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  • 2. Investment regulation and promotion
    • 2.1 Entry, establishment and operations of foreign investors
      • 2.1.1 Policy statement on FDI and degree of openness
        Investment policy benefits from a clear message towards the international business community on FDI (e.g. in a country's Investment Strategy or law on foreign investment, where these exist). Attracting high levels of diverse and beneficial FDI calls for a general policy of openness and avoidance of investment protectionism, subject to qualifications and selective restrictions to address country-specific development needs and policy concerns, such as regarding the provision of public goods or the control over strategic sectors and critical infrastructure.
      • 2.1.2 Screening and entry restrictions (1)
        Ownership restrictions or restrictions on the entry of foreign investment, in full accordance with countries' right to regulate, should be justified by legitimate national policy objectives and should not be influenced by special interests. They are best limited to a few explicitly stated aims, including: - protecting the national interest, national security, control over natural resources, critical infrastructure, public health, the environment; or - promoting national development objectives in accordance with a published development strategy or investment strategy. Such restrictions need to be in conformity with international commitments.
      • 2.1.3 Screening and entry restriction (2)
        Restrictions on foreign ownership in specific industries or economic activities should be clearly specified; a list of specific industries where restrictions (e.g. prohibitions, limitations) apply has the advantage of achieving such clarity while preserving a policy of general openness to FDI.
      • 2.1.4 Screening and entry restriction (3)
        A periodic review should take place of any ownership restrictions and of the level of ownership caps to evaluate whether they remain the most appropriate and cost-effective method to ensure these objectives.
      • 2.1.5 Screening and entry restriction (4)
        Screening procedures for investment entry and establishment, where applicable, should be conducted following pre-established objective criteria.
      • 2.1.6 Property registration
        Investors should be able to register ownership of or titles to land and other forms of property securely, effectively and timely, including in order to facilitate access to debt finance, bearing in mind specific development challenges in this regard (see also 3.6).
      • 2.1.7 Freedom of operations
        Governments should avoid direct and indirect intrusions in business management and respect the freedom of operations of private companies, subject to compliance with domestic laws. This includes the freedom of investors to decide whether they want to invest at home or abroad.
      • 2.1.8 Performance requirements
        Performance requirements and related operational constraints should be used sparingly and only to the extent that they are necessary to achieve legitimate public policy purposes. They need to be in compliance with international obligations and would typically be imposed principally as conditions for special privileges, including tax and financial incentives.
    • 2.2 Treatment and protection of investors
      • 2.2.1 Treatment under the rule of law
        Established investors and investments, foreign or domestic, should be granted treatment that is based on the rule of law.
      • 2.2.2 Core standards of treatment (1)
        As a general principle, foreign investors and investments should not be discriminated against vis-à-vis national investors in the post-establishment phase and in the conduct of their business operations. Where development objectives require policies that distinguish between foreign and domestic investment, these should be limited, transparent and periodically reviewed for efficacy against those objectives. They need to be in line with international commitments, including REIOs.
      • 2.2.3 Core standards of treatment (2)
        Countries should guarantee the free convertibility of their currency for current account transactions, including FDI-related earnings and dividends, interests, royalties and others. Any restriction to convertibility for current account transactions should be temporary and in accordance with existing obligations and flexibilities under international law, in particular the IMF Articles of Agreement.
      • 2.2.4 Transfer of funds (1)
        Where the level of development or macro-economic considerations warrant restrictions on the transfer of capital, countries should seek to treat FDI-related transactions differently from other (particularly short-term) capital account transactions. Countries should guarantee the freedom to transfer and repatriate capital related to investments in productive assets, subject to reporting requirements (including to fight money laundering) and prior compliance with tax obligations, and subject to potential temporary restrictions due to balance of payment crises and in compliance with international law. Controls should be periodically reviewed for efficacy.
      • 2.2.5 Transfer of funds (2)
        Countries should guarantee the free convertibility of their currency for current account transactions, including FDI-related earnings and dividends, interests, royalties and others. Any restriction to convertibility for current account transactions should be in accordance with existing international obligations and flexibilities, in particular the IMF Articles of Agreement.
      • 2.2.6 Contract enforcement and dispute settlement
        All investors should be entitled to equal treatment in the enforcement of contracts. Mechanisms and proceedings for the enforcement of contracts should be timely, efficient and effective, and available to all investors so as to duly operate under the rule of law.
      • 2.2.7 Investment contracts
        States should honour their obligations deriving from investment contracts with investors, unless they can invoke a fundamental change of circumstances or other legitimate reasons in accordance with national and international law.
      • 2.2.8 Expropriation
        When warranted for legitimate public policy purposes, expropriations or nationalization should be undertaken in a non-discriminatory manner and conform to the principle of due process of law, and compensation should be provided. Decisions should be open to recourse and reviews to avoid arbitrariness.
      • 2.2.9 International commitments
        Government should assign explicit responsibility and accountability for the implementation and periodic review of measures to ensure effective compliance with commitments under IIAs. Strong alternative dispute resolution (ADR) mechanisms can be effective means to avoid international arbitration of disputes.
    • 2.3 Investor obligations
      • 2.3.1 Responsible investment
        Investors' first and foremost obligation is to comply with a host country's laws and regulations. This obligation should apply and be enforced indiscriminately to national and foreign investors, as should penalties for non-compliance.
      • 2.3.2 Standards
        Governments should encourage adherence to international standards of responsible investment and codes of conduct by foreign investors. Standards which may serve as reference include the ILO Tri-partite Declaration, the OECD Guidelines for Multinational Enterprises, the Principles for Responsible Investment in Agriculture, the UN Guiding Principles on Business and Human Rights and others. In addition, countries may wish to translate soft rules into national legislation.
    • 2.4 Promotion and facilitation of investment
      • 2.4.1 Investment authority and investment promotion agency (1)
        Explicit responsibility and accountability should be assigned to an investment promotion agency (IPA) to encourage investment and to assist investors in complying with administrative and procedural requirements with a view towards facilitating their establishment, operation and development.
      • 2.4.2 Investment authority and investment promotion agency (2)
        The mission, objectives and structure of the IPA should be grounded in national investment policy objectives and regularly reviewed. The core functions of IPAs should include image building, targeting, facilitation, aftercare and advocacy.
      • 2.4.3 Investment authority and investment promotion agency (3)
        As the prime interface between Government and investors, IPAs should support efforts to improve the general business climate and eliminate red tape.
      • 2.4.4 Investment authority and investment promotion agency (4)
        Where screening or preliminary approval are imposed on foreign investors, responsibility and accountability for such procedures should be clearly separate from investment promotion and facilitation functions in order to avoid potential conflicts of interest.
      • 2.4.5 Investment authority and investment promotion agency (5)
        IPAs should be in a position to resolve cross-ministerial issues through its formal and informal channels of communication, and by reporting at a sufficiently high level of Government. Its governance should be ensured through an operational board that includes members from relevant ministries as well from the private sector.
      • 2.4.6 Investment authority and investment promotion agency (6)
        The effectiveness of the IPA in attracting investment should be periodically reviewed against investment policy objectives. The efficiency of the IPA and its working methods should also be reviewed in light of international best practice.
      • 2.4.7 Investment authority and investment promotion agency (7)
        The work of national and sub-national IPAs, as well as that of authorities promoting investment in special economic zones, should be closely coordinated to ensure maximum efficiency and effectiveness.
      • 2.4.8 Investment authority and investment promotion agency (8)
        Being at the core of Government efforts to promote and facilitate investment, the IPA should establish close working relationships (including through secondment of staff) with regulatory agencies dealing directly with investors. It should seek to promote a client-oriented attitude in public administration. It may enlist the diplomatic service to strengthen overseas promotion efforts.
      • 2.4.9 Investment incentives and guarantees (1)
        Investment incentives, in whatever form (fiscal, financial or other), should be carefully assessed in terms of long-term costs and benefits prior to implementation, giving due consideration to potential distortion effects. The costs and benefits of incentives should be periodically reviewed and their effectiveness in achieving the desired objectives thoroughly evaluated.
      • 2.4.10 Investment incentives and guarantees (2)
        Where investment incentives are granted to support nascent industries, self-sustained viability (i.e. without the need for incentives) should be the ultimate goal so as to avoid subsidizing non-viable industries at the expense of the economy as a whole. A phase-out period built in the incentive structure is good practice, without precluding permanent tax measures to address positive or negative externalities.
      • 2.4.11 Investment incentives and guarantees (3)
        The rationale and justification for investment incentives should be directly and explicitly derived from the country's development strategy. Their effectiveness for achieving the objectives should be fully assessed before adoption, including through international comparability.
      • 2.4.12 Investment incentives and guarantees (4)
        The granting and administration of incentives should be the responsibility of an independent entity or ministry that does not have conflicting objectives or performance targets for investment attraction.
      • 2.4.13 Investment incentives and guarantees (5)
        Environmental, labour and other regulatory standards should not be lowered as a means to attract investment, or to compete for investment in a “regulatory race to the bottom”.
      • 2.4.14 Investment incentives and guarantees (6)
        Investment incentives should be granted on the basis of a set of pre-determined, objective, clear and transparent criteria. They should be offered on a non-discriminatory basis to projects fulfilling these criteria. Compliance with the criteria (performance requirements) should be monitored on a regular basis as a condition to benefit from the incentives.
      • 2.4.15 Investment incentives and guarantees (7)
        Investment incentives over and above pre-defined incentives must be shown to make an exceptional contribution to development objectives, and additional requirements should be attached, including with a view to avoiding a “race to the top of incentives”.
      • 2.4.16 Investment incentives and guarantees (8)
        Investment incentives offered by sub-national entities which have the discretion to grant incentives over and above the pre-defined limits, should be coordinated by a central investment authority to avoid investors “shopping around”.
      • 2.4.17 Promotion of business linkages and spillovers (1)
        As business linkages between foreign investors and national companies do not always develop naturally, Governments and IPAs should actively nurture and facilitate them. Undue intrusion in business partnerships should be avoided as mutually beneficial and sustainable linkages cannot be mandated.
      • Follow 2.4.18 Promotion of business linkages and spillovers (2)
      • 2.4.19 Promotion of business linkages and spillovers (3)
        Mandatory practices to promote linkages, such as joint-venture requirements, should be used sparingly and carefully considered to avoid unintended adverse effects.
      • 2.4.20 Promotion of business linkages and spillovers (4)
        Explicit responsibility and accountability should be assigned to the investment authority or IPA to nurture and promote business linkages established by foreign investors as part of its aftercare mandate.
      • 2.4.21 Promotion of business linkages and spillovers (5)
        Specific policies should encourage businesses to offer training to employees in skill areas deemed crucial in the country's policy on human resource development, including through performance requirements linked to investment incentives.