Labor Law Factors in Foreign Direct Investment: A Preliminary Comparison between Brazil and China

对外直接投资中的劳动法因素：巴西与中国的初步比较

姜朋**    -   丽吉娅·毛拉·科斯塔***    -   陈涛涛**** 

摘要：在对外直接投资中，母国与东道国法律环境的差异会对实施对外投资的企业造成很大困扰。巴西与中国的劳动法就明显存在差异。这在对投资巴西的中国企业构成了严峻的挑战。本文对巴西与中国劳动法的立法体例、劳动法适用的对象以及与企业关系密切的若干具体制度加以比较，以期为投资巴西的中国企业提供有益的启示和借鉴。

关键词：劳动法；劳工保护；直接投资；巴西；中国

Labor Law Factors in Foreign Direct Investment: A Preliminary Comparison between Brazil and China

By   Peng JIANG,    Ligia Maura COSTA   Taotao CHEN

Abstract: In foreign direct investment, the huge gap of legal environment between the home country and the host country usually confuses the investing companies. Taking Brazil as an example, its complex labor legislation is quite different from China. Therefore, the companies based in China have to face great challenges when making direct investment in Brazil. This paper focuses on the comparison of these two countries’ legislation systems on labor, the applicable employees and their statutory labor rights, as well as the relative issues that are important to the enterprises, in order to provide the beneficial introduction and reference to Chinese enterprises and smooth their investments.

Key words: labor law; labor protection; direct investment; Brazil; China

Available at Journal of International Economic Cooperation

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** 清华大学经济管理学院副教授。

*** 巴西Fundacao Getulio Vargas大学商学院教授。

**** 清华大学经济管理学院教授。

China's Foreing Invesment in Real Estate
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INDIA: WHAT INVESTORS NEED TO KNOW ABOUT FOREIGN DIRECT INVESTMENT?

Since 1990s, India initiated economic and financial reforms aimed to integrate the economy at the global level. Foreign Direct Investment (FDI) is as an important driver of economic growth and development for the country. Therefore, the Government has been making serious efforts to attract and facilitate FDI. As a result, India has changed from a very restrictive regime for FDI to a more liberal one.

Foreign investment in India is regulated by the Foreign Exchange Management Act, 1999 (FEMA) and its amendments/changes, order/allied rules, Press Notes, etc. The Department of Industrial Policy & Promotion (DIPP) makes policy pronouncements on FDI throughout Press Notes / Press Releases which are notified by the Reserve Bank of India (RBI). All Press Notes/ Press Releases are available at the website of DIPP. The Foreign Investment Promotion Board (FIPB) is also responsible for regulating foreign investment in accordance with the industrial policy.

Indian legislation establishes two kinds of foreign investment: (i) Foreign Direct Investment (FDI) and (ii) Foreign Portfolio Investment (FPI). A foreign investor may invest in India as a FII (Foreign Institutional Investor) or as a Foreign Venture Capital Investor (FVCI). Last but not least, Indian legal framework provides two different routes for FDI, as follows: AutomaticRoute and Government Route. Under the Automatic Route no prior approval is required. On the contrary, prior approval is needed from FIPB for the Government Route. Sectors where approval from the FIPB is required include defense related matters, air transport services, ground handling services, asset reconstruction companies, banking, broadcasting, commodity exchanges, credit information companies, insurance, print media, telecommunications and satellites. Besides that, FIPB’s approval is necessary for all kind of FDI in these sectors where: an Indian company is being established with foreign investment and is owned by a nonresident entity; or, an Indian company is being established with foreign investment and is controlled by a nonresident entity; or, the control of an existing Indian company will be/is being transferred/passed on to a non-resident entity; or, the ownership of an existing Indian company will be/is being transferred/passed on to a non-resident.

India prohibits FDI in the following activities: Retail Trading (except single brand product retailing); Lottery Business including Government /private lottery, online lotteries, etc.; Gambling and Betting including casinos etc.; Business of chit fund; Nidhi company; Trading in Transferable Development Rights (TDRs); Real Estate Business or Construction of Farm Houses; Manufacturing of Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes; Activities / sectors not opened to private sector investment including Atomic Energy and Railway Transport (other than Mass Rapid Transport Systems)

FDI in a wide range of sectors does not require any prior approval (Automatic Route), provided the level of foreign investment does not exceed specified percentages. If FDI proposed investment exceeds the maximum limit amount under the Automatic Route, the approval of the FIPB is required. For instance, approval of the FIPB is required for investments over 49 per cent in telecommunications or investments over 26 per cent in insurance sector or foreign investment in information technology and manufacturing over 100 per cent.

Figure 1: Some sectors and percentage Cap

Sectors	Cap
Airports •          Existing	74%
Alcohol distillation and brewing	100%
Banking (Private Sector)	74%
Coal and Lignite mining (specified)	100%
Coffee, Rubber processing and warehousing	100%
Floriculture, Horticulture and Animal Husbandry	100%
Specified Hazardous chemicals	100%
Industrial Explosives Manufacturing	100%
Insurance	26%
Mining (Precious metals, Diamonds and stones)	100%
Non banking finance companies ( conditional)	100%
Petroleum and Natural gas •          Refining (private companies)	100%

Foreign capital is freely repatriated, except for FDI under non-repatriate schemes or FDI subject to certain policies related to the sector or activity. Remittance of profits abroad is possible, after accomplishment of certain formalities. It is important to note that profits retained for more than one year are considered re-invested and their remittance further requires special approval.

The legal framework for FDI in India is under development. As FDI is an important driver of economic growth, the Indian Government has been making important regulatory changes to attract FDI. The Indian process of economic liberalization, including privatization of state-owned companies and dismantling the licence raj policy among others, has allowed India to progressively change from a very restrictive regime for FDI – licence raj – to a more liberal one. Nevertheless, some FDI issues still remain to be addressed by the country in order to achieve more sustainable economic growth based on foreign investments.

Ligia Maura Costa. Partner at Ligia Maura Costa, Advocacia, full professor at FGV-EAESP. Author of the book: BRIC. Doing Business in BRIC Countries. Legal Aspects. (2012). v. 1, São Paulo: Quartier Latin.

RUSSIA: CHALLENGES AND ADVANTAGES FOR FOREIGN DIRECT INVESTMENT

 Foreign Direct Investment (FDI) in the Russian Federation has increased over the last years thanks to its tremendous natural resources, growing domestic market and skilled work force. Besides that, Russia’s new status as WTO member also helped to attract more foreign investments. Global demand restrains, commodities prices decrease, inflation, lack of major infrastructure investments are the key factors that may affect FDI in Russia in the coming years. Another important challenge is the Russian legal framework for FDI, as it is still being developed. Russian legislation on FDI is based on several federal and local laws and regulations. Despite the constant evolution of FDI laws in Russia, some basic concepts shall not be changed in the near future.

For instance, there is no discrimination between foreign investors and local investors in Russia. Expropriation of foreign investment is prohibited by Russian legislation, except in cases of public interest. And, there are no specific legal restrictions on the repatriation of capital by foreign investors or remittance of profits abroad.

Restrictions and limitations to FDI in Russia are established by federal laws, in particular for strategic entities (42 sectors are considered of strategic importance). There are other restrictions to FDI based on the protection of the Russian constitutional system, the morality, the health and rights of individuals or to guarantee state security and defense.

Russian legislation makes a clear distinction between public and private foreign investor. For example, prior authorization is required – or in certain cases post-transaction approval – for foreign private investors carrying out transactions in a strategic entity.  Regardless if it is a strategic or non-strategic entity, prior government approval is required for public foreign investor carrying out transactions to acquire over 25 per cent of a Russian legal entity or to block decisions of the governing bodies of a Russian company. In addition, any foreign investment - public or private - of over 50 million rubles and ∕ or the acquisition of 50 per cent of a Russian entity require previous government approval. Foreign investments in the financial sector and in non-commercial organizations such as charities, scientific and religious associations are subject to specific legislation.

In brief, any transaction executed in breach of federal or local laws of the Russian Federation is deemed null and void. If the status quo is not possible to be obtained, the foreign investor will lose all voting rights related to the transaction deemed null and void. It is clear that Russia and its current legal framework still presents challenges for foreign investors but the country also shows great opportunities to invest.

 

Ligia Maura Costa. Partner at Ligia Maura Costa, Advocacia, full professor at FGV-EAESP. Author of the book: BRIC. Doing Business in BRIC Countries. Legal Aspects. (2012). v. 1, São Paulo: Quartier Latin.

 

 

FOREIGN DIRECT INVESTMENT IN CHINA: THE DO'S AND DON'TS

Over the past three decades, the economic reforms in China have led to an unprecedented change in the nature of the business environment in the country. Foreign Direct Investment (FDI) has been highly encouraged by the Chinese authorities over the recent past years, and measures have been taken to make the investment climate more favourable and less bureaucratic.

FDI: Do’s in China

China welcomes FDI that represents a commitment to economic development and technical exchange. FDIs are welcome by the Chinese Constitution, as well as by the main laws and regulations for foreign investments in China, such as:
- the General Principles of Civil Law of the People’s Republic of China (Chinese Civil Code);
- the Administrative Litigation Law of 1989;
- the Company Law of the People’s Republic of China of 2005;
- the Law of the People’s Republic of China on Foreign-Capital Enterprises of 2002;
- the Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures of 2001;
- the Law of the People’s Republic of China on Chinese-Foreign Contractual Joint Ventures of 2000;
- the Law of the People’s Republic of China on Foreign-Funded Enterprises of 2000;
- the Anti-monopoly Law of the People’s Republic of China of 2008;
- the Industrial Catalogue for Foreign Investment and the Interim Provisions Concerning the Investment within China of Foreign-invested Entreprises.

The Industrial Catalogue for Foreign Investment and the Interim Provisions Concerning the Investment within China of Foreign-invested Enterprises list the major policy objectives of the People’s Republic of China Government regarding FDI, as follows:
· To encourage foreign investment while improving the overall quality and industrial composition of investment projects, particularly in high-technology sectors;
· To encourage investment in environmentally friendly and energy-saving technologies;
· To restrain and eliminate policies that exclusively serve to promote exports, and to address China’s trade surplus;
· To encourage balanced development between the coast and the less-developed western, central, and northeastern regions; and
· To protect “national economic security” and solely carefully open sensitive and strategic industries to FDI.

FDI: Don’ts in China

As per the Chinese legal framework FDI is forbidden in sectors considered crucial to national security; that endanger the state national security; that damage the public interest; that cause environment pollution and damage to natural resources and public health; that use large farmland and are hostile to the protection and development of land resources; and that endanger the security and normal function of military facilities. In brief, the prohibited sectors are: news agencies, broadcasting and programming, press and audiovisual products, arms production and manufacturing, and the mining and processing of certain minerals.

Furthermore, the new Industrial Catalogue for Foreign Investment and the Interim Provisions Concerning the Investment within China of Foreign-invested Enterprises lists “critical economic sectors” in which China should maintain strong state control and restricts foreign participation, such as automotive, chemical, construction, electronic information, equipment manufacturing, iron and steel, nonferrous metal, science and technology, survey and design sectors (Invest in China, SASAC’s website). Moreover, the Ministry of Commerce has the power to review foreign acquisitions that may have impact on “national economic security”. Last but not least, as per Article 31 of the Anti-monopoly Law of the People’s Republic of China, the Chinese Government has the discretion to exam foreign investment concentration transactions that may affect the national economy and national security.

Cross-borders flows of FDI have been a feature of the globalization era. FDI may play a leading role to trade and industry diversification, generating employment and strengthening the economic local system and China has made substantial strides in opening up their economies to FDI.

Ligia Maura Costa. Partner at Ligia Maura Costa, Advocacia, full professor at FGV-EAESP. Author of the book: BRIC. Doing Business in BRIC Countries. Legal Aspects. (2012). v. 1, São Paulo: Quartier Latin.

FOREIGN DIRECT INVESTMENT IN BRIC COUNTRIES: HISTORICAL OVERVIEW

Foreign Direct Investment (FDI) is an important source for the development of strategic sectors of the BRIC countries. In Brazil, since the late 19th century, FDI became more and more important. After the II World War, FDI played a key role during the Brazilian industrialization process. Much of the Brazilian history shows that the country has relied upon foreign capital to finance its development and economic growth. In recent years, foreign investments inflows are attracted by the large Brazilian market and the rapid economic growth of the country, besides the fact that Brazil will host the 2014 World Cup and 2016 Olympics.

In Russia until the 1990s, the amount of FDI flowing into Russia remained relatively flat. At the opening of this new millennium, Russia emerges as a country of opportunities for FDI. In fact, FDI inflows has increased over the last years in Russia thanks to its tremendous natural resources and growing domestic market. Russia’s new status as WTO member will also complement its internal economic reforms and improve foreign investment climate towards transparency and predictability in business transactions in the country.

During the course of the 1990s, the Government of India initiated economic and financial reforms aimed to progressively integrate Indian economy with the global economy. FDI is recognized by the Indian Government as an important driver of economic growth and development. As a result of the various policy initiatives taken, India has rapidly changed from a restrictive regime for foreign investments to a more liberal one.

Last but not at all at least, China has shifted from a closed, state-planned economy to an increasingly open and internationally integrated marketplace, over the past three decades. During the 1980s, FDI inflows grew steadily but remained relatively low mainly confined to joint ventures with Chinese state-owned enterprises. In the mid-1990, FDI became quite important for the Chinese economy and new rules and regulations have been issued accordingly. When China became member of the WTO in 2001, many new laws and regulations have been issued after. FDIs in China have benefited from this liberalization trend, specially the distribution, logistics, financial services and telecommunications sectors. Given China’s projection on the global arena, this movement is only expected to increase in the near future, as China continues to establish its position as one of the world’s foremost economic growing power Nation.

FDI in BRIC countries still remains bureaucratic and complex; however every BRIC country shows the same serious intent to make the investment climate more and more favourable in the near future.

Ligia Maura Costa. Partner at Ligia Maura Costa, Advogada, full professor at FGV-EAESP. Author of the book: BRIC. Doing Business in BRIC Countries. Legal Aspects. (2012). v. 1, São Paulo: Quartier Latin.