UNCTAD’s 2010 World Investment Forum: High-level experts discuss investment policies for sustainable development

The 2010 World Investment Forum (WIF), held on 6-9 September 2010, in Xiamen, China, turned UNCTAD into the global gravity center for open, universal, inclusive and high-level international investment discourse and policy formation. Eight events and conferences were attended by more than 1,800 participants from 120 countries and 16 international organisations, among them nine heads of State, four heads of international organisations, 79 ministerial-level officials, and 116 senior business executives. Stakeholders from all corners of the investment community gathered at the event to discuss how to harness international investment for sustainable development.

Investing in sustainable development

Under the overall theme of “investing in sustainable development”, eight meetings at the 2010 World Investment Forum allowed experts to share experiences and offer their forward-looking insights. The second WIF[1] brought together investment policy makers and negotiators, investment promotion agencies, key market participants at stock exchanges (e.g. investors, exchanges and regulators), policy makers in the field of finance and sovereign debt (including representatives of multilateral financial institutions), as well as academia, the private sector and civil society at large. Taking a comprehensive approach to the many facets at the interface between investment and sustainable development, the WIF’s eight meetings explored a specific angle to the challenge of making investment work for sustainable development.

Eminent speakers at the WIF’s opening ceremony included the Secretary-General of the United Nations (via video message), the President of Iceland, the Prime Minister of Mozambique and the Vice-President of China, who all stressed the important role of private investment in addressing the challenge of global warming, promoting sustained economic recovery and achieving the Millennium Development Goals (MDGs). At the World Leader’s Investment Summit, heads of State and Chief Executive Officers (CEOs) of major global companies stressed the need for private investment as an engine of growth, highlighting its critical role in overcoming the multiple crises of food, energy and the economy.

In the High-Level Tripartite Conference,which brought together CEOs, senior government officials and heads of investment promotion agencies, participants agreed on the important role investment has for combating climate change and on the need to harness attendant opportunities. Participants highlighted the importance of adequate policies for green market creation, public private partnerships and the need for talent in developing countries. The 2010 Sustainable Stock Exchanges event focused on the relationship between major exchanges and the regulatory frameworks in which they operate in light of environmental, social and governance issues. High-level stock market regulators, along with leading stock exchange executives, and CEOs explored how stock exchanges could cooperate with investors, regulators and business to encourage responsible long-term approaches to investment. The 8th meeting of UNCTAD’s International Investment Advisory Council stood under the theme of “investing in the poor (viable and sustainable investment in poverty alleviation), for the poor (accessible and affordable products and services) and with the poor (fostering business linkages with domestic SMEs)”. The Conference on Sovereign Lending and Borrowing reviewed a first working draft of a set of principles for promoting responsible sovereign lending and borrowing, and discussed how to set up a transparent and inclusive process for further work in this area under the auspices of the UNCTAD.

International and national investment policy

Within this broader context of the WIF, the Ministerial Roundtable and the International Investment Agreements (IIA) Conference 2010 stand out in specifically addressing international and national investment policies. The half-day Ministerial Roundtable involved 26 ministerial-level officials dealing with investment and development, one head of State, as well as Dr. Supachai Panitchpakdi, Secretary-General of UNCTAD, and Mr. Pascal Lamy, Director-General of the World Trade Organization (WTO). The full-day IIA Conference 2010 brought together 223 IIA experts from 80 countries—among them six ministers and two heads of international organizations. This wide participation and the global nature of the meeting highlights UNCTAD’s role as focal point for intergovernmental exchanges on issues related to investment and sustainable development.

Discussions on investment policy focused on a number of interrelated areas: (i) how to complement policies aimed at attracting investment with policies that help ensure sustainable development benefits from such investment (e.g. how to improve the interaction between the investment regime and other public policy areas); (ii) how to enhance coherence within the investment regime (e.g. coherence between international agreements and coherence between international and national investment policies); (iii) how to handle the issue of investor-State dispute settlement (ISDS); and (iv) how to harness international cooperation as a tool to address the challenges ahead?

Interaction of investment policy with other bodies of law

Attracting investment is not an end in itself, but a means towards achieving sustainable development. At the Ministerial Roundtable, speakers not only shared experiences and best practices regarding their countries’ efforts to attract foreign investment and the benefits they expect from it. Ministers also agreed that investment policies have to be developed in tandem with other important policies in order to achieve development benefits. This includes policies for ensuring benefits for the poor and marginalized within a society; social, health and education policies; employment and labour market policies; industrial policies; environmental policies; health and labor standards; science and technology policies; corporate social responsibility initiatives; and competition policies—hence requiring effective coordination among national ministries with responsibilities in these individual areas. The key lies in finding the appropriate balance between rights and obligations of investors and host States. Strong institutions and skilled human capacity are of fundamental importance in this context.

Similarly, international investment policy cannot be seen in isolation. Most of today’s challenges are global and involve a variety of different legal and policy regimes that interact and overlap. Increasingly, the climate change, environmental, national security, finance, trade and human rights regimes interact with an expanding international investment regime that in itself places increasing importance on public policy concerns. Many IIAs already concretely include provisions on environment and climate change (see UNCTAD’s 2010 World Investment Report)[2], health, safety and labor standards, and financial issues. At the same time, the predictability, stability and credibility of the relevant legal and policy regimes matter for investors in their search of attractive business destinations.

At the IIA Conference, participants discussed this key challenge of preserving space for governments to regulate in the public interest and in support of domestic development priorities. Whether justified or not, investors may seek compensation from governments for the violation of the fair and equitable treatment standard or indirect expropriation, resulting from such policies. Accordingly, States have increasingly adopted policies to counter such risks and protect the public interest.

Carefully crafting IIAs so as to ensure appropriate policy space

There are numerous tools that governments can use to address concerns that investment policies may unfavorably affect legitimate public interests. Amongst the approaches discussed were the exclusion of specific sectors or policies from an IIA’s liberalization or pre-establishment commitments and the inclusion of general (or issue-specific) exceptions. The process of investment liberalization in itself at times requires adjustment mechanisms, and there is a need for proper pacing and sequencing of economic, fiscal and other policies in line with underlying economic and developmental conditions. Temporary controls and “state of emergency” exceptions are also increasingly common in IIA provisions to safeguard against situations of severe stress to the society, the economy, the financial system or national security.

Vis-à-vis the potential of protectionism

According to experts, providing for such safeguards and exceptions is legitimate and highly recommendable, though they have to be used with care and should not result in investment protectionism. The threat of investment protectionism was also addressed at the Ministerial Roundtable, where ministers noted that so far, countries have largely resisted protectionist pressures —a statement in line with the findings of UNCTAD’s work on national and international investment policies.[3] UNCTAD’s most recent report on G20 investment measures (prepared jointly with the OECD) and submitted to the G20 Summit in Seoul, Korea, finds that G20 countries have largely continued resisting protectionist pressures and that the majority of new investment measures has aimed at facilitating and encouraging investment flows.[4] At the Ministerial Roundtable, the point was made that tangible development benefits emanating from foreign investment can help overcome protectionist demands at the domestic level.

The challenge of investor-State dispute settlement

Both the Ministerial Roundtable and the IIA Conference gave special attention to the challenges arising from investor-State dispute settlement (ISDS),where the increasing number of cases and the expansive interpretations of provisions around investment protection have raised growing unease about the balance between governments’ and investors’ rights and obligations. Concerns were expressed regarding ISDS in its current form, notably its lack of predictability, legitimacy and transparency, as well as its incoherent jurisprudence and strong focus on litigation through international arbitration. At the Ministerial Roundtable, the ISDS regime was contrasted with the regime for settling trade disputes in the WTO. The fact that investors can bring international arbitration cases against sovereign States was considered to require prudence and thought on how to be dealt with.

At the IIA Conference, participants suggested that the predictability, consistency and stability of the ISDS system could be re-ascertained through the involvement of annulment committees or an appellate system. Approaches currently undertaken to improve the system include changes in procedural rules, consideration of less adversarial means of dispute settlement, and efforts towards dispute avoidance and prevention.[5] In both meetings, there was a call to strengthen dispute avoidance and preventive mechanisms, and to more frequently consider the use of alternative dispute resolution techniques (e.g. conciliation and mediation) in the context of international investment disputes. National ministries also have to put adequate administrative procedures in place and coordinate among themselves to be sufficiently equipped for the management and prevention of investor-State disputes.

International cooperation

The contemporary challenges confronting the international investment regime call for enhanced international cooperation on investment. Moreover, today’s most daunting public policy challenges—including food security, climate change, economic crisis and poverty—are global and can only be resolved jointly. With foreign investment playing a key role in overcoming them, international cooperation on investment issues appears ever more warranted.

International cooperation can take many forms, ranging from the sharing of experiences and best practices, to capacity building, cooperation and forms of inter-governmental consensus building towards a globally shared view on investment issues and more coherent body of international law.

At the WIF, ministers recognized the benefits of engaging multilaterally on investment issues with a view to harnessing investment for sustainable development and materializing concrete development outcomes. Together with its research and policy analysis, and dedicated technical assistance and capacity building activities, UNCTAD’s consensus-building activities can contribute to making investment rules work for sustainable development, as demonstrated by the 2010 World Investment Forum. Follow-up actions will lead the way to UNCTAD’s third WIF, which is scheduled in conjunction with the UNCTAD XIII Inter-governmental Conference, to be held in April 2012 in Doha, Qatar.

Author: James X. Zhan is Director, Investment and Enterprise Division (DIAE), UNCTAD. More information on the World Investment Forum 2010 is available from http://www.unctad-worldinvestmentforum.org/. For specific queries regarding the WIF or UNCTAD’s work on investment and enterprise, including on international investment agreements (IIAs), please contact Elisabeth.Tuerk@unctad.org.

[1] UNCTAD’s first WIF was held in conjunction with UNCTAD’s quadrennial inter-governmental conference, UNCTAD XIII, in Accra, Ghana. http://www.unctad.org/templates/Page.asp?intItemID=4992&lang=1.

[2] See UNCTAD (2010). World Investment Report 2010. Investing in a Low-carbon Economy (New York and Geneva: United Nations), United Nations Publication, Sales No. E.10.II.D.2. Available at: http://www.unctad.org/en/docs/wir2010_en.pdf.

[3] See UNCTAD’s quarterly Investment Policy Monitors (IPMs), which provide up-to-date and country-specific information on national and international investment policies. For the latest version, see UNCTAD (2010). Investment Policy Monitor, No. 3 (October 2010). Available at: http://www.unctad.org/en/docs/webdiaeia20105_en.pdf.

[4] United Nations Conference on Trade and Development (UNCTAD) and Organisation for Economic Co-operation and Development (OECD) (2010). Fourth Report on G20 Investment Measures (4 November 2010). Available at: www.unctad.org/en/docs/wto_oecd_unctad2010d1_en.pdf.

[5] UNCTAD (2010). Investor-State Disputes: Prevention and Alternatives to Arbitration. Series on International Investment Policies for Development (New York and Geneva: United Nations), United Nations publication, Sales No. E.10.II.D.11. Available at: http://www.unctad.org/en/docs/diaeia200911_en.pdf.