estudos internacionais • Belo Horizonte, ISSN 2317-773X, v. 8, n. 2, (jun. 2020), p. 70 - 85

Foreign investor´s rights, investment

promotion and facilitation agencies: a

developmental and sustainable visión

Direitos de investidores estrangeiros, agências de facilitação

de investimentos: uma visão desenvolvista e sustentável

Derechos de los inversores extranjeros, promoción de

inversiones y agencias de facilitación: una nueva visión

desarrollista y sostenible

Leonardo E. Stanley

DOI: 10.5752/P.2317-773X.2020v8.n2.p70

Received in: September 29, 2019

Accepted in: February 05, 2020

A

Fifty years ago, the role of foreign investors was at the center of the political de-

bate, with host state - investors disputes showing a geographical North-Southth

pattern. The end of the ISI model would signal a new era, including a new rela-

tionship with foreign investors. As part of their eorts, developing and emerg-

ing countries (DECs) liberalize foreign direct investment (FDI) national policies

and to provide scal and other incentives to foreign investors. FDI ows were

seen as always benecial: a quantitative approach. Sooner than later, however,

policy-makers became aware of the scheme’s pro-investment bias. FDI quality,

not quantity, became the new ideal. Latin American countries’ position in the

issue, however, remains quantitative objectives still dominate the investment

debate. Indeed, a movement towards sustainability would come to question

the natural-resource led growth model followed by the region. So, the debate

around the treatment of foreign investors remains open.

Keywords: Foreign Direct Investment. Investment Protection, Promotion and

Facilitation. Development and Sustainability.

R

Cinquenta anos atrás o papel dos investidores estrangeiros encontrava-se no

centro do debate político, onde as disputas (Inversora - Estado Soberano)

mostravam um claro padrão geográco Norte - Sul. A nalização do mod-

elo sustitutivo marcará o início de uma nova era, a qual implicou uma nova

aproximação ao investimento estrangeiro. Como parte do esforço, os países em

desenvolvimento e emergentes decidem liberar suas políticas de investimento

estrangeiro direta (IED). Os uxos de IED eram vistos como beneciosos, sem-

pre: enfoque quantitativo. Quanto antes, no entanto, os fazedores de política

1. Associated Researcher at the Center

for the Study of the State and Society

(CEDES) – Argentina. ORCID iD: 0000-

0001-6590-2636

Leonardo E. Stanley Foreign investor´s rights, investment promoon and facilitaon agencies: a developmental and sustainable visión

começaram a reconhecer o forte caráter pró-investidor do esquema. E a qual-

idade, não a quantidade, devém o novo ideal. No entanto, os países da região

seguem mantendo uma visão cuantitiva. O movimento pró-sustentabilidade do

desenvolvimento vem a questionar o modelo de desenvolvimento que segue a

região, e baseado na exploração dos recursos naturais. Neste sentido, o debate

com respeito ao tratamento dos investidores estrangeiros não só não se tem

saldado: ainda não tem começado.

Palavras chave: Investimento estrangeiro direto. Proteção, Promoção e Facili-

tação de Investimentos. Desenvolvimento e Sustentabilidade.

R

Cincuenta años atrás el rol de los inversores extranjeros se encontraba en el

centro del debate político, donde las disputas (Inversionista - Estado Soberano)

mostraban un claro patrón geográco Norte - Sur. La nalización del mod-

elo sustitutivo marcará el inicio de una nueva era, la cual conllevó una nueva

aproximación a la inversión extranjera. Como parte del esfuerzo, los países en

desarrollo y emergentes deciden liberalizar sus políticas de inversión extran-

jera directa (IED). Los ujos de IED eran vistos como beneciosos, siempre:

enfoque cuantitativo. Más temprano que pronto, sin embargo, los hacedores de

política comenzaron a reconocer el fuerte carácter pro-inversor del esquema. Y

la calidad, no la cantidad, deviene el nuevo ideal. Sin embargo, los países de la

región siguen manteniendo una visión cuantitiva. El movimiento pro-sostenib-

ilidad del desarrollo viene a cuestionar el modelo de desarrollo que sigue la

región, y basado en la explotación de los recursos naturales. En este sentido,

el debate respecto al tratamiento de los inversores extranjeros no solo no se ha

saldado: aún no ha comenzado.

Palabras clave: Inversión Extranjera Directa. Protección, promoción y facil-

itación de inversiones. Desarrollo y sostenibilidad

Introduction

Developing and emerging countries (DECs) - foreign investors’ re-

lationship experienced important and controversial twists. A multilater-

al agreement on foreign investment has become a long-standing eort,

whose rst attempt was made in the period immediately after World War

II (WWII). Initially, an International Trade Organization responsible for

employment, foreign investment, international commodity agreements,

restrictive business practices, and services, as well as international trade,

was to have emerged from the negotiations undertaken in Havana, Cuba,

in 1948 at the invitation of the United States (US) Government. That aim

was dashed when President Truman did not even present the negotiated

draft to the US Congress aware that it would not be approved because

of the international commitments that it entailed. Since then, the artic-

ulation of the new international trade and foreign investment architec-

ture became an exercise in provisional initiatives and second-bests, which

reected more the evolving relative negotiating strengths of the major

players (the US and Europe) rather than any well-conceived master plan.

However, on the other hand, the early post-WWII was, also an era of

rising nationalizations, rst by communist takeovers in China, Eastern

Europe, and Cuba, then during the 1960s and 1970s by numerous devel-

oping countries which expropriated foreign investments in their terri-

estudos internacionais • Belo Horizonte, ISSN 2317-773X, v. 8, n. 2, (jun. 2020), p. 70 - 85

tories, especially in the natural resource sector (mostly petroleum and

mining). Resource nationalism momentum would come with the Dec-

laration for the Establishment of a New International Economic Order,

adopted by the United Nations General Assembly in 1974, and referred to

a wide range of trade, nancial, commodity, and debt-related issues.

Whereas geopolitical alliances reected a West-East political divide,

economic disputes were instead following a geographical North-South pat-

tern, and the chances for a multilateral scheme agreement were practically

nill. A dierent route was undertaken at the bilateral level, particularly af-

ter the signature of the bilateral investment treaty between Germany and

Pakistan on November 25, 1959. Bilateralism proliferated in the nineties,

following DECs´ governments decided to liberalize their foreign direct

investments (FDI) regimes. Institutionally the new era encompassed the

signature of international investment agreements (IIAs) and the adherence

to the World Bank´s International Court for the Settlement of Investment

Disputes (ICSID). Tough the promotion, protection, and liberalization of

foreign investment has mostly occurred under this bilateral framework,

multilateral initiatives also ourished. DECs´ policy space for development

was further reduced at the Uruguay Round, whose trade-related aspects

of intellectual property rights agreement (TRIPS) came to prevent sover-

eigns from introducing technology transfer clauses. Developmental poli-

cies were also aected other two World Trade Organization (WTO) agree-

ments: the Trade-Related Investment Measures (TRIMs) and the General

Agreement on trade in services (GATS). Finally, in May 1995 the Orga-

nization for Economic Co-operation and Development (OECD) member

governments launched the Multilateral Agreement on Investment (MAI)

at the Annual Meeting of the OECD Council at Ministerial level

The resulting emerging global legal framework rests on the twin

foundations of customary international law and national laws and regu-

lations. It relies on its substance on a multitude of IIAs and other legal in-

struments. Towards the same goal, some DECs governments decided to

create individual oces: Investment Promotion and Facilitation Agencies

(IPFAs), basically directed to administrate incentives. Leaving aside institu-

tional dierences, if any, the new legal and administrative entities started

to ourish

. IIAs growth was astonishing, rising from 396 agreements in

1990 (MORTIMORE; STANLEY, 2009), to more than 3,300 as of 2017 (MO-

HAMADLEH, 2019). IPFAs have also prospered and actually counting with

more than 200 IPFAs at the national level (HARDING; JARVONIC, 2012).

Meanwhile, a signicant tectonic, geopolitical shift emerges recong-

uring global FDI ows. Lead by China, an increasing number of Emerging

joined the (formerly, a Northern exclusive) league of capital exporter coun-

tries. Meanwhile, Non-Governmental Organisations (NGOs) environ-

mental began to plead international organizations for changing towards

a more holistic perspective on growth: development should be socially

inclusive and environmentally sustainable. As development moves from a

narrow economic towards a more holistic vision, a new vision is required

for installing a sustainable nance - development model (SCHOENMAK-

ER, 2017). By analogy, foreign investors should now be ask [by host coun-

tries] to excel the sustainable test. Henceforth, controversies around the

2. . The MAI was a ﬁrst attempt to

combine in one multilateral agreement

the disciplines in three critical areas of

foreign direct investment rule-making

– speciﬁcally, foreign investment protec-

tion, foreign investment liberalization,

and dispute settlement.

3. IIAs encompass bilateral investment

treaties (BITs) as well as investment

chapters within regional and bilateral

free trade agreements (FTA). The term

might also include other special sche-

mes dealing with investment issues, as

the double - taxation treaties.

Leonardo E. Stanley Foreign investor´s rights, investment promoon and facilitaon agencies: a developmental and sustainable visión

role of foreign investors in long-term development is not longer a South-

ern countries´ issue (as observed in the sixties and seventies) but a concern

being shared by auent societies too. New claims for re-regulate foreign

investments are listen, almost everywhere - even among US policy mak-

ers. Likewise, as the sustainable development debate deepens, the concern

over the sovereign right to regulate is turning global.

Theoretical foundations of foreign investors’ special protection in-

volve several arguments, going back and for but always returning to the

old rules versus discretion discussion. Whereas in the 1990s, those favoring

rules were in the majority, nowadays, the pro-investor bias became under

scrutiny. The presence of information asymmetries, on the other hand,

explained IPFAs irruption and dissemination. Whereas the IA problem

persists, however, IPFAs goals have changed: originally designed to attract

investors (a quantitative mandate), nowadays investments are expected to

match SDGs (a qualitative mandate). What explains developed countries´

transformation, from being ercely opposed to regulating capital inows

(including FDI ows) to suddenly start advocating for more screening and

control over foreign investors? Which forces explain IFPAs new qualitative

appraisal? How can this ideological shift be explained? Why the change

seems not to be aecting Latin America (FDI related) institutions?

The paper discusses rst the economic foundations behind the

[FDI] legal protection scheme, as well as those supporting the introduc-

tion of promotion and facilitation agencies. The second section turns at-

tention to the multilateral fora, asking why an international agreement

on investment facilitation could now be approved and whether it remains

favorable for the DECs long-term sustainable development. The third

section list a series of characteristics host countries policy toolkit could

list if the government’s intention is to made FDI inows compatible with

sustainable development. Thereafther, some conclusions follows.

Foreign investors treatment: what protection, promotion,

and facilitation means

Foreign direct investments might present positive contributions to

development, but benets should be not taken for granted. Neither costs

underestimated. Spill-overs on the local economy might relate, among

others issues, to technology transfer, managerial best practices, skill de-

velopments, and research and development activities. The arrival of long-

term ows might not be rewarding, and they may even be not desirable

for sustainable development (CLAESSENS et al., 2003; GODA; TORRES,

2013; IBARRA, 2011; RAY, 2016; RAY et al., 2017; RODRIK; SUBRAMA-

NIAN, 2009; SABOROWSKI, 2009; TIENHAARA, 2009).

Short of funds, however, host countries embraced neoliberalism in

the nineties, including new (pro-investor) legal rules and the establish-

ment of new oces (agencies) directed to seduce foreign investors to (and

helping them after) arrival. From a policy perspective, the government du-

ties were straight and simple: to eliminate discretion and reduce informa-

tional asymmetries, and to follow robust and straightforward rules. The

rules versus discretion debate help us to understand the legal discussion;

the informational bias would be introduced to delineate the agency issue.

estudos internacionais • Belo Horizonte, ISSN 2317-773X, v. 8, n. 2, (jun. 2020), p. 70 - 85

Rules versus discretion

Discretion in the hands of DECs policy-makers was then blame as

preventing the arrival of foreigners. After years of mutual mistrust, de-

veloping countries decided to take the rst step and expand their legal

guarantees: to x the rules of the game. The signature of bilateral invest-

ment treaties (BITs) was an essential step in this direction, as it expanded

investors´ legal guarantees and, henceforth, helped to reduce their polit-

ical risks (STANLEY, 2004). In the search for investments, however, the

host government started to leave away policies that, in the past, permit-

ted them to link FDI to development.

An overwhelming majority of investment agreements concluded

since 1990 were traditional. In the sense that they admitted foreign invest-

ments of the other contracting party only if such investments conformed

to the host country’s legislation (MORTIMORE; STANLEY, 2006, 2009).

This represents the so-called “admission model”, which was common in

European BITs with developing countries, and emphasized investment

protection. A relatively small group of investor countries, led by the USA,

took advantage of the unique historical events in the 1980s and 1990s to

implement a strong push towards foreign investment liberalization, par-

ticularly in developing countries and economies in transition. BITs fur-

ther enlarged foreign investors’ rights, whose legal challenge remained

unknown by the time of the signature. Sooner than later, US BITs inu-

ence disseminate among Western allies, with the European Union (EU)

introducing a new agreement template in the 2000s (STANLEY, 2018).

Unexpectedly, BITs benets proved minimal, whereas damages for

alleged breaches started to boost (CCSD, 2018; JOHNSON et al., 2018)

The push against this type of agreement starts to go further, admitting

that if “there were a link between investment treaties and FDI ows, in-

vestment agreement and their protection can potentially undermine in-

vestment and its intended benets” (JOHNSON et al., 2018, p. 7).

After observing how lean benets were, policy-makers started to in-

terrogate on the substantial costs the scheme bring with it. The loss of exi-

bility would suddenly transform into a leading issue, as treaties pushed sov-

ereigns to cede control over their policy space

. The government loss of ex-

ibility arises on several clauses, for example, on those restricting the use of

“performance requirement” objectives (JOHNSON et al., 2018)

. The exten-

sive denition of investment, for instance, permitted Argentina´s bondhold-

ers to challenge the debt renegotiation process (MORTIMORE; STANLEY,

2006). The inclusion of the “indirect expropriation” concept was behind in-

vestor´s spurious claims, preventing governments to fulll their regulatory

duties. The standard of government treaty of foreign investors (e.g., “fair

and equitable treatment,” “national treatment”) was also under question,

as its wording remains vague and open to interpretation by arbitral pan-

els (GORDON; POHL, 2015; JOHNSON et al., 2018; SINGH; ILGE, 2016).

Finally, all the controversies around the investor-state dispute settlement

(ISDS) mechanism. Initially designed to ensure a neutral, a - political forum,

the mechanism would sooner than later be under criticism as it favored in-

vestors the most (CCSD, 2018; GORDON; POHL, 2015; JOHNSON et al.,

4. As of July 31, 2017, 817 known ISDS

claims had been ﬁled, and at least 114

states had faced formal complaints

(JOHNSON et al., 2018)

5. As claims against sovereigns began

to ﬂourish, the original group of Latin

America challengers (Bolivia, Ecuador,

and Venezuela) enlarged. New voices

were now coming from the global South

(South Africa, Indonesia, India), but

also high-income countries (Norway,

Australia, the Netherlands). Critical

voices towards the ISDS scheme were

also coming from Germany, France, and

Italy (VIDIGAL; STEVENS, 2018).

6. Whereas provisions like this were

affecting many LDCs around the world,

some EMEs have strategically avoided

to include them in their IIAs (e.g., China)

Leonardo E. Stanley Foreign investor´s rights, investment promoon and facilitaon agencies: a developmental and sustainable visión

2018; MORTIMORE; STANLEY, 2009; VAN HARTEN, 2016)

. There is a

predominant, shared concern that the ISDS system has been use to prevent

the realization of a “global” public interest (VIDIGAL; STEVENS, 2018).

Not only the IIAs pro-investor bias generated a hot political issue,

but policy-makers were also called to include sustainability issues in the

agenda. This reects the emergence of a new consensus, which introduc-

es a qualitative (not quantitative) perspective on FDI and asking devel-

opment to be sustainable. This new vision certainly challenges the old,

Washington Consensus approach over IIAs design as to the role played

by the ICSID scheme (SAUVANT, 2019a, b). How to integrate sustainable

development objectives in the IIAs, however, remains the single most rel-

evant challenge for the IIAs system as a whole (GORDON et al., 2014;

ZHAN, 2018)

, as the status quo prevents countries from advancing with

the necessary rebalancing of rights and obligations between partners.

Information

Asymmetric information has often been blamed as another clear

(contractual) disadvantage, preventing deals to be made among un-

known partners. Informational asymmetries were mainly observed as

“to constitute a signicant obstacle to capital ows across international

borders” (HARDING; JAVORICK, 2012, p. 2). By providing information,

governments alleviate the burden of bureaucratic procedures as well as

reduce investors´ transaction costs. IPFAs incentive the arrival and per-

manence of foreign investors.

IPFA design, however, remains controversial: some insisting in sep-

arate agencies, others preferring to bring promotion and facilitation activi-

ties under the same roof. Others might conceive it as a dual process: starting

with the design of the target sectors (promotional stage), then continuing

with those activities directed to facilitate investors´ radication (facilitation

stage) (HESS et al., 2018). Promotion associates with incentives, including

“any measurable advantages accorded to specic enterprises or categories

of enterprises by (or at the direction of) a government, to encourage them

to behave in a certain manner” and include “measures…designed to in-

crease the rate of return of a particular FDI undertaking either to reduce

(or redistribute) its costs or risks” (CASS, 2007, p. 30). The facilitation stage,

in turn, is mainly directed to assist investors in dealing with local rules

and bureaucracy. It is usually considered to conform a continuous task and

bringing assistance (at both, at the pre-establishment and after establish-

ment), and incentivizing foreigners to expand their local operations.

Agencies´ goals have also experienced a structural transformation:

from quantitative to qualitative goals (VCC - WAIPA, 2010). Highly popu-

lar in Latin America, rst-generation agencies associated with liberalization

and deregulation measures (SAUVANT, 2019b). A second generation contin-

ued to promote the entry, but it also started to include some other activities

directed to help investors in their installation phase. Beyond the institution-

al scope, however, rst and second-generation structures both shared a gen-

eral, quantitative objective: to attract foreign direct investment. Agencies,

third-generation design, start to focus actions towards some specic sectors.

7. The ISDS system involves two main

forms: the United Nations Commission

on International Trade Law (UNCITRAL)

and the World Bank International Court

for the Settlement of Investment Dispu-

tes (ICSID). Both the UN and the World

Bank, have recently decided to examine

the hottest issues (BERGER et al., 2018).

8. The liberalization push has produced

a massive legal transformation. As

observed in the WTO - Trade-Related

Investment Measures (TRIMs), affecting

host countries’ policies on FDI as it

prevents them from introducing local

content requirements. Notice that which

prohibited trade-related investment

measures, such as obligatory require-

ments of locally-acquired inputs (“local

content”) that were inconsistent with

necessary provisions of GATT 1994

(MORTIMORE; STANLEY, 2009)

estudos internacionais • Belo Horizonte, ISSN 2317-773X, v. 8, n. 2, (jun. 2020), p. 70 - 85

Targeting was explained by the fact that FDI contribution to development

diers dramatically depending upon the industry (MORAN, 2010). A fourth,

and latest IFPAs generation is starting to ourish, basically aiming to match

investments with the host country long-term, sustainable development

objectives. Modern agencies consider four, dierent dimensions: econom-

ic (linkages, technology transfer, training), social (labor and employment

standards, community health, education, training), environmental (mini-

mizing the adverse impacts of investments, mobilizing environmental tech-

nologies for conservation) and institutional or governance (fair and ecient

negotiations, contracts). Overall, agencies should be backed by a long-term

strategic vision, which is not indierent to FDI inows: whereas in some

sectors investors´ should be wellcome, in some others the arrival might be

better to deter. Investment targeting, henceforth, remains alive but condi-

tional to the matching of long - term and sustainable development goals.

The structure of incentives, however, remains directed towards the

accomplishment of a narrow economic vision disregarding social, environ-

mental, and institutional dimensions (VCC - WAIPA, 2010). To be (strate-

gically) useful, however, agencies should take the country specicities into

account - including its economic, social, and environmental constraints. If

the sovereign aims to prot from FDI for the national economy structural

transformation, henceforth, a dierent design would be in mind. In the

end, quality (not quantity) is what it counts for sustainable development:

better and more professional agencies bring dierent levels of FDI into

host countries (HARDING; JAVORICK, 2012; SAUVANT, 2019b; VCC -

WAIPA, 2010). In particular, sovereigns should work in IFPA´ design and

carefully target sectors of FDI attraction (HARDING; JAVORICK, 2012;

MIŠKINIS; BYRKA, 2014), to induce the arrival (and permanence)

of those

investments that they consider particularly desirable for the (long-term and

sustainable) development (SAUVANT, 2019b). Agencies could also stimu-

late cooperation among foreign and local rms (as in the building of a local

supply network or the transfer of technology), or interaction with local

communities (as for the attainment of the project´s sustainability goals). In

sum, agencies could be designed in order to perform both transformative

and sustainability goals. The quantity towards quality goal movement,

however, is far from granted. Highly ambitious objectives which, in Latin

American case, few agencies might be able to undertake. Unfortunately, in

the region, agencies are taught as solving some specic (i.e.: informational)

market failures but specically directed to eliminate bureaucratic norms

and rules (VOLPE MARTINCUS; SZTAJEROWSKA, 2019)

. For multilat-

eral organizations as the IDB or the OECD, “interested parties” basically

refer to private partners and multinational rms consultation.

Promotion and facilitation activities, additionally, might compromise

signicant amounts of resources from the host government. Fiscal and -

nancial incentives, both directed to seduce investors´ enter and to remain,

are fund-burdensome for DECs restricted budget (CASS, 2007). This should

lead host countries to carefully confront FDI costs and benets when de-

signing the incentive package, and certainly including the project´s expect-

ed social and environmental costs (RAY et al., 2017; ZARSKY; STANLEY,

2013). Moreover, negative externalities could be signicant and long for

9. Facilitation activities might include,

among others: a) follow-up and

monitoring of development of already

accomplished investment project; b) the

building, maintenance, and enhance-

ment of local supply network; and, c)

Investment retention and expansion

(MIŠKINIS; BYRKA, 2014).

10. The pro-market vision backed by the

Inter-American Development Bank (IDB)

and the Organization for the Economic

Cooperation and Development (OECD),

which follows an acritical analysis of

how investors are being treated around

the world - missing how developed

OCDE countries have traditionally

treated foreign investors (and are, as

looking after the last announcements)

Leonardo E. Stanley Foreign investor´s rights, investment promoon and facilitaon agencies: a developmental and sustainable visión

longer, particularly for those projects associated with natural resource ex-

ploitation. It implies the adoption of a new and more sophisticated approach

towards FDI; a perspective aimed to induce the arrive of funds somehow

alienated with the country’s long-term, transformative, and sustainable de-

velopment objectives (COLEMAN et al., 2018, SAUVANT, 2019b). By in-

cluding sustainability issues, new IPFAs agencies intents to alienate with

the UN´s sustainable development goals (SDGs). By screening foreign rms

compromises on technology transfer or the construction of local linkages,

agencies could also alienate with the developmental-transformative role.

Old constraints, new actors, and the (re) emergence of multilateralismo

In spite of accepting bilateralism, DECs´ opposition to multilateral-

ism remained erce and widely extended [remember their stance against

the so-call Singapore issues introduced in the rst WTO Ministerial Con-

ference (1996); and the Cancun Conference collapse (2003)]. The former

opposition have recently permuted to consensus, with DECs now pushing

for installing investment issues at the WTO 11th Ministerial Conference

at Buenos Aires (2017) (DIE, 2019; ICSID, 2018; JOSEPH, 2018). A group of

countries has called for closer global cooperation “to create an ecient,

transparent, and predictable environment for facilitating FDI and aim at ar-

riving at a plurilateral ‘investment facilitation agreement’ (IFA)” (METHA;

MANGLA, 2019, p. 7). The Joint Statement on Investment Facilitation for

Development (JSIFD) was backed by 70 Member States who called for clos-

er global cooperation to create an ecient, transparent, and predictable

environment for facilitating FDI. The collective aim, to arrive at a plurilat-

eral “Investment Facilitation Agreement” (WTO - IFAs). Investment facil-

itation measures deal with the application of investment policy, not about

the right to regulate or about investment protection (HAMDANI, 2018).

The WTO - IFA proposal considers international trade and in-

vestment as closely interconnected and facilitating DECs development

(JOSEPH, 2018). This interconnection, therefore, permits to place the

IFA issue within the WTO scope. On the positive side, the WTO - IFA

adopts now a balanced, pro-development perspective rather than the

pro-investor bias associated with old BITs (DIE, 2019; ICSID, 2018; SAU-

VANT, 2019). Additionally, the initiative does not include the typical legal

clauses included in IIAs (fair and equitable treatment, no discriminatory

treatment, indirect expropriation) neither recognize market access, in-

vestment protection, and dispute settlement issues. The proposal might

undoubtedly bring some more room for developments, but still presents

some disadvantages (CUTS, 2017; GHIOTTO; GAUMÁN, 2019; HAN-

DAMI, 2018; ICSID, 2018; JOSEPH, 2018; MANN; DIETRICH BRAUCH,

2019; SINGH, 2017; TWN, 2018). One fundamental, widely expanded dis-

sent, relates to the fact that the proposed framework goes beyond the

WTO’s current mandate. Of particular interest, however, relates to the

absence of obligations on home countries and investors on sustainable de-

velopment issues. Host country capacity building is undoubtedly needed,

particularly to guarantee long-term and sustainable investment inows

(ICSID, 2018; SAUVANT, 2019). As such, the initiative remains envisioned

to complement the traditional IIAs scheme.

estudos internacionais • Belo Horizonte, ISSN 2317-773X, v. 8, n. 2, (jun. 2020), p. 70 - 85

By being active in the proposing, a group of DECs hopes to realign

themselves with the liberal order now under challenge, but also to make

it work. Multilateralism is also backed by authorities in Beijing, as they re-

alize that time has come to leave away the (defensive) bilateral stance of

the past (PATHIRANA, 2018; SAUVANT, 2018; STANLEY; FERNANDEZ

ALONSO, 2016; WADE, 2011). Gone are the days when China started nego-

tiations to become a WTO member, an special arrangement which bring

authorities with policy space to climb the technological ladder. Ranked as

the world second-largest economy, China´s global presence goes beyond

international trade to expand into investment and nancial ows. Going

global, in particular, means new business opportunities for Chinese SOEs

rms whose long-term, strategic vision bring western governments ner-

vous (BUCKLEY, 2018; HANEMANN; ROSEN, 2018; LE CORRE, 2019;

MEUNER; MONIN, 2017). The accommodate western mood was den-

itively particularly aected following Xi Jinping launched two strategic,

long-term plans: Made in China 2025 and the Belt and Road Initiative (BRI).

Both are raising important questions for those involved in the design of an

international FDI policy regime (BUCKLEY, 2018). As hosting the 2016 G20,

authorities in Beijing realized the opportunity to advance with the discus-

sion of investment issues (SAUVANT, 2018). At Shanghai, the G20 collective

proposed a new template (The Guiding Principles for Global Investment

Policymaking), subsequently endorsed by Head of States at the September

Hangzhou meetings. Surprisingly, the G20 Guidelines include sustainable

development and inclusive growth among the core principles (ZHAN,

2016). The proposed framework, however, remains envisioned on advising

DECs in how to enter in global value chains (GVCs) (AKMAN et al., 2017)

Other proposals include the one launched by the United Nations

Conference on Trade and Development - UNCTAD Global Action Menu

for Investment Facilitation (the Menu). OECD Policy Framework for In-

vestment (PFI) is the oldest one, instrumented, and on use since 2006

(NOVIK; CROMBUGGHE, 2018) being recently updated by the OECD

Secretariat (OECD, 2018b). This highly ambitious proposal prioritize

quality FDI ows, identifying ve clusters of quality indicators: produc-

tivity-innovation, skills, job quality, gender, and carbon footprint (SAU-

VANT, 2019). At the regional level, the Investment Facilitation Action Plan

(IFAP) introduced in 2008 by members of the Asian - Pacic Economic

Cooperation (APEC). IFAP investment facilitation scope involves ‘actions

taken by governments designed to attract foreign investment and max-

imize the eectiveness and eciency of its administration through all

stages of the investment cycle,’ and ‘eective investment facilitation can

make a signicant contribution to the sort of broader investment climate

reform eorts widely practiced by APEC member economies.’ A series

of bilateral, regional, and continental investment - facilitation initiatives

started in Africa, including the Pan-African Investment Code (2015) and

the African Continental Free Trade Area (AfFTA) (MBENGUE, 2018).

Opinions over schemes being revised keep increasing, but a funda-

mental divide among policy-makers is whether proposals should alienate lo-

cal rules with SDGs (re-regulate) or instead host country eorts should be di-

rected towards the elimination of bureaucratic rules (de-regulate). Although

Leonardo E. Stanley Foreign investor´s rights, investment promoon and facilitaon agencies: a developmental and sustainable visión

some might seem this as recreating the old markets versus state discussion,

the solution to this old dilemma might lies somehow in the middle center.

How to conciliate rights and obligations, policy space, and compromise?

Underdevelopment is by no means just a problem of governance, to

put institutions right or to reduce barriers in order to seduce investors. As

prestigious institutions might be, as critical foreign funds are needed, of

utmost importantce for DECs is to have a plan for the long-run. Hence-

forth, the focus should turn on cooperation and facilitation issues employ-

ing a broader, developmental perspective that might help in the design of

the answer. Besides investors and states, this expanded perspective is ask-

ing for the involvement of civil society in shaping a new investment tem-

plate (BUCKLEY, 2018; RAJAN, 2019). The increasing political relevance

of new issues (civil society, social and environmental claims) [cooperative,

stakeholder vision] is forcing leaders around the world towards the recog-

nition of broader social and environmental rights until recently neglected.

From this perspective, the Brazilian Cooperation and Investment

Facilitation Agreement (CIFA) template might be taught as a helpful

starting guide (BERNASCONI-OSTERWALDER; DIETRICH BRAUCH,

2015; HEES et al., 2018; HEES; ROCHA PARANHOS, 2018; PERRONE;

ROJAS DE CERQUEIRA CÉSAR, 2015; VIDIGAL; STEVENS, 2018). The

CIFA framework does not include the ISCD mechanism but introduc-

es a hybrid system of dispute prevention and state-to-state arbitration.

It explicitly includes substantive obligations to investors, but it brings

them help in dealing with local authorities (through the establishment

of national focal points or ombudsman gures). The CIFA framework,

besides, recognizes local regulation preeminence over foreign investors.

But the Brazilian initiative remains silent on voice: how civil society en-

ters in the investment template discussion?

Institutional change in perspective: what lies behind

the recent transformation?

As noted, once the commodity price cycle reversed, the postwar

development model start to vanish and DECs´ negotiation power scale

down. Whereas in the past to much weight was attach to bring incentives

to investors, nowadays, an increasing number of sovereigns are demand-

ing foreigners to share benets and to recept investments only if they

contribute to sustainable development goals.

What explains DECs transformation, from being ercely opposed

to regulating capital inows (including FDI ows) to suddenly start ad-

vocating for more screening and control over foreign investors? Which

forces explain the movement from a regime biased in investor´s favor to

another aimed to share investment benets over an equal basis? How can

this ideological shift be explained?

On the one hand, civil society pressure on governments towards

the implementation of social and environmental development goals.

[FDI] quality (not quantity) is becoming mainstream among academic

circles and, as pressured by their constituencies, mandatory for several

governments around the world. On the other hand, the rise of South FDI

estudos internacionais • Belo Horizonte, ISSN 2317-773X, v. 8, n. 2, (jun. 2020), p. 70 - 85

ows - but China, as their companies come to dispute their Western com-

petitors’ supremacy in global markets. The movement towards a qualita-

tive approach, in this case, might be masking fears over Chinese rms´

technological leapfrogging and technological catch - up but also growing

protectionism amidst Western governments.

Nevertheless, the movement from quantitative to qualitative ap-

proaches should be appreciated on its own. A sizeable institutional shift,

indeed. To made this happen, however, a broad coalition is undoubtedly

needed - particularly among DECs, whose formal institutions are often

weak and capture by entrepreneurial coalitions. To ensure a broader “sus-

tainable” vision the voice of social actors becomes critical and, increasing-

ly listen by global rms as the Peter Buckley (2018) comment:

[t]he increase in shareholder activism, stakeholder pressure, the importance of

conrming to (global) standards, the increase in ethical consumerism and public

and social pressure, in general, requires MNEs, in particular, to pay increasing

attention to moral standards in business behavior, not just in “Corporate Social

Responsibility” or “Shared Value” but as a means of long term sustainability and

survival (BUCKLEY, 2018, p. 10).

In a recent paper, Karl Sauvant and Howard Mann (2017) list a series

of characteristics for each of four dierent dimensions of sustainability

in order foreign direct investment in qualifying as sustainable (see table

below). To be clear, the listing shows which FDI ows might qualify as

sustainable according to the SDGs as to meet the challenges imposed by

the climate change commitments. Whereas the indicative list might be a

useful transition, however, is far from simple. It requires host countries to

adopt a long - term, sustainable vision on development.

Table 1 - The four dimensions of sustainability FDI and their sustainable characteristics

Dimension Characteristic Dimension Characteristic

Economic • Employment

• Local linkages

• Technology transfer

• Infrastructure

• Community development

• Equitable distribution of wealth

• Tax accountability

• Promote research & development (R&D)

Environmental • Resource management

• Pollution controls

• Low carbon/greenhouse gases footprint

• Waste reduction

• Biodiversity protection

• Climate change

• Water

• Renewable energy

Social • Labor rights

• Skills enhancements

• Public health

• Workplace safety

• Non-discrimination

• Fair wages

• Beneﬁts

• Human rights

• Indigenous rights

• Gender

• Resettlement

• Cultural heritage protection/diversity

Governance • Transparency

• Local management

• Supply chain standards

• Consumer protection

• Stakeholder engagement

• Anti-corruption

• Legal compliance

• Risk management systems

• Environmental management systems

• Environmental impact assessment/

social impact assessment

• Human rights due diligence

• Corporate governance

Source: Sauvant and Mann (2017; page v)

Leonardo E. Stanley Foreign investor´s rights, investment promoon and facilitaon agencies: a developmental and sustainable visión

DECs should undoubtedly be pleasant by the recognition of all

these dimensions and attributions, as they collectively ensure a more

balanced and sustainable development path. Sovereigns should accom-

plish to insert them in new, rened, and more sustainable legislation (FDI

rules). Remarkably, the topics listed by Sauvant and Mann (2017) goes

beyond the Millenium Developmental Goals (MDGs), including a signif-

icant number of issues [and, accompanying policies] which might allow

the host country to perform a developmental, and transformative model.

Consider the introduction of technology transfer clauses or specic re-

wards for those establishing research and development activities. Both

are policies aimed to transform the local productive base, going beyond

institutions and incentives to seduce investors. Development involves a

sustainable, structural transformation of the national economy. Pursu-

ing one but lifting the other side is like to envision Hamlet without the

Prince of Denmark (CHANG, 2010).

Host (DECs) countries could undertake this perspective (globally

either partially) when drawing their legal framework as when negotiating

IIAs. What matters for BITs, and FTAs is not the presence of guarantees

per se but about how investors and host states might end with sharing

costs and benets (STANLEY; 2018). In other words, the objective should

go beyond the idea of attracting as much FDI as possible but to induce the

arrival of investors, which could raise the standards and welfare of the

country (MIŠKINIS; BYRKA, 2014; SAUVANT, 2019b). Towards this end,

policy coherence is undoubtedly needed. As for matching investment leg-

islation (protection) with agencies dealing with promotion and facilita-

tion goals (ZHAN, 2016). Better coordination would permit, above all,

to achieve the country’s long-term sustainable development objectives.

Conclusions

Once antagonists, developing and developed countries, both start-

ed to move towards the center: recognizing the relevance of foreign

funds for development but also claiming sovereign rights for exibility

and policy space. Whether the change in position responds to the rise of

China or follows social actors’ legitimate claims is beyond the scope of

this paper. Independently of the source, however, the change reects a

new, more holistic vision linking development and sustainability.

As sustainability becomes a global issue, it forces sovereigns to

modify old investment treaties and to advance with the necessary rebal-

ancing of rights and obligations between partners. Legal updating, how-

ever, remains a necessary but not sucient condition to began to transit

a new era. Policy coherence is also needed between investment policies

and other public areas, including those dealing with the design of promo-

tion and facilitation agencies. IPFAs design, however, should be in line

with the host country’s developmental goals. In this sense, what mat-

ters for sustainability ideas to become politically accepted is how local

elites and societies perceive them. Both issues start to be taken into con-

sideration by policy-makers, and included in all revised multilateral pro-

posals. The “one-size-ts-all” presciption is not longer valid, DECs have

estudos internacionais • Belo Horizonte, ISSN 2317-773X, v. 8, n. 2, (jun. 2020), p. 70 - 85

now more room at choosing their developmental path. Even DCs have

recently decide to leave old “institutional constraints” away, notably the

anglo-saxons ones. At the end, what matter when chosing a particular

(developmental) path are how it ts with local ellites ambitions and civil

society expectations.

For countries in the region, the problem lies in matching the cur-

rent export-led model with sustainability issues. The matching, however,

remains hard to accomplish. Overall, the regional view on the FDI issue

remains, to some extent, old-fashioned, with a quantitative perspective

dominating the investment debate. The current debate is well-known

among political and economic elites, but they still refuse to move away

from the status quo. Take, for example, the energy transition debate. De-

spite leaders’ environmental compromise on the Paris Agreement on cli-

mate change, governments continue to provide sweetheart loans, guar-

antees, and other forms of preferential nancing to fossil fuel projects.

Foreign funds are also, by and large beneting the non - renewable sector.

In other words, if economic growth continue to rely upon the appropia-

tion of rents then elites would keep sustaining the model. This explains

why the above mentioned quantitative paradigm remains alive at Latin

America, and why elites prefer to embrace Milton Friedman motto (“the

Business of Business is Business”) and refuse to openly discuss environ-

mental and social costs. Civil society, however, is starting to challenge

the natural-resource growth model. To discuss externalities, and how to

cope with them. The spread of social unrest movements all around the

Americas is showing that the debate started. In orser to achieve this, is

neccesary to bulid up new alliances and to expand the consensus for the

attainment of the long-term development.

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