Moran: Toward a Multilateral Framework for Identifying National Security Threats Posed by Foreign Acquisitions: With Special Reference to Chinese Acquisitions in the United States, Canada, and Australia


This paper presents a framework for differentiating between foreign acquisitions of companies that might plausibly pose a national security threat to the home country of the target acquisition and those that do not. This framework originally derives from the experience of the United States. The framework is then shown to be relevant and useful for foreign acquisitions in Canada and Australia. In each case, Chinese acquisitions of US, Canadian, or Australian firms are highlighted. The paper concludes by arguing that this framework can serve as an effective nondiscriminatory basis for separating genuine from implausible national security threats from foreign acquisitions across OECD states, to include all countries around the world.


An important contribution!  Download it here.

Aso: Economic Effects of Public Pensions


While there are various arguments about public pension system reform, this paper examines the conflicting views from the perspective of economic theory. The paper first explains the raison d’etre of public pension systems and then discusses financing systems of public pensions (funding system and pay-as-you-go system). Under the pay as you go system, the benefits to the elderly at the introduction of the pension system are equal to the sum of the present discounted value of net burden of all generations born thereafter. Also, the pay as you go pension system has a huge amount of net pension debt, which must be borne by future generations. The paper points out that shifting to a funding system is an issue of how many years the repayment of such net liabilities should desirably be spread over. Finally, although consumption tax is generally thought to be a desirable revenue source of the pension system, we point out this idea is incorrect from a theoretical view point.


Available for download here.

Nicholas: China's Direct Investment in the European Union | Challenges and Policy Response


The dramatic rise of Chinese direct investment into the European Union has sparked a debate about the control that China may be seeking to take over European economies. Quite naturally these concerns have led to repeated calls that action be taken to slow down, if not to halt entirely, this growing trend. The objective of the paper is to shed light on this debate. Following a thorough analysis of Chinese direct investment in the EU, the paper suggests that the challenges posed by these inflows are widely overblown. Despite this, the paper concludes that it is necessary to have a systematic approach to regulating inbound foreign investment (including from China) in the EU. Such an approach may help guard against the risk of a protectionist drift inside the EU, as well as the possibility that some investors may one day pose a threat to national security. The paper concludes that although the current fragmented regulatory approach is unsatisfactory, due to the difficulties associated with a unified EU-wide review process, the most realistic option is to promote a more systematic and coordinated use of existing mechanisms such as competition policy. Also, pushing for the negotiation of a China-EU BIT is certainly a promising avenue to enhance the EU’s bargaining leverage based on the principle of positive reciprocity.

Available for download here.

Wilson & Silva: Policies for Seed and Early Finance | Findings from the 2012 OECD Financing Questionnaire


This paper highlights the findings from a research project to investigate the role of public support to promote seed and early stage financing, including an OECD questionnaire sent to the 34 OECD member countries in 2012. The questionnaire focused on seed and early stage financing, looking at the supply side, regulatory challenges and demand side actions.

The questionnaire was answered by 32 OECD countries as well by about 100 experts in those countries. The list of current financing instrument identified, along with links to the further information about them, can be found in Annex I of this paper. The results of the questionnaire were supplemented by further research conducted by the OECD Secretariat as well as by the discussions from a series of financing policy workshops hosted by member countries.

The report highlights the growth in support for financial instruments for seed and early stage firms across OECD member countries. These instruments include grants, loans and guarantee schemes, tax incentives and equity funds. This increased support is linked to the recent financial crisis and the growing concern about the young firms’ access to finance. The paper notes that framework conditions play an important role in access to finance and must be taken into consideration as a significant part of the policy mix. Demand side policies to develop entrepreneurial and investment talent and networks are also critical. The paper discusses the role of evaluation and the need to better link policy objectives and outcomes.

Available for download here.

Poulsen, Bonnitcha & Yackee: Analytical Framework for Assessing Costs and Benefits of Investment Protection Treaties

An excellent analysis on how countries should evaluate investment treaties.  From the INTRODUCTION:

The Lisbon Treaty has important implications for the external investment policy of European Union (EU) Member States. Competence for foreign direct investment policy has been transferred to the European Commission and a legislative framework is now in place to pursue EU wide investment treaties with third states. This raises both opportunities and challenges for the United Kingdom (UK). While the UK may continue to negotiate bilateral investment treaties (BITs), it also has to consider proposals for a new generation of European investment treaties. To provide a reasoned basis for choosing between alternative policy options, this report offers specific suggestions for how the UK government can assess the implications of a particular investment treaty. Although we caution against using ‘off-the-shelf’ quantitative indicators to guide policy-making in this area, an appendix to this report identifies potentially useful sources of information to assess whether a treaty may, or may not, provide net benefits.

The magnitude of the costs and benefits of any particular investment treaty will depend on its scope of coverage, generosity of substantive rights, and dispute settlement design. The analytical framework outlined below does not attempt to individually address every issue that would arise in the drafting of each specific provision of an investment treaty. Instead, the framework outlines a set of generic questions of relevance to any investment treaty (almost) irrespective of its specific design. Applying the framework to a particular treaty will require the generic questions outlined in the framework to be answered in light of the specifics of the treaty under consideration.


Available for download here.

Al-Hassan, Papaioannou, Skancke & Sung: Sovereign Wealth Funds: Aspects of Governance Structures and Investment Management

Another important paper from IMF researchers on sovereign wealth fund governance.  One of the aspects of most value in this analysis is the connection between governance and investment policy and the delineation of responsibilities over investment policies, as shown in the graphic below:


Here is the paper’s ABSTRACT:

This paper presents in a systematic (normative) manner the salient features of a SWF‘s governance structure, in relation to its objectives and investment management that can ensure its efficient operation and enhance its financial performance. In this context, it distinguishes among the various governing bodies and analyzes key aspects of the investment policy and setting of the risk tolerance level in order to ensure consistent risk-bearing capacity and greater accountability. Further, it discusses the important role of SWFs in macroeconomic management and the need for close coordination with other macroeconomic and financial policies as well as their role in global financial stability.


Available for download here.

Poulsen, Bonnitcha & Yackee: Costs and Benefits of an EU-USA Investment Protection Treaty

This is an important analysis from three leading scholars on the likely costs and benefits for the UK of an investment protection chapter in a proposed free trade agreement between the European Union and the United States.

From the Conclusion:

In this report, we have offered an informed qualitative assessment of the likely costs and benefits of an EU-US investment treaty as compared to a continuation of the legal status quo. As in the China report, we have not attempted to value these costs and benefits in monetary terms as we find this entirely unfeasible, even with more time and resources than were available to us. To summarise our findings, we conclude that:

(1) There is little reason to think that an EU-US investment chapter will provide the UK with significant economic benefits. No two countries in the world exchange more investment than the UK and the US, and there is no evidence that US or UK investors view either country as suffering from the kinds of political risks against which investment treaties are supposed to protect. Moreover, existing evidence suggests that the presence of an EU-US investment chapter is highly unlikely to encourage investment above and beyond what would otherwise take place. US investors have generally not taken much notice of investment treaties in the past when deciding where, and how much, to invest abroad – even when dealing with far more
questionable jurisdictions than the UK.

(2) There is little reason to think that an EU-US investment chapter will provide the UK with significant political benefits. The political relationship between Washington and Whitehall is exceptionally strong, and we are aware of no evidence that it is vulnerable to a meaningful risk of investor-state disputes that would become undesirably “politicized” in the absence of an investment treaty. Secondly, we find it unlikely that an EU-US agreement would make significant negotiating partners – like India and China – more or less willing to agree to an investment treaty with the EU. Finally, it is unclear whether the US is particularly keen on an investment protection chapter with the EU, which means the Commission may not be able to use such a chapter as an effective ‘bargaining chip’ in other trade and/or investment negotiations with Washington. However, these are all issues that BIS might wish to explore in further detail.

(3) There is some reason to expect an EU-US investment chapter will impose meaningful economic costs on the UK. Based on Canada’s experience under NAFTA, we would expect an EU-US investment chapter to be regularly invoked by US investors against the UK for governmental actions that would normally not be challengeable under UK law. While we would not expect the UK to lose many of these cases on the merits, the UK will necessarily incur costs to defend itself. Legal costs in investment treaty claims are substantial. The UK government may also find itself subject to pressure to settle some claims, even when there are reasonable prospects of successfully defending the claim on the merits. Finally, given the uncertain meaning of key elements of international investment law, it is possible that the UK would occasionally lose some arbitrations on the merits and be liable for significant damage awards.

(4) There is some reason to expect an EU-US investment chapter to impose meaningful political costs on the UK. Under investment treaties similar to a likely EU-US investment chapter, US investors have brought claims that raise potentially controversial questions. Should US investors bring similar claims against the UK, this will increase the chances that a particular dispute could provoke a backlash against the EU-US economic agreement as a whole or, perhaps more broadly, investor-state arbitration as a governing institution.

In sum, an EU-US investment chapter is likely to provide the UK with few or no benefits. On the other hand, with more than a quarter of a trillion dollars in US FDI stock, the UK exposes itself to a significant measure of costs. Using Canada’s experience under NAFTA as an example, we would expect those costs to be manageable overall, but nevertheless considerable. Unlike in the UK at the time of writing, investment treaty arbitration has become politically controversial in Canada because of the frequency and character of investor challenges to Canadian government policies, and the Canadian government has had to invest considerable resources in an investment-treaty defence capacity as a result of its more than 30 NAFTA claims. While few of these cases were lost on the merits, Canada has faced incentives to settle cases either by paying compensation or, in some reported cases, by changing government policies. We would expect the UK to have an approximately similar experience under an EU-US investment chapter, though the larger stock of US investment in Britain could imply that the UK may be subject to an even greater number of disputes – and thus potential costs – than Canada.

In none of our former reports have we made explicit policy recommendations for the UK government, and neither will we here. However, our assessment does raise questions whether the UK government might consider one of two options in negotiating an EU-US investment treaty. The first is to exclude investment protection provisions from the agreement, and solely focus on investment liberalization. Recall that to our knowledge British investors have not expressed general concerns about their legal protection in the US. A pure liberalization agreement would thereby allow the UK government to focus on the actual concerns of British investors – market access – without at the same time exposing the government to potentially expensive and controversial investment treaty claims. An alternative option is to include investment protection provisions, but exclude comprehensive ISDS from the agreement. As noted, the US (hesitantly) agreed to this in its FTA with Australia, which could provide a model for an EU-US investment treaty as well. This, too, would imply that the UK would be able to support an EU-US investment treaty overall, without being exposed to the types of investment disputes that otherwise could result in net costs for the UK government.

Liao & Zhang: A New Context for Managing Overseas Direct Investment by Chinese State Owned Enterprises


Chinese state-owned enterprises (SOEs) and their overseas direct investment (ODI) have played an important role in China’s economic development. But the rapid expansion of SOE-dominated ODI has also raised concerns, including about state capitalism and the need for competitive neutrality. This paper considers China’s strategy for managing ODI by its SOEs given a changing context. On the one hand, the Chinese economy is rapidly growing and will soon become the largest economy in the world. China’s role in the world, as well as its global responsibility, is therefore changing. China needs to establish a win-win and harmonious relationship with the rest of the world, and ODI has a role to play in this. On the other hand, China’s growth model is shifting to become greener, more balanced, and innovation-driven.

China’s changing international role and the changing growth model have created new imperatives for, and constraints on, ODI by SOEs and reforms to SOEs. This paper aims to examine ODI by Chinese SOEs from the two dimensions of China’s changing role and growth model. It discusses strategies for better managing ODI by Chinese SOEs in the new context that is emerging.


Available for download here.

Tong, Junarsin & Davidson: A Comparison of Chinese State-Owned Enterprise Firm’s Boards and Private Firm’s Boards


Using 3,019 listed firms in China divided into two subsamples, we compare the characteristics of corporate governance between private firms and State Owned Enterprise (SOE)firms after they have gone public on the Chinese stock markets. We examine the differences in board structure between these two types of firms. Results show that private firms and SOE firms havedifferent governance characteristics. SOE firms have larger boards, meet less often, have a smaller proportion of independent directors on the board, have lower managerial ownership, have olderdirectors, and have directors with a higher educational level of directors than do private firms. SOE firms also appoint more independent directors from academia, and their Chairpersons are less likely to be the CEOs. For private firms, hiring independent directors from academia hurts the firm’s financial performance while the appointment of independent directors from academia does not harm the SOE firm’s performance. Meanwhile, hiring independent directors who have accounting skills is beneficial to an SOE firm’s performance whereas for a private firm, its financial performance is unaffected even when it hires independent directors with accounting skills. Our analysis indicates that in China, although private firms and SOE firms have theoretically become public firms, the SOE firms are relatively superior to the private firms in corporate governance efficiency, especially in appointing high-caliber independent directors.

Available for download here.

2013 ESADEgeo Report on Sovereign Wealth Funds

Download it while it’s hot!

The always-informative report contains research and analysis from SWF experts Victoria Barbary, Javier Santiso, Christopher Balding, Ellen Campbell, Komal Shakeel, Patrick Schena and Xavier Reig.

And let me beat this drum one more time . . .


This tells us that the US is not only not a preferred destination for SWFs, but seems to become less attractive by the year.  This is where–if I were Fallon or Timberlake–I would say #CFIUS.