The Guidelines provide policy guidance to business, governments and other stakeholders on promoting sustainable foreign direct investment in the contemporary investment environment.
On 18 October 2016, the International Chamber of Commerce (ICC) relaunched its Guidelines for International Investment (the Guidelines). Although the Guidelines contain no substantive revisions to the version published in 2012, the relaunch is designed to help achieve the recently adopted United Nations Sustainable Development Goals and contribute to the continued growth of foreign direct investment.
What are the Guidelines for International Investment?
The promotion of foreign direct investment has been a long-held priority for the ICC, beginning in 1949 with the publication of its first International Code of Fair Treatment for Foreign Investments. The Guidelines were originally published in 1972 and comprehensively revised in 2012.
The Guidelines have no legal effect, but are designed to provide an international code of fair treatment by setting out the responsibilities relating to international investment of the investor, the investor's State and the host-State of the investment. These responsibilities cover a range of areas, such as investment policies, ownership and management of investments, anti-corruption and the legal framework. The 2012 Guidelines included amendments to existing chapters (including on labor and fiscal policies) and new chapters (on competitive neutrality and corporate responsibility) to reflect the environment for international investment at that time.
For example, in respect of investment policies the Guidelines provide, among other things, that:
- An investor should ensure in consultation with the competent authorities, that the investment complies with the laws of the host and home country
- The investor's home-State should offer guarantee facilities against non-commercial risks the investor encounters (either nationally or through participation in an international investment insurance agency)
- The host-State communicate to prospective investors its rules, regulations, policies, relevant official bodies, and general conditions the government wishes to apply to incoming direct private investment, in a timely and transparent manner
Why the relaunch?
The recent relaunch of the Guidelines involves no substantive updates; the only revisions are to parts of the preface. The ICC's decision to relaunch the Guidelines now was driven by the Guidelines' increasing relevance as FDI inflows and outflows from developing and transition economies have continued to grow.
First, international investment is currently at the forefront of the ICC's agenda, and the Guidelines form an integral part of the ICC's plan. According to its "Programme of Action for 2016", the ICC intended this year to promote cross-border trade and investment, and an open economy to foster jobs; to create sustainable development; and to improve living standards. The ICC also identified as part of its February 2016 Trade and Investment Policy its aim to foster progress toward high-standard multilateral and regulatory frameworks for international investment.
Second, the ICC connects the relaunch to the United Nations Sustainable Development Goals (SDGs), which came into force at the start of 2016. Several of the SDGs relate to issues of international investment, including: (i) promoting sustained, inclusive and sustainable economic growth; (ii) building resilient infrastructure and promoting inclusive and sustainable industrialization; and (iii) reducing inequality within and among countries.
Third, the ICC notes that the annual investment gap in key development sectors for developing nations is approximately US$2.5 trillion (as estimated by UNCTAD in 2014), and that the private sector will be an essential partner in helping bridge that gap. The ICC has identified specific concerns within the international investment community that the Guidelines are designed to address:
1. Business confidence regarding sovereign debt policies, macro-economic imbalances, taxation and regulatory uncertainty. In many developing markets, there is uncertainty as to the host State's ability to develop stable and meaningful economic or fiscal policies, resulting in significant business uncertainty and discouraging inward investment.
The Guidelines address this in particular in chapter 3 (Finance), which recommends that the host-State encourage investment from abroad through implementing stable, predictable laws and regulations. The Guidelines also focus on investors' specific concerns regarding tax, stating that governments of host countries should, for example: (i) take steps to avoid double taxation; (ii) allow only taxation on income that is sufficiently connected to the country, and allow those expenses to be deducted that can reasonably be allocated to the business operations; and (iii) refrain from imposing on foreign investors any taxes that are more burdensome than those imposed on domestic investors.
2. Re-regulation of foreign investment. The ICC has stated that the re-regulation of cross-border investments seems to be returning, citing the 2011 World Investment Report, which found that 32% of all investment regulations classified as "restrictive" in 2010 compared to only 2% in 2000. The same study described 68% of such regulations as "liberalizing" regulations in 2010 compared to 98% in 2000.
The Guidelines encourage the governments of host countries to reduce non-tariff barriers and minimize bureaucratic burdens on foreign investors. The Guidelines also state that such governments should not impose export obligations on foreign investors beyond those required for national security, and should permit foreign investors to import relevant equipment and materials without undue formalities or excessive customs or other duties.
3. State-owned enterprises (SOEs) and sovereign wealth funds (SWFs). Some countries have created Stateowned or State-controlled enterprises or sovereign wealth funds. Such entities often receive various economic and political benefits unavailable to private investors. This leads to market distortion and can discourage foreign investment overall.
The Guidelines address this issue in chapter 10 (Competitive Neutrality). The Guidelines provide that the governments of host countries should refrain from using SOEs or SWFs as vehicles to achieve geopolitical objectives, and advises those governments to engage with the governments of investors' countries and international institutions to establish competitive neutrality norms and appropriate forms of recourse. The Guidelines also encourage an international dialogue between the governments of host countries and of investors, to reduce the benefits offered to SOEs or SWFs, thereby fostering a more harmonious and fruitful environment of competitive neutrality.
In a world of increased international investment and investment disputes, the Guidelines provide a framework for potential investors as well as for the investor's home State and the host-State of the investment. Governments and investors can adapt the Guidelines depending on the specific circumstances of any investment; however, the Guidelines are at the very least useful starting point.