fDi reports on the latest regulatory and trade changes that will impact foreign direct investors.

Indonesia: President Megawati Sukarnoputri officially launched Indonesian Investment Year 2003 at the beginning of March. The launch saw the signing of a memorandum of understanding between Jakarta and 30 provincial governors, designed to ensure local governments refrain from issuing regulations that contravene those of central government.

Poor coordination between central and local governments has made investors reluctant to start projects even when they already have investment approval, the result of an autonomy law launched in 2001, which has led to increased bureaucracy in the regions. Recent examples include a joint venture of companies from France, India and Germany, which planned to construct a chemical factory in the Cilegon Industrial Estate, West Java, but backed off, citing legal uncertainties and rampant illegal payments. Mrs Megawati admitted that foreign investment is much needed to improve the economy and create jobs.

Jamaica: The Jamaican government is to create a more enabling business environment, according to Dr Robertson, Jamaica’s minister for development. Several new programmes are to be launched, including the Public Sector Modernisation Programme (PSMP), the Jamaica Legislations and Regulations Process Improvement Project, and the establishment of the Ministry of Development, to support the drive for competitiveness.

The Minister of Development characterised the Caribbean Rim Investment Initiative (CRII) as one of the major initiatives being pursued by government to reduce the remaining obstacles to investment and entrepreneurship. It complements other programmes such as the Jamaica Cluster Competitiveness and the New Economy Projects.

The recent CRII Conference in Kingston, Jamaica, was backed by the Organisation for Economic Cooperation and Development and the Inter American Development Bank (IADB). The initiative aims to encourage cooperation between the Caribbean and the countries of Central America to enhance investment in the region.

GATS: The end of March was the deadline to submit initial offers of market access to the WTO under the General Agreement of Trade and Services (GATS). Discussions about the services sector, along with the decision to begin negotiations on an investment framework, will take place at the next ministerial meeting in Cancun, Mexico, later this year. There had been some dispute over whether the liberalisation of the services sector and an investment framework would undermine state control and lead to the relaxation of environmental and labour standards. EU trade commissioner Pascal Lamy insists that the GATS agreement refers only to the trade in services and not to the regulations that control these services. Incentives for export zones are also an issue as some are considered in breach of the WTO guidelines.

Free trade agreements: The US appears to be adopting a more unilateral stance when it comes to trade and investment. It seems that rules set by the WTO are becoming increasingly sidelined as the US continues to

negotiate bilateral trade and investment treaties. Two new free trade agreements (FTAs) have recently been negotiated with Chile and Singapore. According to John B Taylor, undersecretary of the Treasury for international affairs, the agreements reflect the long-standing goal of ensuring that investment flows from the US are not impeded by government controls.

Referring particularly to the financial services sector, the FTAs give American companies the right to transfer capital and investment returns into and out of a country “without delay and at a market rate of exchange”. Both the Singapore and Chile FTAs include provisions regarding the treatment of capital flows during a financial crisis and a dispute-settlement mechanism that would apply if either country moved to restrict capital.

FTAs come under some criticism for undermining a host country’s sovereignty and regulatory rights over capital, environmental and labour standards. Mr Taylor argued before the US House of Representatives: “I know of no conclusive evidence that capital controls have corrected an economic crisis … Such controls in fact have negative economic consequences by weakening investor confidence and sometimes reducing inflows of foreign investment. Capital controls also reduce the pressure for countries to institute needed economic reforms.”

Millennium Challenge Account: President Bush’s Millennium Challenge Account (MCA) is seen as a key incentive to encourage countries to adopt measures that are conducive to business – such as improving contract enforcement, the independence of the judiciary and the security of property rights. The MCA allocates development assistance to those countries that are committed to the adoption of sound policies. Only those countries that are pursuing responsible monetary and fiscal policies, removing the barriers to business formation and investing for a healthier and more educated work force are rewarded.