An investment agreement spells out specific rights and responsibilities of both the foreign firm and the government. The presence of MNEs is as often sought by development-seeking host governments as a particular foreign location sought by MNE. All parties have alternatives and so bargaining is appropriate.
An investment agreement should spell out policies on financial and managerial issues, including the following:
- The basis on which fund flows, such as dividends, management fees, royalties, patent fees, and loan repayments, may be remitted.
- The basis for setting transfer prices.
- The right to export to third-country markets.
- Obligations to build, or fund, social and economic overhead projects, such as schools, hospitals, and retirement systems.
- Methods of taxation, including the rate, the type of taxation, and means by which the rate base is determined.
- Access to host-country capital markets, particularly for long-term borrowing.
- Permission for 100% foreign ownership versus required local ownership (joint venture) participation.
- Price controls, if any, applicable to sales in the host-country markets.
- Requirements for local sourcing versus import of raw materials and components.
- Permission to use expatriate managerial and technical personnel, and to bring them and their personal possessions into the country free exorbitant charges or import duties.
- Provision for arbitration of disputes.
- Provisions for planned divestment, should such be required, indicating how the going concern will be valued and to whom it will be sold.