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.

 

 

WHAT FOREIGN INVESTORS NEED TO KNOW ABOUT FOREIGN DIRECT INVESTMENT IN BRAZIL?

 

In recent years, many foreign investors are attracted by the large Brazilian market and the economic growth of the country. Besides that, the fact that Brazil will host the 2014 World Cup and 2016 Olympics has also been an important decision making vector for investors. However, before investing in Brazil, it is important to get acquainted with some legal aspects related to foreign direct investments (FDI) in the country. It is true that all forms of FDI are welcome by the Brazilian Constitution, but especially FDI that represents a commitment to economic development. A number of limitations and restrictions to foreign capital for some specific sectors do apply as per the Brazilian Constitution, such as defense and air transport related matters, among others. Expropriation of domestic or foreign investment is prohibited by the Brazilian Constitution, except in exceptional cases such as public interest. Since 1995, Brazilian Constitution places no difference between domestic and foreign capital.

The main legal statute governing foreign investments in Brazil was enacted in 1962, more than forty years ago (Law n. 4,131, as amended by Law n. 4,390 of 1964, both regulated by Decree n. 55,762 of 1965). It is a positive point for investors the fact that the most important law on FDI in the country has been in force for so long time and has not suffered substantial changes during these last years.

Exchange control and foreign investment policies in Brazil are established by the National Monetary Council (Conselho Monetário Nacional), under the supervision of the Ministry of Finance. And, the supervision of the day-by-day control over foreign capital inflows and outflows is performed by the Brazilian Central Bank (Banco Central do Brasil – BACEN).

No prior government authorization neither minimum investment approval nor local participation condition is required for FDI – apart for few exceptions such as financial institutions, insurance companies, and similar entities under the regulatory authority of BACEN. No government approval or consent is required for remittance of profits abroad, as long as the company does not have a negative net equity. No minimum period is imposed by Brazilian law to repatriation of foreign capital. As per Brazilian legislation, BACEN may limit or prohibit remittances of profits and capital repatriation in case of serious balance of payment difficulties. This exception, however, has never been applied by the country not even during the 1980s Brazilian moratorium.

The most common form of FDI in Brazil is in cash capital. Certain restrictions and a rigorous control apply to FDI in assets such as goods, machinery and equipment. FDI has to be registered with BACEN online electronic system called RDE-IED (Registro Declaratório Eletrônico de Investimentos Externos Diretos – Electronic Registration System for Cross-Border Financial Transactions) within 30 days of the date that the cash capital enters Brazil or within 90 days of customs clearance for assets capital contributions. Foreign capital registration is done in the same currency that has entered the country or in the currency of the residence of the investor for foreign capital in the form of assets.

The legal framework for FDI in Brazil is by far quite stable until now, especially if compared with the other three BRIC countries (Russia, India and China). It is a proof of legal certainty and assurance for investors. Besides, the electronic registration system of FDI, mainly cash capital, is easy, fast and efficient. Thus, the bureaucratic problems that investors and locals usually face when doing business in Brazil do no actually apply regarding FDI registration procedures. This is also a very positive point for investors. FDI in Brazil may play a leading role to improve industry diversification, generating employment and strengthening the economic local system in order to assist the country to be ready for the two major world events: the 2014’s World Cup and the 2016’s Olympic Games.

 

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.

 

 

NEGOCIAÇÕES DE PAZ COLÔMBIA E FARC

Jornal da Record News

Negociações de Paz Colômbia e FARC

Professora da FGV discute as negociações de paz entre a Colômbia e as FARC.

O eventual acordo entre Colômbia e as FARC levará a criação de outro Estado? Essas e outras implicações da negociação são debatidas por Ligia Maura Costa, professora de direito internacional da FGV-EAESP.

Link para a entrevista : http://noticias.r7.com/record-news/video/professora-da-fgv-discute-negociacoes-do-estado-colombiano-com-as-farc-503d72b5b61c64f8efef6376/

 Publicado em 28/08 às 23h53

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.

Some Questions Before Entering Into BRIC Countries

Brazil, Russia, India and China, the BRIC countries, which the Chinese also calls jinzhuan siguo – four golden brick nations (金砖四国) –, are challenging the received notion of globalization (The trillion dollar club, 2010). BRIC countries are moving fast and growing fast too. And, yes, there are great opportunities in these fastest and large growing markets. BRIC countries occupy a key position on the global economy; therefore companies that are not in some way present in BRIC markets are not considered as globalized firms. Before entering into BRIC countries, companies have to consider some very important issues, in order to avoid a future failure that may be quite costly. Some questions have to be answered before moving to BRICs...

 

Some Questions before Entering into BRIC Countries....

-              Do you have enough money to make your venture into BRICs a success? -              Do you know which of the BRIC countries you will enter first? Why? -              Do you know how the competition in the target BRIC market is? -              How will your product or service add value for the customer in the target BRIC market? -              How will you distribute and promote the product or service in the new market? -              Do you understand the legal aspects of the target BRIC market? -              Do you have personnel to handle and support a venture into BRIC? -              If not, how long will take to train the existing or new personnel?

Good Luck on BRIC Countries!

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.

Why Look at BRIC Countries

The new millennium has marked the beginning of a new era. The Giant is awaking (Brazil), the Bear is coming back (Russia), the Tiger is rising (India) and the Dragon is roaring (China). Here come the BRIC countries. For many years now, the world has been watching with excitement to BRIC’s rapid economic growth. BRIC countries have an insatiable desire for investments, for goods and for services. In fact, the world’s demand for energy and commodities, the singularity of the outsourcing service and the globalization that has allowed capital to become increasingly mobile, bringing countries’ economies closer, helped to speedy BRIC’s growth. BRIC’s economic miracle can take the rest of the world’s breast away, or almost. The rise of BRIC has created a different world order, much more complex and dynamic. BRICs together represent almost more than half of the world today’s population. These leading emerging countries and rapidly growing economies represent a total market of over 2.7 billion people. Besides, BRIC’s major cities are full of life and joy! No doubt that this number of people represents an enormous market and purchasing power. Shiny new office buildings, consumer expensive brand products from all over the world, superb residential towers… Actually, the wealthy of the world’s economy over the next decades depends on what will happen in these countries in the near future, which in turn will foster global political and socio-economic changes. BRIC countries are a new landscape of opportunities. The assumption seems unavoidable: any person simply must at least try to understand how to get into BRIC countries. And, yes, there are great opportunities in these fastest and large growing markets. BRIC countries markets are the markets that have the highest potential to grow nowadays, providing sufficient room for both domestic and foreign companies to spread further. That’s the reason why it is so important to look at BRIC countries.

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.

DIREITO INTERNACIONAL DO DESENVOLVIMENTO SUSTENTÁVEL: APENAS UMA NOBRE EXIGÊNCIA?

Direito Internacional do Desenvolvimento Sustentável: Apenas Uma Nobre Exigência?

“... a mais importante de todas as leis é aquela que se grava não sobre o mármore nem sobre o bronze, mas nos corações dos cidadãos”

ROUSSEAU, Du Contrat Social

A noção de desenvolvimento sustentável surge por volta dos anos oitenta. O Nosso Futuro Comum contém em germe uma visão progressista de desenvolvimento: justiça social, distribuição de renda, capacidade tecnológica, pleno emprego, ambiente de trabalho seguro e saudável, cuidado com o meio ambiente e, o bem estar sócio-econômico como um bem maior. A partir daí, a idéia do direito em favor do desenvolvimento sustentável assume posição central. Entretanto, só a expansão deste direito ao desenvolvimento sustentável de alguns Estados para todos os Estados pode levar ao fim desejado: O Futuro que Nós Queremos.

Alterar o papel da história é dever do homem. E, a busca de um modelo de sustentabilidade, que evite um colapso e satisfaça às necessidades básicas de todos os povos, é uma busca para melhor, numa visão kantiana. Hoje, o direito internacional enfoca realidades jurídicas novas, construídas sob as relações jurídicas transnacionais do mundo moderno. O direito internacional do desenvolvimento sustentável surge, assim, como um ramo do direito internacional em evolução. Seu alicerce está na Carta das Nações Unidas. Seu desafio é conter a crescente desigualdade entre os países, visando à construção de um mundo sustentável. É difícil enquadrá-lo num quadro jurídico estático e pré-estabelecido. Pois, este direito emergente está baseado em instrumentos jurídicos obrigatórios ou soft law, mas também em guias e padrões nacionais e internacionais, de aceitação voluntária pela sociedade civil.

No mundo de hoje, o direito internacional do desenvolvimento sustentável não pode ser apenas a expressão de uma nobre exigência. Ele deve ser o ponto de partida para a instituição de um autêntico sistema de direitos, no sentido estrito da palavra, isto é, enquanto direitos positivos ou efetivos e, obrigatório a todos. Isto porque este sistema global tem vários atores, sejam protagonistas ou coadjuvantes; sua articulação se dá tanto a nível doméstico quanto internacional; ele engloba o público sem esquecer-se do privado; e, ele é, concomitantemente, voluntário e obrigatório. Sem pretender ser a resposta única, o direito internacional do desenvolvimento sustentável deve passar a integrar um sistema regulatório a nível mundial, mas juridicamente exeqüível a nível nacional, para que seja alcançado O Futuro que Nós Queremos.

Ligia Maura Costa: é advogada, professora titular da FGV-EAESP.

Direito Internacional do Desenvolvimento Sustentável e os Código de Conduta de Responsabilidade Social

Direito Internacional do Desenvolvimento Sustentável e os Códigos de Conduta de Responsabilidade Social

"A autora traz, nesse livro, os alicerces para afirmar a emergência de um novo ramo do direito que visa o crescimento durável para as gerações presentes e futuras, o direito internacional do desenvolvimento sustentável. Pode-se ver , atualmente, que as regras jurídicas e os padrões econômicos estão se adaptando para alcançar a justiça social, a proteção ambiental, enfim, a melhoria da qualidade de vida da humanidade. De fato, é cada vez maior o número de tratados e convenções internacionais, relacionados aos aspectos econômicos, sociais, humanos e ambientais celebrados pela comunidade internacional. Para comprovar a emergência do direito internacional do desenvolvimento sustentável, Ligia Maura Costa faz uso dos códigos de CRS das empresas de gás e petróleo, como instrumento propagador de institucionalização global.Nos dias de hoje, o crescimento econômico mundial depende, em grande parte, de nosso êxito em estabelecer padrões mínimos de conduta visando atingir o desenvolvimento sustentável. Como a capacidade competitiva internacional demonstra-se não apenas com a produção, mas também com a capacidade de produzir de modo sustentável, a importância desse livro para a formação de jovens empresários e juristas também é fácil de ser demonstrada. Por essas razões, concluo que esse livro que apresento é indispensável para os interessados em estabelecer condições sustentáveis de desenvolvimento futuro".

Carlos Ivan Simonsen Leal

BRIC. Doing Business in BRIC Countries. Legal Aspects. From BRIC by BRIC to Setting Up a Company.

Fieri Comunicação: Di Cara com Caran - Dra Ligia Maura Costa

Fieri Comunicação: Di Cara com Caran - Dra Ligia Maura Costa: A colunista social rio-pretense Cida Caran teve a honra de entrevistar a jovem e simpática Ligia Maura Costa, uma rio-pretense de coração ...