THE IMPACT OF INTERNATIONAL INVESTMENT LAW IN DEVELOPING COUNTRIES

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This article is written by Bhavya Mittal of 3^rd Semester of National University For Study And Research in Law

ABSTRACT

This paper aims to explain the impact of international investment law on developing countries. What are the outcomes if there is an excessive restriction imposed by the country or if the country becomes lenient? The author intends to articulate the importance of international investment in development like how it helps in the growth of its economy.

The article is further divided into three categories, it first starts with the introduction part then goes to the main body, and last the conclusion to provide a clear picture of the article to understand it in a better way.

The article first start with the introduction in which the author have tried to start with the very basic by making people understand the meaning of international investment in a very uncomplicated way as well as its recent involvement in the era of globalization, in short, it explains all its necessary aspects.

The second category contains the main body of the article, where the author has tried to explain the difference international investment makes in a developing country but also further does how an international investment law will affect investment in this developing country later, we take an example of our own developing country India to understand it in a better way.

The third category contains the conclusion which is a sum up as the author has provided us with nothing more than a summary of the article so that after reading the article, the readers will be provided with the overall view of the content and understand the whole paper better at the end making us think that whether an international investment is really necessary for the economic development in a developing country and are all those restrictions, made under it are valid.

Keywords – international investment, international investment law, developing country, balance, restrictive regulations

INTRODUCTION

One of the instruments of public international law is international investment law. International investment law finds out the resolutions for the dispute between foreign investors and sovereign states[1]. For the protection of basic human rights, health, and the common good, the basic principles are necessary for the enforcement of investment law. Investing in one country would lead to economic growth as a whole and not as an individual or an end in itself. The laws which we made are not only for restricting a citizen to do certain things but even protect the rights of citizens by providing them with basic needs. The development in a country whether it is national or international law, causes changes in the society economically and socially. In recent times there is also a change in investment law from being a narrow one to a wider one applicable in the global arena. While the structuring of investment law a thorough analysis must be done by studying the interdisciplinary aspects. India one of the developing countries in the year 1991 after a few years of independence aimed for liberation by including policies which are advantageous to international investment in the business and industrial sectors of India.[2]

It is important that for development there is an independence of economic globalization and investment law. The basic stone of globalization is the movement of goods and services from one place to another. Liberalization in the investment laws will bring a step ahead in globalization. Due to globalization now there is a fight among profit companies. Every person participating in it wants to be a step ahead of others. This led to the inclusion or the scope of instruments that will govern investment laws in the country. These treaties between the two countries govern the investment law. These treaties are usually preferred to be bilateral rather than multilateral. The need for treaties or knowing the impact of the investment law is important as the host country sometimes gets an undue advantage over the investing country.

In short International investment comes under that investment that goes outside the domestic arena. So International investment laws are that which govern the relationship between foreign investors. There is no specific institution or any central treaty for investment law like the WTO law. Although Internal investment has a great impact on the economy there are no rules or treaties governing the subject matter. So International Investment laws contain agreements and treaties. It also acts as a public international law used for disciplining global governance as the laws draw on the general public international law which even includes the law of treaties, codified by the Vienna Convention on Law of Treaties.

DIFFERENCE WHEN INVESTMENT HAPPENS IN DEVELOPING COUNTRIES

In this global arena when some countries have already become developed countries having both financial and social benefits over other countries, they invest in developing countries to boost the integration in the global economy with the inclusion of foreign trades. The growth of enterprises and the growth of various multinational companies not only provide open doors for the import and export system but also opens it for more employment, skill, etc. The developing countries which are more liberal towards international trade are going to attract more international investment.

The developing countries should take advantage of international investment since now is a crucial time as the different countries are interlinking with each other. When the countries invest, they grow the country into economic stability and development while providing a sustainable environment to all. Resources, markets, technology, and all the skills to increase economic growth are provided through investment. It even creates jobs and builds up the infrastructure. The promise to fulfill the initiative mentioned in sustainable development and renewal of the environment in developing countries cannot be possible without the influence of international investment.

It is not far from reality that while implementing any industrial policies they highly depend on international investment for technologies and finance. Investment can happen in any of three ways either it can be a takeover or merger or purchase of land by the investors or investment by them on building factories, plants, and distribution centers. If we take the example of McDonald, they mostly invest in developing countries like Asian countries by setting up large numbers of stores in their country. All the luxury brands are manufactured in developing countries like Thailand, Vietnam, and Bangladesh and are then sold in other countries, so manufacturing units are set up here requiring international investment leading to employment and economic growth. The international investment has even helped Developing countries like India to develop in its automobiles, railways, and textiles, like Byjus an Indian online ed tech company that raised 500 million from the U.S. equity, Google picked Reliance Jio Platform for dollar 4.5 billion and made it one of the biggest deals. Recent data show that the majority of International investment comes from the Netherlands, USA, Japan, Singapore, and Mauritius[3].

HOW LAWS IMPACT THE INTERNATIONAL INVESTMENT IN DEVELOPING COUNTRIES

The laws impact international investment in a larger way as an open or rather unrestricted market would possibly encourage a larger amount of investment and this sum of investment would help a developing country in their growth of capital in the economy leading to the development of non-industrial sectors or some other forms of development. On the other hand high regulations i.e. restrictions lead to the discouragement of the international investment needed for the development of industrial projects. So it’s a constant need for developing countries to focus on their investment through laws in a way they can even control without discouraging international investments which will promote growth in the required sectors of the economy. The main struggle for the developing countries is now to maintain balance in development through international investment both attracting at the same time restricting it as well the international capital.

We can understand this with the regulatory scheme of international investment laws maintained by developing countries like Nigeria, Argentina, and Mexico. These countries have relaxed their restrictions on international investment to grow their industrialization. However, during the years 1970, these countries wholly followed the restrictive regulation policies towards the international investment law but now they have adopted the liberalization process to gain more international capital especially those areas which are in dire need and domestic capital not available or insufficient.

In the case of Argentina after it repealed its most restrictive regulations towards the international investment law it only imposed a procedure constraint on international investors. In the same way, countries like Nigeria and Mexico do have restrictive international investment laws which restrict based on the investment type which is involved. However, now the Mexican government has become lenient and it has started to provide modifications to the administrative general rules and exempt the restriction based on the case. The Nigerian law although doesn’t give the government expressive power to authorize the exemptions does authorize the Nigerian government to slightly modify it, leading to more international investment by recategorizing the enterprises. International investors also sometimes violate the law without any sanctions which indirectly leads to the relaxation of restrictive international investment law. In each of the cases, it is seen that countries liberalized their international investment laws but still retained some control over the international investment that took place. By balancing both liberalizations of the restrictions and control over international investment the developing countries attract international capital which is necessary for economic growth[4].

HOW DOES INDIA TAKE THESE LAWS

India is one of the developing countries that is recently examining one of its international investment laws. Although India was the first country to sign BIT (1994) with the U.K., its development toward international investment law jurisprudence gradually. In the post-independence era, India’s mindset toward this international investment was only a bit responsive. The international investment was looked at by India only in mutually positive circumstances. Although around the year 1970 India’s attitude toward international investment slightly started to change as the country started to renew their growing industries which were already established. Until the 1980’s the Indian investment laws were mostly related to the development of local industrialization only. In 1990 India was left with a major Balance of Payment crisis which pressured them to take risky measures concerning liberalization of the international investment. The various measures taken under it were

Investment upto 51% in high-priority industries get automatic approval
Energy sector includes foreign equity of 100%
A board called foreign investment promotion was set up to give clearance to foreign proposals.
Foreign industries started to include telecommunication and mining industries.

The investment law went through various changes and it introduced various legislation amendments. Foreign Exchange Management Act was introduced to ease external trade and payment. More than 80 bilateral treaties were entered by India.

CONCLUSION

Introduction of various new legislations, exemption policies, and administrative delegations countries are trying to relax the restrictive international investment laws. But no matter what effective methods are used the results are somewhat similar only. All the steps taken by the country initially to maintain certain restrictions on the regulation of international investment law all become vain as the international investors still get a pass way in the developing countries.

Liberazing international investment laws has both its own negative and positive impact on the industries in a developing country. The most positive impact of these relaxations in the international investment laws is the investments that lead to profitable industries, as this investment provides useful resources which are scarce in their developing country. In short, the amount of less control the government has over international investment leads to economic growth also causing industrialization. Balancing the control of international investment and encouragement of foreign investment is the main struggle for developing countries for economic growth.

International investment should be restricted through the law but it should not contradict situations where the country’s skill and capital are sufficient in the case of India it encourages international investment and made various bilateral treaties but it is an event promoting various self-reliant schemes and Indian products not nationally but also internationally. The restriction on the international investment law should not come in between where the international capital would lead to growth. International investors although would be willing to invest their capital in developing countries for the technologies, they would still hesitate to invest in that country which restricts them in their assets. So, a developing country would not be able to benefit so much from international investment if it maintains excessive control over international investment laws.

REFERENCES

1. International Investment law, Law Library Guides, available at https://unimelb.libguides.com/investment_law#:~:text=International%20investment%20law%20is%20an,foreign%20investors%20and%20sovereign%20States

2. Impact of globalization on national and international investment law , Indian journal of integrated research in law, available at https://ijirl.com/wp-content/uploads/2021/12/IMPACT-OF-GLOBALIZATION-ON-NATIONAL-AND-INTERNATIONAL-INVESTMENT-LAWS.pdf

3. Foreign Direct Investment or FDI, Groww, available at https://groww.in/p/foreign-direct-investment

4.Foreign investment law in developing countries, repository. law, available at https://repository.law.umich.edu/cgi/viewcontent.cgi?article=1805&context=mjil

[1] International Investment law, Law Library Guides, available at https://unimelb.libguides.com/investment_law#:~:text=International%20investment%20law%20is%20an,foreign%20investors%20and%20sovereign%20States last seen on 17/7/2023

[2] Impact of globalization on national and international investment law , Indian journal of integrated research in law, available at https://ijirl.com/wp-content/uploads/2021/12/IMPACT-OF-GLOBALIZATION-ON-NATIONAL-AND-INTERNATIONAL-INVESTMENT-LAWS.pdf last seen on 17/7/2023