Can WTO talks revive global FDI?

Author: Simon J Evenett and Johannes Fritz, Global Trade Alert Advancing global talks on investment facilitation has long been a goal of many governments in the Asia Pacific. During its G20 presidency in 2016, China gave the matter renewed priority. And since the 11th WTO Ministerial Conference in December 2017, diplomats in Geneva have been […] The post Can WTO talks revive global FDI? first appeared on East Asia Forum.

Can WTO talks revive global FDI?

Author: Simon J Evenett and Johannes Fritz, Global Trade Alert

Advancing global talks on investment facilitation has long been a goal of many governments in the Asia Pacific. During its G20 presidency in 2016, China gave the matter renewed priority. And since the 11th WTO Ministerial Conference in December 2017, diplomats in Geneva have been negotiating a multilateral framework for investment facilitation. These talks have advanced far enough that an ‘Easter text’ was circulated among negotiators this year. But even if a large enough fraction of the WTO membership signed this deal, would it make a difference?

To answer this question, we must consider what’s not included in the proposed multilateral framework text and the current state of global foreign direct investment (FDI) dynamics.

With respect to the former, participating governments declared in both 2017 and 2019 that ‘these discussions shall not address market access, investment protection, and Investor-State Dispute Settlement’. Coupled with the growing resort to investment screening mechanisms, these are significant omissions.

With respect to the latter, the findings of the recently published 27th Global Trade Alert report puts current foreign direct investment dynamics in perspective. The report documents the trend decline in global FDI inflows (especially when sensibly benchmarked against global GDP, global investment levels and world trade) and reveals the low or falling returns on FDI in every emerging market region except the transition economies. UNCTAD-produced data (based on balance of payments data) support the latter finding in the report, along with an extensive but rarely used US government dataset on American multinational enterprise performance abroad.

Governments can affect foreign direct investors in many ways. They can limit access to certain sectors or activities or impose conditions on their entry. All too often they apply localisation requirements on foreign investors, such as mandating local hiring and sources.

After establishment, a foreign investor may find they have to comply with different, typically stricter, rules than those competing firms must comply with. Import barriers also indirectly alter the incentive to engage in FDI in the first place, as exporting a good or service from abroad may be a viable alternative to establishing a production facility in a country. Information on all of these policy interventions is needed when preparing a comprehensive, contemporary picture of government treatment of FDI.

Over the past five years public policies have generally worsened the treatment of foreign investors. Using detailed information in the Global Trade Alert database on thousands policy interventions affecting the viability of FDI, the 27th report emphasises six trends.

First, it is clear that governments have introduced fewer public policies conducive to inward FDI. This is true of the G20 nations and other groups of nations, including the Least Developed Countries. Second, with the exception of China, most governments policies towards outward FDI are consistently supportive.

Third, policies encouraging barrier jumping FDI are declining in importance. Fourth, localisation requirements affecting foreign direct investors became more far-reaching over the past five years, as have policies affecting the entry, screening and regulation of FDI. 38 governments seem to have introduced or tightened FDI screening policies since 2015. Seven governments have changes to FDI screening in the works.

Fifth, fewer policies in service sectors encourage FDI when compared to goods sectors. And sixth, businesses have faced mounting regulatory risks over the past decade.

To be clear, not every policy change treats FDI worse. Still, on balance, over the past five years governments have made life more difficult for foreign investors.

So, while diplomats in Geneva negotiate to ‘facilitate’ FDI, back home their governments are throwing sand in the wheel of this once-important feature of globalisation. One has to ask if there is a disconnect between the good intentions in Geneva and the reality on the ground. Put differently, there is little hope that current WTO talks will revive FDI when those negotiations fail to address the policy dynamics summarised above.

One could argue that the worsening treatment of FDI provides a stronger rationale for new multilateral disciplines. That argument would be considerably stronger if the scope of the current investment facilitation talks in Geneva were not limited in the first place.

Fortunately, governments and international organisations keen on promoting FDI need not wait for the conclusion of a multilateral accord. Implementing three steps will improve the commercial prospects of FDI in development-sensitive sectors.

First, having shown why returns on FDI are so low in a developing country, or why such returns are falling, dialogue between the World Bank, regional development banks and host governments should identify which policies and corporate practices must change and the technical support required to effect them.

Second, governments and international organisations should target any state-provided financial support for FDI at priority sectors where sustainable development benefits are deemed greatest by host governments in developing countries. This applies to financial incentives for outward as well as inward FDI.

And third, governments should progressively de-risk FDI by thoroughly reviewing and benchmarking existing regulatory policy and enforcement practice. Particular attention should be given to the implementation of recently approved FDI screening policies.

If governments and international organisations heed this advice, the commercial viability of FDI will improve significantly.

Simon J Evenett is Professor of International Trade and Economic Development at the University of St Gallen and Founder of the St Gallen Endowment for Prosperity Through Trade (SGEPT), the institutional home of the Global Trade Alert.

Johannes Fritz is CEO of the St Gallen Endowment for Prosperity Through Trade.

The post Can WTO talks revive global FDI? first appeared on East Asia Forum.
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Myanmar’s Youth Increasingly Look for Opportunity Abroad

Many say that there is no future for the young in junta-led Myanmar.

Myanmar’s Youth Increasingly Look for Opportunity Abroad

Myanmar’s youth are increasingly looking to move abroad in hopes of finding better opportunities, with many saying the Feb. 1 military takeover effectively killed off any hope they had in their homeland, youths told RFA.

Sources in the country said that the situation for young people was already difficult, as many with advanced degrees had been unable to find work in their field. The coronavirus pandemic in 2020 made the situation even worse as many of the businesses that traditionally hire young people had to shut down.

Now with the military violently cracking down on widespread pro-democracy demonstrations and supporters of a return to a democratically elected government taking up arms, many youth would rather just leave the country and find their fortunes elsewhere.

“I learned IT only during Daw Suu’s government,” an IT professional told RFA’s Myanmar Service, referring to the ousted State Counsellor Aung San Suu Kyi, currently on trial in a junta court on sedition charges.

“When the good companies came in, we had to work hard to learn what we did not know before, and we were happy to get good jobs. That was why people here didn’t need to go abroad anymore. There was no need to go overseas to study,” she said.

All that changed on Feb. 1, according to the young woman.

“Now that all this has happened, it is likely that everyone will leave. It’s now so crowded at the passport office,” she said.

Another youth who recently graduated IT school said she decided to leave Myanmar because the coup crushed her hope of finding gainful employment or education.

“If this situation continues there will be no job opportunities for IT professionals in the country. Most IT companies are international companies,” she said.

“Local companies are small and are not growing significantly. Most of them support the military. If the foreign companies leave Burma, there’s no way our careers will improve,” she said, using an older name for the country.

The coup has also affected the prospects of young artists.

A filmmaker told RFA it would be impossible to achieve his goals with all the restrictions that he believes will come under junta rule.

“Since 2018, the Myanmar film industry has released really good movies, and it was only getting better since then. We young people expected that we could make good films, but now our dreams are gone,” he said.

“How will you be able to work independently in the future? Everyone loves their country and wants to work in their own country. But if you can’t work in your own country you will have to find a more suitable place,” the filmmaker said.

The father of a young engineer told RFA that the younger generation have lost any sense of direction because there was already a scarcity of jobs in Myanmar, and the situation only got worse with the COVID-19 pandemic and then the coup.

“From 2010 until now, my son had no opportunity to work as an engineer and have a job suited to his degree. He had to work as a clerk with a salary of 200,000 to 300,000 [U.S. $120 to $180] per month,” the engineer’s father said.

“Some graduates have had to work as delivery boys. Others as drivers…This economy is not good. I don’t know what they will do next. There is no future here… That’s why they are now focusing on going abroad because their lives will not be stable here,” he said.

Emigration statistics since the Feb. 1 coup have not been made available. Some Myanmar residents have fled to India or Thailand to avoid military conflict.

But while some youth are trying find ways to leave, others are staying, risking their lives for what they believe is right.

“I have been thinking about how to protect my house from the rain and sun,” a young man, speaking metaphorically about his homeland, told RFA.

“Now is the time to heal our wounds. Now is the time to face the problems of our own country again. It’s time to solve these problems ourselves. That is why I cannot turn my back on my dying homeland,” he said.

Moe Thwe, a member of the pro-democracy youth movement called Generation Wave, told RFA that most youth understand the risks of staying the country and of trying to achieve their goals overseas. She hopes they will one day return.

“This is a situation we can’t avoid. I don’t see it as a negative thing and in some cases I even encourage them to go abroad because we’ll be working with a wider international current, even with international organizations,” said Moe Thwe.

She urged Myanmar youth abroad to support their communities back home by sending money back to their families. Additionally, she called on them to share Myanmar’s story online.

“This will support the revolutionary movement in Myanmar both financially and academically… I see it as an investment for a post-revolution country,” she said.

According to figures from the World Bank, Myanmar’s employment rate for people aged 15-24 hovered around 1.5 percent before the country’s first openly contested elections in 2015. It then spiked to about 4 percent in 2017 before falling to the 1.5 percent level by 2019. Data for 2020 are not yet available.

Reported by RFA’s Myanmar Service. Translated by Khin Maung Nyane. Written in English by Eugene Whong.

Source : Radio Free Asia More   

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