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SPACES FOR POLICY IN INTERNATIONAL RULES FOR INVESTMENT. AN APPROACH FOR MAKING INTEGRATION SUPPORTIVE OF SUSTAINABLE DEVELOPMENT. Werner Corrales-Leal; ICTSD/UNCTAD Presentation at the International Seminar “FDI Policies and Regulation: How to Foster Economic Development”

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slide1

SPACES FOR POLICY IN

INTERNATIONAL RULES FOR INVESTMENT

AN APPROACH FOR MAKING INTEGRATION SUPPORTIVE OF SUSTAINABLE DEVELOPMENT

Werner Corrales-Leal; ICTSD/UNCTAD

Presentation at the International Seminar

“FDI Policies and Regulation: How to Foster Economic Development”

Organized by CUTS, UNCTAD an DFID, Geneva January 2004

slide2

LIST OF CONTENTS

An approach for making trade integration supportive of sustainable development.

Market-friendly use of active policies related to FDI: A case in the Oil Sector .

A summary: Key considerations on future FDI rules

slide3

PART ONE

An approach for making trade integration supportive of sustainable development.

slide4

An approach for making trade integration supportive of sustainable development

SOME IMPACTS OF LIBERALISATION ON DEVELOPING ECONOMIES WORTH TO CONSIDER

  • Specific impacts on the productive bases of developing countries

Net positive creation of trade; trade flows grow faster than GDP

“Natural advantages”confirmed as bases for further specialization

Most trade and FDI flows occur within TNC chains and networks

40% of K flows to arbitrage; high proportion of FDI does not generate X

90% of K flows to twenty “emerging markets” (50% in the 80s)

Success story of a few countries: Active policies for competitiveness

  • Impacts on inequalities, at international and country level

LDCs marginalisation; no sign of convergence; uneven “Welfare Gains”

External shocks: financial volatility, declining and unstable X prices

Destruction of traditional SMEs’ networks with no substitutes

Precarious employment conditions become structural after Adjustment

slide5

An approach for making trade integration supportive of sustainable development

THE NEED FOR ACTIVE POLICIES IN THE SUPPLY SIDE: LIBERALISATION IS NOT ENOUGH

  • Reduce dependency on current trade in commodities

Basis and intensity of competition erode capabilities for reinvestment

Commodity production has very limited networking or spill-over effects

  • Promote learning and innovation; increase internal multipliers

“Global Chain Optimisation”: Strengthen Clusters and insertion to Chains

Motivate and promote Innovation and Technological Capacity Building

A “Levelled playing field ” to negotiate alliances and complementarities

  • Modify dynamics of investment in extreme resource-based cases

Extreme productivities, appreciated exchange rates and competitiveness

  • Domestic and Foreign Investment go to non-tradable and commodities
slide6

ENTERPRISE DEVELOPMENT, PRODUCTIVITY & INVESTMENT POLICIES

POLICIES FOR INNOVATION AND TECHNOLOGICAL UPGRADING

RULES IN THE SPACE FOR DEVELOPMENT POLICIES

MARKET ACCESS AND FAIR TRADE RULES

An approach for making trade integration supportive of sustainable development

HOW INTERNATIONAL TRADE RULES MAY INFLUENCE THE CAPACITY FOR POLICY INTERVENTIONS

SUPPLY SIDE

TRADE-SUPPORTED

POLICIES

SOCIALLY AND ENVIRONMENTALLY-FOCUSED POLICIES FOR COMPETITIVENESS

DEMAND SIDE

TRADE-SUPPORTED

POLICIES

NATIONAL POLICIES

FOR INTERNATIONAL TRADE AND INTEGRATION

MANAGING TRADE INTEGRATION

TRADE NEGOTIATIONS

slide7

An approach for making trade integration supportive of sustainable development

MANAGING TRADE INTEGRATION: ENHANCE POLICIES’ CONTRIBUTIONS TO DEVELOPMENT GOALS

  • Aims of development strategy
  • Active trade-related policies

Enhance social effectiveness of economic policy

ENTERPRISE DEVELOPMENT AND CLUSTERING, PRODUCTIVITY & INVESTMENT POLICIES

Improve internal multipliers of export-led growth

Improve productivity through technology & innovation

POLICIES FOR INNOVATION AND TECHNOLOGICAL UPGRADING

Enhance market access and trade defence capacity

Secure equilibrium and stability in external flows

POLICIES AND RULES MAKING IN INTERNATIONAL TRADE AND INTEGRATION

Increase knowledge content & diversification in exports

Environmental concerns as cross-cutting policy issues

slide8

An approach for making trade integration supportive of sustainable development

MANAGING TRADE INTEGRATION: AFFECT THE RATIONALE OF TRADE SURPLUS APPROPRIATION

  • Impinge on factors explaining growth in revenues and competitiveness
  • Active policies affecting Static factors:
  • Export growth based on market access
  • Rents related to productivity, based on “Best Global Practices”
  • Productive linkages and networking enhancing domestic multipliers

Active policies enhancing Dynamic factors ( Rents related to innovation ):

  • Knowledge-enhanced productivity; Innovation in processes and attributes …
  • Strategic marketing; differentiation; life cycles of products..
  • Relieve constraints for “adding value” or appropriating trade surplus

Effective market access: Ease traditional barriers and improve access to GVCs

Diversification: Move away from extreme competition in commodities

Negotiations in Policy Space: Level the playing field for Supply-side Policies

Networks and institutions: Frameworks for learning and multiplying effects

slide9

An approach for making trade integration supportive of sustainable development

SHOULD CURRENT OPPORTUNITIES FOR WTO-CONSISTENT ACTIVE POLICIES BE ABANDONED?

  • Examples of market-consistent trade policy instruments

Conditioned access to FDI, as “benefit” in sectors reserved for national investment

Focalized FDI promotion; incentives to ToT, R&D, Clustering and SME development

Government and STEs procurement promoting technological capacity building

Coordinated implementation of IPR , Competition rules and R&D programmes

  • Multilateral disciplines and issues that should be revisited or reoriented

TRIMs; TRIPs, GATS, Subsidies, Government Procurement

Special and Differential Treatment; “Spaces for Development Policies” in general

Eventual negotiations on investment, competition and trade facilitation in WTO

slide10

PART TWO

Market-friendly use of active policies related to FDI: A case in the Oil Sector

slide11

Market-friendly use of active policies related to FDI: A case in the Oil sector

VENEZUELA 1980: CHALLENGES IN THE OIL SECTOR RELATED TO TECHNOLOGICAL CAPABILITIES

  • Strategic need to reduce Technological Dependence on TNCs

Pre-existing contracts for the provision of technology and engineering

Only 15% of the engineering & capital goods procurement was national

  • Objective shortages in Technological Capabilities in the Country

Almost inexistent R&D Capabilities in the sector (PDVSA or elsewhere)

Only 5 construction management firms capable of major assignments

About 20 engineering companies for projects of medium complexity

Very limited local capacity for production of capital goods

  • Doubts and confidence 5 years after the nationalization process

Public doubts about the success of the Capacity Building Program

Decision to face the program on a “Market Friendly” basis

Firm commitment of PDVSA and the Venezuelan private sector

slide12

Market-friendly use of active policies related to FDI: A case in the Oil sector

THE STRATEGY FOR TECHNOLOGICAL UPGRADING AND CAPACITY BUILDING

  • Creation of a High Quality Research & Development Organization

Creation and development of INTEVEP

Establishment policy for Transfer of Technology on Commercial Basis

Massive program for training human resources in research fields

  • Promotion of Capital Goods Manufacturing and Service SMEs

Implementation of Quality Assurance and Competitiveness Programs

Export Promotion Program

Incentives for Chains of Suppliers Development Programs

  • Promotion of Engineering and Construction Management firms

Non Mandatory Performance Requirements for Joint Ventures

Reform of Contracting Practices introducing Project Disaggregation

Continuous Improvement and Quality Control Practices in all Contracts

slide13

Investment : US$ 2,500 MM

100

90

80

70

Evolution

60

Trend

%

50

40

30

20

10

0

80

82

84

86

88

90

92

94

96

98

2000

Market-friendly use of active policies related to FDI: A case in the Oil sector

LONG-TERM EVOLUTION OF THE ENGINEERING AND CONSTRUCTION SERVICES 1980 - 2000

Very high improvement in Technological Capabilities

Highly skilled jobs, sources of “Value Added” and backward links created

Further evolution of Engineering & Construction to “Integrated Services”

slide14

PART THREE

A summary: Key considerations on future FDI rules

slide15

A summary: Key considerations on future FDI rules

IMPACTS OF THE TERMS OF AGREEMENT ON POLICY SPACES AND INVESTOR’S DECISIONS 1/2

DECISION FACTORS OF THE INVESTOR

DEVT POLICY

SPACES

TERMS OF AGREEMENT

PROPERTY

RIGHTS

FREEDOM IN

MANAGEMENT

INMUNITY

PRESCRIPTION

Admission and

establishment

+

  • Sectors reserved to

national investment

-

Post-diversification to

Other sectors

Promotion for National and

Regional players

Equitable treatment

Technological Capacity Building

Clustering, SME Networking

-

Pre-

establishment

Risks

NT pre-establishment

+

-

  • MFN considering regional

agreements

-

+

-

+

-

Negative Impact

Positive Impact

slide16

A summary: Key considerations on future FDI rules

IMPACTS OF THE TERMS OF AGREEMENT ON POLICY SPACES AND INVESTOR’S DECISIONS 2/2

DECISION FACTORS OF THE INVESTOR

DEVT POLICY

SPACES

TERMS OF AGREEMENT

PROPERTY

RIGHTS

FREEDOM IN

MANAGEMENT

INMUNITY

PRESCRIPTION

Performance Requirements

-

PR related to trade

+

+

+

+

PR related to R&D and TT

Hands

Off

-

+

PR related to K association

+

+

-

Promotion for National and

Regional players

Technological Capacity Building

Clustering, SME Networking

Rules on Investor practices

  • Effective sanctions to

uncompetitive practices

+

-

  • Limitations to unfriendly

Take Overs of local firms

+

-

+

-

+

-

Negative Impact

Positive Impact