SPACES FOR POLICY IN
INTERNATIONAL RULES FOR INVESTMENT
AN APPROACH FOR MAKING INTEGRATION SUPPORTIVE OF SUSTAINABLE DEVELOPMENT
Werner Corrales-Leal; ICTSD/UNCTAD
Presentation at the International Seminar
“FDI Policies and Regulation: How to Foster Economic Development”
Organized by CUTS, UNCTAD an DFID, Geneva January 2004
LIST OF CONTENTS
An approach for making trade integration supportive of
sustainable development.
Market-friendly use of active policies related to FDI: A case in
the Oil Sector .
A summary: Key considerations on future FDI rules
PART ONE
An approach for making trade integration
supportive of sustainable development.
An approach for making trade integration supportive of sustainable development
SOME IMPACTS OF LIBERALISATION ON DEVELOPING ECONOMIES WORTH TO CONSIDER
 Specific impacts on the productive bases of developing countries
• Net positive creation of trade; trade flows grow faster than GDP
• “Natural advantages”confirmed as bases for further specialization
• Most trade and FDI flows occur within TNC chains and networks
• 40% of K flows to arbitrage; high proportion of FDI does not generate X
• 90% of K flows to twenty “emerging markets” (50% in the 80s)
• Success story of a few countries: Active policies for competitiveness
 Impacts on inequalities, at international and country level
• LDCs marginalisation; no sign of convergence; uneven “Welfare Gains”
• External shocks: financial volatility, declining and unstable X prices
• Destruction of traditional SMEs’ networks with no substitutes
• Precarious employment conditions become structural after Adjustment
An approach for making trade integration supportive of sustainable development
THE NEED FOR ACTIVE POLICIES IN THE SUPPLY SIDE: LIBERALISATION IS NOT ENOUGH
 Reduce dependency on current trade in commodities
• Basis and intensity of competition erode capabilities for reinvestment
• Commodity production has very limited networking or spill-over effects
 Promote learning and innovation; increase internal multipliers
• “Global Chain Optimisation”: Strengthen Clusters and insertion to Chains
• Motivate and promote Innovation and Technological Capacity Building
• A “Levelled playing field ” to negotiate alliances and complementarities
 Modify dynamics of investment in extreme resource-based cases
• Extreme productivities, appreciated exchange rates and competitiveness
• Domestic and Foreign Investment go to non-tradable and commodities
An approach for making trade integration supportive of sustainable development
HOW INTERNATIONAL TRADE RULES MAY INFLUENCE THE CAPACITY FOR POLICY INTERVENTIONS
ENTERPRISE
DEVELOPMENT,
PRODUCTIVITY &
INVESTMENT POLICIES
POLICIES FOR
INNOVATION AND
TECHNOLOGICAL
UPGRADING
SOCIALLY AND
ENVIRONMENTALLYFOCUSED POLICIES FOR
COMPETITIVENESS
SUPPLY SIDE
TRADE-SUPPORTED
POLICIES
RULES IN THE SPACE
FOR DEVELOPMENT
POLICIES
MARKET ACCESS
AND FAIR TRADE
RULES
DEMAND SIDE
TRADESUPPORTED
POLICIES
NATIONAL POLICIES
FOR INTERNATIONAL
TRADE AND INTEGRATION
MANAGING TRADE INTEGRATION
TRADE NEGOTIATIONS
An approach for making trade integration supportive of sustainable development
MANAGING TRADE INTEGRATION: ENHANCE POLICIES’ CONTRIBUTIONS TO DEVELOPMENT GOALS
 Active trade-related policies
ENTERPRISE DEVELOPMENT
AND CLUSTERING,
PRODUCTIVITY &
INVESTMENT POLICIES
POLICIES FOR INNOVATION
AND TECHNOLOGICAL
UPGRADING
 Aims of development strategy
Enhance social effectiveness
of economic policy
Improve internal multipliers
of export-led growth
Improve productivity through
technology & innovation
Enhance market access and
trade defence capacity
Secure equilibrium and
stability in external flows
POLICIES AND
RULES MAKING IN
INTERNATIONAL TRADE AND
INTEGRATION
Increase knowledge content
& diversification in exports
Environmental concerns as
cross-cutting policy issues
An approach for making trade integration supportive of sustainable development
MANAGING TRADE INTEGRATION: AFFECT THE RATIONALE OF TRADE SURPLUS APPROPRIATION
 Impinge on factors explaining growth in revenues and competitiveness
• Active policies affecting Static factors:
– Export growth based on market access
– Rents related to productivity, based on “Best Global Practices”
– Productive linkages and networking enhancing domestic multipliers
• Active policies enhancing Dynamic factors ( Rents related to innovation ):
– Knowledge-enhanced productivity; Innovation in processes and attributes …
– Strategic marketing; differentiation; life cycles of products..
 Relieve constraints for “adding value” or appropriating trade surplus
• Effective market access: Ease traditional barriers and improve access to GVCs
• Diversification: Move away from extreme competition in commodities
• Negotiations in Policy Space: Level the playing field for Supply-side Policies
• Networks and institutions: Frameworks for learning and multiplying effects
An approach for making trade integration supportive of sustainable development
SHOULD CURRENT OPPORTUNITIES FOR WTO-CONSISTENT ACTIVE POLICIES BE ABANDONED?
 Examples of market-consistent trade policy instruments
• Conditioned access to FDI, as “benefit” in sectors reserved for national investment
• Focalized FDI promotion; incentives to ToT, R&D, Clustering and SME development
• Government and STEs procurement promoting technological capacity building
• Coordinated implementation of IPR , Competition rules and R&D programmes
 Multilateral disciplines and issues that should be revisited or reoriented
• TRIMs; TRIPs, GATS, Subsidies, Government Procurement
• Special and Differential Treatment; “Spaces for Development Policies” in general
• Eventual negotiations on investment, competition and trade facilitation in WTO
PART TWO
Market-friendly use of active policies related to FDI: A
case in the Oil Sector
Market-friendly use of active policies related to FDI: A case in the Oil sector
VENEZUELA 1980: CHALLENGES IN THE OIL SECTOR RELATED TO TECHNOLOGICAL CAPABILITIES
 Strategic need to reduce Technological Dependence on TNCs
• Pre-existing contracts for the provision of technology and engineering
• Only 15% of the engineering & capital goods procurement was national
 Objective shortages in Technological Capabilities in the Country
• Almost inexistent R&D Capabilities in the sector (PDVSA or elsewhere)
• Only 5 construction management firms capable of major assignments
• About 20 engineering companies for projects of medium complexity
• Very limited local capacity for production of capital goods
 Doubts and confidence 5 years after the nationalization process
• Public doubts about the success of the Capacity Building Program
• Decision to face the program on a “Market Friendly” basis
• Firm commitment of PDVSA and the Venezuelan private sector
Market-friendly use of active policies related to FDI: A case in the Oil sector
THE STRATEGY FOR TECHNOLOGICAL UPGRADING AND CAPACITY BUILDING
 Creation of a High Quality Research & Development Organization
• Creation and development of INTEVEP
• Establishment policy for Transfer of Technology on Commercial Basis
• Massive program for training human resources in research fields
 Promotion of Capital Goods Manufacturing and Service SMEs
• Implementation of Quality Assurance and Competitiveness Programs
• Export Promotion Program
• Incentives for Chains of Suppliers Development Programs
 Promotion of Engineering and Construction Management firms
• Non Mandatory Performance Requirements for Joint Ventures
• Reform of Contracting Practices introducing Project Disaggregation
• Continuous Improvement and Quality Control Practices in all Contracts
Market-friendly use of active policies related to FDI: A case in the Oil sector
LONG-TERM EVOLUTION OF THE ENGINEERING AND CONSTRUCTION SERVICES 1980 - 2000
• Very high improvement in Technological Capabilities
• Highly skilled jobs, sources of “Value Added” and backward links created
• Further evolution of Engineering & Construction to “Integrated Services”
Investment :
US$ 2,500 MM
•100
•90
•80
•70
•60
%
•50
•40
•30
Evolution
•20
Trend
•10
•0
•80
•82
•84
•86
•88
•90
•92
•94
•96
•98
•2000
PART THREE
A summary: Key considerations on future FDI rules
A summary: Key considerations on future FDI rules
IMPACTS OF THE TERMS OF AGREEMENT ON POLICY SPACES AND INVESTOR’S DECISIONS 1/2
• MFN considering regional agreements
• NT pre-establishment
+
+
Positive Impact
PROPERTY
RIGHTS
FREEDOM IN
INMUNITY
MANAGEMENT PRESCRIPTION
Pre+establishment
Risks
-
Other sectors
Equitable treatment
DECISION FACTORS OF THE INVESTOR
Post-diversification to
+
Promotion for National and
Regional players
• Sectors reserved to
national investment
Technological Capacity Building
Admission and
establishment
Clustering, SME Networking
DEVT POLICY
SPACES
TERMS OF AGREEMENT
-
Negative Impact
A summary: Key considerations on future FDI rules
IMPACTS OF THE TERMS OF AGREEMENT ON POLICY SPACES AND INVESTOR’S DECISIONS 2/2
DECISION FACTORS OF THE INVESTOR
DEVT POLICY
SPACES
TERMS OF AGREEMENT
PROPERTY
RIGHTS
FREEDOM IN
INMUNITY
MANAGEMENT PRESCRIPTION
Rules on Investor practices
• Effective sanctions to
uncompetitive practices
• Limitations to unfriendly
Take Overs of local firms
+
+
Positive Impact
+
+
-
+
+
+
Promotion for National and
Regional players
+
• PR related to K association
+
• PR related to R&D and TT
+
Clustering, SME Networking
• PR related to trade
Technological Capacity Building
Performance Requirements
Hands
Off
-
+
-
Negative Impact