1、Staff Working Paper ERSD-2010-13 Date: September 2010 World Trade Organization Economic Research and Statistics Division Do Trade and Investment Agreements Lead to More FDI? Accounting for Key Provisions Inside the Black Box Axel Berger: German Development Institute, Bonn, Germany Matthias Busse: Ru
2、hr-University of Bochum, Germany Peter Nunnenkamp: Kiel Institute for the World Economy, Germany Martin Roy: WTO Manuscript date: December 15, 2009 Disclaimer: This is a working paper, and hence it represents research in progress. This paper represents the opinions of the authors, and is the product
3、 of professional research. It is not meant to represent the position or opinions of the WTO or its Members, nor the official position of any staff members. Any errors are the fault of the author. Copies of working papers can be requested from the divisional secretariat by writing to: Economic Resear
4、ch and Statistics Division, World Trade Organization, Rue de Lausanne 154, CH 1211 Geneva 21, Switzerland. Please request papers by number and title. 1Do Trade and Investment Agreements Lead to More FDI? Accounting for Key Provisions Inside the Black Box Axel Bergera, Matthias Busseb, Peter Nunnenka
5、mpc, and Martin Royd Abstract The previous literature provides a highly ambiguous picture on the impact of trade and investment agreements on FDI. Most empirical studies ignore the actual content of BITs and RTAs, treating them as “black boxes“, despite the diversity of investment provisions constit
6、uting the essence of these agreements. We overcome this serious limitation by analyzing the impact of modalities on the admission of FDI and dispute settlement mechanisms in both RTAs and BITs on bilateral FDI flows between 1978 and 2004. We find that FDI reacts positively to RTAs only if they offer
7、 liberal admission rules. Dispute settlement provisions play a minor role. While RTAs without strong investment provisions may even discourage FDI, the reactions to BITs are less discriminate with foreign investors responding favourably to the mere existence of BITs. JEL code: F21; F23; K33 Keywords
8、: foreign direct investment, bilateral investment treaties, regional trade agreements, admission rules, investor-state dispute settlement _ a German Development Institute, Bonn, Germany; e-mail: axel.bergerdie-gdi.de b Ruhr-University of Bochum, Germany; e-mail: matbussegmx.de c Kiel Institute for t
9、he World Economy, Germany; e-mail: peter.nunnenkampifw-kiel.de dSecretariat of the World Trade Organization, Geneva, Switzerland; e-mail: martin.roywto.org 21. Introduction International investment treaties have proliferated in recent years. The number of bilateral investment treaties (BITs) is cont
10、inuing to rise, despite having reached already impressive numbers. At the end of 2009, a total of 2,750 BITs had been concluded (UNCTAD 2010: 81). Another salient trend is the increase in numbers of regional trade agreements (RTAs): 474 RTAs had been notified to the World Trade Organization (WTO) as
11、 of July 2010.1What is less well known is that the proliferation of RTAs has taken place jointly with a trend towards a transformation of the content of RTAs. These have moved from focusing exclusively on issues related to trade in goods, to encompassing a wider set of areas such as trade in service
12、s, intellectual property, movement of business persons, and also investment. According to UNCTAD (2010: 81), 295 agreements with investment provisions apart from BITs and double taxation agreements had been signed at the end of 2009. While an increasing number of studies investigated the impact of B
13、ITs and RTAs on foreign direct investment (FDI) flows, the empirical evidence has remained highly ambiguous.2This is not really surprising: most of the earlier studies treat BITs and RTAs as “black boxes.” In particular, it is typically ignored that international trade and investment treaties differ
14、 in whether or not they contain important legal innovations that diffused over the last two decades. The first institutional variance concerns the degree to which international agreements allow for denationalized and depoliticized dispute settlement, i.e., whether foreign investors can sue host coun
15、try governments before a transnational tribunal. The majority of earlier BITs, for example, does not allow for strong investor-state dispute settlement (ISDS) which has been included in most BITs and also in RTAs negotiated since the mid-1990s (Yackee 2007: 28). The second institutional variance rel
16、ates to the way in which BITs and RTAs provide for liberalization commitments.3Many RTAs, starting with the North American Free Trade Agreement (NAFTA) in the mid-1990s, include investment provisions providing for pre-establishment national treatment (NT), thus restricting the ability of host govern
17、ments to discriminate with respect to the admission of foreign investments. But such liberal NT provisions remain the exception in BITs. In this paper, we overcome serious limitations of the previous literature by looking inside the “black box” of international trade and investment agreements. We fo
18、cus on 1Please note that goods and services notifications are counted separately. 2For recent overviews of the relevant literature, see UNCTAD (2009) and Sauvant and Sachs (2009). 3By “liberalization commitments“ we refer to the application of national treatment to the pre-establishment phase of FDI
19、, to which we interchangeably refer to as the admission or market access phase. National treatment essentially involves non-discrimination between foreign and national investors/investments. 3analyzing the impact of ISDS provisions as well as NT provisions for the pre-establishment phase on bilatera
20、l FDI flows between 1978 and 2004. In contrast to some recent studies surveyed in Section 2, we account for such provisions in both BITs and RTAs; we also account for the impact of NT provisions extended through pre-establishment most-favoured nation (MFN) clauses. At the same time, we cover a large
21、 sample of developing host countries as well as some newly emerging source countries of FDI to mitigate sample selection biases. We employ various estimation methods to check for the robustness of our results. The paper is structured as follows. The next section discusses the relevance of major inve
22、stment provisions, introduces the classification of international trade and investment treaties, and reviews the related literature. Section 3 presents the gravity-type model that is used as well as the data employed. Section 4 reports the main results, while Section 5 concludes. 2. Major Investment
23、 Provisions: Relevance and Related Literature The central proposition guiding the analysis in this paper is that the extent to which international trade and investment agreements attract FDI from other parties depends on the inclusion and strength of key investment provisions in these agreements. In
24、 other words, we relax the unrealistic assumption underlying large parts of the previous literature that RTAs and BITs are homogenous. The type of obligations they contain differs, as does the depth of obligations that are relevant for regulating the establishment and operation of FDI projects. Two
25、investment provisions appear to be particularly relevant as they constitute important legal innovations relating to the liberalization and protection of FDI: (i) guarantees of market access for foreign investors, i.e., the extent to which international trade and investment agreements include provisi
26、ons on NT and MFN treatment in the pre-establishment phase; and (ii) credible commitments by means of strong dispute settlement mechanisms against discriminatory and discretionary treatment once foreign investors have located in a host country. We discuss both aspects in reverse order. BITs and RTAs
27、 are widely perceived to be commitment devices that help developing host countries to overcome a problem described by Vernon (1971) as the “obsolescing bargain”. The need for credible legal protection against discriminatory and discretionary treatment results from the incentive of host country gover
28、nments to modify the terms of investment in the post-establishment phase, in order to increase the host countrys share in 4FDI-related benefits. The sunk costs incurred by foreign investors would shift leverage to host country governments unless time inconsistency problems were overcome through bind
29、ing enforcement mechanisms (Bthe and Milner 2008; 2009). Accordingly, developing host countries could increase their credibility vis-vis foreign investors and attract more FDI by binding their hands through signing international treaties, thus “locking in” national reforms and increasing the costs o
30、f reneging on earlier unilateral commitments. Especially strict ISDS procedures would increase these costs by allowing foreign investors to bring claims against the host country for breaches of obligations directly to international arbitration and to seek monetary compensation for resulting damages
31、(Wlde 2005; Allee and Peinhardt 2010).4Dispute settlement provisions have been a cornerstone of BITs since the mid 1990s. Most recently negotiated BITs typically include ISDS provisions, even though there are still exceptions. So do many RTAs featuring investment disciplines. The NAFTA was the first
32、 RTA incorporating such disciplines previously reserved to BITs. Other RTAs have followed, especially trade agreements signed by Latin American countries (amongst themselves and with countries from other regions), and more recently also agreements involving Asian economies such as Japan or Singapore
33、. By contrast, a number of RTAs do not include ISDS provisions. For example, this applies to agreements involving the European Union.5Furthermore, the strictness and coverage of ISDS provisions varies considerably. The classification of BITs proposed by Yackee (2009) differentiates between three typ
34、es of ISDS provisions. The strongest type offers comprehensive pre-consent concerning the investors possibility to unilaterally initiate binding international arbitration of disputes. Partial pre-consent restricts this possibility to a limited class of disputes, for example on the amount of compensa
35、tion for expropriation. A considerably weaker type offers just “promissory” ISDS, i.e., without any guarantee for the foreign investor of being able to bring a claim to international arbitration. As detailed in Section 3, we use Yackees classification and extend it to RTAs. Compared to the protectio
36、n of FDI in the post-establishment phase, the liberalization of FDI by means of international trade and investment agreements is a more recent and less common phenomenon. This implies that host countries may have particularly favourable 4Note that the effectiveness of various post-establishment obli
37、gations (e.g., lawful expropriation, minimum standard of treatment, transfer of funds) depends to a great extent on strict and binding ISDS provisions. 5This situation may change with the implementation of the Lisbon Treaty that transfers the competency for FDI from the member states to the European
38、 Union Commission. 5chances to distinguish themselves from competitors for FDI by providing better opportunities for foreign investors to actually enter the host market. Indeed, NT is not limited to the post-establishment phase in a number of international agreements, but extends to the pre-establis
39、hment phase. This provides foreign investors with enforceable minimum guarantees of access to the market.6Such an obligation can imply liberalization through the removal of previously applied entry barriers, depending on the type of commitments undertaken.7It also ensures a level of predictability,
40、security, and transparency of entry conditions. These elements should be valued by foreign investors planning long-term investments, by guaranteeing that they would be able to further access the market in the future. We therefore expect that the effect of RTAs and BITs on FDI flows between the parti
41、es depend on whether they provide for such long-term rights to enter the foreign market. Most but not all RTAs with investment provisions contain obligations as regards market access. NAFTA, for example, provides for NT among contracting parties as regards the establishment and acquisition by foreig
42、n investors. For their part, BITs have traditionally focused on investment protection, rather than investment liberalization. This is why BITs typically do not guarantee access. However, BITs of certain important capital exporters contain access provisions. These are a standard feature of most BITs
43、concluded by the United States. Canadas BITs also contain a NT provision extending to the pre-establishment phase, as do a handful of Japans BITs, in particular some more recent ones (Adlung and Molinuevo 2008). Importantly, RTAs and BITs differ not only as to whether they include any access obligat
44、ions at all. At the same time, provisions on the establishment of FDI also differ in important ways across treaties. Naturally, these obligations do not apply unconditionally to all sectors. They are subject to negotiations and parties to such agreements often agree to maintain in place certain exis
45、ting discriminatory (or non-conforming) measures, or they carve-out from the NT obligation certain sectors or policy areas. It is impossible to ascertain 6A number of agreements include not only a NT obligation, but also an obligation of “market access“, modelled on Article XVI of the GATS. This art
46、icle also regulates entry conditions by prohibiting certain types of restrictions, essentially quantitative restrictions that restrict competition, whether discriminatory or not (e.g., limits on the number of suppliers). Such an obligation is more relevant for services sectors, where monopolies or e
47、xclusive rights can be more prevalent. It overlaps with the NT obligation, which captures all quantitative restrictions that are discriminatory. 7See Roy et al. (2007) for examples. 6with precision the level of access that is bound in each particular agreement.8However, agreements can be classified
48、in terms of their liberalization modalities, i.e., the manner in which the NT obligation applies and, in particular, the way in which reservations for non-conforming measures can be maintained. Different modalities have different implications for transparency, predictability and security of admissio
49、n rights. Consequently, their impact on FDI flows can be expected to vary. The approach taken in some agreements provides for most predictability of access conditions by adopting a negative-list modality to liberalization. Accordingly, all sectors are considered to be fully consistent with NT in the pre-establishment phase, unless specifically provided for in annexes listing all the non-conforming measures maintained and other reservations. This approach is followed, for example, by NAFTA and many subsequent RTAs. Only a few of the BITs that c
