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Resist investment protectionism, countries meeting at OECD agree

 

30/03/2009 - Countries participating in a “Freedom of Investment” initiative, which together represent four fifths of the world economy, have pledged to resist discriminatory policies and new forms of protectionism towards investment in the context of the global economic crisis and to continue to monitor measures and commitments.

 

“Investment protectionism remains a threat. Governments have for the most part resisted temptations to impose barriers,” OECD Secretary-General Angel Gurría said. “But the need for vigilance remains constant. This agreement is an important sign of governments’ commitment to resisting protectionism.” 

 

For the moment, most governments continue to welcome inward investment with open arms, especially in this period of crisis. In a report approved at a meeting at OECD headquarters, the countries participating in the “Freedom of Investment, National Security and “Strategic Industries” (FOI)” process reaffirmed their commitments to openness and non-discrimination in host country investment policies and to transparent, accountable and effective public policy. 

 

The report, entitled “Building Trust and Confidence in International Investment” sets out a series of policy recommendations for maintaining open investment markets, including the use of peer reviews and regular monitoring  of national policy measures. Its basis is the FOI initiative, launched in 2006 to help governments preserve and expand an open environment for international investment while safeguarding essential security interests and acting to support economic development.

 

All 30 OECD countries participate and, so far, 17 non-OECD countries including Brazil, China, India, Russia, South Africa. Amid the current recession, the report notes, one of the most serious risks to cross-border investment lies in the emergence of new forms of discrimination that impede both outward and inward investment flows, participants in the meeting acknowledged.

 

Thanks to moves to support companies and financial institutions in the crisis, many governments have acquired broad powers to channel public sector investment and subsidies, often with wide discretion in how they use these new powers.

 

Political pressures to protect employment and restore growth risk tempting governments into adopting discriminatory policies that will ultimately hinder a return to growth.

 

To guard against this, participants in the meeting agreed on a process of peer monitoring designed to make policy measures more transparent and show up possible misuse of new discretionary powers in ways that are unfair to international investors.

 

“On one hand,” the report states, “recipient countries genuinely want – indeed, compete for – foreign investment projects. They are reluctant to take protectionist measures that would undermine business confidence and several have recently taken steps to liberalise investment policies.”  For example, participants welcomed measures taken by Canada and India to make their investment review procedures less restrictive for international investors.

 

“On the other, all recipient countries have constituencies that may advocate protectionist policies and these may be strengthened by the global crisis. Thus, policy makers are simultaneously pushed in two directions, toward both openness and protectionism.”

 

The FOI process “is designed to make it easier for countries to choose openness and be more aware of the costs of ceding to protectionist pressures,” Mr. Gurría commented.

 

“Peer review and monitoring will allow them to learn from each others’ successes and mistakes at a time when many governments are actively seeking models for good policy practice.”

 

For further comment, journalists may contact Katie Gordon in the OECD’s Investment Division: kathryn.gordon@oecd.org or +33 1 45 24 98 42.

 

For further information, read more on Protecting freedom of investment at the OECD and read the report Building Trust and Confidence in International Investment.

 

 

 

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