Economic Policy News
- Go slow on liberalizing foreign investment laws
Date: 12-Jun-2007 Sources: (Xinhua Online)
BEIJING, June 12 -- According to the United Nations Conference on Trade and Development (UNCTAD), investment liberalization includes the following aspects:
Reducing or eliminating the impact of market distortions, which are primarily caused by restrictive measures contained in investment laws against foreign investors (such as obstacles blocking foreign investment's entrance and operation or investment laws that give foreign investors favors and subsidies);
Raising the standard of treatment of foreign investors to the same level as domestic investors;
Strengthening market supervision to protect the normal operation of the market mechanism, including rules of competition and disclosure of information.
The idea of investment liberalization has won widespread support from Western researchers, who have churned out all kinds of theoretical support for the idea. At the same time, their governments have expressed eagerness to see these theories translated into legislation to deal with the 'challenges' posed by the fast rise of developing countries.
The World Trade Organization (WTO) requirements for investment liberalization are mainly reflected in the Agreement on Trade-Related Investment Measures (TRIMs). It relies largely on the General Agreement on Tariffs and Trade (GATT) concerning national treatment and general elimination of limits on investment.
According to Article 2 of the TRIMs agreement, no member state is allowed to implement trade-related investment measures not conforming to Article 3 - on national treatment - and Article 11 - on eliminating limits on the amount of general investment - of GATT.
In principle, when a WTO member state establishes and implements measures designed to guide or restrict investment, it must also consider whether the measures will lead to market distortion. Any investment measure not conforming to GATT articles 3 and 11 is forbidden.
Five investment measures have been specifically prohibited in the list of definitions appended to TRIMs. They are requirements on local content, trade balance, restriction of imports through trade balance, restriction of imports through constraints on means to obtain foreign currency and restriction on exports.
According to TRIMs, WTO members from developed countries are expected to eliminate all investment measures not conforming to TRIMs within two years of the agreement taking effect. Members from developing countries should eliminate such measures within five years and the least developed members within seven years.
WTO's Agreement on TRIMs comes with a tag, which is 'trade-related', but the boundaries of this 'trade-related' qualification have become blurred over the years. Some researchers believe there are two different definitions of trade-related investment measures - one macro, the other micro.
The macro definition of trade-related measures includes government macro policies, local policies, employment policies and competition policies. The micro definition refers to measures directly affecting trade, such as requirements on real export results and local content.
The current trend is for developed countries to prefer to discuss investment issues within trade organizations, but this is opposed by developing countries.
During the 2001-06 Doha Round of WTO negotiations, developed nations proposed four topics on trade convenience and investment, competition policies and government procurement transparency. They suggested the inclusion of these four 'Singapore topics' in the negotiation agenda.
But, because of opposition from developing nations, the member states only agreed to initiate the trade convenience project and begin negotiations on the issue of 'further improving the mobility and customs clearance of goods'.
Advancing trade and investment liberalization is one of the primary goals of Asia-Pacific Economic Cooperation (APEC). And the Non-binding Investment Principles (NBIPs) is a guiding document for all APEC members on investment liberalization, while the organization's Investment Experts' Group (IEG) is responsible for specifics such as supervision, guidance and coordination.
NBIPs covers all major areas for the promotion of investment liberalization. This includes investment laws and regulations and transparency of investment policies, non-discriminating principles for investors from members, national treatment, measures to encourage investment, lowering requirements on performance, requisition and compensation, profit remittance and free exchange of currencies, resolution of disputes, entrance and stay of foreign investors and avoiding double taxation.
The Investment Liberalization and Business Convenience Options Checklist is a package of measures designed by IEG for members to choose from when implementing investment liberalization. The menu provides different policies and measures for various goals of investment liberalization.
Policy measures listed in the Options Checklist mainly cover 12 areas, including general requirements for the implementation of investment liberalization and business convenience. The Checklist offers policy measures of different openness for each area.
For example, on Issues Concerning the Approval of Foreign Investors, the Checklist provides the following policy options:
Abolishing the requirement for prior approval and replacing it with post-investment registration;
Recommending the adoption of an automatic approval mechanism under the existing prior-approval system with the right to intervene under extraordinary circumstances;
Specifying a ceiling of investment value under which no prior approval is required and gradually raising it till prior approval is eliminated;
Maintaining the prior approval requirement only in certain special industries or departments and replacing it with post-investment registration if possible.
APEC members can choose policies and measures from the Checklist when implementing their action plans.
In 1994, APEC put forward a proposal known as the Bogor Goals, asking 'developed members to realize trade and investment liberalization by 2010 and developing members by 2020'. Since then, the trade and investment environment in the Asia-Pacific region has improved a great deal, but trade protectionism still exists as new trade barriers continue to emerge.
This reality indicates there is still a long way to go before reaching the 'trade and investment liberalization' goals. Moreover, as the deadline in the first timetable draws closer, major developed countries that are members of APEC are not going all out to reach the Bogor Goals.
They care more about the protection of intellectual property rights, while developing country members are mainly concerned about farm produce and the liberalization of textile and garment trade. The prospect for the Bogor Goals does not look all that promising.
China maintains that investment liberalization should be handled in coordination with the gradual opening of its investment market and its own decisions in economic administration. The degree of liberalization should be decided according to the level of its economic development.
Today even developed economies are still practicing certain forms of control over foreign investment, because foreign investment is not always suited to the host countries' economic development goals.
As a developing nation, China has every reason to take whatever measures necessary to encourage, restrict or prohibit foreign investment in order to direct foreign funds to various industries with different needs by employing suitable financing policies.
The opening of China's investment market should be a gradual process. The areas to be opened and their degree of openness should be increased gradually with a reasonable transition period.
The relationship between investment liberalization and internal decisions in the nation's economic administration should be handled with care. We should pay close attention to the well coordinated development of China's investment liberalization policy, financial and banking policies and environmental protection policies.
At the same time, China will actively take part in international negotiations over investment liberalization and demand that new international investment rules recognize the hardships of developing countries and give more consideration to their needs.
Sponsor Results:
