OECD members have agreed to base their investment policies towards SWFs on existing investment instruments which call for fair treatment of investors. Two key instruments are the OECD Code of Liberalisation of Capital Movements, adopted in 1961, and the OECD Declaration on International Investment and Multinational Enterprises, issued in 1976 and revised in 2000.
They embody five basic principles, including commitments to non-discrimination, transparency, progressive liberalisation and undertakings not to introduce new restrictions and not to insist on reciprocity as a condition for liberalisation. They also involve a process of regular “peer review” to monitor countries’ observance of the principles.
A newly published OECD report, “Sovereign Wealth Funds and Recipient Country Policies”, recognises that “sovereign wealth funds bring benefits to home and host countries.” Mr. Gurría will present its findings at meetings of the International Monetary Fund (IMF) and World Bank in Washington, where he will also underline OECD support for the IMF’s work on best practices for SWFs.
OECD investment instruments recognise the right of member countries to take actions to protect national security, and investments by SWFs can raise concerns as to whether their objectives are commercial or driven by political, defense or foreign policy considerations. However, OECD countries have accepted that the national security clause should be applied with restraint and not be used as a general escape clause from their commitments to open investment policies.
“Observance of high standards of transparency and governance by sovereign wealth funds will also help recipient countries implement their OECD commitments and recommendations for preserving open markets while safeguarding national security”, Mr. Gurría states in his letter to G7 finance ministers.
“The resulting framework will foster mutually beneficial situations where SWFs enjoy fair treatment in recipient country markets and recipient countries can confidently resist pressures for protectionist responses,” the letter concludes.
The OECD Investment Committee will continue its work in this area, in close co-operation with the IMF, and deliver a final report in mid-2009. This will include a menu of best practices and, if appropriate, suggestions for clarifications to existing OECD instruments.
The report is available here.
For further information, journalists are invited to contact Spencer Wilson in the OECD’s Media Division (tel. + 33 1 45 24 81 18).
Click here for more information on OECD work on preventing investment protectionism.