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06/11/2015 (c) Julien Chaisse 1

FDI flo lows and trends in in Asia-Pacific

• Dr. Ju

Julien Chaisse Chief Counsel, World Trade Advisors Group

November 2, 2015 9.15-9.45 Fifth Meeting of the Asia-Pacific Foreign Direct Investment (FDI) Network United Nations Conference Centre, Meeting Room G Bangkok, Thailand 2 November 2015

FDI world as an ‘expanding universe’

Quantitative expansion

Trends in FDI Flows: on the upswing Trends in policy and rule-making From North-South to South-South agreements Structuring and re-struturing of FDI

Qualitative expansion

IIAs as a cause and consequence of capitals flows Diversity of foreign investments (from tangible to intangible) Improved drafting / clarification (Canada-China 2012, Singapore-EU 2014, TPP 2015…) ISDS success but also inconsistent interpretations triggered more law– not less law

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Outline

Trends in policy and rule- making FDI Flows in Asia Pacific

Foreign Direct In Investment

Source of capital, FX, technology, skills, market access, employment, linkages Increases connectivity,

• pportunities to

participate in global value chains Related to stages

• f growth and

structural transformation, stability May be private/public (SOE), greenfield/M&A For natural resources, efficiency, markets, strategy Amenable to policy influence

FDI inward & outward stock, by region

44% 29% 3% 14% 5% 4% 1%

1990 FDI Inward Stock

33% 41% 2% 14% 7% 2% 1%

2000 FDI Inward Stock

42% 23% 3% 20% 7% 3% 2%

2014

Europe North America Africa Asia Latin America and the Caribbean Oceania Middle East

FDI Inward Stock

47% 36% 1% 12% 2% 2% 0%

1990 FDI Outward Stock

44% 40% 1% 12% 2% 1% 0%

2000 FDI Outward Stock

45% 27% 1% 21% 3% 2% 1%

2014 FDI Outward Stock

Source: UNCTADStat, 2015

FDI inflows and outflows, , 1990-2014

0.0 200.0 400.0 600.0 800.0 1000.0 1200.0 1400.0 1600.0 1800.0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 $ US bln.

FDI inflows, 1990-2014

World Developed economies Developing economies 0.0 200.0 400.0 600.0 800.0 1000.0 1200.0 1400.0 1600.0 1800.0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 $ US bln.

FDI outflows, 1990-2014

World Developed economies Developing economies

Source: UNCTADStat, 2015

Top Ten Destinations for FDI in in Developing Asia, 1990-2014 2014

Average annual total FDI inflows (mln. $ US) Average FDI inflow per capita (US $)

Economy 1990-1995 2010-2014 Economy 1990-1995 2010-2014 China 19 611 China 122 442 Singapore 1 915 Hong Kong, China 11 667 Singapore 6 308 Hong Kong, China 82 970 Hong Kong, China 810 Singapore 11 007 Hong Kong, China 4 860 Singapore 58 411 Brunei 349 Brunei 1 666 Malaysia 4 655 India 30 084 Malaysia 238 Mongolia 968 Indonesia 2 164 Indonesia 18 709 Taiwan, China 59 Kazakhstan 699 Thailand 2 004 Kazakhstan 11 729 Kazakhstan 46 Turkmenistan 635 Korea, Republic of 1 326 Malaysia 10 682 Thailand 35 Malaysia 368 Taiwan, China 1 222 Korea, Republic of 10 286 Korea, Republic of 30 Korea, Republic of 207 Philippines 1 028 Thailand 9 218 Maldives 29 Thailand 137 Viet Nam 947 Viet Nam 8 397 Turkmenistan 25 Cambodia 110

FDI as % of gross fixed capital formation

Economy 1990-1995 2010-2014 Viet Nam 33.5 Hong Kong, China 135.5 Singapore 31.3 Singapore 79.6 Kazakhstan 23.9 Mongolia 60.5 Malaysia 19.4 Cambodia 56.9 Hong Kong, China 14.9 Kyrgyzstan 30.0 Cambodia 14.5 Brunei 29.9 Kyrgyzstan 11.7 Kazakhstan 26.3 China 9.7 Myanmar 22.9 Maldives 7.7 Viet Nam 21.7 Philippines 6.4 Malaysia 14.8

Source: UNCTADStat, 2015; Author’ calculations

Estimated inward FDI flows by economy/sector

Estimated inward FDI flows, by sector, 1990-1992 and 2010-2012 (Millions of dollars)

1990-1992 2010-2012 Sector Developed countries Developing economies Transition economies World Developed countries Developing economies Transition economies World

Total 131573.5 42999.6 1423.6 175996.7 855815.5 553723.3 74664.5 1484203.3 Primary 9018.2 4557.4 915.8 14491.4 64372.2 67852.1 11917.0 144141.2 Manufacturing 36565.6 15467.8 216.6 52250.0 145090.5 151442.2 12169.3 308702.1 Services 77382.5 19490.2 167.8 97040.6 602020.8 324508.9 49024.0 975553.6 Estimated inward FDI flows, by sector, 1990-1992 and 2010-2012 (% of total)

1990-1992 2010-2012 Sector Developed countries Developing economies Transition economies World Developed countries Developing economies Transition economies World

Total 74.8% 24.4% 0.8% 100.0% 57.7% 37.3% 5.0% 100.0% Primary 5.1% 2.6% 0.5% 8.2% 4.3% 4.6% 0.8% 9.7% Manufacturing 20.8% 8.8% 0.1% 29.7% 9.8% 10.2% 0.8% 20.8% Services 44.0% 11.1% 0.1% 55.1% 40.6% 21.9% 3.3% 65.7%

Source: UNCTAD,2014

Inward FDI increasing faster for higher skill manufacturing sectors

Estimated world inward FDI flows, by skill, 1990-1992 and 2010-2012 (Millions of dollars)

1990-1992 2010-2012 Sector/industry Developed countries Developing economies Transition economies World Developed countries Developing economies Transition economies World

Low Skill Sectors 2800 723 1 3524 620 2164 558 3342 Semi-Skill Sectors 5257 2396 43 7696 37417 18786 2746 58949 High Skill Sectors 17220 4482 74 21777 70387 31604 7833 109824 Ratio of Semi Skill to Low Skill 1.9 3.3 41.7 2.2 60.3 8.7 4.9 17.6 Ratio of High Skill to Low Skill 6.1 6.2 71.3 6.2 113.4 14.6 14.1 32.9 Source: UNCTAD, 2014

Percentage share in world FDI fl flows by trading bloc

2005-07 average 2008 2009 2010 2011 2012 2013 2014 APEC 33.5 46.1 59.7 52.6 58.1 66 69.8 70.9 ASEAN 2.5 1.9 3.8 4.1 3.5 3.9 5.1 5.9 EU 55.4 43.9 32 33.6 32.7 24.7 21.8 20.7 G20 59.1 68.5 70 61.7 66.7 65.5 63.7 63.8 NAFTA 18.5 22.9 30.6 24 29.1 30.2 30 29.2 RCEP 9.7 17 20.1 18 17.9 23.8 25.4 25.8 TPP 24.8 34.3 42.5 33.9 39.5 44.1 44.2 42.8 TTIP 70.2 62.1 58.1 54 57.7 48.9 47 45.6

Source: UNCTADStat, 2015

Asian FDI 5 Key Points

Now mostly services, higher skill sectors East Asia as leading source Relative importance differs when measured gross, per capita, or as share of total investment FDI closely linked to trade, GVC development, structural transformation Regional FDI  regional treaties and policies?

Outline

Trends in policy and rule- making FDI Flows in Asia Pacific

Why international investment agreements (I (IIAs)?

FDI promises several positive spillovers.

• But the benefits of FDI

are not automatic.

• They depend above all
• n host country policies.

FDI is also associated with potential downsides

• Corruption,

environment,

• Deterioration in balance
• f payments as profits

are repatriated

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The challenge of investment treaties (the law) is to maximise the benefits and minimise the costs

Role of BIT ITs and PTAs (I (IIAs)

IIAs Contribute to the creation of a stable, predictable and transparent regulatory framework for international investment

Strengthen the enabling framework for FDI

Facilitate the coordination

• f investment relations

through internationally agreed common denominators

Relations between host States, home States, international investors and other development stakeholders

Complement national laws

• n investment

Interface between national and international investment policies

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Trends in IIAs signed, 1980−2014

UNCTAD, IIA database and World Investment Report 2015 p. 106.

What are the Asian investment rule-making patterns?

06/11/2015 (c) Julien Chaisse (CUHK Law) 17

Less than 11 IIA IIAs

1 2 3 6 6 6 8 11 2 4 6 8 10 12 Tonga Vanuatu Afghanistan Myanmar Nepal Papua New Guinea Brunei Darusalam New Zealand

ONLY STARTING

Total IIAs PTAs BITs signed 06/11/2015 (c) Julien Chaisse (CUHK Law) 18

Between 11 and 40 IIA IIAs

17 21 23 23 26 27 28 28 28 29 29 31 36 36 5 10 15 20 25 30 35 40 Hong Kong, China Cambodia Lao PDR Turkmenistan Taipei, China Japan Australia Kyrgyz Republic Sri Lanka Bangladesh Georgia Tajikistan Armenia Philippines

ASIAN TIER TWO

Total IIAs PTAs BITs signed

06/11/2015 (c) Julien Chaisse (CUHK Law) 19

The Frontrunners

06/11/2015 (c) Julien Chaisse (CUHK Law) 20 41 42 43 45 48 49 53 59 64 70 86 97 135 Thailand Kazakhstan Mongolia Azerbaijan Pakistan Uzbekistan Singapore Vietnam Indonesia Malaysia India Korea, Republic of China, People republic of 20 40 60 80 100 120 140 160

ASIA TOP 13

Total IIAs PTAs BITs signed

In Intra-Asian PTAs with investment chapter

06/11/2015 (c) Julien Chaisse (CUHK Law) 21 1 1 2 2 3 2 6 1 4 1 1 1 2 4 4 6 9 11 17 17 18 22 23 24 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Number of agreements years

Number of PTAs entry into force Cumulative Number of Asian PTAs with investment chapters Linear (Cumulative Number of Asian PTAs with investment chapters)

Details of f PTAs

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PTA New Zealand - Singapore 1 Jan 2001 PTA Japan - Singapore 30 Nov 2002 PTA China - Hong Kong, China 29 June 2003 PTA Singapore - Australia 28 Jul 2003 PTA Thailand - Australia 1 Jan 2005 PTA India - Singapore 1 Aug 2005 PTA Korea, Republic of - Singapore 2 Mar 2006 PTA Trans-Pacific Strategic Economic Partnership 28 May 2006 PTA Japan - Malaysia 13 Jul 2006 PTA Pakistan - China 1 Jul 2007 PTA Japan - Thailand 1 Nov 2007 PTA Pakistan - Malaysia 1 Jan 2008 PTA Brunei Darussalam - Japan 31 Jul 2008 PTA China - New Zealand 1 Oct 2008 PTA Japan - Indonesia 1 Jul 2008 PTA Brunei Darussalam - Japan 31 Jul 2008 PTA Japan - Philippines 11 Dec 2008 New Zealand - Malaysia 1 Aug 2010 Hong Kong, China - New Zealand 1 Jan 2011 Australia - New Zealand (ANZCERTA) 1 Jan 1989 (investment Protocol 2011) India – Malaysia 1 Jul 2011 India – Japan 1 Aug 2011 ASEAN Comprehensive on Investment Agreement (ACIA) 1 March 2012 New Zealand and The Separate Customs Territory

• f Taiwan, Penghu, Kinmen

and Matsu 10 Jul 2013 Singapore-EU 2014 TPP October 2015

Asian trends in rule-making

Variety of Asian practices reflect global scenario

• TOP 5: PRC, Korea, India, Malaysia, Indonesia
• Increasing role of PTAs to regulate FDI

These countries have developed successive generations of IIAs

• Since 1959 Asian states have concluded 1,194 BITs
• 61 PTAs that contain an investment chapter (24 intra-Asian PTAs).
• Approx. 40% of global regime of investment

MFN to play a key role

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Concluding remarks

FDI trends

FDI closely linked to trade, GVC development, structural transformation Regional FDI  regional treaties and policies?

Trends in policy and rule-making

Regionalization and liberalization Keep playing dominos TPP, RCEP, EU-China, China-US…

Way ahead

Enhancing rules to focus on sustainable investment Dealing with reform (and disputes)

Contact Us

Julien Chaisse Chief Legal Counsel World Trade Advisors Office: Double Cove Tower, Floor 25 – Office Unit D, 8 Wu Kai Sha Road, Hong Kong Mobile: +852 69710501 Email: julien.chaisse@worldtradeadvisors.com Website: www.worldtradeadvisors.com 06/11/2015 (c) Julien Chaisse 25