Improving Russia's Policy on Foreign Direct Investment

Foreign direct investment brings host countries capital, productive facilities, and technology transfers as well as employment, new job skills, and management expertise. It is important to the Russian Federation, where incentives for competition are limited and incentives to becoming efficient are blunted by interregional barriers to trade, weak creditor rights, and administrative barriers to new entrants. The authors ague that the old policy paradigm of foreign direct investment (established before World War II and prevalent in the 1950s and 1960s) still governs Russia. In this paradigm there are only two reasons for foreign direct investment: access to inputs for production and access to markets for outputs. Such kinds of foreign direct investment, although beneficial, are often based on generating exports that exploit cheap labor or natural resources, or are aimed at penetrating protected local markets, not necessarily at world standards for price and quality. They contend that Russia should phase out high tariffs and non-tariff protection for the domestic market, most tax preferences for foreign investors (which don't increase foreign direct investment but do reduce fiscal revenues), and many restrictions on foreign investment. They recommend that Russia switch to a modern approach to foreign direct investment by: 1) Amending the newly enacted foreign direct investment law so that it will grant non-discriminatory "national treatment" to foreign investors for both right of establishment, and post-establishment operations, abolish conditions (such as local content restrictions) inconsistent with the World Trade Organization agreement on trade-related investment measures (TRIMs), and make investor-state dispute resolution mechanisms more efficient (giving foreign investors the chance to seek neutral binding international arbitration, for example). 2) Strengthening enforcement of property rights. 3) Simplifying registration procedures for foreign investors, to make them transparent and rules-based. 4) Extending guarantee schemes covering basic non-commercial risks

Bibliographic Details

Main Authors:	Bergsman, Joel, Broadman, Harry G., Drebentsov, Vladimir
Language:	en_US
Published:	World Bank, Washington, DC 2000-05
Subjects:	foreign direct investments, reform policy, competitive equilibrium, globalization, capital markets, productivity growth, technology transfer, management experience, skills inventories, administrative boundaries, trade barriers, export incentives, trade structure, domestic markets, tariff structures, preferential treatment, taxation, fiscal sustainability, World Trade Organization, dispute resolution, international arbitration, property rights, guarantees, commercial risks, anti-corruption, auctions, bidding, business licensing, Central Bank, citizens, commodities, competitive advantage, competitiveness, consumers, contract enforcement, corruption, criminal sanctions, cross-country evidence, decree, Decrees, democracy, developed countries, economic conditions, economic development, economic growth, economic policies, economic policy, elected officials, employment, exploitation, exports, FDI, financial intermediation, financial sector, fiscal, foreign capital, foreign companies, foreign direct investment, foreign exchange, Foreign Investment, foreign investors, foreign ownership, foreign participation, foreign-owned companies, GDP, government agencies, host countries, imports, income, insurance, interest rate, interest rates, International Investment, international trade, investment climate, labor costs, labor force, lack of security, legal system, legislation, levels of government, local authorities, mergers, motivations, multinational enterprises, municipality, national economies, national level, national policies, national policy, nations, natural resources, oil, oil prices, policy makers, price discrimination, producers, productivity, protectionism, savings, State Property, tax rates, tax system, tax treatment, technology transfers, transition economies, transparency, Uruguay Round, wages, WTO,
Online Access:	http://hdl.handle.net/10986/21605
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