Wednesday, August 01, 2007

Supporting Foreign Investors - Maintaining Inequality?!.

Support of foreign investors is a very good and useful thing. But can the measures of such support create an inequality and a favourable regime for certain investors without providing them to others? And are such measures legitimate?

As you remember in my last post I told about the ECHR's judgment against Moldova basing on the Law on Foreign Investments that had already been abrogated at the moment of its pronouncement.


In 1992 the Law on Foreign Investments was enacted in Moldova. This law provided to foreign investors certain incentives and facilities. One of the guarantees of those facilities was stipulated in para. 2 of art. 43 of the Law providing the guarantees in case of changes in legislation. It stated that foreign investors and enterprises with foreign capital that had enjoyed customs, tax and other facilities were allowed to benefit from those facilities and after the new modifications having come into force.

And basing on this provision of the Law the European Court of Human Rights adopted its judgment in the case BIMER SA vs. Moldova that I wrote about.

In 2004 the Law on Foreign Investments of 1992 was abrogated by the newly adopted Law on Investments to Entrepreneurial Activity that is still in force. This law does not provide any particular incentives/facilities for foreign investors as the Law of 1992 did. And by abrogating that law it also repealed all those facilities contained in it. However, the new law contains a very interesting provision in para. 2 art. 25:

"Foreign investors that made their investments and enjoyed certain guarantees
and facilities under the Law on Foregn Investments of April 1, 1992, may still
enjoy in future all those guarantees amd facilities provided by that Law.
"

"So what?" - you may say.

Let me explain my view on this. Fisrt of all, I'm not sure that it is fair enough to provided certain benefits to a person without providing them to another simply because the first one started its activity earlier. And this is what actually happens. A foreign investor that made investments before the new Law has been enacted still enjoys the same privileges even after they have been abolished at the time when new-comers can't do this thereby being in a less favourable position.

Secondly, I doubt the fairness of providing to foreign investors more privileges and facilities than to the local ones. If a Moldovan company and a foreign one either make an investment of USD 1 mln, then what is the difference between these investments?

I understand an extraordinary importance of foreign investments for Moldovan economy. And I really support and welcome them. However, I suppose that the best way to attract foreign investments to Moldova is not to provide them any particular benefits, but to create the conditions for their stability and safety regardless of the political party being in power at any particular moment...

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4 Comments:

At Sunday, August 12, 2007 9:57:00 PM, Anonymous Anonymous said...

Probably that what you offer to foreign investors instead of special guarantees is even the best they can get, but only when it is practically possible. Personally I doubt that a Sate in faze of transition, as Moldova and most of eastern Europe are, can seriously ensure the guarantee you write about, meaning conditions of sufficient legal certainty.
To my mind, your concerns about inequality between foreign and domestic investors are more theoretical than realistic, since I assume every national can create a foreign company abroad and bring it to his enterprise as a foreign investor in order to enjoy the special guaranties. However, good theory is a way for the best ;-)

LL

 
At Tuesday, August 14, 2007 7:19:00 PM, Anonymous Henrik said...

The real life consideration being that this guarantee is no longer given to new FDI? :)

 
At Tuesday, August 14, 2007 7:23:00 PM, Blogger Henrik said...

On another note regarding the inequality issue: Foreign investors do not only benchmark their conditions against the national crowd but also against conditions available on other markets. And Moldova has some catching up to do on that score.

 
At Wednesday, August 15, 2007 9:32:00 AM, Blogger Alexei Ghertescu said...

Henrik:
1. Exactly. This is what follows from the law. The facilitis under the former law may be enjoyed only by those foreign investors that have previously enjoyed them. The new-comers do not have such a benefit.

2. Speaking about conditions for foreign investor, we should speak about creating generally favourable climate for investments and providing firm guarantees.

It is a much better way of attracting those investments to Moldova.

to Anonymous-LL
I agree that this post has a lot theory in it. However, these are things necessary to be discussed. Otherwise we will make no headway in our efforts to invent something new. We have to move from certain basic presuppositions and not the reverse.

 

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