2009 Chapters (Layout Features)

The Rise of FDI Protectionism

Sauvant, Karl P.

During the past 20 years or so, we have witnessed an impressive trend toward making the investment climate more welcoming for foreign direct investors. At the national level, the great majority of regulatory changes related to foreign direct investment (FDI) were in that direction, mostly in terms of opening more sectors to investment or reducing other market entry conditions and facilitating the operations of multinational enterprises (MNEs) once established. In fact, countries have actively sought to attract FDI, establishing investment promotion agencies to do that and, among other things, using a range of incentives to lure MNEs to their shores. These national policies have been supplemented by international investment agreements (IIAs) which, in particular, enshrine the protection of investment in internationally-binding treaties and, in a number of cases, also commit governments to liberalizing entry and operating conditions for foreign investors. The result is an international investment regime which, compared to what there was, say, 30 years ago, is quite well developed, even in the absence of a multilateral investment treaty. It is enforced, moreover, through an investor-state dispute settlement mechanism that is increasingly used by firms that seek to enforce what they see to be their rights. This dominant trend of the past two decades or so is certainly still continuing—but there are signs that the pendulum is swinging back. What is happening and why is it happening?