- The author is a senior fellow at the Columbia Center on Sustainable Investment, Columbia University in New York.​​​​​​​

NEW YORK

“Türkiye will continue to offer a favorable investment environment for international investors with a never-ending reform process,” President Recep Tayyip Erdogan said, according to the country's 2024-2028 Foreign Direct Investment (FDI) Strategy.

The strategy concretizes Ankara's 12th Development Plan, with the section on Business and Investment Environment stipulating that the “main objective is to make the economy more competitive … to increase investment, production, employment and exports by making more use of qualified FDI.”

Given the important role that foreign direct investment can play in development, increasing flows of such investment to Türkiye is indeed an important objective. And the country has room to do so. According to UNCTAD (the UN Conference on Trade and Development), Türkiye received, on average, $11 billion in foreign direct investment in 2021-2023, while the UAE received double that amount during the same period, some $22 billion.

Türkiye now can have an additional tool to advance its FDI Strategy: the new Investment Facilitation for Development Agreement negotiated at the World Trade Organization (WTO).

The text of this agreement was submitted to the WTO’s 13th Ministerial Conference in Abu Dhabi in February 2024, and it is ready for integration into the WTO’s rulebook. It is sponsored by 126 WTO members, with 90 of them being developing countries.

Supporting this initiative would not only align with Türkiye's strategic FDI interests, but also enhance its domestic business environment, especially for small and medium-size enterprises that lack the resources to navigate bureaucratic red tape.

The agreement is also useful to Türkiye because it helps attract not only more investment, but also more sustainable and impactful foreign direct investment -- what Türkiye’s FDI Strategy calls “qualified FDI” -- to further the country’s sustainable economic growth and development.

Attracting foreign direct investment, however, is a major challenge in the highly competitive world foreign direct investment market. This increases the importance of investment facilitation as the main tool that countries can use to distinguish themselves, particularly as investors increasingly prioritize efficiency, transparency (such as single digital information portals) and predictability in administrative procedures.

Clearly, governments can improve their investment climate on their own, unilaterally, as Türkiye is doing. But anchoring investment facilitation reforms in international commitments -- as contained in the Investment Facilitation for Development Agreement -- helps countries overcome domestic resistance to such reforms. As a commitment device aligned with global benchmarks, moreover, supporting the agreement sends a positive signal to international investors that a country is serious about investment-environment reforms and attracting foreign direct investment. And the technical assistance and capacity-building to be provided for the implementation of the Investment Facilitation for Development Agreement (and the needs assessment associated with it) is an important resource that Türkiye could benefit from, to improve its likelihood of success in the highly competitive world foreign-direct-investment market.

Significantly, the Investment Facilitation for Development Agreement explicitly excludes market-access matters, the protection of investment and investor-state dispute settlement.

Also, parties to the agreement retain full autonomy over their investment policy frameworks. For instance, they may choose to subject foreign direct investment in specific sectors to authorization requirements, to keep certain sectors closed to such investment or to provide incentives.

The Investment Facilitation for Development Agreement

The WTO agreement does not itself influence some of the key economic factors that determine where international investors decide to invest, like the quality of infrastructure. But it does help improve the two other determinants that largely shape locational decisions, namely the quality and predictability of the regulatory framework affecting foreign direct investment and investment promotion.

More specifically, the agreement focuses on transparency, predictability, and the streamlining of administrative procedures related to the implementation of a country’s foreign direct investment policy, all of which are important for investors. For example, the agreement encourages the publication of laws and regulations pertaining to foreign direct investment and providing investors the opportunity to comment on proposed new foreign direct investment measures; establishing a single online information portal; charging reasonable authorization fees; and using information and communication technology/e-government.

It also promotes the implementation of supplier-development programs to strengthen the capabilities of local suppliers, especially small and medium-size enterprises, to meet the sourcing demands of investors; the establishment of supplier databases; and the uptake by companies of responsible business conduct practices. Many of these measures are also helpful for domestic firms.

Furthermore, Türkiye could benefit from the agreement’s special and differential treatment provisions, including especially technical assistance and capacity-building support from such international organizations as the International Trade Centre, the World Bank, UNCTAD, and the World Economic Forum. This would be of interest to Türkiye as it seeks to implement a number of measures announced in its FDI Strategy, such as simplifying bureaucratic processes, increasing the embeddedness of foreign affiliates, and strengthening the country’s digital infrastructure to attract quality foreign direct investment projects.

Türkiye can also determine the pace at which it implements individual provisions. As a result, Türkiye improves its global competitiveness and its ability to attract more sustainable and impactful foreign direct investment.

There is an additional consideration that Türkiye’s policymakers should consider, namely outward foreign direct investment. The country’s firms are already significant outward investors. They are poised to become even more so in the future, as part of the maturation of the country’s economy and to increase the international competitiveness of its firms. The importance of this aspect of foreign direct investment is recognized in Türkiye’s Development Plan which states that “Türkiye’s capacity to guide and facilitate outward FDI will be improved.”

Türkiye’s firms increasingly invest abroad, to gain better access to international markets and resources, to maintain and strengthen their competitiveness so that they can create new jobs and sustain existing ones at home.

Türkiye’s outward investors are therefore interested that the investment environment in host countries is transparent and predictable, and that excessive red tape does not hinder the establishment of their foreign affiliates -- precisely what the Investment Facilitation for Development Agreement is all about. And there is certainly room for the country’s firms to invest more abroad: according to UNCTAD, Türkiye's outward foreign direct investment stagnated around $5 billion during 2021-2023, compared to $23 billion for the UAE. It is therefore good to see that Türkiye’s government -- as those of many other countries -- supports its own national firms in their quest to increase their international competitiveness.

The way forward

Is the Investment Facilitation for Development Agreement perfect? Naturally, it could be stronger in some respects, and Türkiye’s negotiators have made this point during the negotiations. For example, the agreement could have included a definition of “investment” beyond making it clear -- both, in its “objectives” and “scope” articles -- that the agreement is about facilitating “foreign direct investment” (which is also in line with the 2017 Joint Ministerial Statement that led to the eventual investment facilitation negotiations); however, other agreements of this kind have done well without an explicit definition of “investment,” for example, the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. Or the provision on movement of businesspersons could have gone beyond transparency, but both developed and developing countries did not agree to having a more expanded provision on this matter. After all, multilateral negotiations are an exercise in the art of the possible, and the perfect should not become the enemy of the good.

Türkiye, moreover, has other avenues to pursue its objectives in these two areas. In particular, in its ongoing free trade agreements negotiations with Indonesia, Japan, Thailand, the Gulf Cooperation Council, and MERCOSUR, it can seek to address these issues. And it can negotiate bilateral specialized investment facilitation agreements that go beyond what can be achieved at the multilateral level, as has been done by the EU, which -- on the basis of the WTO Agreement -- has negotiated the EU-Angola Sustainable Investment Facilitation Agreement (and is negotiating other such agreements with further countries).

What are the implications of all these considerations for Türkiye?

Blocking the agreement's incorporation into the WTO’ rule-book -- as Türkiye does now, given the WTO’s consensus requirement -- has substantial downsides: the country would not benefit from the support that the agreement provides to anchor Türkiye's domestic facilitation reforms, including its technical assistance and capacity-building resources it is expected to trigger. Moreover, blocking an agreement that is ready for integration into the WTO’s rulebook as desired by 126 WTO members (three-quarters of the organization’s membership), risks forfeiting the goodwill of numerous countries, including those with which Türkiye has longstanding strategic and economic ties and that are its partners in such organizations as the Türkiye-led Organization of Turkic States.

Not joining (while refraining from blocking the agreement’s incorporation into the WTO’s rule-book) still leaves Türkiye missing out on some of the agreement’s tangible benefits -- though it would at least avoid antagonizing the majority of WTO members that favor its incorporation in the WTO’s rule-book.

Türkiye’s outward investors would benefit from the agreement’s supporters improving their investment environment. Why would Türkiye block an agreement if it would benefit from it at least to some extent even if it would not join it?

Joining the agreement, finally, would allow Türkiye to reap all the agreement’s benefits, without incurring any costs. It would allow it to obtain special treatment, including especially technical assistance support for improving its investment climate, and it would send a strong signal to international investors that it is serious about facilitating foreign direct investment inflows -- which would help the country “increase investment, production, employment and exports by making more use of qualified FDI.” What better opportunity for Türkiye to advance its own foreign direct investment objectives?

As President Erdogan noted, improving the investment environment is “a never-ending process.” The new WTO Investment Facilitation for Development Agreement provides Türkiye with an additional tool to advance this process. Türkiye should seize this opportunity and join the agreement.

*Opinions expressed in this article are the author's own and do not necessarily reflect Anadolu's editorial policy.