THREE YEARS AFTER MONTERREY:EXPERIENCE WITH INTEGRATED APPROACHES

TO INVESTMENT POLICYDomestic and International Considerations

ALEJANDRO FAYA-RODRIGUEZMinistry of Economy, Mexico

2005 GLOBAL FORUM ON INTERNATIONAL INVESTMENT

Rio de Janeiro, Brazil

ROLE OF FOREIGN DIRECT INVESTMENT (FDI)

Monterrey Consensus: Private international capital flows

FDI potential to:

Countries require: Efficiency & maximum development impact;Transparent, stable and predictable investment climates; Regulatory frameworks for investments.

Transfer technology, knowledge & skillsCreate jobsBoost overall productivityEnhance entrepreneurshipReduce poverty through economic growth

and development

Vital complement to national development efforts

GLOBAL CHALLENGE FOR DEVELOPING COUNTRIES

Creating a strong and good regulatory framework, when needed, through institutional

reform and strengthening of public power(“2nd GENERATION REFORMS AFTER THE WASHINGTON CONSENSUS)

Transparency in decision-making & implementation

Accountability and anti-corruption practices

Suitable regulatory framework

Judiciary

Public policy assessment and evaluation

Rule of law and culture of lawfulness

DOMESTIC FRAMEWORKSOUND PRACTICES: MEXICO

fiscal responsibility macroeconomic stability

open economy, including access to FDI and low barriers to commerce

transparency

regulatory improvement

major business initiative

less discretional use of power

diminish unnecessary regulation (and improve existing ones) that affects both competition and competitiveness

de-politization of public agencies and institutions

avoidance of pressure from rent-seeking private groups

DOMESTIC FRAMEWORK:

structural reforms tax, labour, energy, political

further competitiveness

judiciary

economic

costs, infrastructure, human development

rule of law and lawfulness

poverty and wealth distribution

dependency on the US market

forward-backward linkages

MAIN CHALLENGES

INTERNATIONAL FRAMEWORK INTERNATIONAL FRAMEWORK INTERNATIONAL INVESTMENT AGREEMENTS (INTERNATIONAL INVESTMENT AGREEMENTS (IIA´SIIA´S))

Do IIA´s attract investment (directly)

No conclusive evidence or studies

(just by themselves)

However, there is consensus that IIA’s:Play an important supplementary role as promotion

tools and should be part of a comprehensive package that includes good public practices & a set of macroeconomic conditions

Establish a set of principles for suitable institutional behaviour

Provide legal certainty and diminish the perceived levels of non-commercial risks, thus creating better conditions for investment

BIT´s worldwideStill being negotiated but at a lower pace

0

50

100

150

200

250

19901991

19921993

19941995

19961997

19981999

20002001

20022003

2004

Ann

ual B

ITs

0

500

1000

1500

2000

2500

3000

Cum

ulat

ive

BITs

BITs/years BITs cumulative

Source: UNCTAD

ICSID IIA’s-RELATED DISPUTES

3

106

0

20

40

60

80

100

120

1994 2004

ICSID Cases

Source: UNCTAD

IIA’s-RELATED CLAIMS AGAINST MEXICO (RESOLVED CLAIMS)

Millions US dollars

0

50

100

150

200

250

300

350

Damages Claimed Damages Awarded

305

23.5

3.7

16.2

02468

1012141618

1989 - 1993 1994 - 2004

MEXICO´SMEXICO´S FDI INFLOWS FDI INFLOWS (ANNUAL AVERAGE)(ANNUAL AVERAGE)

020000400006000080000

100000120000140000160000180000

FDI 1994-2004 Damages Awarded

ACCUMULATED FDI VS. DAMAGES AWARDED ACCUMULATED FDI VS. DAMAGES AWARDED 19941994--2004 2004

MillionsMillions US US DollarsDollars

163000

23.5

WORTH HAVING IIA´S ?YES, BUT AS LONG AS CERTAIN CONDITIONS ARE MET:

CONSISTENCY WITH DOMESTIC POLICY

NEGOTIATION STRATEGY: qualitative & quantitative

CLEAR, CERTAIN AND EQUILIBRATED LEGAL CONTENT

Establish a fair and equitable standard protection based on theCustomary International Law and not with uncertain references

ExpropriationExpropriation discipline discipline doesdoes notnot intendintend toto curtailcurtail thethe regulatoryregulatorypowerspowers ofof thethe StateState, , nornor toto covercover investorsinvestors againstagainst anyany kindkind ofof risksrisks

HAVING A CLEAR AND EQUILIBRATED LEGAL HAVING A CLEAR AND EQUILIBRATED LEGAL CONTENT; ISSUES TO CONSIDER...CONTENT; ISSUES TO CONSIDER...

LimitLimit thethe scopescope ofof relativerelative standardsstandards (i.e. (i.e. MostMost--FavoredFavored--NationNationTreatmentTreatment andand NationalNational TreatmentTreatment); ); theythey do do notnot havehave thethe effecteffect totoindiscriminatelyindiscriminately attractattract provisionsprovisions fromfrom thirdthird treatiestreaties andand shouldshould applyapplyjustjust toto a a setset ofof activitiesactivities ((administratonadministraton, , operationoperation...) in “...) in “like like circumstancescircumstances””

ProvideProvide forfor a a properproper regulationregulation in in thethe investorinvestor--StateState arbitrationarbitrationsectionsection, in , in orderorder toto provideprovide a a minimumminimum ofof legal legal certaintycertainty andand limitlimit thetheexposureexposure ofof thethe StateState toto frivolousfrivolous claimsclaims

AvoidAvoid unnecessaryunnecessary languagelanguage, , obligationsobligations ofof uncertainuncertain contentcontent andandvague vague oror farfar--reachingreaching clausesclauses ((e.ge.g. . thethe umbrellaumbrella clauseclause); ); andand putputextra extra carecare in in thethe conceptsconcepts thatthat define define thethe scopescope ofof thethe instrumentinstrument((e.ge.g. . InvestmentInvestment andand investorinvestor))

FINAL MESSAGES NEGOTIATION OF IIA’S

ExperienceExperience isisfundamentalfundamental

AT THE END OF THE AT THE END OF THE DAY, ANY DAY, ANY

INVESTMENT TREATY INVESTMENT TREATY HAS TO KEEP A HAS TO KEEP A

RIGHT BALANCE RIGHT BALANCE BETWEEN A BETWEEN A

REASONABLE REASONABLE PROTECTION TO PROTECTION TO

INVESTMENT AND INVESTMENT AND THE LEGITIMATE THE LEGITIMATE

NEEDS OF THE HOST NEEDS OF THE HOST STATESTATE

Thank you very much

Alejandro Faya-Rodriguez

Deputy-Director General for International AffairsDirectorate-General of Foreign Investment

Ministry of Economy, Mexico

afaya@economia.gob.mxalejandrofaya@yahoo.com