Laws and regulations

 

Rationale | Key considerations | Policy practices | Resources | Next

 

1.1 What steps has the government taken to ensure that the laws and regulations dealing with investments and investors, including small- and medium-sized enterprises, and their implementation and enforcement are clear, transparent, readily accessible and do not impose unnecessary burdens?


Rationale for the question

Policy uncertainty encompasses both predictability and transparency and is one of the greatest obstacles to investment. Firms need to know what the rules of the game are and require some assurance that those rules will not change once they have invested. Their views, along with other stakeholders, should also be solicited when policies are being developed or revised. Going beyond the rules and regulations themselves, their implementation and enforcement should be clear and transparent. Investors need to understand the practical implications of rules governing their investment, in terms of the conditions to fulfil, the procedures for a public review and the appeals process in the event of a dispute. This process can help to institutionalise procedural transparency by systematically ensuring that changes in implementing regulations and administrative decisions are subject to public review and appeals.


Rules and procedures should be designed in a way which achieves stated policy goals while imposing the least cost on investors in terms of red tape. Unnecessary administrative burdens can be a significant cost for potential investors, especially for small and medium-sized enterprises (SMEs), and can help to account for both a low level of investment and a high share of SMEs in the informal sector where rules can more easily be circumvented.

 

Related PFI questions:

Question 2.4 on streamlining administrative procedures

Question 3.1 on administrative barriers to trade

Question 10.5 on simplifying the administrative burden

Key considerations

To promote investment, governments can consult with interested parties, simplify and codify legislation, use plain language drafting, develop registers of existing and proposed regulations, disseminate regulatory material electronically, and publish and review administrative decisions.

  • Availability of relevant information to investors
    Information is the lifeblood of well-functioning markets. Meaningful information on all measures materially affecting a firm’s investments should be readily available, and to reassure all market participants that business operates on a level playing field, investment laws and regulations and their enforcement should be codified and clear to all.

    This requires a consistent, predictable system of laws, policies, regulations and administrative practices, as well as information on rulings and judicial decisions. While the sheer number and complexity of laws and regulations may not always make it possible to provide comprehensive information on all matters that might influence investor decisions, governments have an interest in providing essential information on how to start a business and inform investors, i.a. about ownership and exchange control restrictions, administrative requirements, taxation, investment incentives, monopolies and concessions, intellectual property protection and competition policy, as well as environmental and social requirements and corporate responsibilities.
  • Prior notification and consultation
    Involving investors and other stakeholders in the process of legal and regulatory changes contributes to their legitimacy and effectiveness. It also reflects a commitment to professionalism and contributes to building trust between investors and relevant stakeholders. Moreover, policy is more likely to be sound and not produce unintended side effects if it is structured and transparent and permits input from all interested parties. Prior notification and consultation is a process that begins with public hearings, policy papers outlining the reasons why changes are needed, circulation of draft regulatory changes to all concerned stakeholders, and processes for revision and recirculation based on these public inputs.
  • Public appeals processes
    Public appeals processes increase procedural transparency, thereby helping both to avoid regulations that impose undue burdens and to limit the discretionary power of officials. Procedural transparency can be institutionalised by systematically ensuring that changes in implementing regulations and administrative decisions are subject to an open, prompt and impartial public review and appeals process.

 

Policy practices to scrutinise

The OECD Framework for Investment Policy Transparency assists governments to enhance transparency of their investment policy frameworks and serves as a basis for conducting self-evaluation and sharing experiences among public officials. While the focus is on the information gaps and special needs of foreign investors, the Framework applies, in most instances, to domestic investors as well. It asks 15 questions that support a level playing field for all investors.

  • Are the economic benefits of transparency for international investment adequately recognised by public authorities? How is this being achieved? 
     
  • What information pertaining to investment measures is made “readily available”, or “available” upon request to foreign investors? 
     
  • What are the legal requirements for making this information “public”? Do these requirements apply to primary and secondary legislation? Do they apply to both the national and sub-national levels? Is this information also made available to foreign investors in their countries of origin?
     
  • Are exceptions/qualifications to making information available clearly defined and delimited?
     
  • What are the main vehicles of information on investment measures of interest to foreign investors?
     
  • What may determine the choice of publication avenues? What efforts are made to simplify the dissemination of this information?
     
  • Is this information centralised? Is it couched in layman’s terms? Is it in English or another language? What is the role of Internet in disseminating essential/relevant information to foreign investors?
     
  • Have special enquiry points been created? Can investment promotion agencies fulfil this role?
     
  • How much transparency is achieved via international agreements or by international organisations?
     
  • Are foreign investors normally notified and consulted in advance of the purpose and nature of regulatory changes of interest to them? What are the main avenues? Are these avenues available to all stakeholders?
     
  • Are the notice and comment procedures codified? Do they provide for timely opportunities for comment by foreign investors and accountability on how their comments are to be handled?
     
  • Are exceptions to openness and accessibility to procedures clearly defined and delimited?
     
  • What are the available means for informing and assisting foreign investors in obtaining the necessary licensing, permits, registration or other formalities? What recourse is made to “silence is consent” clauses or a posteriori verification procedures?
     
  • What are foreign investors’ legal rights in regard to administrative decisions?
     
  • To what extent do “one-stop” shops assist foreign investors in fulfilling administrative requirements?
     
  • What efforts are being made to address capacity building bottlenecks? 

Further resources and case studies

The following resources support the PFI user needing additional information on investment laws and regulations:

  • The full publication on the OECD OECD Framework for Investment Policy Transparency provides further information on the elements behind each question. A related OECD report on Public Sector Transparency and the International Investor offers principles of good practice for enhancing public sector transparency.
     
  • The World Bank Doing Business project (www.doingbusiness.org) studies the cost, length and complexity of various aspects of the investment climate and provides a score of how long it takes in each country for business to complete key regulatory tasks. Longer and more complex processes are one measure of unpredictability and often indicate a lack of transparency.
     
  • The World Bank Doing Business Law Library is the largest free online collection of business laws and regulations. It offers links to official government sources covering areas such as banking and credit law, labour law, tax law, trade law and bankruptcy and collateral laws.
     
  • The World Bank Business Licensing Reform Toolkit offers practical advice on how to reform business-licensing regimes at the national level.

 

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