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OECD work on preventing investment protectionism

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Freedom of investment is a core value of the OECD

The OECD is convinced of the long term benefits of an open international investment environment, including in respect of job creation, a more efficient resource allocation, and social and environmental progress. As the custodian of international investment instruments, the Organisation has overseen progress in liberalisation for more than 40 years.

In the current security context, investments controlled by foreign governments are sometimes viewed as a source of concern and these concerns have grown since the tragic events of 9-11.  Perceived security threats from investments controlled by foreign governments, including sovereign wealth funds (SWFs), focus on control of key security assets -- for example, some fear that such investments could provide a channel for the acquisition of dual-use technologies for military purposes by the acquiring country or for denying technology or other assets critical for national defense to the recipient government.

The cost of getting it wrong is substantial. While governments have a responsibility to safeguard national security, yielding to nationalist and protectionist impulses carries a heavy cost. Other countries, seeing such defensive measures, may interpret them as protectionist and begin to tighten their own investment regimes.  Increasing barriers to cross-border ownership will impede the financing of new investment, hold back corporate efficiency gains and discourage innovation. The price of investment protectionism is a slower pace of sustainable development.

Addressing national security concerns

During the past year or so, OECD countries and non-OECD partners have worked together to reconcile these national security concerns with the of goal promoting freedom of investment.  They have agreed that policy responses to national security concerns should remain consistent with rights and obligations under international agreements.  This includes respecting, to the extent possible, the principle of non-discrimination against foreign investors -- when governments are concerned about national security, they will examine sensitive investments by any company or fund, domestic or foreign.  But entities that are controlled by foreign governments will in some cases get special attention.

Identifying good practices

Furthermore, any restrictions designed to protect national security should be transparent, subject to accountability and proportional to the objective pursued.  To the extent possible, other policy remedies to the problem should be used before considering new restrictions.

Equally important are the steps taken by SWFs to ease concerns.  They should adopt high standards of transparency, risk management, disclosure and accountability.  Many international standards exist to help them do this, including those housed in the OECD. This will not only facilitate public acceptance of SWFs access to foreign markets, but will also enhance the effectiveness of the financial management of their wealth and ultimately benefit their own economic development.

Next steps

The 7th Roundtable on Freedom of Investment, National Security and ‘Strategic’ Industries took place in Paris on 26 March 2008. In addition to continuing the monitoring of new developments, it discussed practices aimed at meeting the principle of proportionality of the regulatory measures relative to the essential security objective pursued; considered selected issues such as “critical infrastructure”; and  developed a progress report for release in advance of the upcoming OECD Ministerial Meeting and other major international meetings.

On 31 March 2008, the OECD and the City of London, with the participation of the IMF, organised a conference in London titled “Sovereign Wealth Funds in the Global Investment Landscape: Building Trust”.

On 4 April 2008, the OECD Investment Committee adopted a report on Sovereign Wealth Funds (SWFs) and Recipient Country Policies.

The OECD will continue its work on how governments can maintain their commitment to open international investment policies – including for SWFs – while also protecting essential security interests. The results of this work will be presented to the OECD Ministerial Meeting on 4-5 June 2008. The final report of the Freedom of Investment project will be released in Spring 2009.

 

Meetings

 

Documents and links
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