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Describe the proposed Multilateral Investment Agreement?

Describe the proposed Multilateral Investment Agreement?

Owlgen
Course: M.Com

1 Answer

The proposed Multilateral Investment Agreement:

(A) Measures relating to Admission and Establishment:
  • Closing certain sectors, industries or activities to FDI.
  • Quantitative restriction on the number of foreign companies in specific sectors, industries or activities.
  • Minimum capital requirements.
  • Subsequent additional investment or reinvestment requirement.
  • Screening, authorization and registration of investment.
  • Conditional entry upon investment meeting certain development or other criteria (e.g. environmental responsibility).
  • Investment must take certain legal form (e.g. incorporated in accordance with local company law requirements).
  • Restrictions on forms of entry (e.g. mergers and acquisitions may not be allowed, or must meet certain additional requirements).
  • Special requirements for non-equity forms of investment (e.g. build operate transfer [BOT] agreements, licensing of foreign technology).
  • Investment not allowed in certain zones or regions within countries.
  • Restrictions on import of capital goods needed to set up an investment (e.g. machinery, software).
  • Investors required to deposit certain guarantees (e.g. for financial institutions).
  • Admissions to privatization bids restricted or conditional on additional guarantees, for foreign investors.
  • Admission fees (taxes) and incorporation fees (taxes).
  • Investors required to comply with norms related to national security, policy, customs, public moral’s requirement’s as conditions to entry.

(B) Measures relating to Ownership and Control:

  • Restriction on foreign ownership (e.g. no more than 50 per cent of foreign owner capital allowed).
  • Compulsory joint ventures, either with state participation or with local private investors.
  • ¬†Mandatory transfers of ownership to local firms, usually over a period of time.
  • Nationality restrictions on the ownership of the company or shares thereof.
  • Restrictions on the use of long-term (5 years or more) foreign loans (e.g. bonds).
  • Restrictions on the free transfer of shares or other proprietary rights over the company held by foreign investors (e.g. shares cannot be transferred without permission).
  • Restrictions on foreign shareholders rights (e.g. on payment of dividends, reimbursement of capital upon liquidation, on voting rights, denial of information disclosure on certain aspects of the running of the investment).
  • Golden shares to be held by the host government allowing it, e.g. to intervene if the foreign investor captures more than a certain percentage of the investment.
  • Government reserves the right to appoint one or more members of the board of directors.
  • Restriction on the nationality of directors, or limitation on the numbers of expatriates in to managerial positions.
  • Government reserves The right to veto certain decisions, or requires that important board decision to be unanimous.
  • Government must be consulted before adopting certain decisions.
  • Management restrictions on foreign controlled monopolies or upon privatization of public companies.
  • Restrictions on land or immovable property ownership and transfers thereof.
  • Restrictions on industrial or intellectual property ownership or insufficient ownership protection.
  • Restriction on the licensing¬† of foreign technology.

(C) Measures relating to Operations.

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  • Restrictions on employment it of foreign key professionals or technical personnel including restrictions on visas, permits etc.
  • Performance requirement such as manufacturing requirements, trade balancing requirement, import restrictions, local sales requirements, linking export quotas to domestic sales, export/ foreign exchange earning requirements.
  • Public procurement restrictions (e.g. foreign investors excluded as government suppliers or subject to providing special guarantees).
  • Restrictions on imports of capital goods, spare parts, manufacturing inputs.
  • Restrictions/ Conditions on access to local raw materials, spare parts and inputs.
  • Restrictions on long-term leases of land and real property.
  • Restrictions to relocate operations within the country.
  • Restrictions to diversify operations.
  • Restrictions on access to telecommunications networks.
  • Restrictions on the free flow of data.
  • Operation restrictions relating to monopolies or participation in public companies (e.g. obligation to provide a public service at a certain price).
  • Restriction on access to local credit facilities.
  • Restrictions on access to foreign exchange (e.g. to pay foreign finance, imports of goods and services or remitting profits).
  • Restrictions on repatriation of capital and profits (case by case approval, additional taxation or remittances, phase out of transfers over a number of years).
  • Cultural restrictions, mainly in relation to educational media services.
  • Disclosure of information requirements (e.g. on the foreign operations of a TNC).
  • Special operational requirements on foreign firms in certain sectors/activities (e.g on branches of foreign banks).
  • Operational permits and licenses (e.g. to transfer funds).
  • Special requirements on professional qualifications, technical standards.
  • Advertising restrictions for foreign firms.
  • Ceilings on royalties and technical assistance fees or special taxes.
  • Limits an the use of certain technologies (e.g. territorial restrictions), brand names, etc. or case-by-case approval and conditions.
  • Rules of origin, tracing requirements.
  • Linking local production to access or establishment of distribution facilities.
  • Operational restrictions related to national security, public order, public morals etc.

(D) Fiscal Incentives to Foreign Investors.

  • Reduction of the standard corporate income tax rate.
  • Tax holidays.
  • Allowing losses incurred during the holiday’s period to be written off against future profits.
  • Accelerated depreciation allowance on capital taxes.
  • Investment and reinvestment allowances.
  • Reductions in social security contributions.
  • Deductions from taxable earnings based on the number of employees or on other labor related expenditures.
  • Corporate income tax deductions based on, for example, expenditures relating to marketing and promotional activities.

(E) Value Added Based Incentives.

  • Corporate income tax reductions or credits based on the net local content of outputs.
  • Granting of income tax credits based on net value earned.
(F) Import Based Incentives.
  • Exemption from import duties on capital goods, equipment or raw materials, parts and inputs related to the production process.
  • Tax credits for duties paid on imported materials or supplies.

(G) Export Based Incentives.

  • Exemptions from export duties.
  • Preferential tax treatment of income from exports.
  • Income tax reduction for special foreign exchange earning activities or for manufactured exports.
  • Tax credits on domestic sales in return for export performance.
  • Duty drawbacks.
  • Income tax credits on net local content of exports.
  • Deduction of overseas expenditures and capital allowance for export industries.

(H) Financial Incentives.

  • Direct subsidies to cover (part of) capital, production or marketing costs in relation to an investment project.
  • Subsidized loans.
  • Loan guarantees.
  • Guaranteed export credits.
  • Publicly funded venture capital participating in investments involving high commercial risks.
  • Government insurance at preferential rates, usually available to cover certain types of risks such as exchange rate volatility, currency devaluation, or non-commercial risks such as expropriation and political turmoil (often provided through an international agency).

(I) Other Incentives.

  • Subsidized dedicated infrastructure.
  • Subsidized services, including assistance in identifying sources of finance, implementing and managing projects, carrying out pre-investment studies, information on markets, availability of raw materials and supply of infrastructure, advice on production processes and marketing techniques, assistance with training and retraining, technical facilities for developing know how or improving quality control.
  • Preferential government contracts.
  • Closing the market to further entry or the granting of monopoly rights.
  • Protection from import competition.
  • Special treatment with respect to foreign exchange, including special exchange rates, special foreign debt-to-equity conversion rates, elimination of exchange risks on foreign loans, concessions of foreign exchange credits for export earnings, and special concessions on the repatriation of earnings and capital.

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January 1, 2019
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