Question

Bilateral Investment Treaties (BITs), NAFTA, the UN, the WTO, and OECD, have all had some role in regulating (or attempting to regulate) FDI. What FDI regulatory policies have been successful and which have not? What do you think would be the fairest way to regulate FDI for both home and host countries?

Answer 1

Bilateral Investment Treaties (BITs) are agreement between two countries to reduce the political risk.The main of BITs is to increase the foreign investments by minimizing the political risk.The number of BITs entered has been increasing.The first BITs agreement was between Germany and Pakistan in 1959.Developing countries mainly sign the bilateral investment treaties to attract more foreign investments.When two countries sign the bilateral investment treaties the agree each other to provide protection to other country's FDI.While considering the American investors BITs ensures that both the foreign governments and American investors are treated equally. BITs also ensures property rights .Now the question is did Bilateral Investment Treaties attract FDI.The studies show that the number of BITs in the developing countries but the extend to which it attracts FDI is still a question.The studies also shows that BITs have done little in stimulating the additional investments.Most of the developing countries are not much benefited from the bilateral investment treaties and BITs acts as more of substitute than complements for the developing nation.

ON January 1,1994 3 countries Canada,Mexico and United States signed the free trade agreement which is known as the North American Free Trade Agreement (NAFTA).Elimination of tariff and non tariff barriers to trade and investment between Canada ,Mexico and US was the major objective of NAFTA.Now while considering the role of NAFTA in regulating the FDI,NAFTA led to job losses ,trade deficits ,factory closures in US.Some of the positive effects of NAFTA was increased trade,output and better consumer prices.It also tripled the Foreign Direct investments in these 3 countries.Due to NAFTA the US increased FDI in Mexico from $15.2 billion in 1993 to $104.4 billion in 2012.Thus even though NAFTA has some bad impacts it was successful in stimulating Foreign Direct Investments.

Organization for Economic Cooperation and Development (OECD)was introduced in 1961 between 37 member countries.The main objective of OECD was to stimulate investments and trade.OECD was succesful in regulating the FDI.WTO and UN has also stimulated foreign direct investments.
In my view OECD would be the fairest way to regulate FDI for both home and the host countries.It helps in stimulating more foreign investment,maximize benefits and reduce the costs between the countries.