of the Arbitral Tribunal International Law Non- Non-binding Not adoptedfor Foreign Investment and of the Association governmentalForeign Investments Court

1949 International Code of Fair Treatment International Chamber Non- Non-binding Adoptedfor Foreign Investments of Commerce governmental

1957 Treaty Establishing the European European Economic Regional Binding AdoptedEconomic Community Community

1957 Agreement on Arab Economic Unity Council of Arab Regional Binding AdoptedEconomic Unity

1958 Convention on the Recognition and United Nations Multilateral Binding AdoptedEnforcement of Foreign Arbitral Awards

1959 Draft Convention on Investments Abs-Shawcross Non- Non-binding Not adoptedAbroad Draft Convention Governmental

1961 Code of Liberalisation of OECD Regional Binding AdoptedCapital Movements

1961 Code of Liberalisation of Current OECD Regional Binding AdoptedInvisible Operations

1962 United Nations General Assembly United Nations Multilateral Non-binding AdoptedResolution 1803 (XVII): PermanentSovereignty over Natural Resources

1963 Model Tax Convention on Income OECD Regional Model Adoptedand on Capital

1965 Common Convention on Investments Customs and Regional Binding Adoptedin the States of the Customs and Economic UnionEconomic Union of Central Africa of Central Africa

1965 Convention on the Settlement of World Bank Multilateral Binding AdoptedInvestment Disputes between Statesand Nationals of Other States

1967 Revised Recommendation of the Council OECD Regional Non-binding AdoptedConcerning Co-operation BetweenMember Countries on AnticompetitivePractices Affecting International Trade

1967 Draft Convention on the Protection OECD Regional Non-binding Not adoptedof Foreign Property

1969 Agreement on Andean Subregional Andean Regional Binding AdoptedIntegration Common Market

1969 Agreement Establishing an Association European Community- Inter-regional Binding Adoptedbetween the European Economic Malagasy StatesCommunity and the Malagasy States

1969 Agreement Establishing an Association European Community- Inter-regional Binding Adoptedbetween the European Economic Tanzania, UgandaCommunity and the United Republic and Kenyaof Tanzania, the Republic of Ugandaand the Republic of Kenya

/...

ANNEX A 209

Annex table A.I.13. Main international instrumentsa dealing with FDI, 1948-2003 (continued)

Yearb Title Setting Level Form Status

1970 Agreement on Investment and Free Arab Economic Unity Regional Binding AdoptedMovement of Arab Capital amongArab Countries

1970 Decision No. 24 of the Commission of Andean Common Regional Binding Supersededthe Cartagena Agreement: Common MarketRegulations Governing Foreign CapitalMovement, Trade Marks, Patents,Licences and Royalties

1971 Convention Establishing the Inter-Arab Inter-Arab Investment Regional Binding AdoptedInvestment Guarantee Corporation Guarantee Corporation

1972 Joint Convention on the Freedom of Central African Customs Regional Binding AdoptedMovement of Persons and the Right of and Economic UnionEstablishment in the Central African

1972 Guidelines for International Investment International Chamber Non- Non-binding Adoptedof Commerce Governmental

1973 Agreement on the Harmonisation of Caribbean Community Regional Binding AdoptedFiscal Incentives to Industry

1973 Treaty Establishing the Caribbean Caribbean Community Regional Binding AdoptedCommunity

1974 United Nations General Assembly United Nations Multilateral Non-binding AdoptedResolution 3201 (S-VI): Declarationon the Establishment of a NewInternational Economic Order andUnited Nations General AssemblyResolution 3202 (S-VI): Programme ofAction on the Establishment of a NewInternational Economic Order

1974 United Nations General Assembly United Nations Multilateral Non-binding AdoptedResolution 3281 (XXIX): Charter ofEconomic Rights and Duties of States

1975 The Multinational Companies Code Customs and Economic Regional Binding Adoptedin the UDEAC Union of Central Africa

1975 Charter of Trade Union Demands for International Non- Non-binding Adoptedthe Legislative Control of Multinational Confederation of Free GovernmentalCompanies Trade Unions

1975 International Chamber of Commerce International Chamber Non- Non-binding AdoptedRules of Conciliation and Arbitration of Commerce Governmental

1976 Declaration on International Investment OECD Regional Binding/ Adoptedand Multinational Enterprises non-bindingc

1976 Arbitration Rules of the United Nations United Nations Multilateral Model AdoptedCommission on International Trade Law

1976 Agreement between the Government Germany- Bilateral Binding Adoptedof the United States of America and United Statesthe Government of the Federal Republicof Germany Relating to MutualCooperation Regarding RestrictiveBusiness Practices

1977 ILO Tripartite Declaration of Principles International Labour Multilateral Non-binding AdoptedConcerning Multinational Enterprises Organizationand Social Policy

/...

World Investment Report 2003 FDI Policies for Development: National and International Perspectives210

Annex table A.I.13. Main international instrumentsa dealing with FDI, 1948-2003 (continued)

Yearb Title Setting Level Form Status

1977 International Chamber of Commerce International Chamber Non- Non-binding AdoptedRecommendations to Combat Extortion of Commerce Governmentaland Bribery in Business transactions

1979 Draft International Agreement on United Nations Multilateral Binding Not adoptedIllicit Payments

1979 United Nations Model Double Taxation United Nations Multilateral Model AdoptedConvention between Developed andDeveloping Countries

1980 Cooperation Agreement between the ASEAN-EC Inter-regional Binding AdoptedEuropean Community and Indonesia,Malaysia, the Philippines, Singaporeand Thailand member countries of theAssociation of South-East Asian Nations

1980 The Set of Multilaterally Agreed Equitable United Nations Multilateral Non-binding AdoptedPrinciples and Rules for the Control ofRestrictive Business Practices

1980 Guidelines Governing the Protection OECD Regional Non-binding Adoptedof Privacy and Transborder Flows ofPersonal Data

1980 Unified Agreement for the Investment League of Arab States Regional Binding Adoptedof Arab Capital in the Arab States

1980 Treaty Establishing the Latin American LAIA Regional Binding AdoptedIntegration Association (LAIA)

1981 International Code of Marketing of World Health Multilateral Non-binding AdoptedBreast- milk Substitutes Organization

1981 Convention for the Protection of Council of Europe Regional Binding AdoptedIndividuals with Regard to AutomaticProcessing of Personal Data

1981 Agreement on Promotion, Protection Islamic Conference Regional Binding Adoptedand Guarantee of Investments amongMember States of the Organisation ofthe Islamic Conference

1981 Treaty for the Establishment of the Preferential Trade Area Regional Binding AdoptedPreferential Trade Area for Eastern for Eastern and Southernand Southern African States African States

1982 Community Investment Code of the CEPGL Regional Binding AdoptedEconomic Community of theGreat Lakes Countries (CEPGL)

1983 Draft United Nations Code of Conduct United Nations Multilateral Non-binding Not adoptedon Transnational Corporations

1983 Treaty for the Establishment of the Economic Community Regional Binding AdoptedEconomic Community of Central of Central andAfrican States African States

1985 Draft International Code of Conduct on United Nations Multilateral Non-binding Not adoptedthe Transfer of Technology

1985 United Nations General Assembly United Nations Multilateral Non-binding AdoptedResolution 39/248: Guidelines forConsumer Protection

/...

ANNEX A 211

Annex table A.I.13. Main international instrumentsa dealing with FDI, 1948-2003 (continued)

Yearb Title Setting Level Form Status

1985 Convention Establishing the Multilateral World Bank Multilateral Binding AdoptedInvestment Guarantee Agency

1985 Declaration on Transborder Data Flows OECD Regional Non-binding Adopted

1987 Agreement for the Establishment of a Caribbean Common Regional Binding AdoptedRegime for CARICOM Enterprises Market

1987 Revised Basic Agreement on ASEAN ASEAN Regional Binding AdoptedIndustrial Joint Ventures

1987 An Agreement Among the Governments ASEAN Regional Binding Adoptedof Brunei Darussalam, the Republic ofIndonesia, Malaysia, the Republic of thePhilippines, the Republic of Singaporeand the Kingdom of Thailand for thePromotion and Protection of Investments

1989 Fourth ACP-EEC Convention of Lomé African, Caribbean and Inter-regional Binding AdoptedPacific countries-European Commnuity

1989 Cooperation Agreement between the Arab States of the Gulf- Inter-regional Binding AdoptedEuropean Economic Community, of European Communitythe one part, and the countries partiesto the Charter of the CooperationCouncil for the Arab States of the Gulf(the State of the United Arab Emirates,the State of Bahrain, the Kingdom ofSaudi Arabia, the Sultanate of Oman,the State of Qatar and the State ofKuwait) of the other part

1990 Criteria for Sustainable Development United Nations Multilateral Non-binding AdoptedManagement: Towards EnvironmentallySustainable Development

1990 Charter on a Regime of Multinational Preferential Trade Regional Binding AdoptedIndustrial Enterprises (MIEs) in the Area for Eastern andPreferential Trade Area for Eastern Southern African Statesand Southern African States

1984 Protocol A/P1/11/84 Relating to ECOWAS Regional Binding AdoptedCommunity Enterprises and

1990 Supplementary Protocol A/Sp.2/5/90 onthe Implementation of the Third Phase(Right of Establishment) of the Protocolon Free Movement of Persons, Right ofResidence and Establishment

1991 Treaty Establishing the African African Economic Regional Binding AdoptedEconomic Community Community

1991 Decision 285 of the Commission of the Andean Community Regional Binding AdoptedCartagena Agreement: Rules andRegulations for Preventing or CorrectingDistortions in Competition Caused byPractices that Restrict FreeTrade Competition

1991 Decision 291 of the Commission of Andean Community Regional Binding Adoptedthe Cartagena Agreement: CommonCode for the Treatment of ForeignCapital and on Trademarks, Patents,Licenses and Royalties

/...

World Investment Report 2003 FDI Policies for Development: National and International Perspectives212

Annex table A.I.13. Main international instrumentsa dealing with FDI, 1948-2003 (continued)

Yearb Title Setting Level Form Status

1991 Decision 292 of the Commission of the Andean Community Regional Binding AdoptedCartagena Agreement: Uniform Codeon Andean Multinational Enterprises

1991 The Business Charter for Sustainable International Chamber Non- Non-binding AdoptedDevelopment: Principles for of Commerce GovernmentalEnvironmental Management

1992 Agreement on the European EC-EFTA Regional Binding AdoptedEconomic Area

1992 Guidelines on the Treatment of World Bank Multilateral Non-binding AdoptedForeign Direct Investment

1992 Articles of Agreement of the Islamic Islamic Conference Regional Binding AdoptedCorporation for the Insurance ofInvestment and Export Credit

1992 North American Free Trade Agreement Canada, Mexico and Regional Binding Adoptedthe United States

1992 The CERES Principles CERES Non- Non-binding AdoptedGovernmental

1993 Framework Cooperation Agreement EC-Costa Rica, Inter-regional Binding Adoptedbetween the European Economic El Salvador, Guatemala,Community and the Republics of Honduras, NicaraguaCosta Rica, El Salvador, Guatemala, and PanamaHonduras, Nicaragua and Panama

1993 Permanent Court of Arbitration Optional Permanent Court Multilateral Binding AdoptedRules for Arbitrating Disputes between of ArbitrationTwo Parties of which only One is a State

1993 Revised Treaty of the Economic ECOWAS Regional Binding AdoptedCommunity of West African States(ECOWAS)

1993 Framework Agreement for Cooperation EC-Andean Inter-regional Binding Adoptedbetween the European Economic CommunityCommunity and the CartagenaAgreement and its Member Countries,namely the Republic of Bolivia, theRepublic of Colombia, the Republic ofEcuador, the Republic of Peru andthe Republic of Venezuela

1993 Treaty Establishing the Common Common Market Regional Binding AdoptedMarket for Eastern and for Eastern andSouthern Africa Southern Africa

1994 Free Trade Agreement between Azerbaijan, Armenia, Regional Binding AdoptedAzerbaijan, Armenia, Belarus, Georgia, Belarus, Georgia,Moldova, Kazakhstan, the Russian Moldova, Kazakhstan,Federation, Ukraine, Uzbekistan, the Russian Federation,Tajikistan and the Kyrgyz Republic Ukraine, Uzbekistan,

Tajikistan and theKyrgyz Republic

1994 Free Trade Agreement between the Mexico-Bolivia Bilateral Binding AdoptedUnited Mexican States and theRepublic of Bolivia

1994 Free Trade Agreement between Mexico-Costa Rica Bilateral Binding AdoptedMexico and Costa Rica

/...

ANNEX A 213

Annex table A.I.13. Main international instrumentsa dealing with FDI, 1948-2003 (continued)

Yearb Title Setting Level Form Status

1994 Treaty on Free Trade between the Colombia, Venezuela, Regional Binding AdoptedRepublic of Colombia, the Republic of MexicoVenezuela and the UnitedMexican States

1994 Marrakesh Agreement Establishing World Trade Multilateral Binding Adoptedthe World Trade Organization. OrganizationAnnex 1A: Agreement on Trade-Related Investment Measures (1994)

1994 Marrakesh Agreement Establishing the World Trade Multilateral Binding AdoptedWorld Trade Organization. Annex 1B: OrganizationGeneral Agreement on Trade in Services

1994 Marrakesh Agreement Establishing the World Trade Multilateral Binding AdoptedWorld Trade Organization. Annex 1C: OrganizationAgreement on Trade-Related Aspectsof Intellectual Property Rights (1994)

1994 Protocol of Colonia for the Reciprocal MERCOSUR Regional Binding AdoptedPromotion and Protection ofInvestments in the MERCOSUR

1994 Protocol on Promotion and Protection MERCOSUR Regional Binding Adoptedof Investments from States not Partiesto MERCOSUR

1994 Agreement Among the Governments Caribbean Community Regional Binding Adoptedof the Member States of the CaribbeanCommunity for the Avoidance ofDouble Taxation and the Preventionof Fiscal Evasion With Respect to Taxeson Income, Profits or Gains and CapitalGains and for the Encouragement ofRegional Trade and Investment

1994 Recommendation of the OECD Council OECD Regional Non-binding Adoptedon Bribery in International BusinessTransactions

1994 Free Trade Agreement of the Group Colombia, Mexico Regional Binding Adoptedof Three and Venezuela

1994 APEC Non-Binding Investment Principles APEC Regional Non-binding Adopted

1994 Trade and Investment Agreement Australia-Mexico Bilateral Binding Adoptedbetween the Government of Australiaand the Government of theUnited Mexican States

1994 Energy Charter Treaty European Energy Regional Binding AdoptedCharter Organisation

1995 Interregional Framework Cooperation EC- MERCOSUR Inter-regional Binding AdoptedAgreement between the EuropeanCommunity and its Member States,of the one part, and the SouthernCommon Market and its Party States,of the other part

1995 ASEAN Framework Agreement ASEAN Regional Binding Adoptedon Services

1995 Consumer Charter for Global Business Consumers International Non- Non-binding AdoptedGovernmental

/...

World Investment Report 2003 FDI Policies for Development: National and International Perspectives214

Annex table A.I.13. Main international instrumentsa dealing with FDI, 1948-2003 (continued)

Yearb Title Setting Level Form Status

1995 Pacific Basin Charter on International Pacific Basin Non- Non-binding AdoptedInvestments Economic Council Governmental

1995 Agreement between the Government of Canada- United States Bilateral Binding Adoptedthe United States of America and theGovernment of Canada regarding theApplication of Their Competition andDeceptive Marketing Practice Laws

1995 Osaka Action Agenda on Implementation APEC Regional Non-binding Adoptedof the Bogor Declaration

1996 Protocol to amend the 1987 Agreement ASEAN Regional Binding Adoptedamong ASEAN Member Countries for thePromotion and Protection of Investments

1996 Protocol on the Protection of MERCOSUR Regional Binding AdoptedCompetition of MERCOSUR

1996 Inter-American Convention Organization of Regional Binding AdoptedAgainst Corruption American States

1996 Acuerdo de Complementación Chile-MERCOSUR Regional Binding AdoptedEconómica MERCOSUR-Chile

1996 Resolution 51/191. United Nations United Nations Multilateral Non-binding AdoptedDeclaration Against Corruption and General AssemblyBribery in International CommercialTransactions

1997 Free Trade Agreement between Mexico-Nicaragua Bilateral Binding AdoptedMexico and Nicaragua

1997 Fourth Protocol to the General WTO Multilateral Binding AdoptedAgreement on Trade in Services (onBasic Telecommunications Services)

1997 Fifth Protocol to the General WTO Multilateral Binding AdoptedAgreement on Trade in Services(on Financial Services)

1997 Protocol Amending the Treaty Caribbean Community Regional Binding AdoptedEstablishing the CaribbeanCommunity. Protocol II: Establishment,Services, Capital

1997 Draft NGO Charter on People’s Action Non- Non-binding Not adoptedTransnational Corporations Network to Monitor Governmental

Japanese TNCs

1997 United Nations General Assembly United Nations Multilateral Non-binding AdoptedResolution 52/87 on International General AssemblyCooperation against Corruption andBribery in International CommercialTransactions

1997 Resolution (97) 24 on the Twenty Council of Europe Regional Non-binding AdoptedGuiding Principles for the FightAgainst Corruption

1997 OECD Convention on Combating OECD Regional Binding AdoptedBribery of Foreign Public Officials inInternational Business Transactions

/...

ANNEX A 215

Annex table A.I.13. Main international instrumentsa dealing with FDI, 1948-2003 (continued)

Yearb Title Setting Level Form Status

1991 Agreement between the Government of European Community- Bilateral Binding Adoptedthe United States of America and the United StatesCommission of the European CommunitiesRegarding the Application of theirCompetition Laws and

1998 Agreement between the EuropeanCommunities and the Government ofthe United States of America on theApplication of Positive ComityPrinciples in the Enforcement of theirCompetition Laws

1998 Agreement Establishing the Free Trade Caribbean Community- Regional Binding AdoptedArea between the Caribbean Community Dominican Republicand the Dominican Republic

1998 Free Trade Agreement between Chile-Mexico Bilateral Binding AdoptedChile and Mexico

1998 DECISION 439 of the Andean Andean Community Regional Binding AdoptedCommunity: General Framework ofPrinciples and Rules and forLiberalizing the Trade in Servicesin the Andean Community

1998 DECISION 40 of the Andean Community: Andean Community Regional Binding AdoptedApproval of the Agreement AmongMember Countries to Avoid DoubleTaxation and of the Standard Agreementfor Executing Agreements on DoubleTaxation between Member Countriesand Other States Outside the Subregion

1998 Protocol Amending the Treaty Caribbean Community Regional Binding AdoptedEstablishing the Caribbean Community.Protocol III: Industrial Policy.

1998 Framework Agreement on the ASEAN ASEAN Regional Binding AdoptedInvestment Area

1998 Trade and Investment Cooperation Canada and Regional Binding AdoptedArrangement between Canada MERCOSURand MERCOSUR

1998 Memorandum of Understanding on Canada and Central Regional Non-binding AdoptedTrade and Investment between the American countriesGovernments Canada, Costa Rica,El Salvador, Guatemala, Hondurasand Nicaragua

1998 OECD Council Recommendation on OECD Regional Non-binding AdoptedCounteracting Harmful Tax Competition

1998 OECD Council Recommendation OECD Regional Non-binding AdoptedConcerning Effective Action AgainstHard Core Cartels

1998 Draft Multilateral Agreement OECD Regional Binding Not adoptedon Investment

1998 ILO Declaration on Fundamental International Multilateral Non-binding AdoptedPrinciples and Rights at Work Labour Office

1998 Draft International Agreement Consumer Unity Non- Non-binding Not adoptedon Investment & Trust Society Governmental

/...

World Investment Report 2003 FDI Policies for Development: National and International Perspectives216

Annex table A.I.13. Main international instrumentsa dealing with FDI, 1948-2003 (continued)

Yearb Title Setting Level Form Status

1998 Towards a Citizens’ MAI: an Alternative Council of Canadians Non- Non-binding AdoptedApproach to Developing a Global GovernmentalInvestment Treaty Based on Citizen’sRights and Democratic Control

1999 Resolution of the European Parliament European Parliament Regional Non-binding Adoptedon European Union Standards forEuropean Enterprises Operating inDeveloping Countries: towards aEuropean Code of Conduct

1999 Criminal Law Convention on Corruption Council of Europe Regional Binding Adopted

1999 OECD Principles of Corporate OECD Regional Non-binding ApprovedGovernance

1999 Model Clauses for Use in Contracts International Chamber Model Non-binding AdoptedInvolving Transborder Data Flows of Commerce

1999 Core Standards World Development Non- Non-binding Not adoptedMovement Governmental

1999 Rules and Recommendations on International Chamber Non- Non-binding AdoptedExtortion and Bribery in International of Commerce GovernmentalBusiness Transactions(1999 Revised Version)

1999 Agreement on Customs Union and Kyrgyz Republic, the Regional Binding AdoptedSingle Economic Area between the Russian Federation,Kyrgyz Republic, the Russian the Republic of Belarus,Federation, the Republic of Belarus, the Republic ofthe Republic of Kazakhstan and the Kazakhstan and theRepublic of Tajikistan Republic of Tajikistan

1999 Civil Law Convention on Corruption Council of Europe Regional Binding Adopted

1999 The Treaty Establishing the East East African Regional Binding AdoptedAfrican Community Community

1982 Agreement between the Government of Australia- Bilateral Binding Adoptedthe United States of America and the United StatesGovernment of Australia Relating toCooperation on Antitrust Matters and

1999 Agreement between the Government ofthe United States of America and theGovernment of Australia on MutualAntitrust Enforcement Assistance

1999 Agreement between the Government Brazil-United States Bilateral Binding Adoptedof the United States of America and theGovernment of the Federative Republicof Brazil Regarding Cooperation BetweenTheir Competition Authorities in theEnforcement of Their Competition Laws

1999 Agreement between the European Canada-Eurpean Union Bilateral Binding AdoptedCommunities and the Government ofCanada Regarding the Application oftheir Competition Laws

1999 Agreement between the Government of Japan- Bilateral Binding Adoptedthe United States of America and the United StatesGovernment of Japan ConcerningCooperation on Anticompetitive Activities

/...

ANNEX A 217

Annex table A.I.13. Main international instrumentsa dealing with FDI, 1948-2003 (continued)

Yearb Title Setting Level Form Status

1999 Free Trade Agreement between the Chile-Central Regional Binding AdoptedGovernments of Central America and the American countriesGovernment of the Republic of Chile

1999 Short-Term Measures to Enhance ASEAN Regional Binding AdoptedAsean Investment Climate

2000 Free Trade Agreement between Mexico, The Northern Triangle Regional Binding AdoptedEl Salvador, Guatemala and Honduras

2000 Revised OECD Declaration on OECD Regional Binding/ AdoptedInternational Investment and non-bindingc

Multilateral Enterprises (including theRevised Guidelines for MultinationalEnterprises and commentaries)

2000 Revised United Nations Model United Nations Multilateral Model AdoptedTaxation Convention betweenDeveloped and Developing Countries

2000 Agreement between New Zealand New Zealand- Bilateral Binding Adoptedand Singapore on Closer SingaporeEconomic Partnership

2000 Protocol VIII of the Caribbean Community: Caribbean Community Regional Binding AdoptedCompetition Policy, Consumer Protection,Dumping and Subsidies Amending theTreaty of Chaguaramas

2000 Revised Partnership Agreement between the African, Caribbean Regional Binding AdoptedMembers of the African, Caribbean and and the Pacific-Pacific Group of States of the One Part, European communityand the European Community and ItsMember States, of The Other Part

2001 European Convention on the Legal Council of Europe Regional Binding AdoptedProtection of Services Based on, orConsisting of, Conditional Access

2001 Additional Protocol to the Convention Council of Europe Regional Binding Adoptedfor the Protection of Individuals withRegard to Automatic Processing ofPersonal Data Regarding SupervisoryAuthorities and Transborder Data Flows

2001 Convention Establishing the European EFTA Regional Binding AdoptedFree Trade Association (Amendment)

2001 Protocol to Amend the Framework ASEAN Regional Binding AdoptedAgreement on the ASEANInvestment Area

2001 Revised Treaty of Chaguaramas Caribbean Community Regional Binding AdoptedEstablishing the CaribbeanCommunity Including the CARICOMSingle Market and Economy

2001 Free Trade Agreement between the Canada-Costa Rica Bilateral Binding AdoptedGovernment of Canada and theGovernment of the Republicof Costa Rica

2002 Agreement between Japan and The Japan-Singapore Bilateral Binding AdoptedRepublic of Singapore for a New-AgeEconomic Partnership (JSEPA)

2002 Free Trade Agreement between the Panama-Central Regional Binding AdoptedCentral America and Panama American countries

2002 Treaty on Investment and trade in Costa Rica, El Salvador, Regional Binding AdoptedServices between Costa Rica, Guatemala, HondurasEl Salvador, Guatemala, Honduras and Nicaraguaand Nicaragua

/...

World Investment Report 2003 FDI Policies for Development: National and International Perspectives218

Annex table A.I.13. Main international instrumentsa dealing with FDI, 1948-2003 (concluded)

Yearb Title Setting Level Form Status

2002 ASEAN-China Framework Agreement on ASEAN-China Bilateral Binding AdoptedComprehensive Economic Cooperation

2003 Free Trade Agreement between the Chile-Korea Bilateral Binding AdoptedGovernment of the Republic of Chile andthe Government of the Republic of Korea

2003 Singapore-Australia Free Trade Singapore-Australia Bilateral Binding Adopted

Agreement (SAFTA)

ACP - EU ACP - EU Inter-regional Under negotiation

Algeria - United States Algeria - United States Bilateral Under negotiationAndean Community - Canada Andean Community - Canada Bilateral Under negotiation

Andean Community - Mercosur Andean Community - Mercosur Inter-regional Under negotiation

Andean Community - Panama FTA Andean Community - Panama Bilateral Under negotiationASEAN - India ASEAN - India Bilateral Under negotiation

ASEAN - Japan ASEAN - Japan Bilateral Under consultation

Brazil - Russian Federation Brazil - Russian Federation Bilateral Under negotiationCACM - Canada Central American countries - Canada Bilateral Under negotiation

CACM - United States Central American countries - United States Bilateral Under negotiation

Canada - CARICOM Canada - CARICOM Bilateral Under negotiationCanada - Dominican Republic Canada - Dominican Republic Bilateral Under negotiation

Canada - Singapore FTA Canada - Singapore Bilateral Under negotiation

CARICOM - EFTA CARICOM - EFTA Inter-regional Under negotiationCARICOM - EU CARICOM - EU Inter-regional Under negotiation

Chile - EFTA FTA Chile - EFTA Bilateral Under negotiation

Chile - Japan FTA Chile - Japan Bilateral Under consultationChile - New Zealand Chile - New Zealand Bilateral Under negotiation

China - Japan Japan - China Bilateral Under consultation

Costa Rica - Panama Costa Rica - Panama Bilateral Under negotiationEcuador - Mexico Ecuador -Mexico Bilateral Under negotiation

EU - Mercosur EU - Mercosur Inter-regional Under negotiation

Free Trade of the Americas (FTAA) Americas Regional Under negotiationIndia - Singapore FTA India - Singapore Bilateral Under negotiation

Japan - Republic of Korea FTA Japan - Korea FTA Bilateral Under consultation

Japan - Malaysia Japan - Malaysia Bilateral Under consultationJapan - Mexico FTA Japan - Mexico Bilateral Under negotiation

Japan - Thailand Japan - Thailand Bilateral Under consultation

Jordan - Singapore FTA Jordan - Singapore Bilateral Under negotiationMexico - Panama FTA Mexico - Panama Bilateral Under negotiation

Mexico - Peru FTA Mexico - Peru Bilateral Under negotiation

Mexico - Singapore FTA Mexico - Singapore Bilateral Under negotiationMexico - Trinidad and Tobago FTA Mexico - Trinidad and Tobago Bilateral Under negotiation

Singapore - ASEAN - China FTA Singapore - ASEAN - China Pluraliteral Under negotiation

Southern African Customs Union SACU Member countries -(SACU) - United States Agreement United States Bilateral Under negotiation

Uruguay - United States FTA Uruguay - United States Bilateral Under negotiation

Source: UNCTAD. The instruments listed here are reproduced in whole or in part in UNCTAD, International InvestmentInstruments: A Compendium, vols. I, II, III, IV, V, VI, VII, VIII, IX, X and XI (United Nations publication, Sales Nos.E.96.II.A.9.10.11, E.00.II.D.13. 14, E.01.II.D.34, E.02.II.D.14, E.02.II.D.15, E.02.II.D.16, E.02.II.D. 21 andforthcoming).

a Bilateral treaties for the promotion and protection of investment (BITs) and for the avoidance of double taxation (DTTs) are not included inthis table. For a list of BITs, as of 1 January 2000, see Bilateral Investment Treaties, 1959-1999 (UNCTAD/DITE/IIA/2), available on theInternet: www.unctad.org/en/pub/poiteiiad2.en.htm. The most recent list of BITs and DTTs (as of 1 January 2003) is available on the Internet:www.unctad.org. The list of bilateral association, partnership and cooperation agreements signed by the European Community and/or theEuropean Free Trade Association and third countries, and including investment provisions, is available in a separate table (Annex table A.I.14).

b Dates given relate to original adoption. Subsequent revisions of instruments are not included, unless explicitly stated.c The OECD Declaration on International Investment and Multinational Enterprises is a political undertaking supported by legally binding

Decisions of the Council. The Guidelines on Multinational Enterprises are non-binding standards.

ANNEX A 219

Annex table A.I.14. Bilateral association, cooperation, framework and partnershipagreements including investment-related provisions, signed by the European Community,

by the European Free Trade Association, by the United States and by Canada with third countries,as of July 2003

Country/territory/group of countries Date of signature Date of entry into force

European Community and its member States

Malta 5 December 1970 1 April 1971Jordan 18 January 1977 1 January 1979Syrian Arab Republic 18 January 1977 1 January 1978China 21 May 1985 1 October 1985Pakistan 23 July 1985 1 May 1986Argentina 2 April 1990 1 November 1990Uruguay 4 November 1991 1 January 1994Hungary 16 December 1991 1 February 1994Poland 19 September 1989a …Poland 16 December 1991 1 February 1994San Marino 16 December 1991 Not yet in forceParaguay 3 February 1992 1 March 1992Albania 11 May 1992 1 December 1992Mongolia 16 June 1992 1 March 1993Brazil 26 June 1992 1 November 1995Macao 5 June 1992 Not yet in forceRomania 22 October 1990a …Romania 1 February 1993 1 February 1995Czechoslovakia 16 December 1991a …Czech Republic 4 October 1993 1 February 1995Bulgaria 8 May 1990a …Bulgaria 8 March 1993 1 February 1995Slovakia 4 October 1993 1 February 1993India 23 June 1981a …India 20 December 1993 1 August 1994Ukraine 14 June 1994 1 February 1998Soviet Union 8 December 1989a

Russian Federation 24 June 1994 1 December 1997Sri Lanka 2 July 1975a

Sri Lanka 18 July 1994 2nd quarter 1995Republic of Moldova 28 November 1994 1 July 1998Kazakhstan 23 January 1995 1 July 1999Kyrgyzstan 9 February 1995 1 July 1999Belarus 6 March 1995 Not yet in forceTurkey 12 September 1963a 1 December 1964Latvia 11 May 1992a 1 February 1993Latvia 12 June 1995 1 February 1998Lithuania 11 May 1992a 1 February 1993Lithuania 12 June 1995 1 February 1998Estonia 11 May 1992a 1 March 1993Estonia 12 June 1995 1 February 1998Tunisia 25 April 1976a 1 November 1978Tunisia 17 July 1995 1 March 1998Viet Nam 17 July 1995 1 June 1996Israel 11 May 1975 1 July 1975Israel 20 November 1995 1 June 2000Nepal 20 November 1995 1 June 1996Morocco 27 April 1976 1 November 1978Morocco 26 February 1996 …Armenia 22 April 1996 1 July 1999Azerbaijan 22 April 1996 1 July 1999Georgia 22 April 1996 1 July 1999

/...

World Investment Report 2003 FDI Policies for Development: National and International Perspectives220

Annex table A.I.14. (continued)

Country/territory/group of countries Date of signature Date of entry into force

Slovenia 5 April 1993 1 September 1993Slovenia 10 June 1996 1 February 1999Uzbekistan 21 June 1996 1 July 1999Republic of Korea 28 October 1996 1 March 2000Cambodia 29 April 1996 1 November 1999Palestine Authority 24 February 1997 1 July 1997Lao People’s Democratic Republic 29 April 1997 1 December 1997Macedonia, The Former Yugoslav Republic of 29 April 1997 1 January 1998Macedonia, The Former Yugoslav Republic of 9 April 2001 ...Yemen 25 November 1997 …Turkmenistan 25 May 1998 Not yet in forceSouth Afirca 11 October 1999 Not yet in forceBangladesh 19 October 1978 1 December 1976Bangladesh 22 May 2000 ...Mexico 8 December 1997 1 January 2000Mexico 27 February 2001 1 March 2001Egypt 18 January 1977 1 January 1979Egypt 30 April 2001 Not yet in forceCroatia 29 October 2001 …Algeria 26 April 1976 1 January 1978Algeria 22 April 2002 …Lebanon 3 May 1977 1 November 1978Lebanon 17 June 2002 Not yet in forceLebanond 17 June 2002 Not yet in forceChile 18 November 2002 …Chile 21 June 1996 1 February 1999

European Free Trade Association and its member States

Turkey 10 December 1991 1 April 1992Israel 17 September 1992 1 January 1992Poland 10 December 1992 1 September 1993Romania 10 December 1992 1 May 1993Bulgaria 29 March 1993 1 July 1993Hungary 29 March 1993 1 October 1993Czech Republic 20 March 1992 1 July 1992c

Slovakia 20 March 1992 1 July 1992c

Slovenia 13 June 1995 1 September 1998Estonia 7 December 1995 1 October 1997Latvia 7 December 1995 1 June 1996Lithuania 7 December 1995 1 January 1997Morocco 19 June 1997 1 December 1999Palestine Authority 30 November 1998 1 July 1999Macedonia, The Former Yugoslav Republic of 19 June 2000 1 January 2001Mexico 27 November 2000 …Croatia 21 June 2001 …Jordan 21 June 2001 ...Singapore 26 June 2002 …Chile 26 June 2003 ...

United States

Philippines 11 June 1989 …Morocco 16 March 1995 …Israel 22 April 1985 1 September 1985Taiwan Province of China 19 September 1994 …Indonesia 18 June 1996 …Central America 20 March 1998 …Andean Community 30 October 1998 …

/...

ANNEX A 221

Annex table A.I.14. (concluded)

Country/territory/group of countries Date of signature Date of entry into force

Egypt 1 July 1999 1 July 1999Egyptb 1 July 1999 1 July 1999Ghana 26 February 1999 26 February 1999South Africa 18 February 1999 18 February 1999Turkey 29 September 1999 11 February 2000Jordan 24 October 2000 24 October 2000Nigeria 16 February 2000 16 February 2000Viet Nam 13 July 2000 …Algeria 13 July 2001 …COMESA 1 October 2001 …West African Economic and Monetary Union 24 April 2002 …Bahrain 18 July 2002 …Sri Lanka 25 July 2002 …Brunei Darussalam 16 December 2002 …Thailand 23 October 2002 …Tunisia 2 October 2002Chile 19 May 1998 …Chile 11 December 2002 …Singapore 24 June 2003 …Pakistan 25 June 2003 ...

Canada

ASEAN 28 July 1993 …Ukraine 24 October 1994 …Australia 15 November 1995 …Chile 5 December 1996 5 July 1997Norway 3 December 1997 …Switzerland 9 December 1997 …Iceland 24 March 1998 …MERCOSUR 16 June 1998 …South Africa 24 September 1998 …Andean Community 31 May 1999 …Costa Rica 23 April 2001 1 November 2002

Source: UNCTAD.a No longer in force.b Investment Incentive Agreement between the Government of the United States and the Government of the Arab Republic of Egypt.c Signed with former CSFR on 20 March 1992. Protocols of the succession of the Czech Republic and the Slovak Republic were signed and

entered into force on 19 April 1993 simultaneously.d Interim Agreement on Trade and Trade-related Matters between the European Community, of the One Part, and the Republic of Lebanon,

of the Other Part.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives222

Parent Foreigncorporations affiliates

based in located inRegion/economy Year economy a economy a

Developed economies 49 048 b 105 830 b

Western Europe 39 715 77 415

European Union 34 291 b 65 460 b

Austria 2001 935 2 607 c

Belgium/Luxembourg 1997 988 d 1 504 d

Denmark 1998 9 356 2 305 e

Finland 2001 900 f 2 030 c, e

France 2000 1 922 9 473Germany 2000 8 522 13 826 g

Greece 2001 155 697Ireland 2001 39 h 1 225 i

Italy 1999 1 017 j 1 843 j

Netherlands k 1998 1 608 3 132 c

Portugal 2001 600 3 000 l

Spain 1998 857 m 7 465Sweden n 2002 4 260 4 656 c

United Kingdom o 2002 3 132 13 828

Other Western Europe 5 424 b 11 955 b

Gibraltar 2002 .. 21Iceland 2000 18 55Malta 2002 .. 1 000Norway 1998 900 5 105 p

Switzerland 1995 4 506 5 774

North America 4 674 b 19 437 b

Canada 1999 1 439 3 725 c

United States 2000 3 235 q 15 712 r

Other developed countries 4 659 b 6 847 b

Australia 2001 682 2 352Israel 2002 .. 30Japan 2002 3 760 s 3 359 t

New Zealand 1998 217 1 106

Developing economies 13 936 b 517 611 b

Africa 1 202 b 7 049 b

Algeria 2002 .. 14Angola 2002 2 u 31Benin 2002 .. 10Botswana 2002 .. 10Burkina Faso 2002 1 u 14Burundi 2002 .. 3Cameroon 2002 .. 60Central African Republic 2002 .. 5Chad 2002 .. 5Congo 2002 .. 25Côte d’Ivoire 2002 .. 120Congo, Democratic Republic of the 2002 4 u 6Djibouti 2002 1 u 6Egypt 1999 .. 99Equatorial Guinea 2002 .. 3Ethiopia 2002 4 u 14Gabon 2002 .. 39Gambia 2002 .. 5Ghana 2002 .. 62Guinea 2002 .. 15Guinea-Bissau 2002 .. 2Kenya 2002 .. 123Lesotho 2002 .. 1Liberia 2002 .. 11Madagascar 2002 .. 28Malawi 2002 .. 6Mali 2002 1 u 8Mauritania 2002 2 u 2Mauritius 2002 .. 35Morocco 2002 .. 194

Parent Foreigncorporations affiliates

based in located inRegion/economy Year economy a economy a

Mozambique 2002 5 u 27Namibia 2002 .. 7Niger 2002 1 u 5Nigeria 2002 48 f 66Rwanda 2002 .. 2Senegal 2002 6 u 42Seychelles 1998 - 30Sierra Leone 2002 1 u 6Somalia 2002 1 u ..South Africa 1998 941 2 044Sudan 2002 2 u 4Swaziland 2002 12 61Togo 2002 3 u 9Tunisia 2002 142 v 2 503 w

United Republic of Tanzania 2002 15 u 38Uganda 2002 .. 34Zambia 1999 2 x 1 179Zimbabwe 1998 8 36

Latin America and the Caribbean 2 022 b 45 383 b

Antigua and Barbuda 2002 .. 10Argentina 2002 .. 1 123Aruba 2002 .. 29Bahamas 2002 .. 117Barbados 2002 .. 99Belize 2002 .. 7Bermuda 2002 .. 240Bolivia 1996 .. 257Brazil 1998 1 225 8 050British Virgin Islands 2002 .. 129Cayman Islands 2002 .. 283Chile 1998 478 y 3 173 z

Colombia 1995 302 2 220Costa Rica 2002 .. 154Dominica 2002 .. 5Dominican Republic 2002 .. 113

Ecuador 2002 .. 165El Salvador 2002 .. 310Grenada 2002 .. 10Guatemala 1985 .. 287Guyana 2002 4 f 56Haiti 2002 3 u 11Honduras 2002 .. 49Jamaica 1998 .. 177Mexico 2002 .. 25 708Netherlands Antilles 2002 .. 145Nicaragua 2002 .. 34Panama 2002 .. 384Paraguay 1995 .. 109Peru 1997 10 aa 1 183 ab

St. Kitts and Nevis 2002 .. 5Saint Lucia 2002 .. 19Saint Vincent and the Grenadines 2002 .. 10Suriname 2002 .. 10Trinidad and Tobago 1999 .. 65 ac

Uruguay 2002 .. 164 ad

Venezuela 2002 .. 473

Asia 10 685 b 464 631 b

South, East and South-East Asia 9 934 b 445 272 b

Afghanistan 2002 .. 4Bangladesh 2002 10 u 13Bhutan 1997 .. 2Brunei Darussalam 2002 .. 16Cambodia 1997 .. 598 ae

China 2002 350 af 363 885 ag

Hong Kong, China 2001 948 ah 9 132India 1995 187 ai 1 416Indonesia 1995 313 2 241 aj

Lao People’s Democratic Rep. 1997 .. 669 ak

Annex table A.I.15. Number of parent corporations and foreign affiliates,by region and economy, latest available year

(Number)

ANNEX A 223

Annex table A.I.15. Number of parent corporations and foreign affiliates,by region and economy, latest available year (concluded)

(Number)

Parent Foreigncorporations affiliates

based in located inRegion/economy Year economy a economy a

Macau 2001 .. 560Malaysia 1999 .. 15 567 al

Maldives 2002 .. 1Mongolia 1998 .. 1 400Myanmar 2002 .. 6Nepal 2002 1 u 6Pakistan 2001 59 am 582Philippines 1995 .. 14 802 an

Republic of Korea 2002 7 460 ao 12 909Singapore 2002 .. 14 052 ap

Sri Lanka 1998 .. 305 aq

Taiwan Province of China 2001 606 ar 2 841Thailand 1998 .. 2 721 as

Viet Nam 1996 .. 1 544

West Asia 751 b 11 672 b

Bahrain 2002 .. 36Cyprus 2002 .. 3 185Iran 2002 .. 28Jordan 2002 .. 13Kuwait 2002 .. 16Lebanon 2002 .. 58Oman 1995 92 at 351 at

Qatar 2002 .. 16Saudi Arabia 1989 .. 1 461Syrian Arab Republic 2002 .. 8 Turkey 2002 653 6 311United Arab Emirates 2002 .. 185Yemen 2002 6 u 4

Central Asia - 7 687 b

Armenia 1999 .. 1 604 au

Azerbaijan 2002 .. 12Georgia 1998 .. 190 av

Kazakhstan 1999 .. 1 865 aw

Parent Foreigncorporations affiliates

based in located inRegion/economy Year economy a economy a

Kyrgzstan 1998 .. 4 004 ax

Uzbekistan 2002 .. 12The Pacific 27 b 548 b

Fiji 2002 2 151 x

Kiribati 2002 .. 1 New Caledonia 2002 .. 3 Papua New Guinea 1998 .. 345 ay

Samoa 2002 7 u 8 Solomon Islands 2002 7 u 16 Tonga 2002 .. 5 Vanuatu 2002 11 u 19

Central and Eastern Europe 850 b 242 678 b

Albania 1995 .. 2 422 az

Belarus 1994 .. 393Bosnia and Herzegovina 2002 .. 16Bulgaria 2000 26 h 7 153 ba

Croatia 1997 70 353Czech Republic 1999 660 x 71 385 bb

Estonia 1999 .. 3 066 bc

Hungary 2000 .. 26 645 bd

Latvia 2002 .. 210Lithuania 1999 16 ag 1 893Poland 2001 58 h 14 469 be

Republic of Moldova 2002 .. 2 402 bf

Romania 2002 20 h 89 911 bg

Russian Federation 1994 .. 7 793 Serbia and Montenegro 2002 .. 22

Slovakia 1997 .. 5 560 bh

Slovenia 2000 .. 1 617 bi

TFYR Macedonia 1999 .. 7 362Ukraine 1999 .. 7 362

World 63 834 866 119

Source: UNCTAD, based on national sources.a Represents the number of parent companies/foreign affiliates in the economy shown, as defined by that economy. Deviations from the

definition adopted in the World Investment Report (see section on definitions and sources in the annex B) are noted below. The data forAfghanistan, Algeria, Angola, Antigua and Barbuda, Argentina, Aruba, Azerbaijan, Bahamas, Bahrain, Bangladesh, Barbados, Belize, Benin,Bermuda, Bosnia and Herzegovina, Botswana, British Virgin Islands, Brunei, Burkina Faso, Burundi, Cameroon, Cayman Islands, CentralAfrican Republic, Chad, Congo, Costa Rica, Côte d’Ivoire, Democratic Republic of the Congo, Djibouti, Dominica, Dominican Republic,Ecuador, Equatorial Guinea, Ethiopia, Gabon, Gambia, Ghana, Gibraltar, Grenada, Guinea-Bissau, Haiti, Honduras, Iran, Israel, Jordan,Kenya, Kiribati, Kuwait, Latvia, Lebanon, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali, Malta, Mauritania, Mauritius, Morocco,Mozambique, Myanmar, Namibia, Nepal, Netherlands Antilles, New Caledonia, Nicaragua, Niger, Nigeria, Panama, Qatar, Rwanda, Senegal,Serbia and Montenegro, Sierra Leone, Solomon Islands, Somalia, St. Lucia, St. Kitts and Nevis, St. Vincent and the Grenadines, Sudan,Suriname, Syria, TFYR Macedonia, Togo, Tonga, Uganda, United Arab Emirates, United Republic of Tanzania, Uzbekistan, Vanuatu, Venezuelaand Western Samoa are from Who Owns Whom CD-Rom 2003 ( London, Dun & Bradstreet). Syria, Togo, Tonga, Uganda, United ArabEmirates, United Republic of Tanzania, Uzbekistan, Vanuatu, Venezuela and Western Samoa are from Who Owns Whom CD-Rom 2003 (London, Dun & Bradstreet).

b Includes data only for the countries shown below.c Majority-owned foreign affiliates.d Provisional figures by Banque Nationale de Belgique.e Directly and indirectly owned foreign affiliates (subsidiaries and associates), excluding branches.f As of 1999.g 2001; does not include the number of foreign-owned holding companies in Germany which, in turn, hold participating interests in Germany

(indirect foreign participating interests).h As of 1994.i Refers to the number of foreign-owned affiliates in Ireland in manufacturing and services activities which receive assistance from the

Investment and Development Authority (IDA).j Relates to parent companies and foreign affiliates industrial activities (based on Consiglio Nazionale dell’Economia e del Lavoro, “Italia

Multinazionale, 2000, inward and outward FDI in the Italian industry in 1998 and 1999” April 2002.k Data for parent corporation, as of October 1993. Data for foreign affiliates refer to majority-owned affiliates and are taken from OECD.l 2000.m Includes those Spanish parent enterprises which are controlled, at the same time, by a direct investor.n Data provided by Sveriges Riksbank. Includes those Swedish parent companies which are controlled, at the same time, by a direct investor.o Data on the number of parent companies based in the United Kingdom, and the number of foreign affiliates in the United Kingdom are based

on the register of companies held for inquiries on the United Kingdom FDI abroad, and FDI into the United Kingdom conducted by the CentralStatistical Office. On that basis, the numbers are probably understated because of the lags in identifying investment in greenfield sites andbecause some companies with small presence in the United Kingdom and abroad have not yet been identified.

p Refers to Norwegian non-financial joint-stock companies with foreign shareholders owning more than 10 per cent of total shares in 1998.q Represents a total of 2,466 non-bank parent companies in 2000 and 60 bank parent companies in 1994 with at least one foreign affiliate whose

World Investment Report 2003 FDI Policies for Development: National and International Perspectives224

assets, sales or net income exceeded $3 million, and 709 non-bank and bank parent companies in 1994 whose affiliate(s) had assets, salesand net income under $3 million. Each parent company represents a fully consolidated United States business enterprise, which may consistof a number of individual companies.

r Represents a total of 9,368 non-bank affiliates in 2000 and 438 bank affiliates in 1997 whose assets, sales or net income exceeded $3 million,and 5,906 bank and non-bank affiliates in 1996 with assets, sales, net income less than or equal to $3 million. Each affiliate represents afully consolidated United States business entreprise, which may consist of a number of individual companies.

s Japanese firms with at least two foreign affiliates that have a more than 20 per cent equity share. Source: Toyokeizai, Kaigai Shinshutsu KigyoSoran 2002 (Tokyo: Toyokeizai Shinposha, 2002).

t Number of foreign affiliates in late 2000. Source: Toyokeizai, Gaishikei Kigyo Soran 2001 (Tokyo: Toyokeizai Shimposha, 2001), The 35thSurvey of Overseas Business Activities.

u 2001.v 1999.w Provisional.x 1997.y Estimated by Comite de Inversiones Extranjeras.z Number of foreign companies registered under DL600.aa Less than 10.ab Out of this number, 811 are majority-owned foreign affiliates, while 159 affiliates have less than 10 per cent equity share.ac An equity stake of 25 per cent or more of the ordinary shares or voting power.ad Number of enterprises included in the Central Bank survey (all sectors).ae Number of projects approved, both domestic and foreign, since August 1994.af In 2002, 350 companies invested abroad. The accumulative number of companies that invested abroad was 6,960.ag As of 2000, Cumulative number of registered industrial enterprises with foreign capital.ah Number of regional headquarters as at 1 June 2002.ai As of 1991.aj As of 1996.ak Number of projects licensed since 1988 up to end 1997.al May 1999. Refers to companies with foreign equity stakes of 51 per cent and above. Of this, 3,787 are fully owned foreign affiliates.am 1998.an This figure refers to directly and indirectly owned foreign affiliates.ao As of 1999. Data refer to the number of investment projects abroad.ap Number of wholly owned foreign companies.aq Number of projects approved under section 17 of the BOI law which provides for incentives.ar Number of approved new investment projects abroad in 1998.as Data refer to the number of BOI-promoted companies which have been issued promotion certificates during the period 1960-1998, having

at least 10 per cent of foreign equity participation.at As of May 1995.au Accumulated number of joint ventures and foreign enterprises registered as of 1 November 1999.av Number of cases of approved investments of more than 100,000 dollars registered during the period of January 1996 up to March 1998.aw Joint ventures and foreign firms operating in the country.ax Joint venture companies established in the economy.ay Number of applications received since 1993.az 1,532 joint ventures and 890 wholly-owned foreign affiliates.ba The number refers to registered investment projects between 1992 and 2000, Bulgarian Foreign Investment Agency, January 2002.bb Out of this number 53,775 are fully-owned foreign affiliates. Includes joint ventures.bc As of 15 March 1999. Only registered affiliates with the Estonian Commercial Register.bd Source: Hungary Statistics Office.be Cumulative number of companies with foreign capital share which participated in the statistical survey.bf Number of enterprises with foreign participation set up in Moldova as of 1 January 2002.bg Data refer to the cumulative number of companies with FDI as at end-December 2002.bh Includes joint ventures with local firms.bi Source: Bank of Slovenia.

Note: The data can vary significantly from preceding years, as data become available for countries that had not been covered before, asdefinitions change, or as older data are updated.

ANNEX A 225

Annex table A.II.1. Asia and the Pacific: sources of FDI finance in selected economies,1999-2002

(Millions of dollars)

1999 2000Total TotalFDI Other Reinvested FDI Other Reinvested

Economy inflows Equity capitala earnings inflows Equity capital a earnings

Brunei Darusssalam 747 656 87 4 550 209 321 20China 38 753 16 772 9 783 12 198 38 399 20 841 1 536 16 022Indonesia -2 746 1 110 -3 856 .. -4 450 992 -5 442 ..Hong Kong (China) 24 581 4 315 8 126 12 140 61 939 32 955 9 695 19 289Kazakhstan 1 587 316 1 093 178 1 283 272 536 474Republic of Korea 9 333 8 889 444 .. 9 283 8 282 1 001 ..Taiwan Province of China 2 926 2 346 -69 649 4 928 4 493 -86 521Malaysia 3 895 1 512 476 1 907 3 788 674 112 3 002Philippines 1 734 1 145 219 370 1 354 1 024 504 -174Singapore 12 825 7 951 1 252 3 622 5 389 1 342 -19 4 066Thailand 6 149 6 139 10 .. 3 366 3 402 -36 ..Papua New Guinea 297 274 -1 24 96 74.6 -0.4 21.7

2001 2002Total TotalFDI Other Reinvested FDI Other Reinvested

Economy inflows Equity capitala earnings inflows Equity capital a earnings

Brunei Darusssalam 527 218 287 22 684 351 332 ..China 44 241 27 361 2 199 14 681 52 700 .. .. ..Indonesia -3 278 688 -3 966 .. -1 522 1 817 -3 339 ..Hong Kong (China) 23 776 7 717 3 705 12 354 13 718 .. .. ..Kazakhstan 2 763 539 1 775 449 2 561 .. .. ..Republic of Korea 3 528 3 189 339 .. 1 972 1 686 286 ..Taiwan Province of China 4 109 3 737 10 362 1 455 1 121 82 242Malaysia 554 -854 -1 083 2 491 3 203 -204 -5 3 413Philippines 1 537 628 421 488 494 945 -571 120Singapore 10 916 9800b 1 117 .. 6 102 7 661b -1 559 ..Thailand 3 820 2 626 1 194 .. 735 307 427 ..Papua New Guinea 63 45.3 -0.6 17.8 .. .. .. ..

Source: UNCTAD, FDI/TNC database.

a Mainly consists of intra-company loans.b Includes reinvested earnings.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives226

Annex table A.II.2. Asia and the Pacific: rates of returna on FDI, selected economies, 1999-2001

(Per cent)

Region/economy 1999 2000 2001

World average 7.1 6.8 5.5Developed countries average 7.4 7.1 5.7Developing economies average 4.6 4.3 4.2

Azerbaijan 0.1 9.3 8.6China 5.6 6.2 5.8Hong Kong (China) 13.6 12.5 11.5Indonesia 5.5 5.7 5.4Kazakhstan 3.2 9.6 9.0Republic of Korea 3.0 3.1 3.3Malaysia 11.5 14.1 11.2Pakistan 3.4 6.1 7.0Papua New Guinea 13.6 10.1 10.1Philippines 3.6 9.5 8.8

Source: UNCTAD.

a The estimated rates of return were calculated based on directinvestment income divided by the average FDI stock betweenthe beginning and end of a particular year. The data for 2002were not yet available.

ANNEX A 227A

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aliz

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act

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es a

long

valu

e ch

ain

arra

ngem

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prov

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corp

orat

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mpe

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enes

s

/...

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crea

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SEAN

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ompe

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enes

sas

a p

rodu

ctio

n ba

se

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crea

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tra-r

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rade

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omot

e FD

I

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eepe

n re

gion

al e

cono

mic

coop

erat

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and

regi

onal

inte

grat

ion

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real

ize

a co

mpe

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e an

dat

tract

ive

area

for F

DI

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crea

se F

DI

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ppor

t reg

iona

l int

egra

tion

proc

ess

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reng

then

and

enh

ance

eco

nom

ic,

trade

and

inve

stm

ent c

oope

ratio

n

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ogre

ssiv

ely

liber

aliz

e an

dpr

omot

e tra

de, s

ervi

ces

and

inve

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ent

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cilit

ate

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fect

ive

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inte

grat

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e ne

wer

ASE

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r Sta

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ge th

ede

velo

pmen

t gap

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f and

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riers

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ade

faci

litat

ion

mea

sure

s

- h

arm

oniz

atio

n of

cus

tom

s pr

oced

ures

,ex

pedi

tious

cus

tom

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eara

nce

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een

lane

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oduc

ts s

tand

ard

and

conf

orm

ance

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utua

l rec

ogni

tion

arra

ngem

ent

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ules

of o

rigin

of 4

0% re

gion

al c

onte

nt

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rant

nat

iona

l tre

atm

ent

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pen

up o

f ind

ustri

es/li

bera

lizat

ion

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ctor

s co

vere

d: m

anuf

actu

ring,

agr

icul

ture

, for

estry

,fis

hery

, min

ing,

and

ser

vice

s in

cide

ntal

to th

ese

five

sect

ors

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ansp

aren

cy

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vest

men

t fac

ilita

tion

and

prom

otio

n of

the

regi

onfo

r FD

I

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vest

men

t pro

tect

ion

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educ

e or

elim

inat

e in

vest

men

t im

pedi

men

ts

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int p

rom

otio

n of

ASE

AN a

s an

inve

stm

ent r

egio

n

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tabl

ish

a FT

A by

201

0

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ogre

ssiv

e el

imin

atio

n of

tarif

fs a

nd n

on-ta

riff b

arrie

rs

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ogre

ssiv

e lib

eral

izat

ion

of tr

ade

in s

ervi

ces

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tabl

ishm

ent o

f an

open

and

com

petit

ive

inve

stm

ent

regi

me

that

faci

litat

es a

nd p

rom

otes

FD

I

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tabl

ishm

ent o

f effe

ctiv

e tra

de a

nd in

vest

men

tfa

cilit

atio

n m

easu

res

such

as

sim

plifi

catio

n of

cus

tom

spr

oced

ures

and

mut

ual r

ecog

nitio

n ar

rang

emen

ts

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ther

inve

stm

ent m

easu

res

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rent

ly b

eing

neg

otia

ted)

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arke

t see

king

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de-le

din

vest

men

t and

regi

onal

mar

ket-

orie

nted

)

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ficie

ncy

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ing

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tre

duct

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rt-or

ient

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enin

g up

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esou

rce

sect

ors)

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ugh

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ing

up o

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ourc

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ctor

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r FD

I)

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arke

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iona

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oduc

tion

netw

orks

and

inve

stm

ent)

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ffici

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arke

t see

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ffici

ency

see

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esou

rce

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ing

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oduc

tion

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ork

World Investment Report 2003 FDI Policies for Development: National and International Perspectives228A

nn

ex

ta

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A.I

I.3

. A

sia

an

d t

he

Pa

cif

ic:

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eg

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pes

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ay le

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emen

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SAAR

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refe

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ing

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ent

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PTA

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Agre

emen

t sig

ned

on11

Apr

il 19

93 a

nd in

oper

atio

n in

199

5.C

urre

ntly

stu

dyin

g in

mov

ing

tow

ards

an

FTA

.

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lade

sh, I

ndia

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yanm

ar, S

ri La

nka,

Thai

land

Eco

nom

icC

oope

ratio

n (B

IMST

EC) e

Star

ted

in J

une

1997

.Pr

opos

al h

as b

een

mad

e to

mov

e fro

m P

TA to

FTA

.

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h Pa

cific

Reg

iona

lTr

ade

and

Econ

omic

Coo

pera

tion

Agre

emen

t(S

PAR

TEC

A) f

Sign

ed o

n 14

Jul

y 19

80 a

ndca

me

into

effe

ct fo

r mos

tFo

rum

Isla

nd C

ount

ries

on 1

Jan

uary

198

1.

So

urc

e:

UN

CTA

D.

aM

em

be

rs o

f A

FTA

: B

run

ei

Da

russ

ala

m,

Ca

mb

od

ia,

Ind

on

esi

a,

La

o P

DR

, M

ala

ysia

, M

yan

ma

r, P

hili

pp

ine

s, S

ing

ap

ore

, T

ha

ilan

d a

nd

Vie

t N

am

. T

he

Ag

ree

me

nt

wa

s su

pp

ort

ed

by

furt

he

r tr

ad

e f

aci

lita

tio

na

rra

ng

em

en

ts s

uch

as

mu

tua

l re

cog

niti

on

, st

an

da

rds

an

d c

on

form

an

ce.

bM

em

be

rs o

f AIA

: B

run

ei D

aru

ssa

lam

, C

am

bo

dia

, In

do

ne

sia

, L

ao

PD

R,

Ma

lays

ia,

Mya

nm

ar,

Ph

ilip

pin

es,

Sin

ga

po

re, T

ha

ilan

d a

nd

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t N

am

.c

Me

mb

ers

of A

CF

TA:

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ne

i Da

russ

ala

m,

Ca

mb

od

ia,

Ch

ina

, I

nd

on

esi

a,

La

o P

DR

, M

ala

ysia

, M

yan

ma

r, P

hili

pp

ine

s, S

ing

ap

ore

, Th

aila

nd

an

d V

iet

Na

m.

dM

em

be

rs o

f SA

AR

C P

refe

ren

tial T

rad

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Arr

an

ge

me

nt (

SA

PTA

): B

an

gla

de

sh, B

hu

tan

, In

dia

, Ma

ldiv

es,

Ne

pal,

Pa

kist

an

an

d S

ri L

an

ka. S

AA

RC

re

pre

sen

ts th

e S

ou

th A

sia

n A

sso

cia

tion

for

Re

gio

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l Co

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mb

ers

of

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ST

EC

: B

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gla

de

sh,

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ia,

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nm

ar,

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La

nka

an

d T

ha

ilan

d.

fM

em

be

rs o

f SP

AR

TE

CA

: Au

stra

lia, N

ew

Ze

ala

nd

, Co

ok

Isla

nd

s, F

ed

era

ted

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tes

of M

icro

ne

sia

, Fiji

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iba

ti, M

ars

ha

ll Is

lan

ds,

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uru

, Niu

e, P

ap

ua

Ne

w G

uin

ea

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lom

on

Isla

nd

s, T

on

ga

, Tu

valu

, Va

nu

atu

an

dW

est

ern

Sa

mo

a.

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chan

ging

con

cess

ions

and

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ntin

g pr

efer

entia

ltra

ding

arr

ange

men

ts

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riff a

nd n

on-ta

riff r

educ

tions

on

pref

eren

tial b

asis

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ade

faci

litat

ion

mea

sure

s

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chni

cal a

ssis

tanc

e an

d co

oper

atio

n ar

rang

emen

ts

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ules

of o

rigin

•Si

x pr

iorit

y ar

eas,

of w

hich

trad

e an

d in

vest

men

t is

one

area

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ade

faci

litat

ion

thro

ugh

harm

oniz

atio

n of

cus

tom

spr

oced

ures

and

pra

ctic

es

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chan

ge o

f inf

orm

atio

n on

sta

ndar

d

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reng

then

ing

of b

anki

ng a

rran

gem

ents

to fa

cilit

ate

trade

and

inve

stm

ent a

nd to

uris

m

•Pr

omot

ion

of tr

ansp

ort a

nd c

omm

unic

atio

n fa

cilit

ies

•Pr

omot

e m

obili

ty o

f bus

ines

s pe

ople

by

faci

litat

ing

visa

issu

ance

•D

uty

free

and

unre

stric

ted

mar

ket a

cces

s (a

lmos

t all

prod

ucts

) to

Aust

ralia

and

New

Zea

land

•G

ener

al e

cono

mic

, com

mer

cial

and

tech

nica

lco

oper

atio

n

•R

ules

of o

rigin

•Ta

riff j

umpi

ng

•M

arke

t see

king

•R

esou

rce

seek

ing

•E

ffici

ency

see

king

•M

arke

t see

king

•R

esou

rce

seek

ing

•E

ffici

ency

see

king

•M

arke

t see

king

•R

esou

rce

seek

ing

•E

ffici

ency

see

king

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tent

ial i

nflu

ence

on

regi

onal

mar

ket o

rient

edin

vest

men

t stra

tegi

es

•G

reat

er o

ppor

tuni

ties

for i

nves

tmen

t and

trad

e-in

vest

men

t rel

ated

act

iviti

es

•Lo

caliz

atio

n of

pro

duct

ion

to m

eet l

ocal

con

tent

rule

s.As

suc

h TN

Cs

may

inve

st in

a m

ore

effic

ient

loca

tion

and

prob

ably

als

o in

a h

ost c

ount

ry w

ith la

rge

mar

ket

size

as

wel

l as

labo

ur s

uppl

y.

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ppor

tuni

ties

for t

rade

-led

inve

stm

ent i

n:

-Te

xtile

s an

d cl

othi

ng-

Dru

gs a

nd p

harm

aceu

tical

s-

Gem

s an

d je

wel

lery

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ortic

ultu

ral a

nd fl

oric

ultu

ral p

rodu

cts

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oces

sed

food

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tom

otiv

e in

dust

ry a

nd p

arts

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ubbe

r, te

a an

d co

ffee

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pice

s

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caliz

atio

n of

pro

duct

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influ

ence

d by

the

need

toob

serv

e th

e 50

% ru

les

of o

rigin

•O

ppor

tuni

ties

for t

rade

-inve

stm

ent r

elat

ed a

ctiv

ities

in s

ervi

cing

a la

rger

mar

ket

•As

a tr

ansi

tion

to a

Sou

th A

sian

Free

Tra

de A

rea

(SAF

TA)

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pro

mot

e m

utua

l tra

de a

ndec

onom

ic c

oope

ratio

n

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reat

e an

ena

blin

g en

viro

nmen

tfo

r rap

id e

cono

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dev

elop

men

t

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cele

rate

soc

ial p

rogr

ess

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omot

e ac

tive

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bora

tion

and

mut

ual a

ssis

tanc

e

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onom

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omm

erci

al a

ndte

chni

cal o

oper

atio

n

•Au

stra

lia a

nd N

ew Z

eala

nd o

ffer

duty

free

and

unr

estri

cted

or

conc

essi

onal

acc

ess

for v

irtua

llyal

l pro

duct

s or

igin

atin

g fro

m th

ede

velo

ping

For

um Is

land

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ntrie

s

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World Investment Report 2003 FDI Policies for Development: National and International Perspectives230

Annex table A.II.5. Developed countries: components of FDI flows in selected countries,2001-2002

(Millions of dollars)

Outflows Inflows

Reinvested Other Reinvested OtherCountry Total Equity earnings capitala Total Equity earnings capitala

France2001 92 974 54 472 6 604 31 899 55 190 20 659 2 180 32 3512002 62 544 27 530 6 968 28 046 51 503 29 887 2 496 19 120

Germany2001 42 078 55 139 - 2 899 - 10 161 33 917 26 925 - 3 222 10 2152002 24 535 44 065 - - 19 529 38 035 25 397 - 3 388 16 026

Japan2001 38 333 27 295 6 958 4 084 6 243 4 908 1 546 - 2152002 31 482 22 926 8 231 325 9 326 - 5 830 1 505 13 651

Luxembourg2002 154 072 116 627 408 37 036 125 660 111 218 2 403 12 038

Norway2001 - 1 272 575 300 - 2 148 2 212 1 314 - 382 1 2802002 3 810 5 202 338 - 1 730 615 869 - 430 176

Sweden2001 6 594 5 625 2 016 - 1 046 11 780 9 168 - 589 3 2052002 10 869 10 475 5 690 - 5 299 11 081 9 079 992 1 007

Switzerland2001 17 300 13 500 2 700 1 100 8 900 9 000 900 - 1 0002002 11 800 8 800 4 200 - 1 200 9 300 2 400 3 300 3 600

United Kingdom2001 68 037 25 949 35 482 6 606 61 958 29 158 6 973 25 8272002 39 703 20 375 44 048 - 24 720 24 945 14 724 15 405 - 5 185

United States2001 127 800 49 800 - 1 500 81 700 130 800 107 700 - 19 700 42 8002002 123 500 27 300 14 500 79 700 30 100 57 600 10 200 - 37 700

Source: UNCTAD, based on national sources.

a Mainly intra-company loans.

Note: Up to 2001, data for the Belgium-Luxembourg Economic Union (BLEU) were reported by the National Bank of Belgium. Data onLuxembourg are not available separately before 2002.

DEFINITIONS AND SOURCES

A. General definitions

1. Transnational corporations

Transnational corporations (TNCs) are incorporated or unincorporated enterprises comprisingparent enterprises and their foreign affiliates. A parent enterprise is defined as an enterprise that controlsassets of other entities in countries other than its home country, usually by owning a certain equitycapital stake. An equity capital stake of 10 per cent or more of the ordinary shares or voting powerfor an incorporated enterprise, or its equivalent for an unincorporated enterprise, is normally consideredas a threshold for the control of assets.1 A foreign affiliate is an incorporated or unincorporated enterprisein which an investor, who is resident in another economy, owns a stake that permits a lasting interestin the management of that enterprise (an equity stake of 10 per cent for an incorporated enterpriseor its equivalent for an unincorporated enterprise). In the World Investment Report, subsidiary enterprises,associate enterprises and branches – defined below – are all referred to as foreign affiliates or affiliates.

• A subsidiary is an incorporated enterprise in the host country in which another entity directly ownsmore than a half of the shareholder’s voting power and has the right to appoint or remove a majorityof the members of the administrative, management or supervisory body.

• An associate is an incorporated enterprise in the host country in which an investor owns a total ofat least 10 per cent, but not more than half, of the shareholders’ voting power.

• A branch is a wholly or jointly owned unincorporated enterprise in the host country which is one ofthe following: (i) a permanent establishment or office of the foreign investor; (ii) an unincorporatedpartnership or joint venture between the foreign direct investor and one or more third parties; (iii)land, structures (except structures owned by government entities), and /or immovable equipment andobjects directly owned by a foreign resident; or (iv) mobile equipment (such as ships, aircraft, gas-or oil-drilling rigs) operating within a country, other than that of the foreign investor, for at least oneyear.

2. Foreign direct investment

Foreign direct investment (FDI) is defined as an investment involving a long-term relationshipand reflecting a lasting interest and control by a resident entity in one economy (foreign direct investoror parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor(FDI enterprise or affiliate enterprise or foreign affiliate).2 FDI implies that the investor exerts a significantdegree of influence on the management of the enterprise resident in the other economy. Such investmentinvolves both the initial transaction between the two entities and all subsequent transactions betweenthem and among foreign affiliates, both incorporated and unincorporated. FDI may be undertaken byindividuals as well as business entities.

Flows of FDI comprise capital provided (either directly or through other related enterprises)by a foreign direct investor to an FDI enterprise, or capital received from an FDI enterprise by a foreigndirect investor. FDI has three components: equity capital, reinvested earnings and intra-company loans.

• Equity capital is the foreign direct investor’s purchase of shares of an enterprise in a country otherthan its own.

• Reinvested earnings comprise the direct investor’s share (in proportion to direct equity participation)of earnings not distributed as dividends by affiliates, or earnings not remitted to the direct investor.Such retained profits by affiliates are reinvested.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives232

• Intra-company loans or intra-company debt transactions refer to short- or long-term borrowing andlending of funds between direct investors (parent enterprises) and affiliate enterprises.

FDI stock is the value of the share of their capital and reserves (including retained profits)attributable to the parent enterprise, plus the net indebtedness of affiliates to the parent enterprise.FDI flow and stock data used in the World Investment Report are not always defined as above, becausethese definitions are often not applicable to disaggregated FDI data. For example, in analysinggeographical and industrial trends and patterns of FDI, data based on approvals of FDI may also beused because they allow a disaggregation at the country or industry level. Such cases are denotedaccordingly.

3. Non-equity forms of investment

Foreign direct investors may also obtain an effective voice in the management of another businessentity through means other than acquiring an equity stake. These are non-equity forms of FDI, andthey include, inter alia, subcontracting, management contracts, turnkey arrangements, franchising,licensing and product sharing. Data on these forms of transnational corporate activity are usually notseparately identified in the balance-of-payments statistics. These statistics, however, usually presentdata on royalties and licensing fees, defined as “receipts and payments of residents and non-residentsfor: (i) the authorized use of intangible non-produced, non-financial assets and proprietary rights suchas trademarks, copyrights, patents, processes, techniques, designs, manufacturing rights, franchises,etc., and (ii) the use, through licensing agreements, of produced originals or prototypes, such asmanuscripts, films, etc.”3

B. Availability, limitations and estimates of FDIdata presented in the World Investment Report

1 . FDI flows

Data on FDI flows in annex tables B.1 and B.2, as well as in most of the tables in the text, areon a net basis (capital transactions’ credits less debits between direct investors and their foreign affiliates).Net decreases in assets (FDI outward) or net increases in liabilities (FDI inward) are recorded as credits(recorded with a positive sign in the balance of payments), while net increases in assets or net decreasesin liabilities are recorded as debits (recorded with a negative sign in the balance of payments). Inthe annex tables, as well as in the tables in the text, the negative signs are deleted for practical purpose.Hence, FDI flows with a negative sign in the World Investment Report indicate that at least one ofthe three components of FDI (equity capital, reinvested earnings or intra-company loans) is negativeand is not offset by positive amounts of the other components. These are instances of reverse investmentor disinvestment.

UNCTAD regularly collects published and unpublished national official FDI flows data directlyfrom central banks, statistical offices or national authorities on an aggregated and disaggregated basisfor its FDI/TNC database. These data constitute the main source for the reported data on FDI flows.These data are further complemented by the data obtained from: (i) other international organisationssuch as the International Monetary Fund (IMF), the World Bank and the Organisation for EconomicCo-operation and Development (OECD); (ii) regional organizations such as the United Nations EconomicCommission for Latin America and the Caribbean (ECLAC), the ASEAN Secretariat and the EuropeanBank for Reconstruction and Development (EBRD); and (iii) UNCTAD’s own estimates.

For those economies for which data were not available from national official sources, or for thosefor which data are not available for the entire period of 1980-2002 covered in the World InvestmentReport 2003, data from the IMF were obtained using the IMF’s CD-ROMs on International FinancialStatistics and Balance of Payments, June 2003.

For those economies for which data were not available from national official sources or the IMF,or for those for which data are not available for the entire period of 1980-2002, data from the WorldBank’s World Development Indicators 2003 CD-ROM were used. This report covers data up to 2002and reports data on net FDI flows (FDI inflows less FDI outflows) and FDI inward flows only.

DEFINITIONS AND SOURCES 233

Consequently, data on FDI outflows, which are reported as World Bank data, are estimated by subtractingFDI inward flows from net FDI flows.

For those economies in Latin America and the Caribbean for which data are not available fromone of the above-mentioned sources, data from ECLAC were utilized. Data from the EBRD were alsoutilized for those economies in Central Asia for which data were not available from one of the above-mentioned sources.

Furthermore, data on the FDI outflows of the OECD, as presented in its publication, GeographicalDistribution of Financial Flows to Developing Countries, and as obtained from its on-line databank,are used as a proxy for FDI inflows. As these OECD data are based on FDI outflows to developingeconomies from the member countries of the Development Assistance Committee (DAC) of OECD,4

inflows of FDI to developing economies may be underestimated. In some economies, FDI data fromlarge recipients and investors are also used as proxies.

Finally, in those economies for which data were not available from either of the above-mentionedsources, or only partial data (quarterly or monthly) were available, estimates were made by: annualisingthe data, if they are only partially available (monthly or quarterly) from either the IMF or nationalofficial sources; using data on cross-border mergers and acquisitions (M&As) and their growth rates;and using UNCTAD’s own estimates.

The following sections give details of how data on FDI flows for each economy used in the Reportwere obtained.

a. FDI inflows

Those economies for which data from national official sources were used for the period, 1980-2002, or part of it, are listed below.

Period Economy

1980-2002 Bolivia; Brazil; Canada; Chile; Finland; Japan; Republic of Korea; Peru; TaiwanProvince of China; Tunisia; Turkey; United States and Venezuela

1980-1993 and 1995-2002 Congo1980-1985 and 1995-2002 Paraguay1982-2002 Sweden1985-2002 Austria; Burundi; Denmark; Pakistan and Senegal1986-2002 Ecuador; France and Switzerland1987-2002 Germany and the Netherlands1988-2002 Iceland; Lesotho; Mauritius and the United Kingdom1988-1991 and 1994-2002 Slovenia1989-2002 Australia1989-1992 and 2000-2002 Armenia1990-2002 Algeria; Angola; Anguilla; Antigua and Barbuda; Aruba; Bahamas; Benin;

Botswana; Bulgaria; Colombia; Costa Rica; Côte d’Ivoire; Czech Republic;Dominica; Dominican Republic; Egypt; Fiji; Gambia; Ghana; Greece; Grenada;Guatemala; Honduras; Ireland; Israel; Jamaica; Kenya; Madagascar; Mexico;Montserrat; Morocco; Mozambique; Namibia; Nigeria; Norway; Portugal;Romania; Rwanda; Saint Kitts and Nevis; Saint Lucia; Saint Vincent and theGrenadines; Seychelles; Slovakia; South Africa; Sri Lanka; Suriname; Swaziland;United Republic of Tanzania; Togo; Trinidad and Tobago; Yemen and Zimbabwe

1990-1991 and 1992-2002 Zambia1991-2002 Djibouti; Haïti; India; Nicaragua and Uganda;1992-2002 Argentina; Belarus; Burkina Faso; Estonia; Guyana; Kazakhstan; Lithuania;

Mongolia; Niger and Serbia and Montenegro1992-1993 and 1996-2002 Russian Federation1992-1993 and 1999-2002 Republic of Moldova and Ukraine1993-2002 Croatia; Kuwait; Mali and Uruguay1994-2002 Albania; Azerbaijan; Cape Verde; Spain and the TFYR Macedonia1995-2002 Central African Republic; Chad; Equatorial Guinea and Gabon1996-2002 Bosnia and Herzegovina and Sudan1997-2002 Bahrain and Guinea-Bissau1998-2002 El Salvador; Hong Kong (China); Latvia and New Zealand1999-2002 China

/...

World Investment Report 2003 FDI Policies for Development: National and International Perspectives234

Period Economy

2000-2002 Italy and Netherlands Antilles2001-2002 Bangladesh2002 Belgium; Jordan; Kyrgyzstan; Luxembourg; Poland and Vanuatu1985-2001 Barbados1990-2001 Belize and Malawi1991-2001 Cyprus1992-2001 Ethiopia1993-2001 Libyan Arab Jamahiriya1995-2001 Oman1996-2001 Solomon Islands1999-2001 Belgium and Luxembourg2001 Macau (China) and Tajikistan1997-2000 Occupied Palestinian Territory1985-1997 Papua New Guinea1994-1996 Georgia1990-1995 Indonesia1980-1994 Thailand1990-1994 Malaysia; the Philippines; Singapore and Viet Nam1986-1991 Hungary

Those economies for which national official sources provided either preliminary or estimateddata are listed below.

Period Economy

2002 Benin; Burkina Faso; Central African Republic; Chad; Congo; Côte d’Ivoire;Djibouti; Equatorial Guinea; Gabon; Ghana; Guinea-Bissau; Haiti; Jamaica;Madagascar; Mali; Morocco; Niger; Senegal; Suriname;Togo and Uganda

As mentioned above, one of the main sources for annex table B.1 is the IMF. Those economiesfor which IMF data were used for the period, 1980-2002, or part of it, are listed below.

Period Economy

1980-2002 Malta and Panama1997-2002 Georgia1980-2001 Jordan; Poland and Saudi Arabia1980-1984 and 1998-2001 Papua New Guinea1982-2001 Vanuatu1984-1993 and 2000-2001 Tonga1986-2001 Guinea and Maldives1993-2001 Kyrgyzstan2001 São Tomé and Principe1983-1984 and 1986-2000 Bangladesh1994-2000 Islamic Republic of Iran1996-2000 Eritrea and Nepal1980-1999 Netherlands Antilles1993-1999 Armenia1980-1998 Belgium and Luxembourg; China and Italy1980-1995 and 1998 Mauritania1994-1998 Republic of Moldova and Ukraine1980-1997 New Zealand1980-1993 and 1995-1997 El Salvador1992-1997 Latvia1996-1997 Turkmenistan1980 and 1982-1996 Bahrain1980-1995 Cameroon; Sierra Leone and Solomon Islands1987-1995 Comoros1994-1995 Russian Federation1980-1994 Central African Republic; Gabon and Oman1983 and 1985-1994 Kiribati1984-1989 and 1991-1994 Chad

/...

DEFINITIONS AND SOURCES 235

Period Economy

1986-1994 Paraguay1988-1994 Lao People’s Democratic Republic1989-1994 Equatorial Guinea and Myanmar1992-1994 Cambodia1994 New Caledonia1980-1993 Spain1986-1993 Cape Verde1990-1993 Brunei Darussalam1992-1993 Albania and Slovenia1980-1992 Libyan Arab Jamahiriya and Mali1980-1991 Argentina and Niger1980-1990 Cyprus1980-1989 Algeria; Antigua and Barbuda; Bahamas; Botswana; Burkina Faso; Colombia;

Costa Rica; Côte d’Ivoire; Dominican Republic; Egypt; Fiji; Ghana; Greece;Guatemala; Haiti; Honduras; Indonesia; Ireland; Israel; Jamaica; Kenya; Malaysia;Mexico; Morocco; Nigeria; Norway; Philippines; Portugal; Rwanda; Saint Kittsand Nevis; Saint Lucia; Saint Vincent and the Grenadines; Seychelles; Singapore;South Africa; Sri Lanka; Suriname; Swaziland; Togo; Trinidad and Tobago; Zambiaand Zimbabwe

1980-1984 and 1988-1989 Benin1981 and 1987-1989 Gambia1982-1989 Dominica and Grenada1984-1989 Belize1984-1985 and 1989 Sudan1985-1989 Angola1986-1989 Montserrat and Mozambique1989 Madagascar amd Nicaragua1980-1988 Australia1980-1981, 1986-1988 Uruguay1980-1987 Iceland; Lesotho; Mauritius; United Kingdom and Yemen1980-1981, 1983, 1985 and 1987 Malawi1982-1987 Liberia1980-1986 Germany and the Netherlands1980-1985 Ecuador; France and Guyana1982-1985 Somalia1983-1985 Switzerland1980-1984 Austria; Barbados; Pakistan and Senegal1981-1984 Denmark1981-1982 Hungary1980-1981 Sweden

Those economies for which World Bank data were used for the period, 1980-2002, or part ofit, are listed below.

Period Economy

1995-2000 Lebanon1996-2000 Cameroon1992-1994 and 1998-1999 Samoa1995-1999 Tonga1997 Kiribati1992-1995 Nepal1993-1995 Somalia1992 Zambia1990-1991 Ethiopia1990 Haiti1989 Czech Republic

ECLAC data were used for the Virgin Islands (the United Kingdom) for the period 1990-1997.

Data from the ASEAN Secretariat were used for the South-East Asian countries for the period1995 to 2002. The data are on a balance-of-payments basis. Malaysia and Singapore report data basedon surveys of companies.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives236

Those economies for which data from EBRD’s Transition Report 2002 were used for the period,1980-2002, or part of it, are listed below.

Period Economy

1992-2000 and 2002 Uzbekistan1993-1995 and 1998-2002 Turkmenistan1992-2000 Tajikistan

For those economies in which FDI inflows data were unavailable from the above-mentioned sources,UNCTAD’s estimates were used on the following basis:

• Net foreign direct investment flows

Estimates were applied by using the net FDI flows from either national official sources or theIMF for the economies and the years listed below.

(a) National official sources

Year Economy

1995-2002 Trinidad and Tobago

(b) IMF

Year Economy

1995-2000 Syrian Arab Republic

• Annualised data

Estimates were applied by annualising quarterly data obtained from either national official sourcesor the IMF for the economies and the years listed below.

(a) National official sources

Year Latest quarter/month Economy

2002 Third quarter CyprusFirst quarter Tajikistan

2001 August Ethiopia

(b) IMF

Year Latest quarter Economy

1994 Second quarter Tonga

• Proxy

In estimating FDI inflows for some economies for which data were not available, OECD dataon outward flows from DAC member countries are used as proxies for FDI inflows. These economiesfor which this methodology was applied, for the period 1980-2002, or part of it, are listed below (thesedata were available until 2001 only at the time of the compilation of inflow data):

DEFINITIONS AND SOURCES 237

Period Economy

1980-2001 Bermuda; Cayman Islands; Democratic Republic of Congo; Gibraltar andUnited Arab Emirates

1980-1981, 1986-1992 and 1998-2001 Somalia1980, 1982-1989 and 1998-2001 Virgin Islands (United Kingdom)1980-1981 and 1988-2001 Liberia1980, 1983, 1985-1986, 1988-1993, 1995-1996 and 1998-2001 New Caledonia1980-1993 and 2001 Islamic Republic of Iran1980-1991 and 2001 Nepal1980 and 1982-2001 Cuba1980 and 1983-2001 Qatar1980-1983, 1987, 1991-1994 and 1996-2001 Afghanistan1980-1995 and 1997-2001 Iraq1982 and 1996-2001 Comoros1987-2001 Democratic People’s Republic of Korea1994, 1996, 1998-1999 and 2001 Tuvalu1996-2001 Sierra Leone1996-1997 and 1999-2001 Mauritania2001 Eritrea; Cameroon and Uzbekistan1982-1983 and 1985-2000 Macao (China)1983-1988, 1990-1991, 1995-1997 and 2000 Samoa1987-1989, 1993 and 1995-2000 São Tomé and Principe1990-1991, 1995-1997 and 2000 Bhutan1984-1992 and 1994-1996 Guinea-Bissau1980-1983, 1986-1988 and 1990-1995 Sudan1995 Bosnia and Herzegovina1980-1994 Lebanon1980, 1982-1988 and 1994 Brunei Darussalam1994 Congo and El Salvador1980-1992 Kuwait1980-1981 and 1983-1992 Syrian Arab Republic1982-1985 and 1989-1992 Uruguay1986-1991 Guyana1990-1991 Burkina Faso1986 and 1991 Mongolia1980-1990 India1980-1987 and 1989-1990 Djibouti1980, 1982, 1985 and 1988-1990 Uganda1980-1989 United Republic of Tanzania1981-1982,1985-1986 and 1988-1989 Viet Nam1982, 1984, 1986 and 1988-1989 Malawi1985 and 1987-1989 Namibia1988-1989 Yemen1989 Aruba1980-1988 Ethiopia and Madagascar1981-1988 Equatorial Guinea1981, 1985-1988 and 1990 Nicaragua1985-1987 Benin1980 and 1982-1986 Gambia1980, 1983-1984 and 1986-1987 Myanmar1980-1981 and 1983-1985 Guinea1980-1982 and 1985 Bangladesh1980-1985 Maldives and Mozambique1985 Lao People’s Democratic Republic1980-1984 Angola; Burundi1980-1981 and 1983 Chad1980-1981 Vanuatu1981 Bahrain; Belize and Dominica1980 Cambodia; Grenada

World Investment Report 2003 FDI Policies for Development: National and International Perspectives238

• Estimates of UNCTAD

Estimates of UNCTAD based on national and secondary information sources are applied to thefollowing economies and periods where FDI inflows data are not available:

Period Economy Methodology

1980-1982, 1989 and 2001-2002 Samoa1981-1982, 1984, 1987, 1997 and 2002 New Caledonia1981-1982 and 2002 Qatar1982 and 2001-2002 Syrian Arab Republic1983 and 2002 Guinea1995-1996 and 1998-2002 Kiribati1995, 1997, 2000 and 2002 Tuvalu1995 and 2002 Afghanistan1996-1997 and 2002 Somalia1996 and 2001-2002 Occupied Palestinian Territory1996 and 2002 Iraq1998-1999 and 2001-2002 Bhutan2001-2002 Lebanon

2002 Barbados; Belize; Bermuda;Cayman Islands; Cuba; Gibraltar;Liberia; Mauritania andVirgin Islands (the United Kingdom)

Cameroon; Comoros; DemocraticRepublic of Congo; Eritrea;Ethiopia; Libyan Arab Jamahiriya;Malawi; São Tomé and Principeand Sierra Leone

Islamic Republic of Iran; DemocraticPeople’s Republic of Korea; Macau(China); Maldives; Nepal; Oman;Papua New Guinea; Saudi Arabia;Solomon Islands; Tonga andUnited Arab Emirates

1980-1997 Hong Kong (China) Reported investment by major investoreconomies were used.

1993 Guinea-Bissau1982, 1990 Chad1981 and 1989 Brunei Darussalam1989 Ethiopia1988 Djibouti1980, 1983-1984 and 1987 Viet Nam1986 Namibia1980 Denmark and Equatorial Guinea

The data for India, presented in Annex table B.1., are equity investment only, as reported bythe Reserve Bank of India. After closing the data collection for this Report, the Reserve Bank of Indiareleased the revised FDI data on 30 June 2003. The revised data include all of the three componentsof FDI, which for fiscal year 2000/01 was $ 4.1 billion and $ 6.1 billion for fiscal year 2001/02.

Estimated by projecting investment trend.

Estimated by monitoring investmentsituation using secondary sources. ForBarbados, Bermuda, Cayman Islands andVirgin Island investment reported bymajor investor economies were used inaddition.

Estimated by using averages of theproportion of FDI on GDP, for four years(current account cycle of depreciation),adjusted for the 2002 GDP growth rate.Data for Libyan Arab Jamahiriya wereestimated by netting UNCTAD’s estimateon FDI outward flows from net FDI flows

Estimated by using averages of theproportion of FDI on GDP for four years(current account cycle of depreciation),adjusted for the 2002 GDP growth rate.Data for Saudi Arabia and Oman wereobtained after consulting with Balanceof Payments department officials.

Estimated by projecting investment trend.

DEFINITIONS AND SOURCES 239

b. FDI outflows

Those economies for which national official sources data were used for the period, 1980-2002,or part of it, are listed below.

Period Economy

1980-2002 Brazil; Canada; Chile; Finland; Japan; Republic of Korea; Taiwan Province ofChina; Thailand; United Kingdom and the United States

1981-2002 Tunisia1982-2002 Sweden1983-2002 Zimbabwe1985-2002 Austria; Denmark and Pakistan1986-2002 France and Switzerland1986-1989 and 1991-2002 Poland1987-2002 Germany; Netherlands and Turkey1998-2002 Algeria; Iceland and Mauritius1989-2002 Australia and Nigeria1990-2002 Bahamas; Botswana; Burundi; Colombia; Costa Rica; Côte d’Ivoire; Egypt; Fiji;

Gambia; Ireland; Israel; Jamaica; Kenya; Kuwait; Morocco; Namibia; Norway;the Philippines; Portugal; Romania; Senegal; Seychelles; Singapore; South Africa;Sri Lanka; Swaziland; Togo and Venezuela

1990-1996 and 2000-2002 Bangladesh1992-2002 Argentina; Aruba; Estonia; Latvia; Niger and Slovakia1992-1998 and 2001-2002 Mexico1993-2002 Burkina Faso; Croatia; Czech Republic; India; Mali and the Russian Federation1994-2002 Cape Verde; Kazakhstan; Republic of Moldova; Slovenia; Spain and Ukraine1995-2002 Central African Republic; Chad; Congo; Equatorial Guinea; Gabon; Lithuania

and Paraguay1996-2002 Benin and TFYR Macedonia1997-2002 Bahrain; Belarus and Uruguay1998-2002 El Salvador; Greece; Hong Kong (China) and New Zealand1999-2002 Ecuador and Italy2000-2002 Guinea-Bissau and the Netherlands Antilles2002 Belgium; China; Jordan and Luxembourg1980-2001 Malaysia1985-2001 Barbados1990-2001 Indonesia1991-2001 Cyprus1992-2001 Albania1993-2001 Libyan Arab Jamahiriya1999-2001 Belgium and Luxembourg and Trinidad and Tobago1995-2001 Bulgaria2001 Macau (China)1990-2000 Belize2000 Brunei Darussalam; Samoa; Solomon Islands and Tonga1980-1999 Bolivia1998-1999 Azerbaijan1999 Armenia1992 and 1995-1997 Bosnia and Herzegovina1991-1995 Hungary1988-1992 Papua New Guinea1990-1991 Haiti

Those economies for which national official sources provided either preliminary or estimateddata are listed below.

Period Economy

2002 Benin; Burkina Faso; Central African Republic; Chad; Congo; Côte d’Ivoire;Equatorial Guinea; Gabon; Guinea-Bissau; Madagascar; Mali; Morocco; Niger;Senegal; Singapore and Togo

World Investment Report 2003 FDI Policies for Development: National and International Perspectives240

As mentioned above, one of the main sources for annex table B.2 is the IMF. Those economiesfor which IMF data were used for the period, 1980-2002, or part of it, are listed below.

Period Economy

1993-2002 Malta1996-2002 Hungary1999-2002 Georgia2000 and 2002 Azerbaijan1980-1996 and 1999-2001 Jordan1982-2001 China1998-2001 Kyrgyzstan2000-2001 Bolivia1980-1999 Netherlands Antilles1995-1999 Peru1997-1999 Bangladesh1980-1998 Belgium and Luxembourg and Italy1998 Armenia1980-1997 New Zealand1990-1996 Bahrain1993-1996 Dominican Republic1996 El Salvador; Guinea1980-1995 Cameroon1981-1984 and 1995 Benin1980-1983, 1985-1989 and 1991-1994 Chad1982-1994 Central African Republic1990 and 1993-1994 Angola1994 Kiribati1980-1993 Gabon and Spain1988-1993 Cape Verde1990-1993 Tonga1992-1993 Slovenia1980-1982 and 1987-1992 Libyan Arab Jamahiriya1980-1991 Algeria; Niger1989-1991 Czechoslovakia (former) and Equatorial Guinea1985 and 1987-1990 Cyprus1990 Comoros1980-1989 Colombia; Costa Rica; Egypt; Fiji; Israel; Kenya; Kuwait; Norway; Portugal;

Senegal; Seychelles; Singapore; South Africa and Swaziland1982 and 1984-1989 Venezuela1985-1989 Sri Lanka1989 Bahamas and Burundi1980-1988 Australia1982-1988 Uruguay1986-1988 Mauritania1988 Lesotho; São Tomé and Principe1980-1987 Papua New Guinea1983-1987 Trinidad and Tobago1986-1987 Iceland1980-1986 Burkina Faso; Germany and the Netherlands1982-1986 Yemen1980-1985 France and Poland1980-1981 and 1983-1985 Botswana1983-1985 Switzerland1980-1984 Austria and Barbados1981-1984 Denmark1984 Pakistan1980-1983 Argentina1980-1981 Sweden

Where data were unavailable from the above-mentioned sources, estimates were applied byannualising quarterly data obtained from national official sources for the economies and the years listedbelow.

Year Latest quarter Economy

2002 Third quarter Cyprus

DEFINITIONS AND SOURCES 241

The World Bank reports only data on net FDI flows and FDI inward flows. Therefore, for selectedeconomies, FDI outward flows were estimated by subtracting FDI inflows from net FDI flows. Thismethodology was used for the economies and years listed below.

Period Economy

1985, 1988-1989 and 1992-2000 Uganda1990-2000 Saint Kitts and Nevis1990-1991 and 1995-2000 Saint Lucia1990-1992 and 1996-2000 Mozambique1990-1993 and 1997-2000 Grenada1997-2000 Ethiopia1984, 1987, 1990-1991and 1999 Honduras1991, 1995-1997 and 1999 Angola1991; 1995 and 1998-1999 Lao People’s Democratic Republic1992-1993, 1998 United Republic of Tanzania1995 and 1998 Papua New Guinea1980-1984, 1990-1991 and 1993-1994 Paraguay1991 and 1993-1994 Sierra Leone1993-1994 Uruguay1989-1993 El Salvador1993 Nicaragua1990-1992 Guatemala and Solomon Islands1992 Bulgaria and Lesotho1991 Comoros1986-1988 and 1990 Saint Vincent and the Grenadines1990 Mauritania1984 and 1986-1989 Bangladesh1986-1989 Tonga1987 and 1989 Belize1980-1981, 1983, 1985 and 1987 Togo1984-1987 Mauritius1980-1983 Pakistan

In the case of economies for which FDI outflows data were unavailable from the above-mentionedsources, three methodologies were used to calculate the estimates of UNCTAD.

• Proxy

Inflows of FDI to large recipient economies were used as a proxy. Those economies for whichthis methodology was used for the period, 1980-2002, or part of it, are listed below.

Economy Period Proxy countries/region

Algeria 1992-1996 Belgium and Luxembourg and France1997 Belgium and Luxembourg; France and the United States

Anguilla 1997-2000 United StatesAntigua and Barbuda 1992-1996 and 1998 Belgium and Luxembourg and the United States

1997 and 1999-2000 United StatesArgentina 1984-1986 United States and Venezuela

1987-1988 Brazil; Chile; France; Germany; United States and Venezuela1989-1991 Belgium and Luxembourg; Bolivia; Brazil; Chile; Colombia;

Ecuador; France; Germany; Netherlands; United States andVenezuela

Bahamas 1980-1985 United States1986-1988 Belgium and Luxembourg; France and the United States

Bahrain 1982 United States1985-1989 Belgium and Luxembourg; France and the United States

Bermuda 1980-1984 Brazil; Colombia; United States and Venezuela1985-1999 Belgium and Luxembourg; Brazil; Colombia; France; United States

and Venezuela2001-2002 Belgium and Luxembourg; France and the United States

Bosnia and Herzegovina 1993-1994 United StatesBurkina Faso 1987-1990 Belgium and Luxembourg and FranceCameroon 1996-1999 Belgium and Luxembourg; France and the United States

/...

World Investment Report 2003 FDI Policies for Development: National and International Perspectives242

Economy Period Proxy countries/region

Cayman Island 1980-1987 Belgium and Luxembourg; Brazil; Chile; Colombia and Venezuela1988-2002 Belgium and Luxembourg; Brazil; Chile; Colombia; France;

Mexico; Sweden and VenezuelaCongo 1988-1994 Belgium and Luxembourg and FranceCôte d’Ivoire 1989 Belgium and Luxembourg and FranceDominican Republic 1992 and 1997-2002 United StatesEcuador 1980-1983 Brazil; Colombia; Peru and the United States

1984-1998 Belgium and Luxembourg; Brazil; Colombia; Peruand the United States

Equatorial Guinea 1993 Belgium and Luxembourg; France and the United StatesGreece 1987-1994 Belgium and Luxembourg; Denmark; France; Germany;

Netherlands; Spain and the United States1995-1997 Belgium and Luxembourg; Denmark; France; Germany; Italy;

the Netherlands; Portugal; Spain and the United StatesGuatemala 1995-2001 Colombia; Honduras and the United StatesGuinea 1997-1999 Belgium and Luxembourg; France and the United StatesGuyana 1992-1993, 1996 and

1999-2000 United StatesHaiti 1993 and 1995-2000 United StatesHong Kong (China) 1980-1997 China; the European Union and the United StatesIndia 1980-1992 The European Union and the United StatesIndonesia 1980-1989 The European Union and the United StatesIslamic Republic of Iran 1991-1994 and 2000-2001 Belgium and Luxembourg; France and Germany

1995-1999 Belgium and Luxembourg; France; Germany and the United StatesIreland 1987-1989 Belgium and Luxembourg; France; Germany; Netherlands; United

Kingdom and the United StatesJordan 1997-1998 United StatesLao People’s Democratic Republic 2000-2001 ThailandLebanon 1982-2000 Belgium and Luxembourg; France and the United States

2000-2001 FranceLiberia 1980-2001 Belgium and Luxembourg; France and the United StatesMadagascar 1986-1996 Belgium and Luxembourg and France

1997-2000 Belgium and Luxembourg; France and the United StatesMali 1986-1992 Belgium and Luxembourg and FranceMexico 1980-1991 and 1990-2000 Belgium and Luxembourg; Colombia; Ecuador; France;

United States; VenezuelaNicaragua 1996-2001 Belgium and Luxembourg; Costa Rica; El Salvador and

the United StatesNigeria 1980-1982 and 1986-1988 Belgium and Luxembourg; Brazil and the United StatesOman 1985-1986 and 1988-2000 Belgium and Luxembourg; the United StatesPanama 1980-2002 Bolivia; Brazil; Chile; Colombia; Peru; United States and VenezuelaPeru 1990-1994 and 2002 Belgium and Luxembourg; Colombia; Ecuador and FranceThe Philippines 1980-1989 The European Union and the United StatesQatar 2000-2001 France and the United StatesRwanda 1985-1998 Belgium and LuxembourgSaudi Arabia 1980-2001 Belgium and Luxembourg; France; Morocco and the United StatesSierra Leone 1985, 1988-1990, 1992,

1995-1996 and 1998 Belgium and LuxembourgTogo 1986 and 1988-1989 Belgium and Luxembourg and FranceTrinidad and Tobago 1988-1990, 1993-1994

and 1997-1998 United StatesUnited Arab Emirates 1980-1984 United States

1985-2002 Belgium and Luxembourg; France; Netherlands andthe United States

United Republic of Tanzania 2000 United StatesVirgin Islands (United Kingdom) 1993-2002 United States

DEFINITIONS AND SOURCES 243

• Cross-border M&As

Data on cross-border M&As and their growth rates were used to estimate FDI outflows. Thoseeconomies are listed below.

Period Economy

1996 and 1998 Ghana1995-1998 Qatar1991; 1993 and 1995-1996 Brunei Darussalam1993 Cambodia

• Estimates of UNCTAD

Estimates of UNCTAD based on national and secondary information sources are applied to thefollowing economies and periods where FDI inflows data are not available:

Period Economy Methodology

1983-1986 and 2002 Libyan Arab Jamahiriya1985-1986, 1988-1989, 1992-1998 and 2000-2002 Honduras1986-1987, 1997 and 1999-2002 Sierra Leone1986-1987, 1990-1991 and 2001-2002 Uganda1987 and 2001-2002 Oman1988 and 2001-2002 Belize1992-1994, 1996-1997 and 2002 Lao People’s Democratic Republic1992-1994 and 2001-2002 Saint Lucia1992, 1994 and 2001-2002 Haiti1994-1995, 1997-1998 and 2001-2002 Guyana1994-1997, 1999 and 2001-2002 United Republic of Tanzania1994-1996 and 2001-2002 Grenada1993-1994 and 2002 Guatemala1993-1994, 1996-1997, 1999 and 2002 Papua New Guinea;1995-1996 and 2002 Trinidad and Tobago

1996-2002 Malawi Estimated by calculating the difference in stock andby projecting investment trend.

1997-1999 and 2001-2002 Brunei Darussalam1997 and 1999-2002 Ghana1998 and 2000-2002 Angola1999-2002 Rwanda;1999 and 2002 Qatar;2000-2002 Armenia; Cameroon; Guinea; Peru2001-2002 Anguilla; Antigua and Barbuda;

Ethiopia; Mozambique; Saint Kittsand Nevis;

2002 Albania; Barbados; Bolivia;Indonesia; Islamic Republic of Iran;Kyrgyzstan; Lebanon; Liberia;Malaysia; Nicaragua and Saudi Arabia

2001 Azerbaijan1999 Dominican Republic; Virgin Islands

(United Kingdom)1997 El Salvador1994 Gabon1985-1989 and 1992 Paraguay1991-1992 Burkina Faso

/...

Estimated by monitoring investment situation usingsecondary sources and investments reported by majorinvestment recipients.

Estimated by monitoring investment situation usingsecondary sources and investments reported by majorinvestment recipients.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives244

Period Economy Methodology

1992 Czech Republic Estimated by calculating the difference in stock.

1984 and 1990 Chad1990 Poland1980-1989 Morocco1982 and 1986-1989 Botswana1989 Saint Vincent and the Grenadines1989-1992, 1995-1996 Uruguay1986 Cyprus1983-1985 Nigeria1985 Bangladesh1983 Venezuela1982 and 1984 Togo1980-1981 Central African Republic1980 Denmark

Up to 2001, the National Bank of Belgium reported FDI data for the Belgium and LuxembourgEconomic Union. As of 2002, this economic union is no longer in effect. Consequently, FDI dataare reported separately by the respective national authorities. It is, therefore, difficult to comparethe 2002 data with the combined flows as reported in previous years because of different methodologies.

In the case of Lesotho, the Lesotho Highland Water Project is excluded from its FDI as it is notconsidered as foreign investment.

2. FDI stocks

Annex tables B.3 and B.4, as well as some tables in the text, present data on FDI stocks at bookvalue or historical cost, reflecting prices at the time when the investment was made.

UNCTAD regularly collects published and unpublished national official FDI stock data directlyfrom central banks, statistical offices or national authorities on an aggregated and disaggregated basisfor its FDI/TNC database. These data constitute the main source for the reported data on FDI stocks.They are further complemented by the data obtained from the IMF.

For economies in which data were not available from national official sources, or for those inwhich data were not available for the entire period of 1980-2002, data on International InvestmentPosition assets and liabilities from the IMF’s CD-ROMs on International Financial Statistics and Balanceof Payments, June 2003, were used instead.

For a large number of economies (as indicated in the footnotes of annex tables B.3 and B.4),FDI stocks are estimated by either cumulating FDI flows over a period of time or adding or subtractingflows to an FDI stock that has been obtained for a particular year from national official sources orthe IMF data series on assets and liabilities of direct investment.

In the case of the Republic of Korea, outward investment stocks obtained from the Bank of Koreawere used to estimate the data for the period 1994 to 2001.

Those economies for which national official data were used for the period, 1980-2002, or partof it, are listed below.

Country/economy Inward stock Outward stock

Australia 1980-1985 and 1989-2002 1980-2002Austria 1990-2002 1990-2002Argentina 1980-1989 and 1991-2001 1991-1999Bangladesh 1980-1988 NoneBelgium and Luxembourg 1980 1980Bolivia 1980-1999 1986-1999Bosnia and Herzegovina 1998 NoneBotswana 1990-2002 1990-2002Brazil 1980-1992 and 1995-1999 None

/...

Estimated by monitoring investment situation usingsecondary sources and investments reported by majorinvestment recipients.

DEFINITIONS AND SOURCES 245

Country/economy Inward stock Outward stock

Cambodia 1994-1998 NoneCanada 1980-2002 1980-2002Chile 1980-2001 1980-1992 and 1996-2001China 1997 and 2000 1981-1989Colombia 1980-2002 1980-2002Costa Rica 1980-1990 NoneCroatia 1996-1997 1992-1997Czech Republic 1992-2002 1992-2002Denmark 1980-2001 1980-2001Dominican Republic 1980-1990 NoneEcuador 1980-1990 and 1993-2002 NoneEl Salvador 1980-1990, 1993-1995 and 1998-2002 1998-2002Estonia 1996-2002 1996-2002Fiji 1980-1989 NoneFinland 1980-2001 1980-2001France 1989-2002 1989-2002Gambia 1990-2001 1990-2001Georgia 1995-1998 NoneGermany 1980-2001 1980-2001Greece 1980-1989 and 1999-2000 1999-2000Guatemala 1990-2002 NoneHong Kong (China) 1997-2001 1998-2001Hungary 1990-2001 1990-2001Iceland 1988-2002 1988-2002India 1980-1988 1992Indonesia 1980-1999 1993-1999Ireland 1999-2001 1999-2001Israel 1990-2002 1990-2002Italy 1980-2002 1994-2002Japan 1996-2001 1996-2001Kazakhstan 1993-2002 1995-2002Republic of Korea 1980-2002 1980-2001Latvia 1995-2002 1991-2002Lithuania 1991-2002 1994-2002Macau (China) 2001 2001Malawi None 1996-1998Malaysia None 1980-1998Mexico 1990-2001 2001-2002Republic of Moldova 1992-2002 1994-2002Namibia 1990-2001 1990-2001Nepal 2001 None Netherlands 1980-2001 1980-2001New Zealand 1980-1988 NoneNorway 1987-2001 1988-2000Pakistan 1980-2001 1980-2001Papua New Guinea 1980-1997 1980-1989Peru 1980-1999 and 2001-2002 1980-1990The Philippines 1980-2001 1980-1988 and 1990-2001Poland 1990-1999 1990-2000Portugal 1990-2002 1990-2002Romania 1990-2002 1990-2002Russian Federation 1993-1999 1992-1999Singapore 1980-2000 1990-2000Slovakia 1990-2000 1994-2000Slovenia 1993-2000 1990-2000South Africa 1980-2002 1980-2002Spain 1980-2001 1990-2002Sri Lanka 1980-1988 NoneSwaziland 1990-2002 1990-2002Sweden 1986-2002 1986-2002Switzerland 1980-2002 1980-1983 and 1986-2002Taiwan Province of China 1980-1988 1980-1988Thailand 1980-2000 1980-2000Trinidad and Tobago 1980-1990 NoneTunisia 1980-2002 1980-2002Turkey 2000-2001 2000-2001

/...

World Investment Report 2003 FDI Policies for Development: National and International Perspectives246

Country/economy Inward stock Outward stock

Ukraine 1991-2001 1993-2001United Kingdom 1980-2002 1980-2002United States 1980-2001 1980-2001Uruguay 1996-2002 1996-1999Venezuela 1980-2002 1990-2002Yemen 1990-2002 None

Those economies for which national official sources provided either preliminary or estimateddata are listed below.

Country/economy Inward stock Outward stock

1990-2002 Yemen None2001-2002 Colombia and Portugal Colombia and Portugal2002 Iceland Iceland1990-1993 Israel None

Those economies for which IMF data were used for the period, 1980-2002, or part of it, are listedbelow.

Country/economy Inward stock Outward stock

Australia 1986-1988 NoneAustria 1980-1989 1980-1989Argentina None 2000-2001Armenia 1997-2001 NoneAzerbaijan 1999-2002 NoneBahrain 1989-2001 1989-2001Belarus 1996-2001 NoneBelgium and Luxembourg 1981-2001 1981-2001Bolivia 2000-2001 2000-2001Brazil None 2001Bulgaria 1998-2001 1998-2001Cambodia 1999-2001 NoneCroatia 1998-2001 1998-2001El Salvador 1996-1997 1996-1997Finland 2002 2002France None 1987-1988Greece 1998 and 2001 2001Italy None 1980-1993Japan 1980-1995 1980-1995Kyrgyzstan 1993-2001 1998-2001Malaysia 1980-1994 NoneMalta None 1994-2000Myanmar 1999-2001 NoneNew Zealand 1989-2002 1992-2002Norway None 1980-1987Panama 1995-2002 NoneParaguay 1995-2002 1995-2002Peru 2000 1990-2002Poland 2000-2001 2001The Russian Federation 2000-2001 2000-2001Singapore 2001 2001Slovenia 2001 2001Spain None 1980-1989Swaziland 1981-1989 1981-1989Sweden 1982-1985 1982-1985Switzerland None 1984-1985Thailand 2001 NoneVenezuela None 1983-1989

DEFINITIONS AND SOURCES 247

C. Data revisions and updates

All FDI data and estimates in the World Investment Report are continuously revised. Becauseof the ongoing revision, FDI data reported in the World Investment Report may differ from those reportedin earlier Reports or other publications of UNCTAD. In particular, recent FDI data are being revisedin many economies according to the fifth edition of the balance-of-payments manual of IMF. Becauseof this, the data reported in last year’s Report may be completely or partly changed in this report.

D. Data verification

In compiling data for this year’s Report, requests for verifications and confirmation were madeto national official sources for virtually all economies to reflect the latest data revisions and accuracy.In addition, websites of certain national official sources were also consulted. This verification processcontinued until end June 2003. Any revisions made after this process are not reflected in the Report.

Below is a list of economies for which data were checked using either means. For the economies,which are not mentioned below, the UNCTAD Secretariat could not have the data verified or confirmedby their respective Governments.

Communiqué

Algeria; Angola; Aruba; Australia; Austria; ASEAN Secretariat; Bahamas; Barbados; Banque Centralede l’Afrique de l’Ouest; Banque des Etats de l’Afrique Centrale; Belgium; Bosnia and Herzegovina;

Botswana; Burundi; Canada; Chile; Colombia; Costa Rica; Cyprus; Denmark; Djibouti; EasternCaribbean Central Bank; Ecuador; Egypt; El Salvador; Ethiopia; Fiji; Finland; France; Gambia;Germany; Ghana; Greece; Guatemala; Guyana; Haiti; Honduras; Hong Kong (China); Iceland;

Indonesia; Ireland; Israel; Italy; Jamaica; Japan; Jordan; Kazakhstan; Kenya; Kuwait; Lesotho;Libyan Arab Jamahiriya; Luxembourg; Macau (China); Malawi; Malaysia; Madagascar; Mauritius;

Mexico; Morocco; Mozambique; Namibia; Netherlands; New Zealand; Nicaragua; Nigeria; Norway;Pakistan; Philippines; Portugal; Romania; Rwanda; Seychelles; Singapore; South Africa; Spain; Sri

Lanka; Sudan; Suriname; Swaziland; Sweden; Switzerland; United Republic of Tanzania; TaiwanProvince of China; Thailand; Tunisia; Turkey; Uganda; Uruguay; United Kingdom; United States;

Venezuela; Viet Nam; Yemen; Zambia and Zimbabwe

Web sites

Albania; Argentina; Armenia; Australia; Austria; Azerbaijan; Bahrain; Bangladesh; Belarus; Belgium;Belize; Bolivia; Brazil; Bulgaria; Canada; Cape Verde; China; Colombia; Costa Rica; Croatia; Cyprus;Czech Republic; Denmark; Dominican Republic; Eastern Caribbean Central Bank; Ecuador; Egypt; ElSalvador; Estonia; Fiji; Finland; France; Germany; Guatemala; Haiti; Honduras; Hong Kong (China);Hungary; Iceland; India; Ireland; Israel; Italy; Japan; Kazakhstan; Kuwait; Republic of Korea; Latvia;

Lithuania; Luxembourg; TFYR Macedonia; Mauritius; Republic of Moldova; Mongolia; Morocco;Mozambique; Namibia; Netherlands; New Zealand; Norway; Nicaragua; Occupied Palestinian

Territory; Oman; Pakistan; Paraguay; Peru; the Philippines; Poland; Portugal; Romania; RussianFederation; Rwanda; Serbia and Montenegro; Slovakia; Slovenia; Solomon Islands; South Africa;Spain; Sudan; Swaziland; Sweden; Switzerland; Tajikistan; United Republic of Tanzania; TaiwanProvince of China; Trinidad and Tobago; Thailand; Tunisia; Turkey; Ukraine; Uruguay; United

Kingdom; United States; Vanuatu; Venezuela and Yemen

World Investment Report 2003 FDI Policies for Development: National and International Perspectives248

E. Definitions and sources of the data in annex tables B.5 and B.6

These two annex tables show the ratio of inward and outward FDI flows to gross fixed capitalformation (annex table B.5) and inward and outward FDI stock to GDP (annex table B.6), respectively.All of these data are in current prices.

The data on GDP were obtained from the UNCTAD Secretariat, IMF’s CD-ROM on InternationalFinancial Statistics, June 2003 and IMF’s World Economic Outlook, April 2003. For some economiessuch as Taiwan Province of China, data are complemented by national official sources.

The data on gross fixed capital formation were obtained from IMF’s CD-ROM on InternationalFinancial Statistics, June 2003. For some economies for which data are not available for the period1980-2002, or part of it, data are complemented using data on gross capital formation. These dataare further complemented by data obtained from: (i) national official sources; (ii) World Bank dataon gross fixed capital formation or gross capital formation, obtained from the World DevelopmentIndicators 2003 CD-ROM.

For annex table B.5, figures exceeding 100 per cent may result from the fact that, for someeconomies, the reported data on gross fixed capital formation do not necessarily accurately reflectthe value of capital formation and FDI flows do not necessarily translate into capital formation.

Data on FDI are from annex tables B.1-B.4.

F. Definitions and sources of the data on cross-border M&Asin annex tables B.7-B.10

FDI is a balance-of-payments concept involving cross-border transfer of funds. Cross-borderM&A statistics shown in the report are based on information reported by Thomson Financial. In somecases, these include M&As between foreign affiliates and firms located in the same host economy.Therefore, such M&As conform to the FDI definition as far as the equity share is concerned. However,the data also include purchases via domestic and international capital markets, which should not beconsidered as FDI flows. Although it is possible to distinguish types of financing used for M&As(e.g. syndicated loans, corporate bonds, venture capital), it is not possible to trace the origin or countrysources of the funds used. Therefore, the data used in the report include the funds not categorized asFDI.

FDI flows are recorded on a net basis (capital account credits less debits between direct investorsand their foreign affiliates) in a particular year. On the other hand, M&A data are expressed as thetotal transaction amount of particular deals, not as differences between gross acquisitions and divestmentabroad by firms from a particular country. Transaction amounts recorded in the UNCTAD M&A statisticsare those at the time of closure of the deals, not at the time of announcement. The M&A values arenot necessarily paid out in a single year.

Cross-border M&As are recorded in both directions of transactions. That is, when a cross-borderM&A takes place, it registers as both a sale in the country of the target firm (annex table B.7), andas a purchase in the home country of the acquiring firm (annex table B.8). Data showing cross-borderM&A activities on an industry basis are also recorded as sales and purchases (annex tables B.9-B.10).Thus, if a food company acquires a chemical company, this transaction is recorded in the chemicalindustry in the table on M&As by industry of seller (annex table B.9), it is also recorded in the foodindustry in the table on M&As by industry of purchaser (annex table B.10).

Notes

1 In some countries, an equity stake other than that of 10 per cent is still used. In the United Kingdom, forexample, a stake of 20 per cent or more was a threshold used until 1997.

2 This general definition of FDI is based on OECD, Detailed Benchmark Definition of Foreign Direct Investment,third edition (Paris, OECD, 1996) and International Monetary Fund, Balance of Payments Manual, fifthedition (Washington, D.C., IMF, 1993).

3 International Monetary Fund, op. cit., p. 40.4 Includes Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, the Netherlands,

Norway, Spain, Sweden, the United Kingdom and the United States.

ANNEX B 249

Annex table B.1. FDI inflows, by host region and economy, 1991-2002 (Millions of dollars)

Host region/economy 1991-1996 1997 1998 1999 2000 2001 2002 (Annual average)

World 254 326 481 911 686 028 1 079 083 1 392 957 823 825 651 188

Developed economies 154 641 269 654 472 265 824 642 1 120 528 589 379 460 334

Western Europe 91 030 139 274 263 025 496 205 709 877 400 813 384 391

European Union 87 584 127 888 249 934 475 542 683 893 389 432 374 380

Austria 1 894 2 654 4 533 2 975 8 840 5 883 1 523Belgium and Luxembourg 10 777 11 998 22 691 119 693 88 739 88 203 ..

Belgium .. .. .. .. .. .. 18 252Luxembourg .. .. .. .. .. .. 125 660

Denmark 2 374 2 801 7 730 16 700 32 772 11 486 5 953Finland 796 2 119 2 040 4 581 8 015 3 732 9 148France 18 444 23 174 30 984 46 545 43 250 55 190 51 505Germany 4 790 12 244 24 593 55 797 203 080 33 918 38 033Greece 1 058 984 85 571 1 089 1 589 50Ireland 1 469 2 712 8 579 18 500 26 447 15 681 19 033Italy 3 307 3 700 2 635 6 911 13 375 14 871 14 545Netherlands 9 086 11 132 36 964 41 187 60 313 51 244 29 182Portugal 1 550 2 477 3 144 1 234 6 787 5 892 4 276Spain 9 512 7 697 11 797 15 758 37 523 28 005 21 193Sweden 6 066 10 968 19 836 60 853 23 239 11 780 11 081United Kingdom 16 463 33 229 74 324 84 238 130 422 61 958 24 945

Other Western Europe 3 446 11 386 13 091 20 662 25 984 11 381 10 011

Gibraltar 25a 126a - 162a 17a 138a 21a 59a

Iceland 13 149 146 66 158 141 152Malta 122 81 273 815 604 294 - 375Norway 1 346 4 394 3 893 8 046 5 829 2 062 872Switzerland 1 940 6 636 8 940 11 719 19 255 8 864 9 303

North America 53 406 114 925 197 243 308 118 380 764 172 787 50 625

Canada 6 571 11 527 22 809 24 742 66 757 28 809 20 595United States 46 834 103 398 174 434 283 376 314 007 143 978 30 030

Other developed economies 10 205 15 455 11 997 20 319 29 887 15 778 25 319

Australia 6 238 7 657 6 015 2 924 13 071 4 006 13 978Israel 716 1 950 1 839 3 068 4 988 3 520 1 648Japan 890 3 225 3 192 12 742 8 323 6 243 9 326New Zealand 2 361 2 624 951 1 586 3 505 2 009 367

Developing economies 91 502 193 224 191 284 229 295 246 057 209 431 162 145

Africa 4 606 10 667 8 928 12 231 8 489 18 769 10 998

North Africa 1 615 2 716 2 882 3 569 3 125 5 474 3 546

Algeria 63 260 501 507 438 1 196 1 065Egypt 714 887 1 076 1 065 1 235 510 647Libyan Arab Jamahiriya - 12 - 82 - 150 - 118 - 142 - 101 - 96a

Morocco 406 1 188 417 1 376 423 2 808 428Sudan 18 98 371 371 392 574 681Tunisia 425 365 668 368 779 486 821

Other Africa 2 992 7 951 6 046 8 663 5 364 13 295 7 452

Angola 346 412 1 114 2 471 879 2 146 1 312Benin 41 26 35 61 60 44 41Botswana - 28 100 90 37 54 26 37Burkina Faso 9 13 10 13 23 9 8Burundi 1 - 2 - 12 - -Cameroon 9 45 50 40 31 67a 86a

Cape Verde 10 12 9 53 34 9 14Central African Republic - 1 - - 3 1 5 4Chad 20 44 21 27 115 - 901Comoros - -a 3a -a 1a -a 1a

Congo 86 79 33 521 166 77 247Congo, Democratic Republic of 3 - 44a 61a 11a 23a 1a 32a

/...

World Investment Report 2003 FDI Policies for Development: National and International Perspectives250

Annex table B.1. FDI inflows, by host region and economy, 1991-2002 (continued) (Millions of dollars)

Host region/economy 1991-1996 1997 1998 1999 2000 2001 2002 (Annual average)

Côte d’Ivoire 158 450 416 381 235 44 223Djibouti 2 2 3 4 3 3 4Equatorial Guinea 66 53 291 252 108 945 323Eritrea 37b 41 149 83 28 1a 21a

Ethiopia 10 288 261 70 135 20a 75a

Gabon - 243 - 587 - 200 - 625 - 43 169 123Gambia 12 21 24 49 44 35 43Ghana 105 82 56 267 115 89 50Guinea 14 17 18 63 10 2 30a

Guinea-Bissau 2 11 4 9 1 1 1Kenya 13 40 42 42 127 50 50Lesotho 21 32 27 33 31 28 24Liberia - 28 214a 190a 256a - 431a - 20a - 65a

Madagascar 13 14 16 58 70 93 8Malawi - 4 - 1 - 3 46 - 33 - 20 -a

Mali 29 74 36 51 83 122 102Mauritania 7 1a - 1a 9a - 6a 12a

Mauritius 21 55 12 49 277 32 28Mozambique 39 64 235 382 139 255 406Namibia 112 84 77 111 153 275 181Niger 16 25 9 - 9 23 8Nigeria 1 264 1 539 1 051 1 005 930 1 104 1 281Rwanda 3 3 7 2 8 4 3São Tomé and Principe -c -a -a 1a 2a 6 2a

Senegal 20 176 71 136 63 32 93Seychelles 24 54 55 60 56 59 63Sierra Leone 1 10a - 10a 6a 5a 3a 5a

Somalia 1 1a -a - 1a -a -a -a

South Africa 450 3 817 561 1 502 888 6 789 754Swaziland 62 - 15 152 100 39 78 107Togo 11 23 42 70 42 63 75Uganda 65 175 210 222 254 229 275United Republic of Tanzania 63 158 172 517 463 327 240Zambia 108 207 198 163 122 72 197Zimbabwe 50 135 444 59 23 4 26

Latin America and the Caribbean 27 069 73 275 82 040 108 255 95 358 83 725 56 019

South America 14 982 48 228 52 424 70 346 57 248 39 693 25 836

Argentina 4 309 9 160 7 291 23 988 11 657 3 206 1 003Bolivia 212 879 1 023 1 008 723 660 553Brazil 3 633 18 993 28 856 28 578 32 779 22 457 16 566Chile 2 191 5 271 4 628 8 761 3 639 4 477 1 603Colombia 1 279 5 562 2 829 1 452 2 237 2 521 2 034Ecuador 392 724 870 648 720 1 330 1 275Guyana 84 53 47 48 67 56 44Paraguay 111 236 342 95 104 95 - 22Peru 1 538 1 697 1 842 2 263 681 1 151 1 462Suriname - 16 - 9 38 - 24 - 97 - 27 - 85Uruguay 99 126 164 238 274 318 85Venezuela 1 150 5 536 4 495 3 290 4 465 3 448 1 318

Other Latin America and the Caribbean 12 087 25 047 29 616 37 910 38 110 44 032 30 183

Anguilla 15 21 28 38 39 33 33Antigua and Barbuda 28 23 23 31 33 39 36Aruba 26 196 84 392 - 144 - 319 241Bahamas 41 210 147 149 250 101 200Barbados 12 15 16 17 19 19 11a

Belize 16 12 19 50 19 40 52a

Bermuda 2 353a 2 928a 5 399a 9 470a 10 627a 12 584a 9 093a

Cayman Islands 371a 3 151a 4 354a 6 569a 6 922a 1 382a 3 095a

Costa Rica 285 407 612 620 409 454 642Cuba 10a 1a 15a 9a - 10a 4a 4a

Dominica 24 21 7 18 11 12 14Dominican Republic 205 421 700 1 338 953 1 079 961El Salvador 15 59 1 104 216 173 250 208Grenada 19 34 49 42 37 49 41Guatemala 91 85 673 155 230 456 110Haiti 1 4 11 30 13 4 6Honduras 60 128 99 237 282 195 143

/...

ANNEX B 251

Annex table B.1. FDI inflows, by host region and economy, 1991-2002 (continued) (Millions of dollars)

Host region/economy 1991-1996 1997 1998 1999 2000 2001 2002 (Annual average)

Jamaica 160 203 369 524 468 614 479Mexico 7 351 14 160 12 170 12 856 15 484 25 334 13 627Montserrat 5 3 3 8 4 1 1Netherlands Antilles - 17 - 88 - 53 - 22 - 63 - 1 - 15Nicaragua 56 173 195 300 267 150 174Panama 244 1 299 1 296 652 603 513 57Saint Kitts and Nevis 20 20 32 58 96 88 81Saint Lucia 36 48 83 83 55 22 22Saint Vincent and the Grenadines 29 93 89 56 29 21 19Trinidad and Tobago 317 923 732 366 472 685 737Virgin Islands 315 500 1 362a 3 648a 830a 222a 111a

Asia and the Pacific 59 826 109 282 100 316 108 809 142 209 106 937 95 129

Asia 59 411 109 092 99 983 108 529 142 091 106 778 94 989

West Asia 2 228 5 918 6 893 754 1 523 5 211 2 341

Bahrain 650 329 180 454 364 81 218Cyprus 81 491 264 685 804 652 297Iran, Islamic Republic of 47 53 24 35 39 50a 37a

Iraq 2a 1a 7a - 7a - 3a - 6a - 9a

Jordan 4 361 310 158 787 100 56Kuwait 55 20 59 72 16 - 147 7Lebanon 28 150 200 250 298 249a 257a

Oman 91 65 101 21 44 42 40a

Occupied Palestinian Territory 8b 7 58 19 62 11a 41a

Qatar 120a 418a 347a 113a 252a 296a 326a

Saudi Arabia - 201 3 044 4 289 - 780 - 1 884 20 - 350a

Syrian Arab Republic 105 80 82 263 270 205a 225a

Turkey 751 805 940 783 982 3 266 1 037United Arab Emirates 220a 232a 258a - 985a - 515a 257a 95a

Yemen 274 - 139 - 226 - 328 6 136 64

Central Asia 1 035 3 107 2 997 2 462 1 871 3 963 4 035

Armenia 12 52 221 122 104 70 100Azerbaijan 326d 1 115 1 023 510 129 227 1 067Georgia 19d 243 265 82 131 110 146Kazakhstan 826e 1 321 1 152 1 472 1 283 2 823 2 561Kyrgyzstan 48c 84 109 44 - 2 5 - 12a

Tajikistan 12e 18a 25a 21a 22a 9 9Turkmenistan 131c 108a 62a 89a 131a 150a 100a

Uzbekistan 39e 167a 140a 121a 73a 570a 65a

South, East and South-East Asia 56 147 100 067 90 093 105 313 138 698 97 604 88 613

Afghanistan -a - 1a -a 6a -a 1a -a

Bangladesh 8 139 190 180 280 79 45Bhutan 1a - 1a -a -a -a -a -a

Brunei Darussalam 210 702 573 748 549 526 1 035Cambodia 120e 168 243 230 149 148 54China 25 476 44 237 43 751 40 319 40 772 46 846 52 700Hong Kong, China 6 057a 11 368a 14 766 24 580 61 939 23 775 13 718India 1 085 3 619 2 633 2 168 2 319 3 403 3 449Indonesia 2 985 4 678 - 356 - 2 745 - 4 550 - 3 279 - 1 523Korea, Democratic People’s Republic of 24a 307a 31a - 15a 5a - 24a 12a

Korea, Republic of f 1 234 2 844 5 412 9 333 9 283 3 528 1 972Lao People’s Democratic Republic 53 86 45 52 34 24 25Macau, China -a 2a - 18a 9a - 1a 133 150a

Malaysia 5 436 6 323 2 714 3 895 3 788 554 3 203Maldives 8 11 12 12 13 12 12a

Mongolia 9 25 19 30 54 43 78Myanmar 256 879 684 304 208 192 129Nepal 8 23 12 4 - 21a 10a

Pakistan 501 713 507 530 305 385 823Philippines 1 226 1 261 1 718 1 725 1 345 982 1 111Singapore 6 856 13 533 7 594 13 245 12 464 10 949 7 655Sri Lanka 125 433 150 201 175 82 242Taiwan Province of China 1 311 2 248 222 2 926 4 928 4 109 1 445Thailand 1 964 3 882 7 491 6 091 3 350 3 813 1 068Viet Nam 1 217 2 587 1 700 1 484 1 289 1 300 1 200

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World Investment Report 2003 FDI Policies for Development: National and International Perspectives252

Annex table B.1. FDI inflows, by host region and economy, 1991-2002 (concluded) (Millions of dollars)

Host region/economy 1991-1996 1997 1998 1999 2000 2001 2002 (Annual average)

The Pacific 416 190 333 280 118 159 140

Fiji 71 29 196 - 20 - 25 90 77Kiribati - 1 1a 1a 1a 1a 1a

New Caledonia 5 10a -a 4a 22a - 1a -a

Papua New Guinea 295 88 110 296 96 63 50a

Samoa 3 20a 3 2 - 2a 1a 1a

Solomon Islands 10 9 2 - 19 1 - 12 - 7a

Tonga 1 3 2 2 5 1 2a

Tuvalu -d -a -a -a -a -a -a

Vanuatu 29 30 20 13 20 18 15

Central and Eastern Europe 8 183 19 033 22 479 25 145 26 373 25 015 28 709

Albania 58e 48 45 41 143 207 213Belarus 31e 352 203 444 119 96 227Bosnia and Herzegovina - 1g 1 56 154 147 130 321Bulgaria 74 505 537 819 1 002 813 479Croatia 216c 533 932 1 467 1 089 1 561 981Czech Republic 1 177 1 286 3 700 6 310 4 984 5 639 9 319Estonia 162e 267 581 305 387 542 307Hungary 2 205 2 167 2 037 1 977 1 646 2 440 854Latvia 170e 521 357 347 410 164 396Lithuania 59e 355 926 486 379 446 732Moldova, Republic of 27e 79 76 38 129 156 111Poland 2 119 4 908 6 365 7 270 9 341 5 713 4 119Romania 206e 1 215 2 031 1 041 1 025 1 157 1 106Russian Federation 1 449e 4 865 2 761 3 309 2 714 2 469 2 421Serbia and Montenegro 66 740 113 112 25 165 475Slovakia 201 220 684 390 1 925 1 579 4 012Slovenia 122 334 216 107 136 503 1 865TFYR Macedonia 15d 16 118 32 177 442 77Ukraine 269 623 743 496 595 792 693Yugoslavia (former) 119h .. .. .. .. .. ..

Memoraudum

Least developed countries i 1 713 3 401 4 573 5 974 3 427 5 629 5 232Oil-exporting countries j 7 647 18 427 14 010 5 254 2 468 8 099 7 364All developing economies, excluding China 66 061 148 987 147 533 188 976 205 285 162 585 109 445

Source: UNCTAD, FDI/TNC database.a Estimates. For details, see “Definitions and Sources” in annex B.b 1996.c Annual average from 1993 to 1996.d Annual average from 1994 to 1996.e Annual average from 1992 to 1996.f The data reported by the Ministry of Commerce, Industry and Energy in accordance with the Republic of Korea’s Foreign Investment

Promotion Act, including investments in capital goods and technology, and reinvested earnings, are as follows: for the annual averagefrom 1991 to 1996, 1,045; for 1997, 2,640; for 1998, 5,029; for 1999, 9,433; for 2000, 8,562; for 2001, 3,659 and for 2002, 2,935.

g Annual average from 1995 to 1996.h 1991.i Least developed countries include: Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Cape Verde,

Central African Republic, Chad, Comoros, Democratic Republic of Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gambia, Guinea,Guinea-Bissau, Haiti, Kiribati, Lao People’s Democratic Republic, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali, Mauritania,Mozambique, Myanmar, Nepal, Niger, Rwanda, Samoa, Sao Tome and Principe, Senegal, Sierra Leone, Solomon Islands, Somalia, Sudan,Togo, Tuvalu, Uganda, United Republic of Tanzania, Vanuatu, Yemen and Zambia.

j Oil-exporting countries include: Cameroon, Algeria, Angola, Bahrain, Brunei Darussalam, Congo, Ecuador, Gabon, Indonesia, IslamicRepublic of Iran, Iraq, Kuwait, Libyan Arab Jamahiriya, Nigeria, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, Trinidad and Tobago,United Arab Emirates and Venezuela.

ANNEX B 253

Annex table B.2. FDI outflows, by home region and economy, 1991-2002 (Millions of dollars)

Home region/economy 1991-1996 1997 1998 1999 2000 2001 2002 (Annual average)

World 280 550 476 934 683 211 1 096 554 1 200 783 711 445 647 363

Developed economies 240 639 396 057 630 891 1 021 307 1 097 796 660 558 600 063

Western Europe 140 132 244 115 436 525 770 608 872 422 468 807 411 665

European Union 127 762 220 953 415 367 731 068 819 169 451 911 394 146

Austria 1 417 1 987 2 745 3 301 5 740 3 137 5 670Belgium and Luxembourg 7 264 7 252 28 845 122 304 86 362 100 646 ..

Belgium .. .. .. .. .. .. 13 288Luxembourg .. .. .. .. .. .. 154 073

Denmark 2 535 4 209 4 477 16 943 25 052 12 964 4 839Finland 1 654 5 278 18 647 6 605 22 572 8 367 9 891France 24 303 35 584 48 611 126 856 177 449 92 974 62 547Germany 27 908 41 797 88 823 109 648 56 846 42 079 24 534Greece 5 156 262 539 2 102 607 655Ireland 436 1 016 3 906 6 109 4 629 5 864 2 706Italy 6 662 10 414 12 407 6 722 12 316 21 472 17 123Netherlands 17 573 24 494 36 669 57 627 73 540 48 514 26 270Portugal 510 1 903 3 847 3 168 7 512 7 564 3 523Spain 3 871 12 626 18 936 42 084 54 675 33 093 18 456Sweden 5 294 12 648 24 371 21 928 40 592 6 594 10 869United Kingdom 28 331 61 590 122 820 207 235 249 783 68 037 39 703

Other Western Europe 12 370 23 162 21 159 39 540 53 253 16 896 17 519

Gibraltar .. .. .. .. .. .. ..Iceland 25 55 71 106 362 323 195Malta 3a 16 14 45 26 6 -Norway 2 257 5 359 2 306 6 113 8 193 - 734 5 537Switzerland 10 086 17 732 18 767 33 276 44 673 17 300 11 787

North America 75 220 118 838 165 362 226 638 189 251 140 406 148 534

Canada 8 163 23 069 34 358 17 247 46 625 36 642 28 793United States 67 057 95 769 131 004 209 391 142 626 103 764 119 741

Other developed economies 25 287 33 104 29 003 24 061 36 122 51 345 39 864

Australia 3 603 6 448 3 352 - 688 561 11 014 6 828Israel 573 708 1 124 932 3 440 805 1 232Japan 20 943 25 994 24 151 22 745 31 557 38 333 31 481New Zealand 169 - 45 376 1 072 564 1 193 322

Developing economies 39 439 76 662 49 837 72 786 99 052 47 382 43 095

Africa 1 861 3 788 1 997 2 574 1 309 - 2 522 173

North Africa 27 476 367 313 228 202 267

Algeria 14 8 1 47 18 9 100Egypt 32 166 46 38 51 12 28Libyan Arab Jamahiriya - 47 284 299 208 98 84 110b

Morocco 24 9 20 18 59 97 29Sudan .. .. .. .. .. .. ..Tunisia 4 9 2 3 2 - -

Other Africa 1 834 3 312 - 1 630 - 2 262 1 081 - 2 725 - 94

Angola - -b -b -b -b -b -b

Benin 6c 12 2 23 4 2 -Botswana 13 4 3 1 2 318 2Burkina Faso 2 1 5 5 - - 1Burundi - - - - - - -Cameroon 15 7b -b 3b 4b 3b 3b

Cape Verde - - - - - - -Central African Republic 4 - - - - - -Chad 5 - - 2 - - -Comoros -d .. .. .. .. .. ..Congo - 3 - 8 2 4 6 8Congo, Democratic Republic of .. .. .. .. .. .. ..

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World Investment Report 2003 FDI Policies for Development: National and International Perspectives254

Annex table B.2. FDI outflows, by home region and economy, 1991-2002 (continued) (Millions of dollars)

Home region/economy 1991-1996 1997 1998 1999 2000 2001 2002 (Annual average)

Côte d’Ivoire 86 34 36 57 - 2 2Djibouti .. .. .. .. .. .. ..Equatorial Guinea - - - 2 - 4 4 -Eritrea .. .. .. .. .. .. ..Ethiopia .. 228b 254b - 46b - 1b 69b 7b

Gabon 16 - 13 - 14 14 25 2 -Gambia 5 5 6 4 5 5 5Ghana 150e 50b 30b 77b 52b 53b 61b

Guinea -e 1b -b 3b 2b 2b 2b

Guinea-Bissau .. .. .. .. - - -Kenya 7 5 14 30 29 50 76Lesotho -f .. .. .. .. .. ..Liberia 76 501b - 731b 310b 608b - 167b - 50b

Madagascar - - 2b 1b -b 1b - -Malawi 2e -b 6b 3b 3b 4b 3b

Mali - 5 27 50 4 17 19Mauritania .. .. .. .. .. .. ..Mauritius 16 3 14 6 13 2 1Mozambique -g -b -b -b -b -b -b

Namibia - 3 - - 1 - 3 - 13 - 5Niger 12 8 10 - - - 4 -Nigeria 238 58 107 92 85 94 101Rwanda - 1b -b -b -b -b -b

São Tomé and Principe .. .. .. .. .. .. ..Senegal 8 - 10 6 - - 7 39Seychelles 8 10 3 9 7 11 14Sierra Leone - -b -b -b -b -b -b

Somalia .. .. .. .. .. .. ..South Africa 1 204 2 351 1 779 1 580 271 - 3 180 - 401Swaziland 27 - 10 24 - 13 - 16 9 27Togo 7 4 22 41 - - 7 -Uganda 42 15b 20b - 8b - 28b - 5b - 14b

United Republic of Tanzania -h -b -b -b 1b -b -b

Zambia .. .. .. .. .. .. ..Zimbabwe 17 28 9 9 8 4 3

Latin America and the Caribbean 5 953 23 666 19 057 30 845 13 534 7 961 5 770

South America 2 671 7 902 7 689 6 766 7 820 - 758 3 726

Argentina 997 3 653 2 325 1 727 1 018 - 200 - 1 066Bolivia 2 2 3 3 2 2 2b

Brazil 493 1 116 2 854 1 690 2 282 - 2 258 2 482Chile 626 1 463 1 484 2 558 3 987 1 432 464Colombia 154 809 796 116 325 16 783Ecuador 25 257b - 84b - - - -Guyana -h -b -b - 2b 2b -b -b

Paraguay 8 6 6 6 6 6 - 3b

Peru 1 84 64 128 92b 95b 156b

Suriname .. .. .. .. .. .. ..Uruguay - 13 9 40 - 1 15Venezuela 364 500 233 501 107 148 893

Other Latin America and the Caribbean 3 282 15 763 11 368 24 079 5 714 8 720 2 044

Anguilla .. 1b 1b 1b 1b 1b 1b

Antigua and Barbuda 1h - 3b - 1b -b 1b -b -b

Aruba 2h - 2 1 - 8 12 13 5Bahamas - - 1 - - - -Barbados 2 1 1 1 1 1 1b

Belize 3 4 6 10 10 8b 9b

Bermuda 183 4 220b 2 980b 18 137b 2 426b - 5 407b - 1 823b

Cayman Islands 375 4 871b 4 452b 2 187b 1 795b 2 811b 967b

Costa Rica 5 4 5 5 9 9 57Cuba .. .. .. .. .. .. ..Dominica .. .. .. .. .. .. ..Dominican Republic 10h 2b 2b 6b 61b - 33b -b

El Salvador - -b 1 54 - 5 - 10 - 26Grenada - -b -b -b -b -b -b

Guatemala - 4 7b 8b - 3b 16b 1b 5b

Haiti - 5 1b 1b - 1b 1b -b -b

Honduras - -b -b -b -b -b -b

/...

ANNEX B 255

Annex table B.2. FDI outflows, by home region and economy, 1991-2002 (continued) (Millions of dollars)

Home region/economy 1991-1996 1997 1998 1999 2000 2001 2002 (Annual average)

Jamaica 60 57 82 95 74 89 74Mexico 257 1 108 1 363 1 475b 984b 846 969Montserrat .. .. .. .. .. .. ..Netherlands Antilles - - 7 - 2 - 1 - 2 - 1Nicaragua - 4a 2b 7b 3b 4b 5b 4b

Panama 672 2 068b 3 289b 356b - 839b 1 902b 1 861b

Saint Kitts and Nevis - -b -b -b -b -b -b

Saint Lucia - -b -b -b -b -b -b

Saint Vincent and the Grenadines .. .. .. .. .. .. ..Trinidad and Tobago - - 18b 1b 264 25 150 146b

Virgin Islands 2 586a 3 444b - 830b 1 500b 1 141b 8 333b - 209b

Asia and the Pacific 31 624 49 209 28 783 39 367 84 208 41 943 37 151

Asia 31 564 49 199 28 839 39 390 84 139 41 827 37 121

West Asia 452 - 99 - 1 193 1 943 3 508 4 718 2 131

Bahrain 105 48 181 163 10 216 178Cyprus 17 27 57 166 166 220 - 18Iran, Islamic Republic of 9 78b 10b 738b 348b 2 812b 1 299b

Iraq .. .. .. .. .. .. ..Jordan - 23 2b 2b 5 5 8 25Kuwait 147 - 969 - 1 867 23 - 303 365 - 155Lebanon 8 19b - 1b 5b 125b 92b 74b

Oman 3 1b - 5b 3b - 2b - 1b -b

Occupied Palestinian Territory .. .. .. .. .. .. ..Qatar 35c 20b 20b 30b 41b 112b 61b

Saudi Arabia 93 215b 74b 50b 155b - 44b 50b

Syrian Arab Republic .. .. .. .. .. .. ..Turkey 63 251 367 645 870 497 175United Arab Emirates 17 208b - 30b 115b 2 094b 441b 442b

Yemen .. .. .. .. .. .. ..

Central Asia - 1 179 360 17 201 765

Armenia .. .. 12 13 8b 11b 11b

Azerbaijan .. .. 137 336 - 158b 326Georgia .. .. .. 1 - - -Kazakhstan -i 1 8 4 4 27 423Kyrgyzstan .. .. 23 6 5 6 6b

Tajikistan .. .. .. .. .. .. ..Turkmenistan .. .. .. .. .. .. ..Uzbekistan .. .. .. .. .. .. ..

South, East and South-East Asia 31 113 49 297 29 852 37 087 80 614 36 907 34 225

Afghanistan .. .. .. .. .. .. ..Bangladesh 3 3 3 - 2 21 4Bhutan .. .. .. .. .. .. ..Brunei Darussalam 28j 10b 10b 20b - 3 9b 8b

Cambodia 2k .. .. .. .. .. ..China 2 571 2 563 2 634 1 775 916 6 884 2 850Hong Kong, China 16 960 24 407b 16 985 19 358 59 375 11 345 17 694India 76 113 47 80 336 757 431Indonesia 1 068 178 44 72 150 125 116b

Korea, Democratic People’s Republic of .. .. .. .. .. .. ..Korea, Republic of 2 446 4 449 4 740 4 198 4 999 2 420 2 674Lao People’s Democratic Republic - -b -b -b 168b 3b 57b

Macau, China .. .. .. .. .. 16 ..Malaysia 1 656 2 675 863 1 422 2 026 267 1 238b

Maldives -i .. .. .. .. .. ..Mongolia .. .. .. .. .. .. ..Myanmar .. .. .. .. .. .. ..Nepal .. .. .. .. .. .. ..Pakistan - 2 - 25 5 1 11 31 - 17Philippines 181 136 160 - 29 - 108 - 160 85Singapore 2 967 8 955 380 5 397 6 061 9 548 4 082Sri Lanka 6 5 13 24 2 - 11Taiwan Province of China 2 683 5 243 3 836 4 420 6 701 5 480 4 886Thailand 479 584 132 349 - 22 162 106Viet Nam .. .. .. .. .. .. ..

/...

World Investment Report 2003 FDI Policies for Development: National and International Perspectives256

Annex table B.2. FDI outflows, by home region and economy, 1991-2002 (concluded) (Millions of dollars)

Home region/economy 1991-1996 1997 1998 1999 2000 2001 2002 (Annual average)

The Pacific 60 9 - 56 - 24 69 116 30

Fiji - 11 - 40 - 56 - 58 69 7 - 17Kiribati -l .. .. .. .. .. ..New Caledonia .. .. .. .. .. .. ..Papua New Guinea 70 49b -b 35b - 2b 109b 47b

Samoa .. .. .. .. - .. ..Solomon Islands -g .. .. .. - .. ..Tonga -m .. .. .. 1 .. ..Tuvalu .. .. .. .. .. .. ..Vanuatu .. .. .. .. .. .. ..

Central and Eastern Europe 472 4 215 2 484 2 462 3 936 3 505 4 205

Albania 12h 10 1 7 6 - 4b

Belarus .. 2 2 - - - - 206Bosnia and Herzegovina 8h - 2 .. .. .. .. ..Bulgaria - 12h - 2 - 17 3 10 28Croatia 14a 186 98 47 4 155 95Czech Republic 84h 28 125 90 43 165 281Czechoslovakia (former) 14d .. .. .. .. .. ..Estonia 11h 137 6 83 63 200 122Hungary 21 433 478 252 532 337 264Latvia - 26h 6 54 17 10 12 9Lithuania -c 27 4 9 4 7 18Moldova, Republic of 6i - - - - - -Poland 25 45 316 31 17 - 90 173Romania 3 - 9 - 9 16 - 11 - 17 16Russian Federation 488a 3 184 1 270 2 208 3 177 2 533 3 284Serbia and Montenegro .. .. .. .. .. .. ..Slovakia 20h 95 147 - 371 21 37 5Slovenia - 3h 31 - 5 48 65 133 117TFYR Macedonia -e 1 1 1 - 1 -Ukraine 4i 42 - 4 7 1 23 - 5Yugoslavia (former) .. .. .. .. .. .. ..

Memorandum

Least developed countries n 164 785 - 362 395 768 - 61 75Oil-exporting countries o 2 084 869 - 1 028 2 341 2 851 4 527 3 358All developing economies, excluding China 36 867 74 099 47 203 71 011 98 136 40 498 40 245

Source: UNCTAD, FDI/TNC database.a Annual average from 1993 to 1996.b Estimates. For details, see “Definitions and Sources” in annex B.c Annual average from 1995 to 1996.d 1991.e 1996.f 1992.g Annual average from 1991 to 1992.h Annual average from 1992 to 1996.i Annual average from 1994 to 1996.j Annual average from 1991 to 1996.k 1993.l 1994.m Annual average from 1991 to 1993.n Least developed countries include: Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Cape Verde,

Central African Republic, Chad, Comoros, Democratic Republic of Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gambia, Guinea,Guinea-Bissau, Haiti, Kiribati, Lao People’s Democratic Republic, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali, Mauritania,Mozambique, Myanmar, Nepal, Niger, Rwanda, Samoa, Sao Tome and Principe, Senegal, Sierra Leone, Solomon Islands, Somalia, Sudan,Togo, Tuvalu, Uganda, United Republic of Tanzania, Vanuatu, Yemen and Zambia.

o Oil-exporting countries include: Cameroon, Algeria, Angola, Bahrain, Brunei Darussalam, Congo, Ecuador, Gabon, Indonesia, IslamicRepublic of Iran, Iraq, Kuwait, Libyan Arab Jamahiriya, Nigeria, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, Trinidad and Tobago,United Arab Emirates and Venezuela.

ANNEX B 257

Annex table B.3. FDI inward stock, by host region and economy,1980, 1985, 1990, 1995, 2000, 2001 and 2002 a

(Millions of dollars)

Host region/economy 1980 1985 1990 1995 2000 2001 2002

World 699 415 977 755 1 954 152 3 002 152 6 146 812 6 606 855 7 122 506b

Developed economies 391 946 570 901 1 399 880 2 041 408 3 988 075 4 277 195 4 594 850b

Western Europe 232 717 286 179 796 179 1 213 733 2 361 428 2 544 445 2 779 857b

European Union 217 476 268 253 748 669 1 136 387 2 240 506 2 418 136 2 623 903b

Austria 3 163 3 762 9 884 17 532 30 431 34 328 42 539Belgium and Luxembourg 7 306 18 447 58 388 112 960 195 219 203 580 ..

Belgium .. .. .. .. .. .. ..Luxembourg .. .. .. .. .. .. ..

Denmark 4 193 3 613 9 192 23 801 66 467 65 830 71 784c

Finland 540 1 339 5 132 8 465 24 272 26 267 35 509France 25 927d 36 701d 86 845 191 434 259 775 289 015 401 305Germany 36 630 36 926 119 618 192 898 470 938 413 556 451 589c

Greece 4 524 8 309 5 667e 10 957e 12 499 12 006 12 056c

Ireland 32 461f 33 361f 34 208f 40 406f 118 550 138 266 157 298c

Italy 8 892 18 976 57 985 63 456 113 047 107 921 126 481Netherlands 19 167 24 921 68 731 116 049 246 643 285 387 314 569c

Portugal 3 665g 4 599g 10 571 18 381 28 469 32 921 43 962Spain 5 141 8 939 65 916 109 200 144 803 164 754 217 769c

Sweden 2 852h 4 333 12 636 31 089 93 970 92 243 110 482United Kingdom 63 014 64 028 203 894 199 760 435 422 552 062 638 561

Other Western Europe 15 241 17 926 47 511 77 346 120 923 126 309 155 954

Gibraltar i 33 98 263 432 529 550 609Iceland ..j, k 71 147 129 488 644 864Malta i 156 286 465 922 2 972 3 266 2 891Norway 6 577l 7 412l 12 391 18 800 30 130 32 580 33 452c

Switzerland 8 506 10 058 34 245 57 063 86 804 89 269 118 139

North America 137 209 249 272 507 793 658 843 1 419 383 1 530 527 1 572 561

Canada 54 163 64 657 112 882 123 290 205 129 209 464 221 468United States 83 046 184 615 394 911 535 553 1 214 254 1 321 063 1 351 093c

Other developed economies 22 021 35 450 95 908 168 833 207 263 202 224 242 432

Australia 13 173 25 049 73 644 104 074 109 263 105 391 128 696Israel 3 214g 3 619g 4 476 5 677 24 055 25 111 24 762Japan 3 270 4 740 9 850 33 508 50 323 50 319 59 646c

New Zealand 2 363 2 043 7 938 25 574 23 623 21 402 29 328

Developing economies 307 469 406 805 551 481 920 400 2 029 412 2 173 769 2 339 632

Africa 32 162 33 844 50 775 77 400 144 503 157 823 170 876

North Africa 4 322 8 242 16 903 26 300 38 082 43 191 48 310

Algeria i 1 320 1 281 1 355 1 465 3 441 4 637 5 702Egypt i 2 260 5 703 11 043 14 690 19 589 20 099 20 746Libyan Arab Jamahiriya i ..k ..k ..k ..k ..k ..k ..kMorocco i 189 440 917 3 032 6 758 9 566 9 994Sudan i 28 76 54 164 1 396 1 970 2 651Tunisia 3 341 4 917 7 615 10 967 11 545 11 667 14 061

Other Africa 27 840 25 602 33 872 51 101 106 421 114 632 122 566

Angola i 61 675 1 025 2 921 7 977 10 122 11 435Benin i 32 34 159 381 588 632 673Botswana 698g 947g 1 309 1 126 1 821 1 494 1 946Burkina Faso i 18 24 39 74 149 158 166Burundi i 7 24 30 34 48 48 48Cameroon i 330 1 125 1 044 1 062 1 263 1 331 1 417Cape Verde m .. .. 4 38 174 183 197Central African Republic i 50 77 95 80 95 101 105Chad i 150 223 289 370 618 618 1 519Comoros n 2 2 17 19 24 24 26Congo i 315 485 575 1 022 1 893 1 970 2 217Congo, Democratic Republic of i 709 620 546 541 617 618 650

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World Investment Report 2003 FDI Policies for Development: National and International Perspectives258

Annex table B.3. FDI inward stock, by host region and economy,1980, 1985, 1990, 1995, 2000, 2001 and 2002 a (continued)

(Millions of dollars)

Host region/economy 1980 1985 1990 1995 2000 2001 2002

Côte d’Ivoire i 530 699 975 1 624 3 407 3 451 3 674Djibouti o 4 4 6 17 34 37 40Equatorial Guinea p .. 6 25 175 1 128 2 073 2 396Eritrea q .. .. .. .. 301 301 322Ethiopia i 110 114 124 165 941 961 1 036Gabon i 512 833 1 208 441 ..k ..k ..kGambia 127g 127g 157 185 216 221 264c

Ghana i 229 272 315 822 1 462 1 551 1 601Guinea o 1 2 69 131 263 265 295Guinea-Bissau r - 4 8 20 46 47 48Kenya i 386 476 668 732 996 1 047 1 097Lesotho s 5 25 83 179 330 358 382Liberia i 868 1 260 2 454 2 419 2 516 2 496 2 431Madagascar i 40 52 107 173 341 434 442Malawi i 113 151 198 163 183 163 163Mali t 12 33 38 162 453 576 678Mauritania i ..k 39 57 92 108 101 113Mauritius i 26 43 169 256 687 719 746Mozambique i 15 17 42 201 1 094 1 350 1 755Namibia 1 994g 2 010g 2 047 1 708 1 230 797 978c

Niger i 190 206 286 363 426 449 457Nigeria i 2 405 4 417 8 072 14 065 20 184 21 289 22 570Rwanda i 54 133 213 231 252 256 259São Tomé and Principe m .. .. - - 4 9 11Senegal i 150 188 258 374 827 859 952Seychelles i 54 105 204 321 577 636 699Sierra Leone i 79 68 ..k ..k 19 22 26Somalia i 34 10 ..k 2 4 4 4South Africa 16 519 9 024 9 121 15 099 47 418 50 246 50 998Swaziland 243u 104 336 535 432 479 656Togo i 176 210 268 307 511 574 649Uganda i 9 7 4 272 1 255 1 484 1 759United Republic of Tanzania i 47 91 93 325 1 783 2 111 2 351Zambia t 355 450 1 012 1 543 2 350 2 422 2 619Zimbabwe i 186 187 124 342 1 085 1 088 1 114

Latin America and the Caribbean 50 404 80 129 116 963 201 755 608 924 705 746 762 229

South America 29 345 42 238 66 625 112 150 380 061 414 979 441 110

Argentina 5 344 6 563 8 778v 27 991 72 935 75 989 76 992c

Bolivia 420 592 1 026 1 564 5 176 5 839 6 392c

Brazil 17 480 25 664 37 143 42 530 196 884w 219 342w 235 908w

Chile 886 2 321 10 067 15 547 44 955 44 693 46 296c

Colombia 1 061 2 231 3 500 6 407 12 144 16 008 19 375Ecuador 719 982 1 626 3 619 7 081 8 410 9 686Guyana i 25 39 42 452 759 815 859Paraguay 212x 301x 405x 705 1 311 1 162 867Peru 898 1 152 1 302 5 541 10 503 10 669 12 565Suriname i ..k 52 ..k ..k ..k ..k ..kUruguay 727y 794y 1 007y 1 464y 2 088 2 406 1 291Venezuela 1 604 1 548 2 260 6 975 26 944 30 392 31 710

Other Latin America and the Caribbean 21 059 37 890 50 337 89 605 228 863 290 767 321 119

Anguilla z .. .. 11 68 227 260 293Antigua and Barbuda s 23 94 292 438 566 606 642Aruba aa .. .. 132 204 816 497 738Bahamas i 547 543 586 742 1 587 1 688 1 888Barbados i 102 125 171 227 308 326 338Belize i 12 10 73 153 269 310 362Bermuda i 5 131 8 053 13 849 23 997 56 393 68 977 78 070Cayman Islands ab 222 1 479 1 749 2 745 24 973 26 356 29 451Costa Rica 672 957 1 447 2 733ac 5 206ac 5 660ac 6 302ac

Cuba i - - 2 40 74 78 82Dominica s - 11 71 197 271 283 297Dominican Republic 239 265 572 1 707ac 5 214ac 6 293ac 7 254ac

El Salvador 154 181 212 293 1 973 2 223 2 431Grenada s 1 13 70 168 346 395 436Guatemala 701ad 1 050ad 1 734 2 202 3 420 3 876 4 155Haiti i 79 112 149 153 215 220 226Honduras i 92 172 383 652 1 489 1 684 1 826

/...

ANNEX B 259

Annex table B.3. FDI inward stock, by host region and economy,1980, 1985, 1990, 1995, 2000, 2001 and 2002 a (continued)

(Millions of dollars)

Host region/economy 1980 1985 1990 1995 2000 2001 2002

Jamaica i 564 522 791 1 568 3 316 3 930 4 409Mexico 8 105ad 18 802ad 22 424 41 130 97 170 140 376 154 003c

Montserrat ae .. .. 40 68 84 85 86Netherlands Antilles i 770 257 408 364 78 77 61Nicaragua i 109 109 115 354 1 386 1 536 1 710Panama 2 461af 3 142af 2 198af 3 245 6 744 7 257 7 314Saint Kitts and Nevis ag 1 32 160 244 484 572 653Saint Lucia ah 94 197 319 517 804 826 849Saint Vincent and the Grenadines n 1 9 48 179 489 510 529Trinidad and Tobago 976 1 719 2 093 3 601ac 6 489ac 7 173ac 7 910ac

Virgin Islands ah 1 39 240 1 622 8 472 8 695 8 806

Asia and the Pacific 224 904 292 832 383 743 641 245 1 275 985 1 310 200 1 406 527

Asia 223 707 291 626 381 481 638 222 1 272 245 1 306 301 1 402 488

West Asia 7 568 37 657 41 196 51 662 69 979 70 035 72 376

Bahrain 61d 399d 552 2 403 5 906 5 986 6 205c

Cyprus i 460 789 1 146 1 579 3 878 4 530 4 827Iran, Islamic Republic of i 2 962 2 780 2 039 2 297 2 474 2 524 2 561Iraq i ..k ..k ..k ..k ..k ..k ..kJordan ai 155 493 615 627 2 258 2 358 2 414Kuwait i 30 33 26 12 527 380 387Lebanon t 20 34 53 138 1 116 1 365 1 622Oman i 483 1 201 1 723 2 210 2 501 2 543 2 583Occupied Palestinian Territory aj .. .. .. .. 155 165 206Qatar i 83 93 71 451 1 920 2 216 2 541Saudi Arabia i ..k 21 828 22 500 22 423 25 963 25 983 25 633Syrian Arab Republic i - 37 374 915 1 699 1 904 2 129Turkey 8 845ak 9 253ak 11 194ak 14 977ak 19 209 17 521 18 558c

United Arab Emirates i 409 482 751 1 770 1 061 1 318 1 413Yemen 195g 283g 180 1 882 1 336 1 271 1 336

Central Asia .. .. .. 4 018 16 123 20 856 25 139

Armenia .. .. .. 34al 513 580 680c

Azerbaijan .. .. .. 352am 3 735 3 962 5 354Georgia .. .. .. 32 423an 533an 679an

Kazakhstan .. .. .. 2 895 9 259 12 871 15 354Kyrgyzstan .. .. .. 144 439 427 415c

Tajikistan ao .. .. .. 40 144 153 162Turkmenistan ap .. .. .. 415 913 1 063 1 163Uzbekistan ao .. .. .. 106 697 1 267 1 332

South, East and South-East Asia 216 139 253 969 340 285 582 542 1 186 143 1 215 410 1 304 973

Afghanistan i 11 11 12 12 17 18 18Bangladesh 63 112 147aq 180aq 983aq 1 062aq 1 107aq

Bhutan z .. .. 2 2 3 4 4Brunei Darussalam i 19 28 23 631 3 856 4 383 5 418Cambodia 38ar 38ar 38ar 356 1 336 1 449 1 503c

China 6 251al 10 499al 24 762al 137 435al 348 346 395 192as 447 892as

Hong Kong, China 177 755at 183 219at 201 652at 227 532at 455 469 419 348 433 065c

India 1 177 1 075 1 668aq 5 652aq 18 916aq 22 319aq 25 768aq

Indonesia 10 274 24 971 38 883 50 601 60 638au 57 359au 55 836au

Korea, Democratic People’s Republic of m .. .. 572 716 1 046 1 022 1 034Korea, Republic of 1 327 2 160 5 186 9 451 37 106 40 767 43 689Lao People’s Democratic Republic i 2 1 13 205 550 574 599Macau, China 2 725av 2 733av 2 733av 2 726av 2 725av 2 858 3 008c

Malaysia 5 169 7 388 10 318 28 731aw 52 747aw 53 301aw 56 505aw

Maldives o 5 3 25 61 118 130 142Mongolia ae .. .. - 38 182 225 302Myanmar ..k, ax ..k, ax ..k, ax 649ax 3 178 3 266 3 395c

Nepal 1az 2az 12az 39az 97az 116 126c

Pakistan 691 1 079 1 928 5 552 6 912 5 536 6 359c

Philippines 1 281 2 601 3 268 6 086 9 081 10 468 11 579c

Singapore 6 203 13 016 30 468 65 644 113 431 116 428 124 083c

Sri Lanka 231 517 681aq 1 297aq 2 389aq 2 471aq 2 713aq

Taiwan Province of China 2 405 2 930 9 735aq 15 736aq 27 924aq 32 033aq 33 478aq

Thailand 981 1 999 8 209 17 452 24 468 29 158 30 226c

Viet Nam i 9 64 260 5 760 14 624 15 924 17 124

/...

World Investment Report 2003 FDI Policies for Development: National and International Perspectives260

Annex table B.3. FDI inward stock, by host region and economy,1980, 1985, 1990, 1995, 2000, 2001 and 2002 a (concluded)

(Millions of dollars)

Host region/economy 1980 1985 1990 1995 2000 2001 2002

The Pacific 1 196 1 207 2 263 3 022 3 740 3 899 4 039

Fiji 358 393 414ba 834ba 1 017ba 1 106ba 1 183ba

Kiribati bb .. - 1 - 1 5 5 6New Caledonia ai 28 35 76 110 146 144 144Papua New Guinea 748 683 1 582 1 667 2 007bc 2 069bc 2 119bc

Samoa i 1 2 9 29 53 55 56Solomon Islands t 28 32 70 126 126 114 107Tonga s - - 1 8 21 22 25Tuvalu bd .. .. .. - 1 1 1Vanuatu t 33 62 110 249 366 384 399

Central and Eastern Europe .. 49 2 841 40 187 129 169 155 734 187 868

Albania ao .. .. .. 201 568 775 988Belarus .. .. .. 50be 1 306 1 374 1 602c

Bosnia and Herzegovina .. .. .. 20bf 376an 506an 828an

Bulgaria .. .. 112bf 446bf 2 716 3 410 3 889c

Croatia .. .. .. 478bg 3 560 5 049 6 029c

Czech Republic .. .. 1 363bh 7 350 21 644 27 092 38 450Estonia .. .. .. 688bg 2 645 3 160 4 226Hungary .. 49g 569 11 919 19 804 23 562 24 416c

Latvia .. .. .. 615 2 084 2 332 2 723Lithuania .. .. .. 352 2 334 2 666 3 981Moldova, Republic of .. .. .. 93 446 600 717Poland .. .. 109 7 843 34 227 41 031 45 150c

Romania .. .. - 821 6 480 7 638 8 786Russian Federation .. .. .. 5 465 17 956 20 142 22 563c

Serbia and Montenegro ao .. .. .. 329 1 319 1 484 1 959Slovakia .. .. 81 810 4 634 6 213as 10 225as

Slovenia .. .. 607bi 1 763 2 809 3 209 5 074c

TFYR Macedonia bd .. .. .. 33 387 829 907Ukraine .. .. .. 910 3 875 4 662 5 355c

Yugoslavia (former) .. .. .. .. .. .. ..

Memorandum

Least developed countries bj 3 419 5 132 8 165 16 208 35 609 40 867 46 099Oil-exporting countries bk 13 281 59 568 81 047 113 781 174 176 182 275 189 638All developing economies, excluding China 301 219 396 306 526 669 783 121 1 681 222 1 778 733 1 891 896

Source: UNCTAD, FDI/TNC database.a Estimates. For details, see “Definitions and Sources” in annex B. For the countries for which the stock data are estimated by either

cumulating FDI flows or adding or subtracting flows to FDI stock in a particular year, notes are given below.b Value does not include data for Belgium and for Luxembourg. For details, see “Definitions and Sources” in Annex B, p. 231.c Stock data after 2001 are estimated by adding flows.d Stock data prior to 1989 are estimated by subtracting flows.e Stock data from 1990 to 1998 are estimated by subtracting flows from the stock of 1999.f Stock data prior to 1999 are estimated by subtracting flows.g Stock data prior to 1990 are estimated by subtracting flows.h Stock data prior to 1982 are estimated by subtracting flows.i Stock data are estimated by accumulating flows since 1970.j Stock data prior to 1988 are estimated by subtracting flows.k Negative stock value. However, this value is included in the regional and global total.l Stock data prior to 1987 are estimated by subtracting flows.m Stock data are estimated by accumulating flows since 1987.n Stock data are estimated by accumulating flows since 1978.o Stock data are estimated by accumulating flows since 1973.p Stock data are estimated by accumulating flows since 1982.q Stock data are estimated by accumulating flows since 1997.r Stock data are estimated by accumulating flows since 1975.s Stock data are estimated by accumulating flows since 1977.t Stock data are estimated by accumulating flows since 1971.u Stock data prior to 1981 are estimated by subtracting flows.v Stock data for 1990 is estimated by subtracting flows from the stock of 1991.w Stock data are estimated by adding flows to the stock of 1995.x Stock data up to 1993 are estimated by accumulating flows since 1970.y Stock data up to 1996 are estimated by accumulating flows since 1970.z Stock data are estimated by accumulating flows since 1990.aa Stock data are estimated by accumulating flows since 1989.ab Stock data are estimated by accumulating flows since 1974.ac Stock data after 1990 are estimated by adding flows.ad Stock data up to 1989 are estimated by accumulating flows since 1970.ae Stock data are estimated by accumulating flows since 1986.

ANNEX B 261

af Stock data prior to 1995 are estimated by subtracting flows.ag Stock data are estimated by accumulating flows since 1980.ah Stock data are estimated by accumulating flows since 1976.ai Stock data are estimated by accumulating flows since 1972.aj Stock data are estimated by accumulating flows since 1996.ak Stock data prior to 2000 are estimated by subtracting flows.al Stock data prior to 1997 are estimated by subtracting flows.am Stock data up to 1998 are estimated by accumulating flows since 1994.an Stock data after 1998 are estimated by adding flows.ao Stock data are estimated by accumulating flows since 1992.ap Stock data are estimated by accumulating flows since 1993.aq Stock data after 1988 are estimated by adding flows.ar Stock data prior to 1994 are estimated by subtracting flows.as Stock data after 2000 are estimated by adding flows.at Stock data prior to 1998 are estimated by subtracting flows.au Stock data after 1999 are estimated by adding flows.av Stock data prior to 2001 are estimated by subtracting flows.aw Stock data after 1994 are estimated by adding flows.ax Stock data prior to 1999 are estimated by subtracting flows.az Stock data up to 2000 are estimated by accumulating flows since 1972.ba Stock data after 1989 are estimated by adding flows.bb Stock data are estimated by accumulating flows since 1983.bc Stock data after 1997 are estimated by adding flows.bd Stock data are estimated by accumulating flows since 1984.be Stock data up to 1995 are estimated by accumulating flows since 1992.bf Stock data prior to 1998 are estimated by subtracting flows.bg Stock data prior to 1996 are estimated by subtracting flows.bh Stock data prior to 1992 are estimated by subtracting flows.bi Stock data prior to 1993 are estimated by subtracting flows.bj Least developed countries include: Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Cape Verde,

Central African Republic, Chad, Comoros, Democratic Republic of Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gambia, Guinea,Guinea-Bissau, Haiti, Kiribati, Lao People’s Democratic Republic, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali, Mauritania,Mozambique, Myanmar, Nepal, Niger, Rwanda, Samoa, Sao Tome and Principe, Senegal, Sierra Leone, Solomon Islands, Somalia, Sudan,Togo, Tuvalu, Uganda, United Republic of Tanzania, Vanuatu, Yemen and Zambia.

bk Oil-exporting countries include: Cameroon, Algeria, Angola, Bahrain, Brunei Darussalam, Congo, Ecuador, Gabon, Indonesia, IslamicRepublic of Iran, Iraq, Kuwait, Libyan Arab Jamahiriya, Nigeria, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, Trinidad and Tobago,United Arab Emirates and Venezuela.

Note: For data on FDI stock which are calculated as an accumulation of flows, price changes are not taken into account.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives262

Annex table B.4. FDI outward stock, by home region and economy,1980, 1985, 1990, 1995, 2000, 2001 and 2002 a

(Millions of dollars)

Home region/economy 1980 1985 1990 1995 2000 2001 2002

World 563 997 743 267 1 762 963 2 901 059 5 991 756 6 318 861 6 866 362b

Developed economie 499 391 665 090 1 629 259 2 583 824 5 154 968 5 487 592 5 987 746b

Western Europe 237 694 330 825 874 369 1 463 467 3 248 357 3 453 487 3 771 452b

European Union 215 582 304 579 797 322 1 298 257 2 980 615 3 171 860 3 434 297b

Austria 530 1 343 4 273 11 702 24 820 28 511 40 220Belgium and Luxembourg 6 037 9 551 40 636 80 690 179 773 181 460 ..

Belgium .. .. .. .. .. .. ..Luxembourg .. .. .. .. .. .. ..

Denmark 2 065 1 801 7 342 24 703 65 881 69 766 74 605c

Finland 737 1 829 11 227 14 993 52 109 56 055 69 468France 24 281d 37 753d 110 125 204 431 445 091 489 441 652 105Germany 43 127 59 909 148 456 258 142 483 946 553 315 577 849c

Greece 2 923e 2 923e 2 948e 3 004e 5 861 6 371 7 026c

Ireland .. 8 852e 11 588e 13 473e 27 925 33 748 36 453c

Italy 7 319 16 600 57 261 97 042 180 275 182 375 194 498Netherlands 42 116 47 898 106 899 172 672 307 760 329 383 355 652c

Portugal 512f 583f 900 3 173 17 170 23 491 31 983Spain 1 931 4 455 15 652 36 243 164 791 189 418 216 051c

Sweden 3 572g 10 768 50 720 73 143 123 125 122 053 145 382United Kingdom 80 434 100 313 229 294 304 847 902 087 906 474 1 033 003

Other Western Europe 22 112 26 245 77 047 165 210 267 742 281 627 337 156

Gibraltar .. .. .. .. .. .. ..Iceland 59h 59h 75 179 663 839 1 068Malta .. .. .. 32 203 210i 210i

Norway 561 1 093 10 884 22 519 33 505 32 771i 38 308i

Switzerland 21 491 25 093 66 087 142 479 233 371 247 807 297 570

North America 239 158 281 512 515 358 817 224 1 528 943 1 626 312 1 775 134

Canada 23 783 43 143 84 837 118 209 235 512 244 638 273 719 United States 215 375 238 369 430 521 699 015 1 293 431 1 381 674 1 501 415c

Other developed economies 22 539 52 754 239 533 303 132 377 667 407 792 441 160

Australia 2 260 6 653 30 507 53 009 83 232 91 343 91 249Israel 141f 623f 1 188 4 041 9 361 9 607 10 783Japan 19 610 43 970 201 440 238 452 278 445 300 115 331 596c

New Zealand 529j 1 508j 6 398j 7 630 6 629 6 728 7 532

Developing economies 64 606 78 176 133 088 310 864 817 450 806 524 849 464

Africa 6 871 10 960 20 777 33 004 48 591 43 066 43 574

North Africa 460 872 1 474 1 528 2 998 3 200 3 471

Algeria k 98 156 183 266 343 352 452Egypt l 39 91 163 350 655 668 695Libyan Arab Jamahiriya m 162 287 624 279 1 230 1 314 1 424Morocco l 155 333 489 603 737 834 863Sudan .. .. .. .. .. .. ..Tunisia 6 6 15 30 33 32 37

Other Africa 6 412 10 088 19 303 31 475 45 592 39 866 40 103

Angola .. .. .. .. .. .. ..Benin n - 2 2 2 55 58 58Botswana 438f 439f 447 650 517 866 1 123Burkina Faso o 3 3 4 13 24 25 26Burundi p .. .. - 1 2 2 2Cameroon q 23 53 150 227 255 257 261Cape Verde r .. .. 1 5 5 5 5Central African Republic s - 1 17 40 42 42 42Chad t 1 1 48 81 79 79 79Comoros u .. .. 1 2 2 2 2Congo .. .. .. .. .. .. ..Congo, Democratic Republic of .. .. .. .. .. .. ..

/...

ANNEX B 263

Annex table B.4. FDI outward stock, by home region and economy,1980, 1985, 1990, 1995, 2000, 2001 and 2002 a (continued)

(Millions of dollars)

Home region/economy 1980 1985 1990 1995 2000 2001 2002

Côte d’Ivoire u .. .. 31 517 677 679 682Djibouti .. .. .. .. .. .. ..Equatorial Guinea p .. .. - - ..v 3 3Eritrea .. .. .. .. .. .. ..Ethiopia w .. .. .. .. 435 504 511Gabon o 78 103 164 257 271 273 273Gambia .. .. 22 36 44 42 46c

Ghana x .. .. .. .. 359 412 472Guinea x .. .. .. .. 8 9 12Guinea-Bissau .. .. .. .. .. .. ..Kenya s 18 60 99 116 218 268 344Lesotho r .. .. - - - - -Liberia y 48 361 453 1 113 1 524 1 357i 1 307i

Madagascar z .. .. 1 5 4 4 4Malawi .. .. .. .. 15aa 18aa 22aa

Mali s 22 22 22 23 112 129 148Mauritania z .. .. 3 3 3 3 3Mauritius ab .. - 2 94 133 135 136Mozambique ac .. .. .. - 1 1 1Namibia .. .. 80 15 45 10 5c

Niger o 2 8 54 109 145 141 141Nigeria t 9 ..v 2 586 3 975 4 358 4 452 4 553Rwanda u .. .. - ..v 3 4 5São Tomé and Principe .. .. .. .. .. .. ..Senegal m 7 43 49 96 116 109 148Seychelles ad 14 44 61 94 136 147 161Sierra Leone .. .. .. .. .. .. ..Somalia .. .. .. .. .. .. ..South Africa 5 722 8 963 14 864 23 433 35 277 29 155 28 755Swaziland 19ae 9 38 136 100 53 162Togo af 10 10 16 44 125 118 118Uganda ag .. .. .. 255 265 259 246United Republic of Tanzania .. .. .. .. .. .. ..Zambia .. .. .. .. .. .. ..Zimbabwe ah .. 10 88 137 241 245 249

Latin America and the Caribbean 51 529 55 517 63 358 90 861 160 186 167 906 173 187

South America 46 085 47 356 51 476 64 620 95 458 94 459 98 185

Argentina 5 997ai 5 945ai 6 106ai 10 696 20 681 20 473 19 407c

Bolivia 1aj 1j 9 18 29 32 34c

Brazil 39 601ak 40 496ak 42 101ak 45 530ak 53 003ak 50 745 53 227c

Chile 42 102 178 2 425al 11 793 12 976 13 439c

Colombia 136 301 402 1 027 2 989 3 047 3 830Ecuador am .. .. .. 73 270 270 270Guyana an .. .. .. 2 - - -Paraguay 113ao 128ao 137ao 179 214 220 217Peru 3 38 122 567 505 574 730Suriname .. .. .. .. .. .. ..Uruguay 169ap 181ap 183ap 186ap 208aq 209aq 224aq

Venezuela 23 165 2 239 3 918 5 766 5 914 6 807

Other Latin America and the Caribbean 5 444 8 161 11 882 26 240 64 728 73 447 75 002

Anguilla .. .. .. .. .. .. ..Antigua and Barbuda .. .. .. .. .. .. ..Aruba an .. .. .. 10 14 27 32Bahamas y 285 154 614 1 286 1 385 1 385i 1 385i

Barbados k 5 13 23 33 41 42 43Belize ac .. .. .. 12 47 55 64Bermuda y 727 1 691 1 550 2 626 14 942 9 535i 7 712i

Cayman Islands ar 5 85 694 1 984 16 247 19 059 20 026Costa Rica t 7 27 44 67 95 104 160Cuba .. .. .. .. .. .. ..Dominica w .. .. .. .. - - -Dominican Republic an .. .. .. 38 122 89 89El Salvador .. .. 54ap 53ap 74 64 39Grenada u .. .. - - 1 1 1Guatemala x .. .. .. .. 31 32 36Haiti am .. .. .. 1 4 4 4Honduras .. .. .. .. .. .. ..

/...

World Investment Report 2003 FDI Policies for Development: National and International Perspectives264

Annex table B.4. FDI outward stock, by home region and economy,1980, 1985, 1990, 1995, 2000, 2001 and 2002 a (continued)

(Millions of dollars)

Home region/economy 1980 1985 1990 1995 2000 2001 2002

Jamaica k 5 5 42 308 709 798 872Mexico 3 589ak 3 957ak 4 628ak 6 130ak 11 098ak 11 944 12 425Montserrat .. .. .. .. .. .. ..Netherlands Antilles ad 9 10 21 24 11 11 12Nicaragua an .. .. .. - 8 13 17Panama y 811 2 204 4 188 4 939 4 004 5 906i 7 767i

Saint Kitts and Nevis u .. .. - - - - -Saint Lucia u .. .. - 1 1 - -Saint Vincent and the Grenadines as .. .. 1 1 1 1 1Trinidad and Tobago ah .. 15 22 24 297 447 594Virgin Islands ah .. .. .. 8 704 15 598 23 930 23 722

Asia and the Pacific 6 206 11 699 48 953 187 000 608 673 595 552 632 702

Asia 6 193 11 662 48 868 186 574 608 232 594 994 632 114

West Asia 1 447 2 143 7 609 7 112 13 318 17 646 19 777

Bahrain 600at 599at 719 1 044 1 752 1 968 2 146c

Cyprus ab .. - 9 78 529 749 731Iran, Islamic Republic of ag .. .. .. ..v 1 207 4 019 5 318Iraq .. .. .. .. .. .. ..Jordan m 35 38 28 ..v ..v ..v ..vKuwait s 568 930 3 662 2 804 1 427 1 793 1 638Lebanon au .. 42 49 94 248 340 414Oman ab .. 2 7 23 23 22 22Occupied Palestinian Territory .. .. .. .. .. .. ..Qatar am .. .. .. 30 181 293 353Saudi Arabia av 239 508 1 873 1 621 2 120 2 076 2 126Syrian Arab Republic .. .. .. .. .. .. ..Turkey .. .. 1 157aw 1 425aw 3 668 3 775 3 950c

United Arab Emirates y 5 19 99 98 2 253 2 695i 3 136i

Yemen au .. 4 5 5 5 5 5

Central Asia .. .. .. - 558 758 1 521

Armenia ax .. .. .. .. 33 44 55Azerbaijan ax .. .. .. .. 474 632 957Georgia .. .. .. .. .. .. ..Kazakhstan .. .. .. - 18 43 464Kyrgyzstan .. .. .. .. 33 39 45c

Tajikistan .. .. .. .. .. .. ..Turkmenistan .. .. .. .. .. .. ..Uzbekistan .. .. .. .. .. .. ..

South, East and South-East Asia 4 746 9 519 41 259 179 462 594 356 576 590 610 816

Afghanistan .. .. .. .. .. .. ..Bangladesh z .. .. 6 9 29 50 54Bhutan .. .. .. .. .. .. ..Brunei Darussalam ac .. .. .. 71 148 156 165Cambodia an .. .. .. 2 2 2 2China .. 131 2 489ay 15 802ay 25 804ay 32 688ay 35 538ay

Hong Kong, China az 148 2 344 11 920 78 833 388 380 352 602 370 296India 235j 250j 281j 495ba 1 311ba 2 068ba 2 499ba

Indonesia .. 55bb 77bb 1 295 2 339aq 2 464aq 2 580aq

Korea, Democratic People’s Republic of .. .. .. .. .. .. ..Korea, Republic of 127 461 2 301 7 787 50 552 40 825 43 500c

Lao People’s Democratic Republic ac .. .. .. 1 169 172 229Macau, China .. .. .. .. .. 137 137c

Malaysia 197 1 374 2 671 11 143 18 688aa 18 955aa 20 194aa

Maldives u .. .. - - - - -Mongolia am .. .. .. - - - -Myanmar bc .. .. .. - - - -Nepal .. .. .. .. .. .. ..Pakistan 40 127 250 403 521 588 571c

Philippines 171 171 155 1 220 1 597 1 273 1 358c

Singapore 3 718f 4 387f 7 808 35 050 53 104 67 255 71 336c

Sri Lanka ab .. 1 8 35 86 86 97Taiwan Province of China 97 204 12 888bd 25 144bd 49 187bd 54 667bd 59 553bd

Thailand 13 14 404 2 173 2 439 2 601i 2 707i

Viet Nam .. .. .. .. .. .. ..

/...

ANNEX B 265

Annex table B.4. FDI outward stock, by home region and economy,1980, 1985, 1990, 1995, 2000, 2001 and 2002 a (concluded)

(Millions of dollars)

Host region/economy 1980 1985 1990 1995 2000 2001 2002

The Pacific 13 37 85 426 442 558 588

Fiji ar 2 15 70 43 ..v ..v ..vKiribati bc .. .. .. - - - -New Caledonia .. .. .. .. .. .. ..Papua New Guinea 10 22 15ay 383ay 519ay 628ay 675ay

Samoa .. .. .. .. .. .. ..Solomon Islands u .. .. - - - - -Tonga z .. .. - - 1 1 1Tuvalu .. .. .. .. .. .. ..Vanuatu .. .. .. .. .. .. ..

Central and Eastern Europe .. .. 616 6 372 19 339 24 746 29 152

Albania ag .. .. .. 48 82 82 86Belarus an .. .. .. - 5 6 ..vBosnia and Herzegovina an .. .. .. 13 40 40 40Bulgaria .. .. .. 105be 87 97 125c

Croatia .. .. .. 703 875 969 1 064c

Czech Republic .. .. .. 346 738 1 136 1 496Czechoslovakia (former) .. .. .. .. .. .. ..Estonia .. .. .. 70be 259 442 670Hungary .. .. 197 489 2 068 4 377 4 641c

Latvia .. .. .. 231 241 47 67Lithuania .. .. .. 1 29 48 60Moldova, Republic of .. .. .. 18 19 19 19Poland .. .. 95 539 1 025 1 107 1 280c

Romania .. .. 66 121 142 127 155Russian Federation .. .. .. 3 015 12 394 14 734 18 018c

Serbia and Montenegro .. .. .. .. .. .. ..Slovakia .. .. .. 87 367 404i 409i

Slovenia .. .. 258 490 794 950 1 066c

TFYR Macedonia x .. .. .. .. 4 5 5Ukraine .. .. .. 97 170 158 153c

Yugoslavia (former) .. .. .. .. .. .. ..

Memorandum

Least developed countries bf 92 456 704 1 843 3 216 3 147 3 223Oil-exporting countries bg 1 782 2 794 12 256 15 733 23 985 28 506 31 856All developing economies, excluding China 64 606 78 046 130 600 295 062 791 646 773 837 813 926

Source: UNCTAD, FDI/TNC database.a Estimates. For details, see “Definitions and Sources” in annex B. For the countries for which the stock data are estimated by either

cumulating FDI flows or adding or subtracting flows to FDI stock in a particular year, notes are given below.b Value does not include data for Belgium and for Luxembourg. For details, see “Definitions and Sources” in Annex B, p. 231.c Stock data after 2001 are estimated by adding flows.d Stock data prior to 1987 are estimated by subtracting flows.e Stock data prior to 1999 are estimated by subtracting flows.f Stock data prior to 1990 are estimated by subtracting flows.g Stock data prior to 1982 are estimated by subtracting flows.h Stock data prior to 1988 are estimated by subtracting flows.i Stock data after 2000 are estimated by adding flows.j Stock data prior to 1992 are estimated by subtracting flows.k Stock data are estimated by accumulating flows since 1970.l Stock data are estimated by accumulating flows since 1977.m Stock data are estimated by accumulating flows since 1972.n Stock data are estimated by accumulating flows since 1979.o Stock data are estimated by accumulating flows since 1974.p Stock data are estimated by accumulating flows since 1989.q Stock data are estimated by accumulating flows since 1973.r Stock data are estimated by accumulating flows since 1988.s Stock data are estimated by accumulating flows since 1975.t Stock data are estimated by accumulating flows since 1978.u Stock data are estimated by accumulating flows since 1990.v Negative stock value. However, this value is included in the regional and global total.w Stock data are estimated by accumulating flows since 1997.x Stock data are estimated by accumulating flows since 1996.y Stock data are estimated by using the inward stock of the United States from 1980 to 2000 as a proxy.z Stock data are estimated by accumulating flows since 1986.aa Stock data after 1998 are estimated by adding flows.ab Stock data are estimated by accumulating flows since 1985.ac Stock data are estimated by accumulating flows since 1991.ad Stock data are estimated by accumulating flows since 1976.ae Stock data prior to 1981 are estimated by subtracting flows.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives266

af Stock data are estimated by accumulating flows since 1971.ag Stock data are estimated by accumulating flows since 1992.ah Stock data are estimated by accumulating flows since 1983.ai Stock data prior to 1991 are estimated by subtracting flows.aj Stock data from 1980 to 1985 are estimated by accumulating flows since 1980.ak Stock data prior to 2001 are estimated by subtracting flows.al Stock data from 1993 to 1995 are estimated by subtracting flows from 1996 stock.am Stock data are estimated by accumulating flows since 1995.an Stock data are estimated by accumulating flows since 1993.ao Stock data prior to 1995 are estimated by subtracting flows.ap Stock data prior to 1996 are estimated by subtracting flows.aq Stock data after 1999 are estimated by adding flows.ar Stock data are estimated by accumulating flows since 1980.as Stock data are estimated by accumulating flows since 1987.at Stock data prior to 1989 are estimated by subtracting flows.au Stock data are estimated by accumulating flows since 1982.av Stock data are estimated by using the inward stock of Canada and the United States from 1980 to 1991 and France, Netherlands and the

United States from 1995 to 1997as a proxy. Stock data after 1997 are estimated by adding flows.aw Stock data prior to 2000 are estimated by subtracting flows.ax Stock data are estimated by accumulating flows since 1987.ay Stock data after 1989 are estimated by adding flows.az Stock data are estimated by using the inward stock of the United States from 1980 to 1983 and by using the inward stock of the United

States and China as a proxy from 1984 to 1997 as a proxy. Stock data after 1997 are estimated by adding flows.ba Stock data after 1992 are estimated by adding flows.bb Stock data are estimated by using the inward stock of Germany and the United States from 1984 to 1992 as a proxy.bc Stock data are estimated by accumulating flows since 1994.bd Stock data after 1988 are estimated by adding flows.be Stock data prior to 1996 are estimated by subtracting flows.bf Least developed countries include: Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Cape Verde,

Central African Republic, Chad, Comoros, Democratic Republic of Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gambia, Guinea,Guinea-Bissau, Haiti, Kiribati, Lao People’s Democratic Republic, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali, Mauritania,Mozambique, Myanmar, Nepal, Niger, Rwanda, Samoa, Sao Tome and Principe, Senegal, Sierra Leone, Solomon Islands, Somalia, Sudan,Togo, Tuvalu, Uganda, United Republic of Tanzania, Vanuatu, Yemen and Zambia.

bg Oil-exporting countries include: Cameroon, Algeria, Angola, Bahrain, Brunei Darussalam, Congo, Ecuador, Gabon, Indonesia, IslamicRepublic of Iran, Iraq, Kuwait, Libyan Arab Jamahiriya, Nigeria, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, Trinidad and Tobago,United Arab Emirates and Venezuela.

Note: For data on FDI stock which are calculated as an accumulation of flows, price changes are not taken into account.

ANNEX B 267

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed capitalformation, by region and economy, 1991-2002

(Percentage)

Region/economy 1991-1996 1997 1998 1999 2000 2001 2002 (Annual average)

Worldinward 4.4 7.5 10.9 16.5 20.8 12.8 12.2outward 5.0 7.4 11.0 16.9 18.3 11.3 13.6

Developed countriesinward 3.7 6.0 10.4 17.1 22.9 12.7 12.3

outward 5.7 8.8 13.9 21.1 22.4 14.3 15.6

Western Europeinward 5.5 8.3 14.8 27.3 41.6 24.0 22.0outward 8.4 14.5 24.5 42.4 51.1 28.0 23.7

European Unioninward 5.5 8.0 14.8 27.5 42.2 24.5 22.5outward 8.1 13.8 24.6 42.3 50.5 28.4 23.8

Austriainward 4.0 5.5 9.1 6.0 19.4 13.4 ..outward 3.2 4.1 5.5 6.7 12.6 7.1 ..

Belgium and Luxembourginward 21.1 22.3 40.6 209.5 169.7 171.2 ..outward 14.0 13.5 51.6 214.1 165.2 195.4 ..

Belgiuminward .. .. .. .. .. .. ..outward .. .. .. .. .. .. ..

Luxembourginward .. .. .. .. .. .. 2865.0outward .. .. .. .. .. .. 3512.8

Denmarkinward 8.4 8.4 21.6 47.0 93.6 35.9 17.7outward 8.9 12.6 12.5 47.6 71.6 40.5 14.4

Finlandinward 4.6 9.6 8.5 18.8 34.4 15.0 35.0outward 9.6 24.0 77.3 27.2 96.9 33.7 37.8

Franceinward 6.7 9.2 11.6 16.8 16.5 20.9 18.4outward 8.9 14.1 18.2 45.8 67.6 35.1 22.4

Germanyinward 0.9 2.7 5.4 12.4 50.3 9.1 10.4outward 5.6 9.2 19.4 24.3 14.1 11.3 6.7

Greeceinward 5.2 4.1 0.3 2.1 4.2 6.0 0.2outward - 0.6 1.0 2.0 8.2 2.3 2.1

Irelandinward 14.7 16.8 45.4 81.4 115.9 65.7 70.9outward 4.2 6.3 20.7 26.9 20.3 24.6 10.1

Italyinward 1.6 1.7 1.2 3.1 6.3 6.9 6.2outward 3.2 4.9 5.6 3.0 5.8 10.0 7.3

Netherlandsinward 13.0 15.3 48.9 45.9 72.1 60.9 33.2outward 25.4 33.6 48.5 64.3 88.0 57.6 29.9

Portugalinward 7.1 9.6 11.3 4.0 22.9 19.1 13.6outward 2.2 7.4 13.9 10.2 25.4 24.5 11.2

Spaininward 8.3 6.3 8.8 10.9 26.4 19.2 12.8outward 3.3 10.3 14.1 29.0 38.5 22.7 11.1

Swedeninward 16.8 28.2 48.6 140.3 54.7 30.1 27.0outward 14.2 32.6 59.7 50.6 95.5 16.9 26.5

United Kingdominward 9.2 15.1 29.7 33.9 54.2 26.2 10.1outward 16.1 28.0 49.0 83.3 103.9 28.8 16.1

Other Western Europeinward 3.8 12.9 14.2 22.9 30.2 14.1 12.0outward 14.0 26.5 22.7 43.9 62.2 20.9 21.2

/...

World Investment Report 2003 FDI Policies for Development: National and International Perspectives268

Gibraltarinward .. .. .. .. .. .. ..outward .. .. .. .. .. .. ..

Icelandinward 0.9 10.2 7.5 3.5 7.9 8.2 ..outward 2.0 3.8 3.6 5.7 18.2 19.0 ..

Maltainward 14.0 9.6 31.8 95.6 64.7 34.9 -41.8outward 0.3a 1.9 1.7 5.2 2.8 0.8 -

Norwayinward 4.7 12.7 10.3 23.1 18.1 6.8 2.7outward 7.9 15.4 6.1 17.5 25.4 -2.4 17.1

Switzerlandinward 3.2 13.2 17.1 22.3 38.2 18.5 19.2outward 17.2 35.3 35.8 63.4 88.5 36.0 24.3

North Americainward 4.7 7.9 12.4 18.0 20.8 9.7 2.9outward 6.7 8.2 10.4 13.3 10.3 7.9 8.6

Canadainward 6.1 9.1 18.6 19.0 47.2 20.6 14.3outward 7.6 18.3 28.1 13.2 33.0 26.2 19.9

United Statesinward 4.5 7.8 11.9 18.0 18.6 8.7 1.9outward 6.6 7.2 8.9 13.3 8.4 6.3 7.5

Other developed countriesinward 0.7 1.2 1.0 1.6 2.2 1.3 13.1outward 1.8 2.5 2.5 1.8 2.7 4.4 6.8

Australiainward 8.4 8.3 7.1 3.2 15.4 5.2 15.0outward 4.8 7.0 4.0 -0.7 0.7 14.3 7.3

Israelinward 3.5 8.0 8.2 13.8 21.9 16.9 9.0outward 3.2 2.9 5.0 4.2 15.1 3.9 6.7

Japaninward 0.1 0.3 0.3 1.1 0.7 0.6 ..outward 1.7 2.1 2.3 1.9 2.6 3.6 ..

New Zealandinward 24.4 19.2 8.9 14.4 36.4 21.1 3.3outward 2.8 -0.3 3.5 9.7 5.9 12.6 2.9

Developing countriesinward 6.5 11.4 12.0 14.3 14.6 12.7 10.5outward 2.9 4.1 3.1 3.7 6.2 2.9 4.6

Africainward 5.3 9.7 8.0 11.8 8.8 19.4 8.9outward 2.2 3.2 2.6 2.3 0.7 -2.6 0.1

North Africainward 4.3 5.9 5.8 7.1 6.0 11.5 7.1outward 0.1 1.1 0.8 0.6 0.5 0.4 0.4

Algeriainward 0.5 2.4 4.0 4.3 3.8 8.6 8.1outward 0.1 0.1 - 0.4 0.2 0.1 0.8

Egyptinward 8.3 5.2 5.5 5.2 5.9 3.4 4.6outward 0.4 1.0 0.2 0.2 0.2 0.1 0.2

Libyan Arab Jamahiriyainward -0.2 -1.9 -4.2 -3.8 -3.2 -2.7 ..outward -0.8 6.4 8.4 6.8 2.2 2.3 ..

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed capitalformation, by region and economy, 1991-2002 (continued)

(Percentage)

Region/economy 1991-1996 1997 1998 1999 2000 2001 2002 (Annual average)

/...

ANNEX B 269

Moroccoinward 6.3 17.2 5.3 16.5 5.3 37.2 4.8outward 0.4 0.1 0.3 0.2 0.7 1.3 0.3

Sudaninward 0.9 6.8 22.6 25.6 23.8 27.7 ..outward .. .. .. .. .. .. ..

Tunisiainward 10.3 7.8 13.6 7.0 15.2 9.3 15.0outward 0.1 0.2 - - - - -

Other Africainward 6.1 12.5 9.8 16.4 11.7 27.0 10.7outward 4.0 4.8 4.1 4.0 1.0 -5.5 -0.2

Angolainward 45.3 21.1 48.6 86.8 28.0 66.7 ..outward - - - - - - ..

Benininward 14.5 6.8 8.5 13.9 13.8 9.6 ..outward 1.6b 3.2 0.5 5.3 0.8 0.5 ..

Botswanainward -2.7 8.6 7.4 2.7 4.2 2.2 3.0outward 1.1 0.4 0.2 0.1 0.2 26.9 0.2

Burkina Fasoinward 1.7 1.9 1.3 2.0 3.9 1.4 1.1outward 0.4 0.2 0.7 0.7 - 0.1 0.2

Burundiinward 0.5 - 3.7 0.3 21.8 - -outward 0.1 0.1 0.7 1.3 - - -

Camerooninward 0.6 3.1 3.1 2.3 2.1 4.4 5.0outward 0.8 0.4 0.1 0.2 0.2 0.2 0.2

Cape Verdeinward 7.0 10.4 8.2 43.4 31.1 8.6 ..outward 0.4 - - 0.3 - - ..

Central African Republicinward 2.4 0.3 0.3 2.1 0.9 3.8 ..outward 3.5 0.2 0.2 - - - ..

Chadinward 14.6 23.3 8.8 10.5 39.9 - ..outward 5.6 -0.4 -0.1 0.8 - - ..

Comorosinward 1.3 0.1 10.0 1.3 5.9 0.1 ..outward 1.1c .. .. .. .. .. ..

Congoinward 15.1 15.7 6.9 111.4 17.9 8.3 27.4outward 0.1 0.7 -1.7 0.4 0.4 0.6 0.9

Congo, Democratic Republic ofinward 0.4 -8.7 13.5 1.2 1.8 0.1 ..outward .. .. .. .. .. .. ..

Côte d’Ivoireinward 14.2 27.4 21.6 20.9 20.3 4.3 19.8outward 10.0 2.1 1.9 3.1 - 0.2 0.2

Djiboutiinward 7.5b 5.1 4.4 8.9 4.7 5.2 ..outward .. .. .. .. .. .. ..

Equatorial Guineainward 53.4 15.8 69.8 52.8 21.4 202.9 ..outward 0.1 - - 0.3 -0.7 0.9 ..

Eritreainward 19.9d 15.3 46.2 26.1 11.8 0.3 ..outward .. .. .. .. .. .. ..

Ethiopiainward 1.1 27.5 23.4 6.7 14.9 1.8 5.8outward .. 21.7 22.8 -4.4 -0.1 6.3 0.6

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed capitalformation, by region and economy, 1991-2002 (continued)

(Percentage)

Region/economy 1991-1996 1997 1998 1999 2000 2001 2002 (Annual average)

/...

World Investment Report 2003 FDI Policies for Development: National and International Perspectives270

Gaboninward -20.9 -45.1 -14.0 -51.2 -3.3 12.8 7.4outward 1.4 -1.0 -1.0 1.1 2.0 0.1 -

Gambiainward 16.2 29.2 30.9 64.4 59.7 50.0 ..outward 6.2 7.7 7.3 5.8 6.5 7.1 ..

Ghanainward 8.1 5.0 3.3 16.1 9.6 7.1 4.0outward 10.5d 3.1 1.8 4.6 4.4 4.2 4.9

Guineainward 2.6 2.6 2.8 8.7 1.5 0.2 ..outward 0.1d 0.2 0.2 0.4 0.3 0.3 ..

Guinea-Bissauinward 2.3 31.5 16.6 22.8 1.8 2.1 ..outward .. .. .. .. - - ..

Kenyainward 0.8 2.1 2.2 2.6 8.3 3.2 2.9outward 0.4 0.2 0.8 1.9 1.9 3.2 4.4

Lesothoinward 11.4 5.6 6.1 7.5 8.2 8.7 11.2outward 0.1e .. .. .. .. .. ..

Liberiainward .. .. .. .. .. .. ..outward .. .. .. .. .. .. ..

Madagascarinward 3.9 3.3 3.3 10.9 11.1 11.4 1.2outward 0.1 -0.4 0.2 - 0.2 - -

Malawiinward -1.3 -0.4 -1.4 20.7 -14.3 -10.5 ..outward 0.9d 0.4 2.9 1.3 1.4 2.1 ..

Maliinward 4.8 12.5 6.9 10.1 18.5 17.6 16.1outward 0.1 0.8 5.2 9.8 0.9 2.5 2.9

Mauritaniainward 4.1 0.5 0.1 0.5 3.3 -2.4 ..outward .. .. .. .. .. .. ..

Mauritiusinward 2.1 5.0 1.3 4.2 25.9 3.2 2.7outward 1.8 0.3 1.4 0.5 1.2 0.2 0.1

Mozambiqueinward 8.4 10.5 27.4 30.0 10.8 23.0 24.0outward - -0.1 - - - - -

Namibiainward 18.3 11.7 9.9 14.3 23.8 39.9 ..outward -0.2 0.1 -0.2 -0.1 0.4 -1.8 ..

Nigerinward 7.3 11.1 3.5 0.1 4.5 9.7 ..outward 5.1 3.6 4.0 0.1 -0.3 -1.5 ..

Nigeriainward 29.0 16.4 11.9 52.1 49.4 31.3 34.9outward 6.3 0.6 1.2 4.7 4.5 2.6 2.8

Rwandainward 1.2 1.0 2.4 0.5 2.6 1.3 ..outward -0.1 0.5 0.1 0.3 0.2 0.2 ..

São Tomé and Principeinward -0.5 0.6 2.7 4.2 11.0 24.8 ..outward .. .. .. .. .. .. ..

Senegalinward 3.4 22.3 7.5 15.1 7.3 3.6 9.2outward 1.1 0.1 1.1 0.6 0.1 -0.8 3.8

Seychellesinward 19.4 31.7 26.3 26.4 31.3 28.9 ..outward 5.3 5.8 1.4 4.0 4.1 5.4 ..

Sierra Leoneinward -0.2 22.6 -25.9 21.0 12.2 4.4 ..outward 0.4 - -0.1 - - - ..

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed capitalformation, by region and economy, 1991-2002 (continued)

(Percentage)

Region/economy 1991-1996 1997 1998 1999 2000 2001 2002 (Annual average)

/...

ANNEX B 271

Somaliainward .. .. .. .. .. .. ..outward .. .. .. .. .. .. ..

South Africainward 2.0 15.5 2.5 7.4 4.7 40.5 4.8outward 5.5 9.6 7.8 7.8 1.4 -19.0 -2.5

Swazilandinward 24.5 -3.5 34.6 20.5 10.4 34.0 ..outward 10.1 -2.3 5.5 -2.7 -4.4 3.7 ..

Togoinward 6.5 11.3 19.3 34.9 20.9 30.5 ..outward 3.9 2.2 10.3 20.5 0.2 -3.5 ..

Ugandainward 7.7 15.5 18.5 21.1 22.7 21.3 24.0outward 5.2 1.3 1.8 -0.8 -2.5 -0.5 -1.2

United Republic of Tanzaniainward 6.0 14.0 12.8 38.9 29.3 20.8 14.5outward -f - - - 0.1 - -

Zambiainward 21.6 14.1 41.3 32.5 21.2 10.1 25.8outward .. .. .. .. .. .. ..

Zimbabweinward 3.0 8.0 44.0 7.2 2.6 0.5 7.5outward 1.0 1.7 0.9 1.1 0.8 0.6 0.9

Latin America and the Caribbeaninward 8.1 16.6 17.3 25.8 20.7 20.0 14.6outward 1.3 2.8 3.0 2.6 2.2 0.6 1.4

South Americainward 6.9 15.9 17.6 32.6 25.5 19.7 17.3

outward 1.3 2.6 2.6 3.1 3.5 -0.4 2.1

Argentinainward 10.0 16.1 12.2 46.9 25.3 8.4 8.2outward 2.2 6.4 3.9 3.4 2.2 -0.5 -8.7

Boliviainward 20.8 58.4 52.0 63.7 49.0 56.7 44.7outward 0.2 0.1 0.1 0.2 0.2 0.2 0.2

Brazilinward 3.0 11.8 18.6 28.2 28.4 22.7 19.6outward 0.5 0.7 1.8 1.7 2.0 -2.3 2.9

Chileinward 16.0 23.5 22.3 56.9 22.9 31.4 11.4outward 4.7 6.5 7.2 16.6 25.1 10.1 3.3

Colombiainward 9.3 25.8 15.2 12.7 21.1 21.8 17.0outward 1.0 3.8 4.3 1.0 3.1 0.1 6.5

Ecuadorinward 13.0 19.2 21.0 31.9 32.7 45.2 ..outward 0.8 6.8 -2.0 - - - ..

Guyanainward 35.2 15.9 22.5 29.7 41.6 36.7 ..outward -0.1f -0.1 -0.2 -1.2 1.2 -0.1 ..

Paraguayinward 6.4 10.8 18.0 5.5 6.4 7.4 ..outward 0.4 0.3 0.3 0.3 0.4 0.4 ..

Peruinward 14.6 12.1 13.8 20.2 6.3 11.6 14.9outward - 0.6 0.5 1.1 0.9 1.0 1.6

Surinameinward -2.3 -2.9 19.7 -17.8 -104.5 -19.1 ..outward .. .. .. .. .. .. ..

Uruguayinward 4.0 4.0 4.8 7.9 10.3 14.0 ..outward - 0.4 0.3 1.3 - - ..

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed capitalformation, by region and economy, 1991-2002 (continued)

(Percentage)

Region/economy 1991-1996 1997 1998 1999 2000 2001 2002 (Annual average)

/...

World Investment Report 2003 FDI Policies for Development: National and International Perspectives272

Venezuelainward 10.5 33.3 24.6 20.2 25.9 16.7 ..outward 3.2 3.0 1.3 3.1 0.6 0.7 ..

Other Latin America and the Caribbeaninward 11.6 18.6 16.6 14.1 13.5 20.4 11.8outward 1.3 3.3 4.3 1.8 0.2 2.0 0.8

Anguillainward 93.9g 95.3 101.6 109.3 113.5 100.7 ..outward .. 4.5 3.6 2.9 2.9 3.1 ..

Antigua and Barbudainward 16.8 10.1 8.5 10.4 10.4 21.8 ..outward 0.8f -1.3 -0.4 -0.3 0.3 -0.2 ..

Arubainward .. .. .. .. .. .. ..outward .. .. .. .. .. .. ..

Bahamasinward 6.4 32.7 22.6 23.5 38.9 15.7 ..outward - 0.1 0.2 - - - ..

Barbadosinward 5.3 4.4 3.6 3.6 4.1 4.0 ..outward 0.9 0.4 0.2 0.3 0.2 0.2 ..

Belizeinward 11.7 8.2 12.4 24.4 7.7 16.2 ..outward 2.1 2.7 3.6 4.8 3.9 3.4 ..

Bermudainward .. .. .. .. .. .. ..outward .. .. .. .. .. .. ..

Cayman Islandsinward .. .. .. .. .. .. ..outward .. .. .. .. .. .. ..

Costa Ricainward 15.1 17.6 21.3 21.8 14.4 15.3 20.0outward 0.3 0.2 0.2 0.2 0.3 0.3 1.8

Cubainward .. .. .. .. .. .. ..outward .. .. .. .. .. .. ..

Dominicainward 39.3 27.5 9.2 24.3 12.9 15.6 ..outward .. .. .. .. .. .. ..

Dominican Republicinward 10.0 14.3 19.1 32.2 20.5 22.1 19.7outward 0.4f 0.1 0.1 0.1 1.3 -0.7 -

El Salvadorinward 1.3 3.3 55.2 10.8 7.8 11.0 9.0outward - - 0.1 2.7 -0.2 -0.4 -1.1

Grenadainward 22.1 29.1 38.2 27.5 22.3 38.4 ..outward - 0.4 0.2 0.3 -0.2 0.1 ..

Guatemalainward 5.4 3.1 20.8 4.7 7.4 14.0 ..outward -0.2 0.3 0.2 -0.1 0.5 - ..

Haitiinward -0.3 0.5 1.1 2.6 1.3 0.5 0.7outward -2.5 0.1 0.1 -0.1 0.1 - -

Hondurasinward 7.0 10.6 6.7 14.7 17.9 12.9 9.8outward - - - - - - -

Jamaicainward 12.4 9.4 18.6 27.8 22.1 26.4 ..outward 4.3 2.6 4.1 5.0 3.5 3.8 ..

Mexicoinward 11.9 18.1 13.8 12.6 12.6 20.7 11.3outward 0.3 1.4 1.5 1.4 0.8 0.7 0.8

Montserratinward 13.6g 12.8 10.4 37.7 19.9 4.7 ..outward .. .. .. .. .. .. ..

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed capitalformation, by region and economy, 1991-2002 (continued)

(Percentage)

Region/economy 1991-1996 1997 1998 1999 2000 2001 2002 (Annual average)

/...

ANNEX B 273

Netherlands Antillesinward .. .. .. .. .. .. ..outward .. .. .. .. .. .. ..

Nicaraguainward 13.5 28.3 28.2 31.5 32.0 17.9 19.4outward -0.8a 0.2 1.0 0.3 0.5 0.6 0.5

Panamainward 14.5 56.6 49.4 22.4 22.9 18.8 ..outward 44.0 90.1 125.3 12.2 -31.8 69.9 ..

Saint Kitts and Nevisinward 22.8 16.3 25.9 53.1 63.3 44.9 ..outward -0.1 0.3 0.1 0.2 -0.1 - ..

Saint Luciainward 28.1 30.9 52.0 44.7 31.2 13.5 ..outward 0.1 0.1 -0.2 - - -0.1 ..

Saint Vincent and the Grenadinesinward 41.6 106.2 88.4 52.4 33.1 20.5 ..outward .. .. .. .. .. .. ..

Trinidad and Tobagoinward 38.1 60.2 46.9 25.5 32.1 46.0 ..outward 0.1 -1.2 0.1 18.4 1.7 10.1 ..

Virgin Islands (OECD data UK)inward .. .. .. .. .. .. ..outward .. .. .. .. .. .. ..

Asia and the Pacificinward 6.2 9.7 10.2 10.7 13.0 9.8 7.2outward 3.5 4.6 3.2 4.2 8.2 4.1 8.9

Asiainward 6.1 9.7 10.2 10.7 13.1 9.8 7.2outward 3.5 4.6 3.2 4.2 8.2 4.1 8.9

West Asiainward 1.1 3.9 4.5 0.6 1.1 4.0 0.2outward 0.2 -0.1 -0.9 1.6 2.8 4.2 -4.8

Bahraininward 77.0 43.3 20.7 50.5 33.8 7.7 ..outward 11.8 6.3 20.8 18.2 0.9 20.4 ..

Cyprusinward 5.1 32.0 16.9 46.1 52.6 42.7 ..outward 1.1 1.7 3.6 11.2 10.9 14.4 ..

Iran, Islamic Republic ofinward 0.3 0.2 0.1 0.2 0.2 0.2 ..outward - 0.3 - 3.8 1.9 12.1 ..

Iraqinward -h .. .. .. .. .. ..outward .. .. .. .. .. .. ..

Jordaninward 0.2 19.3 18.5 10.3 46.5 5.2 ..outward -1.1 0.1 0.1 0.3 0.3 0.4 ..

Kuwaitinward 1.2 0.5 1.2 1.6 0.6 -4.9 0.2outward 2.4 -23.7 -39.3 0.5 -10.7 12.3 -4.8

Lebanoninward 0.9 3.8 4.2 7.0 10.0 8.0 ..outward 0.4 0.5 - 0.1 4.2 2.9 ..

Omaninward 4.6 2.3 3.0 0.9 1.9 1.7 ..outward 0.1 - -0.1 0.1 -0.1 - ..

Occupied Palestinian Territoryinward 0.7d 0.4 3.9 1.1 4.3 0.7 ..outward .. .. .. .. .. .. ..

Qatarinward 5.6 12.1 11.5 3.5 7.8 9.4 ..outward 1.2b 0.6 0.7 0.9 1.3 3.5 ..

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed capitalformation, by region and economy, 1991-2002 (continued)

(Percentage)

Region/economy 1991-1996 1997 1998 1999 2000 2001 2002 (Annual average)

/...

World Investment Report 2003 FDI Policies for Development: National and International Perspectives274

Saudi Arabiainward -0.7 10.4 14.2 -2.5 -5.7 0.1 ..outward 0.4 0.7 0.2 0.2 0.5 -0.1 ..

Syrian Arab Republicinward 1.0 0.6 0.6 1.9 1.9 1.5 ..outward .. .. .. .. .. .. ..

Turkeyinward 1.9 1.6 1.9 1.9 2.2 12.4 ..outward 0.2 0.5 0.7 1.6 2.0 1.9 ..

United Arab Emiratesinward 2.2 1.8 1.9 -7.8 -3.9 2.0 ..outward 0.2 1.6 -0.2 0.9 16.0 3.4 ..

Yemeninward 8.9 -12.0 -13.8 -24.3 0.4 8.7 ..outward .. .. .. .. .. .. ..

Central Asiainward 10.3 30.2 30.1 25.3 20.5 37.1 ..outward -g - 3.2 7.1 0.3 2.6 ..

Armeniainward 4.7 19.6 72.0 40.3 30.8 18.6 ..outward .. .. 3.8 4.3 2.4 2.9 ..

Azerbaijaninward 56.9 76.1 64.8 39.1 12.9 14.6 ..outward .. .. 8.7 25.7 0.1 10.2 ..

Georgiainward 13.1 67.0 65.8 16.2 27.4 19.9 ..outward .. .. .. 0.2 -0.1 - ..

Kazakhstaninward 19.3 36.7 33.1 53.9 41.2 55.6 ..outward -g - 0.2 0.1 0.1 0.5 ..

Kyrgyzstaninward 21.4a 38.3 51.7 22.6 -1.0 2.3 ..outward .. .. 10.7 3.1 1.8 2.8 ..

Tajikistaninward 4.5 11.0 14.4 11.3 12.3 5.3 ..outward .. .. .. .. .. .. ..

Turkmenistaninward .. 10.7 4.9 5.9 7.7 10.1 ..outward .. .. .. .. .. .. ..

Uzbekistaninward 1.0f 5.2 5.6 4.0 3.5 45.7 ..outward .. .. .. .. .. .. ..

South, East and South-East Asiainward 7.4 10.4 11.0 12.2 14.8 10.3 7.3outward 4.2 5.4 3.9 4.6 9.1 4.1 9.1

Afghanistaninward .. .. .. .. .. .. ..outward .. .. .. .. .. .. ..

Bangladeshinward 0.1 1.6 2.1 1.8 2.7 0.8 0.4outward - - - - - 0.2 -

Bhutannward 0.6 -0.5 0.2 0.2 - 0.2 ..outward .. .. .. .. .. .. ..

Brunei Darussalaminward .. .. .. .. .. .. ..outward .. .. .. .. .. .. ..

Cambodiainward 22.2 28.6 56.4 48.2 31.1 32.1 ..outward 0.7i .. .. .. .. .. ..

Chinainward 11.6 14.6 13.1 11.3 10.3 10.5 ..outward 1.3 0.8 0.8 0.5 0.2 1.5 ..

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed capitalformation, by region and economy, 1991-2002 (continued)

(Percentage)

Region/economy 1991-1996 1997 1998 1999 2000 2001 2002 (Annual average)

/...

ANNEX B 275

Hong Kong, Chinainward 15.9 19.5 29.4 58.6 138.9 54.2 35.2outward 43.8 41.8 33.8 46.2 133.2 25.9 45.4

Indiainward 1.3 4.0 2.9 2.2 2.3 3.2 ..outward 0.1 0.1 0.1 0.1 0.3 0.7 ..

Indonesiainward 5.8 7.7 -1.5 -9.7 -14.3 -10.8 ..outward 2.2 0.3 0.2 0.3 0.5 0.4 ..

Korea, Democratic People’s Republic ofinward .. .. .. .. .. .. ..outward .. .. .. .. .. .. ..

Korea, Republic ofinward 0.8 1.7 5.7 8.3 7.1 3.1 1.5outward 1.6 2.7 5.0 3.7 3.8 2.1 2.1

Lao People’s Democratic Republicinward 21.4b 18.2 14.4 15.7 9.8 7.2 ..outward -b - - - 48.2 0.9 ..

Macau, Chinainward 0.1 0.2 -1.5 0.9 -0.1 20.8 21.5outward .. .. .. .. .. 2.6 ..

Malaysiainward 19.3 14.7 14.0 22.2 16.5 2.5 ..outward 4.8 6.2 4.4 8.1 8.8 1.2 ..

Maldivesinward 8.5 6.5 6.6 5.8 8.9 6.5 ..outward .. .. .. .. .. .. ..

Mongoliainward 4.8a 10.3 7.3 12.0 18.7 13.9 ..outward .. .. .. .. .. .. ..

Myanmarinward 2.8 3.7 2.1 0.8 0.7 0.6 ..outward .. .. .. .. .. .. ..

Nepalinward 0.9 2.2 1.2 0.5 - 2.0 0.9outward .. .. .. .. .. .. ..

Pakistaninward 5.3 7.4 5.7 6.4 3.7 4.9 10.7outward - -0.3 0.1 - 0.1 0.4 -0.2

Philippinesinward 8.5 6.3 12.5 11.9 9.7 8.0 8.6outward 1.3 0.7 1.2 -0.2 -0.8 -1.3 0.7

Singaporeinward 28.8 37.0 24.7 47.6 45.6 43.8 ..outward 11.6 24.5 1.2 19.4 22.2 38.2 ..

Sri Lankainward 4.6 11.8 3.8 4.7 3.8 2.4 6.6outward 0.2 0.1 0.3 0.6 - - 0.3

Taiwan Province of Chinainward 2.4 3.4 0.4 4.4 6.8 7.8 2.9outward 4.8 7.9 6.1 6.7 9.2 10.4 9.8

Thailandinward 3.7 7.6 29.9 23.8 12.4 14.4 3.7outward 0.8 1.1 0.5 1.4 -0.1 0.6 0.4

Viet Naminward 34.9 37.3 23.9 20.1 15.0 13.7 ..outward .. .. .. .. .. .. ..

The Pacificinward 31.0 14.1 35.1 35.0 10.3 17.9 ..outward 4.9 1.0 -7.2 -3.9 7.9 16.1 ..

Fijiinward 33.0 13.6 80.2 -10.2 -11.5 40.6 ..outward -5.0 -18.6 -22.9 -29.4 31.6 3.3 ..

Kiribatiinward 1.2 4.8 2.4 2.4 3.2 2.6 ..outward 0.1j .. .. .. .. .. ..

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed capitalformation, by region and economy, 1991-2002 (continued)

(Percentage)

Region/economy 1991-1996 1997 1998 1999 2000 2001 2002 (Annual average)

/...

World Investment Report 2003 FDI Policies for Development: National and International Perspectives276

New Caledoniainward .. .. .. .. .. .. ..outward .. .. .. .. .. .. ..

Papua New Guineainward 32.2 11.7 20.9 71.7 17.0 12.5 ..outward 7.4 6.5 0.1 8.4 -0.4 21.8 ..

Samoainward .. .. .. .. .. .. ..outward .. .. .. .. .. .. ..

Solomon Islandsinward 15.8 14.0 2.8 -28.5 2.1 -18.5 ..outward 0.2k .. .. .. 0.3 .. ..

Tongainward 6.8 14.0 9.3 9.3 21.8 4.7 ..outward 0.1c .. .. .. 5.3 .. ..

Tuvaluinward .. .. .. .. .. .. ..outward .. .. .. .. .. .. ..

Vanuatuinward 51.5 48.0 31.3 21.4 31.9 28.2 ..outward .. .. .. .. .. .. ..

Central and Eastern Europeinward 5.8 9.7 13.6 18.5 17.9 14.6 17.2outward 0.3 2.2 1.5 1.8 2.7 2.1 2.7

Albaniainward 28.5f 12.9 9.2 6.7 20.5 26.0 ..outward 13.2f 2.7 0.2 1.1 0.9 - ..

Belarusinward 0.9f 9.9 5.1 13.9 4.5 3.4 5.8outward .. 0.1 0.1 - - - -5.3

Bosnia and Herzegovinainward -0.1b 0.1 4.2 16.5 16.4 12.3 33.3outward 3.3b -0.2 .. .. .. .. ..

Bulgariainward 5.1 46.1 33.2 41.4 51.7 32.8 17.0outward -0.8f -0.2 - 0.9 0.2 0.4 1.0

Croatiainward 7.3a 10.9 18.1 31.6 27.2 35.0 ..outward 0.6a 3.8 1.9 1.0 0.1 3.5 ..

Czech Republicinward 9.6 7.9 22.3 41.3 34.3 35.6 59.1outward 0.6f 0.2 0.8 0.6 0.3 1.0 1.8

Czechoslovakia (former)inward .. .. .. .. .. .. ..outward .. .. .. .. .. .. ..

Estoniainward 23.9f 20.6 37.6 23.5 32.9 37.8 16.8outward 1.2f 10.6 0.4 6.4 5.4 13.9 6.7

Hungaryinward 26.8 21.3 18.3 17.2 14.6 20.1 ..outward 0.3 4.3 4.3 2.2 4.7 2.8 ..

Latviainward 23.5f 49.3 21.5 20.7 21.6 7.9 18.0outward -4.3f 0.6 3.3 1.0 0.5 0.6 0.4

Lithuaniainward 3.7f 15.2 35.4 20.7 18.0 18.2 24.7outward -b 1.2 0.2 0.4 0.2 0.3 0.6

Moldova, Republic ofinward 5.7f 20.5 20.2 17.5 64.9 77.9 ..outward 1.2g 0.1 -0.2 - - - ..

Polandinward 10.1 14.5 15.9 18.4 23.4 14.9 11.4outward 0.1 0.1 0.8 0.1 - -0.2 0.5

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed capitalformation, by region and economy, 1991-2002 (continued)

(Percentage)

Region/economy 1991-1996 1997 1998 1999 2000 2001 2002 (Annual average)

/...

ANNEX B 277

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed capitalformation, by region and economy, 1991-2002 (continued)

(Percentage)

Region/economy 1991-1996 1997 1998 1999 2000 2001 2002 (Annual average)

Romaniainward 3.2 16.3 26.5 16.5 14.7 14.1 ..outward 0.1 -0.1 -0.1 0.3 -0.2 -0.2 ..

Russian Federationinward 1.8f 5.9 5.7 11.9 6.7 4.3 3.9outward 0.6a 3.9 2.6 8.0 7.8 4.4 5.3

Serbia and Montenegroinward .. .. .. .. 1.9 9.8 ..outward .. .. .. .. .. .. ..

Slovakiainward 4.4 3.0 8.6 6.4 33.1 24.7 56.9outward 0.4f 1.3 1.8 -6.1 0.4 0.6 0.1

Sloveniainward 4.0 7.9 4.5 1.9 2.8 10.8 37.1outward -0.1f 0.7 -0.1 0.9 1.4 2.8 2.3

TFYR Macedoniainward 2.5g 2.4 18.9 5.2 26.7 96.4 ..outward 0.1d 0.2 0.2 0.2 - 0.2 ..

Ukraineinward 2.8f 6.2 9.0 8.1 9.9 10.7 ..outward 0.1g 0.4 - 0.1 - 0.3 ..

Yugoslavia (former)inward .. .. .. .. .. .. ..outward .. .. .. .. .. .. ..

Memoraudum

Least developed countries l

inward 5.2 6.0 7.0 8.1 5.9 8.2 6.6outward 0.6 1.4 1.6 0.3 0.6 0.4 0.3

Oil-exporting countries m

inward 3.4 8.7 7.9 2.9 1.2 4.3 12.1outward 1.1 0.5 -0.7 1.6 1.9 2.8 0.2

All developing countries minus Chinainward 5.5 10.6 11.7 15.3 16.0 13.6 ..outward 3.2 4.8 3.8 4.8 8.4 3.4 ..

Source: UNCTAD, FDI/TNC database.a Annual average from 1993 to 1996.b Annual average from 1995 to 1996.c 1991.d 1996.e 1992.f Annual average from 1992 to 1996.g Annual average from 1994 to 1996.h Annual average from 1991 to 1993.i 1993.j 1994.k Annual average from 1991 to 1992.l Least developed countries include: Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Cape Verde,

Central African Republic, Chad, Comoros, Democratic Republic of Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gambia, Guinea,Guinea-Bissau, Haiti, Kiribati, Lao People’s Democratic Republic, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali, Mauritania,Mozambique, Myanmar, Nepal, Niger, Rwanda, Samoa, Sao Tome and Principe, Senegal, Sierra Leone, Solomon Islands, Somalia, Sudan,Togo, Tuvalu, Uganda, United Republic of Tanzania, Vanuatu, Yemen and Zambia.

m Oil-exporting countries include: Cameroon, Algeria, Angola, Bahrain, Brunei Darussalam, Congo, Ecuador, Gabon, Indonesia, IslamicRepublic of Iran, Iraq, Kuwait, Libyan Arab Jamahiriya, Nigeria, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, Trinidad and Tobago,United Arab Emirates and Venezuela.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives278

Annex table B.6. Inward and outward FDI stocks as a percentage of gross domesticproduct, by region and economy, 1980, 1985, 1990, 1995, 2000, 2001 and 2002

(Percentage)

Region/economy 1980 1985 1990 1995 2000 2001 2002

World inward 6.7 8.4 9.3 10.3 19.6 21.2 22.3 outward 5.8 6.6 8.6 10.0 19.3 20.4 21.6

Developed countries inward 4.9 6.2 8.2 8.9 16.5 17.9 18.7 outward 6.2 7.3 9.6 11.3 21.4 23.0 24.4

Western Europe inward 6.2 9.4 11.0 13.4 28.5 30.4 31.4 outward 6.4 10.8 12.1 16.1 39.3 41.3 42.7

European Union inward 6.1 9.3 10.9 13.2 28.5 30.5 31.4 outward 6.1 10.5 11.6 15.1 37.9 40.0 41.0

Austriainward 4.0 5.6 6.1 7.5 16.1 18.1 20.6outward 0.7 2.0 2.6 5.0 13.2 15.0 19.5

Belgium and Luxembourginward 5.8 21.2 27.8 38.3 79.1 81.8 ..outward 4.8 11.0 19.4 27.4 72.8 72.9 ..

Belgiuminward .. .. .. .. .. .. ..outward .. .. .. .. .. .. ..

Luxembourginward .. .. .. .. .. .. ..outward .. .. .. .. .. .. ..

Denmarkinward 6.1 6.0 6.9 13.2 42.0 41.3 41.7outward 3.0 3.0 5.5 13.7 41.6 43.8 43.4

Finlandinward 1.0 2.5 3.8 6.5 20.2 21.6 27.0outward 1.4 3.4 8.2 11.6 43.4 46.1 52.8

Franceinward 3.8 6.9 7.1 12.3 19.9 22.0 28.2outward 3.6 7.1 9.1 13.2 34.1 37.3 45.8

Germanyinward 3.9 5.1 7.1 7.8 25.2 22.3 22.7outward 4.6 8.4 8.8 10.5 25.9 29.8 29.0

Greeceinward 9.3 20.2 6.7 9.3 11.2 10.2 9.0outward 6.0 7.1 3.5 2.6 5.2 5.4 5.3

Irelandinward 155.6 163.5 72.3 60.7 124.4 133.9 129.1outward .. 43.4 24.5 20.2 29.3 32.7 29.9

Italyinward 2.0 4.5 5.3 5.8 10.5 9.9 10.6outward 1.6 3.9 5.2 8.8 16.8 16.7 16.4

Netherlandsinward 10.8 18.8 23.3 28.0 66.7 74.2 74.9outward 23.7 36.1 36.3 41.6 83.3 85.7 84.7

Portugalinward 12.3 18.7 14.8 17.1 26.9 29.9 36.0outward 1.7 2.4 1.3 3.0 16.2 21.3 26.2

Spaininward 2.3 5.2 12.8 18.7 25.8 28.2 33.2outward 0.9 2.6 3.0 6.2 29.4 32.5 33.0

Swedeninward 2.2 4.2 5.3 12.9 41.0 42.0 46.0outward 2.8 10.4 21.3 30.5 53.8 55.6 60.5

United Kingdominward 11.8 14.1 20.6 17.6 30.5 38.6 40.8outward 15.0 22.0 23.2 26.9 63.1 63.4 66.1

Other Western Europeinward 8.7 10.9 13.4 16.6 29.1 29.4 32.9outward 12.7 16.1 22.0 35.6 64.8 65.8 71.5

/...

ANNEX B 279

Gibraltarinward .. .. .. .. .. .. ..outward .. .. .. .. .. .. ..

Icelandinward ..a 2.4 2.3 1.8 5.8 8.4 10.0outward 1.7 2.0 1.2 2.6 7.9 11.0 12.3

Maltainward 13.8 28.1 20.1 28.4 83.4 90.0 73.8outward .. .. .. 1.0 5.7 5.8 5.4

Norwayinward 10.4 11.7 10.7 12.8 18.6 19.2 17.4outward 0.9 1.7 9.4 15.4 20.7 19.3 20.0

Switzerlandinward 7.9 10.4 15.0 18.6 36.3 36.1 44.2outward 20.0 26.0 28.9 46.4 97.5 100.3 111.3

North Americainward 4.5 5.5 8.0 8.3 13.5 14.2 14.1outward 7.9 6.2 8.1 10.3 14.5 15.1 15.9

Canadainward 20.4 18.4 19.6 21.1 29.0 29.7 30.4outward 8.9 12.3 14.7 20.3 33.3 34.7 37.6

United Statesnward 3.0 4.4 6.9 7.3 12.4 13.1 12.9outward 7.8 5.7 7.5 9.5 13.2 13.7 14.4

Other developed countriesinward 1.7 2.2 2.8 2.9 3.9 4.3 5.3outward 1.8 3.3 6.9 5.2 7.1 8.7 9.7

Australiainward 7.9 14.5 23.7 27.9 28.9 29.5 32.2outward 1.4 3.8 9.8 14.2 22.0 25.5 22.9

Israelinward 14.8 15.0 8.5 6.4 21.8 22.5 24.1outward 0.6 2.6 2.3 4.6 8.5 8.6 10.5

Japaninward 0.3 0.3 0.3 0.6 1.1 1.2 1.5outward 1.8 3.2 6.6 4.5 5.8 7.2 8.3

New Zealandinward 10.3 8.9 18.2 42.1 47.0 42.3 50.3outward 2.3 6.6 14.7 12.5 13.2 13.3 12.9

Developing countriesinward 12.6 16.4 14.8 16.6 31.1 33.4 36.0outward 3.8 3.8 3.9 5.8 12.9 12.8 13.5

Africainward 8.2 9.9 10.8 15.6 25.9 28.5 30.6outward 2.2 4.1 5.2 7.3 9.4 8.5 8.6

North Africainward 3.2 5.3 9.1 13.9 15.3 17.4 20.9outward 0.4 0.6 0.9 0.8 1.3 1.4 1.6

Algeriainward 3.1 2.2 2.2 3.5 6.4 8.5 10.5outward 0.2 0.3 0.3 0.6 0.6 0.6 0.8

Egyptinward 9.9 16.4 25.6 24.4 20.1 20.4 24.3outward 0.2 0.3 0.4 0.6 0.7 0.7 0.8

Libyan Arab Jamahiriyainward ..a ..a ..a ..a ..a ..a ..a

outward 0.4 1.0 2.2 0.9 3.6 4.6 7.2Morocco

inward 1.0 3.4 3.5 9.2 20.3 28.0 26.9outward 0.8 2.6 1.9 1.8 2.2 2.4 2.3

/...

Annex table B.6. Inward and outward FDI stocks as a percentage of gross domesticproduct, by region and economy, 1980, 1985, 1990, 1995, 2000, 2001 and 2002 (continued)

(Percentage)

Region/economy 1980 1985 1990 1995 2000 2001 2002

World Investment Report 2003 FDI Policies for Development: National and International Perspectives280

Sudaninward 0.4 0.6 0.4 2.3 12.4 15.7 19.4outward .. .. .. .. .. .. ..

Tunisiainward 38.2 58.5 62.0 61.0 59.3 58.4 66.2outward 0.1 0.1 0.1 0.2 0.2 0.2 0.2

Other Africainward 10.9 13.5 11.9 16.6 34.5 37.5 37.5outward 3.6 8.2 8.5 11.8 16.5 14.7 13.8

Angolainward 1.8 9.9 10.0 58.0 90.0 106.9 98.3outward .. .. .. .. .. .. ..

Benininward 2.2 3.2 8.6 18.9 26.1 26.5 25.0outward - 0.2 0.1 0.1 2.5 2.4 2.1

Botswanainward 61.8 79.5 34.8 23.0 37.2 28.5 38.6outward 38.7 36.8 11.9 13.3 10.6 16.5 22.3

Burkina Fasoinward 1.0 1.7 1.4 3.4 6.7 6.3 5.9outward 0.2 0.2 0.1 0.6 1.1 1.0 0.9

Burundiinward 0.7 2.1 2.7 3.4 7.0 6.9 6.8outward .. .. - 0.1 0.3 0.3 0.3

Camerooninward 4.9 13.8 9.4 13.3 14.3 15.7 15.7outward 0.3 0.6 1.3 2.9 2.9 3.0 2.9

Cape Verdeinward .. .. 1.1 7.7 31.1 31.1 30.4outward .. .. 0.4 0.9 1.0 0.9 0.8

Central African Republicinward 6.2 8.9 6.4 7.1 10.0 10.4 9.9outward ..a 0.1 1.2 3.6 4.5 4.4 4.0

Chadinward 14.6 21.6 16.6 25.7 47.4 38.6 78.4outward 0.1 0.1 2.7 5.6 6.0 4.9 4.1

Comorosinward 1.6 1.8 6.8 8.4 11.9 11.1 10.5outward .. .. 0.4 0.7 0.8 0.7 0.7

Congoinward 18.5 22.4 20.6 40.7 58.8 65.9 69.5outward .. .. .. .. .. .. ..

Congo, Democratic Republic ofinward 4.9 8.6 5.8 9.6 14.3 11.6 11.8outward .. .. .. .. .. .. ..

Côte d’Ivoireinward 5.2 10.0 9.0 16.2 36.4 32.1 31.3outward .. .. 0.3 5.2 7.2 6.3 5.8

Djiboutiinward 1.2 1.1 1.5 3.4 6.1 6.4 6.8outward .. .. .. .. .. .. ..

Equatorial Guineainward .. 7.0 19.2 106.9 90.0 115.0 92.8outward .. .. 0.2 0.2 ..a 0.2 0.1

Eritreainward .. .. .. .. 48.0 42.3 49.1outward .. .. .. .. .. .. ..

Ethiopiainward 2.7 1.7 1.8 2.9 14.8 15.4 17.3outward .. .. .. .. 6.8 8.1 8.5

Gaboninward 12.0 24.9 20.3 8.9 ..a ..a ..a

outward 1.8 3.1 2.7 5.2 6.7 5.8 5.5Gambia

inward 52.7 56.3 49.4 48.4 51.2 54.0 74.9outward .. .. 6.9 9.4 10.4 10.2 13.2

/...

Annex table B.6. Inward and outward FDI stocks as a percentage of gross domesticproduct, by region and economy, 1980, 1985, 1990, 1995, 2000, 2001 and 2002 (continued)

(Percentage)

Region/economy 1980 1985 1990 1995 2000 2001 2002

ANNEX B 281

Ghanainward 5.2 6.0 5.4 12.7 29.4 29.3 26.4outward .. .. .. .. 7.2 7.8 7.8

Guineainward 0.1 0.1 2.4 3.5 8.6 8.9 9.4outward .. .. .. .. 0.2 0.3 0.4

Guinea-Bissauinward 0.1 2.7 3.3 7.8 21.3 23.3 22.0outward .. .. .. .. .. .. ..

Kenyainward 5.3 7.8 7.8 8.1 9.5 9.2 9.3outward 0.2 1.0 1.2 1.3 2.1 2.4 2.9

Lesothoinward 1.2 8.5 5.3 35.9 58.3 64.5 75.3outward .. .. - - - - 0.1

Liberiainward 77.7 115.1 194.9 379.3 478.7 477.4 455.8outward 4.3 33.0 36.0 174.5 290.0 259.5 245.1

Madagascarinward 1.0 1.8 3.5 5.5 8.8 9.4 9.9outward .. .. - 0.1 0.1 0.1 0.1

Malawiinward 9.2 13.3 10.5 11.4 11.2 9.3 8.4outward .. .. .. .. 0.9 1.1 1.1

Maliinward 0.7 2.5 1.6 6.6 18.5 20.3 21.9outward 1.2 1.7 0.9 0.9 4.6 4.6 4.8

Mauritaniainward ..a 5.7 5.6 8.6 11.3 10.2 11.3outward .. .. 0.3 0.3 0.3 0.3 0.3

Mauritiusinward 2.3 4.0 6.4 6.5 15.6 15.9 15.6outward .. - 0.1 2.4 3.0 3.0 2.8

Mozambiqueinward 0.4 0.4 1.7 8.7 29.1 37.4 44.8outward .. .. .. - - - -

Namibiainward 86.4 134.2 80.9 48.7 36.7 25.2 34.1outward .. .. 3.1 0.4 1.3 0.3 0.2

Nigerinward 7.6 14.3 11.5 19.3 23.7 23.0 21.0outward 0.1 0.6 2.2 5.8 8.1 7.2 6.5

Nigeriainward 3.7 15.5 28.3 50.0 49.1 51.5 42.4outward - ..a 9.1 14.1 10.6 10.8 8.5

Rwandainward 4.6 7.8 8.2 17.9 14.4 15.0 14.6outward .. .. - ..a 0.2 0.2 0.3

São Tomé and Principeinward .. .. 0.7 ..a 8.1 19.0 20.2outward .. .. .. .. .. .. ..

Senegalinward 5.0 7.3 4.5 8.3 18.9 18.5 18.6outward 0.2 1.7 0.9 2.1 2.6 2.3 2.9

Seychellesinward 36.8 62.1 55.4 63.3 97.0 111.7 115.0outward 9.4 25.9 16.6 18.5 22.9 25.8 26.5

Sierra Leoneinward 6.8 5.7 ..a ..a 2.9 2.9 3.3outward .. .. .. .. .. .. ..

Somaliainward 5.6 1.1 ..a 0.2 0.2 0.2 0.2outward .. .. .. .. .. .. ..

South Africainward 20.5 15.8 8.1 10.0 37.1 44.0 48.7outward 7.1 15.7 13.3 15.5 27.6 25.5 27.4

Swazilandinward 41.8 29.1 39.9 41.1 31.1 37.1 54.6outward 3.3 2.4 4.5 10.4 7.2 4.1 13.5

/...

Annex table B.6. Inward and outward FDI stocks as a percentage of gross domesticproduct, by region and economy, 1980, 1985, 1990, 1995, 2000, 2001 and 2002 (continued)

(Percentage)

Region/economy 1980 1985 1990 1995 2000 2001 2002

World Investment Report 2003 FDI Policies for Development: National and International Perspectives282

Togoinward 15.5 27.5 16.5 23.4 42.1 45.6 47.0outward 0.9 1.3 1.0 3.4 10.3 9.4 8.6

Ugandainward 0.7 0.2 0.1 4.7 21.3 26.1 30.0outward .. .. .. 4.4 4.5 4.6 4.2

United Republic of Tanzaniainward 0.9 1.4 2.2 6.2 19.6 22.6 25.0outward .. .. .. .. .. .. ..

Zambiainward 9.1 20.0 30.8 44.5 72.6 66.5 70.0outward .. .. .. .. .. .. ..

Zimbabweinward 2.8 3.3 1.4 4.8 15.5 11.8 5.8outward .. 0.2 1.0 1.9 3.4 2.7 1.3

Latin America and the Caribbeaninward 6.5 11.0 10.4 11.8 30.6 36.2 44.7outward 7.2 8.4 5.9 5.5 8.2 8.8 10.4

South Americainward 5.9 9.0 8.5 8.6 30.2 35.6 48.7outward 9.6 10.4 6.7 5.0 7.6 8.1 10.9

Argentinainward 6.9 7.4 6.2 10.8 25.7 28.3 74.7outward 7.8 6.7 4.3 4.1 7.3 7.6 18.8

Boliviainward 15.1 19.0 21.1 23.4 62.2 72.8 79.2outward - - 0.2 0.3 0.4 0.4 0.4

Brazilinward 7.4 11.5 8.0 6.0 33.2 43.1 52.1outward 16.8 18.2 9.1 6.5 8.9 10.0 11.8

Chileinward 3.2 14.1 33.2 23.8 60.0 67.3 69.7outward 0.2 0.6 0.6 3.7 15.7 19.5 20.2

Colombiainward 3.2 6.4 8.7 6.9 15.6 19.4 24.0outward 0.4 0.9 1.0 1.1 3.8 3.7 4.7

Ecuadorinward 6.1 6.2 15.2 20.2 50.8 40.0 39.5outward .. .. .. 0.4 1.9 1.3 1.1

Guyanainward 4.2 8.6 10.6 72.7 106.6 116.8 120.0outward .. .. .. 0.3 - - -

Paraguayinward 4.6 9.5 7.7 7.8 17.0 16.1 12.1outward 2.5 4.0 2.6 2.0 2.8 3.0 3.0

Peruinward 4.3 6.1 5.0 10.3 19.9 19.7 22.1outward - 0.2 0.5 1.1 1.0 1.1 1.3

Surinameinward ..a 5.3 ..a ..a ..a ..a ..a

outward .. .. .. .. .. .. ..Uruguay

inward 7.2 16.8 10.8 8.0 10.4 12.9 13.1outward 1.7 3.8 2.0 1.0 1.0 1.1 2.3

Venezuelainward 2.3 2.5 4.7 9.0 22.2 24.1 33.6outward - 0.3 4.6 5.1 4.8 4.7 7.2

Other Latin America and the Caribbeaninward 7.4 14.7 14.7 22.5 31.3 37.1 40.1outward 2.3 3.9 4.0 7.3 9.2 9.8 9.8

Anguillainward .. .. 19.8 90.0 227.4 254.9 281.8outward .. .. .. .. .. .. ..

/...

Annex table B.6. Inward and outward FDI stocks as a percentage of gross domesticproduct, by region and economy, 1980, 1985, 1990, 1995, 2000, 2001 and 2002 (continued)

(Percentage)

Region/economy 1980 1985 1990 1995 2000 2001 2002

ANNEX B 283

Antigua and Barbudainward 21.3 46.5 74.5 88.6 85.9 88.8 99.7outward .. .. .. .. .. .. ..

Arubainward .. .. 15.2 15.8 44.0 26.3 38.3outward .. .. .. 0.8 0.7 1.4 1.6

Bahamasinward 41.0 23.4 18.9 21.5 32.9 34.0 37.6outward 21.3 6.6 19.8 37.2 28.7 27.9 27.6

Barbadosinward 11.8 10.5 10.0 12.2 11.7 11.8 13.8outward 0.6 1.1 1.4 1.8 1.5 1.5 1.8

Belizeinward 6.4 5.0 18.2 25.8 34.8 38.4 43.2outward .. .. .. 2.0 6.0 6.8 7.7

Bermudainward 836.7 774.7 869.7 1181.7 2265.8 2717.1 3015.0outward 118.5 162.7 97.3 129.3 600.4 375.6 297.8

Cayman Islandsinward 242.8 680.1 353.3 357.5 2398.5 2481.7 2718.8outward 5.6 39.0 140.3 258.4 1560.5 1794.6 1848.7

Costa Ricainward 13.9 24.4 25.3 23.3 32.7 34.5 37.2outward 0.1 0.7 0.8 0.6 0.6 0.6 0.9

Cubainward ..a - - 0.2 0.3 0.3 0.3outward .. .. .. .. .. .. ..

Dominicainward 0.1 10.7 42.9 87.9 100.5 107.5 117.1outward .. .. .. .. - - -

Dominican Republicinward 3.6 5.2 8.1 14.3 26.6 29.4 33.2outward .. .. .. 0.3 0.6 0.4 0.4

El Salvadorinward 4.3 4.8 4.4 3.1 15.0 16.2 16.8outward .. .. 1.1 0.6 0.6 0.5 0.3

Grenadainward 1.5 9.8 31.7 60.6 85.0 90.9 100.2outward .. .. 0.1 - 0.2 0.2 0.2

Guatemalainward 8.9 10.8 22.7 15.0 18.1 18.5 21.1outward .. .. .. .. 0.2 0.2 0.2

Haitiinward 5.4 5.6 5.0 5.8 5.9 5.9 6.3outward .. .. .. - 0.1 0.1 0.1

Hondurasinward 3.6 4.7 12.6 16.5 25.1 26.4 27.8outward .. .. .. .. .. .. ..

Jamaicainward 21.3 25.0 18.7 32.3 45.0 50.5 56.7outward 0.2 0.2 1.0 6.3 9.6 10.3 11.2

Mexicoinward 3.6 10.2 8.5 14.4 16.8 22.5 24.0outward 1.6 2.1 1.8 2.1 1.9 1.9 1.9

Montserratinward .. .. 55.7 105.2 359.6 356.7 353.8outward .. .. .. .. .. .. ..

Netherlands Antillesinward 88.9 24.1 22.4 14.5 3.1 3.1 2.4outward 1.1 0.9 1.2 0.9 0.4 0.5 0.5

Nicaraguainward 5.1 4.1 11.4 19.2 57.0 60.1 66.5outward .. .. .. - 0.3 0.5 0.7

Panamainward 64.6 58.2 41.4 41.0 61.5 65.7 65.1outward 21.3 40.8 78.8 62.5 36.5 53.5 69.1

Saint Kitts and Nevisinward 2.1 40.5 100.6 105.7 147.5 166.6 192.1outward .. .. 0.1 ..a ..a ..a -

/...

Annex table B.6. Inward and outward FDI stocks as a percentage of gross domesticproduct, by region and economy, 1980, 1985, 1990, 1995, 2000, 2001 and 2002 (continued)

(Percentage)

Region/economy 1980 1985 1990 1995 2000 2001 2002

World Investment Report 2003 FDI Policies for Development: National and International Perspectives284

Saint Luciainward 70.1 104.2 80.2 92.1 117.0 114.1 119.4outward .. .. 0.1 0.2 0.1 0.1 0.1

Saint Vincent and the Grenadinesinward 2.0 7.5 24.3 67.9 144.9 144.3 146.4outward .. .. 0.3 0.2 0.2 0.2 0.2

Trinidad and Tobagoinward 15.7 23.3 41.3 67.6 84.2 80.1 87.6outward .. 0.2 0.4 0.5 3.9 5.0 6.6

Virgin Islands (OECD data UK)inward 0.2 3.9 15.3 87.2 454.5 457.3 454.0outward .. .. .. 468.0 836.7 1258.6 1223.2

Asia and the Pacificinward 17.9 20.9 17.9 19.1 32.1 32.7 33.3outward 0.9 1.0 2.6 5.8 15.8 15.3 15.4

Asiainward 17.9 20.9 17.9 19.1 32.1 32.7 33.3outward 0.9 1.0 2.6 5.8 15.8 15.3 15.4

West Asiainward 1.6 10.0 8.2 9.5 9.9 10.4 10.1outward 0.7 1.3 2.2 1.4 2.0 2.8 2.9

Bahraininward 2.0 10.9 13.0 41.1 74.1 75.4 72.9outward 19.5 16.4 17.0 17.8 22.0 24.8 25.2

Cyprusinward 21.4 32.6 20.5 17.8 44.2 49.5 47.7outward .. - 0.2 0.9 6.0 8.2 7.2

Iran, Islamic Republic ofinward 3.2 3.7 2.2 2.6 2.6 2.2 2.4outward .. .. .. ..a 1.3 3.6 5.0

Iraqinward ..a ..a ..a ..a ..a ..a ..a

outward .. .. .. .. .. .. ..Jordan

inward 3.9 9.6 15.3 9.2 26.7 26.7 26.0outward 0.9 0.7 0.7 ..a ..a ..a ..a

Kuwaitinward 0.1 0.2 0.1 - 1.5 1.1 1.1outward 2.0 4.3 19.9 10.6 4.0 5.2 4.6

Lebanoninward 0.5 1.5 1.9 1.2 6.8 8.2 9.4outward .. 2.0 1.7 0.8 1.5 2.0 2.4

Omaninward 8.1 12.0 16.4 18.3 13.2 12.7 12.6outward .. - 0.1 0.2 0.1 0.1 0.1

Occupied Palestinian Territoryinward .. .. .. .. 4.6 4.2 5.3outward .. .. .. .. .. .. ..

Qatarinward 1.1 1.5 1.0 5.5 11.7 13.4 14.7outward .. .. .. 0.4 1.1 1.8 2.0

Saudi Arabiainward ..a 25.2 21.5 17.5 13.8 13.9 13.4outward 0.2 0.6 1.8 1.3 1.1 1.1 1.1

Syrian Arab Republicinward - 0.2 3.0 8.0 9.5 9.8 9.6outward .. .. .. .. .. .. ..

Turkeyinward 12.9 13.8 7.4 8.8 9.6 11.9 10.2outward .. .. 0.8 0.8 1.8 2.6 2.2

United Arab Emiratesinward 1.4 1.8 2.2 4.1 1.5 1.9 2.0outward - 0.1 0.3 0.2 3.2 3.9 4.4

/...

Annex table B.6. Inward and outward FDI stocks as a percentage of gross domesticproduct, by region and economy, 1980, 1985, 1990, 1995, 2000, 2001 and 2002 (continued)

(Percentage)

Region/economy 1980 1985 1990 1995 2000 2001 2002

ANNEX B 285

Yemeninward 3.7 4.5 3.7 44.8 14.6 13.7 13.3outward .. 0.1 0.1 0.1 0.1 0.1 -

Central Asiainward .. .. .. 8.8 32.9 38.9 45.8outward .. .. .. - 2.1 2.4 4.4

Armeniainward .. .. .. 1.2 26.8 26.4 28.7outward .. .. .. .. 1.7 2.0 2.3

Azerbaijaninward .. .. .. 12.2 70.8 69.4 86.4outward .. .. .. .. 9.0 11.1 15.4

Georgiainward .. .. .. 1.7 14.0 16.7 19.9outward .. .. .. .. .. .. ..

Kazakhstaninward .. .. .. 14.5 50.6 57.5 62.9outward .. .. .. - 0.1 0.2 1.9

Kyrgyzstaninward .. .. .. 9.7 32.1 28.0 25.9outward .. .. .. .. 2.4 2.6 2.8

Tajikistaninward .. .. .. 7.0 14.5 14.5 14.8outward .. .. .. .. .. .. ..

Turkmenistaninward .. .. .. 7.1 20.7 17.8 19.1outward .. .. .. .. .. .. ..

Uzbekistaninward .. .. .. 1.0 5.1 10.9 13.8outward .. .. .. .. .. .. ..

South, East and South-East Asiainward 27.9 24.9 20.9 21.1 37.0 37.2 37.9outward 1.1 1.0 2.6 6.7 18.9 18.0 18.1

Afghanistaninward 0.3 0.2 0.1 0.1 0.1 0.2 0.2outward .. .. .. .. .. .. ..

Bangladeshinward 0.4 0.5 0.5 0.5 2.2 2.3 2.4outward .. .. - - 0.1 0.1 0.1

Bhutaninward .. .. 0.6 0.7 0.8 0.7 0.7outward .. .. .. .. .. .. ..

Brunei Darussalaminward 0.4 0.8 0.7 12.1 76.4 85.1 103.2outward .. .. .. 1.4 2.9 3.0 3.1

Cambodiainward 2.4 2.0 3.4 12.1 39.9 42.6 41.0outward .. .. .. 0.1 0.1 0.1 0.1

Chinainward 3.1 3.4 7.0 19.6 32.3 33.2 36.2outward .. - 0.7 2.3 2.4 2.7 2.9

Hong Kong, Chinainward 623.8 525.5 269.6 163.4 280.2 255.7 265.7outward 0.5 6.7 15.9 56.6 238.9 215.0 227.2

Indiainward 0.6 0.5 0.5 1.6 4.1 4.6 5.1outward 0.1 0.1 0.1 0.1 0.3 0.4 0.5

Indonesiainward 13.2 28.2 34.0 25.0 40.4 39.5 32.2outward .. 0.1 0.1 0.6 1.6 1.7 1.5

Korea, Democratic People’s Republic ofinward .. .. 3.4 13.7 10.0 9.6 9.5outward .. .. .. .. .. .. ..

/...

Annex table B.6. Inward and outward FDI stocks as a percentage of gross domesticproduct, by region and economy, 1980, 1985, 1990, 1995, 2000, 2001 and 2002 (continued)

(Percentage)

Region/economy 1980 1985 1990 1995 2000 2001 2002

World Investment Report 2003 FDI Policies for Development: National and International Perspectives286

Korea, Republic ofinward 2.1 2.3 2.1 1.9 8.0 9.5 9.2outward 0.2 0.5 0.9 1.6 11.0 9.6 9.1

Lao People’s Democratic Republicinward 0.3 - 1.5 11.6 32.1 32.6 33.4outward .. .. .. - 9.9 9.8 12.8

Macau, Chinainward .. 198.2 84.1 39.3 44.0 46.0 44.7outward .. .. .. .. .. 2.2 2.0

Malaysiainward 20.7 23.3 23.4 32.3 58.6 60.5 59.4outward 0.8 4.3 6.1 12.5 20.8 21.5 21.2

Maldivesinward 11.4 2.8 12.6 16.7 19.8 20.8 22.6outward .. .. - - - - -

Mongoliainward .. .. - 4.2 19.2 21.4 27.8outward .. .. .. - - - -

Myanmarinward ..a ..a ..a 6.1 30.1 39.4 37.2outward .. .. .. - - - -

Nepalinward 0.1 0.1 0.3 0.9 1.8 2.0 2.1outward .. .. .. .. .. .. ..

Pakistaninward 2.9 3.5 4.8 9.1 11.8 9.2 9.8outward 0.2 0.4 0.6 0.7 0.9 1.0 0.9

Philippinesinward 3.9 8.5 7.4 8.2 12.2 14.7 15.0outward 0.5 0.6 0.3 1.6 2.1 1.8 1.8

Singaporeinward 52.9 73.6 83.1 78.7 124.0 132.2 137.5outward 31.7 24.8 21.3 42.0 58.1 76.4 79.1

Sri Lankainward 5.7 8.6 8.5 10.0 14.7 15.5 16.5outward .. - 0.1 0.3 0.5 0.5 0.6

Taiwan Province of Chinainward 5.8 4.7 6.1 5.9 9.0 11.4 11.9outward 0.2 0.3 8.0 9.5 15.9 19.4 21.2

Thailandinward 3.0 5.1 9.6 10.4 20.3 25.3 23.9outward - - 0.5 1.3 2.0 2.3 2.1

Viet Naminward 0.2 1.1 4.0 28.5 48.2 48.4 50.2outward .. .. .. .. .. .. ..

The Pacificinward 22.5 24.8 29.2 27.1 41.2 44.5 44.5outward 0.3 1.0 1.7 6.0 8.0 10.8 10.9

Fijiinward 29.7 34.4 30.0 42.7 61.7 65.7 64.7outward 0.2 1.3 5.1 2.2 ..a ..a ..a

Kiribatiinward .. ..a 1.2 2.6 10.6 11.9 12.5outward .. .. .. 0.1 0.1 0.1 0.1

New Caledoniainward 2.4 4.1 3.0 3.0 4.8 4.6 4.5outward .. .. .. .. .. .. ..

Papua New Guineainward 29.4 28.2 49.1 36.1 58.8 69.9 70.0outward 0.4 0.9 0.5 8.3 15.2 21.2 22.3

Samoainward 1.1 2.2 8.1 14.9 22.5 21.4 21.7outward .. .. .. .. .. .. ..

/...

Annex table B.6. Inward and outward FDI stocks as a percentage of gross domesticproduct, by region and economy, 1980, 1985, 1990, 1995, 2000, 2001 and 2002 (continued)

(Percentage)

Region/economy 1980 1985 1990 1995 2000 2001 2002

ANNEX B 287

Solomon Islandsinward 24.2 20.3 33.0 38.5 45.3 37.0 32.0outward .. .. ..a ..a - - -

Tongainward 0.2 0.4 0.8 4.9 13.3 14.5 16.6outward .. .. 0.1 0.1 0.8 0.8 0.8

Tuvaluinward .. .. .. 2.7 4.4 4.4 5.0outward .. .. .. .. .. .. ..

Vanuatuinward 29.0 52.3 71.8 114.4 161.9 174.3 170.3outward .. .. .. .. .. .. ..

Central and Eastern Europeinward .. 0.2 1.3 5.3 18.3 19.1 20.8outward .. .. 0.4 0.9 2.8 3.1 3.3

Albaniainward .. .. .. 8.3 15.2 18.8 21.0outward .. .. .. 2.0 2.2 2.0 1.8

Belarusinward .. .. .. 0.5 12.5 11.1 11.2outward .. .. .. - 0.1 - ..a

Bosnia and Herzegovinainward .. .. .. 1.1 8.6 10.4 15.8outward .. .. .. 0.7 0.9 0.8 0.8

Bulgariainward .. .. 0.5 3.4 21.6 25.2 24.0outward .. .. .. 0.8 0.7 0.7 0.8

Croatiainward .. .. .. 2.5 19.3 24.9 28.4outward .. .. .. 3.7 4.7 4.8 5.0

Czech Republicinward .. .. 3.9 14.1 42.1 47.4 54.8outward .. .. .. 0.7 1.4 2.0 2.1

Czechoslovakia (former)inward .. .. .. .. .. .. ..outward .. .. .. .. .. .. ..

Estoniainward .. .. .. 14.4 51.5 57.2 65.9outward .. .. .. 1.5 5.0 8.0 10.5

Hungaryinward .. 0.2 1.7 26.7 42.5 45.4 38.2outward .. .. 0.6 1.1 4.4 8.4 7.3

Latviainward .. .. .. 12.5 29.1 30.4 32.4outward .. .. .. 4.7 3.4 0.6 0.8

Lithuaniainward .. .. .. 5.8 20.9 22.2 31.4outward .. .. .. - 0.3 0.4 0.5

Moldova, Republic ofinward .. .. .. 6.5 34.6 40.5 45.0outward .. .. .. 1.3 1.5 1.3 1.2

Polandinward .. .. 0.2 6.2 21.7 22.4 23.9outward .. .. 0.2 0.4 0.7 0.6 0.7

Romaniainward .. .. - 2.3 17.5 19.0 20.5outward .. .. 0.2 0.3 0.4 0.3 0.4

Russian Federationinward .. .. .. 1.6 6.9 6.5 6.5outward .. .. .. 0.9 4.8 4.8 5.2

Serbia and Montenegroinward .. .. .. 2.7 16.3 13.7 20.4outward .. .. .. .. .. .. ..

/...

Annex table B.6. Inward and outward FDI stocks as a percentage of gross domesticproduct, by region and economy, 1980, 1985, 1990, 1995, 2000, 2001 and 2002 (continued)

(Percentage)

Region/economy 1980 1985 1990 1995 2000 2001 2002

World Investment Report 2003 FDI Policies for Development: National and International Perspectives288

Slovakiainward .. .. 0.5 4.4 23.6 30.4 43.2outward .. .. .. 0.5 1.9 2.0 1.7

Sloveniainward .. .. 3.5 9.4 15.5 16.4 23.1outward .. .. 1.5 2.6 4.4 4.9 4.8

TFYR Macedoniainward .. .. .. 0.8 10.8 23.6 23.9outward .. .. .. .. 0.1 0.1 0.1

Ukraineinward .. .. .. 2.5 12.4 12.3 12.9outward .. .. .. 0.3 0.5 0.4 0.4

Yugoslavia (former)inward .. .. .. .. .. .. ..outward .. .. .. .. .. .. ..

Memoraudum

Least developed countries b

inward 3.1 4.1 4.9 9.9 19.6 21.8 23.4outward 0.6 2.6 1.1 1.9 2.6 2.5 2.5

Oil-exporting countries c

inward 1.9 10.0 12.4 14.9 19.2 19.6 20.2outward 0.4 0.7 2.6 2.2 2.8 3.2 3.6

All developing countries minus Chinainward 13.5 18.3 15.6 16.1 30.9 33.4 36.0outward #VALUE 4.4 4.3 6.3 15.1 15.1 16.1

Source: UNCTAD, FDI/TNC database.a Negative stock value. Stock data are estimated by accumulation or subtraction of flows. However, this value is included in the regional

and global total.b Least developed countries include: Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Cape Verde,

Central African Republic, Chad, Comoros, Democratic Republic of Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gambia, Guinea,Guinea-Bissau, Haiti, Kiribati, Lao People’s Democratic Republic, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali, Mauritania,Mozambique, Myanmar, Nepal, Niger, Rwanda, Samoa, Sao Tome and Principe, Senegal, Sierra Leone, Solomon Islands, Somalia, Sudan,Togo, Tuvalu, Uganda, United Republic of Tanzania, Vanuatu, Yemen and Zambia.

c Oil-exporting countries include: Cameroon, Algeria, Angola, Bahrain, Brunei Darussalam, Congo, Ecuador, Gabon, Indonesia, IslamicRepublic of Iran, Iraq, Kuwait, Libyan Arab Jamahiriya, Nigeria, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, Trinidad and Tobago,United Arab Emirates and Venezuela.

Annex table B.6. Inward and outward FDI stocks as a percentage of gross domesticproduct, by region and economy, 1980, 1985, 1990, 1995, 2000, 2001 and 2002 (concluded)

(Percentage)

Region/economy 1980 1985 1990 1995 2000 2001 2002

ANNEX B 289A

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Reg

ion/

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omy

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

TOTA

L W

OR

LD11

5 62

314

0 38

915

0 57

680

713

79 2

8083

064

127

110

186

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848

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1 14

3 81

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3 96

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2 74

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5 30

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110

632

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950

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616

232

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200

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481

1056

059

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159

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793

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34 2

7448

949

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45 8

3140

598

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1 54

819

4 39

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0 71

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0 64

722

8 99

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0 74

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47 3

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133

36 6

7644

761

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3755

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895

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187

853

357

311

586

521

212

960

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942

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253

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540

609

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2 25

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4 61

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Finl

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80

229

51

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1 72

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03

144

6 89

6 4

908

206

Fran

ce3

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3 33

88

183

2 62

39

150

8 49

716

290

7 53

313

575

17 7

5116

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23 8

3435

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14 4

2430

122

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man

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300

4 30

16

220

3 40

75

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2 28

54

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7 49

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924

11 8

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39 5

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52

15

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1 85

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739

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3 75

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764

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3718

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9 10

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531

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12

952

Net

herla

nds

1 18

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965

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51

257

1 46

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074

5 70

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488

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8 90

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921

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4 48

92

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2 45

51

844

6 01

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3 86

33

327

11 0

9359

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13 1

125

774

7 61

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917

26 5

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102

13 0

207

863

9 69

911

807

36 3

9231

271

39 7

0691

081

132

534

180

029

68 5

5852

958

Oth

er W

este

rn E

urop

e3

262

1 59

15

237

1 84

41

070

2 06

11

982

3 97

16

617

6 95

86

538

13 4

0724

126

16 0

356

802

And

orra

--

--

--

--

--

--

6-

-G

ibra

ltar

--

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--

--

9-

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16

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Gue

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--

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--

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26

88

157

136

Icel

and

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4-

--

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229

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31

14

181

225

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n-

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ta-

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--

134

Man

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--

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--

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6 8

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1-

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752

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Nor

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2 66

01

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8 70

310

613

3 08

02

162

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2 35

3 9

694

569

997

582

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1 58

53

692

4 40

73

545

5 34

44

113

13 3

3412

508

3 85

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eric

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79 2

3360

427

31 8

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393

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9149

093

64 8

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90 2

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5 98

027

5 88

440

1 42

922

6 79

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549

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5 73

13

658

2 55

42

313

4 36

411

567

10 8

398

510

16 4

3223

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77 0

7941

918

16 3

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nite

d S

tate

s63

904

68 8

2154

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28 2

2615

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19 9

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3768

069

81 7

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9 54

825

1 93

432

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4 88

073

233

Oth

er d

evel

oped

eco

nom

ies

5 83

47

123

6 44

23

644

4 12

54

732

4 27

720

032

20 1

9720

320

22 8

2932

879

43 9

8340

365

17 4

99A

ustr

alia

4 38

04

704

2 54

52

592

2 44

63

191

2 97

517

360

13 0

9914

794

14 7

3711

996

21 6

9916

879

10 6

53Is

rael

106

134

44

58

293

18

235

303

541

1 09

71

754

2 85

42

346

4 45

2 4

66Ja

pan

29

1 61

2 1

48 1

78 2

30 9

3 7

50 5

411

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3 08

34

022

16 4

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541

15 1

835

689

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Zea

land

1 32

0 6

743

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1 15

71

430

317

1 82

84

839

1 34

62

316

1 59

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397

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opin

g ec

onom

ies

2 87

55

057

16 0

525

786

8 19

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265

15 0

3016

493

35 7

2766

999

82 6

6874

030

70 6

1085

813

44 5

32A

fric

a -

1 03

9 4

85 4

7 3

881

806

342

840

1 80

54

346

2 60

73

117

3 19

915

524

4 68

4N

orth

Afr

ica

- 2

4-

1 1

39 2

42 1

00 1

0 2

11 6

80 4

56 9

14 9

562

916

598

Alg

eria

--

- 1

--

--

--

- 4

2 1

27-

-E

gypt

- 2

4-

- 1

31 1

77 1

7 1

0 1

71 1

02 4

8 7

38 5

28 6

60 3

35M

oroc

co-

--

--

64

83

- 4

0 5

78 5

123

-2

211

47

Sud

an-

--

- 8

--

--

--

--

- 2

5Tu

nisi

a-

--

--

--

--

- 4

02 1

1 3

01 4

5 1

91O

ther

Afr

ica

-1

015

485

46

249

1 56

5 2

41 8

301

595

3 66

62

151

2 20

32

243

12 6

084

086

Ang

ola

--

--

--

--

--

--

- 1

9- /..

.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives290A

nn

ex

ta

ble

B.7

. C

ros

s-b

ord

er

M&

A s

ale

s,

by

re

gio

n/e

co

no

my

of

se

lle

r, 1

98

8-2

00

2 (

co

nti

nu

ed

) (

Mill

ion

s o

f d

olla

rs)

Reg

ion/

econ

omy

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Bot

swan

a-

--

--

--

4 1

1 4

--

--

78

Cam

eroo

n-

--

--

--

4 0

--

--

70

-C

ape

Verd

e-

--

--

--

--

--

83

--

-C

entr

al A

fric

an R

epub

lic-

--

--

4-

2 1

--

1-

--

Cha

d-

--

--

--

--

--

- 2

1-

-C

ongo

--

--

--

- 6

1 1

4-

--

--

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ôte

d’Iv

oire

--

--

--

- 2

3 1

5 1

94-

- 8

--

Dem

. Rep

. of t

he C

ongo

--

--

--

--

89

--

--

--

Equ

ator

ial G

uine

a-

--

--

--

--

--

--

- 9

93E

ritre

a-

--

--

--

--

--

27

--

-E

thio

pia

--

--

--

--

--

- 3

6-

--

Gab

on-

- 4

48-

--

--

- 3

9-

- 2

2-

-G

hana

--

--

--

1 4

48

52

- 3

8 4

1 5

0G

uine

a-

--

--

--

39

50

--

--

--

Ken

ya-

15

--

--

--

25

--

- 1

8 3

00-

Mad

agas

car

--

--

--

--

58

--

4-

--

Mal

awi

--

--

--

--

60

- 1

0-

- 1

4 6

Mal

i-

--

--

--

18

1-

--

132

- 2

Mau

ritan

ia-

--

--

--

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--

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48

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aurit

ius

--

--

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--

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0-

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61 3

0-

Moz

ambi

que

--

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40

14

11

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0-

Nam

ibia

--

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6-

--

--

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--

8-

Nig

eria

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000

--

--

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--

12

18

15

1-

Rw

anda

--

--

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al-

--

--

--

--

107

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6 6

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Sou

th A

fric

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171

11 9

162

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Sw

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55

29

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20

Uni

ted

Rep

. of T

anza

nia

--

--

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1 1

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415

120

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mbi

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--

--

--

18

27

173

150

1 1

33 5

3-

Zim

babw

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n A

mer

ica

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the

Car

ibbe

an1

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1 92

911

494

3 52

94

196

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09

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8 63

620

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6445

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433

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th A

mer

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1 14

8 3

227

319

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109

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25 4

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39 0

3335

584

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395

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entin

a 6

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76

274

302

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41

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1 31

51

869

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14

635

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9619

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35

431

1 20

7B

oliv

ia-

15

26

--

--

821

273

911

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232

19

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razi

l 2

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217

158

174

624

367

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536

12 0

6429

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9 35

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013

7 00

35

897

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le 3

8 2

60 4

34 3

38 5

17 2

76 8

91 7

172

044

2 42

71

595

8 36

12

929

2 83

03

783

Col

ombi

a 7

64-

341

49

31

81

248

67

2 39

92

516

1 78

0 3

021

589

170

830

Ecu

ador

--

--

49

- 4

4 3

5 1

05 2

7 7

9 2

14 1

53 6

70

Guy

ana

--

17

7-

--

--

1-

23

--

-P

arag

uay

--

--

--

--

27

2 1

1-

65

67

-P

eru

--

- 1

5 1

74 6

23

082

945

844

911

162

861

107

555

461

Sur

inam

e-

--

--

--

--

--

--

3-

Uru

guay

- 1

8-

--

5 4

0 1

9-

- 3

6-

27

36

56

Vene

zuel

a-

- 1

12

032

- 6

2 3

37 2

781

072

1 94

63

220

276

2 40

9 7

3 1

0O

ther

Lat

in A

mer

ica

and

Car

ibbe

an 1

571

607

4 17

6 6

282

088

2 27

02

627

2 12

73

598

15 6

6317

089

2 93

19

640

19 6

6310

038

Ant

igua

and

Bar

buda

--

--

--

--

--

24

- 5

13

-A

ruba

--

--

3-

--

- 2

3-

--

--

Bah

amas

83

27

120

210

915

79

214

2 1

04 3

2 2

8-

25

198

28

/...

ANNEX B 291

An

ne

x t

ab

le B

.7.

Cro

ss

-bo

rde

r M

&A

sa

les

, b

y r

eg

ion

/ec

on

om

y o

f s

ell

er,

19

88

-20

02

(c

on

tin

ue

d)

(M

illio

ns

of

do

llars

)

Reg

ion/

econ

omy

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Bar

bado

s-

--

189

--

4 6

64

--

--

1 8

14B

eliz

e-

--

--

--

--

- 6

2-

3 6

2-

Ber

mud

a-

214

1 29

6 5

0 4

52

50

251

1 27

75

601

11 6

35 9

243

596

683

241

Brit

ish

Virg

in Is

land

s-

- 1

43 6

--

89

412

254

19

4 1

3 2

84 3

4 2

30C

aym

an Is

land

s 5

374

170

138

41

--

- 2

45-

- 1

22 5

4 8

-C

osta

Ric

a-

64

3-

- 1

17

96

27

28

2 7

1 2

1-

229

Cub

a-

--

--

--

299

- 3

00 3

8-

477

8-

Dom

inic

an R

epub

lic-

--

--

--

- 4

6-

28

673

464

--

El S

alva

dor

--

--

--

- 4

0-

41

978

--

168

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rena

da-

--

--

--

--

5-

--

--

Gua

tem

ala

--

3 3

- 2

9-

- 2

6 3

0 5

82 1

01 1

3 1

21-

Hai

ti-

--

--

--

--

- 2

--

--

Hon

dura

s-

--

5-

- 1

--

- 3

67-

314

537

-Ja

mai

ca-

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08-

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2 2

62 -

12

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25 2

14M

exic

o 5

4 3

952

326

10

961

1 86

41

913

719

1 42

87

927

3 00

1 8

593

965

17 0

177

137

Net

herla

nds

Ant

illes

- 5

33 8

--

- 2

291

--

86

--

89

301

Nic

arag

ua-

--

--

--

- 2

3 4

2-

11

115

83

53

Pan

ama

15

--

--

6 7

3 9

14

652

216

151

130

8 4

99S

aint

Kitt

s an

d N

evis

--

--

--

--

78

--

--

--

Pue

rto

Ric

o-

--

- 1

42-

--

--

- 6

174

108

250

Trin

idad

and

Tob

ago

--

- 1

7 2

2 1

77 2

--

205

--

--

40

Wes

t Ind

ies

--

--

--

--

- 7

60-

--

--

Asi

a1

569

2 08

94

073

2 18

23

614

7 34

74

701

6 95

013

368

21 2

9316

097

28 8

3922

182

34 4

5217

387

Wes

t Asi

a 5

9 6

0 1

13 1

31 2

03 7

1 4

9 2

22 4

03 3

68 8

2 3

35 9

701

323

458

Abu

Dha

bi-

--

- 5

8-

--

--

--

--

-B

ahra

in-

--

--

4-

--

--

36

161

2-

Cyp

rus

--

--

--

--

--

--

- 4

3-

Jord

an-

--

--

--

26

--

--

567

20

-K

uwai

t-

--

--

6-

--

--

--

163

-Le

bano

n-

--

--

--

--

168

11

- 5

4-

-O

man

--

- 7

8-

15

--

7-

- 2

8-

- 4

Qat

ar-

--

43

- 1

2-

--

--

--

--

Sau

di A

rabi

a-

2-

- 2

4-

- 8

26

--

- 2

--

Syr

ian

Ara

b R

epub

lic-

--

--

--

--

--

3-

--

Tur

key

59

58

113

9 1

16 3

5 4

9 1

88 3

70 1

44 7

1 6

8 1

821

019

427

Uni

ted

Ara

b E

mira

tes

--

--

--

--

- 5

6-

200

4 7

6 9

Yem

en-

--

- 5

--

--

--

--

--

Cen

tral

Asi

a-

--

--

9-

450

3 22

12

340

174

73

107

15

122

Arm

enia

--

--

--

--

--

173

29

--

52

Aze

rbai

jan

--

--

--

--

1-

--

36

- 5

2G

eorg

ia-

--

--

--

--

3 1

40

1-

-K

azak

hsta

n-

--

--

--

450

3 21

62

337

--

70

13

1U

zbek

ista

n-

--

--

9-

- 4

--

4-

2 1

1S

outh

, Eas

t an

d S

outh

-Eas

t Asi

a1

510

2 02

93

960

2 05

13

411

7 26

74

652

6 27

89

745

18 5

8615

842

28 4

3121

105

33 1

1416

807

Ban

glad

esh

--

--

--

--

--

33

--

--

Bru

nei D

arus

sala

m-

--

--

2-

--

--

--

--

Cam

bodi

a-

--

--

--

--

1-

--

--

Chi

na-

- 8

125

221

561

715

403

1 90

61

856

798

2 39

52

247

2 32

52

072 /..

.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives292A

nn

ex

ta

ble

B.7

. C

ros

s-b

ord

er

M&

A s

ale

s,

by

re

gio

n/e

co

no

my

of

se

lle

r, 1

98

8-2

00

2 (

co

nc

lud

ed

) (

Mill

ion

s o

f d

olla

rs)

Reg

ion/

econ

omy

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Hon

g K

ong,

Chi

na1

046

826

2 62

0 5

681

674

5 30

81

602

1 70

33

267

7 33

0 9

384

181

4 79

310

362

1 86

5In

dia

--

5-

35

96

385

276

206

1 52

0 3

611

044

1 21

91

037

1 69

8In

done

sia

100

150

- 1

49 2

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So

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t.

ANNEX B 293

An

ne

x t

ab

le B

.8.

Cro

ss

-bo

rde

r M

&A

pu

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es

, b

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r, 1

98

8-2

00

2(M

illio

ns

of

do

llars

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Reg

ion/

econ

omy

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1989

1990

1991

1992

1993

1994

1995

1996

1997

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TOTA

L W

OR

LD11

5 62

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0 38

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9- /..

.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives294A

nn

ex

ta

ble

B.8

. C

ros

s-b

ord

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M&

A p

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s,

by

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(c

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tin

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(Mill

ion

s o

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rs)

Reg

ion/

econ

omy

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1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Libe

ria-

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1 3

3-

99

7 7

- 3

08 2

--

Pan

ama

--

--

--

--

17

89

100

2 21

5 5

3324

9P

uert

o R

ico

--

--

--

--

--

--

125

-13

3Tr

inid

ad a

nd T

obag

o-

24

--

245

175

--

--

5-

5-

-V

irgin

Isla

nds

(Uni

ted

Kin

gdom

)-

--

--

4 4

4 6

2 2

60 5

6-

40

489

473

464

Asi

a2

080

2 99

85

438

2 44

12

624

7 84

36

486

8 75

519

136

21 6

906

399

12 8

7322

895

25 2

9813

852

Wes

t Asi

a 1

24 2

532

112

113

105

1 01

31

199

1 69

71

589

3 79

7 3

991

538

1 75

045

43

074

Abu

Dha

bi-

- 5

28-

--

--

--

--

--

201

Bah

rain

- 1

681

537

--

811

300

--

1 47

2 4

5 5

63 7

927

464

6C

ypru

s-

--

--

--

- 4

11

881

- 7

3 1

532

36Ir

an, I

slam

ic R

epub

lic o

f-

--

--

--

--

--

--

--

Jord

an-

--

--

--

--

--

- 2

2-

-K

uwai

t -

83

- 1

12-

--

4 6

48-

- 1

19 3

210

511

4Le

bano

n-

--

--

21

- 3

0 5

8-

--

--

Om

an-

--

--

--

--

8 5

5-

--

9Q

atar

--

--

--

--

42

--

- 2

--

Sau

di A

rabi

a-

--

- 1

00 1

82 6

301

671

350

334

217

31

550

392

020

/...

ANNEX B 295

An

ne

x t

ab

le B

.8.

Cro

ss

-bo

rde

r M

&A

pu

rch

as

es

, b

y r

eg

ion

/ec

on

om

y o

f p

urc

ha

se

r, 1

98

8-2

00

8 (

co

nc

lud

ed

)(M

illio

ns

of

do

llars

)

Reg

ion/

econ

omy

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Turk

ey-

2-

--

- 1

1 1

9 3

56 4

3 4

88

48

-38

Uni

ted

Ara

b E

mira

tes

124

- 4

8 1

--

257

- 1

53 2

77

655

24

10Ye

men

--

--

5-

--

--

- 3

7-

--

Cen

tral

Asi

a-

--

--

--

450

--

--

6-

-K

azak

hsta

n-

--

--

--

450

--

--

6-

-S

outh

, Eas

t an

d S

outh

-Eas

t A

sia

1 95

62

745

3 32

52

329

2 51

86

830

5 28

76

608

17 5

4717

893

6 00

111

335

21 1

3924

844

10 7

78A

fgha

nist

an-

--

- 1

3-

--

--

--

--

-B

angl

ades

h-

--

--

--

12

--

--

--

-B

rune

i Dar

ussa

lam

--

--

- 2

02-

31

189

--

--

--

Chi

na 1

7 2

02 6

0 3

573

485

307

249

451

799

1 27

6 1

01 4

7045

21

047

Hon

g K

ong,

Chi

na1

649

773

1 19

81

342

1 26

34

113

2 26

72

299

2 91

28

402

2 20

12

321

5 76

83

012

5 06

2In

dia

22

11

- 1

3 2

19 1

09 2

9 8

01

287

11

126

910

2 19

527

0In

done

sia

260

- 4

9 3

16

50

32

163

218

676

39

243

1 44

5-

197

Kor

ea, D

em. P

eopl

e’s

Rep

ublic

of

--

--

--

--

--

--

2-

-K

orea

, Rep

ublic

of

- 2

35 3

3 1

87 7

2 7

4 5

001

392

1 65

92

379

187

1 09

71

712

175

98M

alay

sia

- 2

7 1

44 1

49 1

48 7

74 8

121

122

9 63

5 8

941

059

1 37

7 7

611

375

930

Mac

ao, C

hina

--

--

--

--

--

- 4

50-

--

Phi

lippi

nes

--

- 1

4-

25

42

153

190

54

1 3

30 7

525

42

Pak

ista

n-

--

--

--

--

--

- 6

463

Sin

gapo

re 8

764

438

570

294

849

1 17

4 8

922

018

2 88

8 5

304

720

8 84

716

516

2 94

6S

ri La

nka

--

--

--

2-

--

26

8-

-3

Taiw

an P

rovi

nce

of C

hina

- 4

641

385

- 1

31-

30

122

4 4

33 6

28 4

081

138

161

74Th

aila

nd-

269

18

59

1 3

8 1

2 1

44 1

80 5

5 4

3 1

54 5

699

87V

iet N

am-

--

- 6

- 1

- 1

1 2

7-

--

--

The

Pac

ific

--

--

- 2

8-

22

8-

- 4

328

-33

Fiji

--

--

--

--

--

- 4

--

-N

auru

--

--

- 2

8-

--

--

--

--

Pap

ua N

ew G

uine

a-

--

--

--

13

8-

--

328

-28

Vanu

atu

--

--

--

- 9

--

--

--

-C

entr

al a

nd E

aste

rn E

urop

e -

6-

14

22

113

329

59

504

275

1 00

81

549

1 69

42

225

1 08

7B

ulga

ria-

--

--

--

- 3

60

- 7

97 8

-8

Cro

atia

--

--

--

--

1 1

00 1

3 2

243

42C

zech

Rep

ublic

- 6

--

- 1

9 5

1 4

8 1

76 6

0 1

42 1

3 7

75-

30Fo

rmer

Cze

chos

lova

kia

--

--

4-

--

--

--

--

-E

ston

ia-

--

--

- 2

2-

15

1 1

2 5

241

-H

unga

ry-

--

--

62

- 2

- 6

64

118

379

1331

242

Latv

ia-

--

--

18

--

--

--

--

-Li

thua

nia

--

--

--

--

--

- 1

--

-M

aced

onia

, TFY

R o

f-

--

--

--

- 2

--

--

-16

Pol

and

--

- 1

4-

8 1

1 8

23

45

465

132

118

324

58R

oman

ia-

--

--

--

--

0-

--

1019

Rus

sian

Fed

erat

ion

--

--

18

6 2

45-

242

2 3

01 5

2 2

2537

160

6S

lova

kia

--

--

--

1 2

42

1-

424

24

914

Slo

veni

a-

--

--

--

--

--

4 1

014

63U

krai

ne-

--

--

--

--

- 2

3-

130

1-

Uns

peci

fied

30

606

325

4-

- 1

0-

- 4

--

7-

-M

ulti

nati

onal

a-

--

3-

14

10

23

139

83

8 2

815

982

1 86

4-

So

urc

e:

UN

CTA

D,

cro

ss-b

ord

er

M&

A d

ata

ba

se.

aIn

volv

ing

pu

rch

ase

rs f

rom

mo

re t

ha

n t

wo

eco

no

mie

s.N

ote

:T

he

da

ta c

ove

r th

e d

ea

ls i

nvo

lvin

g t

he

acq

uis

itio

n o

f a

n e

qu

ity

sta

ke o

f m

ore

th

an

10

pe

r ce

nt.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives296A

nn

ex

ta

ble

B.9

. C

ros

s-b

ord

er

M&

As

, b

y s

ec

tor

an

d i

nd

us

try

of

se

lle

r,

19

88

-20

02

(Mill

ion

s o

f d

olla

rs)

Sec

tor/

indu

stry

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Tota

l11

5 62

314

0 38

915

0 57

680

713

79 2

8083

064

127

110

186

593

227

023

304

848

531

648

766

044

1 14

3 81

659

3 96

036

9 78

9

Pri

mar

y3

911

1 94

15

170

1 16

43

637

4 20

15

517

8 49

97

935

8 72

510

599

10 0

009

815

28 2

8012

751

Agr

icul

ture

, hun

ting,

fore

stry

and

fish

ing

1 80

9 2

25 2

21 5

48 3

01 4

06 9

501

019

498

2 09

86

673

656

1 11

0 3

16 2

65M

inin

g, q

uarr

ying

and

pet

role

um2

102

1 71

74

949

617

3 33

63

795

4 56

87

480

7 43

76

628

3 92

69

344

8 70

527

964

12 4

86

Man

ufac

turi

ng73

727

89 5

9675

495

36 1

7643

222

43 2

0469

321

84 4

6288

522

121

379

263

206

288

090

291

654

197

174

137

414

Food

, bev

erag

es a

nd to

bacc

o14

462

8 71

912

676

5 12

79

398

7 75

113

528

18 1

086

558

22 0

5317

001

28 2

4250

247

34 6

2832

072

Text

iles,

clo

thin

g an

d le

athe

r 8

121

720

1 28

1 7

31 7

601

173

1 43

12

039

849

1 73

21

632

5 27

62

526

3 51

0 9

15W

ood

and

woo

d pr

oduc

ts1

793

9 17

67

765

2 71

41

588

2 03

14

262

4 85

55

725

6 85

47

237

9 45

623

562

13 8

787

325

Pub

lishi

ng, p

rintin

g, a

nd r

epro

duct

ion

o

f rec

orde

d m

edia

11 7

416

544

2 30

5 3

535

192

1 18

32

747

1 34

110

853

2 60

712

798

10 2

484

875

16 7

672

986

Cok

e, p

etro

leum

and

nuc

lear

fuel

17 8

689

151

6 48

05

676

1 59

61

479

4 21

65

644

13 9

6511

315

67 2

8022

637

45 0

1531

167

33 0

18C

hem

ical

s an

d ch

emic

al p

rodu

cts

5 00

818

368

12 2

755

773

5 58

111

393

20 0

6126

984

15 4

3035

395

31 8

0686

389

30 4

4626

462

20 3

70R

ubbe

r an

d pl

astic

pro

duct

s3

620

1 38

72

745

574

228

265

997

4 31

33

943

2 30

62

264

3 78

64

723

2 40

62

257

Non

-met

allic

min

eral

pro

duct

s2

452

3 88

75

630

1 11

35

410

2 20

45

201

2 72

62

840

6 15

38

100

12 1

2911

663

8 35

93

183

Met

al a

nd m

etal

pro

duct

s1

606

6 39

94

426

2 24

62

534

2 25

22

743

2 51

58

728

9 85

38

376

10 8

2516

782

12 8

9010

034

Mac

hine

ry a

nd e

quip

men

t2

878

2 07

81

750

1 14

01

087

1 66

13

312

5 10

34

301

7 54

68

918

20 8

508

980

4 07

32

564

Ele

ctric

al a

nd e

lect

roni

c eq

uipm

ent

6 99

812

771

6 11

48

361

6 19

83

895

3 43

25

581

7 57

37

897

35 8

1951

770

53 8

5925

732

8 55

6P

reci

sion

inst

rum

ents

3 59

62

626

3 99

21

112

1 08

04

495

1 88

22

023

3 30

03

322

9 25

17

269

13 5

1810

375

5 06

4M

otor

veh

icle

s an

d ot

her

tran

spor

t

equi

pmen

t 8

895

215

7 39

0 9

952

211

2 74

34

988

2 65

74

150

4 18

950

767

18 5

1725

272

5 66

28

590

Oth

er m

anuf

actu

ring

41

556

666

261

360

680

522

575

308

158

1 95

8 6

96 1

861

266

479

Tert

iary

37 9

8648

851

69 9

1143

297

32 3

8435

649

52 2

7093

632

130

232

174

744

257

843

467

853

842

342

368

506

219

623

Ele

ctric

ity, g

as, a

nd w

ater

116

1 02

8 6

091

072

1 84

71

783

2 51

012

240

21 2

7429

620

32 2

4940

843

46 7

1121

047

61 5

72C

onst

ruct

ion

295

813

533

279

651

331

838

1 73

84

410

602

1 43

43

205

5 17

02

167

1 46

5Tr

ade

10 0

1312

377

9 09

57

904

5 70

37

537

8 75

310

159

27 9

2821

664

27 3

3255

463

34 9

1827

668

17 8

13H

otel

s an

d re

stau

rant

s6

829

3 31

67

263

1 29

31

408

1 41

22

335

3 24

72

416

4 44

510

332

4 83

62

883

6 16

92

758

Tran

spor

t, st

orag

e an

d co

mm

unic

atio

ns2

182

3 57

814

460

3 75

73

035

6 55

913

540

8 22

517

523

17 7

3651

445

167

723

365

673

121

490

30 8

24Fi

nanc

e14

471

14 6

1621

722

14 1

8813

178

12 1

6810

568

31 0

5936

693

50 8

3683

432

126

710

183

665

122

005

41 9

03B

usin

ess

serv

ices

3 00

95

264

11 8

315

100

3 80

83

664

8 40

69

715

13 1

5426

480

42 4

9752

748

137

416

54 3

1947

248

Pub

lic a

dmin

istr

atio

n an

d de

fenc

e-

--

--

--

605

- 1

11 3

951

769

8 3

29 7

6E

duca

tion

- 7

5 3

3-

421

18

- 4

179

42

66

219

438

7H

ealth

and

soc

ial s

ervi

ces

86

460

469

84

237

261

2 46

3 9

46 3

363

396

641

724

751

1 87

5 7

81C

omm

unity

, soc

ial a

nd p

erso

nal

se

rvic

e ac

tiviti

es 9

847

363

3 85

89

554

2 47

41

404

2 31

912

110

6 49

419

656

7 97

613

724

64 8

5510

862

15 1

69O

ther

ser

vice

s 3

30

66

33

44

110

520

3 58

8-

19

69

42

73

136

7

Unk

now

na-

--

76

37

10

1-

334

--

101

5-

-

So

urc

e:

UN

CTA

D,

cro

ss-b

ord

er

M&

A d

ata

ba

se.

aIn

clu

de

s n

on

-cla

ssifi

ed

est

ab

lish

me

nts

.

No

te:

Th

e d

ata

co

ver

the

de

als

invo

lvin

g t

he

acq

uis

itio

n o

f a

n e

qu

ity s

take

of

mo

re t

ha

n 1

0 p

er

cen

t.

ANNEX B 297

An

ne

x t

ab

le B

.10

. C

ros

s-b

ord

er

M&

As

, b

y s

ec

tor

an

d i

nd

us

try

of

pu

rch

as

er,

19

88

-20

02

(Mill

ion

s o

f d

olla

rs)

Sec

tor/

indu

stry

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

Tota

l11

5 62

314

0 38

915

0 57

680

713

79 2

8083

064

127

110

186

593

227

023

304

848

531

648

766

044

1 14

3 81

659

3 96

036

9 78

9

Pri

mar

y4

398

2 97

62

131

1 55

62

978

4 15

55

032

7 95

15

684

7 15

05

455

7 39

78

968

6 53

79

309

Agr

icul

ture

, hun

ting,

fore

stry

and

fish

ing

2 07

81

466

47

471

204

65

154

182

962

1 54

11

497

241

1 47

2 7

84 3

7M

inin

g, q

uarr

ying

and

pet

role

um 2

320

1 51

12

084

1 08

52

775

4 09

04

878

7 76

94

723

5 60

93

958

7 15

67

496

5 75

39

272

Man

ufac

turi

ng71

747

95 1

4979

908

44 9

8535

287

36 8

3772

549

93 7

8488

821

133

202

257

220

287

126

302

507

199

887

115

460

Food

, bev

erag

es a

nd to

bacc

o19

774

15 4

8413

523

5 21

26

383

7 66

87

872

22 5

469

684

21 4

3916

922

33 0

1460

189

23 2

3820

996

Text

iles,

clo

thin

g an

d le

athe

r 6

081

636

3 36

31

401

406

3 76

7 3

321

569

778

1 25

43

062

2 12

23

741

1 12

9 5

49W

ood

and

woo

d pr

oduc

ts3

115

5 63

76

717

2 24

41

743

2 93

32

483

6 46

63

143

6 15

713

131

7 13

818

342

12 4

985

258

Pub

lishi

ng, p

rintin

g, a

nd r

epro

duct

ion

of

rec

orde

d m

edia

8 95

16

518

2 36

3 6

895

022

1 99

84

866

2 33

27

829

6 77

412

050

13 2

459

365

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Selected UNCTAD publications on transnationalcorporations and foreign direct investment(For more information, please visit www.unctad.org/en/pub)

A. Serial publications

World Investment Reports

World Investment Report 2002: TransnationalCorporations and Export Competitiveness. 384p. Sales No. E.02.II.D.4 $49. http://www.unctad.org/wir.

World Investment Report 2002: TransnationalCorporations and Export Competitiveness. AnOverview. 72 p. Free of charge. http://www.unctad.org/wir.

World Investment Report 2001: Promoting Linkages.356 p. Sales No. E.01.II.D.12 $49. http://www.unctad.org/wir.

World Investment Report 2001: Promoting Linkages.An Overview. 67 p. Free of charge. http://www.unctad.org/wir.

Ten Years of World Investment Reports: TheChallenges Ahead. Proceedings of an UNCTADspecial event on future challenges in the area ofFDI. UNCTAD/ITE/Misc.45. Free of charge. http://www.unctad.org/wir.

World Investment Report 2000: Cross-borderMergers and Acquisitions and Development. 368p. Sales No. E.99.II.D.20. $49. http://www.unctad.org/wir.

World Investment Report 2000: Cross-borderMergers and Acquisitions and Development. AnOverview. 75 p. Free of charge. http://www.unctad.org/wir.

World Investment Report 1999: Foreign DirectInvestment and the Challenge of Development.543 p. Sales No. E.99.II.D.3. $49. http://www.unctad.org/wir.

World Investment Report 1999: Foreign DirectInvestment and the Challenge of Development.An Overview. 75 p. Free of charge. http://www.unctad.org/wir.

World Investment Report 1998: Trends andDeterminants. 432 p. Sales No. E.98.II.D.5. $45.http://www.unctad.org/wir.

World Investment Report 1998: Trends andDeterminants. An Overview. 67 p. Free of charge.http://www.unctad.org/wir.

World Investment Report 1997: TransnationalCorporations, Market Structure and CompetitionPolicy. 384 p. Sales No. E.97.II.D.10. $45. http://www.unctad.org/wir.

World Investment Report 1997: TransnationalCorporations, Market Structure and CompetitionPolicy. An Overview. 70 p. Free of charge. http://www.unctad.org/wir.

World Investment Report 1996: Investment, Tradeand International Policy Arrangements. 332 p.Sales No. E.96.II.A.14. $45. http://www.unctad.org/wir.

World Investment Report 1996: Investment, Tradeand International Policy Arrangements. AnOverview. 51 p. Free of charge. http://www.unctad.org/wir.

World Investment Report 1995: TransnationalCorporations and Competitiveness. 491 p. SalesNo. E.95.II.A.9. $45. http://www.unctad.org/wir.

World Investment Report 1995: TransnationalCorporations and Competitiveness. An Overview.51 p. Free of charge. http://www.unctad.org/wir.

World Investment Report 1994: TransnationalCorporations, Employment and the Workplace.482 p. Sales No. E.94.II.A.14. $45. http://www.unctad.org/wir.

World Investment Report 1994: TransnationalCorporations, Employment and the Workplace.An Executive Summary. 34 p. http://www.unctad.org/wir.

World Investment Report 1993: TransnationalCorporations and Integrated International Pro-duction. 290 p. Sales No. E.93.II.A.14. $45. http://www.unctad.org/wir.

World Investment Report 1993: TransnationalCorporations and Integrated International Pro-duction. An Executive Summary. 31 p. ST/CTC/159. Free of charge. http://www.unctad.org/wir.

World Investment Report 1992: TransnationalCorporations as Engines of Growth. 356 p. SalesNo. E.92.II.A.19. $45. http://www.unctad.org/wir.

World Investment Report 1992: TransnationalCorporations as Engines of Growth. An ExecutiveSummary. 30 p. Sales No. E.92.II.A.24. Free ofcharge. http://www.unctad.org/wir.

World Investment Report 1991: The Triad inForeign Direct Investment. 108 p. SalesNo.E.91.II.A.12. $25. http://www.unctad. org/wir.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives300

World Investment Directories

World Investment Directory, Volume VIII, Centraland Eastern Europe 2003. 86 p. (Overview)+CD-ROM (country profiles). Sales No. E.03.II.D.12.$25. http://www.unctad.org/en/docs/ (Overview);http://www.unctad.org/en/subsites/dite/fdistats_files/WID2.htm (country profiles).

World Investment Directory 1999: Asia and thePacific. Vol. VII (Parts I and II). 332+638 p.Sales No. E.00.II.D.21. $80.

World Investment Directory 1996: West Asia. Vol.VI. 138 p. Sales No. E.97.II.A.2. $35.

World Investment Directory 1996: Africa. Vol.V. 461 p. Sales No. E.97.II.A.1. $75.

World Investment Directory 1994: Latin Americaand the Caribbean. Vol. IV. 478 p. Sales No.E.94.II.A.10. $65.

World Investment Directory 1992: DevelopedCountries. Vol. III. 532 p. Sales No. E.93.II.A.9.$75.

World Investment Directory 1992: Central andEastern Europe. Vol. II. 432 p. Sales No. E.93.II.A.1.$65. (Joint publication with the United NationsEconomic Commission for Europe.)

World Investment Directory 1992: Asia and thePacific. Vol. I. 356 p. Sales No. E.92.II.A.11.$65.

Investment Policy Reviews

Investment Policy Review of Nepal. 95 p. SalesNo. E.03.II.D.17. http://www.unctad.org/ipr/nepal.pdf

Investment Policy Review of Lesotho. 93 p.UNCTAD/ITE/IPC/Misc. 25. http://www.unctad.org/en/docs//iteipcmisc25corr1_en.pdf.

Investment Policy Review of Ghana. 93 p. SalesNo. E.02.II.D.20. http://www.unctad.org/ipr/ghana.pdf.

Investment Policy Review of Botswana. 107 p.Sales No. E.03.II.D.1. http://www.unctad.org/ipr/botswana.pdf.

Investment Policy Review United Republic ofTanzania. 98 p. Sales No. 02.E.II.D.6 $ 20. http://www.unctad.org/en/docs/poiteipcm9.en.pdf.

Investment Policy Review Ecuador. 117 p. SalesNo. E.01.II D.31. $ 25. Summary available fromhttp://www.unctad.org/en/docs/poiteipcm2sum.en.pdf.

Investment and Innovation Policy Review Ethiopia.115 p. UNCTAD/ITE/IPC/Misc.4. Free of charge.http://www.unctad.org/en/docs/poiteipcm4.en.pdf.

Investment Policy Review Mauritius. 84 p. SalesNo. E.01.II.D.11. $22. Summary available fromhttp://www.unctad.org/en/pub/investpolicy.en.htm

Investment Policy Review Peru. 108 p. Sales No.E.00.II.D. 7. $22. Summary available from http://www.unctad.org/en/docs/poiteiipm19sum.en.pdf.

Investment Policy Review Uganda. 75 p. SalesNo. E.99.II.D.24. $15. Summary available fromhttp://www.unctad.org/en/docs/poiteiipm17sum.en.Pdf.

Investment Policy Review Egypt. 113 p. SalesNo. E.99.II.D.20. $19. Summary available fromhttp://www.unctad.org/en/docs/poiteiipm11sum.en.Pdf.

Investment Policy Review Uzbekistan. 64 p.UNCTAD/ITE/IIP/Misc.13. Free of charge. http://www.unctad.org/en/docs/poiteiipm13.en.pdf.

International Investment Instruments

International Investment Instruments: A Com-pendium. Vol. X. 343 p. Sales No. E.02.II.D.21.$60. http://www.unctad.org/en/docs//dite3vol10_en.pdf.

International Investment Instruments: A Com-pendium. Vol. IX. 353 p. Sales No. E.02.II.D.16.$60. http://www.unctad.org/en/docs/psdited3v9.en.pdf.

International Investment Instruments: A Com-pendium. Vol. VIII. 335 p. Sales No. E.02.II.D.15.$60. http://www.unctad.org/en/docs/psdited3v8.en.pdf.

International Investment Instruments: A Com-pendium. Vol. VII. 339 p. Sales No. E.02.II.D.14.$60. http://www.unctad.org/en/docs/psdited3v7.en.pdf.

International Investment Instruments: A Com-pendium. Vol. VI. 568 p. Sales No. E.01.II.D.34.$60. http://www.unctad.org/en/docs/ps1dited2v6_p1.en.pdf (part one).

International Investment Instruments: A Com-pendium. Vol. V. 505 p. Sales No. E.00.II.D.14.$55.

International Investment Instruments: A Com-pendium. Vol. IV. 319 p. Sales No. E.00.II.D.13.$55.

International Investment Instruments: A Com-pendium. Vol. I. 371 p. Sales No. E.96.II.A.9;Vol. II. 577 p. Sales No. E.96.II.A.10; Vol. III.389 p. Sales No. E.96.II.A.11; the 3-volume set,Sales No. E.96.II.A.12. $125.

Bilateral Investment Treaties, 1959-1999. 143p. UNCTAD/ITE/IIA/2, Free of charge. Availableonly in electronic version from http://www.unctad.org/en/pub/poiteiiad2.en.htm.

Bilateral Investment Treaties in the Mid-1990s.314 p. Sales No. E.98.II.D.8. $46.

Selected UNCTAD publications on transnationalcorporations and foreign direct investment 301

LDC Investment Guides

An Investment Guide to Nepal: Opportunitiesand Conditions. 88 p. UNCTAD/ITE/IPC/MISC/2003/1. Free of charge.

An Investment Guide to Mozambique: Opportunitiesand Conditions. 72 p. UNCTAD/ITE/IIA/4. Freeof charge. http://www.unctad.org/en/docs/poiteiiad4.en.pdf.

An Investment Guide to Uganda: Opportunitiesand Conditions. 76 p. UNCTAD/ITE/IIT/Misc.30.http://www.unctad.org/en/docs/poiteiitm30.en.pdf.

An Investment Guide to Bangladesh: Opportunitiesand Conditions. 66 p. UNCTAD/ITE/IIT/Misc.29.http://www.unctad.org/en/docs/poiteiitm29.en.pdf.

Guide d’investissement au Mali. 108 p. UNCTAD/ITE/IIT/Misc.24. http://www.unctad.org/fr/docs/poiteiitm24.fr.pdf. (Joint publication with theInternational Chamber of Commerce, in associationwith PricewaterhouseCoopers.)

An Investment Guide to Ethiopia: Opportunitiesand Conditions. 69 p. UNCTAD/ITE/IIT/Misc.19.http://www.unctad.org/en/docs/poiteiitm19.en.pdf.(Joint publication with the International Chamberof Commerce, in association withPriceWaterhouseCoopers.)

Issues in InternationalInvestment Agreements

(Executive summaries are available fromhttp://www.unctad.org/iia.)

Dispute settlement: State-State. (Sales No.E.03.II.D.6). $15.

Dispute settlement: Investor-State. (Sales No.E.03.II.D.5). $15.

Transfer of Technology. 138p. Sales No.E.01.II.D.33. $18.

Illicit Payments. 108 p. Sales No.E.01.II.D.20. $13.

Home Country Measures. 96 p. SalesNo.E.01.II.D.19. $12.

Host Country Operational Measures. 109 p.Sales No E.01.II.D.18. $15.

Social Responsibility. 91 p. Sales No.E.01.II.D.4. $15.

Environment. 105 p. Sales No. E.01.II.D.3.$15.

Transfer of Funds. 68 p. Sales No.E.00.II.D.27. $12.

Employment. 69 p. Sales No. E.00.II.D.15.$12.

Taxation. 111 p. Sales No. E.00.II.D.5. $12.

International Investment Agreements: Flex-ibility for Development. 185 p. Sales No.E.00.II.D.6. $12.

Taking of Property. 83 p. Sales No.E.00.II.D.4. $12.

Trends in International Investment Agree-ments: An Overview. 112 p. Sales No.E.99.II.D.23. $ 12.

Lessons from the MAI. 31 p. Sales No.E.99.II.D.26. $ 12.

National Treatment. 104 p. Sales No.E.99.II.D.16. $12.

Fair and Equitable Treatment. 64 p. SalesNo. E.99.II.D.15. $12.

Investment-Related Trade Measures. 64 p.Sales No. E.99.II.D.12. $12.

Most-Favoured-Nation Treatment. 72 p.Sales No. E.99.II.D.11. $12.

Admission and Establishment. 72 p. SalesNo. E.99.II.D.10. $12.

Scope and Definition. 96 p. Sales No.E.99.II.D.9. $12.

Transfer Pricing. 72 p. Sales No.E.99.II.D.8. $12.

Foreign Direct Investment and Development.88 p. Sales No. E.98.II.D.15. $12.

B. Current Studies

Series A

No. 30. Incentives and Foreign Direct Investment.98 p. Sales No. E.96.II.A.6. $30. [Out of print.]

No. 29. Foreign Direct Investment, Trade, Aidand Migration. 100 p. Sales No. E.96.II.A.8. $25.(Joint publication with the International Organizationfor Migration.)

No. 28. Foreign Direct Investment in Africa.119 p. Sales No. E.95.II.A.6. $20.

ASIT Advisory Studies(Formerly Current Studies, Series B)

No. 17. The World of Investment Promotion ata Glance: A survey of investment promotionpractices. UNCTAD/ITE/IPC/3. Free of charge.

No. 16. Tax Incentives and Foreign DirectInvestment: A Global Survey. 180 p. Sales No.E.01.II.D.5. $23. Summary available from http://www.unctad.org/asit/resumé.htm.

No. 15. Investment Regimes in the Arab World:Issues and Policies. 232 p. Sales No. E/F.00.II.D.32.

No. 14. Handbook on Outward Investment Pro-motion Agencies and Institutions. 50 p. SalesNo. E.99.II.D.22. $ 15.

World Investment Report 2003 FDI Policies for Development: National and International Perspectives302

No. 13. Survey of Best Practices in InvestmentPromotion. 71 p. Sales No. E.97.II.D.11. $ 35.

No. 12. Comparative Analysis of PetroleumExploration Contracts. 80 p. Sales No. E.96.II.A.7.$35.

No. 11. Administration of Fiscal Regimes forPetroleum Exploration and Development. 45 p.Sales No. E.95.II.A.8.

C. Individual Studies

FDI in Least developed countries at a Glance:2002. UNCTAD/ITE/IIA/6, February 2003.

The World of Investment Promotion at a Glance.Advisory Studies, No. 17. UNCTAD/ITE/IPC/3,March 2002 (2000-01 PB).

International Investment Instruments: A Com-pendium, Volume X. UNCTAD/DITE/3(Vol. X),September 2002.

The Tradability of Consulting Services. 189 p.UNCTAD/ITE/IPC/Misc.8. http://www.unctad.org/en/docs/poiteipcm8.en.pdf.

Compendium of International Arrangements onTransfer of Technology: Selected Instruments.308 p. Sales No. E.01.II.D.28. $45.

FDI in Least Developed Countries at a Glance.150 p. UNCTAD/ITE/IIA/3. Free of charge. Alsoavailable from http://www.unctad.org/en/pub/poiteiiad3.en.htm.

Foreign Direct Investment in Africa: Performanceand Potential. 89 p. UNCTAD/ITE/IIT/Misc.15.Free of charge. Also available from http://www.unctad.org/en/docs/poiteiitm15.pdf.

TNC-SME Linkages for Development: Issues–Experiences–Best Practices. Proceedings of theSpecial Round Table on TNCs, SMEs and Devel-opment, UNCTAD X, 15 February 2000, Bangkok,Thailand.113 p. UNCTAD/ITE/TEB1. Free of charge.

Handbook on Foreign Direct Investment by Smalland Medium-sized Enterprises: Lessons from Asia.200 p. Sales No. E.98.II.D.4. $48.

Handbook on Foreign Direct Investment by Smalland Medium-sized Enterprises: Lessons from Asia.Executive Summary and Report of the KunmingConference. 74 p. Free of charge.

Small and Medium-sized Transnational Corpo-rations. Executive Summary and Report of theOsaka Conference. 60 p. Free of charge.

Small and Medium-sized Transnational Corpo-rations: Role, Impact and Policy Implications.242 p. Sales No. E.93.II.A.15. $35.

Measures of the Transnationalization of EconomicActivity. 93 p. Sales No. E.01.II.D.2. $20.

The Competitiveness Challenge: TransnationalCorporations and Industrial Restructuring inDeveloping Countries. 283p. Sales No. E.00.II.D.35.$42.

Integrating International and Financial Perform-ance at the Enterprise Level. 116 p. Sales No.E.00.II.D.28. $18.

FDI Determinants and TNC Strategies: The Caseof Brazil. 195 p. Sales No. E.00.II.D.2. $35.Summary available from http://www.unctad.org/en/pub/psiteiitd14.en.htm.

The Social Responsibility of TransnationalCorporations. 75 p. UNCTAD/ITE/IIT/Misc. 21.Free-of- charge. [Out of stock.] Available fromhttp://www.unctad.org/en/docs/poiteiitm21.en.pdf.

Conclusions on Accounting and Reporting byTransnational Corporations. 47 p. Sales No.E.94.II.A.9. $25.

Accounting, Valuation and Privatization. 190 p.Sales No. E.94.II.A.3. $25.

Environmental Management in TransnationalCorporations: Report on the Benchmark CorporateEnvironment Survey. 278 p. Sales No. E.94.II.A.2.$29.95.

Management Consulting: A Survey of the In-dustry and Its Largest Firms. 100 p. Sales No.E.93.II.A.17. $25.

Transnational Corporations: A Selective Bibli-ography, 1991-1992. 736 p. Sales No. E.93.II.A.16.$75.

Foreign Investment and Trade Linkages inDeveloping Countries. 108 p. Sales No. E.93.II.A.12.$18.

Transnational Corporations from DevelopingCountries: Impact on Their Home Countries. 116p. Sales No. E.93.II.A.8. $15.

Debt-Equity Swaps and Development. 150 p. SalesNo. E.93.II.A.7. $35.

From the Common Market to EC 92: RegionalEconomic Integration in the European Communityand Transnational Corporations. 134 p. SalesNo. E.93.II.A.2. $25.

The East-West Business Directory 1991/1992.570 p. Sales No. E.92.II.A.20. $65.

Climate Change and Transnational Corporations:Analysis and Trends. 110 p. Sales No. E.92.II.A.7.$16.50.

Foreign Direct Investment and Transfer ofTechnology in India. 150 p. Sales No. E.92.II.A.3.$20.

The Determinants of Foreign Direct Investment:A Survey of the Evidence. 84 p. Sales No.E.92.II.A.2. $12.50.

Selected UNCTAD publications on transnationalcorporations and foreign direct investment 303

Transnational Corporations and Industrial HazardsDisclosure. 98 p. Sales No. E.91.II.A.18. $17.50.

Transnational Business Information: A Manualof Needs and Sources. 216 p. Sales No. E.91.II.A.13.$45.

The Financial Crisis in Asia and Foreign DirectInvestment: An Assessment. 101 p. Sales No.GV.E.98.0.29. $20.

Sharing Asia’s Dynamism: Asian Direct Investmentin the European Union. 192 p. Sales No. E.97.II.D.1.$26.

Investing in Asia’s Dynamism: European UnionDirect Investment in Asia. 124 p. ISBN 92-827-7675-1. ECU 14. (Joint publication with the EuropeanCommission.)

International Investment Towards the Year 2002.166 p. Sales No. GV.E.98.0.15. $29. (Joint publicationwith Invest in France Mission and Arthur Andersen,in collaboration with DATAR.)

International Investment towards the Year 2001.81 p. Sales No. GV.E.97.0.5. $35. (Joint publicationwith Invest in France Mission and Arthur Andersen,in collaboration with DATAR.)

D. Journals

Transnational Corporations Journal (formerlyThe CTC Reporter). Published three times a year.Annual subscription price: $45; individual issues$20. http://www.unctad.org/en/subsites/dite/1_itncs/1_tncs.htm

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QUESTIONNAIRE

World Investment Report 2003:FDI Policies for Development:

National and International Perspectives

In order to improve the quality and relevance of the work of the UNCTAD Division on Investment,Technology and Enterprise Development, it would be useful to receive the views of readers on this andother similar publications. It would therefore be greatly appreciated if you could complete the followingquestionnaire and return it to:

Readership SurveyUNCTAD, Division on Investment,Technology and Enterprise DevelopmentPalais des NationsRoom E-10054CH-1211 Geneva 10SwitzerlandOr by Fax to: (+41 22) 907 04 98

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