The impact of the international legal environment on foreign direct investment
This assessment will address the following Learning outcomes:
CLO 4- Analyze the impact of WTO agreements on businesses
CLO 5- Evaluate the impact of the international legal environment on foreign direct investment
This Learning-By-Doing activity, in cooperation with Fujairah Export Development
Center (FEDC) of Fujairah Chamber of Commerce & Industry, require you to analyze a
country, as target destination for export and investment. The countries will be
specified by FEDC as ones in which Fujairah-based businesses are interested in as
potential export/investment destination. You need to prepare two documents:
an information sheet about the legal environment from exporting and
investment aspects, as a result of your analysis; and
a brief report summarizing your evaluation of how the country’s legal
environment supports exporters and encourages foreign investment.
Your tasks are the following:
Gather information from relevant and reliable academic and professional sources on
the Internet about the following:
The business environment in the target country – main political, legal, socio-
cultural issues and the main demands for products potentially imported from
Fujairah;
The importing framework – trade agreements with UAE, main features of ports
and airports, relevant authorities, documentation and tariffs/duties/taxes to be
paid by Fujairah exporters;
Treating foreign investment – information about laws and government
activities in relationship with potential active (ie. commercial) and passive (ie.
portfolio) investment by Fujairah-based investors.
Prepare your project:
Prepare the information sheet with the three headings above. Be concise and
focus on the facts (you can present your findings in bullet points); give your
sources by referencing them properly.
Prepare a brief report together, summarizing your evaluation of how the
country’s legal environment supports exporters and encourages foreign
investment. Use at least 3 relevant academic sources (min. two of them should
be from an academic journal) and at least 3 relevant professional sources.
PROJECT LENGTH – information sheet: max. 1,500 words; report: min. 500 words
Solution
Introduction
The project analyzes India as a potential investment/export based for the Fujairah Export
Development. The project discusses the legal environment of the country and the socio-political
issues that my affect foreign direct investments. The project further discusses the framework to
be in the export and investment process. The relevant documentation, taxes and areas that can be
used for export to India. The World Trade Organization agreements were formed after the 1986-
1984 Uruguay Round negotiations; they include agreements between countries on major aspects
of business such as regulations concerning trade. WTO agreements have direct and indirect
impacts on businesses. These factors will be discussed alongside the goals of the WTO that
create an open free market between countries for trade in imports and exports. The project
assesses how these agreements are relevant in the FDI, in relation to other laws in India.
The Business Environment in India
Political, Legal, and Socio-Cultural Issues
The Political System
India has had problems with political stability in past years, however these problems are
being alleviated with present government. There have been complaints on the performance of the
government in decision making in business related matters. The future governments have a task
upon them to strengthen the economic relations of the country. The government is also in support
of policies that allow FDI and presence of Multinational corporations in the country. The country
is surrounded by countries like Pakistan that have experienced political incivility for several
years. This is a cause for concern for most of the country’s export and importation investments.
LEGAL ENVIRONMENT IN BUSINESS 3
However, India has good laws and human force to protect its borders and foreign businesses
operating within.
The Legal System
The legal framework of the country is all-inclusive. It outlines policies that are to guide
creation of FDIs and their operation. It clearly explains their powers and the taxation system they
are to adhere. The tenets of justice are well implemented without discrimination on any person or
business. However, the country still faces many challenges in the fight against corruption and
maintaining the independence of the judiciary.
The Socio-Cultural System
The socio-cultural environment of India is deeply rooted in its people culture.
They have strict adherence to religious values that uphold the sense of family and community.
While venturing in such an environment, a business should incorporate these factors to ensure its
employees have a sense of belonging. Cultural festivals are recognized in the work place due to
the strong faith of the people. Ideas of Karma are common and respected by the people; this
affects the decision-making processes in the country. Time management and office
professionalism is greatly values, senior managers have a responsibility to take care of their
lower employee and create the sense of family in the business, (Bertsch, et al., 2011).
Main Demands for Products Exported From Fujairah
Fujairah is among the emirates of the UAE. It is among the best economically sound
business environments that have the most open market and free trade zones. The main products
exported from Fujairah are oil. The emirate does not have its own oil reserves and therefore gets
LEGAL ENVIRONMENT IN BUSINESS 4
crude oil from Habshan. It has established excellent facilities for processing crude oil. These
facilities will allow it to sell crude oil and produce refined oil and other products. The UAE is a
major producer of oil and gas in the world, the market for its products is readily available, and
the prices are affordable. The country ranks at the top of oil and gas exporters globally. Plans are
underway to enable the emirate to import gas from Iran. These will expand production base for
the market, (The Gulf Intelligence, 2015). The emirate also has over 100 quarries that have high
quality rock used for construction and minerals such as limestone and dolomite.
The Importing Framework
Trade Agreements between India and UAE
Trade relations between India and the UAE have existed for decades. UAE is a major
exporter and importer to India. The UAE has established FDAs in India for the past decade; their
number is yet to increase. Statistically, the UAE accounts for 295 of India’s import market.
Among the commodities imported from the UAE are; textile, oil-related products and minerals.
The bilateral relationship continue as the countries increase deals to further relations, the UAE is
set to increase the number of FDAs located in the country. These are among the Fujairah
companies. The market for products from the UAE is ever growing in India, free trading
agreement increase the accessibility of this market. The UAE is a major player in the field of oil
and gas export, however, the country has grown and expanded it potential. The country has
endeavored to increase the amount of non-oil products it supplies. The Fujairah based investment
will assist in exporting products that fall in this category. It is able to supply other goods
including gold and diamond. These commodities are highly marketable in India.
Transport Network between the Two Countries
LEGAL ENVIRONMENT IN BUSINESS 5
The geographical distance between the UAE and India can be easily covered by air
within a few hours. The emirate of Fujairah is located along the coast enabling sea connection
with India. Oil and other fluids can be transported by pipeline underwater or by tankers through
the sea. The local transport network in both countries is of good condition allowing road, air,
pipeline, and railway transportation of goods. The port of Fujairah is a free port that allows
investors to transport products to India weekly at affordable prices. The documents needed when
exporting goods are invoices fro products being exported, the certificate of origin and the bills of
landing. There are no taxes charged on items being exported. Businesses can acquire a trading
and general trading license to allow them to export of import good to countries outside the UAE.
Treating Foreign Investments
The laws governing bilateral trade are meant to ensure free trade in line with WTO
agreements. India adopts a method that is based on ensuring that control of FDIs in the hands of
the national government to a certain extent. The foreign government has control over the
products they export; however, India has laws regulating which products it allows in its borders.
The products being exported to India but the Fujairah Company are legalized for import in India.
India laws on establishment of FDIs clearly define companies they consider as being foreign
investments, the Fujairah-based investors fall in that category. These are laws are established to
promote international economic cooperation among countries and promote good ethical
investment practices among countries.
In the UAE, the policies allowing foreign investments are in favor of the local investors.
Considering the ties that have existed between the UAE and India, the Fujairah investors have
many policies in their favor. The Common Custom Law committee does regulation of exports
LEGAL ENVIRONMENT IN BUSINESS 6
from the emirates; these are the shared custom laws of the GCC. There are commodities that are
exempt from custom tax in the region; diamond, vegetable, chemicals etc. exportation of
endangered animals and plants or any other illegal items is against the law. The export policies
of UAE, allow for free trade among the nations of the gulf region. The laws enable exporters to
transport commodities to the gulf countries with no custom charges.
The keen support by the UAE of foreign direct investments is due to the level of control
that such companies have to offer. Their longer-term of existence is also a major contributor to
the great support. The Fujairah based investors can establish both portfolio companies and FDIs.
The latter offer greater flexibility and have less stringent control measures.
Conclusion
The findings of the project showed the capability of the success the Fujairah investments.
The laws in UAE are strongly support the establishment and expansion of foreign investments.
Foreign investments open new ventures for investments and creating new partners. They can also
contribute to significant economic growth of the home country and foreign country. Although
these factors are affected by other market factors in the business environment. There has been
long existing relationship between UAE and India. They show that the market for products from
the UAE is big and ever increasing. Policies formulated should seek to strengthen these instead
of hindering access to the market.
The UAE economy is among the fastest growing economies in the world. The
diversification of its field will allow it to explore new areas of growth. It currently aligns it laws
to favor local investors, this is beneficial to companies such as the Fujairah investments. They
are able to take full advantage of all the aspects of the market. FDI increase the growth of
LEGAL ENVIRONMENT IN BUSINESS 7
companies and is therefore preferred. The Fujairah foreign investment company has a great
chance of succeeding in it exportation with an approach of commercial investment. UAE laws
are more detailed on this area than on portfolio investment. However, both areas are viable in the
market and have a chance of succeeding when introduced to India, (Sornarajah, & Wang, 2010,
p. 182).
Report
UAE Laws In Support Of Exporters and Foreign Investments
UAE laws that concern imports and exports are the same laws applied in the Gulf region.
These laws are designed according to the WTO instructions and UN recommendations. They
support creation of a free market that is all-inclusive. They also aim at protecting the country’s
economy from exploitation and destruction of endangered animals, plants, and materials. FDA
laws liberalize the market for investor. The government also provides incentives for companies
seeking to invest in the UAE. Relations between the two countries have are close and this help
them make deals on which areas they can offer discounts, less tariffs and easier procedures in
forming foreign companies. The country offers low cost for start-ups helping them build
themselves up, this is particularly important for businesses that seek to develop a strong base to
help them export products to other countries, (Hufbauer, & Stephenson, 2014). An open market
and good transport network helps the investors save on initial cost of production and introducing
the product in the new market. The conducive and reliable infrastructure assists the company to
deliver products on time. The UAE political structure and its organization into Emirates help
each emirate to organize its laws and policies to give the best possible advantages to investment
companies located in it. The emirate laws on the development of new companies facilitate the
LEGAL ENVIRONMENT IN BUSINESS 8
growth of the investment and entrepreneurial culture in individuals and companies, (Banga,
2010).
The country has strict policies in alignment to the UN bans. These policies restrict export
or re-export of arms and biological and chemical items. There have been restrictions on items
from several countries. Products from Israel, those manufactured in Israel and products on transit
to Israel are forbidden from passing through the UAE. Such laws are influenced by political
diversity and hostility and may be catastrophic in future to the economy of the UAE. Other
countries where the ban is in effect include; Pakistan, where there UN has implemented a ban
due to terrorists’ activities. The UAE shows support for such authority and has implemented the
bans and cut all business relations with the country, (UK Trade investment, 2015).
Report Recommendations
Among the recommendations that could strengthen the country’s export area are to create
an open market that will allow transacting businesses between UAE and India with no tariffs.
The government should also provide strategies to offer incentives to start up companies to help
them venture into new market. The government of India provides an open market and incentives
for corporations seeking to invest there. The policies of the UAE are good and facilitate a healthy
business environment. The creation of FDI is promoted, the inclusion of laws that are more
inclusive on other areas of business will go a long way in opening doors to help investment
companies in the emirates such as the Fujairah investment to succeed.
LEGAL ENVIRONMENT IN BUSINESS 9
References
Banga. (2010). UAE import and export controls. UAE import and export controls. Retrieved
from http://www.smeadvisor.com/news/uae-import-and-export-controls/
Bertsch, Ondracek, Saeed, Bates, & Abdullah. (2011). Labor-Market Reforms in India.
International Business and Political Economy. doi:10.1057/9781137474865.0020
Hufbauer, G., & Stephenson, S. (2014). The case for a framework agreement on investment.
http://ccsi.columbia.edu/files/2014/01/FDI_93.pdf
Sornarajah, M., & Wang, J. (2010). China, India and the international economic order.
Retrieved from
https://books.google.com/books?id=L0h9dWC_r9QC&pg=PA8&dq=define+portfolio+i
nvestment&hl=en&sa=X&ved=0ahUKEwik-
b6zkObLAhVF2ywKHbwfBW8Q6AEIHjAA#v=onepage&q=define%20portfolio%20i
nvestment&f=false
The Gulf Intelligence. (2015). A Gulf Intelligence Special Report. Retrieved from Fujairah an
Emerging Hub on the South-South Energy Trading Corridor website:
http://www.thegulfintelligence.com/uploads/Publications/Fujairah%20Special%20Repor
t%20FINAL.pdf
UK Trade investment. (2015). Doing business in the United Arab Emirates: UAE trade and
export guide – GOV.UK. Retrieved from
LEGAL ENVIRONMENT IN BUSINESS 10
https://www.gov.uk/government/publications/exporting-to-the-united-arab-
emirates/exporting-to-the-united-arab-emirates
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