Go slow on liberalizing foreign investment laws
By Ni Jianjun and Wu Menglin (China Daily)Updated: 2007-06-12 09:18
The authors Ni Jianjun and Wu Menglin are researchers with the Institute of World Economy, China Institutes of Contemporary International Relations
According to the United Nations Conference on Trade and Development (UNCTAD), investment liberalization includes the following aspects:
Reducing or eliminating the impact of market distortions, which are primarily caused by restrictive measures contained in investment laws against foreign investors (such as obstacles blocking foreign investment's entrance and operation or investment laws that give foreign investors favors and subsidies);
Raising the standard of treatment of foreign investors to the same level as domestic investors;
Strengthening market supervision to protect the normal operation of the market mechanism, including rules of competition and disclosure of information.
The idea of investment liberalization has won widespread support from Western researchers, who have churned out all kinds of theoretical support for the idea. At the same time, their governments have expressed eagerness to see these theories translated into legislation to deal with the "challenges" posed by the fast rise of developing countries.
The World Trade Organization (WTO) requirements for investment liberalization are mainly reflected in the Agreement on Trade-Related Investment Measures (TRIMs). It relies largely on the General Agreement on Tariffs and Trade (GATT) concerning national treatment and general elimination of limits on investment.
According to Article 2 of the TRIMs agreement, no member state is allowed to implement trade-related investment measures not conforming to Article 3 - on national treatment - and Article 11 - on eliminating limits on the amount of general investment - of GATT.
In principle, when a WTO member state establishes and implements measures designed to guide or restrict investment, it must also consider whether the measures will lead to market distortion. Any investment measure not conforming to GATT articles 3 and 11 is forbidden.
Five investment measures have been specifically prohibited in the list of definitions appended to TRIMs. They are requirements on local content, trade balance, restriction of imports through trade balance, restriction of imports through constraints on means to obtain foreign currency and restriction on exports.
According to TRIMs, WTO members from developed countries are expected to
eliminate all investment measures not conforming to TRIMs within two years of
the agreement taking effect. Members from developing countries should eliminate
such measures within five years and the least developed members within seven
years.
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