Investors face fewer requirements in competitive global economy - UN report

The competition for foreign investment has intensified so much that many host countries are no longer stipulating that investors help increase exports, provide training, or recruit local staff, according to a new United Nations report.

The study by the UN Conference on Trade and Development (UNCTAD), "Foreign Direct Investment and Performance Requirements: New Evidence from Selected Countries," analyzes the experiences of Chile, India, Malaysia and South Africa, as well as that of developed countries.

Performance requirements are stipulations that investors meet specified goals as a condition for being allowed to enter or expand in a host country, or for receiving certain advantages.

"While both developed and developing countries have used performance requirements as part of their development policies, the overall trends are similar in the two groups of countries: the incidence of performance requirements has declined and, to the extent that such policy measures are used, they are normally applied as a condition for the receipt of an incentive," the report says.

In developed countries, most traditional performance requirements have been abolished, the report says. At the same time, however, new strategic measures have been introduced to influence the behaviour of firms, such as the World Trade Organization's (WTO) "rules of origin" governing anti-dumping, countervailing duties and origin-marking measures and locational incentives.

Some developing countries continue to see the requirements as tools to enhance the benefits obtained from foreign direct investment (FDI). But the report adds that he effectiveness of measures has varied and may discourage investors.

Many developing countries argue that they should have the right to use tools that were available to developed countries when they were industrializing their economies. Developed countries, on the other hand, tend to associate performance requirements with government interventionist strategies of the past and question their effectiveness, it says.

In that regard, some developing countries would like to see greater flexibility in WTO's Trade Related Investment Measures (TRIMs) Agreement to allow developing countries more freedom to apply stipulations that may have been prohibited, UNCTAD says. Other, however, have gone beyond TRIMs in banning certain stipulations.

In a separate development in Mauritius today, 27 government officials and academics from all over Africa started an UNCTAD and University of Mauritius training course on multidisciplinary analyses of trade and development issues, which will end on 11 February.

The first such regional course was organized jointly by UNCTAD and the Economic Commission for Asia and the Pacific in Bangkok, Thailand, in late 2002.