World Bank Guidelines on the Treatment of Foreign Direct Investment_1992
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The Development Committee

Recognizing

that a greater flow of foreign direct investment brings substantial benefits to bear on the world economy

and on the economies of developing countries in particular, in terms of improving the long term efficiency

of the host country through greater competition, transfer of capital, technology and managerial skills and

enhancement of market access and in terms of the expansion of international trade;

that the promotion of private foreign investment is a common purpose of the International Bank for

Reconstruction and Development, the International Finance Corporation and the Multilateral Investment

Guarantee Agency;

that these institutions have pursued this common objective through their operations, advisory services and

research;

that at the request of the Development Committee, a working group established by the President of these

institutions and consisting of their respective General Counsel has, after reviewing existing legal

instruments and literature, as well as best available practice identified by these institutions, prepared a set

of guidelines representing a desirable overall framework which embodies essential principles meant to

promote foreign direct investment in the common interest of all members;

that these guidelines, which have benefitted from a process of broad consultation inside and outside these

institutions, constitute a further step in the evolutionary process where several international efforts aim to

establish a favorable investment environment free from non-commercial risks in all countries, and thereby

foster the confidence of international investors; and

that these guidelines are not ultimate standards but an important step in the evolution of generally

acceptable international standards which complement, but do not substitute for, bilateral investment

treaties,

therefore calls the attention of member countries to the following Guidelines as useful parameters in the

admission and treatment of private foreign investment in their territories, without prejudice to the binding

rules of international law at this stage of its development.

Article I. SCOPE OF APPLICATION

1. These Guidelines may be applied by members of the World Bank Group institutions to private foreign

investment in their respective territories, as a complement to applicable bilateral and multilateral treaties

and other international instruments, to the extent that these Guidelines do not conflict with such treaties

and binding instruments, and as a possible source on which national legislation governing the treatment of

private foreign investment may draw. Reference to the "State" in these Guidelines, unless the context

otherwise indicates, includes the State or any constituent subdivision, agency or instrumentality of the

State and reference to "nationals" includes natural and juridical persons who enjoy the nationality of the

State.

2. The application of these Guidelines extends to existing and new investments established and operating

at all times as bona fide private foreign investments, in full conformity with the laws and regulations of the

host State.

3. These Guidelines are based on the general premise that equal treatment of investors in similar

circumstances and free competition among them are prerequisites of a positive investment environment.

Nothing in these Guidelines therefore suggests that foreign investors should receive a privileged treatment

denied to national investors in similar circumstances.

Article II. ADMISSION

1. Each State will encourage nationals of other States to invest capital, technology and managerial skill in

is territory and, to that end, is expected to admit such investments in accordance with the following

provisions.

2. In furtherance of the foregoing principle, each State will:

(a) facilitate the admission and establishment of investments by nationals of other States, and

(b) avoid making unduly cumbersome or complicated procedural regulations for, or imposing

unnecessary conditions on, the admission of such investments.

3. Each State maintains the right to make regulations to govern the admission of private foreign

investments. In the formulation and application of such regulations, States will note that experience

suggests that certain performance requirements introduced as conditions of admission are often

counterproductive and that open admission, possibly subject to a restricted list of investments (which are

either prohibited or require screening and licensing), is a more effective approach. Such performance

requirements often discourage foreign investors from initiating investment in the State concerned or

encourage evasion and corruption. Under the restricted list approach, investments in nonlisted activities,

which proceed without approval, remain subject to the laws and regulations applicable to investments in

the State concerned.

4. Without prejudice to the general approach of free admission recommended in Section 3 above, a State

may, as an exception, refuse admission to a proposed investment:

(i) which is, in the considered opinion of the State, inconsistent with clearly defined

requirements of national security; or

(ii)which belongs to sectors reserved by the law of the State to its nationals on account of

the State's economic development objectives or the strict exigencies of its national

interest.

5. Restrictions applicable to national investment on account of public policy (ordre public), public health

and the protection of the environment will equally apply to foreign investment.

6. Each State is encouraged to publish, in the form of a handbook or other medium easily accessible to

other States and their investors, adequate and regularly updated information about its legislation,

regulations and procedures relevant to foreign investment and other information relating to its investment

policies including, inter alia, an indication of any classes of investment which it regards as falling under

Sections 4 and 5 of this Guideline.

Article III. TREATMENT

1. For the promotion of international economic cooperation through the medium of private foreign

investment, the establishment, operation, management, control, and exercise of rights in such an

investment, as well as such other associated activities necessary therefor or incidental thereto, will be

consistent with the following standards which are meant to apply simultaneously to all States without

prejudice to the provisions of applicable international instruments, and to firmly established rules of

customary international law.

2. Each State will extend to investments established in its territory by nationals of any other State fair and

equitable treatment according to the standards recommended in these Guidelines.

3. (a) With respect to the protection and security of their person, property rights and interests, and to the

granting of permits, import and export licenses and the authorization to employ, and the issuance of the

necessary entry and stay visas to their foreign personnel, and other legal matters relevant to the treatment of

foreign investors as described in Section 1 above, such treatment will, subject to the requirement of fair

and equitable treatment mentioned above, be as favorable as that accorded by the State to national

investors in similar circumstances. In all cases, full protection and security will be accorded to the

investor's rights regarding ownership, control and substantial benefits over his property, including

intellectual property.

(b) As concerns such other matters as are not relevant to national investors, treatment under the State's

legislation and regulations will not discriminate among foreign investors on grounds of nationality.

4. Nothing in this Guideline will automatically entitle nationals of other States to the more favorable

standards of treatment accorded to the nationals of certain States under any customs union or free trade

area agreement.

5. Without restricting the generality of the foregoing, each State will:

(a) promptly issue such licenses and permits and grant such concessions as may be necessary for

the uninterrupted operation of the admitted investment; and

(b) to the extent necessary for the efficient operation of the investment, authorize the

employment of foreign personnel. While a State may require the foreign investor to reasonably

establish his inability to recruit the required personnel locally, e.g., through local advertisement, before

he resorts to the recruitment of foreign personnel, labor market flexibility in this and other areas is

recognized as an important element in a positive investment environment. Of particular importance in

this respect is the investor's freedom to employ top managers regardless of their nationality.

6. (1) Each State will, with respect to private investment in its territory by nationals of the other States:

(a) freely allow regular periodic transfer of a reasonable part of the salaries and wages of

foreign personnel; and, on liquidation of the investment or earlier termination of the

employment, allow immediate transfer of all savings from such salaries and wages;

(b) freely allow transfer of the net revenues realized from the investment;

(c) allow the transfer of such sums as may be necessary for the payment of debts contracted, or the

discharge of other contractual obligations incurred in connection with the investment as they fall due;

(d) on liquidation or sale of the investment (whether covering the investment as a whole or a part

thereof), allow the repatriation and transfer of the net proceeds of such liquidation or sale and

all accretions thereto all at once; in the exceptional cases where the State faces foreign

exchange stringencies, such transfer may as an exception be made in installments within a

period which will be as short as possible and will not in any case exceed five years from the

date of liquidation or sale, subject to interest as provided for in Section 6 (3) of this Guideline;

and

(e) allow the transfer of any other amounts to which the investor is entitled such as those which

become due under the conditions provided for in Guidelines IV and V.

(2) Such transfer as provided for in Section 6 (1) of this Guideline will be made (a) in the currency

brought in by the investor where it remains convertible, in another currency designated as freely usable

currency by the International Monetary Fund or in any other currency accepted by the investor, and (b)

at the applicable market rate of exchange at the time of the transfer.

(3) In the case of transfers under Section 6 (1) of this Guideline, and without prejudice to Sections 7

and 8 of Guideline IV where they apply, any delay in effecting the transfers to be made through the central

bank (or another authorized public authority) of the host State will be subject to interest at the normal rate

applicable to the local currency involved in respect of any period intervening between the date on which

such local currency has been provided to the central bank (or the other authorized public authority) for

transfer and the date on which the transfer is actually effected.

(4) The provisions set forth in this Guideline with regard to the transfer of capital will also apply to the

transfer of any compensation for loss due to war, armed conflict, revolution or insurrection to the extent

that such compensation may be due to the investor under applicable law.

7. Each State will permit and facilitate the reinvestment in its territory of the profits realized from existing

investments and the proceeds of sale or liquidation of such investments.

8. Each State will take appropriate measures for the prevention and control of corrupt business practices

and the promotion of accountability and transparency in its dealings with foreign investors, and will

cooperate with other States in developing international procedures and mechanisms to ensure the same.

9. Nothing in this Guideline suggests that a State should provide foreign investors with tax exemptions or

other fiscal incentives. Where such incentives are deemed to be justified by the State, they may to the

extent possible be automatically granted, directly linked to the type of activity to be encouraged and

equally extended to national investors in similar circumstances. Competition among States in providing

such incentives, especially tax exemptions, is not recommended. Reasonable and stable tax rates are

deemed to provide a better incentive than exemptions followed by uncertain or excessive rates.

10. Developed and capital surplus States will not obstruct flows of investment from their territories to

developing States and are encouraged to adopt appropriate measures to facilitate such flows, including

taxation agreements, investment guarantees, technical assistance and the provision of information. Fiscal

incentives provided by some investors' governments for the purpose of encouraging investment in

developing States are recognized in particular as a possibly effective element in promoting such

investment.

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