Foreign Investment Rules Research Articles

Foreign Direct Investment in Tanzania. An Analysis of its Investment Laws

Foreign direct investment (FDI) as a source of economic development has been embraced by most nations in recent years. Substantial liberalization of existing investment laws has been pursued to promote the seamless influx of FDI into some of these economies. National foreign investment rules, legislation and the legal structure of international investments matter in attracting FDI to a greater number of developed countries, including Tanzania. The control of the activities of FDI in a destination country is seen at three different phases. The national, regional as well as a third stage which requires regulation at the international level. In this article, attention shall be given to the model of Tanzania’s investment code for foreign investment. A study will be made on the various investment laws providing for the admission of FDI in Tanzania, the handling of foreign direct investors and their deposits, movement of deposited foreign funds, and dispute settlement mechanisms. Recommendations shall be made where foreign investment regulations are found to be subpar when contrasted with the rest of the country.

Dangerous Liaisons: The Story of Special Economic Zones, International Investment Agreements, and Investor–State Dispute Settlement

ABSTRACT This article focuses on the interaction and relationship between Special Economic Zones (SEZs) as facets of unilateral economic law, international investment law, and the investor–state dispute settlement (ISDS) system in a four-fold manner. It initially explains the role of international investment agreements in protecting foreign investments in these zones. Then, it classifies the public or private nature of such zones and goes on to examine related claims through past case law, to determine how modern SEZs must be created to reduce host State liability. Whilst doing so, it provides important suggestions to improve the domestic and international success of SEZs by reducing costs associated with it. In this manner, this article endeavours to highlight the need for a balance in public policy between the rights of host States and foreign investors to ensure that SEZs continue to attract significant amounts of foreign investment. It also stresses on understanding transnational foreign investment rules and the implication of the previously concluded investor–ISDS proceedings so that host States can ensure better regulation of foreign direct investment in these areas.

Governing through markets: Multinational firms in the bazaar economy

AbstractThis article highlights a counterintuitive dynamic of neoliberal globalization. India has controversially liberalized foreign investment rules in the politically sensitive food retail sector. Critics argue that India bowed to pressure from multinational corporations, consistent with a common view that under neoliberalism markets eclipse state power. We suggest by contrast that policymakers seek multinational firms to strengthen their capacity to govern food markets that for centuries have been dominated by networks of local traders. These traders use informal conventions of market governance that have long proven resistant to centralized state control. Global retailers promise to transform these opaque, “traditional” systems into transparent, “modern,” supply chains that comply with liberal rule of law principles. Thus we argue the turn to multinational capital should neither be understood simply through the logics of state capture or welfare economics, but rather also as a political governance project that illustrates how different kinds of markets produce different conceptions of the state.

International Law and Legal Regimes of Foreign Direct Investment in Selected African Countries

International Law and Legal Regimes of Foreign Direct Investment in Selected African Countries

Foreign Direct Investment in Canada – The Case for Further Openness and Transparency

Canada’s performance in attracting foreign direct investment faces serious headwinds, according to a new report from the C.D. Howe Institute. In “Foreign Direct Investment in Canada – The Case for Further Openness and Transparency” author Daniel Schwanen makes a case for more open and transparent foreign investment rules in Canada.

Australia's foreign investment approval regime: a new way forward

Australia's national interest is well-served by having a foreign investment regime that has the right balance between flexibility and certainty. One highly successful aspect of that policy has been the ability to use conditional approvals to ensure that applicants behave in a manner that is consistent with the national interest. The government's new legislation is an ambitious and important attempt to modernise the 40-year old foreign investment rules. We consider the new legislation successfully builds on the system including a conditional approval regime that has been improved to reflect best regulatory practices and support ongoing investment.

Son of Enron: Investors Weigh the Risks of Chinese Variable Interest Entities

Investors are heading back to China after ending a buyers' strike in response to numerous accounting scandals and corporate governance failures. There have been several successful IPOs in recent months, and the market is awaiting the listing of the internet giant The Alibaba Group.The Alibaba IPO has focused investor attention on the use of the variable interest entity (or VIE) structure by other overseas listed Chinese companies as well as Alibaba. The VIE structure allows outside investors some measure of influence or control over Chinese operations that is exercised through contracts instead of actual equity ownership. By using such contracts, companies are able to circumvent Chinese laws that severely restrict ownership in many industries, including the internet sector.The contracts attempt to replicate the benefits of direct ownership, but do so imperfectly. The biggest concern over the VIE structure is the enforceability of the contracts. China has a law that invalidates contracts that attempt to do what is illegal through legal means. One court case involving a VIE‐like structure led China's Supreme Court to rule that the contracts were unenforceable, and arbitrators reached the same decision.The biggest nightmare of investors in Chinese VIE structures is that the Chinese owner of the operating company could choose to abrogate the contracts and take ownership of the VIE. The highest profile example of this took place in 2011, when Alipay faced increased regulatory scrutiny and Jack Ma responded by extracting it from the Alibaba Group.The fix for China's VIE problem has to come from Chinese regulators, and reforms to foreign investment rules that have been proposed may make the VIE structure obsolete. But until then, investors have to weigh the unusual risk of investing in companies that they do not own.

Divide and conquer? China and the cacophony of foreign investment rules in the EU

ABSTRACTFor more than 50 years, the European Union (EU) was not in charge of international investment agreements; its member states were, and they negotiated more than 1,200 bilateral investment treaties (BITs) with third countries. This lack of internal EU cohesiveness created costs for Europe, notably in terms of bargaining leverage over market access and ability to shape international norms. The 2009 Lisbon Treaty formally transferred competence over the negotiations of foreign direct investment (FDI) agreements to the EU, which became in theory a unified actor with respect to both outbound and inbound FDI. However, many political and legal ambiguities surround the true extent of the EU's authority and autonomy over foreign investment. This contribution argues that the surge of Chinese FDI into Europe, which is taking place simultaneously with this transition to a new EU foreign investment regime, has the potential to influence the final shape of this regime by exerting both centripetal and centrifugal pressures.

Economic nationalism and FDI

PurposeThe purpose of this paper is to focus on the relationship between economic nationalism and foreign direct investment (FDI) in emerging markets, seeking to establish whether public opinion and prevailing preferences regarding FDI affect the location decisions of multinational companies.Design/methodology/approachDrawing on public opinion data from 42 non‐Organization of Economic Cooperation and Development countries 1990‐2005, the paper performs a time series cross‐section analysis of the relationship between economic nationalism and FDI. The first main variable measures the extent to which the public holds a positive view of major (domestic) companies. It is hypothesized that in societies where nationalist sentiments dominate, the public prefers indigenous to foreign firms. This induces host authorities to institute more stringent foreign investment rules, which deters FDI. Second, the paper also examines how the public's distribution along the left‐right axis affects FDI patterns. A left‐leaning society should prefer FDI given that foreign capital ultimately benefits labor. Contrarily, a right‐leaning public ought to prefer economic nationalist policies that protect domestic businesses against competition from FDI.FindingsResults support the paper's claims. Controlled for common FDI determinants, both main variables of interest are significantly and consistently related to FDI in the expected directions. Economic nationalism and “rightist” economic preferences in society deter multinationals.Originality/valueThe relationship between economic nationalism, public opinion, and FDI is still an under‐explored theme, which is especially troubling given the possible developmental effects of capital imports. The paper moves beyond available anecdotal examples and brings forth systematic empirical evidence to show that the preferences of society really do affect the locational patterns of FDI.

Private and Public Incentives for Mergers in the Face of Foreign Entry

AbstractWe consider private and public incentives for domestic firms to merge in the face of foreign entry. We consider the gains to two merging firms and to national welfare in a linear Cournot model. With heterogeneous firms and possible synergies, greater foreign entry tends to enhance both private and public incentives for domestic mergers. Thus, policymakers have no cause to doubt the intentions of firms seeking to merge: when it is in the firms' interests then it is also in the public interest. However, at least for certain parameterisations, private gains from mergers become positive at a lower level of foreign entry than do public gains. This suggests that private firms may have an incentive to overstate the degree of foreign competition they anticipate facing—for example, after liberalizing foreign investment rules—to persuade policymakers that a proposed domestic merger is in the national interest.

Observations on the Current Canadian Ownership Debate in Telecommunications

We assess the economic harms that would accrue if Canada were to adopt asymmetric rules of foreign ownership for incumbent carriers and entrants. We begin by reviewing the U.S. attempt to stimulate competition in local telecommunications markets through an analogous form of asymmetrical regulation. Despite the best of intentions, United States regulators have not been able to stimulate meaningful local competition through such asymmetrical regulation. Moreover, the resultant easy access to capital created wasteful investment by the entrants. Second, licensing restrictions on foreign carriers in the U.S. reflects another form of asymmetric regulation because they apply only to wireless licenses, not wireline operations. This licensing process confers substantial discretionary authority on the FCC, which has allowed the process to become highly politicized. Finally, asymmetric rules for broadband services have cemented the position of cable modem providers vis-a-vis DSL providers. The U.S. experience highlights several issues that may be relevant for Industry Canada as it assesses the effect of changes in foreign ownership rules on competition in telecommunications. In particular, the investment of more than $40 billion by entrants in the U.S. local telecommunications markets has been almost completely squandered. This asymmetric regulation did not succeed in attracting entrants that would have a measurable effect on the retail price of telecommunications services. Given the nature of demand for and supply of telecommunications services, competition is more likely to develop across different platforms - cable, wireline, and wireless - not among small niche players lured into the marketplace by regulators. With the lessons of the U.S. regulatory experience in mind, we review two specific Canadian proposals regarding foreign investment rules: tiering and licensing. We conclude that a tiering approach would harm competition and infrastructure investment because it would reduce the incentives of incumbent carriers to invest in network upgrades or new services and potentially aggravate the problem of excess capacity that plagues the telecommunications industry. A licensing approach for foreign investment restrictions should also be rejected. Licensing would impose a further layer of regulation on the marketplace, reduce foreign investment, and expose foreign carriers to political pressures. The Canadian agencies should not follow their southern neighbors down the road to despair.

Foreign Direct Investment: Trends, TRIMs, and WTO Negotiations

Foreign direct investment (FDI) flows have increased dramatically in recent decades. As developing countries, particularly in Asia, remove restrictions and implement policies to attract FDI inflows, trade and investment have become increasingly intertwined. As such, there have been growing calls for a multilateral framework of foreign investment rules to be negotiated under the auspices of the World Trade Organization (WTO). This paper reviews recent developments in FDI flows and their impacts in developing Asia, and the importance of the policy context in which those flows occur. It discusses advantages and disadvantages of including FDI in WTO negotiations, and related policy options for developing Asian economies.

The Philippines: Reaping the Fruits of Reform and Stability

When Fidel Ramos took his oath of office as President in 1992, the Philippines was going through difficult times. The economy had stopped growing as a result of a major belt-tightening programme designed to rein in double-digit inflation and rising interest rates. Industries were beginning to feel the crippling effects of power shortages, which were to reach their peak a year later. The dampening impact on investor confidence of the December 1989 coup attempt launched by military rebels still lingered on. The series of natural disasters that hit the Philippines ? a destructive earthquake in 1990 and a volcanic eruption in 1991 that unleashed mudflows burying surrounding towns and villages ? left thousands of people and businesses dislocated in the Central Luzon region. Meanwhile, the government continued to face a persistent communist insurgency operating from jungle bases, an armed separatist movement in the Muslim-dominated provinces of Southern Philippines, and an underground military rebel group that was waiting for another opportunity to launch a coup d'?tat Nevertheless, the foundations had already been laid for the Philippines' recovery. In the last three years of its term, the Aquino Cabinet had initiated a series of important economic and administrative reforms. Liberal reformers in the Cabinet succeeded in launching a tariff reform programme designed to reduce import tariffs over a five-year period. A massive privatization programme was undertaken. The Congress passed laws liberalizing foreign investment rules and devolving financial authority to local governments. The government weathered heavy criticism to implement unpopular but much needed economic stabilization measures.

THE IMPACT OF TAXATION LEGISLATION DEVELOPMENTS ON NON- RESIDENTS INVESTING IN AUSTRALIAN PETROLEUM PROJECTS

Australian legislation has recently undergone further developments which affect non- residents investing in Australian petroleum projects. The comments in this paper reflect our understanding of the law at November 1988.These legislative developments have occurred in foreign investment rules and primary tax areas such as the thin capitalisation and debt creation rules for nonresident investors, Australian capital gains tax including the new involuntary roll- over provisions, the Australian dividend imputation system, and secondary taxes such as state royalties and excises and petroleum resource rent tax.The purpose of this paper is to analyse some of the recent legislative developments from the viewpoint of a non- resident investing in Australian petroleum projects. Changes in most cases are incorporated in complex legislation, and full and proper consideration of the changes is warranted for taxpayers both to comply with the law and maximise shareholders' financial returns.