Trade
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. 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,…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
- Italy and China New DTA Set to Take Effect in 2025: Important Changes and Implications
- China’s New Home Prices Stabilize After 17-Month Decline Following Support Measures
- U.S. national debt is its Achilles’ heel, but China sees it as an opportunity
- Business Update: Southern Sun Reports Earnings Growth; China Stimulates Property Market – News24
- Vietnam’s Approach to China: A Balance of Cooperation and Struggle
- 2025 Schedule of Public Holidays in China
