Investment Liberalization Research Articles

Liberalization for services foreign direct investment and product mix adjustment: Evidence from Chinese exporting firms

AbstractThis article is the first to explore how manufacturing firms adjust their export product mix in response to services liberalization. We focus on the liberalization of services foreign direct investment (FDI) in destination (importing) countries. Our analysis of detailed customs transaction data from China, finds a promotion effect of services FDI liberalization on export diversification of manufactured goods, which is mainly revealed by an increase in export value, variation in the number of product varieties, the dispersion ratio across exported products, and a decrease in the export skewness ratio. However, this diversification‐promotion effect is only found in developing countries, but not present in developed countries. Our study suggests that services liberalization incurred in importing countries play an important role in promoting export scale and diversification.

Export Diversification in Economic Communities of Central African Countries: The Role of Infrastructure

Conscious of the low infrastructure development in Economic Community of Central African States (ECCAS), governments have invested important financial resources aimed at increasing the global stock of infrastructure, which indexes have raised from 11.13 in 2000 to 16.65 in 2018. In the same period, the average export concentration index slightly decreased from 4.92 in 2000 to 4.90 in 2014. Given the disproportionate improvement of infrastructure and export diversification, the study objective is to examine the effects of infrastructure on export diversification in ECCAS over the 2000–2016 period. Overall export diversification, and export diversification at extensive and intensive margins, are used as indicators. The fully modified ordinary least squares (FMOLS) and the dynamic ordinary least squares (DOLS) estimators are used for semi-parametric instrumental variable estimates that correct for serial correlation and endogeneity problems. The empirical results indicate that electricity and mobile phone infrastructure positively contribute to the overall and the export diversification along intensive margin, while transport infrastructure and internet negatively contribute to export diversification. The policy implications are that the stock of infrastructure should be increased quantitatively and qualitatively. The spatial distribution of infrastructure must depend on their capacity to produce a variety of tradable goods and services. The export diversification policies in ECCAS will prioritize infrastructure and the development of new export categories. Investment in infrastructure may be accompanied by trade and investment liberalization and by financial development.

Introduction – CAI’s Contribution to International Investment Law: European, Chinese, and Global Perspectives

Abstract The European Union and the People’s Republic of China ‘in principle’ concluded the Comprehensive Agreement on Investment (CAI). Considering that the agreement has been passed in the backdrop of dynamic multi-fora trade and investment policy-making practices, both parties’ negotiations at the bilateral, multilateral and plurilateral levels require testing. This is important to understand whether the growth of bilateral and regional agreements and the fragmentation of international economic law are enablers or roadblocks to further liberalisation of international trade and investment. This Special Issue shall analyse the CAI and argue in favour of the importance of this development. It will examine the current hyper-politicisation and geo-politicisation of investment treaties to situate the symbolic importance of the CAI. In lieu of the uncertainty of final ratification of CAI and sanctions imposed by China, this article (and the whole Special Issue it introduces) are a timely academic contribution that shall trace its scope and potential effectiveness and enable much-needed discourse.

Liberalising the Chinese Market: State-Owned Enterprise Disciplines in CAI

Abstract The newly-concluded EU-China Comprehensive Agreement on Investment (CAI), characterised by a number of market liberalisation clauses, is the black sheep in the investment agreement family. This article pins down one principal investment liberalisation discipline provided in CAI – the State-owned enterprise (SOE) rule. The article concerns the capability and problems of the new SOE rule in addressing market access issues arising from the competition and incumbency of SOEs. Dedicated SOE disciplines are not an innovation of CAI. Nor does the rule seem strikingly different from state-of-the-art treaty practice. However, delving into the nuances, the article finds that, when it comes to market liberalisation, CAI blurs out the stringent, clear-cut approach the Trans-Pacific Partnership/Comprehensive and Progressive Agreement for Trans-Pacific Partnership model is intended to establish. Further, because both bodies of rules leave plenty of room for interpretation, the effectiveness of the new SOE rule, in general, remains uncertain and susceptible to politicization.

РОЛЬ ИНВЕСТИЦИОННЫХ СОГЛАШЕНИЙ В РАЗВИТИИ ЦИФРОВОЙ ЭКОНОМИКИ И ИХ РЕАЛИЗАЦИЯ НА ВНУТРИГОСУДАРСТВЕННОМ УРОВНЕ

This article explores the issues of legal regulation of investment agreements in the digital economy in a period of enhanced technology development. Economic and political imperatives are combined with technological innovation to drive the growth of the digital economy, with growth rates particularly high in developing countries. The strategy for this growth should be private sector driven, government driven, and reviewed by civil society and academia. Over the past decades, one of the most remarkable developments in international investment law has been the extraordinary increase in the number of agreements concluded regarding the protection or liberalization of foreign investment, where the investment regimes provided by States and the position of foreign investors play a special role. However, the foundations for these actions are missing with the definitions, concepts, and indicators of the digital economy, which is currently in quite a mess. The main purpose of the article is to reveal the essence of the digital economy, bilateral investment agreements, investment activities, crypto assets, as well as issues of improving the understanding of tokens and cryptocurrencies, including them in agreements from the point of view of the prospects for the development of the digital economy in accordance with the new adopted regulatory legal acts of the Republic of Uzbekistan.

The Fiscal Impacts of Trade and Investment Treaties

This article examines the extent to which the latest wave of trade and investment treaties has impacted the fiscal stability of the world’s nations. We construct two new measures of trade liberalization based on the importance of a country in the global network of trade and investment treaties, namely the number of trade treaty links and the hub connectedness of a country. This analysis is important since many analyses of the welfare impacts of trade liberalization typically do not consider the impact on the fiscal balances of governments or assume that any loss of tariff revenue would be made up by the imposition of indirect taxes, like a Value Added Tax. Using a cross-country regression analysis, we confirm that trade liberalization has, on average, reduced the amount of tariff revenue collected. Furthermore, trade liberalization is not correlated with an automatic compensation for lost tariff revenue through other taxation measures. We find, in some cases, that trade and investment treaties are correlated with a reduction in total fiscal revenues and an increase in government debt. These results suggest that policymakers need to take the fiscal impacts of trade and investment liberalization into account when making decisions about trade and investment policy.

Sectoral and Country-Origin Dynamics of FDI in China in 1997-2020

FDI flows in China have increased for decades, but the sectoral and country-origin distribution change over times. Chinese FDI inflows have experienced a shift from manufacturing to real estate and service sectors. A series of factors including labor cost increase, currency appreciation, overcapacity of production, domestic competition rise and US trade war cause negative effects on manufacturing FDI flows. However, rising purchasing power, consumer demand and market capacity create new opportunities for foreign business in China. The government makes efforts to nurture service trade as an engine of economic growth alongside trade in goods. Many incentive policies have been launched for numerous service industries. These are the push hand behind the rapid rise in service FDI. The neighboring countries or regions in Asia and free trade ports with taxation advantages contribute vast majority of the FDI in China. Hong Kong's status as the largest supplier of FDI to the mainland has become increasingly prominent over the past 20 years, partially due to so called “round-trip” FDI. Chinese economic diplomacy promotes regional integration in East and Southeast Asia, and creates conditions for the liberalization of intra-regional investment. Closer trade connections with European countries boost the EU investment in China over recent years. Our studies of FDI's structural changes in China can generate policy implications widely for the government, foreign companies and investors, as well as developing countries committed to FDI attraction.

The Uneasy Interplay between Digital Inequality and International Economic Law

Abstract This article addresses the questions of what role international economic law has played in the story of digital inequality’s emergence and evolution and how international economic law can reduce digital inequality instead of enhancing it. The first part of this study illustrates the uneasy interplay between digital inequality and international economic law. At the network layer, the economic benefit of the General Agreement on Trade in Services’ Mode 3 (foreign investment) market access commitments in the telecommunications sector has never been realized in many developing countries and least developed countries (LDCs). There is a missing link between the consequences of trade liberalization and broadband investment. At the application layer, today’s platformization of services was an ‘unforeseen development’ at the time the World Trade Organization (WTO) was established. Through the pro-liberalization of WTO jurisprudence, members’ decades-old Mode 1 (cross-border) market access commitments have played more than a marginal legal role in global datafication. The second part of this study discusses how international economic law can confront and potentially redress that inequality. In the context of trade and development, it remains to be seen how the WTO members can find the common ground needed to balance digital trade liberalization and development needs. Unless infrastructure concerns from developing countries and LDCs are addressed, the ongoing WTO e-commerce trade deal may end up being labelled the Digital ‘Haves’ Trade Agreement. In the context of trade and competition, the increasing inequality in digital platforms calls for a set of international competition rules to appropriately address market power in the data sector. By imposing cross-border disciplines for competition policy and thus curbing the power of big digital platforms, the proposed WTO Data Reference Paper may well be an effective instrument to address the second dimension of ‘digital inequality’ – data colonization.

A core–periphery framework for understanding the place of Latin America in the global architecture of finance

Abstract This paper contributes to the understanding of subordinate financialisation in emerging and developing economies by setting out a novel core–periphery framework that elucidates the place of Latin America in the global architecture of finance. This framework builds on the centre–periphery financial model of uneven regional credit and economic growth, originally proposed by Victoria Chick and Sheila Dow in 1988. In the era of deregulated financial flows and market-based credit, the core–periphery relationship has become a three-level hierarchical system, in which Latin American nations occupy a subordinate place. The key drivers of this structural shift within these nations have been the liberalisation of cross-border financial flows and investment, the deregulation of banking and the adoption of private pension systems. These drivers’ adoption can be traced to both push and pull factors: specifically, recurrent financial crises requiring external intervention (especially by the International Monetary Fund (IMF)), and the possibility of engaging with the financial instruments and megabanks driving the globalisation of finance. Participating in this hierarchical system has required importing elements of the financial architecture that evolved in the 1980s in advanced economies and has also arguably deepened this region’s financial dependency and vulnerability.

ISDS Reform in the Context of China’s IIAs

Abstract The investor–state dispute settlement mechanism enables investors to seek remedies in the face of a violation of related international investment agreements, which are crucial to maintaining the standards of investor protection that have been consented to by the contracting parties. On the other hand, more and more problems in the system have been exposed as the number of investor–state dispute settlement cases has increased. These range from substantive issues, such as the treatment granted to investors, to procedural ones, such as cost management and related procedures. Debates on investor–state dispute settlement reform have led to various options for reshaping the relevant mechanisms. Amid the new trend of investment liberalization and facilitation, China is undergoing a new round of bilateral investment treaty revision and free trade agreement negotiation. How the investor–state dispute settlement process is to be framed boils down to how China assesses its own interest vis-à-vis its partners and how it prioritises its objectives in international investment agreement negotiation with its partners. It is submitted that China should take a calculated risk on the investor–state dispute settlement provisions in international investment agreements with adequate consideration of competing interests.

Does international trade and investment liberalization facilitate corporate power in nutrition and alcohol policymaking? Applying an integrated political economy and power analysis approach to a case study of South Africa

BackgroundWhile there is a growing body of legally-focused analyses exploring the potential restrictions on public health policy space due to international trade rules, few studies have adopted a more politically-informed approach. This paper applies an integrated political economy and power analysis approach to understand how power relations and dynamics emerging as a result of the international trade and investment regime influence nutrition and alcohol regulatory development in a case study of South Africa.MethodsWe interviewed 36 key stakeholders involved in nutrition, alcohol and/or trade/investment policymaking in South Africa. Interview transcripts and notes were imported into NVivo and analyzed using thematic analysis. We used a conceptual framework for analyzing power in health policymaking to guide the analysis.ResultsUnder the neoliberal paradigm that promotes trade liberalization and market extension, corporate power in nutrition and alcohol policymaking has been entrenched in South Africa via various mechanisms. These include via close relationships between economic policymakers and industry; institutional structures that codify industry involvement in all policy development but restrict health input in economic and trade policy decisions; limited stakeholder knowledge of the broader linkages between trade/investment and food/alcohol environments; high evidentiary requirements to prove public health policy effectiveness; both deliberate use of neoliberal frames/narratives as well as processes of socialization and internalization of neoliberal ideas/values shaping perceptions and policy preferences and ultimately generating policy norms prioritizing economic/trade over health objectives.ConclusionsExposing power in policymaking can expand our own ideational boundaries of what is required to promote transformative policy change. This work points to a number of potential strategies for challenging corporate power in nutrition and alcohol policymaking in the context of international trade and investment liberalization in South Africa.

The Effect of Bilateral Investment Treaties (BITs) on the extensive and intensive margins of exports

This paper investigates the effect of BITs on the extensive and intensive product margins of exports, utilizing ordinary least squares (OLS) and Poisson pseudo-maximum-likelihood (PPML) estimator with fixed effects approaches to estimate the gravity equations. The model in this paper theoretically demonstrates that investment liberalization increases the extensive margin by lowering the variable costs of selling abroad, but decreases the intensive margin by lowering both the fixed investment costs and the variable costs. Using a detailed dataset of 210 countries/regions from 1988 to 2006, this paper provides empirical evidence that BITs promote exports. This paper also empirically supports the theoretical propositions that BITs increase the extensive margin of exports from developed countries while decreasing the intensive margin of exports.

Scoping the impact of the Comprehensive Agreement on investment: liberalization, protection, and dispute resolution in the next era of EU–China relations

ABSTRACT Ensuing the commencement of bilateral EU–China Comprehensive Agreement on Investment (CAI) negotiations in 2014, European Union (EU) took seven years to confirm the agreement ‘in principle’. The finalization of the agreement owing to politicization will take time. However, both EU and China have committed to conclude the awaiting negotiations on investment protection and investment dispute settlement by the first half of 2022. EU's main objective is replacing bilateral investment treaties (BITs) between China and its own individual Member States. The article confers a first comprehensive analysis of CAI with advancing EU's international investment policy. It further analyzes the CAI provisions in light of both, pre-existing BITs between EU Member States and China and the EU-Vietnam FTA investment chapter. The comprehensive analysis helps to apprehend CAI's influence on the global regime for investment concerning investment liberalization, investment protection, and investment dispute resolution.

Foreign Direct Investment and Economic Environment—Based on the Evidence of ASEAN Countries

Using the data onto foreign direct investment and the index of economic freedom, investment freedom, freedom of trade, monetary freedom and commercial freedom, this paper analyses the foreign direct investment in China and the ASEAN countries and five degrees of freedom. The results show that, after eliminate heteroscedastic, commercial freedom, monetary freedom and economic freedom significantly enhance a country's foreign direct investment, freedom to trade and to invest can inhibit foreign direct investment in a country. The 2009 global financial crisis also played a significant role in the impact on economic freedom of foreign direct investment, in which business freedom had a negative effect of a harsh international environment and a difficult domestic economy, while trade freedom was here It has played a positive role in the normal trade, but also eased the domestic economic environment and promoted the inflow of foreign direct investment.On this basis, the relevant policy suggestions of foreign direct investment and economic liberalization in China and ten ASEAN countries are drawn.

How does economic liberalization affect banks’ profits: empirical evidence from the Japanese banking sector‎?

ABSTRACT The studyapplies a GMM framework on the yearly data of Japanese banks ranging from 2001‎to 2020 to examine the impact of economic liberalization on the ‎banks'profitability. The results reveal that the relationship between economicliberalization and banks' profitability is positive (negative) for the fullsample and commercial (cooperative) banks. The outcomes show that ‎economicliberalization increases banks' profitability during the crisis period. Theresults indicate that economic liberalization, government integrity, business,‎investment and financial liberalization adversely (positively) affect theprofitability of well-capitalized ‎‎(under-capitalized) banks. Furthermore, theheterogeneity in results have implications for policymakers and bank managers. ‎

Harmonizing Commercial and Investment Arbitration: Conflict Dynamics

This article provides an independent analysis of the scope and extent of arbitration under investment agreements, and the implications of the possible convergence in the process of harmonization of international commercial arbitration law.The successful settlement of any dispute depends on the compatibility of the nature of the dispute with the technique to which it is submitted for resolution. In the last decade, there was a constant increase in the number of disputes that were subjected to arbitration and a major chunk of those disputes covered a comparatively new but known area called international investment law. With economic globalization allowing the free flow of foreign direct investment (FDI) in and out of a country, the existing regulatory framework in international law to standardize investment liberalization is often seen as ineffective, hence the consequent disputes. Here, arbitration offers a suitable framework for the amicable settlement of commercial disputes covering investment agreements with the assistance of bilateral or multilateral agreements between the states. Preferential trade agreements pertaining to investment often contain an arbitration clause for the settlement of future disputes between parties. At this juncture, one may find that there exists a fundamental dilemma in ascertaining the true nature of investment arbitration and how it is different from commercial arbitration. For example, the protection being offered to human rights under the purview of investment arbitration may generate doubts in the minds of investment arbitrators. In commercial arbitration, divergences in a pluralistic order become particularly relevant whereas the diverse legal cultures supported by individual constitutional frameworks have a direct impact on investment arbitration due to their practical application. The article also discusses the need for harmonized rules governing arbitration procedures while maintaining the functional dissimilarities between commercial and investment arbitration.

JAPAN'S ECONOMIC POLICY IN ARMENIA (1992-2021)

The purpose of this article is to show the economic policy of Japan towards Armenia after the establishment of Armenian-Japanese diplomatic relations. The article presents three phases of Japan's economic policy, taking into account the type of assistance provided by Japan to Armenia, which is correlated with Armenia's economic and GDP’s growth. The first phase covers 1992-99, during which bilateral economic relations were limited to grant assistance provided by Japan to Armenia, with the aim of supporting the economic recovery of the newly independent state and ensuring sustainable economic growth. The second phase (2000-04) marked the beginning of economic cooperation between the two countries. Due to its stable economic growth, Armenia received loans from Japan for developing economic infrastructures. During the third phase (2005- up to date) Japan has expanded its cooperation with the Republic of Armenia and begun to provide technical equipment for the development of targeted sectors. At this stage, Japan clearly defined the direction of its assistance and the sectors necessary for the stimulation of the Armenian economy, in particular, the energy sector, small and medium-sized businesses, as well as the development of villages. Japan also greatly supports Armenia by providing Japanese technologies for risk prevention in natural disaster zones and organizing training courses and discussion- meetings for Armenian specialists aimed to promote capacity building on the implementation of disaster risk reduction and emergency situations. Since 2018, Japan has begun to consider Armenia as a full-fledged economic entity, and review the possibility to build mutually beneficial economic relations. The main witnesses are the signed agreement on investment liberalization in 2018, the visit of Japanese Foreign Minister Taro Kono to Armenia for developing bilateral relations in the fields of banking, innovation, food security, information technology, artificial intelligence, cultural exchange, scientific and educational projects, as well as active contacts of Armenian President with Japanese organizations.

Investment responses to trade liberalization: impact of CKFTA

Using data from Canadian and Korean public companies available at Bloomberg, this study attempts to demonstrate the relationship between investment in establishments and trade liberalization, an effect caused mainly by increased competitiveness. This project contributes to the studies previously conducted on the subject and adds information regarding countries with different peculiarities, such as Canada, better known for being the main trading partner of the USA and major producer of commodities, and South Korea, which for some decades has invested to become a reference in technology and world innovation. In line with previous studies, a negative and statistically significant relationship was found between investment and trade liberalization, an effect that was verified mainly for those establishments that are far from the frontier of the sector in which they operate, and for the firms in the frontier this effect is positive.

International Aspects of Investment Liberalization in the PRC: A Case of EU-China Cooperation

The paper examines the role of investment cooperation and national foreign investment regime as a means to promote China’s economic and political interests and to respond to new global challenges that the country faces nowadays. To this end, the author examines the main stages of China’s liberalization of the legal regime for foreign investment from the end of the 1970s with a special focus on a new foreign investment law. In doing so the author attempts to link the evolution of investment regulation in the PRC with the dynamics of international relations development and the changing role of China as a regional and global actor. The author emphasizes that a trend towards the emergence of a polycentric world order not only provokes the rise of international tensions but also provides new incentives to promote dialogue and enhance cooperation between states and non-governmental actors, particularly by encouraging foreign investments. At the same time, there is a growing need to improve regulatory mechanisms for direct foreign investments. All these contradictory trends have directly affected China’s foreign investment regime reform. In this context the investment cooperation between the PRC and the European Union is of particular importance. The EU possesses a set of innovative technological solutions and competencies that are of particular interest to the Chinese leaders in the context of their efforts to modernize the country’s economy. The paper examines the volume, dynamics and key directions of investment flows between China and the EU member-states. The fact that after seven years of difficult negotiations, the EU and China managed to develop a special bilateral regulatory mechanism — EU-China Comprehensive Agreement on Investment — underscores again the importance of this cooperation for both parties. Even though the EU has suspended the ratification of this deal on the pretext of human right violations in the Xinjiang Uygur Autonomous Region, the author concludes, that in the future this agreement will come into force, since the very logic of the emerging polycentric world order urges for deeper cooperation between the EU and China. In this context, the investment regulation appears not only as a means to protect the Chinese economic interests, but also as an instrument to strengthen China’s international positions in the changing global context.

The Belt and Road Initiative and International Law: Viewed from the Perspective of the Supply of International Public Goods

The international community is facing the dilemma of an insufficient supply of public goods due to the conjunction of various forces and factors including the profound impact of the economic crisis, increased trade protectionism, changes in the global governance system and the impact of the Covid-19 pandemic. The Belt and Road Initiative (BRI) is a non-rivalrous and non-excludable public good provided to the international community by China as a responsible major country in the new era of historical development. International law has an important role in promoting and guaranteeing the supply of international public goods (IPGs). Since the implementation of the Belt and Road Initiative, the international governance environment has changed dramatically, with the rule of law being the basic premise and important guarantee of the long-term and smooth implementation of the BRI. In pursuing the BRI, buttressed as it is by the rule of law, China should pay attention to diversified governance based on a combination of international soft and hard law and make judicious use of existing bilateral, regional and multilateral international legal mechanisms. In addition, China must also pay close attention to the latest developments in international economic and trade rules and must innovate and improve its ability to supply rules for investment, trade liberalization, etc. Buttressed by international law, the BRI should focus not only on recent concrete initiatives in trade and investment liberalization, but also on the long-term planning and sustainable development of institutional supply, so as to realize the vision and goals of the BRI.