Foreign direct investment
A foreign direct investment is an investment in the form of a controlling ownership in a business in one country by an entity based in another country. It is thus distinguished from a foreign portfolio investment by a notion of direct control; the origin of the investment does not impact the definition, as an FDI: the investment may be made either "inorganically" by buying a company in the target country or "organically" by expanding the operations of an existing business in that country. Broadly, foreign direct investment includes "mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations, intra company loans". In a narrow sense, foreign direct investment refers just to building new facility, a lasting management interest in an enterprise operating in an economy other than that of the investor. FDI is the sum of equity capital, long-term capital, short-term capital as shown in the balance of payments. FDI involves participation in management, joint-venture, transfer of technology and expertise.
Stock of FDI is the net cumulative FDI for any given period. Direct investment excludes investment through purchase of shares. FDI, a subset of international factor movements, is characterized by controlling ownership of a business enterprise in one country by an entity based in another country. Foreign direct investment is distinguished from foreign portfolio investment, a passive investment in the securities of another country such as public stocks and bonds, by the element of "control". According to the Financial Times, "Standard definitions of control use the internationally agreed 10 percent threshold of voting shares, but this is a grey area as a smaller block of shares will give control in held companies. Moreover, control of technology, management crucial inputs can confer de facto control." According to Grazia Ietto-Gillies, prior to Stephen Hymer’s theory regarding direct investment in the 1960s, the reasons behind Foreign Direct Investment and Multinational Corporations were explained by neoclassical economics based on macro economic principles.
These theories were based on the classical theory of trade in which the motive behind trade was a result of the difference in the costs of production of goods between two countries, focusing on the low cost of production as a motive for a firm’s foreign activity. For example, Joe S. Bain only explained the internationalization challenge through three main principles: absolute cost advantages, product differentiation advantages and economies of scale. Furthermore, the neoclassical theories were created under the assumption of the existence of perfect competition. Intrigued by the motivations behind large foreign investments made by corporations from the United States of America, Hymer developed a framework that went beyond the existing theories, explaining why this phenomenon occurred, since he considered that the mentioned theories could not explain foreign investment and its motivations. Facing the challenges of his predecessors, Hymer focused his theory on filling the gaps regarding international investment.
The theory proposed by the author approaches international investment from a different and more firm-specific point of view. As opposed to traditional macroeconomics-based theories of investment, Hymer states that there is a difference between mere capital investment, otherwise known as portfolio investment, direct investment; the difference between the two, which will become the cornerstone of his whole theoretical framework, is the issue of control, meaning that with direct investment firms are able to obtain a greater level of control than with portfolio investment. Furthermore, Hymer proceeds to criticize the neoclassical theories, stating that the theory of capital movements cannot explain international production. Moreover, he clarifies that FDI is not a movement of funds from a home country to a host country, that it is concentrated on particular industries within many countries. In contrast, if interest rates were the main motive for international investment, FDI would include many industries within fewer countries.
Another observation made by Hymer went against what was maintained by the neoclassical theories: foreign direct investment is not limited to investment of excess profits abroad. In fact, foreign direct investment can be financed through loans obtained in the host country, payments in exchange for equity, other methods; the main determinants of FDI is side as well as growth prospectus of the economy of the country when FDI is made. Hymer proposed some more determinants of FDI due to criticisms, along with assuming market and imperfections; these are as follows: Firm-specific advantages: Once domestic investment was exhausted, a firm could exploit its advantages linked to market imperfections, which could provide the firm with market power and competitive advantage. Further studies attempted to explain how firms could monetize these advantages in the form of licenses. Removal of conflicts: conflict arises if a firm is operating in foreign market or looking to expand its operations within the same market.
He proposes that the solution for this hurdle arose in the form of collusion, sharing the market with rivals or attempting to acquire a direct control of production. However, it must be taken into account that a reduction in conflict through acquisition of control of operations will increase the market imperfections. Propensity to formulate an internationalization strategy to mitigate risk: According to his position, firms are characterized with 3 levels of decision making: the day to day supervision, management decision coordination and long term strategy planning and deci
Arbitration, a form of alternative dispute resolution, is a way to resolve disputes outside the courts. The dispute will be decided by one or more persons, which renders the "arbitration award". An arbitration award is binding on both sides and enforceable in the courts. Arbitration is used for the resolution of commercial disputes in the context of international commercial transactions. In certain countries such as the United States, arbitration is frequently employed in consumer and employment matters, where arbitration may be mandated by the terms of employment or commercial contracts and may include a waiver of the right to bring a class action claim. Mandatory consumer and employment arbitration should be distinguished from consensual arbitration commercial arbitration. Arbitration can be either binding or non-binding. Non-binding arbitration is similar to mediation in. However, the principal distinction is that whereas a mediator will try to help the parties find a middle ground on which to compromise, the arbiter remains removed from the settlement process and will only give a determination of liability and, if appropriate, an indication of the quantum of damages payable.
By one definition arbitration is binding and non-binding arbitration is therefore technically not arbitration. Arbitration is a proceeding in which a dispute is resolved by an impartial adjudicator whose decision the parties to the dispute have agreed, or legislation has decreed, will be final and binding. There are limited rights of appeal of arbitration awards. Arbitration is not the same as: judicial proceedings, alternative dispute resolution, expert determination, mediation. Parties seek to resolve disputes through arbitration because of a number of perceived potential advantages over judicial proceedings. Companies require arbitration with their customers, but prefer the advantages of courts in disputes with competitors: In contrast to litigation, where one cannot "choose the judge", arbitration allows the parties to choose their own tribunal; this is useful when the subject matter of the dispute is technical: arbitrators with an appropriate degree of expertise can be chosen. Arbitration is faster than litigation in court.
Arbitral proceedings and an arbitral award are non-public, can be made confidential. In arbitral proceedings the language of arbitration may be chosen, whereas in judicial proceedings the official language of the country of the competent court will be automatically applied; because of the provisions of the New York Convention 1958, arbitration awards are easier to enforce in other nations than court verdicts. In most legal systems there are limited avenues for appeal of an arbitral award, sometimes an advantage because it limits the duration of the dispute and any associated liability; some of the disadvantages include: Arbitration agreements are sometimes contained in ancillary agreements, or in small print in other agreements, consumers and employees do not know in advance that they have agreed to mandatory binding pre-dispute arbitration by purchasing a product or taking a job. If the arbitration is mandatory and binding, the parties waive their rights to access the courts and to have a judge or jury decide the case.
If the arbitrator or the arbitration forum depends on the corporation for repeat business, there may be an inherent incentive to rule against the consumer or employee There are limited avenues for appeal, which means that an erroneous decision cannot be overturned. Although thought to be speedier, when there are multiple arbitrators on the panel, juggling their schedules for hearing dates in long cases can lead to delays. In some legal systems, arbitration awards have fewer enforcement options than judgments. Arbitrators are unable to enforce interlocutory measures against a party, making it easier for a party to take steps to avoid enforcement of member or a small group of members in arbitration due to increasing legal fees, without explaining to the members the adverse consequences of an unfavorable ruling. Discovery may be more limited in arbitration or nonexistent; the potential to generate billings by attorneys may be less than pursuing the dispute through trial. Unlike court judgments, arbitration awards themselves are not directly enforceable.
A party seeking to enforce an arbitration award must resort to judicial remedies, called an action to "confirm" an award. By their nature, the subject matter of some disputes is not capable of arbitration. In general, two groups of legal procedures cannot be subjected to arbitration: Procedures which lead to a determination which the parties to the dispute may not enter into an agreement upon: Some court procedures lead to judgments which bind all members of the general public, or public authorities in their capacity as such, or third parties, or wh
Non-governmental organizations, nongovernmental organizations, or nongovernment organizations referred to as NGOs, are non-profit and sometimes international organizations independent of governments and international governmental organizations that are active in humanitarian, health care, public policy, human rights and other areas to effect changes according to their objectives. They are thus a subgroup of all organizations founded by citizens, which include clubs and other associations that provide services and premises only to members. Sometimes the term is used as a synonym of "civil society organization" to refer to any association founded by citizens, but this is not how the term is used in the media or everyday language, as recorded by major dictionaries; the explanation of the term by NGO.org is ambivalent. It first says an NGO is any non-profit, voluntary citizens' group, organized on a local, national or international level, but goes on to restrict the meaning in the sense used by most English speakers and the media: Task-oriented and driven by people with a common interest, NGOs perform a variety of service and humanitarian functions, bring citizen concerns to Governments and monitor policies and encourage political participation through provision of information.
NGOs are funded by donations, but some avoid formal funding altogether and are run by volunteers. NGOs are diverse groups of organizations engaged in a wide range of activities, take different forms in different parts of the world; some may have charitable status, while others may be registered for tax exemption based on recognition of social purposes. Others may be fronts for religious, or other interests. Since the end of World War II, NGOs have had an increasing role in international development in the fields of humanitarian assistance and poverty alleviation; the number of NGOs worldwide is estimated to be 10 million. Russia had about 277,000 NGOs in 2008. India is estimated to have had around 2 million NGOs in 2009, just over one NGO per 600 Indians, many times the number of primary schools and primary health centres in India. China is estimated to have 440,000 registered NGOs. About 1.5 million domestic and foreign NGOs operated in the United States in 2017. The term'NGO' is not always used consistently.
In some countries the term NGO is applied to an organization that in another country would be called an NPO, vice versa. Political parties and trade unions are considered NGOs only in some countries. There are many different classifications of NGO in use; the most common focus is on "orientation" and "level of operation". An NGO's orientation refers to the type of activities; these activities might include human rights, improving health, or development work. An NGO's level of operation indicates the scale at which an organization works, such as local, national, or international; the term "non-governmental organization" was first coined in 1945, when the United Nations was created. The UN, itself an intergovernmental organization, made it possible for certain approved specialized international non-state agencies — i.e. non-governmental organizations — to be awarded observer status at its assemblies and some of its meetings. The term became used more widely. Today, according to the UN, any kind of private organization, independent from government control can be termed an "NGO", provided it is not-for-profit, non-prevention, but not an opposition political party.
One characteristic these diverse organizations share is that their non-profit status means they are not hindered by short-term financial objectives. Accordingly, they are able to devote themselves to issues which occur across longer time horizons, such as climate change, malaria prevention, or a global ban on landmines. Public surveys reveal that NGOs enjoy a high degree of public trust, which can make them a useful - but not always sufficient - proxy for the concerns of society and stakeholders. NGO/GRO types can be understood by their level of how they operate. Charitable orientation involves a top-down effort with little participation or input by beneficiaries, it includes NGOs with activities directed toward meeting the needs of the disadvantaged people groups. Service orientation includes NGOs with activities such as the provision of health, family planning or education services in which the programme is designed by the NGO and people are expected to participate in its implementation and in receiving the service.
Participatory orientation is characterized by self-help projects where local people are involved in the implementation of a project by contributing cash, land, labour etc. In the classical community development project, participation begins with the need definition and continues into the planning and implementation stages. Empowering orientation aims to help poor people develop a clearer understanding of the social and economic factors affecting their lives, to strengthen their awareness of their own potential power to control their lives. There is maximum involvement of the beneficiaries with NGOs acting as facilitators. Community-based organizations arise out of people's own initiatives, they can be responsible for raising the consciousness of the urban poor, helping them to understand their rights in accessing needed services, providing such services. City-wide organizations include organizations such as chambers of commerce and industry, coaliti
Natural resources are resources that exist without actions of humankind. This includes all valued characteristics such as magnetic, electrical properties and forces etc. On earth it includes: sunlight, water, land along with all vegetation and animal life that subsists upon or within the heretofore identified characteristics and substances. Particular areas such as the rainforest in Fatu-Hiva are characterized by the biodiversity and geodiversity existent in their ecosystems. Natural resources may be further classified in different ways. Natural resources are components that can be found within the environment; every man-made product is composed of natural resources. A natural resource may exist as a separate entity such as fresh water, as well as a living organism such as a fish, or it may exist in an alternate form that must be processed to obtain the resource such as metal ores, rare earth metals and most forms of energy. There is much debate worldwide over natural resource allocations, this is true during periods of increasing scarcity and shortages.
There are various methods of categorizing natural resources, these include source of origin, stage of development, by their renewability. On the basis of origin, natural resources may be divided into two types: Biotic — Biotic resources are obtained from the biosphere, such as forests and animals, the materials that can be obtained from them. Fossil fuels such as coal and petroleum are included in this category because they are formed from decayed organic matter. Abiotic – Abiotic resources are those that come from non-living, non-organic material. Examples of abiotic resources include land, fresh water, rare earth metals and heavy metals including ores such as gold, copper, etc. Considering their stage of development, natural resources may be referred to in the following ways: Potential resources — Potential resources are those that may be used in the future—for example, petroleum in sedimentary rocks that, until drilled out and put to use remains a potential resource Actual resources — Those resources that have been surveyed and qualified and, are used—development, such as wood processing, depends on technology and cost Reserve resources — The part of an actual resource that can be developed profitably in the future Stock resources — Those that have been surveyed, but cannot be used due to lack of technology—for example, hydrogenMany natural resources can be categorized as either renewable or non-renewable: Renewable resources — Renewable resources can be replenished naturally.
Some of these resources, like sunlight, wind, etc, are continuously available and their quantity is not noticeably affected by human consumption. Though many renewable resources do not have such a rapid recovery rate, these resources are susceptible to depletion by over-use. Resources from a human use perspective are classified as renewable so long as the rate of replenishment/recovery exceeds that of the rate of consumption, they replenish compared to Non-renewable resources. Non-renewable resources – Non-renewable resources either form or do not form in the environment. Minerals are the most common resource included in this category. By the human perspective, resources are non-renewable when their rate of consumption exceeds the rate of replenishment/recovery; some resources naturally deplete in amount without human interference, the most notable of these being radio-active elements such as uranium, which decay into heavy metals. Of these, the metallic minerals can be re-used by recycling them, but coal and petroleum cannot be recycled.
Once they are used they take millions of years to replenish. Resource extraction involves any activity; this can range in scale to global industry. Extractive industries are, along with agriculture, the basis of the primary sector of the economy. Extraction produces raw material, processed to add value. Examples of extractive industries are hunting, mining and gas drilling, forestry. Natural resources can add substantial amounts to a country's wealth, however, a sudden inflow of money caused by a resource boom can create social problems including inflation harming other industries and corruption, leading to inequality and underdevelopment, this is known as the "resource curse". Extractive industries represent a large growing activity in many less-developed countries but the wealth generated does not always lead to sustainable and inclusive growth. People accuse extractive industry businesses as acting only to maximize short-term value, implying that less-developed countries are vulnerable to powerful corporations.
Alternatively, host governments are assumed to be only maximizing immediate revenue. Researchers argue; these present opportunities for international governmental agencies to engage with the private sector and host governments through revenue management and expenditure accountability, infrastructure development, employment creation and enterprise development and impacts on children girls and women. A strong civil society can play an important role in ensuring effective management of natural resources. Norway can ser
International investment agreement
An International Investment Agreement is a type of treaty between countries that addresses issues relevant to cross-border investments for the purpose of protection and liberalization of such investments. Most IIAs cover foreign direct investment and portfolio investment. Countries concluding IIAs commit themselves to adhere to specific standards on the treatment of foreign investments within their territory. IIAs further define procedures for the resolution of disputes should these commitments not be met; the most common types of IIAs are Bilateral Investment Treaties and Preferential Trade and Investment Agreements. International Taxation Agreements and Double Taxation Treaties are considered as IIAs, as taxation has an important impact on foreign investment. Bilateral investment treaties deal with the admission and protection of foreign investment, they cover investments by enterprises or individuals of one country in the territory of its treaty partner. Preferential Trade and Investment Agreements are treaties among countries on cooperation in economic and trade areas.
They cover a broader set of issues and are concluded at bilateral or regional levels. In order to classify as IIAs, PTIAs must include, among other content, specific provisions on foreign investment. International taxation agreements deal with the issue of double taxation in international financial activities, they are concluded bilaterally, though some agreements involve a larger number of countries. Countries conclude IIAs for the protection and, promotion of foreign investment, also for the purpose of liberalization of such investment. IIAs offer companies and individuals from contracting parties increased security and certainty under international law when they invest or set up a business in other countries party to the agreement; the reduction of the investment risk flowing from an IIA is meant to encourage companies and individuals to invest in the country that concluded the IIA. Allowing foreign investors to settle disputes with the host country through international arbitration, rather than only the host country’s domestic courts, is an important aspect in this context.
Typical provisions found in BITs and PTIAs are clauses on the standards of protection and treatment of foreign investments addressing issues such as fair and equitable treatment, full protection and security, national treatment, most-favored nation treatment. Provisions on compensation for losses incurred by foreign investors as a result of expropriation or due to war and strife also form a core part of such agreements. Most IIAs additionally regulate the cross-border transfer of funds in connection with foreign investments. Contrary to investment protection, provisions on investment promotion are formally included in IIAs, if so such provisions remain non-binding; the assumption is that the enhanced protection formally offered to foreign investors through an IIA will encourage and promote cross-border investments. The benefits that increased foreign investment can bring about are important for developing countries that aim at using foreign investment and IIAs as tools to enhance their economic development.
BITs and some PTIAs include a provision on investor-State dispute settlement. This gives investors the right to submit a case to an international arbitral tribunal when a dispute with the host country arises. Common venues through which arbitration is sought are the International Centre for Settlement of Investment Disputes, the United Nations Commission on International Trade Law and the International Chamber of Commerce. International taxation agreements deal with the elimination of double taxation, but may in parallel address related issues such as the prevention of tax evasion. To a large extent, the international legal aspects of the relationship between countries and foreign investors are addressed bilaterally between two countries; the conclusion of BITs has evolved from the second half of the 20th century onwards, today these agreements constitute a key component of the contemporary international law on foreign investment. The United Nations Conference on Trade and Development defines BITs as "agreements between two countries for the reciprocal encouragement and protection of investments in each other's territories by companies based in either country."
While the basic content of BITs has remained the same over the years, focusing on investment protection as the core issue, matters reflecting public policy concerns have in recent years more been incorporated into BITs. A typical BIT starts with a preamble that outlines the general intention of the agreement and provisions on its scope of application; this is followed by a definition of key terms, clarifying amongst others the meanings of "investment" and "investor". BITs address issues related to the admission and establishment of foreign investments, including standards of treatment enjoyed by foreign investors; the free transfer of funds across national borders in connection with a foreign investment is also regulated in BITs. Moreover, BITs deal with the issue of expropriation or damage to an investment, determining that – and in what manner - compensation be paid to the investor in such a situation, they specify the degree of protection and compen
Investor-state dispute settlement
Investor-state dispute settlement or investment court system is a system through which investors can sue nation states for alleged discriminatory practices. ISDS is an instrument of public international law and provisions are contained in a number of bilateral investment treaties, in certain international trade treaties, such as NAFTA, the proposed TPP and CETA agreements. ISDS is found in international investment agreements, such as the Energy Charter Treaty. If an investor from one country invests in another country, both of which have agreed to ISDS, the host state violates the rights granted to the investor under the treaty that investor may bring the matter before an arbitral tribunal. While ISDS is associated with international arbitration under the rules of ICSID, it takes place under the auspices of international arbitral tribunals governed by different rules or institutions, such as the London Court of International Arbitration, the International Chamber of Commerce, the Hong Kong International Arbitration Centre or the UNCITRAL Arbitration Rules.
Under customary international law a state can vindicate injury caused to its nation by the host state by exercising diplomatic protection, which may include retorsion and/or reprisals. In addition to diplomatic protection and to avoid having to resort to coercive means, states can and do establish ad hoc commissions and arbitral tribunals to adjudicate claims involving treatment of foreign nationals and their property by the host state. Notable examples of this practice are the Jay Treaty commissions, the Iran–United States Claims Tribunal and the American-Mexican Claims Commission. However, these treaties were limited to the treatment of foreign investors during a past period of time, whereas modern ISDS allows investors to make claims against states in general and on a prospective basis; the legal protection of Foreign Direct Investment under public international law is guaranteed by a network of more than 2750 bilateral investment treaties, Multilateral Investment Treaties, most notably the Energy Charter Treaty and number of Free Trade Agreements such as NAFTA containing a chapter on investment protection.
Most of these treaties were signed by states in the late 1980s and early 1990s, before the current explosion of investor claims under the treaties began in the late 1990s. The majority of these legal instruments provides foreign investors with a substantive legal protection and access to ISDS for redress against Host States for breaches of such protection; some of these standards are framed in vague terms, given extensive discretion to arbitrators in their interpretation and application. The overall number of known cases reached over 500 in 2012. Of these, 244 were concluded, of which 42% were decided in favour of the host state and 31% in favour of the investor. 27% of the cases were settled out of court. Notably, only foreign investors can sue states under investment treaties, because states are the parties to the treaty, only states can be held liable to pay damages for breach of the treaty. States have no corresponding right to bring an original claim against a foreign investor under such treaties, again because investors are not parties to the treaty and therefore cannot be in breach of it.
Thus, a decision in favour of the state means that the state has not been ordered to pay compensation, not that it has received any compensation from the investor, although costs can be awarded against the investor. A state cannot "win" in ISDS in the manner of a foreign investor - a state which wishes to sue a foreign investor does so through its own domestic courts, without the need for a treaty. ISDS cannot overturn local laws which violate trade agreements, but can grant monetary damages to investors adversely affected by such laws. According to the Office of the United States Trade Representative, ISDS requires specific treaty violations, does not allow corporations to sue over "lost profits". However, such violations may be difficult to foresee, the threat of exorbitant fines may cause a chilling effect which halts regulation or legislation in the public interest. Critics state that treaties are written so that any legislation causing lost profits is by definition a treaty violation, rendering the argument null that only treaty violations are subject to ISDS.
A notable example of ISDS, in existence for two decades now, is Chapter 11 of the North American Free Trade Agreement. NAFTA Chapter 11 allows investors of one NAFTA party to bring claims directly against the government of another NAFTA party before an international arbitral tribunal; because NAFTA Article 1121 waives the local remedies rule, investors are not required to exhaust local remedies before filing Chapter 11 claims. While this fact has been amply criticized in public, proponents of ISDS tend to point out that speedy dispute resolution through ISDS is critical in modern economic environments and would be defeated by adding several instances of local remedies. On the other hand, there is no other situation in international law where a private party can sue a state without showing that the state's domestic courts are not independent or reliable; the removal of the customary duty to exhaust local remedies