Outward FDI and Competitive Neutrality

Traditionally, national FDI policies have focused on inward FDI, in particular on how to attract such investment and benefit from it. Outward FDI policies have received little attention and, when they did, it was primarily from the perspective of what could be done (under the heading of “home country measures” – HCMs) to encourage FDI outflows to developing and least developed countries. Some aspects of this objective have also found their expression in international investment agreements (IIAs), e.g. the Cotonou Agreement. In other words, to the extent that home country measures were dealt with at all, they were seen as desirable.

Quite recently, however, a different perspective is becoming important, a perspective according to which certain support measures by home country governments in favor of their nations’ outward investing enterprises are seen as giving an unfair advantage to these enterprises in the world FDI market and hence distort “competitive neutrality.” In particular, there seems to be an assumption that state-controlled entities (SCEs) – especially state-owned enterprises (SOEs), but also sovereign wealth funds (SWFs) – benefit particularly from such support measures, and an argument is being made that certain home country measures may not be desirable. In light of this, the study of outward FDI and competitive neutrality seeks to analyze what measures home countries have undertaken to support their outward investing enterprises and what the salient features are of these measures. This research was published in Chapter 1 of The Yearbook on International Investment Law and Policy 2012/2013.