Second, advantages should be associated with producing in a foreign location (lower-cost labor, access to raw materials, and so forth). Third, internalization as opposed to arm's-length transactions must be beneficial. These requirements for FDI are not inconsistent with a long-run globalization strategy by a firm. Further, the presence within an economy of an internationally competitive manufacturer or service provider can raise the overall performance of competing firms within a domestic market (Shihata, 1987). A further, advantage may arise from the fact that foreign investors lobby their home government for favorable policies toward the host state to protect their investments.
Many states, recognizing the benefits discussed above, have in recent years made a concerted effort to attract FDI by establishing lucrative investment incentive programs (Brittan, 1995). Such programs often include the availability of tax holidays, inexpensive financing, and land at reduced prices. Thus, with states making overt efforts to attract FDI, the need for an OECD-based MAI does not appear to be strong.
Proponents of the proposed MAI, however, contend that the elimination of disincentives to FDI is more important than are the incentives for FDI (Geist, 1995). Such protestations, however, appear to be a cover for an unstated agenda favoring the implementation of the proposed OECD-based MAI, which may be the institutionalization of corporate dominance in world governance (Sornrajah, 1994).
The first effort to regulate FDI at the international level was the Havana Charter following the conclusion of the Second World War. The Charter essentially was a codification of existing accepted international law principles, which provided specifically that each state had the sole right and jurisdiction to implement rules and restrictions relating to the admission of FDI into its territory (Geist, 1995). This principle of international law pri...