Foreign Investment Treaties can be rich nations' hostile policy too
Foreign capital grabbed so much of attention that countries went to the extend of opening their borders for it in the form of Foreign Direct Investments (FDIs). This dramatically led to the emergence of the Foreign Investment Treaties (FITs), a tool to promote FDIs. But researches prove it to be otherwise. FITs unlikely seem to be too beneficial in increasing FDIs and remain debatable.
The global network of FITs consists of over 2,600 Bilateral
Investment Treaties apart from hundred other treaties in the form of FTAs. All is to solely promote FDIs. And FDI in 2007 was around $1.8 trillion which came down to $1.4 trillion in 2008. And it is further estimated to drop by half by the end of 2009. If properly scrutinised, FITs have least contribution in it. The primary determinants of attracting more FDIs are economic and political stability, size of domestic market, skilled labour force or a export platform to other neighbouring hubs. Brazil and Haiti are two Latin American countries. Brazil is the leading FDI recipient but has no FITs. Haiti signed an FIT with the US on 1983 but that didn’t make it an FDI hub. The first FIT was signed between Germany and Pakistan. Well, neither Pakistan has substantial contributions on the German market nor many German companies are interested in Pakistan. The US has many FITs with countries, including Albania, Cameroon, Morocco or Sri Lanka but FITs have never been a reason for US investments in these economies. US signed an FIT with Bahrain. The stock of US FDI in Bahrain came down to $60 million in 2007 from $138 million in 2006 while the total FDI rose by 2 per cent to nearly $1.8 billion. China, India or Russia attracts huge FDIs for their favourable conditions not FITs. What is also a matter of concern is that foreign investors enjoy some special benefits through FITs for alleged treaty violations from the host nations at the international tribunal. Argentia was ordered to pay $133.2 million to a US investor for changing monetary policy that restricted repatriation of foreign exchange as compensation. Mexico was asked to pay $15 million to another investor for adopting an environment standard that affected his business. Ecuador too was asked to pay $75 million to a US oil company for changing country’s tax policy. Smaller countries often fall trapped into rich countries’ greedy and hostile policies through FITs. Thus, FDIs do not always result into sustainable development. Poor nations lack proper institutions and development-oriented policy framework, is also a reason for it. Few nations actually succeeded to bring sustainable development from FDIs. Chile is the one that has been able to through relevant policies. Mexico attracted huge FDIs in quantity but it thought that bringing FDI will automatically bring sustainable development. The same question is before India today. It has about 70 FITs. Recently, it also signed another FIT with the US. Signing FIT will not change the picture dramatically. US is already India’s second biggest investor. Thus it’s imperative to focus more on development-oriented policy initiatives before going crazy about FITs.
Foreign capital grabbed so much of attention that countries went to the extend of opening their borders for it in the form of Foreign Direct Investments (FDIs). This dramatically led to the emergence of the Foreign Investment Treaties (FITs), a tool to promote FDIs. But researches prove it to be otherwise. FITs unlikely seem to be too beneficial in increasing FDIs and remain debatable.
The global network of FITs consists of over 2,600 Bilateral
Investment Treaties apart from hundred other treaties in the form of FTAs. All is to solely promote FDIs. And FDI in 2007 was around $1.8 trillion which came down to $1.4 trillion in 2008. And it is further estimated to drop by half by the end of 2009. If properly scrutinised, FITs have least contribution in it. The primary determinants of attracting more FDIs are economic and political stability, size of domestic market, skilled labour force or a export platform to other neighbouring hubs. Brazil and Haiti are two Latin American countries. Brazil is the leading FDI recipient but has no FITs. Haiti signed an FIT with the US on 1983 but that didn’t make it an FDI hub. The first FIT was signed between Germany and Pakistan. Well, neither Pakistan has substantial contributions on the German market nor many German companies are interested in Pakistan. The US has many FITs with countries, including Albania, Cameroon, Morocco or Sri Lanka but FITs have never been a reason for US investments in these economies. US signed an FIT with Bahrain. The stock of US FDI in Bahrain came down to $60 million in 2007 from $138 million in 2006 while the total FDI rose by 2 per cent to nearly $1.8 billion. China, India or Russia attracts huge FDIs for their favourable conditions not FITs. What is also a matter of concern is that foreign investors enjoy some special benefits through FITs for alleged treaty violations from the host nations at the international tribunal. Argentia was ordered to pay $133.2 million to a US investor for changing monetary policy that restricted repatriation of foreign exchange as compensation. Mexico was asked to pay $15 million to another investor for adopting an environment standard that affected his business. Ecuador too was asked to pay $75 million to a US oil company for changing country’s tax policy. Smaller countries often fall trapped into rich countries’ greedy and hostile policies through FITs. Thus, FDIs do not always result into sustainable development. Poor nations lack proper institutions and development-oriented policy framework, is also a reason for it. Few nations actually succeeded to bring sustainable development from FDIs. Chile is the one that has been able to through relevant policies. Mexico attracted huge FDIs in quantity but it thought that bringing FDI will automatically bring sustainable development. The same question is before India today. It has about 70 FITs. Recently, it also signed another FIT with the US. Signing FIT will not change the picture dramatically. US is already India’s second biggest investor. Thus it’s imperative to focus more on development-oriented policy initiatives before going crazy about FITs. 
No comments:
Post a Comment