• Foreword

  Page 3

• Table of Contents

  Page 5

• Preface

  Page 9

• + Part I

  Page 11

  • + Chapter 1. Trends and Recent Developments in Foreign Direct Investment

    Page 13

    • Introduction

      Page 14

    • + 1. Foreign direct investment in OECD countries etched up in 2005

      Page 15

      • Figure 1.1. FDI flows to and from OECD

        Page 16

      • + 1.1. Developments in selected countries

        Page 15

        • Table 1.1. Direct investment flows to and from OECD countries: 2002-05

          Page 17

        • Figure 1.2. Inward FDI in selected countries

          Page 18

        • Box 1.1. Foreign direct investment statistics: main concepts

          Page 20

      • + 1.2. Taking the longer perspective

        Page 20

        • Table 1.2. Cumulative FDI flows in OECD countries 1996-2005

          Page 21

    • + 2. Robust activity in non-OECD economies

      Page 22

      • Table 1.3. Foreign direct investment flows in selected non-member economies: 2001-05

        Page 23

    • + 3. Mergers and acquisitions: trends and individual transactions

      Page 26

      • Table 1.4. Cross-border M&As to and from OECD countries, total

        Page 27

      • + 3.1. Recent sectoral trends and individual transactions

        Page 27

        • Table 1.5. Inward cross-border M&As valued at more than USD 1.5 billion from January 2005 to May 2006

          Page 28

    • + 4. Rising concerns about national security and “strategic” interests

      Page 32

      • 4.1. A few illustrative examples

        Page 33

    • Notes

      Page 35

    • + Annex 1.A1. International Direct Investment Statistics

      Page 37

      • Table 1.A1.1. OECD direct investment abroad: outflows

        Page 38

      • Table 1.A1.2. OECD direct investment from abroad: inflows

        Page 39

      • Table 1.A1.3. OECD direct investment abroad: outward position

        Page 40

      • Table 1.A1.4. OECD direct investment from abroad: inward position

        Page 41

    • Annex 1.A2. National Security and Strategic Sectors: Regulatory Change

      Page 42

  • + Chapter 2. Globalisation, New Technology and International Investment

    Page 47

    • Introduction

      Page 48

    • + 1. New technologies are driving globalisation through international investment

      Page 48

      • Figure 2.1. The drivers and dimensions of globalisation bear on international investment

        Page 49

      • Figure 2.2. The share of ICT patents has increased in virtually all OECD countries

        Page 50

      • + Box 2.1. New technology is strengthening the relationship between trade and investment

        Page 51

        • Figure 2.3. Manufacturing production is becoming more globally integrated

          Page 51

    • + 2. The way globalisation, driven by new technology, is influencing international investment

      Page 52

      • + 2.1. International investment and the deepening of globalisation

        Page 52

        • Figure 2.4. Organisational modes for cross-border production and investment

          Page 53

        • Box 2.2. FDI statistical challenges arising from new technology

          Page 55

      • + 2.2. International investment and the broadening of globalisation

        Page 54

        • + Box 2.3. Technology is favouring Eastern Europe as a car production and assembly location

          Page 56

          • Table 2.1. Motor vehicle FDI in Eastern Europe has expanded rapidly

            Page 57

        • Figure 2.5. Large non-member economies have increased investment in most OECD countries

          Page 58

        • Figure 2.6. The composition of OECD FDI has shifted massively towards services

          Page 59

      • + 2.3. New organisational forms of international business

        Page 59

        • + Box 2.4. The supply side of technological innovation is going global

          Page 60

          • Figure 2.7. Foreign ownership of domestic inventions varies widely across countries

            Page 61

        • Figure 2.8. SMEs are increasingly involved in cross-border alliances

          Page 62

    • 3. What are the investment policy challenges that lie ahead?

      Page 62

    • Notes

      Page 66

    • References

      Page 66

  • + Chapter 3. International Investor Participation in Infrastructure: Challenges for Policy Makers

    Page 69

    • Introduction

      Page 70

    • + 1. Getting the background right: enabling environment, attitudes and capacities

      Page 70

      • 1.1. Is private participation necessarily the best solution?

        Page 70

      • + 1.2. Market access

        Page 71

        • Figure 3.1. FDI Restrictiveness Index: Electricity

          Page 73

      • + 1.3. The enabling environment

        Page 73

        • Table 3.1. Arbitral decision and negotiated settlements in cases related to infrastructure operations

          Page 75

      • 1.4. Stakeholder involvement

        Page 74

      • 1.5. Authorities’ consistency of approach and capacity to deliver

        Page 83

      • 1.6. The role of domestic capital markets

        Page 84

    • + 2. Working together: toward a balanced partnership between public and private actors

      Page 84

      • 2.1. Partnership

        Page 85

      • 2.2. Apportioning risk

        Page 86

      • + 2.3. The specifics of concessions

        Page 87

        • Box 3.1. Water services in Buenos Aires

          Page 89

    • + 3. Infrastructure investment in developing countries

      Page 90

      • + 3.1. Responsible business conduct: the challenges

        Page 91

        • Box 3.2. The Lesotho Highlands Water Project (LHWP)

          Page 92

      • 3.2. Societal benefits from international investor’s presence

        Page 94

    • Notes

      Page 95

  • + Chapter 4. Outward Direct Investment: What Benefits to the Home Countries?

    Page 97

    • + Introduction

      Page 98

      • Table 4.1. Outward FDI positions of selected OECD countries vis-à-vis non-OECD countries, 2003

        Page 99

    • + 1. The main issues

      Page 99

      • Box 4.1. Past observations on delocalisation

        Page 100

    • + 2. Trade and employment

      Page 101

      • Box 4.2. “Stylised facts” based on the experience with US-based multinational enterprises

        Page 102

      • 2.1. Foreign trade

        Page 101

      • 2.2. Employment

        Page 104

    • + 3. Technology and productivity

      Page 107

      • 3.1. Home country productivity

        Page 108

      • + 3.2. Technology

        Page 110

        • Figure 4.1. R&D in foreign-owned enterprises, 2003 (as share of total industrial R&D)

          Page 111

        • Box 4.3. The worldwide R&D operations of US MNEs

          Page 114

    • 4. Concluding remarks and policy considerations

      Page 116

    • Notes

      Page 117

    • References

      Page 118

  • + Chapter 5. Building Investment Policy Capacity: The OECD Peer Review Process

    Page 121

    • Executive summary

      Page 122

    • + 1. Building capacity and the role of “Communities of Policy Practices”

      Page 124

      • + 1.1. Adult learning theory

        Page 124

        • Box 5.1. Peer learning and compliance with international agreements

          Page 125

      • 1.2. Peer review as a form of adult learning

        Page 127

    • + 2. OECD Investment Policy Reviews: a tool to help attract and maximise the benefits of investment

      Page 128

      • 2.1. The context of OECD’s Investment Policy Reviews

        Page 128

      • 2.2. Contents of an Investment Policy Review

        Page 130

      • 2.3. Practical modalities: investigation and review

        Page 133

    • 3. Concluding remarks

      Page 136

    • Notes

      Page 138

• + Part II. Special Focus on International Investment Agreements

  Page 141

  • + Chapter 6. Novel Features in Recent OECD Bilateral Investment Treaties

    Page 143

    • + Introduction

      Page 144

      • Table 6.1. BIT models in OECD countries and non-member adherents to the Declaration

        Page 146

      • Table 6.2. Substantive provisions in recent BITs

        Page 147

    • + 1. Objectives, purposes and scope

      Page 145

      • 1.1. Preamble

        Page 145

      • 1.2. Scope and coverage

        Page 145

    • + 2. Treatment of investor and investment

      Page 151

      • 2.1. Most-Favoured Nation and National Treatment

        Page 151

      • 2.2. Transparency

        Page 153

      • 2.3. Performance requirements

        Page 154

      • 2.4. Key personnel

        Page 155

      • 2.5. Environment and labour

        Page 157

    • + 3. Investment protection

      Page 157

      • 3.1. Fair and equitable treatment and full protection and security

        Page 158

      • 3.2. Expropriation and compensation

        Page 160

      • 3.3. Transfers

        Page 163

      • 3.4. “Umbrella” clauses

        Page 164

    • + 4. Exceptions

      Page 165

      • 4.1. Exceptions to National Treatment/MFN Treatment

        Page 166

      • 4.2. General exceptions

        Page 167

      • 4.3. Country exceptions

        Page 168

    • + 5. Dispute settlement

      Page 170

      • 5.1. State-State disputes

        Page 170

      • + 5.2. Investor-State disputes

        Page 170

        • Table 6.3. Dispute settlement in recent BITs

          Page 172

    • 6. Main findings

      Page 175

    • Notes

      Page 178

  • + Chapter 7. Improving the System of Investor-state Dispute Settlement: An Overview

    Page 183

    • Introduction

      Page 184

    • + 1. Dealing with issues of quality of awards

      Page 185

      • 1.1. Review of awards: the current system and a proposal

        Page 185

      • 1.2. The discussion on an appeals mechanism

        Page 189

      • 1.3. Scrutiny of awards

        Page 195

    • + 2. Multiple and parallel proceedings

      Page 198

      • 2.1. Multiple proceedings

        Page 198

      • 2.2. Forum shopping and parallel proceedings

        Page 200

      • 2.3. Consolidation of claims

        Page 201

    • + 3. Other challenges of jurisdictional nature: treaty/contract claims

      Page 202

      • + 3.1. Treaty jurisdiction despite the existence of a jurisdiction clause in a contractual agreement

        Page 203

        • Box 7.1. Fork in the road

          Page 205

      • 3.2. The umbrella clause

        Page 207

    • Notes

      Page 213

  • + Chapter 8. Consolidation of Claims: A Promising Avenue for Investment Arbitration?

    Page 225

    • Introduction

      Page 226

    • + 1. Consolidation of claims in commercial arbitration

      Page 226

      • 1.1. Under what circumstances is consolidation of claims an appropriate measure?

        Page 227

      • 1.2. Legal basis for consolidation

        Page 228

    • + 2. Consolidation of claims in investment arbitration

      Page 230

      • 2.1. State practice and international rules

        Page 230

      • 2.2. Jurisprudence

        Page 231

    • + 3. Rationale for the Consolidation of Claims

      Page 233

      • 3.1. Arguments in favour of consolidation

        Page 234

      • 3.2. Arguments against consolidation of claims

        Page 235

    • 4. Summing up

      Page 238

    • Notes

      Page 239

    • Annex 8.A1. Jurisprudence in Commercial Arbitration

      Page 245

    • Annex 8.A2. Institutional Rules

      Page 250

    • Annex 8.A3. National Arbitration Laws

      Page 252

    • Annex 8.A4. Investor-state Arbitration

      Page 257

This annual report reviews recent developments in international direct investment, includes recent statistics and highlights policy responses that will help countries reap the full benefits of investment.This edition's special focus is on legal and policy issues arising from international investment agreements. The articles in this section investigate novel features of recent bilateral investment treaties; options for improving the system of investor-state dispute settlement; and the consolidation of claims as an avenue for improving investment arbitration. Other articles in this volume cover how new technologies are a force advancing the closer integration of national economies; the challenges and opportunities for policy makers that arise from international investor participation in infrastructure; recent evidence of source (or "home") country benefits of outward direct investment; andthe role of the OECD peer review process in building investment policy capacity.