Foreign Direct Investment Flashcards
What is Foreign Direct Investment (FDI)?
FDI is investment made to acquire a lasting interest in an enterprise operating in an economy other than that of an investor, with the purpose of having effective management control of the enterprise.
FDI typically involves establishing a business operation in a foreign market.
What has been the trend in Medtech’s foreign sales over the past five years?
Medtech’s foreign sales have increased by an average of over 20 percent per year.
This growth reflects a strong market presence in Europe, Asia, and South America.
What recent trend has Medtech experienced in its foreign markets?
Growth in foreign markets has slowed considerably, averaging 25 percent during the first three years, dipping to 15 percent in the fourth year, and just 10 percent last year.
Current fiscal year indications suggest growth may be in single digits.
What factors are contributing to the slowdown in Medtech’s foreign market growth?
Increasing competition from foreign and domestic competitors and a growing number of counterfeits of Medtech’s products, especially in Asia.
Medtech’s management is concerned about these issues impacting their market share.
What strategy was proposed at Medtech’s corporate retreat regarding foreign markets?
One strategy proposed was to abandon foreign markets and concentrate solely on the U.S. market.
This suggestion was quickly rejected due to the competitive landscape.
Why did Medtech reject the idea of abandoning foreign markets?
Medtech executives realized that relying solely on the U.S. market would not be viable due to domestic competitors expanding internationally.
They believe larger companies will exert intense competitive pressure.
What potential geographical expansion strategies did Medtech consider?
Medtech considered geographical expansion into the Middle East and Africa.
A subcommittee was formed to study this prospect further.
What is a significant consequence of engaging in FDI for a company like Medtech?
Engaging in FDI entails a major long-term commitment of capital and resources, potentially transforming the company’s identity.
This may involve establishing independent management headquarters in foreign markets.
What are the potential costs associated with FDI?
Significant capital expenditures, costs of employee relocations, and complex legal issues related to unwinding a foreign business.
Withdrawal from FDI is often seen as a business failure.
How can successful foreign expansion affect Medtech’s corporate structure?
Successful expansion may lead to Medtech needing independent management in overseas markets, potentially changing the U.S. headquarters’ role.
The company could transition from being U.S.-centric to a multinational corporation.
True or False: Medtech’s U.S. market is expected to remain its most important market indefinitely.
False.
As foreign markets grow, the U.S. market may become just one of several important markets.
What is a watershed event in a company’s life regarding FDI?
The decision to make a foreign direct investment is considered a watershed event due to the high stakes involved.
It signifies a major shift in the company’s strategy and identity.
Fill in the blank: FDI usually involves a significant commitment of _______.
capital and other resources.
What is market penetration in the context of international business?
The degree to which a business can establish a presence in a foreign market.
What limitations can affect direct sales to a foreign market?
Lack of knowledge of the foreign market and insufficient local distribution network.
What does a licensor receive in a licensing agreement?
Royalties, commissions, or a percentage of sales from the licensee.
What must a U.S. business ensure before entering a foreign market?
That the target country has a supply chain logistics system for delivering goods or services.
What infrastructure is necessary for manufacturing in a foreign country?
Adequate supply of power and water.
Why might a U.S. business prefer to manage its own market penetration?
To exercise greater management and control over the foreign market.
What is a major component of a long-term business plan in foreign markets?
An advertising strategy in television, print media, and electronic media.
True or False: A U.S. business entity is likely to entrust the marketing of its proprietary trademarks to independent third parties.
False.
What might lead a U.S. business to avoid licensing its intellectual property?
The desire to control and protect its intellectual property.
What risks are associated with licensing proprietary technology to third parties?
Breaches of security, improper use, infringement, and piracy.
What is the first stage of a foreign investment enterprise (FIE)?
Establishing basic capabilities and reapplying techniques from the U.S. market.
Fill in the blank: Research and development facilities abroad may become a platform for meeting the needs of the entire _______.
[region]
What is a hallmark of a mature international business?
Independent, regional research and development facilities dedicated to foreign markets.
How does increasing global competition affect foreign direct investment (FDI)?
It makes FDI a necessary long-term strategy.
What advantage does early entry into developing markets provide?
A sizeable competitive advantage.
What is one alternative to establishing a new business entity abroad?
Acquiring an existing foreign company.
What does cross-border M&A allow for companies?
Immediate foreign market penetration through established networks.
What legal hurdle might a foreign acquisition face in the U.S.?
National security review under the Exon-Florio Amendment.
What might trigger a review under competition laws during an acquisition?
The resulting entity being deemed too economically powerful.
What is a stock purchase agreement in the context of M&A?
An agreement to purchase shares of a foreign company directly from its shareholders.
What is a triangular merger?
Creating a wholly owned foreign subsidiary to facilitate a stock swap with the target company.
What factors influence the choice of acquisition techniques?
Tax considerations and the business and legal environment in the country of the target.
What is the role of CFIUS under the Foreign Investment and National Security Act (FINSA)?
CFIUS reviews and makes recommendations regarding foreign investment in the U.S.
CFIUS can recommend blocking or approving foreign investments that may threaten national security.
Who is the chairperson of CFIUS?
The Secretary of the Treasury
CFIUS includes heads of various U.S. departments such as Justice, Homeland Security, and Defense.
How can CFIUS review be initiated?
Either by a party to a covered acquisition submitting a notice or by CFIUS initiating review sua sponte
CFIUS must assess if the acquisition threatens national security.
What is meant by ‘critical infrastructure’ according to FINSA?
Systems or assets vital to the U.S. whose incapacity or destruction would impact national security
This includes both physical and virtual assets.
What is ‘evergreen’ review in the context of CFIUS?
Ongoing monitoring of a foreign investment after a mitigation agreement is reached
The President may reopen reviews if there is a material breach.
What significant act was enacted by Congress in 2018 to strengthen CFIUS?
The Foreign Investment Risk Review Modernization Act (FIRRMA)
FIRRMA broadened CFIUS’s jurisdiction and made certain reviews mandatory.
What is the approximate number of multinational enterprises (MNEs) globally?
About 65,000 MNEs
They have around 850,000 foreign affiliates worldwide.
What percentage of world FDI inflows originated from developed economies as of 2017?
Nearly 50 percent
Developed economies received over 70 percent of FDI inflows.
Which sector has become strongly oriented towards FDI?
The services sector
In 2011, 40 percent of global FDI outflows involved services.
In what year did global FDI inflows peak at $2.15 trillion?
2015
This marked a significant growth from just under $1 trillion in 2005.
What does FDI provide to recipient countries?
Capital infusion and technology transfer
This is particularly important for developing countries’ economic growth.
Fill in the blank: FDI is usually the best source of finance for _______.
domestic capital needs
Unlike portfolio equity or debt, FDI is more stable and long-term.
What is one key benefit of technology transfer through FDI?
Increased productivity in the recipient nation
This can lead to greater competitiveness in global markets.
True or False: The impact of FDI is uniform across all countries and industries.
False
The effects of FDI vary significantly from country to country and industry to industry.
What was the stock of FDI in 1990?
$1.7 trillion
This increased to $31.5 trillion by 2017.
What percentage of the global FDI stock represented world GDP in 1990?
About 9 percent
This grew to nearly 32 percent by 2012.
What are the two types of capital inflows mentioned in relation to FDI?
Portfolio equity and debt flows
These forms are more volatile compared to FDI.
What is the average annual wage paid by foreign affiliates in the U.S.?
$81,000 per worker
This is nearly a third higher than the average American worker’s wage.
What is the significance of the 2021 UNCTAD World Investment Report regarding FDI?
It forecasts fragile growth in global FDI inflows
This follows a notable decline due to the COVID-19 pandemic.
What is the status of comprehensive multilateral treaties on international investment?
There is no truly comprehensive multilateral treaty or uniform international law on investment.
Where have efforts to regulate foreign direct investment (FDI) occurred?
Efforts have occurred at the regional and bilateral level.
What types of treaties make up the current international legal framework governing investment?
- Bilateral investment treaties
- Regional economic treaties
- Sector-specific treaties
- Ad hoc tribunals
- Multilateral treaties
Name a regional economic treaty that governs FDI.
United States-Mexico-Canada Trade Agreement (USMCA)
What is an example of a sector-specific treaty related to FDI?
Energy Charter Treaty
What is a limitation of the International Court of Justice (ICJ) in protecting foreign direct investment?
Only states have standing to appear before the ICJ.
What must private parties do to have their interests represented in the ICJ?
Private parties must have their interests represented by their governments.
What did the shortcomings of the ICJ lead to in international investment law?
The development of the modern law of international investment.
What does Section B of the document cover?
The modern law as reflected by multilateral and bilateral investment treaties.
What is discussed in Section C of the document?
An important regional treaty, NAFTA and its successor, the United States-Mexico-Canada Agreement (USMCA).
What is the focus of Section D?
The limited impact of the WTO on foreign direct investment.
What was a basic issue in FDI until the mid-twentieth century?
The availability of an effective forum to resolve investment disputes.
What concern do foreign investors have regarding host countries?
The host country might unexpectedly seize or expropriate the foreign investor’s business assets.
What was the outcome of foreign investors’ attempts to resolve disputes in the ICJ?
The ICJ refused to consider the expropriation claims, citing different hurdles.
What did the frustration of foreign investors with the ICJ expose?
The limitations of the ICJ as a forum for resolving investment disputes.
What historical accounts can provide insight into the development of international investment law?
Kate Miles’ The Origins of International Investment Law and Jorge E. Viñuales’ Sources of International Investment Law.
Fill in the blank: The traditional international law approach was replaced by a modern _______.
patchwork
What is a state responsible for under international law?
A state is responsible for injury resulting from a taking of property of a national of another state that is not for public purpose, is discriminatory, or is not accompanied by just compensation.
What must just compensation include according to international law?
Just compensation must be equivalent to the value of the property taken, paid at the time of taking or within a reasonable time thereafter with interest.
What is the ICSID?
The International Centre for the Settlement of Investment Disputes, established to settle disputes between private investors and host governments.
What are the three bases of modern international investment law?
- Bilateral investment treaties (BITs)
- Free trade agreements
- Law and jurisprudence of the ICSID and other international arbitration forums.
When was the first bilateral investment treaty (BIT) established?
The first BIT was established in 1959.
What are the core benefits of BITs for investors?
- National treatment (NT) and most-favored nation (MFN) treatment
- Limits on expropriation and requirement for just compensation
- Assured transferability of investment-related funds
- Prohibition of performance requirements
- Right to choose managerial personnel
- International arbitration for disputes.
What is the significance of the Energy Charter Treaty (ECT)?
The ECT is a multilateral treaty for the energy sector but is largely European-centered with key countries not being parties.
What does a typical BIT specify regarding fair and equitable treatment?
It includes standards like full protection and security and customary law standards for the protection of aliens.
What does the ICSID Convention establish?
It establishes the jurisdiction of ICSID over disputes arising directly out of an investment.
What is required for the ICSID to have jurisdiction?
Consent to arbitrate in writing, which cannot be withdrawn once given.
What is the Salini test?
A test to determine whether an investment exists based on economic contribution, duration, assumption of risks, contribution to economic development, and realization of profit.
What is ISDS?
Investor-state dispute settlement, a procedure allowing private investors to bring claims against states in international arbitration.
How many international investment agreements (IIAs) were there as of 2014?
There were 3,271 IIAs, including 2,926 BITs and 345 other agreements.
What is a major advantage of ICSID over ICJ?
Private investors can directly bring arbitration actions against host governments, unlike ICJ where cases must be brought by states.
Fill in the blank: The first historical BIT was the Treaty for the Promotion and Protection of Investments, with Protocol and Exchange of Notes, _______.
Ger.-Pak., Nov. 25, 1959
True or False: BITs typically allow investors to sue the host state in domestic courts.
False
What is the jurisdiction of the ICSID Centre defined by?
Articles 25–27 of the ICSID Convention.
What are the grounds for annulment of an ICSID arbitration award?
- Tribunal not properly constituted
- Tribunal exceeded its powers
- Corruption by tribunal member
- Serious departure from fundamental rule of procedure
- Award failed to state reasons.
What does ISDS stand for?
Investor-State Dispute Settlement
What is the primary function of ISDS?
To allow a private investor to bring an international claim against a State
Who hears the claims in the ISDS process?
An international panel of arbitrators
What is the purpose of ISDS?
To offer an impartial, objective tribunal for dispute resolution
What does ISDS replace in the dispute settlement process?
State-to-State dispute settlement
What procedural rules are ISDS arbitrations usually conducted under?
ICSID or ICSID Extended Facility Rules, UNCITRAL Rules, or Rules of the Stockholm Chamber of Commerce
Where is the registry for many ISDS arbitrations located?
The Permanent Court of Arbitration in The Hague
Who can initiate proceedings in the WTO dispute settlement system?
Only a Member State of the WTO
What are the applicable rules of law in ISDS?
International legal rules and standards
List the principal governing substantive international rules of law contained in IIAs
- National treatment
- Most-favored nation treatment
- Fair and equitable/minimum standard of treatment
- No expropriation without prompt, adequate, and effective compensation
- Free transfer of capital
- Transparency of treatment
How many ISDS proceedings were known as of 1994?
Ten ISDS proceedings
What was the total number of ISDS arbitrations as of mid-2017?
817 arbitrations
What percentage of ISDS proceedings has the investor prevailed in, according to UNCTAD?
26.9 percent
What is a chief criticism of the ISDS system?
It inhibits State regulatory actions to protect public welfare and the public interest
What was the reaction to the tobacco company Philip Morris instituting arbitral proceedings?
There was an outcry against it
What does the Comprehensive Economic and Trade Agreement (CETA) affirm regarding States?
States’ rights to regulate public health, safety, environment, and public morals
How does CETA differ from traditional ISDS in terms of dispute resolution?
CETA establishes a standing tribunal rather than ad hoc arbitral tribunals
What strategy can limit the jurisdiction of ISDS tribunals?
Forcing investors to institute domestic law proceedings
True or False: Some IIAs allow States to file counterclaims against investors.
True
Fill in the blank: The ISDS system allows _______ to sue the State directly.
the private investor
What was the average number of ISDS arbitrations instituted each year as of mid-2017?
About sixty arbitrations
What is the significance of the rise in the number of ISDS arbitrations?
It indicates a growing trend and variety in investor-State arbitrations
What has been the trend in global foreign direct investment (FDI) over the past 50 years?
Global foreign direct investment has greatly expanded and is now approaching US$2 trillion per year.
What organization is a leader in the reform effort of the international law investment regime?
UNCTAD.
What are the five policy goals advocated by UNCTAD for investment reform?
- Safeguarding the sovereign right of countries to adopt health, safety, and environmental regulations
- Reforming investment dispute settlement
- Promoting and facilitating investment
- Ensuring responsible investment
- Enhancing the consistency of the IIA regime
What two goals guide UNCTAD’s call for systemic reform of the investment system?
Sustainable development and inclusive development.
What is ISDS?
Investor-State Dispute Settlement.
What are some arguments in favor of ISDS?
- Improves ease of legal redress for investors
- Avoids national courts, which may be biased
- Obviates the need to invoke diplomatic protection
- Ensures adjudication of claims by a qualified tribunal
- Ensures automatic recognition and enforcement of awards
What are some criticisms of ISDS?
- Grants foreign investors greater rights than domestic investors
- Allows insufficient national policy space to protect health, safety, and the environment
- Lacks transparency
- Uses arbitrators who may be biased in favor of investors
- Does not allow for appeals to correct erroneous decisions
- Results in inconsistent and incoherent jurisprudence
What reform proposals are suggested by UNCTAD?
- Make the arbitral process more transparent and streamlined
- Require recourse to local tribunals before international arbitration
- Circumscribe the range of arbitrable claims
- Channel sensitive cases to State-State dispute settlement
- Require alternative dispute settlement such as mediation before accessing ISDS
- Institute a standing World Investment Court
What is a notable case that recognized human rights obligations in international investment?
Urbaser S.A. et al. v. The Argentine Republic.
What key principle did the tribunal recognize in the Urbaser case regarding human rights?
Economic human rights are complemented by an obligation on all parties not to engage in activity aimed at destroying such rights.
What are the grounds for annulment of ICSID awards under ICSID Article 52(1)?
- Tribunal was not properly constituted
- Tribunal manifestly exceeded its powers
- Corruption on the part of a tribunal member
- Serious departure from a rule of procedure
- Tribunal failed to state the reasons for its decision
What does Article 53(1) of the ICSID Convention state about ICSID awards?
ICSID awards shall be binding on all parties and shall not be subject to any appeal or to any other remedy except those provided for in this Convention.
What is the obligation of State Parties under Article 54(1) of the ICSID Convention?
To recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award.
What U.S. law transposes the obligation to enforce ICSID awards?
22 U.S.C. § 1650a(a).
What distinguishes enforcement of non-ICSID Convention arbitral awards?
They must be enforced by applying to a U.S. district court under the New York Convention.
In BG Group v. Republic of Argentina, what procedural issue was at the center of the Supreme Court’s ruling?
Whether the investment agreement’s requirement that the investor seek vindication first by local Argentine litigation applied.
What significant change does the USMCA introduce compared to NAFTA regarding investor rights?
USMCA substantially degrades both the substantive and procedural rights of international investors.
What does Article 1102 of NAFTA pertain to?
National Treatment.
How does USMCA Article 14.4 address national treatment?
It adds that whether treatment is accorded in ‘like circumstances’ depends on the totality of the circumstances, including public welfare objectives.
What is the most-favored-nation treatment provision in NAFTA?
Each Party must accord to investors of another Party treatment no less favorable than that accorded to its own investors.
How does USMCA Article 14.5 modify the most-favored-nation treatment?
It adds a provision identical to the one added to national treatment regarding public welfare objectives.
What does each Party need to accord to investments of investors of another Party?
Treatment no less favorable than that accorded to investments of any other Party or of a non-Party
This applies to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments.
What does USMCA Article 14.5 add to the obligation of treatment for investments?
A provision identical to that of national treatment under NAFTA
This is related to most-favored nation treatment.
What is the minimum standard of treatment defined in NAFTA Article 1105?
Treatment in accordance with international law, including fair and equitable treatment and full protection and security
This sets the baseline for treatment of investments.
How does USMCA Article 14.6 dilute the minimum standard of treatment?
- Fair and equitable treatment and full protection and security do not require treatment beyond customary international law.
- Inconsistency with an investor’s expectations does not constitute a breach of the Article.
This indicates a shift in how investor rights are protected.
What does NAFTA Article 1114 state regarding environmental measures?
It allows a Party to adopt, maintain or enforce measures consistent with the Chapter that ensure investment activity is sensitive to environmental concerns
This provision relates specifically to environmental regulations.
What does USMCA Article 14.16 broaden regarding regulatory measures?
It includes not only environmental measures but also health, safety, and other regulatory measures
This expands the scope of regulatory concerns beyond just environmental issues.
What significant change does the USMCA make regarding ISDS for Canada?
It phases out ISDS entirely for Canada
This alters the procedural options available to investors.
What limitations does the USMCA impose on ISDS for the United States and Mexico?
It greatly curtails the procedural option and limits the scope of arbitration
Indirect expropriation and breach of fair and equitable treatment are no longer grounds for arbitration.
What are the preconditions for arbitration under the USMCA?
Local remedies must be exhausted
This adds a layer of requirement before arbitration can be pursued.
What does USMCA Annex 14-E retain regarding ISDS?
Full ISDS for Mexico-United States investment disputes involving government contracts in highly regulated areas
Areas include oil and gas, telecommunications, transportation, and infrastructure.
What choices does Article 14.D.3 of USMCA provide for investors in disputes?
Choice between arbitration under UNCITRAL rules or under ICSID
This gives investors flexibility in how to resolve disputes.
What is the status of Canada and Mexico in relation to ICSID?
Canada and Mexico are not parties to ICSID, but the United States is
This affects the arbitration options available to investors from these countries.
What does the World Trade Organization (WTO) lack a comprehensive agreement on?
Investment trade
The WTO has treaties on merchandise trade, technology trade, and services trade but not on investment.
What was the goal of the Multilateral Agreement on Investment (MAI)?
To create a comprehensive treaty on investment trade
The MAI was intended to be negotiated by the OECD and adopted by the WTO.
Which organization was tasked with negotiating the MAI?
Organization of Economic Cooperation and Development (OECD)
The OECD is viewed as a rich nations’ club, leading to distrust from developing countries.
What was a significant reason for the failure of the MAI?
Lack of support from developing countries and NGOs
Many felt the MAI reflected the interests of developed countries and ignored those of developing nations.
What are the two current WTO agreements that relate to foreign direct investment?
- Agreement on Trade-Related Investment Measures (TRIMs)
- General Agreement on Trade in Services (GATS)
What does TRIMs prohibit according to Article 2?
Any TRIM inconsistent with Articles III or XI of GATT 1994
TRIMs aims to prevent host countries from forcing foreign enterprises to use local goods.
What is the main focus of the General Agreement on Trade in Services (GATS)?
Foreign direct investment in opened service sectors
Countries voluntarily commit to allowing foreign investment in specific service sectors.
What does the Foreign Corrupt Practices Act (FCPA) address?
Foreign corrupt payments
The FCPA was enacted in 1977 to combat corruption in international business transactions.
What are the two main provisions of the FCPA?
- Anti-bribery provisions
- Books and records provisions
Who is subject to the anti-bribery provisions of the FCPA?
Issuers, domestic concerns, and any person
Issuers include U.S. or foreign corporations with publicly traded securities in the U.S.
What does the FCPA require regarding improper payments?
Prohibits making improper payments to foreign officials for business advantage
It covers payments made directly or indirectly through intermediaries.
What is required for federal jurisdiction under the FCPA?
A nexus with interstate commerce
This can be satisfied by simple actions like a phone call or email.
What is the ‘corrupt intent’ requirement under the FCPA?
The payment must be made with the intent to influence the recipient’s official position
This includes influencing others for wrongful business advantage.
What types of payments are prohibited under the FCPA?
Any offer, payment, promise to pay, or authorization of payment to a foreign official
This includes gifts or anything of value meant to influence official acts.
What does the FCPA prohibit regarding payments?
The FCPA prohibits any payment, gift, promise to give, or authorization of giving anything of value.
15 U.S.C. § 78dd-1(a) states that not only payments but also acts ‘in furtherance’ of payments are proscribed.
Who can be held liable under the FCPA?
Any person who participates in or authorizes a prohibited payment can be held liable.
A U.S. company planning a corrupt payment may also be liable even if the payment is never made.
What is the ‘grease payment’ exception in the FCPA?
A facilitating payment to secure the performance of a routine government action is exempted.
See 15 U.S.C. § 78dd-1(b).
What is an affirmative defense under the FCPA?
Payments that are lawful under the written laws of the foreign official’s country or for bona fide expenditures.
Bona fide expenditures include travel and lodging for promoting the payor’s products or services (See U.S.C. § 78dd(c)(1)–(2)).
To whom does the FCPA apply?
The FCPA applies only to payments made to foreign officials, foreign political parties, party officials, or candidates for political office.
It does not apply to payments made to private persons.
What qualifies as a foreign official under the FCPA?
An officer or employee of a foreign government or any instrumentality thereof acting in an official capacity.
This can be complex in transition economies like China.
What is the business purpose test in the context of the FCPA?
The payment must be made to assist the payor in obtaining, retaining, or directing business to any person.
The recipient must be a foreign government official, party official, or candidate for political office, but the business gained does not have to be with the foreign government.
True or False: The business gained from a payment under the FCPA must be with the foreign government.
False
The business gained does not have to be with the foreign government.
What date was the OECD Convention on Combating Bribery signed?
December 17, 1997
Signed by 28 of the 29 members of the OECD, including the United States.
When did the OECD Convention enter into force?
February 15, 1999
Ratified by ten countries in 1998.
How many countries have ratified the OECD Convention as of this writing?
Forty-four countries
Includes all OECD Member countries.
What legislation did the United Kingdom enact in relation to bribery?
The Bribery Act, 2010
Effective July 1, 2011, viewed as expansive and far-reaching as the FCPA.
What is the main purpose of the OECD Convention?
Prohibit payments to foreign government officials to obtain business advantages
Must enact domestic criminal laws accordingly.
True or False: The OECD Convention applies to payments to political parties.
False
Unlike the FCPA, it does not cover payments to political parties or candidates.
What is the primary difference between the OECD Convention and the FCPA regarding bribery?
The OECD Convention was broader initially, including ‘improper advantage’
The FCPA has since been amended to include similar language.
What additional areas does the UN Convention Against Corruption address beyond the FCPA and OECD Convention?
Commercial bribery, trading in influence, and asset recovery
Important for developing countries suffering from corruption.
When did the UN Convention Against Corruption enter into force?
December 14, 2005
After the deposit of the thirtieth instrument of ratification.
What is one of the key challenges faced by foreign investors in China and Brazil?
Weak legal systems
Issues like commercial piracy and government corruption are prevalent.
What are the three types of investment structures that can be established in foreign direct investment?
- Joint venture
- Wholly-owned subsidiary
- Acquisition of existing company
What is a major consideration in choosing the country for foreign investment?
Business considerations and legal provisions
Includes treaties and free trade agreements.
What type of approvals may be necessary for foreign investment in host countries?
- Disclosure and reporting forms
- Advance approvals
- Competition law approvals
What is the significance of the Exon-Florio Amendment?
Authorizes the President to investigate foreign mergers and acquisitions
Can suspend or prohibit investment affecting national security.
What are some key aspects to secure and protect in foreign direct investment?
Intellectual property rights
Essential for safeguarding business interests.
What must be done regarding immigration for foreign investment?
Obtain necessary permits and visas for personnel
Allows personnel from the investor’s country to work in the host country.
What competition law requirement exists in the EU for large joint ventures and acquisitions?
Must be notified and cleared by the EU Commission if over 250 million euros
Under Council Regulation (EC) No. 139/2004.
What environmental considerations must be taken into account in foreign investment?
Environmental and labor laws
Compliance is essential for legal operations.
How can tax treaties impact foreign investment?
Ameliorate the tax aspects of the venture
Important for financial planning and compliance.
What is sovereign debt?
Debt issued by nation-states, usually in the form of bonds.
What typically happens when a nation-state repays its sovereign debt?
It is usually repaid without incident.
What is a common outcome when a nation-state defaults on its sovereign debt?
Debt restructuring and bondholders taking a ‘haircut’.
What significant event occurred in 2001 regarding Argentina’s sovereign debt?
Argentina defaulted on more than $82 billion worth of bonds.
What is a ‘haircut’ in the context of sovereign debt?
A significant loss taken by creditors on the debt.
How did Argentina resolve its debt crisis in 2005 and 2010?
By reaching an agreement with about 93% of its creditors to issue new bonds.
What percentage of the original bond value were the new bonds worth?
Less than 30 percent of the original bonds.
Who are referred to as ‘vulture funds’ in the context of Argentina’s debt?
Investors holding original bonds who refused to agree to the debt restructuring.
What legal action did NML Capital take against Argentina?
Filed suit in New York federal district court to recover on the original bonds.
What clause did the court rule Argentina violated?
‘Pari passu’ clause, promising equal treatment to all creditors.
What did the district court issue against Argentina regarding its payments?
A broad injunction against payments to creditors without honoring original bondholders’ claims.
Was there an insolvency procedure for sovereign states under international law?
No, there is currently no insolvency procedure.
What did NML Capital seek to attach in Ghana in 2013?
The Argentine frigate, Libertad.
What was the outcome of the Ghanaian Supreme Court ruling regarding the ship?
The ship was ordered released as a matter of public policy.
What exception allowed the attachment of Argentina’s sovereign funds in New York?
The commercial activity exception to the FSIA.
What was the U.S. Supreme Court’s decision regarding Argentina’s sovereign assets on June 16, 2014?
Upheld broad, worldwide post-judgment discovery and execution order.
True or False: The International Monetary Fund always approves sovereign debt restructuring.
False.
Fill in the blank: In the case of sovereign debt, individual bondholders usually cannot ______ the defaulting government to pay.
force
