WORLD TRADE
ORGANIZATIONWT/WGTI/W/94
13 November 2000
(00-4794)
Working Group on the Relationship
between Trade and InvestmentOriginal: English
COMMUNICATION FROM UNCTAD
Reproduced hereunder is the statement made by the observer representative of UNCTAD at
the meeting of the Working Group on the Relationship between Trade and Investment held on11 October 2000.
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International Investment and Development:  A report on UNCTAD's
Work Programme in the Area of International Investment
1. Thank you very much for this opportunity to bring you and the Working Group up-to-date on
UNCTAD's work programme on investment policies a nd international investment agreements (IIAs).
Since your last session in June 2000, we have, in accordance with our mandate, continued our efforts
with respect to research and analysis on internat ional investment flows and patterns, as well as
capacity-building in developing countries (and economies in transition) on issues that arise in relation
to discussions or negotiations on investment policies, be they at the national or international levels.
2. Today, I will briefly report on our flagship activities since your last session.  The first is
UNCTAD's annual World Investment Report 2000: Cross-border Mergers and Acquisitions and
Developmen t.  The Overview is available to you, but do let me outline briefly the main findings.
3. In recent years, most of the growth in FDI and international production has been via cross-
border mergers and acquisitions (M&As) rather than through greenfield investment.  Between 1987
and 1999, the value of cross-border M&As increased sevenfold, and the trend continues.  The year
2000 may well see a total value of cross-border M&As above US$ 1 trillion.
4. While M&As are particularly significant as a mode of entry for FDI in developed countries,
they are also accounting for an increasingly important share of FDI inflows in developing economies.
This means that policy-makers in most countries today need a better understanding of the role and
impact of cross-border M&As to design appropriate policy responses.
5. Cross-border M&As, particularly those involving large firms, vast sums of money and major
restructuring of the activities of firms are among the most visible faces of globalization.  And, as with
globalization generally, the impact can be double-edged and uneven. In fact, perhaps more than other
aspects of globalization, cross-border M&As raise questions about the balance of their benefits and
costs for countries.
6. In a number of countries, concern is expressed in political debate and in media that take-overs
by foreign firms may have adverse effects on both firm performance and economic development in
general.  In host countries, the acquisition of an existing firm is often seen as less beneficial (or evenWT/WGTI/W/94
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harmful) than the setting up of new facilities. Foreign acquisitions are often seen as only a change of
ownership with no additional production capacity added.
7. Other concerns relate to:
• risk of layoffs;
• adverse effects on competition;
• the risk of strategic firms falling under foreign control;
• the risk of asset stripping;
• threats to national culture and identity;  and
• the erosion of national sovereignty.
8. How, then, does the mode of entry affect the impact on host country development?  In brief,
the impact on development does differ.  In general, and especially in the short term, greenfield
investment has a larger and more growth-conducive impact on host developing countries.  Although
both types of FDI can bring a package of resource s, M&As do not immediately add capacity and may
increase market concentration.  In fact, cross-border M&As can be undertaken with anti-competitive
purposes in mind.
9. Moreover, FDI through M&As is less likely to transfer new or better technologies or skills
than greenfield FDI and does not immediately gene rate employment when it enters a country and
may, indeed, lead to lay-offs.
10. Under special circumstances , however, cross-border M&As can be useful.  This is the case,
for instance, during financial or economic crises, when developing country firms seek partners or newowners for crisis-stricken companies which otherwise may go bankrupt, or in situations of
privatization when FDI can lead to greater efficiency in former state-owned enterprises.  Furthermore,
over time , differences between the two modes of entry tend to fade or disappear – possibly with the
exception of the impact on competition.
11. Thus, the policy implications of the increase of cross-border M&As are not always
straightforward. In the context of M&As, the pride of place belongs to competition policy.  The
principal reason is that M&As can pose threats to competition, both at the time of entry andsubsequently.  The threat of monopoly, or tight oligopoly, is potentially the most important negative
effect of cross-border M&As.  The challenge is to ensure that policies are in place to deal with those
M&As that raise competition concerns, and that they are implemented effectively.
12. As FDI restrictions are lifted world-wide, it becomes all the more important that regulatory
barriers to FDI are not replaced by anti-competitive practices of firms.  This calls for the adoption andimplementation of competition laws and merger review systems.  However, competition policy can no
longer be viewed solely within a national context.  Competition authorities need to have in place
cooperation mechanisms among themselves at the bilateral, regional and multilateral levels.
International action is particularly important when dealing with cross-border M&As with global
dimensions, especially for smaller developing countries that lack the resources to mount and enforcesuch policies on their own.
13. In fact, the world economy today may well be witnessing the beginning of a similar challenge
in terms of global  market structure and competition as the United States did a century ago at the
national  level.  While the United States then saw the emergence of a national market and a national
production system, in the wake of a massive domestic M&A wave, the present developments indicatethe emergence of a global market for firm ownership, as a complement of the evolving global market
for products and services and the development of an international production system.WT/WGTI/W/94
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14. If the parallel with the United States case is indicative, we may so far have seen only the
beginning of a massive consolidation process at the regional and global levels.  If so, it is all the more
important to put in place the necessary policy instruments to deal with this process.  Indeed, during
the 1990s, more and more countries have adopted antitrust laws.  But, in the end, a global market for
firms may need a global approach to competition po licy, an approach that takes the interests and
conditions of developing countries fully into account.
15. I now turn to UNCTAD's work programme on IIAs.
16. With respect to UNCTAD's analysis pertaining to IIAs, we continue our work on the Series
on Issues in International Investment Agreements .  We have now completed our study on transfer of
funds, a core element of IIAs.  We are also completing our work on other core issues; namely State-
to-State and investor-to-State dispute settlement.  In addition, our studies with respect to other key
issues related to IIAs are continuing.  These include the environment, social responsibility, homecountry measures and host country operational measures, which are not only relevant to investment
issues, but also to trade issues.
17. An important event, which is not unrelated to our Series because it includes a study on its
subject matter, is the expert meeting of the Commission on Investment, Technology and Related
Financial Issues dealing with home country measures, scheduled to take place from8-10 November 2000.
18. At the tenth session of UNCTAD, in its stocktaking of major international initiatives, the
Conference noted that some countries have introdu ced home country measures to promote FDI flows
to developing countries, and such measures deserve to be encouraged.  Accordingly, UNCTAD was
requested to study existing home country measures that could be considered in programmes to supportefforts of developing countries to attract FDI and benefit from it, and to identify and disseminate
information concerning existing home country measures that encourage transfer of technology in
various modes to developing countries, in particular least developed countries.
19. Subsequently, the Trade and Development Board decided to convene an Expert Meeting on
Home Country Measures (HCMs) within the framework of the Commission on Investment,
Technology and Related Financial Issues.  The Trade and Development Board’s decision to convene
this expert meeting should be a welcome addition to efforts to contribute to the evolution of the
trilateral relationship created by FDI, between host countries, transnational corporations and their
home countries, to increase FDI flows to develo ping countries and to advance the development
objectives of host countries.  The expert meeting will provide a forum for governmental experts to
exchange national experiences and best practices in the area of six broad categories of major types of
existing home country measures used to promote out ward FDI to developing countries, including the
transfer of technology.  The six broad issues are:
• information provision and technical assistance;
• financial support;
• fiscal incentives;
• investment insurance;
• measures based on market access; and
• measures aimed at promoting or facilitating transfer of technology.
20. For each of these sets of measures, the meeting is expected to focus on (1) stocktaking (what
exists in this area);  (2) rationale (why are certain measures applied);  (3) analysis (how have these
measures worked, including an exchange of experience);  (4) effectiveness (what can be done to
enhance the impact of home country measures);  (5) what improvements are possible (includingWT/WGTI/W/94
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possible new measures);  and (6) the international dimension (how can HCMs be operationalized in
international investment/technology agreements).
21. With respect to our capacity building and technical cooperation activities, our efforts have
consisted of conducting seminars on international investment issues, and technical assistance relating
to the negotiation of bilateral investment treaties (BITs).  In June/July of this year, we had thepleasure of facilitating, with the generous suppor t of the Government of Japan, a two-week round of
negotiations of BITs between 12 developing countries and those with economies in transition, in
Sapporo, Japan. (The report is available to you.)  The Sapporo Round witnessed the initialling of
22 BITs, which could help pave the way for increased FDI flows between the participating countries.
The success of these negotiations was remarked on by the United Nations Secretary General,
Mr. Kofi Annan, in his address to the 24th annual meeting of the Ministers of Foreign Affairs of the
Group of 77 developing countries.  With reference to the South Summit in Havana, and in connectionwith the Havana Declaration and Progra mme of Action, Mr. Annan said, and I quote:
“Particularly important, I think, was the call for increased South-South cooperation,
aimed at encouraging flows of investment as well as exchanges of expertise and
technology.
That call did not fall on deaf ears. Already in July, under the auspices of United
Nations Conference on Trade and Devel opment (UNCTAD) and with financial
support from Japan, 12 countries drawn from all the different developing regions
came together to engage in a round of negotiations, the “Sapporo Round”, which
produced 22 bilateral investment treaties.
This is a most encouraging pointer to the future. It shows that developing countries
are not waiting passively for help from the industrialized world, but are taking active
steps to help themselves, and each other.”
22. We stand ready to assist developing countries in other areas that relate to international
investment issues.  A 10-day intensive training course will be offered in each of the developing
regions of the world, with the participation of leading experts in the field.  In this connection, wehave, since your last meeting, signed a Memorandum of Understanding with the Indian Institute of
Foreign Trade to host the training course in Asia.  We are pursuing similar arrangements with other
well-established recognized institutions in the developing world.
23. I wish to point out that, as most of these activities have been and will have to be financed
from extra-budgetary resources, we have launche d a new five-year project financed from various
countries through a multi-donor trust fund.  To date, we have received pledges and/or contributions
from France, the Netherlands, Norway, Switzerland and the United Kingdom.  I gratefullyacknowledge these contributions.
24. In closing, I would like to emphasize that we welcome the opportunity to continue to share
our experiences with this Working Group and to continue to make our expertise available, if it is so
desired.
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