BizCLIR

Trade and investment are being considered separately from commercial law under another USAID program and an assessment of the trade and investment regime was prepared by another contractor under separate funding. Even so, we inevitably encountered issues related to commercial law and thus are providing brief comments on certain issues. Two issues in particular arose during the course of our assessment. The first relates to the need for a specific Foreign Investment Code or other law. Many development and investment specialists now advise that such laws are not necessary - most countries that enjoy substantial foreign investment have no specific code for foreign investors, but have an environment favoring investment for all investors. The Yugoslav Government has considered this position, however, and has chosen to create a special law for the express purpose of identifying the numerous laws affecting foreign investors as an indication of the Government's commitment to foreign investment, which can eventually be repealed or dissolved when no longer needed. Hence it is a message of welcome more than a necessary law.

The challenge in such laws, however, is in maintaining a level playing field for all investors. FDI laws have been used to attract outsiders at the expense of local investors who do not enjoy the same benefits, thus skewing investment patterns unnecessarily. This challenge can be met in part through awareness by the donor community of the problem followed by advice to local counterparts to ensure the commercial environment is being developed for all investors, not just for those with hard currency or new money.

Second, the FDI law has marginal importance compared to the tax and fiscal regime affecting investment. Investors are concerned with their ability to gain a reasonable return on investment over the long-term, and this directly affected by the taxes they are required to pay. Currently, the fiscal structure has a number of seemingly low taxes that in the aggregate are actually quite burdensome. Resources spent on FDI legislation will be wasted if these more fundamental issues are not addressed first.