Emergency Committee For American Trade - Publications

Investment

Due to increasing global economic integration, the livelihood of more workers in more companies around the globe depends on cross-border trade and investment than ever before. Over the last quarter century, expanding foreign direct investment has become an increasingly important catalyst of global economic integration and new economic growth and opportunity. According to statistics compiled by the United Nations Conference on Trade and Investment (UNCTAD), global foreign direct investment rose phenomenally in the last three decades, from $14 billion to $865 billion between 1970 and 1999.

Foreign investment, both inward and outward, is of increasing importance to the American economy, which is the largest source of and destination for foreign direct investment. It spurs U.S. productivity by promoting research and development, investment in physical capital, and new technology. The payoff is in better, higher-paying jobs and a higher standard of living in the United States.

Foreign investment in the United States is a major source of U.S. economic growth. According to UNCTAD, foreign investment in the United States equaled $275.5 billion in 1999, up almost 48 percent from 1998. According to data from the Organization for International Investment, foreign-owned companies now account for 22 percent of U.S. exports, totaling $150.4 billion in 1999. These data also show that U.S. subsidiaries of foreign firms employed 5.6 million U.S. workers and reinvested $18.8 billion in U.S. earnings back in the United States in 1999. It is vital that U.S. trade and international tax policies keep in step with the growing importance of U.S. inward and foreign direct investment in order to support U.S. economic growth and living standards.

A recent UNCTAD study, Bilateral Investment Treaties 1959-1999, documents another important trend in investment: the rapid increase in the number of bilateral investment treaties concluded during the 1990s. In particular, UNCTAD found that the number of treaties almost quintupled during the last decade, rising from 385 at the end of the 1980s to 1,857 at the end of 1990s. The UNCTAD report also noted that there has been an enormous increase in treaties concluded by developing countries and Central and Eastern European countries, rising from 63 at the end of the 1980s to 833 at the end of the 1999. The United States, however, ranks only 26th in the number of bilateral investment treaties that it had concluded by the end of 1999.

ECAT Studies

In 1998, ECAT released its study, Global Investments, American Returns (GIAR), of U.S. foreign direct investment in the agricultural, manufacturing, and services sector. This study was updated in 1999. Both the original study and the 1999 Update documented some key findings about the impact of foreign investment on the United States and its workers, including:

American companies with global operations make important contributions to the U.S. standard of living that in many cases are greater than those of purely domestic firms. For the last 20 years, American companies with global operations have accounted for over half of U.S. research and development, capital investments, and exports and, thereby, have helped boost overall U.S. productivity.
U.S. foreign direct investment complements economic activity here at home, thereby increasing the U.S. standard of living. Foreign affiliate activity generates purchases from U.S. suppliers, research and development here at home, and trade. Given that the U.S. and foreign activities of American companies tend to complement one another, the ability of these companies to raise the U.S. standard of living depends on their ability to invest abroad. Restrictions on foreign investment, which prevent U.S. companies from expanding abroad, generally reduce U.S. parent activity and, thus, lower the U.S. standard of living.
American companies with global operations depend upon American suppliers and their American workers. For the last two decades, the U.S. parents of American companies with global operations consistently have purchased more than 90 percent of their supplies (or intermediate inputs) from U.S.-based, not foreign, suppliers.

In addition to these key findings, the GIAR study and 1999 Update also documented that American firms with global operations pay higher wages than purely domestic firms. For non-production or white-collar workers the wage difference is nearly 10 percent, and for production or blue-collar workers it is even higher.

As described in Section 1, ECAT has commissioned a new study by Dartmouth College economist Matthew Slaughter to examine the linkages between the growth of technology and the new economy and liberalized trade and investment policies. It is hoped that this study, which will be released this spring, will help reinvigorate the debate on the importance of trade and investment liberalization.

Outlook for an International Agreement on Investment

Since 1997, WTO members have been debating the relationship between trade and investment and whether WTO rules on investment should be expanded. The only WTO rules concerning investment are contained in the WTO Agreement on Trade-Related Investment Measures (TRIMs) negotiated during the Uruguay Round. The TRIMs agreement prohibits restrictions on foreign investment, such as domestic content and export performance requirements, but does not set out any general principles -- such as national treatment or the right of establishment--limiting restrictions on foreign investment.

The WTO Working Group on the Relationship Between Trade and Investment has examined the range of existing international instruments governing investment, primarily bilateral investment treaties, as well as the efforts to negotiate a Multilateral Agreement on Investment (MAI) in the OECD. The MAI negotiations, initiated in 1995, were intended to build on existing OECD instruments covering investment to create both a uniform set of high multilateral standards of investor protection and a dispute settlement system covering both governments and individual investors. The proposed MAI contained a broad definition of investment, including enterprises, real estate, portfolio investments, and other financial instruments and intangible assets, and required transparency and the extension of both national treatment and most-favored-nation treatment to investors. MAI negotiations collapsed in October 1998 for a number of reasons, including disagreements with the EU over exemptions for cultural industries.

Based on the working party discussions, a number of proposals have been made regarding the initiation of WTO negotiations on investment. The major elements of these proposals are:

Negotiations should cover only foreign direct investment;
Development provisions would be a key part of the framework of any rules and disciplines agreed to;
The agreement should respect the ability of governments to regulate the activity of investors;
The agreement should address trade-distorting and investment-distorting measures;
Commitments on access to investment opportunities in host countries should be negotiated "bottom-up," similar to the approach taken in the negotiation of the General Agreement on Trade in Services (GATS); and
WTO dispute settlement provisions should apply, but only to government-to-government disputes.

The EU and Japan have been the major proponents of launching negotiations on investment in the WTO. The EU’s proposal to include negotiations on investment in a new round met with wide cynicism during the Seattle Ministerial meetings, as many WTO members believed that the proposal was largely intended as part of a broader strategy to avoid a round focused largely on agriculture negotiations. Another view of the EU proposal is that it is motivated by the EU Commission’s desire to strengthen its jurisdiction over investment regulation within the member states. Meanwhile, there is widespread developing country opposition to the negotiation of an investment agreement in the WTO on the grounds that such an agreement could encroach on development objectives and compound the burden of compliance with WTO rules.

In view of the increasing importance of international investment flows, it is important to have a strong set of rules to provide transparent regulation and non-discriminatory treatment of investment. The rules must set standards, which are at least as high as those in effect under existing bilateral investment treaties. While there is not sufficient consensus to proceed with negotiations on investment in the WTO, analysis of the issue should continue to determine the most appropriate venue for achieving an agreement with a set of high standards.

ECAT POSITION: ECAT supports a continuing effort to build a consensus for an international agreement on investment that will provide a high standard of protection for investors which meets or exceeds protections currently provided under U.S. bilateral investment treaties. ECAT believes that U.S. trade and international tax policies should recognize the vital importance of U.S. foreign direct investment to U.S. economic growth and should promote the expansion of U.S. trade and investment.

OECD Guidelines for Multinational Enterprises

At the June 2000 OECD Council meeting, the 29 OECD member countries and the governments of Argentina, Brazil, Chile and Slovakia adopted a revised set of Guidelines for Multinational Enterprises. These Guidelines, which have been revised periodically since their creation in 1976 as part of the OECD Declaration on International Investment and Multinational Enterprises, represent legally non-binding recommendations from the OECD governments to businesses with the aim of preventing conflict and promoting greater confidence and predictability between business and the countries in which they operate.

The revised Guidelines attempt to address many of the concerns raised about the increasing globalization of the world economy. In particular, the Guidelines were revised to include recommendations that companies contribute to the abolition of child labor and all forms of forced or compulsory labor. The recommendations on the environment encourage companies to improve their own environmental performance through a variety of means, including the creation of a system of environmental management and stronger contingency planning. The Guidelines updated the chapter on disclosure to reflect the OECD Principles on Corporate Governance. The Guidelines also incorporated a general policy provision on respecting human rights, as well as new chapters on combating bribery and on consumer protection. The revised recommendations also focused on the need to enhance efforts to implement the Guidelines through the National Contact Points, which have been established in member countries to promote adherence to the guidelines. The Guidelines clarified as well the role of the OECD’s Committee On International Investment and Multinational Enterprises, which should continue to provide clarifications of the Guidelines and a forum for their review and implementation.

Antibribery Initiatives

The OECD Convention on Combating Bribery of Foreign Public Officials went into effect in February 1999. As of the beginning of 2001, 30 countries have ratified the convention (including the United States, which ratified the Convention in December 1998). The Convention was adopted to require OECD member countries to criminalize bribery of public officials during business transactions. It is based on the U.S. Foreign Corrupt Practices Act that prohibits bribery of foreign public officials and political candidates. The United States would like to expand the coverage of the OECD Convention to include bribery of foreign political parties, party officials, and candidates for political office. It is also important that the United States continue to monitor OECD country implementation of the Convention to ensure that it is effectively enforced.

In September 2000, the United States ratified the Inter-American Convention on Corruption and continues to encourage greater regional anti-corruption efforts. In 2000, the United States also linked benefits under the African Growth and Opportunity Act and the Caribbean Basin Trade Partnership Act (described in Section 9) to these countries’ efforts to combat bribery. The United States is also continuing its anti-corruption efforts by working with the World Bank to improve anti-fraud and anti-corruption efforts in the administration of World Bank contracts. The Administration is also continuing its effort to move forward with an Agreement on Transparency in Government Procurement in the WTO, as discussed in Section 2.

ECAT POSITION: ECAT supports U.S. efforts to ensure that the OECD Convention on Combating Bribery of Foreign Public Officials and the Inter-American Convention on Corruption are effectively implemented and to combat the problem of foreign corruption through other international efforts.


	Investment Due to increasing global economic integration, the livelihood of more workers in more companies around the globe depends on cross-border trade and investment than ever before. Over the last quarter century, expanding foreign direct investment has become an increasingly important catalyst of global economic integration and new economic growth and opportunity. According to statistics compiled by the United Nations Conference on Trade and Investment (UNCTAD), global foreign direct investment rose phenomenally in the last three decades, from $14 billion to $865 billion between 1970 and 1999. Foreign investment, both inward and outward, is of increasing importance to the American economy, which is the largest source of and destination for foreign direct investment. It spurs U.S. productivity by promoting research and development, investment in physical capital, and new technology. The payoff is in better, higher-paying jobs and a higher standard of living in the United States. Foreign investment in the United States is a major source of U.S. economic growth. According to UNCTAD, foreign investment in the United States equaled $275.5 billion in 1999, up almost 48 percent from 1998. According to data from the Organization for International Investment, foreign-owned companies now account for 22 percent of U.S. exports, totaling $150.4 billion in 1999. These data also show that U.S. subsidiaries of foreign firms employed 5.6 million U.S. workers and reinvested $18.8 billion in U.S. earnings back in the United States in 1999. It is vital that U.S. trade and international tax policies keep in step with the growing importance of U.S. inward and foreign direct investment in order to support U.S. economic growth and living standards. A recent UNCTAD study, Bilateral Investment Treaties 1959-1999, documents another important trend in investment: the rapid increase in the number of bilateral investment treaties concluded during the 1990s. In particular, UNCTAD found that the number of treaties almost quintupled during the last decade, rising from 385 at the end of the 1980s to 1,857 at the end of 1990s. The UNCTAD report also noted that there has been an enormous increase in treaties concluded by developing countries and Central and Eastern European countries, rising from 63 at the end of the 1980s to 833 at the end of the 1999. The United States, however, ranks only 26th in the number of bilateral investment treaties that it had concluded by the end of 1999. ECAT Studies In 1998, ECAT released its study, Global Investments, American Returns (GIAR), of U.S. foreign direct investment in the agricultural, manufacturing, and services sector. This study was updated in 1999. Both the original study and the 1999 Update documented some key findings about the impact of foreign investment on the United States and its workers, including: American companies with global operations make important contributions to the U.S. standard of living that in many cases are greater than those of purely domestic firms. For the last 20 years, American companies with global operations have accounted for over half of U.S. research and development, capital investments, and exports and, thereby, have helped boost overall U.S. productivity. U.S. foreign direct investment complements economic activity here at home, thereby increasing the U.S. standard of living. Foreign affiliate activity generates purchases from U.S. suppliers, research and development here at home, and trade. Given that the U.S. and foreign activities of American companies tend to complement one another, the ability of these companies to raise the U.S. standard of living depends on their ability to invest abroad. Restrictions on foreign investment, which prevent U.S. companies from expanding abroad, generally reduce U.S. parent activity and, thus, lower the U.S. standard of living. American companies with global operations depend upon American suppliers and their American workers. For the last two decades, the U.S. parents of American companies with global operations consistently have purchased more than 90 percent of their supplies (or intermediate inputs) from U.S.-based, not foreign, suppliers. In addition to these key findings, the GIAR study and 1999 Update also documented that American firms with global operations pay higher wages than purely domestic firms. For non-production or white-collar workers the wage difference is nearly 10 percent, and for production or blue-collar workers it is even higher. As described in Section 1, ECAT has commissioned a new study by Dartmouth College economist Matthew Slaughter to examine the linkages between the growth of technology and the new economy and liberalized trade and investment policies. It is hoped that this study, which will be released this spring, will help reinvigorate the debate on the importance of trade and investment liberalization. Outlook for an International Agreement on Investment Since 1997, WTO members have been debating the relationship between trade and investment and whether WTO rules on investment should be expanded. The only WTO rules concerning investment are contained in the WTO Agreement on Trade-Related Investment Measures (TRIMs) negotiated during the Uruguay Round. The TRIMs agreement prohibits restrictions on foreign investment, such as domestic content and export performance requirements, but does not set out any general principles -- such as national treatment or the right of establishment--limiting restrictions on foreign investment. The WTO Working Group on the Relationship Between Trade and Investment has examined the range of existing international instruments governing investment, primarily bilateral investment treaties, as well as the efforts to negotiate a Multilateral Agreement on Investment (MAI) in the OECD. The MAI negotiations, initiated in 1995, were intended to build on existing OECD instruments covering investment to create both a uniform set of high multilateral standards of investor protection and a dispute settlement system covering both governments and individual investors. The proposed MAI contained a broad definition of investment, including enterprises, real estate, portfolio investments, and other financial instruments and intangible assets, and required transparency and the extension of both national treatment and most-favored-nation treatment to investors. MAI negotiations collapsed in October 1998 for a number of reasons, including disagreements with the EU over exemptions for cultural industries. Based on the working party discussions, a number of proposals have been made regarding the initiation of WTO negotiations on investment. The major elements of these proposals are: Negotiations should cover only foreign direct investment; Development provisions would be a key part of the framework of any rules and disciplines agreed to; The agreement should respect the ability of governments to regulate the activity of investors; The agreement should address trade-distorting and investment-distorting measures; Commitments on access to investment opportunities in host countries should be negotiated "bottom-up," similar to the approach taken in the negotiation of the General Agreement on Trade in Services (GATS); and WTO dispute settlement provisions should apply, but only to government-to-government disputes. The EU and Japan have been the major proponents of launching negotiations on investment in the WTO. The EU’s proposal to include negotiations on investment in a new round met with wide cynicism during the Seattle Ministerial meetings, as many WTO members believed that the proposal was largely intended as part of a broader strategy to avoid a round focused largely on agriculture negotiations. Another view of the EU proposal is that it is motivated by the EU Commission’s desire to strengthen its jurisdiction over investment regulation within the member states. Meanwhile, there is widespread developing country opposition to the negotiation of an investment agreement in the WTO on the grounds that such an agreement could encroach on development objectives and compound the burden of compliance with WTO rules. In view of the increasing importance of international investment flows, it is important to have a strong set of rules to provide transparent regulation and non-discriminatory treatment of investment. The rules must set standards, which are at least as high as those in effect under existing bilateral investment treaties. While there is not sufficient consensus to proceed with negotiations on investment in the WTO, analysis of the issue should continue to determine the most appropriate venue for achieving an agreement with a set of high standards. ECAT POSITION: ECAT supports a continuing effort to build a consensus for an international agreement on investment that will provide a high standard of protection for investors which meets or exceeds protections currently provided under U.S. bilateral investment treaties. ECAT believes that U.S. trade and international tax policies should recognize the vital importance of U.S. foreign direct investment to U.S. economic growth and should promote the expansion of U.S. trade and investment. OECD Guidelines for Multinational Enterprises At the June 2000 OECD Council meeting, the 29 OECD member countries and the governments of Argentina, Brazil, Chile and Slovakia adopted a revised set of Guidelines for Multinational Enterprises. These Guidelines, which have been revised periodically since their creation in 1976 as part of the OECD Declaration on International Investment and Multinational Enterprises, represent legally non-binding recommendations from the OECD governments to businesses with the aim of preventing conflict and promoting greater confidence and predictability between business and the countries in which they operate. The revised Guidelines attempt to address many of the concerns raised about the increasing globalization of the world economy. In particular, the Guidelines were revised to include recommendations that companies contribute to the abolition of child labor and all forms of forced or compulsory labor. The recommendations on the environment encourage companies to improve their own environmental performance through a variety of means, including the creation of a system of environmental management and stronger contingency planning. The Guidelines updated the chapter on disclosure to reflect the OECD Principles on Corporate Governance. The Guidelines also incorporated a general policy provision on respecting human rights, as well as new chapters on combating bribery and on consumer protection. The revised recommendations also focused on the need to enhance efforts to implement the Guidelines through the National Contact Points, which have been established in member countries to promote adherence to the guidelines. The Guidelines clarified as well the role of the OECD’s Committee On International Investment and Multinational Enterprises, which should continue to provide clarifications of the Guidelines and a forum for their review and implementation. Antibribery Initiatives The OECD Convention on Combating Bribery of Foreign Public Officials went into effect in February 1999. As of the beginning of 2001, 30 countries have ratified the convention (including the United States, which ratified the Convention in December 1998). The Convention was adopted to require OECD member countries to criminalize bribery of public officials during business transactions. It is based on the U.S. Foreign Corrupt Practices Act that prohibits bribery of foreign public officials and political candidates. The United States would like to expand the coverage of the OECD Convention to include bribery of foreign political parties, party officials, and candidates for political office. It is also important that the United States continue to monitor OECD country implementation of the Convention to ensure that it is effectively enforced. In September 2000, the United States ratified the Inter-American Convention on Corruption and continues to encourage greater regional anti-corruption efforts. In 2000, the United States also linked benefits under the African Growth and Opportunity Act and the Caribbean Basin Trade Partnership Act (described in Section 9) to these countries’ efforts to combat bribery. The United States is also continuing its anti-corruption efforts by working with the World Bank to improve anti-fraud and anti-corruption efforts in the administration of World Bank contracts. The Administration is also continuing its effort to move forward with an Agreement on Transparency in Government Procurement in the WTO, as discussed in Section 2. ECAT POSITION: ECAT supports U.S. efforts to ensure that the OECD Convention on Combating Bribery of Foreign Public Officials and the Inter-American Convention on Corruption are effectively implemented and to combat the problem of foreign corruption through other international efforts. ECAT - Homepage About ECAT \| Hot Issues \| ECAT Positions Press Releases \| Trade Resources \| Key Trade Votes \| Publications Steel \| CAFTA \| Search \| Members Only Copyright 1999-2002, the Emergency Committee for American Trade