Maximizing the Benefits of FDI through CSR By Marinus Sikkel United Nations Economic and Social Commission for Asia and the Pacific At the International Conference “Expansion of FDI in Asia and Implications for the Development of International Rules on Investment” 18 January 2008, NIDA, Thailand

Outline Potential benefits from FDI Potential benefits from FDI Potential risks Potential risks Policy options Policy options Corporate social responsibility (CSR) Corporate social responsibility (CSR) Link to multilateral rule making Link to multilateral rule making

Potential benefits from FDI Increased competitiveness, growth and exports Increased competitiveness, growth and exports Spill-over effects Spill-over effects Inflows of foreign exchange Inflows of foreign exchange Increased access to capital Increased access to capital Job-creation Job-creation Better environment and social conditions Better environment and social conditions

Potential risks Low absorption capacity, limited spillovers Low absorption capacity, limited spillovers Restrictive business practices Restrictive business practices Tax avoidance Tax avoidance Deterioration of balance of payments Deterioration of balance of payments Dutch disease Dutch disease Exploitation of weak regulations Exploitation of weak regulations Bribery and corruption Bribery and corruption

Policy options I Conclude investment agreements??? Conclude investment agreements??? - BITs do not address the risks - Negotiations of multilateral rules failed for good reasons - Most countries consider it in their own interest to liberalize, and do so unilaterally - Domestic regulation can maximize the benefits of FDI

Policy options II  Improve the business climate  Introduce a simple tax system  Be careful with tax incentives  Appropriate regulation on transfer pricing  Environmental and labor legislation  Good governance  Establish industrial/free-trade zones  Be careful with requirements  Encourage CSR

CSR Soft-law approach to achieving social, environmental and good governance goals Soft-law approach to achieving social, environmental and good governance goals Increased competitiveness Increased competitiveness Customer perception / brandingCustomer perception / branding New market nichesNew market niches Increased productivityIncreased productivity Spill-over effects Spill-over effects

How can governments encourage CSR? Create an enabling environment for responsible business conduct: Create an enabling environment for responsible business conduct: Communication on expected conduct Communication on expected conduct Transparency in law enforcement Transparency in law enforcement Strengthen the business case through partnerships and promotion Strengthen the business case through partnerships and promotion International cooperation International cooperation

Link to multilateral rule making CSR is non-binding! CSR is non-binding! Encourage desirable behavior Encourage desirable behavior Use existing instruments Use existing instruments

Thank you for your attention 10 UNITED NATIONS ECONOMIC AND SOCIAL COMMISSION FOR ASIA AND THE PACIFIC