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WORD COUNT: 1981 TABLE OF CONTENT: Pg 1. Introduction……………………………………………………………………… Significance of trade and investment to world economic growth Overview of trade and investment law 2. Trends in Trade and Investment……………………………………………… Volume of trade and investment in the last 5yrs in terms of growth Contribution to global economy FDI and Developing nations 3. Effects of Trade liberalization………………………………………………… Discuss trade liberalization and legal principles Discuss the legal, political and economic effects of Free Flow of goods and services 4. Foreign investment in the global economy…………………………………….. The global economy and foreign investment law Impact of globalization on foreign investment law 5. Conclusions……………………………………………………………………… 6. Bibliography……………………………………………………………………… 7. References……………………………………………………………………… 8. Appendices……………………………………………………………………… 1. Introduction Trade and investment are interconnected in real life and in policy. Trade is generally defined as the exchange of goods and services.
In today’s globalized world, and especially among policy makers and academics, it is used to refer to the sale of goods and services across national borders (exporting and importing). Investment is broadly defined as devoting resources to an activity that is expected to generate future returns. Trade and Investment Law: The Sovereign States in the 19th century were the pioneers in laying down the principles of the International Investment Law, made in order to protect their own citizens from deals with foreign states, and the gradual changing led to the markets to sanction misconduct by deviant host states.
FDI or Foreign Direct Investment is simply the direct investment in physical assets to market and/or produce in a foreign country. Holding or acquiring a 10% or higher equity, joint ventures, licensing, Greenfield operations are all types of FI. (Lecture Notes: Week 2 Foreign Investment Law) BIT ??? 2200- Protects Investors from developed countries in developing and now transition countries. But for political acceptance they are formulated as reciprocal obligations. For Example: A company has a number of options for investing abroad.
It can own facilities through which it makes products and/or sell services directly in another country (foreign direct investment). A company can also lend its name and/or technology to another company to produce a good or service (through some sort of a licensing agreement, for example). Foreign direct investment and licensing agreements often generate the need for more imports, and thus trade. Investing in foreign businesses through purchasing the stock of a company is called portfolio investment, and is a form of indirect investment.
Indirect investment may have no direct impact on trade and do little, if anything, to support development (e. g. if it tends to be speculative in nature). Trade and investment can have a wide range of effects on development depending on a critical set of factors, including: the durability and stability of trade and/or investment; their effects on employment, income, natural resources and cultures; and, if and how profits are re-invested. The receiving government’s regulatory structure is also important to consider in assessing the impact of trade on development.
CASE EXAMPLE (S): In the wake of rising FDI from developing and transition economies several investment disputes have emerged with investors from these economies as claimants, by the end of 2005, 24 of the 226 known treaty-based investor-State disputes (approximately 10%) had been filed by investors from a developing or transition economy. With one known exception, all were filed against governments in other developing countries or economies in transition. The most cases have been filed against Chile (5), Argentina (3) and Peru (2).
Claimants were predominantly from Chile (5), Argentina and the Russian Federation (3 each), followed by investors from Malaysia, Peru, Singapore and Turkey (2 each). Of the 24 disputes, 22 related to BITs; the remaining 2 concerned the ASEAN Agreement for the Promotion and Protection of Investments. From the information available, the cases cover claims amounting to at least $1. 1 billion. As of 1 May 2006, 18 disputes were still pending, 2 had been won by the foreign investor, and 3 by the host country. (World Investment Report 2006) The outcome of one dispute is unknown.
Sectors involved in these claims include, motorway and road construction, chemical products, electricity distribution and telecommunications. The IIA provisions most frequently invoked include the definition of “investment”, the principle of fair and equitable treatment and expropriation. Given that FDI from developing countries and transition economies is growing rapidly, investor-State disputes involving investors from these economies might increase in the coming years. There is only one known case involving an investor from a developing country and a government of a developed country: the often-cited “Mafezzini vs.
Kingdom of Spain” case, which the Argentinean investor eventually won. (Source: UNCTAD) 2. Trends in Trade and Investment For countries that have adopted international economic policies that promote greater trade and investment, such as joining the WTO or unilaterally reducing trade barriers, evidence suggests that this has generally boosted economic growth and income. For example, according to the Office of the U. S. Trade Representative, from 1994 to 2000 increased exports accounted for approximately one-fifth of U. S. economic growth, and nearly one-third of U. S. rowth between 1992 and 1997 (U. S. Trade Representative “America and the World Trade Organization,” 2000) For the decade ending in 1999, the organization for Economic Co-operation and Development (OECD) reports that “more pen” countries achieved double the annual average growth of other countries. (OECD Observer Policy Brief, October 1999, p. 2. ) Even developing countries have benefited from greater international trade and investment. As the Council of Economic Advisers reported in 1999: “Data from 1974-1985 and 1986-1992 show developing countries with inward-oriented economic olicies experiencing less annual growth of GDP [gross domestic product] per capita than those with outward-oriented economic policies. (World Trade Organization: An Economic Assessment, November 16, 1999) Greater international trade and investment have also had a positive effect on income. One study of how international trade affects standards of living found: “The relation between the geographic component of trade and income suggests that a rise of one percentage point in the ratio of trade to GDP increases income per person by at least one-half percent. (Jeffrey A. F. nd Romer D June 1999, p. 394) (The “geographic component” tends to reflect the natural variations in trade, as opposed to trade variations induced by, say, government policies, therefore establishing a more direct relationship between trade and income. ) The Council of Economic Advisers likewise reported in 1998 the results of a study of data from 123 countries between 1960 and 1985. The study “estimated that every percentage-point increase in openness,” where the yardstick for measuring “openness” was imports plus exports as a percentage of a country’s GDP, “was associated with a 0. 4-percent increase” in per capita real income. The positive effect that international trade and investment can have on income appears to be independent of income distribution. A study by economists at the World Bank examined income data from 80 countries covering four decades. It found in income data for the poor and per capita income that the poor benefited from “trade openness” the same as the average household???a result that has far-reaching policy implications. (World Bank [working paper], March 2000) [pic]
Increase in FDI Inflows ??? 1982 US $ 59Bn ??? US $ 1036Bn 2006, Growing Importance of FDI in the developing countries is evident, although still unequally distributed according to the World Investment Report 2007, UNCTAD. 3. Effects of Trade liberalization “Liberalization” used to describe trade and other economic matters are not related to today’s common usage of the terms “liberal” or “conservative”. Economic liberalization refers to the process of a country opening its markets to outside forces as a way of becoming more integrated into the global economy.
The term emerged in the late 18th and early 19th centuries, and emphasized the pre-eminence of the individual and freedom. One component of this philosophy was the free market, and the prioritization of the self-regulating market over state intervention. (Source: Friedman, Milton, Capitalism and Freedom, University of Chicago Press, Chicago, 1962, p. ) [pic]Free trade implies specialized industries and economic change. Economic changes can lead to strains and considerable changes to traditional economic and political systems.
Social changes that Europe passed through over centuries – urbanization, development of national infrastructure, development of property rights, secular and national government, centralized administration, the development of financial sectors, and regulatory systems – can happen quickly in an economy exposed to free trade and capital flows. Offshore outsourcing and an increase of temporary visa workers resulted in a drop in the demand for computer programmers in the US, for example. Traditionally, the displacement and change caused by free trade was assumed to mostly fall on the poor and less educated.
However, the plentiful supply of low-cost but well-educated labor in Asia, the former Soviet Union countries, Arab countries, and Israel has cast doubt the view that the educated are mostly immune from change. The NAFTA, EU, open territories of Singapore, regional free zones for example china’s special economic zones and free cities or free ports like Hamburg in Germany and Hong Kong, Free Trade Zones and sub zones; all these particular areas/zones/cities are areas wherein goods may be imported and exported free from customs and trade tariffs and in which a variety of trade related activities may be carried on.
These help promote and increase the volume of investment and impact the global economic growth. The Exports, Free retail zones and warehouse services and logistic support are kind of activities that are creating more value and more jobs. Cross-Border M’s by TNC’s From Developing and Transition economies by origin of purchaser, 1987 – 2005 [pic] 4. Foreign investment in the global economy As studies from the (OECD, Council of Economic Advisers, World Bank) and ther government institutions and individual economists have shown, scores of countries around the world have achieved higher economic growth and incomes by adopting international economic policies that promote greater trade and investment. Many of the studies demonstrate that greater international trade and investment is correlated or associated with higher economic growth and income; it is also important to demonstrate various ways greater international trade and investment can cause them to increase.
These four ways are: growth of international trade and investment from trade liberalization; gains in economic welfare from lower trade barriers; changes in the pattern of international trade and investment from comparative advantage; and gains in total factor productivity and technology diffusion from greater international trade and investment. The rise of globalization ??? including technological innovations and the dismantling of trade barriers ??? has spurred the steady acceleration of global trade. In 2004, world merchandise exports increased 21 percent to $8. 9 trillion, while trade in commercial services grew by 18 percent to $2. trillion ??? significant jumps over 2003. The fastest growth is occurring in emerging markets, with China leading the way. By 2004, China had already become the world’s third largest merchandise trader ??? and its import and export business continues to expand. (Source: National Statistics 2006) FDI FLOWS BY REGION 2004-2005 (Billions Of Dollars) [pic] [pic] (SOURCE: UNCTAD) There have been various Trades & Investment related treaties that have been formulated the UN. The categories these are in consists of: Human Rights; In recognition of the Universal Declaration of Human Rights (E. . International Covenant on Social, cultural, civil and political rights, New York 1966, Protection on right of all migrant workers and members of their families, New York 1990) Protecting Planet Earth: the environment, sustainable development, water, sanitation & the polar-regions (E. g. International Tropical Timber Agreement, Geneva 2006, UN Convention on the Law of the Sea, Montego Bay 1982, Convention on the transboundary Effects of Industrial Accidents, Helsinki 1992) Transit, Customs and Trade agreements of Concern to landlocked and transit developing countries (E. g.
Convention Concerning Customs Facilities for Touring, New York 1954, UN Convention of use of Electronic Communications in International Contracts, New York 2005) Disarmament and Penal Matters Privileges and Immunities and the safety if UN and associated Personnel (E. g. Convention on Privileges and Immunities of the UN, New York 1946) (Source: Emphasis added to Cobden’s quotation of the petition, in a free-trade speech delivered in 1846 “Free Trade With All Nations. “) 6. Conclusions During the past two decades, FDI by TNCs from developing and transition economies has expanded at an unprecedented rate.
This process has been encouraged by many factors, including soaring export revenues and rapid economic growth in a number of these economies, as well as the burgeoning industrial and business prowess of their firms. Perhaps most importantly, firms from these economies have been increasingly affected by global competition. They have come to realize the growing importance of accessing international markets and connecting to global production systems and knowledge networks. Accordingly, their view of business has become far more international and their ambitions increasingly regional or global in scope.
This change, from a domestic vision to an international one, underscores the nature of the structural shift-taking place in the global economy. FDI can assist host developing countries in a number of ways, including adding to financial resources and productive capacity, supporting export activity, creating employment and transferring technology. FDI by developing country TNCs can result in proportionally greater gains, where their competitive strengths, motives and strategies differ from developed-country TNCs. For example, they are more likely to establish Greenfield operations, they more ommonly use standardized, non-proprietary technology, and the technological gap between local firms and their affiliates is narrower than the equivalent gap with affiliates established by developed-country TNCs. All this augurs well for South-South development cooperation, with the aim of maximizing gains and avoiding pitfalls. BIBLIOGRAPHY: Journal Article: International Trade and Business Law World Trade Organization (http://www. wto. org) International Monetary Fund (IMF) (http://www. imf. org) Organization for Economic Co-operation and Development (OECD) (http://www. oecd. org)
The Multilateral Investment Guarantee Agency (MIGA) (http://www. miga. org) World Bank: Data and Statistics, The world Bank Group (http://www. worldbank. org) http://www. afrika. no/english/Projects/index. html http://english. mofcom. gov. cn/ http://english. focacsummit. org/2006-11/05/content_5167. htm http://www. businessweek. com/magazine/content/05_34/b39486. htm http://web. worldbank. org REFERENCING: International Trade Law Source: (http://www. lah. uh. edu/libraries/fi/inttradelaw. htm) UNCTAD: World Investment Report 2006. FDI from Developing and Transition Economies: Implications for Development) http://www. hina. org. cn/international/weekly_review/2008-06/07/content_15790132_2. htmhttp://www. timesonline. co. uk http://web. worldbank. org U. S. Trade Representative, “U. S. Membership in the WTO: Supporting American Workers, Farmers, Businesses, Economic Progress and Security,” April 12, 2000, p. 1 and “America and the World Trade Organization,” p. 10″. ) (OECD Observer, “Open Markets Matter: The Benefits of Trade and Investment Liberalisation,” Policy Brief, October 1999, p. 2. ) (Council of Economic Advisers, “America’s Interest in the World Trade Organization: An Economic Assessment,” November 16, 1999, p. 9. ) Jeffrey A. Frankel and David Romer, “Does Trade Cause Growth? ” The American Economic Review, June 1999, p. 394) (David Dollar and Aart Kraay, “Growth Is Good for the Poor,” World Bank [working paper], March 2000, pp. 1-2, 22-23, 27) (Source: Friedman, Milton, Capitalism and Freedom, University of Chicago Press, Chicago, 1962, p. ) Source: National Statistics 2006) (Source: Emphasis added to Cobden’s quotation of the petition, in a free-trade speech delivered in 1846 “Free Trade With All Nations. “) ———————–