CARICOM and International Integration: Aspects of the Investment Debate

• Author: Stephen Vasciannie
• Pages: 247-267

CARICOM and International Integration 247

INTRODUCTION

Foreign direct investment remains the subject of considerable debate

in the literature of development economics and elsewhere. At the theoretical

level, this debate has had several dimensions, ranging from somewhat

esoteric propositions concerning Marxist and post-Marxist prescriptions for

Third World underdevelopment, to strongly advocated liberal and

neoliberal perspectives on the role of foreign capital in promoting global

development. But, even as the theoreticians have reflected on the number

of angels that may fit on the head of the investment pin, the pragmatists

are moving on. Thus, in the current international dispensation, the

predominant trend takes the view that foreign direct investment is beneficial

to developing countries and states in transition, and that efforts should be

made to encourage the inward flow of capital for developmental purposes.1

This trend is also consistent with prevailing attitudes among CARICOM

governments. The Caribbean Trade and Investment Report 2000 put the

matter this way:

The importance of foreign direct investment (FDI) and the potential

benefits have not been lost on the Member States of the Caribbean

Community. As far back as 1974, CARICOM Member States had

acknowledged the role of inward investment in their development

process including the cut-throat competition to secure such flows ….

Overtime, Member States have made significant changes to their

investment policy framework to reflect a more outward-oriented

approach to development.2

Against this background, any strategy formulated to enhance the degree

of integration of Caribbean states into the international economy will, by

definition, incorporate the objective of increasing foreign direct investment

into the economies of the region. But, of course, identifying the objective of

increased capital inflows is one thing; it is quite another to ensure that such

investments actually take place. And, even where there is policy consensus

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CARICOM AND INTERNATIONAL

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Stephen Vasciannie

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248 THE CARIBBEAN IN THE INTERNATIONAL SYSTEM

on the putative value of foreign investment — as appears to be the case

among CARICOM policy makers — it is necessary to consider the various

implications that arise from the pro-investment strategy now being

undertaken. In the discussion which follows, the main legal issues that

arise for states as they garner foreign direct investment will be considered:

it will be suggested that in the present economic environment, the

developing country that accepts developed country requirements for capital

flow will find itself assuming laws and policies that are not entirely consistent

with positions advanced by developing countries as a group in multilateral

negotiations. It will also be noted that though further integration into the

international economic system on investment issues may redound to the

benefit of CARICOM states, such integration comes at a price: CARICOM

states will usually have to accept constraints on their freedom to make

decisions on investment issues in return for greater investment flows.

SOME SOURCES OF INFLUENCE

(a) A Classification of Host Countries

The policies that a country may choose with respect to investment

issues will, of course, be a function of that country’s political and economic

priorities. So, it is important to note from the outset that national

experiences will vary significantly according to the choices made by the

country in formulating and implementing its investment policies. There

is, in short, a clear relationship between the attitude of the state to business

operations and investors, on the one hand, and the flow of capital into the

economy on the other. Thus, the level of investment within an economy,

particularly the level of foreign direct investment, will be partially a

function of the state’s attitude to investment. In recognition of this, states

are sometimes classified according to what is perceived as their attitude to

foreign investment. At one end of the spectrum, there are (a) closed

economies, such as North Korea. Then, there are countries that have become

more hospitable to foreign investors since the decade of the 1980s, sometimes

referred to as (b) the ‘new open door economies’. And, at the other end of the

spectrum, there are (c) the countries that have traditionally been hospitable

to foreign investment. Closed economies, the new open door economies and

the countries that have traditionally been hospitable to foreign investment

could be subdivided further, for in each case, these countries may accept

foreign investment in different degrees, or with different levels of restriction.

These three basic categories may, however, be sufficient for the present

purposes. With respect to (a), countries with closed economies can be

expected to make little or no effort to promote the inward flow of foreign

direct investment. This basic approach usually stems from the perspective