Fdi Essay Research Paper Foreign direct investment

Fdi Essay, Research Paper

Foreign direct investment (FDI) is probably the single most important factor contributing to the globalization of the international economy. FDI are increasingly strong economic links between developing and industrialized countries, and also among developing countries. Foreign direct investment in developing countries (LDCs) have increased nearly four-fold in the 1990s and now account for almost 40 per cent, reaching some $120 billion in 1997. Foreign direct investment is now by far the largest source of all capital flows to the less developed world. The objective of the FDI is to encourage the flow of investments for productive purposes among member s countries, and in particular to developing countries. To serve this objective, the WTO must provide some type of guarantees (or insurance) covering foreign direct investment for all parties host countries, home countries and Multinational corporations against all the obstacles like Different needs, political risks, abuse of labor, Transfer Restriction, Breach of Contract, corruption, and Tax breaks. WTO must carry out advisory and technical assistance for these parties so that their interests are protected, and must emphasis on multilateral investment agreement (MIA.) No unilateral action or bilateral

+ Host Countries

The host countries or the developing countries are interested in: (I) development of their services, communities and infrastructure that may help their industrialization and development, (III) production of exportable goods and (III) continuous technological development in their industrial production and services

Labor, and natural source Abuse

Once MNC has been attracted to a particular destination country, they expect a high level of facilitation services. Governments all too often give inadequate attention to servicing investors needs, even though large sums of money may have been spent on promotion activities and success has been achieved against fierce international competition. In retune, Investors from industrialized countries want to come to developing countries for two main reasons. First, they apprehend that the return on capital in their home country is not adequate; second, they want to combine their capital with the cheap labor of the host country to reduce the cost of production. So the WTO should regulate the minimum wage for the worker in the host county.

Local Investment security

If the FDI is only for capturing the domestic market, it may still generate profit for the investor, but such profit may leave the country in foreign exchange. Where there are two serious implications.

First, in profitable domestic consumption sectors, foreign investments may overwhelm domestic investors (which may generally not be as strong as the foreign counterparts) and in some cases may eliminate them.

Second, some critical sectors, like land, minerals and forests, where countries often like to have effective control on ownership because of social, political and strategic reasons, may, in a big way, pass under the control of foreign nationals.

+ Home countries

Investors have freedom without any responsibility, except in respect of their own profits.

The implementation of the obligations of home countries are ought to be ensured by locating the MIA in the WTO, so that for any perceived infringement, action can be taken against exports of the country.

Tax breaks for multinational corporations

Multinational corporations, whether American- or foreign-owned, are supposed to pay taxes on the profits they earn in their home country. For example, American companies and individuals aren’t supposed to gain tax advantages from moving their operations or investments to low-tax offshore “tax havens.” But the tax laws often fail miserably to achieve this goal. Moreover, IRS data show that foreign-owned corporations doing business in the United States typically pay far less in U.S. income taxes than do solely American firms with similar sales and assets. The same loopholes that foreign companies use are also utilized by U.S.-owned multinationals, and even provide motivation for American companies to move plants and jobs overseas. As a result, the WTO must fix these problems in the current system. The WTO must oblige all multinational corporations to provide income report in the overseas operation. Also, the Home County has the right to inspect every movement of goods and services between a multinational company’s domestic and foreign operations, and then attempt to assure that a fair, “transfer price” was assigned to each real or notional transaction.

+ Multinational Corporation

Host countries insist that foreign firms must meet high domestic-content requirements, take on local partners, or engage in technology-sharing agreements, by contrast, suffer lags in technology acquisition, absence of best management techniques, weak penetration of foreign markets, and flimsy development of a supplier base. Yet developing countries and economies in transition can t find ways to protect and reward foreign investors who promise to meet domestic content, joint venture, or technology-sharing requirements.

Political risks

Political actions, changes in governments, events or instability may result in unfavorable changes in the value of a foreign security. A new t

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