World Investment Report 2018


Chapter 3 -Investment Policy Trends

Scrutiny of foreign takeovers is intensifying

New national investment policy measures continue to be geared mostly towards investment liberalization and promotion. UNCTAD data show that, in 2017, 65 countries and economies adopted at least 126 investment policy measures affecting foreign investment – the highest numbers of countries and policy changes over the past decade. Of these measures, 93 related to the liberalization and promotion of investment, while 18 introduced restrictions or regulations (the remaining 15 measures were neutral). Liberalization and promotion thus accounted for 84 per cent of investment policy changes (figure 6).

Entry restrictions for foreign investment were eased in a number of industries, including transport, energy and manufacturing, with emerging economies in Asia most active. Numerous countries encouraged investment by simplifying administrative procedures, providing incentives and establishing new special economic zones. New investment restrictions or regulations mainly reflected concerns about national security and foreign ownership of land and natural resources.

Despite the overall trend towards liberalization or promotion measures in 2017, the share of restrictive and regulatory investment policy measures increased significantly in recent months. From October 2017 to April 2018, about 30 per cent of newly introduced investment measures were of a restrictive or regulatory nature. Some countries are taking a more critical stance towards foreign takeovers, in particular when they relate to national security or the sale of strategic domestic assets and technology firms. In addition, options to further strengthen foreign investment screening mechanisms are being discussed in several countries.

Investment treaty making has reached a turning point

The number of new international investment agreements (IIAs) concluded in 2017 was the lowest since 1983. Countries concluded 18 new IIAs – 9 bilateral investment treaties (BITs) and 9 treaties with investment provisions (TIPs). The most active economy was Turkey, concluding four treaties, followed by Hong Kong, China with two. Between January and March 2018, three additional IIAs were signed.

Moreover, for the first time, the number of effective treaty terminations (22) outpaced the number of new IIA conclusions (18). Particularly active in terminating treaties were India and Ecuador. This brought the size of the IIA universe to 3,322 agreements (2,946 BITs and 376 TIPs), of which 2,638 are in force as of year-end (figure 7).

Negotiations for megaregional agreements maintained momentum, particularly in Africa and Asia. The EU continued several FTA negotiations, including with Japan. The renegotiation of NAFTA, including the chapter on investment, began. In addition, a number of country groups are developing non-binding guiding principles for investment policy making.

The number of new treaty-based ISDS cases remains high

In 2017, at least 65 new treaty-based ISDS cases were initiated, bringing the total number of known cases to 855 (figure 8). So far, 113 countries have been respondents to one or more known ISDS claims. In 2017, ISDS tribunals rendered at least 62 substantive decisions in investor–State disputes. Of the total number of known cases decided on the merits, investors have won about 60 per cent.

IIA reform is well underway across all regions

Since 2012, over 150 countries have taken steps to formulate a new generation of sustainable development-oriented IIAs (phase 1 of IIA reform). For example, they have reviewed their treaty networks and revised treaty models in line with UNCTAD’s Reform Package for the International Investment Regime. In striking contrast to the treaties concluded at the turn of the millennium, all treaties concluded in 2017 contain at least six “reform features”, and some provisions that were considered innovative in pre-2010 IIAs now appear regularly (table 3). Highlights of modern treaty making include a sustainable development orientation, preservation of regulatory space and improvement (or omission) of ISDS.

Countries are also modernizing their existing stock of old-generation treaties (phase 2 of IIA reform). A small but growing number of countries are, for example, issuing interpretations or replacing their old-generation agreements. Countries have also been engaging in multilateral reform discussions, including with regard to ISDS. The more than 3,000 first-generation treaties today (representing some 90 per cent of the IIA universe) present further opportunity for reform actions.

After reform of old and new treaties, one more step…

After improving the approach to new treaties and modernizing existing treaties, the last step in the reform process (Phase 3) is to ensure coherence with national investment policies and with other bodies of international law.

Because national legal frameworks for investment in many countries cover the same establishment, treatment and protection issues as IIAs, effective reform of the latter may require parallel steps in national laws. In turn, the national policy framework may inspire reform of IIAs (e.g. concerning investment facilitation, investor obligations and settlement of disputes). Countries can improve the synergistic functioning of the two by strengthening cooperation between national and international investment policymakers and by clarifying the interaction between the two regimes (e.g. by establishing the precedence of one regime over the other).

More can also be done to improve coherence between IIAs and other bodies of international law and policy. Specific reform steps can mitigate risks relating to the limitation of regulatory space and to dispute settlement, and they can reduce administrative complexity (for both States and investors). For example, IIA negotiators can include exceptions for other areas of policymaking, use cross-referencing and guide the interpretation of treaty provisions by tribunals.

Striving for coherence does not necessarily imply legal uniformity – inconsistencies and divergence may be intended. Shaping the interaction therefore requires a solid understanding of the structural and contextual differences between different regimes. In the absence of a multilateral framework for investment, comprehensive regime reform would benefit from intensified backstopping. As the United Nations’ focal point for international investment, UNCTAD, through its three pillars of work – research and policy analysis, technical assistance and intergovernmental consensus-building – can play a key role. UNCTAD’s October 2018 High-level IIA Conference during the World Investment Forum will be a milestone in this regard.

Financial markets increasingly promote investment in sustainable development

Capital market policies and instruments designed to promote investment in sustainable businesses and support the achievement of the SDGs are an increasingly important feature of the investment landscape. Capital markets play a critical role in the investment chain that ultimately finances MNEs and their international activities. Market innovations related to sustainable development continue to attract interest from portfolio investors, and the positive track record of sustainability-themed products is reinforcing asset managers’ views that environmental, social and governance (ESG) issues are material to long-term investment performance. As these sustainable investment trends take root and expand, they can have a stronger influence on the relationship between listed MNEs and their shareholders, and in turn the operational policies and practices of MNEs relative to sustainable development.

An examination of stock exchange-related instruments around the world focusing on ESG factors shows 54 exchanges with at least one mechanism for promoting corporate ESG practices (figure 9). Some 40 stock exchanges provide sustainability indices and 39 exchanges provide ESG-related training. By Q1 2018, there were 38 stock exchanges in the world providing voluntary guidance on ESG disclosure (up from 32 at the end of Q1 2017) and 14 exchanges where ESG disclosure was a mandatory rule (up from 12 last year). The United Nations Sustainable Stock Exchanges (SSE) initiative now includes 72 exchanges (up from 63 at the end of Q1 2017); these exchanges collectively list over 45,000 companies with a market capitalization of over $80 trillion.