G20 serves an appetiser to a potential investment policy feast

G20-China-2016-logo-300Following endorsement of the G20 Guiding Principles for Global Investment Policymaking by G20 Trade Ministers in Shanghai on 10 July 2016, Ana Novik, Head of the OECD Investment Division, highlights the importance of follow-through on this important stepping stone to greater policy coherence.

In an economy where global value chains (GVCs) are increasingly pervasive – with the production of goods and provision of services fragmented across borders – and where the growth in cross-border trade and investment flows remains relatively sluggish, structural reform and policy coherence in the “trade-investment nexus” is more important than ever. As the global economy still struggles to achieve “escape velocity” from its post-crisis torpor, these can be the keys to unlock stronger growth and raise living standards for all.

Investment is understood to be a critical component of the GVC equation. So, recognising the economic salience of more coherent investment policymaking, G20 Trade Ministers endorsed new G20 Guiding Principles for Global Investment Policymaking at their meeting in Shanghai on 9-10 July 2016. This came about as a result of careful negotiation, supported by the OECD and other international organisations, through the G20’s new Trade & Investment Working Group (TIWG).

China’s initiative in establishing the TIWG during its 2016 G20 Presidency, and in putting investment policy coherence centre stage, sets a high bar for the German and Argentine Presidencies to follow in 2017 and 2018. Not only is this new working group an ideal forum for high-level policy makers to advance the multilateral trade and investment agendas separately but, crucially, it represents an opportunity to bolster policy coherence between them by exploiting synergies and recognising interdependencies.

Under China’s dynamic leadership, the G20 TIWG has served up a taste of what is possible. If policy makers can maintain this momentum at a global level, and implement conforming investment policy reforms at domestic level, these Guiding Principles may yet come to be seen as the appetiser to a feast. Critically, while the Guiding Principles help chart a way forward, it will be the political will of G20 member countries to advance reforms and engage in further constructive global dialogue that will determine their ultimate impact.

Sound, coherent policy frameworks in home and host countries can both ensure that private and international investment contribute significantly towards economic and social development, and enhance the attractiveness of countries’ investment climates. Getting these policy frameworks right is the rationale underpinning both the new G20 Guiding Principles for Global Investment Policymaking and the existing OECD Policy Framework for Investment, with which they are closely aligned.

The Guiding Principles entail nine key elements of guidance for policy makers:

  1. Avoid protectionism.
  2. Ensure non-discrimination.
  3. Protect investors.
  4. Make policy transparently.
  5. Aim for policy coherence for sustainable growth and inclusive growth.
  6. Recognise government’s right to regulate.
  7. Pursue effective and efficient promotion and facilitation policies.
  8. Observe best practices for responsible business conduct and corporate governance.
  9. Continue international investment dialogue.

Together, the Guiding Principles aim to foster an open, transparent and conducive global policy environment for investment. Although they are non-binding in nature, the Guiding Principles can help promote coherence in national and international policymaking, providing greater predictability and certainty for businesses so long as policy makers ensure they are well reflected through policy reforms.

The Role of the OECD and its Policy Framework for Investment

Providing critical support to TIWG negotiations over the first half of 2016, the OECD – working closely with the Chinese Presidency and UNCTAD – helped facilitate the constructive discussions leading to agreement on the Guiding Principles. In particular, inspiration was drawn from the OECD Policy Framework for Investment to ensure the Guiding Principles were as strong and balanced as possible. For example, there is a good balance between strong protection for investors, on the one hand, and, on the other hand, the imperative for investors to observe applicable instruments for corporate governance, such as the G20/OECD Principles of Corporate Governance, and responsible business conduct, such as the OECD Guidelines for Multinational Enterprises. Building on its existing body of work, the OECD also contributed substantively to the TIWG’s broader discussions on policy coherence in the trade-investment nexus as well as on investment facilitation and related policy issues. Furthermore, the OECD played host to a meeting of the TIWG, on the margins of its annual Ministerial Council Meeting during the first week of June 2016.

First developed in 2006 as a response to the Monterrey Consensus, and updated in 2015 as a means to mobilise private investment for development in the context of the Sustainable Development Goals, the OECD Policy Framework for Investment (PFI) takes a comprehensive, whole-of-government approach to investment climate reform. The objective of the PFI is to mobilise private investment that supports steady economic growth and sustainable development, contributing to economic and social well-being around the world. Covering 12 policy areas (from investment policy to trade policy, and from responsible business conduct to green investment), the PFI is non-prescriptive and emphasises policy coherence across those areas. It eschews one-size-fits-all solutions and encourages policy makers to ask appropriate questions about their economy, their institutions and their policy settings.

Useful links

G20 agrees Guiding Principles for Global Investment Policymaking

G20 Guiding Principles for Global Investment Policymaking

OECD Policy Framework for Investment

OECD Guidelines for Multinational Enterprises

G20/OECD Principles of Corporate Governance

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