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Equal Treatment for Outward Investors

NEW YORK – During the past decade, emerging economies have become important players in the global foreign-direct-investment market. Indeed, the share of world FDI outflows of the more than 30,000 multinational enterprises (MNEs) headquartered in emerging markets rose from roughly 5% in 1990 to more than one-quarter today. These new players – many of which are state-owned enterprises (SOEs) and sovereign-wealth funds (SWFs) – have become serious competitors for long-established MNEs in many sectors.

Among developed countries, these investors’ arrival has inspired concerns that have been pursued by the OECD, in the Trans-Pacific Partnership negotiations, and at the national level. In particular, there are two sources of anxiety.

First, some developed countries worry that governments will use such state-controlled entities for foreign-policy purposes. While there is no systematic evidence that these investors have predominantly non-commercial objectives, the possibility that they do cannot be excluded. Given this prospect, some developed countries have strengthened their regulatory framework to allow for the review of mergers and acquisitions by state-controlled entities, especially in sensitive industries or critical infrastructure.

Second, SOEs and SWFs may receive various kinds of support from their governments – thereby distorting “competitive neutrality” vis-à-vis private-sector firms. For example, governments could provide information about investment opportunities, access to cheap capital, fiscal incentives, financial support for specific projects, credit guarantees, reduced disclosure requirements, official development assistance tied to FDI projects, or political support.