The relationship between trade and investment in the global economy is rapidly evolving as a result of technological developments, economic liberalization, and new ways of organizing production and distribution. Although trade and investment have always been interlinked, three related developments in the global economy — the spread of global value chains (GVCs), the growth of services, and the rise of digital trade or ‘e-commerce’ — are amplifying these dynamic links and making it more important for policymakers to respond in complementary and coherent ways.
The Joint Statement Initiative (JSI) on Investment Facilitation for Development (IFD) at the WTO
Launched in December 2017 by a group of developing and least-developed WTO Members as ‘structured discussions’ under a ‘joint initiative’, negotiations are currently ongoing at the WTO among more than 110 participating Members (over 2/3 of the WTO Membership), with the objective to develop a multilateral Agreement on Investment Facilitation for Development. Since April 2021, the discussions advance on the basis of a single negotiating text (the so-called ‘Easter Text’). As stated in the latest Joint Statement on IFD endorsed by over 110 WTO Members in December 2021, the signatories aim at concluding the text-based negotiations on an IFD Agreement by the end of 2022.
What is investment facilitation at the WTO?
The negotiations on investment facilitation at the WTO are inspired by the success of the WTO’s Trade Facilitation Agreement – and the recognition that in today’s integrated global economy, expanding investment flows, like trade flows, depends on simplifying, speeding up and coordinating processes, not just liberalizing policies. Indeed, in many cases the bottlenecks, inefficiencies, and uncertainties that investment facilitation seeks to address arise from unnecessary red tape, bureaucratic overlap, or out-of-date processes which serve no clear policy purpose but can be costly for everyone concerned.
Although there is no internationally agreed definition of ‘Investment facilitation’, it typically involves whole-of-government efforts to develop enabling regulatory and administrative frameworks for supporting both new and existing investors to comply with investment-related policy requirements. Some examples of investment facilitation mechanisms include public-private dialogue, investment aftercare services, and good governance laws.
In the framework of the WTO negotiations on IFD, facilitating investment is understood as creating a more transparent, efficient, investment-friendly business climate – by making it easier for domestic and foreign investors to invest, to conduct their day-to-day business, and to expand their existing investments, and for host and home governments to work cooperatively and in mutually beneficial ways to facilitate not only more, but also more sustainable investment. The focus is not on changing national investment policies, but on implementing and administering those policies more clearly, efficiently, predictably, and fairly, notably through increasing transparency of governments’ investment measures, streamlining administrative procedures, and enhancing cooperation among relevant agencies. However, it is clearly distinct from investment ‘liberalization’ (market access), investment ‘protection’ and Investor-State Dispute Settlement, all of which are explicitly excluded from the scope of the future WTO IFD Agreement.
It is to be noted that, as there is no internationally agreed definition of this concept, other International Organizations (IOs) working in the field of investment facilitation, such as OECD or UNCTADmay approach this concept in a slightly different way. However, all approaches have in common their focus on making it easier for investors to establish or expand their investments, as well as to conduct their day-to-day business in host countries.
Why does investment facilitation matter – and why does it matter particularly for MSMEs?
MSMEs often face many ground-level obstacles and impediments when attempting to invest abroad. Notably, the lack of easily accessible information on investment measures and the practical steps to invest in a given country/territory; language barriers; the lack of predictability of the regulatory environment; as well as the opacity and complexity of administrative procedures may often be overly burdensome and act as a deterrent in particular for MSMEs. Indeed, unlike big firms, MSMEs often lack the capacity and/or the financial means to hire expert consultancy services to find out the information on the requirements and procedures in order to invest in a particular country/territory.
In this context, investment facilitation measures can benefit in particular MSMEs when investing abroad, through promoting greater transparency of regulations (including notably through online publication), streamlining and speeding up administrative procedures, building constructive relationships between investors and relevant authorities, and establishing amicable consultation/mediation mechanisms to prevent investment disputes from escalating.
As well, investment facilitation measures can also enable MSMEs to link up with foreign investors, notably in developing countries, through different channels. Indeed, enhancing the visibility of domestic firms, including MSMEs, is part of investment facilitation, notably through measures encouraging the establishment domestic supplier databases. Global policy dialogues framed within the Group of Twenty’s (G20) Guiding Principles for Global Investment Policymaking stress that investment facilitation provides avenues for small business to participate and move up in supply chains by leveraging on linkages to multinational companies.
WTO Members’ awareness of the importance of investment facilitation for MSMEs is well reflected in the draft negotiating document for an IFD Agreement, through provisions encouraging Members to review their investment measures with the view to make their regime more effective in addressing the specific needs of MSMEs, or to take into account, when preparing major investment measures, the potential impact of those measures on MSMEs. Actually, enhancing investment in as well as by MSMEs is one of the objectives of the future Agreement.
How can policymakers facilitate investment in, and by, MSMEs?
Several measures can be adopted to facilitate investment, particularly for MSMEs, at the national and international level. For instance, countries negotiate trade and investment agreements that may include provisions aiming at facilitating conditions for small businesses to access to or benefit from investment opportunities (see chapter 5 of WTO’s MSME-Related Language in Regional Trade Agreements). At the national level, countries seeking to facilitate investment may develop policies, institutions and financial facilities that support small businesses to engage in international trade and investment by increasing their access to capital, technology, and business networks.
More specifically, the United Nations Conference on Trade and Development (UNCTAD) developed a Global Action Menu for Investment Facilitation, which provides 10 ‘action lines’ with a series of options for investment policymakers and government agencies for national and international policy measures on investment facilitation.
As well, to support the ongoing negotiations on an IFD Agreement in the WTO and enable negotiators and policymakers notably from developing and least-developed countries to better engage in them, the International Trade Centre (ITC), jointly with the German Institute of Development and Sustainability (IDOS), has launched an ‘Investment Facilitation for Development (IF4D) project’. In this context, the ITC/IDOS have developed a toolkit for policymakers provides guidelines for developing investment facilitation regulations aimed at attaining development objectives, such as small business growth and competitiveness. This toolkit provides principles, action lines and examples for designing investment facilitation measures, and includes considerations for such measures to account in particular for small business needs. Some examples of investment facilitation policy measures in support of small business growth and development include: digital investment portals with lists of investor-ready small businesses; periodic impact assessments of the investment facilitation framework on small businesses; certification programs for developing small business linkages to customers, larger businesses and multinationals (see guide on voluntary sustainability standards); online platforms that streamline regulatory compliance for small businesses. For more information, see ITC/IDOS’s Policymaker Toolkit on Investment Facilitation for Development.
A general guidance is that investment policies, regulations and procedures should be transparent, pragmatic, and friendly for small businesses to meet all necessary policy requirements for seizing investment opportunities and for developing business linkages to broader investment processes. By doing so, small businesses grow and are more able to contribute to the economy, increasing their productive and financial capacities to engage more in international trade and investment
Where can policymakers access resources on policy frameworks, guidelines and tools?
- WTO’s Investment Facilitation for Development Portal: The World Trade Organization (WTO) has a webpage dedicated to the IFD negotiations which provides information regarding the negotiations, including a factsheet and joint statements on IFD. Visit the WTO’s IFD webpage.
- ITC/IDOS Investment Facilitation for Development Policy Toolkit for Policymakers: ITC and DIE developed a policy toolkit for policymakers to support the WTO negotiations on IFD, as well as unilateral, bilateral and regional efforts to facilitate sustainable investment flows. The toolkit notably contains an inventory of measures to facilitate the flow of sustainable FDI. Visit the ITC/DIE’s Policy Toolkit for Policymakers.
- UNCTAD’s Investment Facilitation and Promotion: The United Nations Conference on Trade and Development (UNCTAD) supports countries to design investment facilitation regulations and institutions through a range of resources, including investment guides, advisory guidelines and policy frameworks. Visit this UNCTAD website.
- UNCTAD’s Investment Policy Hub: UNCTAD integrates policy frameworks, reviews and monitoring system on investment measures that can help to identify resources, trends and developments in investment facilitation. Visit the Hub.
- World Bank’s Investment Policy and Promotion: The World Bank offers a knowledge bank with strategies, examples and policy evidence on measures related to investment facilitation. Visit this World Bank website.
Where can policymakers access good practices and national examples?
- IDB-ITC-DIE’s What Foreign Investors Want: The Inter-American Development Bank (IDB), International Trade Centre (ITC), and the German Development Institute (DIE) surveyed a number of active foreign investors in Latin America and the Caribbean and identified a key set of valuable investment facilitation measures for advancing development objectives under multilateral cooperation and national coordination. Visit this IDB-ITC-DIE report.
- OECD’s Investment Promotion and Facilitation Strategies: The Organization for Economic Co-operation and Development (OECD) provides an inventory of investment promotion and facilitation activities in the Middle East and North Africa region, which policymakers can use for benchmarking purposes. Visit this OECD website.
- OECD-UNIDO’s Integrating Southeast Asian SMEs in Global Value Chains: The OECD and the United Nations Industrial Organization (UNIDO) provide evidence on investment facilitation measures that can enable small businesses to develop business linkages to global supply chains. Visit this OECD-UNIDO report.
- UNCTAD’s World Investment Reports: UNCTAD publishes each year a World Investment Report which provides, among other, information on latest investment facilitation measures adopted. Visit UNCTAD’s 2022 World Investment Report.
- UNCTAD’s Investment Policy Monitor: UNCTAD provides the international investment community with country-specific, up-to-date information about the latest developments in foreign investment policies, notably on investment facilitation. Visit UNCTAD’s Investment Policy Monitor.
- UNCTAD’s Global Enterprise Registration (GER.co): UNCTAD lists and rates governments’ digital information portals and Single Windows, providing the weblinks to each of them. Visit the GER.co.
I am an expert in the field of international trade and investment, with a deep understanding of the evolving dynamics in the global economy. My expertise is rooted in extensive knowledge of technological developments, economic liberalization, and the changing landscape of production and distribution.
Now, let's delve into the concepts mentioned in the article you provided:
Global Value Chains (GVCs):
- GVCs refer to the interconnected networks of production and distribution that involve multiple countries. The spread of GVCs is a significant development in the global economy, influencing the relationship between trade and investment.
- The growth of services is another crucial aspect. It signifies the increasing importance of service-oriented industries in the global economy, impacting both trade and investment patterns.
Digital Trade or E-commerce:
- The rise of digital trade, also known as e-commerce, is transforming the way business is conducted globally. It introduces new dimensions to trade and investment, emphasizing the role of technology in shaping economic interactions.
Joint Statement Initiative (JSI) on Investment Facilitation for Development (IFD) at the WTO:
- The JSI is a structured discussion among WTO Members aimed at developing a multilateral Agreement on Investment Facilitation for Development. This initiative recognizes the need for coordinated efforts to simplify, speed up, and coordinate investment processes globally.
Investment Facilitation at the WTO:
- Investment facilitation involves whole-of-government efforts to create regulatory and administrative frameworks that support investors in complying with investment-related policies. It focuses on transparency, efficiency, and an investment-friendly business climate.
MSMEs (Micro, Small, and Medium Enterprises):
- MSMEs face obstacles when investing abroad, such as lack of information, language barriers, and regulatory uncertainties. Investment facilitation measures aim to address these challenges, particularly benefiting MSMEs by promoting transparency, streamlining procedures, and building constructive relationships.
Policymaker Toolkit on Investment Facilitation for Development:
- The International Trade Centre (ITC) and the German Institute of Development and Sustainability (IDOS) have developed a toolkit for policymakers to support the WTO negotiations. It provides guidelines for designing investment facilitation regulations that consider the needs of small businesses.
Facilitating Investment for MSMEs:
- Policymakers can adopt measures at the national and international levels to facilitate investment for MSMEs. This includes negotiating trade and investment agreements, developing supportive policies and institutions, and leveraging resources provided by organizations like UNCTAD and the World Bank.
Resources for Policymakers:
- Policymakers can access resources, guidelines, and tools from various organizations, including the WTO's Investment Facilitation for Development Portal, ITC/IDOS's Policy Toolkit, UNCTAD's Investment Facilitation and Promotion, and the World Bank's Investment Policy and Promotion.
Good Practices and National Examples:
- Policymakers can learn from good practices and national examples, such as the IDB-ITC-DIE's report on What Foreign Investors Want, OECD's Investment Promotion and Facilitation Strategies, and UNCTAD's World Investment Reports.
These concepts collectively highlight the intricate relationship between trade and investment in the modern global economy and underscore the importance of coordinated efforts to facilitate investment for sustainable development.