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G20 keeps investment flows open, but continued vigilance needed

The OECD and UNCTAD have commended G20 countries for avoiding new protectionist barriers to inward investment, while warning that continued vigilance is needed in the face of emergency measures to address the economic crisis that still pose a threat to competition and international investment.

In their third report to the G20 on this issue, the two organisations find that “by and large, G20 governments have continued to honour their commitment to refrain from raising new barriers to international investment.”

However, as governments wind down their emergency schemes and dispose of financial assets acquired in the crisis, they must ensure they do so at an appropriate pace and not use the crisis “as a pretext to discriminate directly or indirectly against certain investors, including foreign investors.”

“With the economic recovery still fragile and unemployment high, protectionist pressures will remain,” said OECD Secretary-General Angel Gurría. “Countries must hold firm and keep trade and international investment open to boost their economies.”

Most investment measures taken in the six months to May 2010 have continued to point towards liberalisation of international capital flows or increased regulatory clarity, according to the OECD.

Looking ahead, the report calls on the governments of G20 countries to:

· Ensure that assets acquired in the crisis are disposed of in a timely, non-discriminatory and open way.

· Wind down emergency schemes as quickly as economic conditions permit.

· Make progress on financial reform to restore confidence in the financial sector and market economy.

A companion report for the G20 on both trade and investment measures, released by the OECD, UNCTAD and WTO, underlined the importance of trade and investment in firmly anchoring the economic recovery, promoting job creation and helping the world’s poor lift themselves up out of poverty. It said that “with sovereign debt reaching dangerous levels, international trade and investment offer a sustainable source of growth and development.”

The report warned that some of the emergency measures introduced in the crisis or currently being introduced may have a more significant impact on trade, investment and competition than the traditional trade and investment restrictions. Leaders of the organisations urged countries to scale back emergency schemes “at a prudent, but deliberate pace so as to send a strong message that trade and investment activities are expected to take place on a commercial basis and that schemes enacted to mitigate the effects of the crisis will not be made permanent.”

Leaders of the G20, which comprises the world’s largest economies, committed to resist protectionism and promote global trade and investment at summits in 2008 and 2009. They mandated WTO, OECD and UNCTAD – the leading international organisations in the area of international trade and investment policies – to monitor policy developments and report publicly on these commitments.

This report has been prepared for the meeting of G20 leaders in Toronto on 26 and 27 June 2010. The second report was issued in March 2010 and the first issued ahead of the G20 Summit in Pittsburgh in September 2009.