# **The rise of FDI protectionism**

There is no doubt that countries continue to improve the regulatory framework for FDI. If anything, the current crisis should put a premium on attracting more of such investment, be it to shore up ailing national firms or, more generally, increase investment at a time of recession. Indeed, as reports by the OECD and UNCTAD show,<sup>9</sup> this is taking place. Thus, the OECD reports that the “thrust of investment policy changes is, for the most part, toward greater openness and clarity... During the reporting period, six countries changed the laws governing their investment policies. Although the intended thrust of the policies is somewhat ambiguous, most of the changes aimed (according to announcements or notifications by governments) at increasing openness and clarity for investors.”<sup>10</sup> Similarly, UNCTAD reports, “a substantial number of policy changes surveyed were directed at facilitating investment. The crisis has galvanized G-20 members to promote and facilitate FDI and to create clarity and stability concerning their investment frameworks. Furthermore, a number of G-20 member countries have further encouraged their companies to venture abroad, and to support their foreign affiliates in times of economic crisis.”<sup>11</sup> At the same time, however, there are strong and visible signs that a re-evaluation of the open framework for FDI is under way, and this is reflected in the national and international rules governing this investment.<sup>12</sup> This change is most distinct so far at the national level. During the period 1992-2002, 6 percent of a total of 1,550 regulatory changes relating to FDI were in the direction of making the investment climate _less_ welcoming (i.e., 94 percent of the regulatory changes were favorable to MNEs – table 1). The share of unfavorable changes doubled to 12 percent of all regulatory changes during 2003-2004, and again almost doubled to 21 percent of all regulatory changes during 2005-2007. In the case of Latin America, some 60 percent of all FDI regulatory changes in 2007 were unfavorable to foreign investors (figure 5). Moreover, these data refer to formal changes in laws and regulations; no data are available on the extent to which unchanged laws and regulations are implemented in a more restrictive manner, increasing informal barriers to the entry and operations of foreign investors in a discriminatory manner.

Overall, countries that had implemented at least one regulatory change that made the investment framework less welcoming during 2006-2007 accounted for some 40 percent

> 9 OECD, “Status report: inventory of investment measures taken between 15 November 2008 and 15 June 2009” (Paris: OECD, 2009), mimeo., and UNCTAD, “Investment policy developments in G-20 countries” (Geneva: United Nations, 2009), mimeo. Together with the WTO, these three organizations will issue a joint report in September 2009 reviewing regulatory changes regarding FDI.

> 10 OECD, “Status report: inventory of investment measures taken between 15 November 2008 and 15 June 2009,” op. cit., p. 5.

> 11 UNCTAD, “Investment policy developments in G-20 Countries,” op. cit., para. 26.

> 12 For a full discussion, see Karl P. Sauvant, “Driving and countervailing forces: a rebalancing of national FDI policies,” in Karl P. Sauvant, ed., _Yearbook on International Investment Law and Policy 2008-2009_ (New York: Oxford University Press, 2009), pp. 259-260.

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