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ore gnore gn

DirectDirect

InvestmentnvestmentByByAmo s W ang'omb emo s W ang'omb eHu W eiu W eiLi X ia oi X ia o

Mar cel Gw angw aar cel Gw angw a

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Def inati on of FDIef inati on of FDI

Foreign direct investment (FDI)Foreign direct investment (FDI)occurs when an investor basedoccurs when an investor basedin one country (the homein one country (the homecountry) acquires an asset incountry) acquires an asset inanother country ( the hostanother country ( the host

country)country) w i th the i n te n t toi th the i n te n t tom anage the asset.anage the asset.

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Types of FDIypes of FDI

E q u ity C a p it a lq u ity C a p it a l ( the value of the( the value of the

MNCs share investment in shares of MNCs share investment in shares of an enterprise in a foreign country)an enterprise in a foreign country) R e i n v e s t e d e a r n in ge i n v e s te d e a r n in g (Profit(Profit

reinvested e.g represent up to 60%reinvested e.g represent up to 60%of outward FDI in USA &UK)of outward FDI in USA &UK)

O th e r c a p i t a lth e r c a p i t a l (short and Long-(short and Long-term borrowing & lending of fundsterm borrowing & lending of funds

between the MNC and the affiliate)between the MNC and the affiliate)

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Ori gin of Stat ist icalri gin of Stat ist icalDataData

From the ministries and agenciesFrom the ministries and agencieswhich administer the countrys lawwhich administer the countrys lawand regulations on FDIand regulations on FDI

Government and other surveys whichGovernment and other surveys whichevaluate financial and operating dataevaluate financial and operating data

of Companies.of Companies. National balance - of-paymentsNational balance - of-payments

statisticsstatistics

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Average annual I nf l ows ofverage annual I nf l ows ofFDI t o top 10 Developi ngDI t o top 10 Developi ngCountri e sountri e s

Host1984/1989 Host 1993 Host 1995

Mexico 2436 China 27515 China 37500

China 2282 Argentina 6305 Mexico 6984Singapore

Hong KongBrazil

Bermuda

EgyptSaudi Arabia

MalaysiaTaiwan

% share 66%

691

7981084

1085

1144

1416 1422

2239 Singapore

MalaysiaMexico

BermudaIndonesia

ThailandHONG.H

Saudi. A

% Share 79%

1369

16671726

2004

2960

43895006

5016 Malaysia

SingaporeBrazil

Indonesia

ArgentinaChlieBermuda

Thailand

5800

53024859

45003900

30212900

2300

% Share 77%

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ComparingomparingInflow/Outflownflow/Outflow

Inflow 1995 Outflow1995

China

Hong Kong

Singapore

Brazil

Saudi Aarabia

Malaysia

Taiwan

6984

53025800

4859

3021

2900

24344

17268

85156

13842

6460

11079

8903

24344

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Questi on!uesti on!

W h y F DI a n dh y F DI a n dn o t fi n a n c i a lo t fi n a n c i a l

L o a n s ? ?? ?? ?o a n s ? ?? ?? ?

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Th e determin ants o fh e determin ants o fFDIDI

Micr o theor iesicr o theor ies

Ow ner shipw ner shipadvantagesdvantages

Arise from economies of scaleArise from economies of scalewith respect to intangiblewith respect to intangibleassets such a skilledassets such a skilled

management and know-how bymanagement and know-how by

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Th e determ in ants o fh e determ in ants o fFDIDI

Micr o theor iesicr o theor ies

Locati onal advantagesocati onal advantages Pr oduct c ycl er oduct c ycl e

( ne w tec hn ol ogy pr od uc e a nd u se i n Hom ene w tec hn ol ogy pr od uc e a nd u se i n Hom e

country)ount ry) Standardi zed ( shi ftedtandardi zed ( shi ftedabroad)broad)

Low Tax, Low la bou r cost,ow Tax, Low la bou r cost,

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Th e determ in ants o fh e determ in ants o fFDIDI

In te rnal i za tion advantagesn te rnal i zation advantages

- Engaging in forei gn producti on ratherngaging in forei gn producti on ratherthan l icens ing it to a for ei gn f irmhan li cens ing it to a for ei gn f irm

- Transact ions costs thoery ofransact ions costs thoery ofWi lliamson 1975 (cost of using thei ll iamson 1975 (cost of using themarket )arket )

It says t hat i t i s more advantageoust says t hat i t i s more advantageousto concentrat e cer tain act ivi ti eso concentrat e cer tain act ivi ti es

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Macro-level explanationsMacro-level explanations

Rate of Prof i t thoeri esate of Prof i t thoeri es - ( Neo- li beral( Neo- li beral

framew ork that sust ain the idea oframew ork that sust ain the idea ofunf ettered flows of Capi tl on a Globalnf ettered flows of Capi tl on a Global

level)evel)

Vent f o r surpl ussent f o r surpl uss Ne ed fo r m ore (M aste r & S lave)e ed fo r m ore (M aste r & S lave)

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present si tuati onresent si tuati on

Monopol i sst i c &Monopol i sst i c &

O l i g opol i st i c M arketl i g opol i st i c M arket (( They havehey have

som e uni que pr oducti on knowledgeom e uni que pr oducti on knowledge

or manager ial ski ll that coul d ber manager ial ski ll that coul d beeas il y and prof i tabl y be uti l izedas il y and prof itabl y be uti li zedabroad and ov er which thebroad and ov er which thecorporati on wants to rem ai n contr ol) .orporati on wants to rem ai n contr ol) .

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Hori zon tal &ori zon tal &

Vert ical intergr at ionert ical intergr at ion

Horizontal

Production of

diffrentiatedproducts that arealso produced athome

Ex-IBM

Vertical

To obtain control of

needed raw-materialsand does ensureuninterrupted supplyat the lowest cost

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Pr actic al Dif ficu ltie sr actic al Dif ficultie sin Meaurementn Meaurement ..

Lack of n ec ess aryack of n ec ess arymach ineryach inery

Di ffer ent accounti ngi ffer ent accounti ngconventi onsonventi ons

Do not ke ep to the I MFo not ke ep to the I MF

gui del ine sui del ine s Inter nat ional FDInter nat ional FDImeasurementeasurement

Use adopted way tose adopted way tomeasure company asseteasure company asset

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Which facto rshich facto rsencourages F DI?ncourages F DI?

Financial incentives (Funds from localFinancial incentives (Funds from localGovernment)Government)

Fiscal incentives (Exemption fromFiscal incentives (Exemption fromimport duties)import duties)

Indirect incentives (Provides land andIndirect incentives (Provides land andinfrastructures at less commercialinfrastructures at less commercialprices)prices)

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Which facto rshich facto rs

encourages F DI?ncourages F DI? Political stabilityPolitical stability

Market potential & accessibilityMarket potential & accessibility

Repatriation of ProfitsRepatriation of Profits

Large economyLarge economy

Market sizeMarket size

External debt discourages FDIExternal debt discourages FDI

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Mul ti lateral Regi me forul ti lateral Regi me forFDIDI

the Uruguay Round of tradethe Uruguay Round of tradenegotiationsnegotiations

the negotiation on MAI withinthe negotiation on MAI withinOECDOECD

1996 WTO Singapore Ministerial1996 WTO Singapore Ministerialmeeting-----to establish ameeting-----to establish a

working groupworking group

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Uruguay Round (UR)ruguay Round (UR)

The general idea of the industrialThe general idea of the industrialcountries :countries :

Framing global rules to achieve theFraming global rules to achieve theliberalization of FDIliberalization of FDI

Negotiating or discussing a multilateralNegotiating or discussing a multilateralinvestment agreementinvestment agreement

However,its strongly contested byHowever,its strongly contested bymany developing countries.many developing countries.

WHY? WHY?

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eg o a n gresultesu l t

TRIMs(trade-related investment matters)TRIMs(trade-related investment matters)

GATS (General Agreement on Trade inGATS (General Agreement on Trade inServices)Services)

TRIPs( Trade-Related Intellectual PropertyTRIPs( Trade-Related Intellectual PropertyRights )Rights )

ASCM (Agreement on Subsidies andASCM (Agreement on Subsidies and

Countervailing Measures)Countervailing Measures)

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Problemsroblems

They deal with particular They deal with particular

areas or particular aspectsareas or particular aspectsof investment.of investment.

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Mu ltilater al Agre eme nt onu ltilater al Agre eme nt onInves tmentnves tment

BackgroundBackground

There is currently no comprehensiveThere is currently no comprehensive

multilateral legal framework thatmultilateral legal framework thatprovides investment disciplines.provides investment disciplines.

The MAI is to remedy the supposedThe MAI is to remedy the supposedweaknesses of the World Tradeweaknesses of the World TradeOrganization (WTO) agreement withOrganization (WTO) agreement withrespect to investment issues.respect to investment issues.

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TRIMs are used mainly by developingTRIMs are used mainly by developingcountries to promote dvelopmentcountries to promote dvelopmentobjectives.objectives.

The MAI agreement as proposed by theThe MAI agreement as proposed by the

OECD Ministerial Council in 1995OECD Ministerial Council in 1995

Mu ltilater al Agre ement onu ltilater al Agre ement onIn vest mentn vest ment

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" provide a broad multilateral

framework for international investment with high standards for the liberalisation of investment

regimes and investment protectionand with effective dispute settlement

procedures."

Mu ltilater al Agre eme nt onu ltilater al Agre eme nt onInves tmentnves tment

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OverviewOverview

contents of the current draft of MAIcontents of the current draft of MAI1.1. Renew the definition of FDI(broad definitoRenew the definition of FDI(broad definito

Mu ltilater al Agre ement onu ltilater al Agre ement onInvest mentnvest ment

beyond the traditional notion of FDI to cover virtually all tangible and intangible assets,and which applies to both pre-establishment and

post-establishment.(OECD,1997a.)

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Countries that sign the MAI will be required to:Countries that sign the MAI will be required to:

Open all economic sectors, including realOpen all economic sectors, including real

estate, broadcasting and natural resources toestate, broadcasting and natural resources toforeign ownership.foreign ownership.

Treat foreign investors no less favorably thanTreat foreign investors no less favorably thandomestic firms.domestic firms.

Treat all contracting Parties no less favorablyTreat all contracting Parties no less favorably

Remove performance requirementsRemove performance requirements

Remove restrictions on the movement of Remove restrictions on the movement of

capital.capital.

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Compensate investors in full when their assetsCompensate investors in full when their assetsare expropriated, either through seizure or are expropriated, either through seizure or

"unreasonable" regulation."unreasonable" regulation.

Ensure that states and localities comply withEnsure that states and localities comply withthe MAI.the MAI.

Accept a dispute-resolution process allowingAccept a dispute-resolution process allowinginvestors to sue governments for damagesinvestors to sue governments for damagesbefore international panels when they believe abefore international panels when they believe acountry's laws are in violation of MAI rules.country's laws are in violation of MAI rules.

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CriticismCriticism unrestricted freedoms for foreign investors andunrestricted freedoms for foreign investors and

transnational corporations.transnational corporations. Unequal responsibilities between Investor andUnequal responsibilities between Investor and

Investment receiver.Investment receiver.

Inability to reach a compromise on liberalizationInability to reach a compromise on liberalizationcommitments, general exceptions and considerationscommitments, general exceptions and considerationsto the environment and labor.to the environment and labor.

the level of commitments to be included in thethe level of commitments to be included in theagreement was too high for developing countriesagreement was too high for developing countries

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Potential contents of MAIPotential contents of MAI Whether to allow exceptions to the standstill clause Whether to allow exceptions to the standstill clause

for certain specific areas.for certain specific areas. Whether exceptions to most-favour-nation treatment Whether exceptions to most-favour-nation treatment

should be allowed for regional economic integrationshould be allowed for regional economic integrationorganizations.organizations.

Whether to allow a general exception for cultural Whether to allow a general exception for culturalreasonsreasons

Whether to include provisions covering environment Whether to include provisions covering environmentand labour issuesand labour issues

concrete results regarding country-specificconcrete results regarding country-specificexceptionsexceptions

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1996 WTO S ingapor e996 WTO S ingapor eMinis ter ial meetinginis ter ial meeting

Establish a working group:Establish a working group:

-to examine the relationship between-to examine the relationship betweentrade and investmenttrade and investment

-to study issues raised by Members-to study issues raised by Membersrelating to the interaction betweenrelating to the interaction betweentrade and competition policytrade and competition policy

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1996 WTO S ingapor e996 WTO S ingapor eMi nis ter ial meetingi nis ter ial meeting

Study three issues:Study three issues:

- implications of the relationshipimplications of the relationshipbetween Trade and Investment for between Trade and Investment for development and economic growthdevelopment and economic growth

- the economic relationship betweenthe economic relationship betweentrade and investmenttrade and investment

- stock-taking and analysis of existing- stock-taking and analysis of existinginternational instrumentsinternational instruments

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FDIDI

Infrastructure andInfrastructure andtechnology trasfer technology trasfer

Increased ProductiveIncreased Productiveefficiency due toefficiency due tocompetition fromcompetition frommultinational subsidiariesmultinational subsidiaries

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FDIDI

Improvement in the qualityImprovement in the qualityof the factors of productionof the factors of production

Inflow in Investment fundsInflow in Investment funds

(Benefits to the balance of (Benefits to the balance of payments)payments)

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FDIDI

Faster growth of outputFaster growth of output

and employmentand employment

Consumer BenefitsConsumer Benefits

PriceQuality

Varieties

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FDIDI

Increase in ExportsIncrease in Exports

Increase in savings andIncrease in savings andInvestmentInvestment

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Cost s of F DIost s of F DI

Detr iment of theetr iment of the

growth o f domesti crowth o f domesti c

producer and theroducer and thenati onal econ omyati onal econ omy

Transf er pr icingransf er pricing Soc ial costs- Net lossoc ial costs- Net loss

of jobsf jobs

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Costs o f F DIosts o f F DI

Envir oment andnvir oment andnatural resourc e cos tsatural resourc e cos ts

Abus e of lo ca l cul turebus e of lo ca l cul ture

and tradi ti ons Exnd tradi ti ons Ex

FDI Tourism Abuse

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Costs of FDIosts of FDI

Facilita te hegemony byacilita te hegemony byth e dominant US a nd t heh e dominant US a nd t he

we ster n cultur es.e ster n cultur es .

Political Influence (News)Political Influence (News)

PrintPrint EntertainmentsEntertainments TVTV

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Cost s of F DIost s of F DI

Poli ti co- Strategi coli ti co- Strategi cInterestsnterests

&&

Count ry s Soverei gntyount ry s Soverei gntyis at stake.s at stake.

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How can FDI be better appliedHow can FDI be better appliedto sustainable developments?to sustainable developments?

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nss

Com pa re th e P room pa re th e P ro

and t he Co nsnd t he Co ns

Developevelopstr at eg ies th attr at eg ies th at

targets the rightargets the right

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nss

Cons inder the longons inder the longterm effects to theerm effects to theenti re econom ynti re econom y

and the s oci al wel lnd the s oci al wel lbei ng of theei ng of thecomm uni tyomm uni ty

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Access abi l i ty andccess abi li ty andStabilitytability Political s tabilit yolitical s tabilit y Market P ot ential andarket P ot ential and

acces abilitycces ability

Inf rast ract urenf rast ract ure Priv atis ation andriv atis ation andder egulations o f mark etser egulations o f mark ets

Fair competit io n a ndair competit io n a nd

nss

Rec omme nda tioc omme n a o

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Soci al responsi bl eoci al responsi bl eInvestmentnvestment

Thro ugh n atio nal, b il ate ral andhro ugh n atio nal, b il ate ral and

In ternational in vestm entsn ternational in vestm entsguidelines.uidelines.

Consumer rightsLabour standards

Corporate culture

Poverty and gender inequalityeradication

Information Provision

Rec omme nda tioc omme n a onss

Rec omme nda tioc omme n a o

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Envir omentalnvir omentalprotect ionrotect ion Appl ication ofppl ication of

Envi romental Ma na gementnvi romental Ma na gementsystems (EMS)ystems (EMS) Inspection,Monitoring,Regulation and

enforcement.

Use of Envirome nt alse of Envirome nt al

Rec omme nda tioc omme n a onss

h d

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Wish u a merry x-mas and ahappy new year!!!

FDI-all

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