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World Investment Report predicts lower growth in 2012

4th August, 2012

The UNCTAD released the World Investment Report, 2012 recently. Focussing on FDI, it states that the growth rate will be slow in 2012 and that Russia’s accession to the WTO could increase the role of services sector in transition economies of South-East Europe. The Report also analyses the trends in Investor-State Dispute Settlement (ISDS) and suggests reform to bring greater transparency and legitimacy to the ISDS mechanism.      

The report, based on its new FDI Contribution Index showing relatively higher contributions by foreign affiliates to host economies in developing countries, concludes that policy is crucial for maximizing positive and minimizing negative effects of FDI.
Highlighting the fact that greenfield investments continue to dominate, the report states that though the growth in global FDI flows in 2011 was driven in large part by cross-border M&As, the total project value of greenfield investments remained significantly higher than that of cross-border M&As.      

The report talks of measures to make International Investment Agreement (IIA) attuned to sustainable development, providing policy space to national government. It calls for general exception to domestic regulatory measures, making country specific reservations to national treatment (NT) and ensuring investors’ compliance with applicable corporate social responsibility standards.      

An interesting observation in respect of IIA is the concept of Special and Differential Treatment (SDT) for the less developed party. It suggests inter alia, making Fair and Equitable Treatment (FET) and NT not legally binding on the less-developed party, limiting the Full Protection and Security (FPS) provision to “physical” security and protection alone and further limiting it to a level commensurate with the country’s stage of development and providing for exhaustion of local remedies and alternative dispute resolution.
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