World Investment Report 2019


Chapter 3 – Investment Policy Trends

Foreign investment restrictions and regulations are on the rise

In 2018, some 55 countries and economies introduced at least 112 policy measures affecting foreign investment. Two thirds of these measures sought to liberalize, promote and facilitate new investment. Thirty-four percent introduced new restrictions or regulations for FDI – the highest share since 2003 (figure 5).


Liberalization measures affected several industries, including agriculture, media, mining, energy, retail trade, finance, logistics, transportation, telecommunication and the internet business. Developing countries in Asia accounted for approximately 60 percent of such measures. Some countries advanced the privatization of state-owned companies. Furthermore, the trend towards simplifying or streamlining administrative procedures for foreign investors continued, for example through the abolition of approval requirements or the establishment of online application portals. Also, numerous countries provided new fiscal incentives for investment in specific industries or regions.

Among the new restrictions and regulations, developed countries adopted a number of measures to address national security concerns. In developing countries, measures included new foreign ownership ceilings in certain industries or restrictions on the acquisition of residential property. New local content requirements and obligations to employ local workers were also introduced, including as part of public procurement rules.
Numerous cross-border M&A deals (exceeding $50 million) fell through in 2018 because of government interventions. At least 22 deals were blocked or withdrawn for regulatory or political reasons – twice as many as in 2017. Nine were halted for national security considerations, three were withdrawn due to concerns from competition authorities and three more were aborted for other regulatory reasons. Another seven deals were abandoned due to approval delays from host-country authorities.

Countries are reinforcing regulatory frameworks to screen foreign investment

FDI screening has become more prevalent over recent years. At least 24 countries – collectively accounting for 56 per cent of global FDI stock – have a specific foreign investment screening mechanism in place. Tighter control over foreign acquisitions due to security and public interest concerns is also being addressed at regional levels.

The use of national security arguments in investment policy originated as an instrument to control foreign participation in the defence industry. It has since gradually broadened to protect other strategic industries and critical infrastructure and is now also used to safeguard domestic core technologies and know-how considered essential for national competitiveness in the era of the new industrial revolution.

From 2011 to March 2019 at least 41 significant amendments were made to FDI screening frameworks and at least 11 countries introduced new frameworks. Most of the amendments expanded the scope of screening rules by adding new sectors or activities, lowering triggering thresholds or broadening the definition of foreign investment. Other new regulations broadened disclosure obligations, extended the statutory timelines of screening procedures, or introduced penalties for not respecting notification obligations (figure 6).


International investment policymaking remains highly dynamic

In 2018, 40 new IIAs were signed. The new treaties included 30 bilateral investment treaties (BITs) and 10 treaties with investment provisions (TIPs). The country most active in concluding IIAs was Turkey with eight BITs, followed by the United Arab Emirates with six BITs and Singapore with five treaties (two BITs and three TIPs).

Some of the new treaties are megaregional, with novel features and involving key investor countries. The new treaties brought the number of IIAs to 3,317 (2,932 BITs and 385 TIPs). By the end of the year, at least 2,658 IIAs were in force (figure 7).


At the same time, the number of IIA terminations continued to rise. In 2018, at least 24 terminations entered into effect (“effective terminations”), 20 of which were unilateral and 4 of which were due to replacements (through the entry into force of a newer treaty). This included 12 BITs terminated by Ecuador and five by India. By the end of the year, the total number of effective terminations reached 309 (61 per cent having occurred since 2010).

Many countries are developing new model treaties and guiding principles to shape future treaty making. This will have a significant impact on the global IIA regime. Many of these developments have benefited from UNCTAD’s work on IIA-related technical assistance and capacity building.

The surge in ISDS cases continues

In 2018, investors initiated 71 publicly known ISDS cases pursuant to IIAs (figure 8), nearly as many as in each of the previous three years. As of 1 January 2019, the total number of publicly known ISDS claims had reached 942. Almost all known ISDS cases have thus far been based on old-generation investment treaties. To date, 117 countries have been respondents to one or more ISDS claims. As some arbitrations can be kept confidential, the actual number of disputes filed in 2018 and previous years is likely to be higher.
Over two thirds of the publicly available arbitral decisions rendered in 2018 were decided in favour of the investor, either on jurisdictional grounds or on merits. By the end of the year, 602 ISDS proceedings had been concluded.


Forward-looking IIA reform is well under way

All treaties concluded in 2018 contain several reforms that are in line with UNCTAD’s Reform Package for the International Investment Regime. Twenty-seven of the 29 IIAs concluded in 2018 for which texts are available contain at least six reform features. Provisions that were considered innovative in pre-2012 IIAs now appear regularly. Modern treaties often include a sustainable development orientation, preservation of regulatory space, and improvements to or omissions of investment dispute settlement. The most frequent area of reform is the preservation of regulatory space. Some recent IIAs or treaty models also contain explicit references to gender equality.
Investor–State arbitration is also a central focus of IIA reform. It continues to be controversial, spurring debate in the investment and development community and the public at large. About 75 per cent of IIAs concluded in 2018 contain at least one ISDS reform element, and many contain several. Most of these reform elements are in line with the options identified by UNCTAD in the Investment Policy Framework for Sustainable Development. Five principal approaches emerge from IIAs signed in 2018 (used alone or in combination): (I) no ISDS (four IIAs entirely omit ISDS), (ii) a standing ISDS tribunal (one IIA), (iii) limited ISDS (19 IIAs), (iv) improved ISDS procedures (15 IIAs), and (v) an unreformed ISDS mechanism (six IIAs). Some of the reform approaches have more far-reaching implications than others.
ISDS reform is being pursued across various regions and by countries at different levels of development. In parallel, multilateral engagement on ISDS reform is gaining prominence, involving a number of institutions such as UNCITRAL and ICSID.

But comprehensive reform is only just beginning

IIA reform is progressing, but much remains to be done. UNCTAD’s policy tools have spurred initial action to modernize old-generation treaties. Increasingly, countries interpret, amend, replace or terminate outdated treaties. However, the stock of old-generation treaties is 10 times larger than the number of modern, reform-oriented treaties. The great majority of known ISDS cases have thus far been based on old-generation treaties.
IIA reform actions are also creating new challenges. New treaties aim to improve balance and flexibility, but they also make the IIA regime less homogenous. Moreover, innovative clauses in new treaties have not yet been tested in arbitral proceedings. Different approaches to ISDS reform, ranging from traditional ad hoc tribunals to a standing court or to no ISDS, add to broader systemic complexity. Moreover, reform efforts are occurring in parallel and often in isolation.
Effectively harnessing international investment relations for the pursuit of sustainable development requires holistic and synchronized reform through an inclusive and transparent process. UNCTAD can play an important facilitating role in this regard.

Financial markets increasingly integrate ESG factors

Capital markets play an important role in the global investment chain. Portfolio investment is the third largest form of external finance for developing countries, and capital market practices can shape the sustainable development practices of MNEs engaged in FDI worldwide. Key actors influencing capital markets include security market regulators, stock exchanges, issuers (listed companies), asset owners and asset managers (investors). Stock exchanges sit at the centre of this web of actors and the sustainability practices of stock exchanges can be a useful benchmark to monitor trends in sustainable finance.

Recent years have shown a sharp uptake in sustainability activities among the world’s stock exchanges. This upward trend is expected to continue. Public policies to promote sustainable development are being strengthened in a number of jurisdictions. Also, the exchange industry and market regulators increasingly recognize the important role that environmental, social and governance (ESG) factors can play in promoting investment in sustainable development and emerging markets.

As ESG inclusion transitions from a niche to a mainstream practice, key challenges will need to be addressed, including fully integrating sustainability throughout the investment chain, connecting upstream asset managers to downstream investment projects and expanding ESG themed financial products.