June 17,2009

China Explores International Investment Agreement as a Method to Resist Protectionism

By Leanne Wang, Shanghai
While changing their roles from recipients to investors in cross-board investments, developing countries are raising their voices in calling for more transparency and fairness in global trade and investments. On a symposium hosted by the Shanghai Institute for International Studies (SIIS) on Tuesday, panelists advocated multi-lateral organization to establish international investment rules to keep markets open, resist protectionism and foster responsible investment as a precondition for the global economic recovery.

SIIS organized the event together with Stiftung Wissenschaft und Politik (SWP) and Heiligendamm Process Support Unit (HDP-SU). Mr Noboru Hatakeyama, Chairman and CEO, Japan Economic Foundation said on the symposium, "it is vitally important for the WTO to establish international investment rules as soon as possible," which is backed by the argument that "developing countries, including G5, are no longer only recipient countries but are becoming origins of outward foreign direct investments (FDI) as well and should enjoy fair international investment rules as investors."
G5 increased their shares in outward FDIs gradually; China in particular increased FDI by 328.2% in the first half of 2008, and by 95.8% in the second half.

However, the "silk road" of going abroad has not been silkily smooth. Recently, Rio Tinto’s rejection of Chinalco's bid to increase its stake in the Australia mining giant served as a major blow to China's steel industry and the Chinese government. Some Chinese express their disappointment that developed countries hold double standards concerning FDI. They question why developed countries urge China to open its market, but, at the same time, adopt protectionist measures at home when China wants to invest in their key industries.

Panelists and participants of the symposium believe with the economy of emerging countries developing rapidly, there has been converging interests in FDIs between the developed and developing countries which makes an international investment agreement necessary.

Mr. Marco Marazzi, Partner, Baker & McKenzie, claimed the cause of this "unfairness" lies with the lack of such an agreement. He said, if it is in place, "Australia should have said very clearly, ‘Look, we don’t want any foreign investment in the mining and resources sector, don’t ever think about buying Rio Tinto or buying any additional shares in Rio Tinto,? so that foreign companies would have known that Australia has a policy concerning the acquisition of companies in its national resources sector.

Mr Marazzi believes such an international agreement would enhance the transparency and consistency of government policy in cross-board investment. Mr Hatakeyama added, "Even when the international investment agreement is established, I think you can keep regulations on FDI if they can be explained for national security reasons."

Currently, there are only two categories with international rules on inward FDIs, but no general rules on FDI within the WTO. The first includes small rules such as trade related investment measures (TRIMS) and general rules for service sectors (GATS); the second category include bilateral investment treaty (BIT), the free trade agreement (FTA) and the friendship, commerce and navigation treaty (FCNT).

However, since Doha Development Round negotiations are stagnant and investment issues are not included in the agenda, some panelists believe adding the additional task to the WTO of implementing an international investment agreement may not be practical; instead, some informal joint efforts made by G5 and G8, such as HDP, may play a role in promoting the establishment of this agreement.

 

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