Should There Be Multilateral Rules on Foreign Direct Investment?

Abstract

Abstract The surge of foreign direct investment (FDI) in the late 1980s and first half of the 1990s and the associated expansion of the activities of multinational enterprises (MNEs) has left the world a somewhat different place than it was as recently as 15 years ago; what has changed is that the ‘globalization’ of business, a term that had become a well‐worn cliché by the early 1990s, has come to look more and more like a description of reality. All of this has resulted in much debate over whether the rules and institutions of the world's multilateral trading system should be augmented to cover more explicitly FDI and the international activities of MNEs. While there is no complete consensus on what the substance of new rules should be, there is a general feeling among specialists that at least three issues should be addressed: first, the extent to which national governments should be allowed to engage in discriminatory treatment towards foreign‐controlled enterprises (including initial entry of these via FDI) needs clarification and, if possible, the establishment of international standards; second is the question of whether there should be limits on the abilities of national governments to create and apply measures to foreign investors that have the potential to distort world allocation of resources; and third, it is widely felt that a more effective international mechanism to resolve disputes between foreign direct investors and governments would be useful. After an introduction that discusses these matters, the next section of the chapter examines the history of efforts to create some sort of international regime regarding FDI and MNEs; the approach of this section is largely historical, but an effort is made to detail some of the specific issues that are raised; the different subsections discuss the WTO (World Trade Organization) and GATT (General Agreement on Tariffs and Trade), the OECD (Organization for Economic Cooperation and Development), the UN (United Nations), the World Bank and the IMF (International Monetary Fund), regional approaches to FDI (the EU (European Union), NAFTA (North American Free Trade Agreement) and APEC (Asian Pacific Economic Cooperation)). The last section of this chapter examines the issue of where we might be going from here.