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39 J. World Trade 949 (2005)
Preferential Trade Agreements, Investment Disciplines and Investment Flows

handle is hein.kluwer/jwt0039 and id is 949 raw text is: Journal of World Trade 39(5): 949-973, 2005. 0 2005 Kluwer Law International. Printed in The Netherlands. Preferential Trade Agreements, Investment Disciplines and Investment Flows Bernard HOEKMAN and Richard NEWFARMER1 Investment is a key component in economic development and has become one of the main objectives of countries in pursuing regional economic integration. The logic is that larger markets and greater competition following trade liberalization and improved policy credibility will increase the incentives for investment. This in turn will raise incomes both directly by increasing the capital intensity of production and by encouraging technical progress. These arguments apply to investment from all sources, but they are applied particularly frequently to regionalism as a means of attracting foreign direct investment (FDI). In the North American Free Trade Agreement (NAFTA), for example, stimulating FDI flows was an explicit objective. Negotiators have also turned their attention to investment-related policies, including those affecting trade in services. The latter is heavily dependent on the ability to establish a presence in a market (invest). Reaching agreements on investment issues at the multilateral level has proven elusive, with the exception of selected investment in services where commercial presence is covered as one of the four modes of supply. This may help explain why investment provisions are now becoming common in bilateral and regional preferential trade agreements. Even before the most recent wave of preferential trade agreements (PTAs), bilateral investment treaties (BITs) designed to spur investment flows by providing recourse to international dispute resolution in event of conflict with governments had become commonplace.2 However, in the past five years, the number of PTAs covering investment policies has surged. North-South agreements, notably the PTAs involving the United States and of the EU, have been important drivers. Examples involving the United States are recent bilateral agreements with Australia, Chile, Central America, Jordan and Morocco. The EU engagement in PTAs is even more intensive, with more than 100 PTAs as of 2003, and investment is increasingly on the agenda. Thus, for example, investment policies are being discussed as part of the Economic Partnership Agreement negotiations with ACP countries and the recent agreements with Southern Mediterranean countries. Often investment policies are addressed through parallel investment treaties. I Bernard Hoekman is with World Bank, Groupe d'Economie Mondiale, Sciences Po, Paris and CEPR, London. Richard Newfarmer is with World Bank. The views expressed in this article are personal and should not be attributed to the World Bank. Parts of this article draw on World Bank (2004). 2 Indeed, BITs have been the primary vehicle for international cooperation in this area. Although some PTAs explicitly do not include investment policy disciplines because of pre-existing BITs-c.g., the 2000 Canada-Costa Rica PTA (Gestrin, 2002)-most recent US bilateral and plurilateral trade agreements have more ample rights and coverage, and generally subsume prior BITs. Copyright' 2007 by Kluwer Law International. All rights reserved. No claims asserted to original government works.

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