1.2.3. Facilitation of Foreign Direct Investment

Foreign Direct Investment can be impeded by a host of non-tariff barriers: lengthy permission procedures are only the most obvious example. Needless to say, these can make foreign direct investments unattractive and they thus function as a protection of domestic producers. Over the last number of years, a host of bilateral and regional agreements putting foreign direct investment on firm ground have been concluded. It has been estimated (Koch 1997, 219) that currently, some 16 regional and some 1,100 bilateral investment agreements exist.

The focus of some of the WTO agreements is broader. In TRIMS, e.g., the contracting parties commit themselves not to establish regulations that are incompatible with the principle of national treatment and the prohibition of quantitative restrictions. GATS – which will be mentioned in the next sub-section – also contains some rules pertaining to the establishment of subsidiaries and the free movement of personnel. The mindset of many governments of less developed countries has fundamentally changed with regard to foreign direct investment over the last decade: It was often interpreted as an attempt of big capital to become even richer to the detriment of the less developed countries. In the meantime, many governments seem to have realised that foreign direct investment is crucial for their domestic development and that it can make all parties involved better off.

These developments have led to a reduction in international interaction costs. It can thus be conjectured that they are one of the reasons for the considerable increase in foreign direct investment that has been taking place since the mid-1980s.