Government Policy for

Multinational Corporations

Assoc. Prof. Dr. Ngo Thi Tuyet Mai

[email protected]
[email protected]
Course Requirement & Expectation
◼ Grading:
• Attendance: 10%
• Midterm exam: 20%
• Group assignments: 20%
• Final exam: 50%
◼ Bonus Points:
• may be given to students actively participating in
class discussions
Teaching methods
◼ Lecture
◼ Case study
◼ Role play
◼ Group discussion
 Textbook & Reference Books
◼ Textbook: Jensen, Nathan M, Glen Biglaiser, Quan Li,
Edmund Malesky, Pablo M. Pinto, Santiago M. Pinto
and Joseph L. Staats. 2012. Politics and Foreign
Direct Investment. University of Michigan Press.
◼ Reference books:
1. Nathan M. Jensen. 2008. Nation-States and the Multinational Corporations:
A Political Economy of Foreign Direct Investment, Princeton University
Press
2. Navaretti, G.B. and A.J. Venables. 2006. Multinational Firms in the World
Economy. Princeton University Press.
3. Thomas Oatley (2016), International Political Economy, Fifth Edition,
Routledge
 References:
1. Dunning J. H & Lundan S. M. (2008), Multinational Enterprises and the
Global Economy, Second Edition, Edward Elgar.
2. ESCAP (2022), Handbook on Policies, Promotion and Facilitation of FDI
for Sustainable Development in ASIA and the PACIFIC
3. UNCTAD (2021), International Investment Agreements and Their
Implications for Tax Measures: What Tax Policymakers Need to Know,
United Nations -UNCTAD
4. US Department of States (2019, 2022, 2023), Investment Climate
Statements: Vietnam UNCTAD, the World Investment Report.
5. UNCTAD (2021, 2022, 2023, 2024), World Investment Report
 Content
◼ Chapter 1: Introduction
◼ Chapter 2: Overview of the FDI Theories
◼ Chapter 3: Economic and Political
Determinants of FDI: Vertical FDI and
Horizontal FDI
◼ Chapter 4: International investment
agreements (IIAs) and policy developments
◼ Chapter 5: MNC and host country government
policy
CHAPTER ONE

1 Introduction to Multinational
Corporation

7
Introduction to multinational
corporation

1. What is MNC?
2. Why it is important to study MNC?
Content
▪ Definition
▪ Objectives
▪ Structure
▪ Features
▪ MNC & FDI
▪ Types
▪ Positives and negatives
▪ Facts
MNC & FDI: Definitions
◼ MNC is an entity headquartered in one country
that does business in one or more foreign
countries

◼ MNC that have established affiliates or

subsidiaries in other countries

◼ MNC is a corporate organization that owns or

controls production of goods or services in at
least one country other than its home country

10
MNC: Definitions
◼ A multinational corporation can also be
referred to as a/an:
• multinational enterprise (MNE)
• transnational enterprise (TNE)
• transnational corporation (TNC),
• international corporation (IC)

 What is the difference between multinational corporation and

transnational corporation, and give examples ?
 What are main objectives of MNCs?

11
Different levels of control
▪ Branches are direct investment enterprises of
which 100% of the voting power is held by
the direct investor.
▪ Subsidiaries are direct investment
enterprises of which 50% or more of the
voting power is held by the direct investor;
▪ Associates or affiliates are direct investment
enterprises of which 10-50% of the voting
power is held by the direct investor; and

12
Illustration of the ownership
structure of an MNC

Please describe the ownership structure of an MNC ? 13

MNC: Objectives

◼ To expand the business beyond the boundaries of

the home country
◼ Minimize cost of production, especially labour cost
◼ Avail of competitive advantage internationally
◼ Establish an international corporate image
◼ Achieve greater efficiency by producing in local
market and then exporting the products
◼ Make best use of technological advantages by
setting up production facilities abroad

14
Foreign Market Entry Modes:
Where trade meets FDI

15
 Features of a
Multinational Corporation
◼ Huge assets and turnover
◼ International Operations
◼ Unity of Control
◼ Mighty Economic Power
◼ Advanced and Sophisticated Technology
◼ Professional Management
◼ Aggressive Advertising and Marketing
◼ Better Quality of Products

16
Toyota Motor Corporation
◼ Toyota Motor Corporation is one of the
world’s leading automakers
◼ Founded by Kiichiro Toyoda in 1937
◼ Headquartered in Toyota, Aichi, Japan
◼ 370.000 employees world wide (2019)
◼ Sale in more than 170 countries and regions
◼ 67 manufacturing companies worldwide
◼ 20 design and R&D

17
Toyota- 2019

18
MNC & FDI

◼ In the U.S. statistics, a U.S company is

considered multinational corporation if it
holds 10% or more of the stock of a foreign
company
◼ Investment made in the foreign country is
referred to as foreign direct investment
(FDI)

19
FDI & FPI
◼ Foreign Investment (four categories):
➢ Commercial loans (Bank loans)
➢ Official flows (ODA)
➢ FDI: commonly undertaken by MNCs
➢ FPI: stocks or debt (bonds)

◼ Ordinarily, the threshold for FDI is ownership of

“10 percent or more of the ordinary shares or voting
power” of a business entity (IMF Balance of Payments
Manual, 1993).

20
FDI
◼ Are real investments in factories, capital
goods, land and inventories where both
capital and management are involved and the
investor retains control over use of invested
capital.

◼ Usually takes form of a firm starting a

subsidiary or taking control of another firm
FDI
Foreign Vietnam

22
FDI flows vs. FDI stock
◼ FDI flows
• Outflows of FDI
• Inflow of FDI
◼ FDI stock

23
FDI flows vs. FDI stock

◼ The flow of FDI refers to the amount of FDI

undertaken over a given time period
◼ Outflows of FDI are the flows of FDI out of a country
◼ Inflows of FDI are the flows of FDI into a country

◼ The stock of FDI refers to the total

accumulated value of foreign-owned assets
at a given time

24
FDI flows: Outward, Million US dollars, 2015-2018

WORLD 2018
USD 887715
Million

EU 2018:
USD 320099
Million

Source: https://data.oecd.org/fdi/fdi-flows.htm 25
 FDI stocks: Outward/Inward, % of GDP, 2018 or latest
available source

Luxembourg
2018 outward
343% of GDP

Luxembourg
2018 inward
211% of GDP

Source : https://data.oecd.org/fdi/fdi-stocks.htm 26
 Vietnam: FDI Inwards and FDI Stock

*** Green Field Investments Are a Form of Foreign Direct Investment Where a Parent Company Starts a New Venture in a
Foreign Country By Constructing New Operational Facilities From the Ground Up.
**** Gross Fixed Capital Formation (GFCF) Measures the Value of Additions to Fixed Assets Purchased By Business,
Government and Households Less Disposals of Fixed Assets Sold Off or Scrapped.

Source: https://www.nordeatrade.com/dk/explore-new-market/vietnam/investment 27
MNC and FDI

◼ Company making the investment abroad is

called a parent
◼ Company receiving the investment is called
an affiliate
◼ Home country refers to the country where
the headquarters is located
◼ Host country refers to the foreign countries
where the company invests

28
 FPI
◼ FPI: are purely financial assets, such as stock,
bonds, and fund certificates denominated in a
national currency
◼ The foreign investor has no direct involvement in
the business activities operation, and
management of the enterprises or the project
◼ The advantage of FPI is that the risk is quite low
because the assets are distributed across multiple
channels.
 FPI
◼ US: as a portfolio investment stock purchases that
involve less than 10 percent of the voting stock of a
corporation
◼ India: FPI is investment in shares of a company not
exceeding 10% of the total paid-up capital of the
company (banking sector: 5%).
◼ Vietnam: Foreign investors are allowed to hold up to 49
percent of a company's current shares, except in the
banking sector, which has a limit of 30%
◼ The foreign stake at MBBank is currently at 23.24%, HDBank
18% and VPBank 17.6%,
◼ Singapore: No restrictions for nonresidents to purchase
equity instruments.
 FPI
◼ With bonds, the investor simply lends capital to get fixed
payouts or a return at regular intervals and then receives
the face value of the bond at a pre specified date
◼ Portfolio or financial investments take place primarily
through financial institutions such as banks and
investment funds
◼ VN: Foreign investors are required to open a VND-denominated securities
trading account to sell or purchase debt securities. These transactions must
be executed in VND through an account at a licensed bank in Viet Nam.
◼ S.Korea: Nonresidents are allowed to buy bonds and other debt securities
sold by residents, but notification to a foreign exchange bank or the Bank
of Korea is required if the purchase is not made through an account
exclusively for investment.
◼ Singapore: No restrictions
Determinants of FDI
◼ Home country economic conditions and
policies
◼ Host country economic conditions and
policies
◼ MNC strategies

33
Two basic sets of determinants of FDI

34
Main foreign investors’ decision-
making factors

35
What motivates FDI?

36
Survey results on FDI
determinants by ESCAP

37
General most important factors for attracting FDI

Source: ESCAP (UN Economic and Social Commission for Asia and the Pacific)
38
Types of FDI
1. According to direction
2. According to activity
3. According to objectives
4. According to investment mode
5. According to motives
6. According to trade effect
7. According to financial transaction
8. According to firm’s internal structure
9. Others
39
Heinz and Kraft Foods: $62.6
billion
◼ The biggest completed deal of 2015 so far, this
merger between the two food and beverage
giants was valued at $62.2 billion.
◼ The new created Kraft Heinz Company is the
third – largest food company in the U.S and
fifth-largest in the world, measured by
annual sales

40
Dell Buys EMC
◼ In 2015, Dell Inc buys EMC for $67 billion in
largest deal in tech history ($33.15 a share)
◼ The two combined companies will make the
Dell and EMC the world’s largest privately
controlled, integrated technology company

41
 Vietnam’s M&A deals in 2018-2019
(list of Vietnam’s 10 largest M&A deals)

1. SK Group, Vingroup, and Masan

2. Saigon Co.op and Auchan
3. Truong Hai and HAGL
4. Vingroup and Fivimart, Hanwa
5. Mitsui and Minh Phu
6. Taisho and Hau Giang Pharmaceutical
7. Vinamilk and GTNfoods
8. Sojitz and the Pan Group
9. SonKim Land mobilized capital from its strategic partners
10. Gelex and Viglacera

https://vietnaminsider.vn/vietnams-outstanding-ma-deals-in-2018-2019/

42
Vietnam’s M&A deals in 2018-2019

◼ Taisho and Hau Giang Pharmaceutical

In April 2019, Taisho Group, one of the five largest pharmaceutical
firms in Japan, officially acquired a controlling stake in Hau Giang
Pharmaceutical JSC (DHG) after spending VND2.47 trillion ($107.4
million) on buying 20.6 million DHG shares.
◼ Through the purchase Taisho increased its ownership in DHG to 66.4
million shares, equalling 50.78 per cent of the stakes. With the offered
selling price of VND120,000 apiece, the Japanese pharmaceutical firm
spent VND2.47 trillion ($107.4 million) on the deal. The other major
shareholder in DHG is State Capital Investment Corporation (SCIC) with
43.3 per cent.

43
 FDI Sequence
Domestic Company and its
Competitive Advantage Greater Foreign Presence

Change Exploit Existing Competitive

Competitive Advantage Advantage Abroad

Production at Home:
Exporting Production Abroad

Licensing Control Assets

Management Contract Abroad (FDI)

Greater Wholly-Owned
Foreign Joint Venture
Investment Subsidiary

Greenfield Acquisition of a
Investment Foreign Enterprise
Types of FDI: Acquisitions& Greenfield
investments
◼ Acquiring ongoing and existing operations
abroad
◼ However, potential problems with integration, paying too
much for acquisition, post-merger management, and
realization of synergies all exist
▪ Ford buying Jaguar for $2.8 billion in 1990

◼ Greenfield investments: The establishment of a

wholly new operation in a foreign country
◼ Usually require extended periods of physical construction
and organizational development
▪ Honda building an automobile assemble plant in Marysville Ohio
in 1982
Multinational Corporations

◼ Reasons for MNCs

◼ Integration may increase profits through better
control of supply chains.
◼ The larger scale of production may allow the
firm to better exploit economies of scale.
◼ MNCs can better direct production to low cost
nations.
◼ MNCs can artificially change prices to only
show profits in low tax nations (transfer pricing)
◼ ...
Multinational Corporations

◼ Problems in Home Country

◼ Loss of domestic jobs to other countries.
◼ MNCs may move technology out of the home
country reducing the technological advantage
of the home country.
◼ Transfer pricing may reduce taxable income
and tax revenue.
◼ Access to foreign markets allows MNCs to
circumvent domestic monetary and fiscal
policy control.
◼ …
Multinational Corporations

◼ Problems in Host Country

◼ MNCs are alleged to dominate their
economies.
◼ R&D funds are siphoned off to the MNC’s
home nation, keeping host nation
technologically dependent.
◼ MNCs may extract from host nations most of
the benefits of their investment, either through
tax and tariff benefits or tax avoidance.
◼ ….
 A Rationale for the MNE and FDI
◼ MNEs seek to take advantage of imperfections across
national markets or opportunities in overseas markets
(that are not being met by competition). They can
pursue their objectives through an FDI strategy:
➢ Market seekers
➢ Raw material seekers
➢ Production efficiency seekers
➢ Knowledge seekers
➢ Political safety seekers
➢ ….
➢ …..
How Important are Multinational
Firms in Practice?
◼ Multinational firms account for 25% of World
GDP in 2011
◼ Multinational firms account for 1/3 of
international trade in 2011 (from 2000 to
2011, around 50% of total U.S. imports were
intrafirm)
◼ The 700 largest multinational firms account
for roughly 50% of world R&D spending
and close to 70% of world business R&D
spending
50
UNCTAD (2019): Global Investment Report

◼ MNEs in the global top 100 account for more

than one third of business funded R&D
worldwide.
◼ Technology, pharmaceutical and automotive
MNEs are the biggest spenders.
◼ International greenfield investment in R&D
activities is sizeable and growing.
◼ During the last five years, MNEs announced
5,300 R&D projects outside their home
markets. Developing and transition
economies capture 45 per cent of these
projects.
51
Each circle on the map points to the location of a company headquarters
52
Walmart - the world’s largest company by revenue in
2019

53
Global 500: The world’s 500 largest companies generated $32.7 trillion in
revenues and $2.15 trillion in profits; employ 69.3 million people worldwide and are
represented by 34 countries in 2018;

54
Fortune's annual Global 500 list ranks the world’s top corporations by
revenue.

55
56
Some data on FDI
Q&A
 Government Policy for
Multinational Corporations

Assoc. Prof. Dr. Ngo Thi Tuyet Mai

[email protected]
CHAPTER TWO

2 Overview of the FDI Theories

2
Three fundamental questions
◼ What motivates MNCs to go and
produce aboard?
◼ What enables them to do so?
◼ Why do MNCs undertake different
forms of investments abroad?

3
Theories of FDI
◼ Until the early 1960s, the theory of foreign
investment was essentially a theory of
international portfolio or indirect capital
movements

◼ Macroeconomic approaches
◼ Microeconomic approaches

4
Theories of FDI
◼ Theories of FDI based on perfect competition
◼ MacDougall-Kemp
◼ The market size hypothesis
◼ …

◼ Theories of FDI based on imperfect markets

◼ Industrial organization hypothesis
◼ Internalization theory of FDI
◼ Eclectic paradigm to FDI
◼ The product life cycle hypothesis
◼ ….
◼ FDI theory based on strength of currency
◼ FDI theories related to international trade
◼ FDI theories explaining investment from developing countries

5
 MacDougall-Kemp

◼ The early works of FDI were initiated by

MacDougall (1958); His model based on the
assumptions of perfectly competitive market.
◼ His theory was further elaborated and
formalized by Kemp (1964).
◼ The theories explaining international investment
in a similar way can be found in the works by
Simpson (1962), Frankel (1965), Pearce and Rowan
(1966) and Caves (1971)…

6
MacDougall-Kemp

◼ Assumptions:
◼ A perfectly competitive world
◼ Two - country model
◼ Prices of capital being equal its marginal productivity
Only one commodity and capital (foreign and domestic
alike) is homogeneous
◼ International capital flow will occur where the rate of return
to capital is different between countries
◼ Capital will move from the lower-rate-of-return country to
the higher-rate-of-return country

7
MacDougall-Kemp

Home Host

8
MacDougall-Kemp

◼ MN and PQ show the marginal productivities

of capital in the home country and the host
country
◼ OAR: total amount of capital in the home
country
◼ OBR: total amount of capital in the host
country
◼ OAA: the rate of return in the home country
◼ OBB: the rate of return in the host country

9
MacDougall-Kemp

◼ With free mobility of capital, capital in the

home country will flow into the host country
until there is OAS of capital = OBS of capital
◼ This means that the home country has
invested SR of capital in the host country
◼ As a result of this capital flow, the rate of
return is equalized in the two countries and
stays at a level of OAE or OBF

10
 MacDougall-Kemp
◼ In consequence of the capital flow, in terms
of output
◼ In the home country
◼ Before capital flow
◼ After capital flow
◼ In the host country
◼ Before capital flow
◼ After capital flow
◼ Total world output (Increased by PCM)
◼ PCT goes to the host country
◼ PTM goes to the home country
11
MacDougall-Kemp

◼ In consequence of the capital flow, in terms

of income
◼ In the home country:
◼ OANPS + PSRT
◼ The actual income: < OANPS + PSRT
◼ In the host country:
◼ OBQCR + PCT
◼ The actual income: > OBQCR + PCT
◼ Total world income:
◼ After capital flow ???

12
 MacDougall-Kemp

◼ Shortcomings:
◼ The analysis does not distinguish between FDI
and FPI. The reasons and effects of such two types
of foreign investment must be different
◼ The model treats foreign investment solely in
terms of financial capital and does not consider
the concept of foreign investment as a package
consisting of capital, technology, management,
and skill.
◼ The model is static in that it does not consider
changes in technology, changes in factor prices,
and the consequential changes in comparative
advantages. 13
MacDougall-Kemp

◼ Shortcomings:
◼ The model cannot explain the industry pattern of
FDI
◼ It cannot explain why foreign direct investment
concentrates on some industries but not on others
◼ The model evidently cannot explain why two-way
foreign investment can occur at the same time
◼ The model does explain why firms prefer direct
investment to licensing and exporting but does
not explain why some firms export and invest
abroad at the same time.
◼ …
14
Industrial Organization Hypothesis

◼ Hymer (1976) was the first one to explain international

production in an imperfect market framework.
◼ Supported by Lemfalussy (1961), Kindleberger (1969),
Knickerbocker (1973), Caves (1974), Dunning (1974),
Vaitsos (1974), Cohen (1975), Lall and Streeten (1977)
among others
◼ Firms operating abroad - specific advantages >
disadvantages

=> What are the main disadvantages for firms/MNC

operating aboard?
15
Industrial Organization Hypothesis

◼ Foreign firms operating abroad have to

compete with domestic firms that are in an
advantageous position in terms of:
◼ Culture
◼ Language
◼ Legal system
◼ Consumer’s preference
◼ Foreign firms are also exposed to foreign
exchange risk

16
 Industrial Organization Hypothesis

◼ These disadvantages must be offset by some form of

market power to make international investment profitable
◼ The sources of market power (the firm-specific advantage in Hymer’s
terms or monopolistic advantage in Kindleberger’s terms):
◼ Patent-protected superior technology
◼ Brand names
◼ Marketing and management skills
◼ Economies of scale
◼ Cheaper sources of finance
◼ Since the market is imperfect, firms can take advantage of
their market power to reap good profits by investing
abroad
◼ However, it fails to explain where and when FDI takes17
place
Industrial Organization Hypothesis
◼ Lall and Streeten (1977) (intangible assets
difficult to sell):
(i) Capital; (ii) Management; (iii)Technology
(iv) Marketing; (v) Access to raw materials;
(vi) Economies of scale; (vii) Bargaining and
political power
◼ Explain why firms invest in a foreign country
◼ Why choose A not B

18
 The Internalization Theory of FDI
◼ Buckley and Casson (1976)
◼ The theory is an extension of the discussion on
ownership-specific factors
◼ Explanation of FDI by emphasizing intermediate
products and technology
◼ Two kinds of intermediate products:
➢ Knowledge flows linking research and development (R&D) to production
➢ Flows of components and raw materials from an upstream production facility to
a downstream one

19
The Internalization Theory of FDI
◼ They articulated their theory based on three
postulates:
▪ Firms maximize profits in a market that is
imperfect;
▪ When markets in intermediate products are
imperfect, there is an incentive to bypass them
by creating internal markets
▪ Internalization of markets across the world
leads to MNCs

20
The Internalization Theory of FDI
◼ Five types of market imperfections:
▪ The co-ordination of resources requires a long
time lag;
▪ The efficient exploitation of market power
requires discriminatory pricing;
▪ A bilateral monopoly produces unstable
bargaining situations;
▪ A buyer cannot correctly estimate the price of the
goods on sale;
▪ Government interventions in international
markets create an incentive for transfer pricing;
21
 Internalization theory of FDI
◼ A foreign firm that is engaged in R&D may
develop a new technology or process, or inputs
◼ It may be difficult to transfer technology or
sell the inputs to other unrelated firms because
of high transaction costs
◼ A foreign firm may choose to internalize by
using backward and forward integration:
◼ Eg. The output of one subsidiary can be used as an
input to the production of another
◼ Eg. Technology developed by one subsidiary may
be utilized in others.
22
Dunning’s Eclectic Theory (or ‘OLI
paragigm’)
◼ John Dunning (1979, 1988, 1993)
◼ Electic Theory:
◼ It explains how MNCs choose to operate in
different countries.
◼ It explains why some countries are more successful
than others at attracting FDI.
Dunning’s Eclectic Theory (or ‘OLI
paragigm’
◼ John Dunning
◼ A firm would engage in FDI if three conditions were
fulfilled:
◼ (O)- It should have ownership advantages vis-à-
vis other firms;
◼ (I) -It is beneficial to internalize these advantages
rather than to use the market to transfer them to
foreign firms;
◼ (L) - There are some location advantages in using
a firm’s ownership advantages in a foreign locale.
Dunning’s Eclectic Theory
◼ Three necessary elements of successful FDI:
◼ Ownership-specific advantages: Firm-specific knowledge
(intangible assets)
◼ Patents, expertise of organization knowledge;

intellectual property, property right, brand recognition…

◼ Internalization advantages:
◼ Better use inside the firm than through the market (licensing and
pricing or JV)
◼ Location–specific advantage:
◼ Cheaper/better inputs (existing raw materials, low wages, special
taxes/tariffs).
=> FDI will occur when three conditions are uniquely combined
 Dunning’s Eclectic Theory
A firm would engage in FDI if three conditions were fulfilled:
 Sony Corporation in China
since 1978

◼ Ownership-specific advantages:
◼ It possesses a huge stock of knowledge and patents in the
consumer electronics industry, as represented by products
like the Play station
◼ Location-specific advantages:
◼ It desires to manufacture in China, to take advantage of
China’s low-cost, highly knowledgeable labor
◼ Internalization advantages:
◼ It wants to maintain control over its knowledge, patents,
manufacturing processes, and quality of its products

=> Sony entered China via FDI

Vernon Product life Cycle
◼ Raymon Vernon (1966)
◼ Why trade takes place and why investment
occurs?
◼ Seeks to explain how a company will begin
by exporting its products and eventually
undertake FDI because the product moves
through its life cycle.
Vernon Product life Cycle
◼ Raymon Vernon (1966)
◼ Assumptions:
◼ The theory is only applicable for developed
countries and not for developing countries
◼ The new product will only be produced in the
countries where it was first invented.
 Vernon Product life Cycle (1966)
Each product passes four phases

1st phase: Introduction/the in developed country

new product

2nd phase: growth period Export

3rd phase: FDI

maturity/maturing product

4th phase: Decline Stage

The length of a stage varies for different products

 Vernon Product life Cycle (1966)
◼ 1st phase: Introduction (New Product Stage)
▪ MNCs in developed countries innovate a new product
▪ MNCs are entering the market
Key features:
▪ Sales demand is low
▪ Investment costs are very high
▪ Operating costs or running costs are also high
▪ The product is not yet profitable; few competitors.
=> As the fortunes of the product are not known, it is
produced in a limited quantity and is sold mainly in the
domestic market
 Vernon Product life Cycle (1966)
◼ 2st phase: Growth period
▪ The product concept is proven and is becoming more
popular
▪ Demand for the product start growing rapidly
Key features:
◼ Sales demand is high
◼ New firms are also able to earn profit rapidly as the
product is in growth state
◼ Competition for the product increases
◼ The product achieves
=> MNCs may start to export the product out to other
developed nations to increase sales and revenue.
 Vernon Product life Cycle (1966)
◼ 3rd phase: Maturity (The Maturing Product Stage)
◼ As the product picks up in consumer acceptance and
popularity, demand for it rises both in domestic as
well as in foreign markets
◼ The innovating firm sets up MANUFACTURING
FACILTITIES ABROAD to expand production
capacity, and to meet growing demand from
domestic and foreign consumers
◼ Domestic and foreign competitions begin as the
product emerges a clear winner in the market
◼ Near the end of the maturity stage, attempts are made
to produce the product in the developing countries.
Vernon Product life Cycle (1966)
◼ 4th phase: Decline period
◼ Beging:
◼ A the product takes on increased competition
and the companies emulate its success
◼ The product may lose market share
◼ Product sales are going down due to market
saturation and alternative products.
◼ Finally:
◼ The cash flow stops
◼ No new innovations coming out in the market
to replace this product
The Philips light bulb
◼ It was a product that found itself
in the maturity stage for decades
◼ The duration of each stage
depends on demand, production
costs, and revenues
◼ Low production costs and high
demand will ensure a longer
product life
Vernon Product life Cycle (1966)
◼ Advantages:
◼ It can be applied to a variety of product such as
synthetic fibres, electronic goods, radio and
television, computers and pocket calculators.
◼ Its flexibility in explaining not only why trade
takes place and also why FDI replaces trade
◼ Has many takers (i.e it suggests that many products go
through a life cycle during which high-income, mass
consumption countries are initially exporters, then lose
their export markets and finally become importers of the
product).
Vernon Product life Cycle (1966)
◼ Disadvantages:
◼ Innovation can take place not only in the relatively
capital-rich countries about but also in countries
with relatively high income and large domestic
markets.
◼ Vernon’s observations were based largely on
products developed and produced in the USA and
are, therefore, an attempt to explain US trade.
◼ The US is no longer the sole innovator of products in
the world.
◼ Breakthrough products are springing up everywhere
as R&D activities of companies continue to globalize.
 FDI theory based on strength of
currency
◼ Aliber (1970)
◼ The pattern of FDI can be best explained in terms of the
relative strength of various currencies
◼ Countries with weak currencies tend to be host
countries of FDI; Countries with strong currencies tend
to be home countries of FDI
◼ The argument is based on capital market relationships,
exchange rate risks, and the market’s preference for
holding assets in selected currencies.
FDI theories related to
international trade
◼ The theories of international trade:
◼ Smith A. (1776)
◼ Ricardo D. (1817)
◼ Hecksher E. (1919) and Ohlin B. (1933)

=> These theories based on the assumption of

international immobility factors of production
FDI theories related to
international trade
◼ Vernon R.(1966) assimilated international
trade with international investment.
◼ Focus on the product, not its factor
proportions
◼ Technical innovations leading to new and
profitable products require large quantities of
capital and skilled labor
◼ Increased emphasis on technology’s impact on
product cost
◼ The product and the methods for manufacture
go through three stages of maturation
FDI theories related to
international trade
◼ Vernon R.(1966) assimilated international trade
with international investment.
◼ Limitations:
◼ Most appropriate for technology-based products
◼ Some products are not easily characterized by
stages of maturity
◼ Most relevant to products produced through mass
production.
◼ Other theories:
◼ Hisch (1976)
◼ Kojima (1973, 1975, 1985)
◼ Helpman (1984)
Case study: German FDI in China
1. Define Eclectic Theory and explain how this
theory affects FDI?
2. What were the reasons that motivated the
German companies to FDI in China?
3. What were the obstacles to German
investment in China?
Overview of the FDI Theories

Q&A
 Government Policy for
Multinational Corporations

Assoc. Prof. Dr. Ngo Thi Tuyet Mai

CHAPTER

3 Economic and Political

Determinants of FDI: Vertical
FDI and Horizontal
FDI

2
 Two forms of FDI (Strategy)
◼ Horizontal FDI

◼ Vertical FDI

3
Horizontal FDI & Vertical FDI

◼ Horizontal FDI or “market-seeking”

horizontal FDI or “Efficiency-seeking”
horizontal FDI
◼ Vertical FDI or “production cost-
minimizing” FDI or “raw material-
seeking” FDI

4
Horizontal & Vertical FDI
◼ Why would a MNC conduct horizontal &
vertical FDI?
◼ To better serve the local market
◼ To get lower – cost inputs

5
Horizontal FDI
◼ Horizontal FDI: when a firm invests in a foreign
country in similar production activity as carried out in
the home country
◼ At the same level of the value chain in the host country
◼ For serving the local market, rather than exporting to the
market
◼ For example:
✓ Pepsi, HSBC, Walmart or Tesco Lotus, etc…
✓ McDonald’s, KFC
✓ General Motors, Toyota Camry

=> Do you think Samsung Electronics Vietnam is a typical

example of horizontal FDI?
6
Horizontal FDI

◼ Horizontal FDI will tend to replace exports if the

costs of market access through exports (tariffs and
transportation costs) are higher than the net costs of
setting up a local plant and doing business in a
foreign environment

◼ Horizontal FDI will tend to dominate exporting in

industries:
◼ Transport costs are high
◼ Plant-level fixed costs are low
◼ Market size is large
7
Vertical FDI (along the supply chain)

◼ Vertical FDI: a firm expands into a foreign country

by moving upstream or downstream and to a
different level/stage of the value chain.

◼ Vertical FDI: investment in a downstream supplier

(backward vertical FDI) or upstream purchaser
(forward vertical FDI) compared to the business the
firm operates in its home country.
◼ Backward vertical FDI
◼ Forward vertical FDI

8
Vertical FDI

◼ Companies engaging in vertical FDI typically seek

to either lower the cost of raw materials or gain
greater control of their supply chain
◼ Vertical FDI will tend to:
◼ Decrease in transport and communication costs
◼ Increase in relative factor endowment differences
across countries (which generate factor price
differences)
◼ Increase in relative factor intensity differences across
tasks

9
Smiling Curve: Global Commodity Supply Chain

10
Vertical FDI (along the supply chain)

11
Backward Vertical FDI or Forward Vertical FDI ?

◼ Toyota getting a majority stake in a tire

manufacturer or a rubber plantation
◼ Direct investment in a foreign country aimed
to sell the output of the firm’s domestic
production
◼ Direct investment overseas aimed at
providing inputs for the firm’s production
process in the home country

12
Horizontal FDI and Vertical FDI
◼ True or False:

Horizontal FDI and International Trade are:

a. Substitutes
b. Complements

13
What are the motivations of horizontal and
vertical FDI by MNCs?

14
Horizontal FDI and Vertical FDI
◼ True or False
The motivations of Horizontal FDI are to:
a. avoid trade barriers;
b. reduce its cost;
c. gain better access to the local economy;
d. draw on technical expertise in the area by locating near other
established firms;
e. relocate the production process to low-wage countries;

15
Horizontal FDI and Vertical FDI
◼ Horizontal FDI refers to the type of FDI between industrialized
countries as ways to avoid trade barriers, gain better access to
the local economy, or draw on technical expertise in the area by
locating near other established firms.

◼ Vertical FDI by contrast, occurs when a firm in an industrialized

country lowers its cost by relocating the production process to
low-wage countries.

16
Impacts of horizontal and vertical FDI

◼ Host country
➢ Positive impacts
➢ Negative impacts

◼ Home country
➢ Positive impacts
➢ Negative impacts

17
Types of FDI (Objectives)
The typology of FDI was developed by Jere R. Behrman,
Professor of Economics at University of Pennsylvania,
to explain the different objectives of FDI:
▪ Resource-seeking FDI
▪ Market seeking FDI
▪ Efficiency seeking (global sourcing FDI)
▪ Strategic asset (capabilities seeking FDI)

18
Types of FDI (Objectives)
◼ Resource-seeking FDI
◼ To seek and secure natural resources (e.g. minerals,
raw materials)
◼ Upstream investment

19
Types of FDI (Objectives)
◼ Market seeking FDI
◼ To identify and exploit new markets for the
firm’s finished products
◼ Requires easy production expansion and thus
economies of scale
◼ Preferably similar taste among consumers

20
Types of FDI (Objectives)
◼ Efficiency seeking (global sourcing FDI)
◼ To restructure its existing investments so as to
achieve an efficient allocation of international
economic activity of the firm:
◼ International specialization whereby firms seek
to benefit from differences in product and factor
prices and to diversify risk
◼ Global sourcing- resource-saving and improved
efficiency by rationalizing the structure of their
global activities
◼ Optimizing the supply/value chain

21
 Types of FDI (Objectives)
◼ Strategic asset/capabilities seeking FDI
◼ TNCs pursue strategic operations through the purchase of
existing firms and/or assets in order to protect ownership-
specific advantages in order to sustain or advance its global
competitive position
– Acquisition of key established local firms
– Acquisition of local capabilities including R&D, knowledge and
human capital
– Acquisition of market knowledge
– Pre-empting market entrance by competitors
– Pre-empting the acquisition by local firms by competitors
◼ Modality: mergers and acquisitions (M&A)

22
DETERMINANTS OF INWARD FDI
Determinants of Inward FDI
◼ Three categories of determinants:
◼ Home country economic conditions and
policies
◼ Host country economic conditions and
policies
◼ MNC strategies
Home country economic conditions and
policies
◼ market size
◼ Economic growth prospects,
◼ rate of return to capita,
◼ level of urbanization/industrialization,
◼ labor costs and productivity,
◼ human capital,
◼ physical infrastructure,
◼ macroeconomic fundamentals (taxes, inflation, exchange rates,
external debt, etc.),
◼ pro-active outward FDI policy,…
HOST country economic conditions
◼ Markets
◼ Resources
◼ Competitiveness
◼ Macroeconomic fundamentals
HOST country economic conditions
◼ Markets
◼ Size and income levels; level of urbanization
◼ Stability and growth prospects
◼ Access to regional markets
◼ Distribution and demand patterns
HOST country economic conditions
◼ Resources
◼ Natural resources
◼ Technology and skills resources
◼ Labour resources
HOST country economic conditions
◼ Competitiveness
◼ Availability of affordable and productive
labour: Costs, skills, trainability, managerial
skills
◼ Access to inputs
◼ Physical infrastructure
◼ Supplier base R&D
◼ Financial institutions
HOST country economic conditions
◼ Macroeconomic fundamentals:
◼ Tax rates and structure
◼ Inflation rate
◼ Exchange rates
◼ Interest rates
◼ External debt etc.
HOST country policies and legal
framework conditions
◼ Macroeconomic policies and laws
◼ Private sector policies and laws
◼ Trade and industry policies and laws
◼ FDI policies
HOST country policies and legal
framework conditions
◼ Macroeconomic policies and laws
◼ Fiscal and monetary policy
◼ Ease of remittance and repatriation
◼ Access to foreign exchange
HOST country policies and legal
framework conditions
◼ Private sector policies and laws
◼ Promotion and degree of private ownership;
◼ Clear and stable policies
◼ Easy entry/exit policies
◼ Efficient financial markets
◼ Government procurement
◼ Other support
HOST country policies and legal
framework conditions
◼ Trade and industry policies and laws
◼ Import and export controls
◼ Membership in regional trade and integration
agreements
◼ Competition policy
◼ Support for SMEs
◼ Intellectual property rights protection
HOST country policies and legal
framework conditions
◼ FDI policies
◼ Membership and nature of international investment
agreements
◼ Ease of entry
◼ Pre-establishment and post-establishment
◼ MFN treatment and NT treatment
◼ Ownership; Incentives; Access to inputs
◼ Stability and transparency of policies and laws
◼ Availabilities of information and assistance
◼ Active investment promotion and targeting by efficient
investment promotion agency
◼ Aftercare services for investors.
MNC Strategies
◼ Risk perception
◼ Perception of country risk, based on political
factors and macro-economic management,
labour markets, policy stability, IPR protection
◼ Location, sourcing, integration, transfer
◼ Company strategies on location;
◼ Sourcing of products/inputs;
◼ Integration of affiliates and supply chain
management
◼ Strategic alliances
Host country economic conditions
and policies
◼ promotion of private ownership,
◼ efficient financial market,
◼ trade policies/free trade policy/regional trade
agreements,
◼ FDI policies, perception of country risk,
◼ legal framework, and
◼ quality of bureaucracy
MNCs strategies
◼ risk perceptions and
◼ location decisions
Two basic sets of determinants of
FDI

ESCAP, 2017
Main foreign investors’ decision –
making factors

ESCAP, 2017
What motivates FDI? The initial
impetus
◼ Primary reasons:
◼ Reduction of operating or production costs
◼ Proximity to cluster base or supply chain
◼ Broad-based market penetration
◼ Secondary reasons:
◼ Procurement of essential raw materials
◼ Access to unique technology or skills
◼ Reaction to, or anticipation of, copetition
 Survey results on FDI determinants

ESCAP, 2017
Factors that influence a
Company’s Decision to Invest
▪ Cost
▪ Logistics
▪ Market
▪ Natural resources
▪ Know-how
▪ Customers and competitors

43
Factors that influence a
Company’s Decision to Invest
▪ Policy
▪ Ease
▪ Culture
▪ Impact
▪ Expatriation of funds
▪ Exit

44
 Case study
Samsung Electronics Vietnam

45
Q&A

46
 Government Policy for
Multinational Corporations

Assoc. Prof. Dr. Ngo Thi Tuyet Mai

CHAPTER FOUR

4 International Investment
Agreements & Policy
Development

2
Introduction - IIAs International Investment
Agreement

◼ An International Investment Agreement (IIA) is a type of treaty

between countries that addresses issues relevant to cross-border
investments, usually for the protection, promotion, and liberalization
of such investments
◼ IIA broadly refers to agreements that establish binding rules
on investment protections
◼ Most IIAs cover FDI and FPI, but some IIAs exclude FPI

3
IIAs- UN Trade and Development
◼ Bilateral Investment Treaties (BITs):
◼ Total: 2,833
◼ Total in force: 2,222
◼ Treaties with Investment Provisions (TIPs)
◼ Total: 472
◼ Total in force: 392

4
 IIAs- Examples
Short Title Status Parties Date of Signature

Belarus-China Agreement on Signed (not in Belarus, China 22/08/2024

Service Trade and Investment force)
(2024)
Angola-China BIT (2023) In force Angola, China 17/11/2023

EU-Thailand Framework Signed (not in European Union, 14/12/2022

Agreement on Comprehensive force) Thailand
Partnership and Cooperation
(2022)
United Kingdom-Vietnam FTA In force United Kingdom, 29/12/2020
(2020) Vietnam

RCEP (2020) In force ASEAN-10 + 5) 15/11/2020 5

IIAs _ Vietnam & others
NO NAME TOTAL BITS TOTAL TIPS

1 China 124 (108 in force) 31 (28 in force)

India 18 (8 in force) 20 (14 in force)
Indonesia 42 (28 in force) 24 (22 in force)
2 Korea, Republic of 87 (81 in force) 28 (25 inforce)
Japan 37 (36 in force) 25 (22 in force)
3 Malaysia 65 (56 in force) 29 (25 in force)
Philippines 40 (32 in force) 19 (17 in force)
Thailand 38 (35 in force) 28 (23 in force)
4 Vietnam 62 (51 in force) 30 (23 inforce)
Singapore 47 (40 in force) 43 (35 in force)
 Number of BITs and other IIAs per year and
cumulative, 1980-2020
BITs + other IIAs cumulative

BITS cumulative

2020: 3360 IIAs (2943 BITs and 417 treaties with investment provisions)-
7
UNCTAD
https://onlinelibrary.wiley.com/doi/10.1111/twec.13429
 Introduction - IIAs
The purpose of IIAs ?
◼ In recent decades, many countries have entered into binding
investment agreements with foreign countries to:
◼ facilitate investment flows
◼ reduce restrictions on foreign investment
◼ expand market access, and enhance investor protections, while balancing
other policy interests

8
Introduction - IIAs

Why IIAs?
▪ Some WTO agreements address investment issues in a limited
manner.
▪ Barriers faced by investors in foreign countries
 BITs and investment chapters in free trade agreements (FTAs), known
as international investment agreements (IIAs), have been the primary
tools for promoting and protecting international investment

9
 Introduction - IIAs
Why IIAs?
▪ Some WTO agreements address investment issues in a
limited manner.
◼ The Trade-Related Investment Measures (TRIMS) Agreement includes disciplines on WTO
member countries applying restrictive investment measures that are inconsistent with
national treatment obligations (such as performance requirements) under the General
Agreement on Tariffs and Trade (GATT);
◼ The General Agreement on Trade in Services (GATS) includes investment liberalization
provisions related to trade in services; and
◼ The Agreement on Subsidies and Countervailing Measures (ASCM) and the Government
Procurement Agreement (GPA) deal indirectly with investment by including several
investment incentives in its definition of subsidies and public procurement services,
respectively

. 10
 What types of barriers do investors face in foreign
countries?
Why IIAs?
▪ Barriers faced by investors in foreign countries:
◼ discriminatory and other restrictions on foreign equity
participation
◼ forms of establishment
◼ local content requirements
◼ technology transfer requirements
◼ export performance requirements
◼ and restrictions on repatriation of earnings, capital, fees, and
royalties, among other issues
. 11
What types of barriers do investors face in foreign
countries?
Why IIAs?
◼ Foreign companies also can face barriers in a foreign
market’s operational environment:
◼ economic and political instability;
◼ economic policies and measures that limit growth (such as
capital controls, exchange rate controls, tax and regulatory
policies);
◼ expropriation and nationalization of private property; weak,
underdeveloped, or overly bureaucratic institutions;
◼ corruption and lack of transparency; non-independent judicial
systems, and limited infrastructure. 12
 IIAs
◼ IIAs contents obligations on the host state, which may include:
• Treating foreign investors as favorably as domestic investors or foreign
investors from other countries;
• Treating foreign investors fairly and equitably, as well as giving them
protection and security;
• Establishing clear limits on the expropriation of investments and
compensating foreign investors should expropriation occur;
• Allowing foreign investors to freely transfer their capital in and out of the host
State; and
• Allowing foreign investors to submit investment disputes to international
arbitration.
13
Introduction – Types of IIAs
The most common types of IIAs are:

◼ Bilateral Investment Treaties (BITs)

◼ Treaties with Investment Provisions ("TIPs").
◼ The most common forms are Free Trade Agreements ("FTAs") and
Economic Partnership Agreements ("EPAs") with investment
chapters.

14
Bilateral investment treaties (BITs)
◼ BITs
as "agreements between two countries for the
reciprocal encouragement, promotion and protection of
investments in each other's territories by companies based
in either country.“

15
Bilateral investment treaties (BITs)

◼ A BIT is an agreement between two countries that

establishes a framework to promote and protect the
investments made by investors from the respective
countries into each other’s territory.
◼ In some countries, BITs are called Foreign Investment Protection and
Promotion Agreements (FIPAs)
◼ BITs primarily with the rules related to admission, treatment, and
protection of foreign investment

16
Purposes of BITs (broad policy goals)
◼ To protect investors and investment:
➢ Fair and equitable treatment of foreign investors
➢ Compensation in the case of expropriation
➢ Right to move investment-related capital freely

◼ To facilitate investment entry and operation

◼ To liberalize economies of developing countries

17
BITs - Significant principles
◼ Principles for the protection of investment and investors;
◼ Principles against expropriation and compensation measures;
◼ Principles for losses the assets;
◼ Principles for repatriation and transfer goods, money, etc.;
◼ Principles for subrogation of investors;
◼ Principles for Dispute Resolution.

18
BITs
◼ The most common form of IIA is BITS
◼ The first BIT was signed in 1959 between Germany and
Pakistan.
◼ By the early 1990s there were around 500 BITs.
◼ By the late 1990s there were more than 2,000 BITs in
force.
◼ It is estimated that there are more than 2,500 BITS
active in the world today
19
Introduction – Types of IIAs
◼ Treaties with Investment Provisions ("TIPs")
◼ TIPs comprise comprehensive trade and economic cooperation agreements
with a chapter on investment protection; and other economic cooperation
agreements with some provisions on investment.
◼ These two can also be described as Free Trade Agreements (FTAs) with
provisions on investment and Economic Partnership Agreements
("EPAs") with investment chapters.
◼ For example:
◼ The EU-Canada Comprehensive Economic and Trade Agreement
◼ The Comprehensive Investment Agreement of ASEAN

20
Preferential trade and investment agreements (PTIAs)

◼ PTIAs are broader economic agreements among countries that

are concluded for the purpose of facilitating international
trade and the transfer of factors of production across borders
◼ They can be economic integration agreements, FTAs, EPAs or
similar types of agreements that cover, among many other
things, provisions dealing with foreign investment
◼ Eg.
➢ Chapter 11 of NAFTA covers detailed provision on foreign investment
➢ EPA between Japan and Singapore
➢ The FTA between the US and Australia
21
 ASEAN’s IIAs in force

ACIA: The ASEAN Comprehensive on Investment Agreement 22

BITs and Preferential Trade and Investment
Agreements (PTIAs)
◼ The major difference is that BITs, focus on investment
issues, while FTAs are more comprehensive, encompassing
a wide range of trade and trade-related issues involving
goods, services, agriculture, and investment.

◼ BITs and TIPs vary from one to another, BUT they

generally grant substantial rights to foreign investors,
provide safeguards against the actions of the host
government, and usually enable foreign investors to enforce
those rights by submitting investment disputes to an
international arbitral tribunal (rather than having to use the
local courts) 23
The 15 IIAs Key Provisions
◼ Definition of investment
◼ Admission versus Establishment
◼ National Treatment
◼ Most Favored Nation Clause
◼ Expropriation and Indirect Exploitation
◼ Fair and Equitable Treatment
◼ Transfer of Investment-related Funds Out of Host State
◼ Noneconomic Standards

24
The 15 IIAs Key Provisions
◼ Public Interest Obligations
◼ The Umbrella Clause
◼ Temporal Scope of Application
◼ Performance Requirements
◼ The Exception Clause
◼ Access to Arbitration
◼ Transparency in Investor-State Arbitration

25
Investment facilitation provisions in existing
IIAs
i. provisions on improving the investment climate;
ii. removal of bureaucratic impediments to investment;
iii. facilitation of investment permits;
iv. facilitation of entry and sojourn of personnel related to
investment;
v. transparency;
vi. capacity-building on investment issues;

26
Investment facilitation provisions in existing IIAs

vii. investment financing;

viii. insurance programmers;
ix. pre-establishment investor servicing;
x. post-establishment investor aftercare;
xi, relations with investors and the private sector; and
xii. joint cooperation and treaty bodies on investment
facilitation.

27
Number of IIAs signed, 1980-2019

28
TIP- treaty with investment provision
◼ The five TIPs concluded in 2019 for which texts are available can
be grouped into two categories.
1. Four agreements with obligations commonly found in BITs, including substantive
standards of investment protection and ISDS:
• Armenia–Singapore Agreement on Trade in Services and Investment Agreement
• Australia–Indonesia Comprehensive Economic Partnership Agreement (CEPA)
• Australia–Hong Kong, China Investment Agreement
• EU–Viet Nam Investment Protection Agreement
2. One agreement with limited investment provisions (e.g. national treatment with regard to
commercial presence or the right of establishment of companies) or provisions on free
movement of capital relating to direct investments:
• Caribbean Forum (CARIFORUM) States–United Kingdom Economic Partnership
Agreement (EPA)
29
 BITs – Top ten countries
▪ Almost all countries have signed BITs with other countries
▪ UNCTAD: 2904 BITs (21 Oct.2019)

1. Germany 160 6. France 111

2. Switzerland 143 7.Netherlands 110
3.China 128 8.Egypt 109
4.The U.K 117 9. Romania 103
5.The Czech Republic 113 10.Belgium and Italy 100/100
Cambodia 26 (16) Vietnam 42 (18)
Singapore 38 Malaysia 66 (54)
Hong Kong (China) 19 Indonesia 41 (25)
Korea, Rep. 94 (89) Philippines 37 (32) 30
Most recent IIAs

31
 Most recent IIAs

https://investmentpolicy.unctad.org/international-investment-agreements 32
.
IIAs- Relation to WTO law
◼ Similar concepts and terminology
◼ Same rules of interpretation
◼ Same sources of international law
◼ IIA tribunals may consider WTO jurisprudence (“judicial
decisions” per Art.38 ICJ Statute)
◼ Measures can violate obligations in both, but:
◼ WTO: obligation to comply, no liability
◼ IIA: Significant award of damages

33
Principal IIA obligations
◼ Non-discrimination (MFN and NT)
◼ Minimum standard of fair and equitable treatment for foreign
investors
◼ Obligation to pay compensation for expropriation
BUT only if IIA applies to the measure

34
Relationship between IIAs and FDI
◼ Empirical evidence has remained ambiguous as to the overall
benefit of IIAs in driving FDI
◼ FDI inflows from developed countries into developing
countries, BITs appear to have a positive impact on FDI
inflows
◼ Although most BITs would not change the key economic
determinants of FDI, they are shown to have marginal impact
that could improve several policy and institutional
determinants. Those developing countries that engage in BIT
programs tend to receive more FDI
35
Investment and PTAs
◼ However, this impact is not limited to BITs. There is
evidence that investment provisions or chapters in wider
regional trade or economic partnership agreements
actually have a larger impact on investment flows than
bilateral investment treaties
◼ This could be attributed to the informational effects, that
trade agreements institutionalize commitments to liberal
economic policies, hence making these commitments
more credible and thus boost FDI

36
Increasing importance of these provisions in
PTAs
◼ Besides the main determinants for FDI, such as general political,
economic and social stability and the ease of doing business
among others, IIAs add a number of important elements to the
determinants of FDI including:
◼ Create beneficial conditions for investors by liberalizing, facilitating,
promoting and protecting cross-border FDI.
◼ Contain commitments to a business-supportive and investment-
friendly environment
◼ Contain positive steps towards unifying their national investment
regimes that now govern domestic as well as foreign investment, giving
domestic as well as foreign investors the same protection provisions,
which increases the attractiveness of doing business.
37
Rise of IIAs, especially BITs can lessen clarity
◼ Investors can struggle with the overwhelming overlaps
between treaties, while host States are confronted with the
risks of the multilayered regulations of FDI.
◼ Since investors have a variety of investment choices available
to them due to the multilayered IIAs, governments might
have to deal with numerous claims
◼ The jurisdictional overlap of these treaties can lead to
investors being able to bring the same claim to a center of
arbitration under a BIT, and if unsuccessful, bring it to an
arbitrator under another agreement, such as the ACIA
38
IIA reform
◼ Policy options for IIA reform:
➢ Treaty examples and data

See: UNCTAD (2015), Policy options for IIA reform: Treaty

example and data – supplementary material to World Investment
Report 2015, https://investmentpolicy.unctad.org/uploaded-
files/document/Policy-options-for-IIA-reform-WIR-2015.pdf

39
Vietnam
◼ Vietnam maintains trade relations with more than 200 countries
◼ Vietnam has 67 bilateral investment treaties (BITs) (2020)
◼ Vietnam has 26 treaties with investment provisions (2019)
◼ Vietnam has signed double taxation avoidance agreements with
80 countries (2019), listed
at http://taxsummaries.pwc.com/ID/Vietnam-Individual-Foreign-
tax-relief-and-tax-treaties.
◼ The United States and Vietnam concluded and signed a Double
Taxation Avoidance Agreement (DTA) in 2016, but it is still
awaiting ratification by the U.S. Congress
40
ISDS - investor–State dispute settlement

41
International Investment Agreements signed by ASEAN
Member States as of 2011 and 2021 (Number)

42
Recent Bilateral TIPs in ASEAN

43
CPTPP

Commitments in Services and Investment

under CPTPP Agreement

44
Q&A

45