Investment is essential to the achievement of sustainable development. Much existing infrastructure and many existing practices are unsustainable, and investment will be needed to replace them. To promote this kind of investment an international investment regime will be needed.

Over the last few years, flows of foreign direct investment have increased dramatically so that they now dwarf bilateral and multilateral official development assistance, for many years the mainstay of international investment activities. At the same time, official development assistance has stagnated so that it is now a much smaller proportion of developed-country GDP than it was at the time of the United Nations Conference on Environment and Development. Moreover, foreign direct investment is taking up many of the economically viable infrastructure projects that have formed an important part of the portfolio of official development assistance. This leaves official development assistance the task of funding economically marginal projects, further complicating the task of justifying it to the electorates of OECD countries.

Foreign direct investment is flowing to a few favoured countries, including Argentina, Brazil, China, Chile and Mexico. Reliance on foreign direct investment to fund development leaves many countries without resources, including those that most desperately need investment for sustainable development.

We must rethink long-held assumptions about the process of development and the role of governments in it. It is essential that scarce resources—including foreign direct investment—are allocated as efficiently as possible and in a manner consistent with sustainable development. In particular, capital should be flowing to less-developed countries and regions. An appropriate international investment regime could help meet the public policy challenges that this distorted pattern of investment represents.

This book reviews the long debate about an international investment regime. It considers existing multilateral, regional and bilateral investment agreements and seeks to identify the need for a broad multilateral agreement. It also reviews the two major streams of international debate in this area, one focusing on investor rights and the other on investor obligations.

The central importance of investment to the development process has long been recognized, but attempts to form an international investment regime have been defeated by the extreme polarization of the debate. While the United Nations Conference on Trade and Development sought to negotiate binding obligations for multinational corporations, the governments of OECD countries focused primarily on securing additional rights for investors so as to improve the security of their investments. The public-policy interest is to achieve an appropriate balance between investor rights and obligations, and between private interests and public goods, but none of the international approaches to investment has tackled this task. ... (Executive Summary)

Download An International Investment Regime? Issues of Sustainability

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Konrad von Moltke
Published by the International Institute for Sustainable Development

The International Institute for Sustainable Development contributes to sustainable development by advancing policy recommendations on international trade and investment, economic instruments, climate change, measurement and indicators, and natural resource management. By using Internet communications, IISD reports on international negotiations and brokers knowledge gained through collaborative projects with global partners, resulting in more rigorous research, capacity building in developing countries and better dialogue between North and South.

IISD’s vision is better living for all—sustainably; its mission is to champion innovation, enabling societies to live sustainably. IISD receives financial support from the governments of Canada and Manitoba, other national governments, UN agencies, foundations and the private sector. IISD is registered as a charitable organization in Canada and has 501(c) (3) status in the U.S.

Preface:

Environmental activists are widely credited with (or condemned for) launching the opposition that finally led to the abandonment of negotiations for a Multilateral Agreement on Investment at the OECD in late 1998. It took more than environmental opposition to stop the MAI in its tracks, but since then it has been accepted wisdom that environmentalists are opposed to an international investment agreement. This study takes a hard look at that assumption. Its first conclusion is that an international investment agreement should be a priority for those interested in the environment and sustainable development. The question then is, what kind of an investment agreement?

The history of investment negotiations over the past 20 years reveals that the MAI suffered from more shortcomings than just the widely advertised environmental ones. With its focus on investor rights—certainly an essential part of any investment agreement—the MAI perpetuated a polarization of the process that consistently separated investor rights from investor obligations.

The need to strike a balance between private (investor) interests and public goods must be at the heart of any international agreement, certainly when viewed from the perspective of sustainable development.

An international agreement that facilitates a balancing of private interests and public goods needs to look quite different from the MAI. Indeed, it must also look different from the GATT. It represents a challenging undertaking, in many respects as difficult as constructing a regime for the control of climate change (itself an agreement that seeks new private investment in areas of public concern). This study draws lessons from the experience in building international environmental agreements to suggest a new approach to an international investment agreement. It proposes a framework agreement on investment combined with a number of sectoral agreements (for example, on climate change, forestry, or the provision of services for that matter), in which it becomes possible to identify the public interest being served by providing private investors with additional rights.

In publishing this study, the International Institute for Sustainable Development hopes to help relaunch the debate on an appropriate international investment regime. IISD is convinced that a great deal of useful work needs to be done in this area, much of which will benefit the environment and sustainable development.

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