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This chapter will summarize the weaknesses observed in international economic law’s attempts to regulate the use of performance requirements and investment incentives. It will then recommend potential improvements through modifications of IIAs, the WTO TRIMs and SCM regime and through harmonization. This chapter will also draw attention to the need to improve the domestic regulatory environment and through a discussion of networked governance will suggest engaging in collaborative review of these FDI policy tools from a wider stakeholder perspective.
Closing the Governance Gap
The effects of globalisation, together with the increase in foreign investment and resource development within the developing world, have created a context for human rights abuses by States in which transnational corporations are complicit. This timely book considers how these ‘governance gaps’, as identified by Professor John Ruggie, may be closed. Simon Baughen examines the status of corporations under international law, the civil liability of corporations for their participation in international crimes and self-regulation through voluntary codes of conduct, such as the 2011 UN Guiding Principles.
This book assesses the way in which performance requirements and investment incentives are regulated by international economic law, consisting of the law of the World Trade Organization (WTO) and international investment agreements (IIAs). The central argument of this book is that the existing international regulatory regime governing these policy instruments is insufficiently robust to prevent their abuse by states seeking to protect weak industries and by mobile firms exploiting host states which need to attract foreign direct investment (FDI). This book will suggest that the lack of international coherence on the control of performance requirements and investment incentives has prevented states from using them in a manner that is economically advantageous on a domestic and, by extension, global scale. The manner in which performance requirements and investment incentives are regulated by international economic law is contentious, because these policies allow states to control the nature and extent of FDI in and out of their territory, very often leading to distortions in international markets as well as misallocated resources in the domestic economy. At the same time, these conditions are key manifestations of economic sovereignty and can represent useful instruments of domestic economic and social policy in limited circumstances. This is true both in emerging markets, which are often vulnerable to the effects of globalization, and in developed states, where they may be used in response to discrete, socially-damaging downturns in particular industries or regions. Drawing on the economic and business literature, this book will recommend a balanced, socially collaborative approach to the regulation of performance requirements and investment incentives that is mindful of the need for case-by-case evaluations of individual policies with input with a range of affected stakeholders.
This chapter will provide an overview of the ways in which standard IIA protections could be construed to control the use of investment incentives by host states, notably through an expansive understanding of the fair and equitable treatment (FET) standard. Arbitral case law focussing on the removal of investment incentives as causes of action under the FET clause and guarantees against expropriation will be considered in detail.
This chapter will evaluate the WTO’s limited disciplines on incentives, captured essentially by its regime on subsidies under the SCM. The lack of comprehensive coverage by this instrument and other WTO agreements like the GATS and the GPA will be examined, with a focus on the imperfect link between tests for economically distortive subsidies and a range of traditional incentives.