NCCR - Foreign Direct Investment by State-Owned Entities: Do the rules need changing?

The process of global economic integration has accelerated during the past three decades, with world foreign direct investment (FDI) flows rising from $40-50 billion at the beginning of the 1980s to $1.5 trillion in 2007. Yet, in spite of the trend towards market liberalization and privatization during this period, the role of the state has arguably become more important in recent years.

Indeed, many of the emerging market state-owned enterprises that survived the earlier waves of privatization are now flourishing, thanks in particular to booming global commodity prices and increased export earnings. Emerging market governments are also drawing on their accumulating exchange reserves to establish sovereign wealth funds for investment abroad. These two developments have contributed to a substantial increase of outward FDI from emerging markets, reaching $210 billion in 2006 (five times world FDI flows during the early 1980s).

In response to the rising importance of state-owned enterprises and sovereign wealth funds – collectively referred to here as “state-controlled entities” (SCEs) – policy-makers are re-thinking their own investment regulatory frameworks. The world has thus witnessed a resurgence of the role of the state vis-à-vis markets, with governments acting as both a source of – and potential impediment to – FDI.

The principal issues raised by this phenomenon will be addressed systematically in a conference – to take place October 1-2, 2008 at Columbia University – organized by the Vale Columbia Center on Sustainable International Investment, in cooperation with Columbia Law School’s Center on Global Legal Problems; the World Trade Institute NCCR-IP11 and the University of Fribourg. The Conference will examine the role of state-controlled entities in the world FDI market, with a particular emphasis on the role of sovereign investment agencies (those parts of SWFs engaged in FDI), and will explore the range of policy responses being considered to deal with this problématique.

The Conference will be an opportunity to take stock as we have gained more experience with FDI by state-controlled entities, and various institutional efforts will have advanced. The event will offer a neutral platform to understand better the views and concerns of the principal players; facilitate knowledge sharing; help demystify (where appropriate) aspects of the issue; and explore the way forward. Participants will include representatives of the principal stakeholders, including representatives from sovereign investment agencies, state enterprises and governments.

The Conference will put the spotlight on a number of key questions to which the phenomenon of state-controlled entities has given rise. What do we know about their relative importance in the world FDI market and how do their behavior and strategy differ from those of private investors? To what extent are state-controlled entities (and SIAs in particular) – be they from emerging markets or developed countries – profit-maximizing or policy-driven entities? Is the rise of state-controlled entities leading to different rules for various categories of investors and a reversal of the broad trend in the liberalization of national FDI laws? How do policy-makers reconcile the tensions between national security and the need of investors for a stable and predictable regulatory FDI framework? Do the rules need changing? What are practical solutions?

The proceedings of the Conference will be published.

Conference Programme

October 1, 2008, Wednesday

8:30 - 9:30 Breakfast and registration

9:30 – 10:00 Welcome and opening remarks

Karl P. Sauvant, Executive Director, Vale Columbia Center on Sustainable International Investment

José E. Alvarez, Hamilton Fish Professor of International Law and Diplomacy and Director, Center on Global Legal Problems, Columbia Law School

Philippe Gugler, Professor of Economics and Social Sciences, University of Fribourg and Project Leader NCCR-IP11, Switzerland

Xian Guoming, Professor of Economics and International Business, President Assistant, Nankai University; Director of the Center for Transnationals’ Studies; Dean of TEDA College

Deryck Palmer, Bankruptcy Partner, Cadwalader, Wickersham & Taft LLP

10:00 - 11:00 Keynote: “The rise of state-controlled entities in context”, Jeffrey D. Sachs, Director, The Earth Institute at Columbia University; Quetelet Professor of Sustainable Development, Columbia University

11:00 - 11:15 Coffee/tea break

11:15 - 13:00 Session I: What do we know?

Chair: Philip Bobbitt, Herbert Wechsler Professor of Jurisprudence, Columbia Law School

“What do we know about state-controlled entities and especially SWFs?”, Karl P. Sauvant, Executive Director, Vale Columbia Center on Sustainable International Investment, and Kamil Gérard Ahmed, Associate, Akin Gump Strauss Hauer & Feld LLP

“Sovereigns and Merchants: Similarities and Differences”, Deryck Palmer, Bankruptcy Partner, Cadwalader, Wickersham & Taft LLP, and Alicia Clifford, Private Equity Attorney, Cadwalader, Wickersham & Taft LLP

“Experiences with state-controlled entities and concerns relating to them”, Alan Rugman, L. Leslie Waters Chair of International Business and Professor of International Business, Business Economics and Public Policy, Indiana University

“Western Financial Institutions and Eastern State-Controlled Funds: A Global Financial Network”, Katharina Pistor, Professor of Law, Columbia Law School

Lead discussants:

Lawrence Goodman, Managing Director and Head of Emerging Markets Strategies, Bank of America

José Antonio Ocampo, Professor of Professional Practice in International and Public Affairs, SIPA, Columbia University; former UN Under-Secretary-General for Economic and Social Affairs; and former Minister of Finance and Public Credit, Colombia

Paola Subacchi, Research Director, International Economics, Chatham House

13:00 – 15:00 Lunch

15:00 – 18:00 Session II: Should national security trump predictability for investors?

Chair: Rudolf Dolzer, Professor, Director, Institute of International Law, University of Bonn

“National security and predictability for investors at the national level”, Mark A. Clodfelter, Counsel, Winston & Strawn LLP, previously Assistant Legal Adviser for International Claims and Investment Disputes, U.S. Department of State

“National security and investor predictability at the international level”, Patrick Juillard, Professor Emeritus, Sorbonne University, Paris

“What could be a common approach that reconciles national security and investor predictability?”, David M. Marchick, Managing Director of Government and Regulatory Affairs, The Carlyle Group

Lead discussants:

James Mendenhall, Partner, Sidley Austin LLP, former U.S. Trade Representative General Counsel

Michael J. Smart, Director, International Trade and Investment, National Security Council

18:00 – 21:00 Drinks followed by Dinner

Dinner address: “Systemic implications of large pools of anonymous capital: risks and the need for transparency”, Manfred Schekulin, Chairperson, OECD Investment Committee

October 2, 2008, Thursday

8:30 – 9:30 Breakfast

9:30 – 13:00 Session III: Should FDI by state-controlled entities be regulated differently than FDI by other entities?

Chair: José E. Alvarez, Hamilton Fish Professor of International Law and Diplomacy and Director, Center on Global Legal Problems, Columbia Law School

“The resurrection of screening mechanisms: is CFIUS a model for other countries?”, Alan Larson, Senior Advisor, Covington & Burling LLP; Mark Plotkin, Partner, Covington & Burling LLP; David Fagan, Associate, Covington & Burling LLP

“Best practices of countries host to state-controlled entities”, Manfred Schekulin, Chairperson, OECD Investment Committee

“A code of conduct for SWFs and other state-controlled entities?” Adnan Mazarei, Assistant Director, Policy Development and Review Department, International Monetary Fund (IMF)

“Sovereign wealth funds: what should the European Union do?” Philippe Gugler, Professor of Economics and Social Sciences, University of Fribourg, Switzerland and Julien Chaisse, Alternate Leader NCCR-IP11, World Trade Institute, Bern, Switzerland

Lead discussants:

Rainer Geiger, Associate Professor of International Law, Sorbonne University, Paris, former Deputy Director, Financial and Enterprise Affairs Division, OECD

Michael W. Reisman, McDougal Professor of International Law, Yale Law School

13:00 – 15:00 Lunch

Lunch address: Clay Lowery, Assistant Secretary for International Financial Markets and Investment Policy, United States Department of the Treasury

15:00 – 17:45 Concluding Roundtable: Do the rules need changing for state-controlled entities?

Apart from the issues already discussed, this Roundtable of earlier speakers as well as others will discuss the following: What regulatory action and/or mechanisms, if any, are needed? Do FDI rules need to distinguish between different categories of foreign direct investors/investments? What are some specific and practical ideas for the way forward?

Chair: Karl P. Sauvant, Executive Director, Vale Columbia Center on Sustainable International Investment
Participants:

Charles R. Blitzer, Assistant Director, Monetary and Capital Markets Department, International Monetary Fund

Antonio Hernándes, Chief Strategy Manager, INTERES Invest in Spain

Andreas F. Lowenfeld, Rubin Professor of International Law, New York University Law School

Todd Malan, Vice President, International Public Policy, Goldman Sachs

Howard Mann, Senior International Law Advisor, International Institute for Sustainable Development

Curtis Milhaupt, Fuyo Professor of Japanese Law and Albert E. Cinelli Enterprise Professor of Law, Columbia Law School; Director, Japanese Legal Studies Center

Wesley Scholz, Director, Office of Investment Affairs, U.S. Department of State; Vice-Chair, OECD Investment Committee; and Co-Chair G-8 Heiligendamm Investment Working Group

Edwin M. Truman, Senior Fellow, Peterson Institute for International Economics

17:45 - 18:00 Closing remarks

Deryck Palmer, Bankruptcy Partner, Cadwalader, Wickersham & Taft LLP

Xian Guoming, Professor of Economics and International Business, President Assistant, Nankai University; Director of the Center for Transnationals’ Studies; Dean of TEDA College

Julien Chaisse, Alternate Leader, Investment Division (IP11), World Trade Institute, Bern, Switzerland

José E. Alvarez, Hamilton Fish Professor of International Law and Diplomacy and Director, Center on Global Legal Problems, Columbia Law School

Karl P. Sauvant, Executive Director, Vale Columbia Center on Sustainable International Investment

Rapporteur: Maya Steinitz, Associate, Latham & Watkins LLP

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