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Foreign Direct Investment Decision-Making: The Role of Investment Treaties

On 8 May 2015, Markus Burgstaller of Hogan Lovells presented the findings of the recent report on foreign direct investment and the rule of law (the “Report“) to the twenty-fourth Investment Treaty Forum Public Conference in London.

The Report was authored by Julianne Hughes-Jennett, Partner, International Arbitration at Hogan Lovells, together with the Bingham Centre for the Rule of Law and the Investment Treaty Forum, based on a survey by the Economist Intelligence Unit of corporate foreign direct investment decision-making and the rule of law. The survey of 301 senior decision makers at Forbes 2000 companies sought to ascertain which factors multinational corporates consider in selecting whether to invest internationally, and to gauge the role of the rule of law, in particular.

Although the coverage of the Report is broader, in line with the focus of the conference, Markus presented the findings of the survey on the role of investment treaties in foreign direct investment decision-making. He explained how the survey indicated that the main concerns that investors sought to address with investment treaties were the lack of transparency of the host country’s regulatory or legal processes, arbitrary or discriminatory treatment by the host country governments and the lack of independent and impartial local courts.

While only 9% of survey respondents indicated that the presence of an investment treaty was “essential” for their investment decision, the value of investment treaties should not be underestimated.  As to the related question, however, of whether bilateral investment treaties are effective, this was the case for a significant majority of respondents. In particular, 58% of respondents indicated that such treaties were ‘very effective’ in North America, whereas only approximately 20% of respondents considered that this was the case for investment in Sub-Saharan Africa, Oceania and Eastern Europe. Across all regions over 75% of respondents rated the effectiveness of BITs as four out of five or higher.

The full report, entitled “Risk and Return: Foreign Direct Investment and the Rule of Law”, was launched on 6 May 2015. For further information, including the full report, go to: http://www.hoganlovellsruleoflaw.com.