OIT - The role of national social dialogue institutions in shaping investment policies

X The role of national social dialogue institutions in shaping investment policies Author / Vongai Masocha

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Abstract Foreign direct investment (FDI) and multinational enterprises (MNEs) can drive skills development, technology transfer and economic growth; however, these benefits are not automatic. Effective public policy and strong social dialogue are essential to ensure FDI contributes to decent work, social inclusion and sustainable development. This study examines how national social dialogue institutions (NSDIs) influence trade, investment and responsible business conduct (RBC) policies to align FDI with national development priorities. Drawing on eleven case studies covering eight countries and one regional bloc, it highlights emerging practices where social partners engage in shaping sustainable FDI strategies through dialogue, institutional collaboration and policy development, guided by the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy (MNE Declaration). The findings reveal both opportunities and challenges in strengthening the role of NSDIs and outline policy options for enhancing their mandates, institutional capacities, inclusiveness and effectiveness. About the author Ms. Vongai Masocha is an independent consultant. Ms. Masocha carried out the research and drafted the report in her capacity as an ILO consultant.02 ILO Working Paper 171 Abstract 01 About the author 01 Acronyms 05 Executive Summary 07 X Introduction 09

drafted the report in her capacity as an ILO consultant.02 ILO Working Paper 171 Abstract 01 About the author 01 Acronyms 05 Executive Summary 07 X Introduction 09 Leveraging social dialogue for sustainable trade and investment policies 09 X 1 A social dialogue approach to advance national development objectives 11 1.1 The role of social dialogue in sustainable economic policymaking 11 1.2 Leveraging FDI for decent work and sustainable development 12 1.2.1 Social dialogue as a central component of the MNE Declaration 13 X 2 Examples of how national social dialogue institutions leverage trade and investment policy processes 15 2.1 Lessons from past research 15 2.2 Emerging practices 15 2.2.1 Promoting an enabling environment for social dialogue to foster sustainable investment and responsible business conduct 16 2.2.2 Ensuring institutional competence and agenda-setting over FDI and MNE-related issues 17 2.2.3 Integration in national policy framework development and implementation 18 2.2.4 Tripartite social dialogue on the labour dimensions of social and economic policy 19 2.2.5 Promoting policy coherence through government representation and participation in NSDIs 20 2.2.6 Multi-stakeholder dialogue to advance national development policies 22 2.2.7 Building institutional capacity to identify priority areas and meet stakeholder needs 24 2.2.8 Adapting social dialogue to address stakeholder needs and evolving labour markets 25 2.2.9 Participation in transnational social dialogues to foster policy coherence 27 2.2.10 Strengthening institutional capacity for social dialogue on FDI and MNEs 29 X 3 Capacity of social dialogue institutions to influence FDI policies: challenges and opportunities 32 3.1 Challenges to harness social dialogue to advance national policies on FDI, MNE and RBC 32 3.1.1 Lack of clarity on the institutional function of NSDIs 32 3.1.2 Propensity for bilateral relations 33

es and opportunities 32 3.1 Challenges to harness social dialogue to advance national policies on FDI, MNE and RBC 32 3.1.1 Lack of clarity on the institutional function of NSDIs 32 3.1.2 Propensity for bilateral relations 33 3.1.3 Industrial relations environment and social dialogue outcomes 33 3.1.4 Reliance on political will and discretion of government 34 3.1.5 Limited resources, funding, and capacity 34 Table of contents03 ILO Working Paper 171 3.2 Opportunities for NSDIs and their impact on FDI policies 35 3.2.1 Aligning economic and social agendas: expanding the roles of NSDIs 35 3.2.2 Strengthening the decent work impact of FDI through social dialogue 36 3.2.3 Leveraging dialogue and collaboration with trade partners and MNEs 36 3.2.4 Enhancing national dialogue processes through transnational policy discussions 37 3.2.5 Developing policies to enhance the competitiveness of key economic sectors 37 3.2.6. New platforms for dialogue and multi-stakeholder collaboration 38 X Conclusions 39 Annex 41 References 44 Acknowledgements 4604 ILO Working Paper 171 List of Boxes Box 1 ILO MNE Declaration: a policy framework for sustainable FDI and responsible business 13 Box 2 Utilizing tripartite collaboration to foster Viet Nam’s new industrial relations framework for sustainable trade and development 16 Box 3 Institutionalization of trade and investment issues in South Africa’s National Economic Development and Labour Council (NEDLAC) 18 Box 4 Economic and Social Council of Slovenia: utilizing social dialogue to develop national policy frameworks for socio-economic growth 19 Box 5 Elaborating the labour dimensions of social and economic development through tripartite engagement in the Philippines 20 Box 6 Advancing local economic development through tripartite promotion of the MNE Declaration in Sierra Leone 21 Box 7 Forging multi-stakeholder dialogue and collaboration to advance business and human

Box 5 Elaborating the labour dimensions of social and economic development through tripartite engagement in the Philippines 20 Box 6 Advancing local economic development through tripartite promotion of the MNE Declaration in Sierra Leone 21 Box 7 Forging multi-stakeholder dialogue and collaboration to advance business and human rights in Peru 23 Box 8 Generating knowledge and capacity to drive sustainable investment and development in Jordan 24 Box 9 Advancing the competitiveness and performance of key economic sectors in the Philippines and Viet Nam 26 Box 10 Driving regional development through social dialogue: example of the Labour and Social Dialogue Council of WAEMU 27 Box 11 Applying the principles of the MNE Declaration to enhance the effectiveness of Senegal’s High Council for Social Dialogue 29 Box 12 Applying the principles of the MNE Declaration to enhance the implementation of Peru’s National Action Plan on Business and Human Rights 3005 ILO Working Paper 171 Acronyms AICESIS International Association of Economic and Social Councils and Similar Institutions CSR Corporate Social Responsibility DOLE Department of Labour and Employment (Philippines) EESC European Economic and Social Committee EVFTA European Union–Viet Nam Free Trade Agreement FDI Foreign Direct Investment ILO International Labour Organization IPA Investment Promotion Agency LDC Least Developed Country MNE Multinational Enterprise MNE Declaration Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy NAPBHR National Action Plan on Business and Human Rights NEDLAC National Economic Development and Labour Council of South Africa NSDI National Social Dialogue Institution NTIPC National Tripartite Industrial Peace Council (Philippines) PDP Philippine Development Plan PLSD Peak-level social dialogue RBC Responsible Business Conduct RBCLAC Responsible Business Conduct in Latin America and the Caribbean project RISSC Resilient, Inclusive and Sustainable Supply Chains project SAM-SDI ILO Self-Assessment Method for Social Dialogue Institutions SDG Sustainable Development Goal SMEs Small And Medium-Sized Enterprises06 ILO Working Paper 171 UAESC Union of Arab Economic and Social Councils UNCTAD United Nations Conference on Trade and Development

RISSC Resilient, Inclusive and Sustainable Supply Chains project SAM-SDI ILO Self-Assessment Method for Social Dialogue Institutions SDG Sustainable Development Goal SMEs Small And Medium-Sized Enterprises06 ILO Working Paper 171 UAESC Union of Arab Economic and Social Councils UNCTAD United Nations Conference on Trade and Development UNESCAP United Nations Economic and Social Commission for Asia and the Pacific WAEMU West African Economic and Monetary Union WTO World Trade Organization07 ILO Working Paper 171 Executive Summary Foreign direct investment (FDI) and multinational enterprises (MNEs) can drive skills development, technology transfer, industrial upgrading and economic growth. However, these benefits are not automatic. A stable economic, legal, and institutional environment, combined with comprehensive public policies, is essential to ensure that FDI also promotes social inclusion, decent work, environmental sustainability and responsible business conduct (RBC). Based on expert interviews carried out between August and October 2023, the research finds that, across diverse legal and political contexts, national social dialogue institutions (NSDIs) are increasingly contributing to strategic policy design, identifying priorities and fostering coherent frameworks for sustainable FDI. By engaging employers’ and workers’ organizations, NSDIs help shape inclusive trade and investment approaches that translate into decent work outcomes. Examples from Jordan, Peru, the Philippines, Senegal, Sierra Leone, Slovenia, South Africa, Viet Nam and the West African Economic and Monetary Union (WAEMU) illustrate these dynamics. Governments in several countries have also established ad hoc platforms to enable tripartite-plus collaboration on investment, MNE operations, supply chains and RBC, particularly where formal institutions have limited capacity (Table 1). At the same time, challenges persist, including unclear mandates, limited institutional capacity, weak industrial relations systems and constrained resources. Strengthening NSDIs requires enhancing institutional capacity, clarifying mandates, promoting inclusiveness and effectiveness, and supporting transnational engagement. Well-functioning NSDIs can bridge economic and social policy objectives, foster collaboration among governments, businesses and social partners, and help ensure that FDI contributes to sustainable economic growth, decent work and

hancing institutional capacity, clarifying mandates, promoting inclusiveness and effectiveness, and supporting transnational engagement. Well-functioning NSDIs can bridge economic and social policy objectives, foster collaboration among governments, businesses and social partners, and help ensure that FDI contributes to sustainable economic growth, decent work and social progress. X Table 1. Summary of examples Country/Region Key actions/Description Jordan The Economic and Social Council produces the State of the Nation Report to identify opportunities and challenges for social and economic development, and has strengthened its role in advancing national development objectives through tripartite dialogue. Peru The Ministry of Justice and Human Rights established a multi-stakeholder dialogue platform to develop and implement Peru’s National Action Plan on Business and Human Rights. Philippines The Department of Labour and Employment (DOLE) and the National Tripartite Industrial Peace Council (NTIPC) developed the Labour and Employment Plan 2023– 2028, identifying labour dimensions of the Philippine Development Plan 2023–2028. Philippines and Viet Nam The MNE Declaration is used as a policy framework to build stakeholder capacity and guide tripartite-plus policy dialogues to advance the competitiveness of key economic sectors. Senegal The High Council for Social Dialogue increased awareness and uptake of the MNE Declaration principles to address FDIand MNE-related issues and support national policy development.08 ILO Working Paper 171 Country/Region Key actions/Description Sierra Leone The Ministry of Labour and Social Security strengthened coordination with the Local Content Agency and institutionalized tripartite dialogue on FDI through a national focal point for the promotion of the MNE Declaration. Slovenia The Economic and Social Council leveraged social dialogue to generate socio-economic policy frameworks, including as social pacts, which guide long-term development. South Africa South Africa’s National Economic Development and Labour Council (NEDLAC) established a specialized Trade and Industry Chamber to address trade and investment issues within its structure. Viet Nam Tripartite efforts among the Ministry of Labour, Invalids and Social Affairs and the social partners reinforced industrial relations and social dialogue to harness the opportunilished a specialized Trade and Industry Chamber to address trade and investment issues within its structure. Viet Nam Tripartite efforts among the Ministry of Labour, Invalids and Social Affairs and the social partners reinforced industrial relations and social dialogue to harness the opportunities from new trade and investment relations with the European Union. WAEMU The Social Dialogue Commission of WAEMU coordinated regional tripartite dialogues to enhance policy coherence and strengthen member NSDIs’ national functions.09 ILO Working Paper 171 X Introduction Foreign direct investment (FDI) and multinational enterprises (MNEs) can contribute to skills development, human capital growth, technology transfer, industrial upgrading and competitiveness and improve access to global markets1. However, the presence of FDI and MNEs does not automatically guarantee that these benefits materialize. A stable economic, legal and institutional environment is essential for attracting sustainable FDI – meaning investment that drives not only economic growth but also promotes social inclusion, decent work, environmental sustainability and responsible business conduct (RBC). Attracting and leveraging FDI for development calls for a comprehensive set of public policies, encompassing sound governance and regulatory frameworks, investment in infrastructure and human resources, effective tax and employment policies, robust competition law, and strong institutional capacity. Such interventions are critical not only to creating an enabling environment for sustainable FDI, but also for strengthening economic linkages, maximizing spillover effects, and enhancing the absorptive capacity of local actors and institutions. Social dialogue, particularly at the national and sectoral level, is essential for ensuring that FDI contributes to inclusive economic and social objectives (ILO 2024). It enables employers’ and workers’ organizations to contribute to the design and implementation of policies that maximize the developmental benefits of such investments. Building on this premise, this study examines the role of national social dialogue institutions (NSDIs) 2in shaping trade, investment and RBC policies to ensure that incoming FDI contributes not only to economic development but also to broader social progress, the promotion of decent work, and the advancement of social justice. It documents initiatives through which NSDIs help align FDI with national development priorities.

policies to ensure that incoming FDI contributes not only to economic development but also to broader social progress, the promotion of decent work, and the advancement of social justice. It documents initiatives through which NSDIs help align FDI with national development priorities. Leveraging social dialogue for sustainable trade and investment policies Across ILO Member States, employers’ and workers’ organizations (the social partners) engage on FDI-related issues through a wide range of institutions, coordination bodies and initiatives. The research carried out for this study points to a growing role of the social partners, especially through NSDIs, in shaping and implementing national strategies for sustainable FDI. The findings were derived from desk research on emerging practices of NSDIs and social partners in influencing policies on sustainable FDI, inclusive economic development and social progress. The analysis focused on eight ILO Member States - Jordan, Peru, the Philippines, Senegal, Sierra Leone, Slovenia, South Africa and Viet Nam – as well as the West African Economic and Monetary Union (WAEMU). These cases were selected not only to ensure geographic diversity, but also because tripartite constituents in these countries had previously benefited from awareness-raising and capacity-building activities on the ILO Tripartite Declaration of Principles concerning 1 According to UN Trade and Development (UNCTAD), MNEs continue to play a central role in global FDI flows, with their networks governing approximately 80% of global trade and foreign affiliates accounting for a significant share of global production and sales (UNCTAD 2024, p. 34). While this study acknowledges the diverse sources and determinants of FDI, its primary focus is on MNEs as a significant channel of global FDI flows. 2 NSDIs are bipartite or tripartite structures or bodies established within a country that provide a platform for employers’ and workers’ organizations to engage in economic and social policymaking, with a mandate to address multiple social and labour market policy areas (ILO 2024). While this understanding guided the research, a strict or uniform definition of the term was not applied.10 ILO Working Paper 171 Multinational Enterprises and Social Policy (MNE Declaration), the ILO’s key instrument providareas (ILO 2024). While this understanding guided the research, a strict or uniform definition of the term was not applied.10 ILO Working Paper 171 Multinational Enterprises and Social Policy (MNE Declaration), the ILO’s key instrument providing guidance on how trade, investment and operations of MNEs can contribute to decent work. Insights from the desk research subsequently informed country-specific interview questions. These interviews, conducted between August and October 2023, involved ministry officials; senior officials and executive members of NSDIs; representatives from employers’ and workers’ organizations; ILO development partners; and ILO specialists and project managers. The examples presented in this report reflect the institutional and policy environments as of 2023. The examples below illustrate how these dynamics unfold in practice and point to several emerging insights (see table 1). NSDIs are increasingly leveraging social dialogue to identify and elaborate the labour dimensions of broader social and economic policy frameworks. They also contribute to the implementation of national FDI policies by developing strategic frameworks, identifying priorities and outlining action plans. In several countries, governments have established ad hoc social dialogue platforms to facilitate policy dialogues and tripartite-plus collaboration on trade, investment, MNE operations, supply chains and RBC. These platforms are particularly relevant in contexts where formal social dialogue institutions have limited capacity to shape coherent national policies in these areas. The cases further demonstrate that the MNE Declaration and its principles provide a comprehensive policy framework for addressing challenges and leveraging opportunities. The Declaration encourages consultations and social dialogue at multiple levels as means for governments, businesses, and employers’ and workers’ organizations to effectively carry out their respective roles in implementing its principles and operational tools. Overall, the examples documented in this report complement the ILO’s growing body of evidence that social dialogue is an effective means of promoting inclusive growth and strengthening economic performance.11 ILO Working Paper 171 X 1 A social dialogue approach to advance national development objectives

1.1 The role of social dialogue in sustainable economic policymaking Social dialogue encompasses all types of negotiation, consultation and exchange of information

of promoting inclusive growth and strengthening economic performance.11 ILO Working Paper 171 X 1 A social dialogue approach to advance national development objectives

1.1 The role of social dialogue in sustainable economic policymaking Social dialogue encompasses all types of negotiation, consultation and exchange of information between or among representatives of governments, employers and workers on issues of common interest relating to economic and social policy (ILO 2018a, para. 6). It may take the form of a tripartite process, with the government as an official party to the dialogue or consist of bipartite relations between the social partners only. Depending on the political, legislative and institutional environment of a country, social dialogue can take place at national, provincial or regional, or enterprise level. It may also be interprofessional, sectoral or any combination of these. In addition, social partners may also engage in transnational dialogue at regional and global levels3. Social dialogue carried out at the peak level (national, provincial or sectoral level, for instance) has proven instrumental in facilitating effective consultation between governments and social partners in socio-economic policymaking across ILO Member States (ILO 2024, 5). The ILO’s Social Dialogue Report 2024 showcases how peak-level social dialogue (PLSD) 4can provide mutual benefits for employers and workers “to chart a path of economic development that is sustainable and inclusive” (ILO 2024, 8). Issues addressed may range from specific topics such as wages and working conditions to broader questions of economic and social policy – which is the focus of this research. The platforms where social dialogue is carried out vary widely, from formal institutional settings to relatively informal mechanisms. This diversity reflects the principle that national mechanisms and institutions must be adapted to national circumstances, needs and priorities (ILO 2024, 5; ILO 2021a, 8). There are many examples of PLSD being used to design policies that promote social justice, decent work and sustainable enterprises across the globe. Historically, PLSD has been most developed and articulated in Western continental Europe, where nationally representative social partners

There are many examples of PLSD being used to design policies that promote social justice, decent work and sustainable enterprises across the globe. Historically, PLSD has been most developed and articulated in Western continental Europe, where nationally representative social partners and governments conclude tripartite and bipartite agreements to regulate labour issues or establish socio-economic policy frameworks (ILO 2017b, 27). Increasingly, however, governments in other regions are also using social dialogue to secure buy-in and support from social partners during policy development and legislative reform. The ILO has documented how social dialogue can help to reconcile competing interests and build trust and commitment to policies – both in times of prosperity and in crisis (ILO 2020, 1; ILO 2017b; ILO 2012). 3 For more information, see the ILO topic portal on Social Dialogue and Tripartism: https://www.ilo.org/socialdialogue. 4 PLSD refers to a set of institutions and processes whereby governments, employers’ and workers’ organizations negotiate, consult each other, and exchange information on labour, economic, and social matters at national or sectoral levels. It includes bipartite processes – where only the social partners engage, notably for reaching collective agreements – as well as tripartite processes, which also involve government representatives. The ILO Social Dialogue Report 2024 examined the contribution of PLSD to achieving economic development and social progress.12 ILO Working Paper 171 1.2 Leveraging FDI for decent work and sustainable development FDI has been widely recognized as a key driver of sustainable development worldwide. As the largest source of external finance for developing economies, it plays a particularly important role in supporting developmental objectives in host countries. FDI inflows can expand local producers’ access to global markets, which brings in foreign exchange and can generate more decent and productive employment (ILO 2022a). 5 MNEs and their investments can also contribute to skills development, technology transfer, and increasing competition in local markets (UNESCAP 2019, p. 1). The contribution of FDI to fostering sustainable economic and social development is especialand productive employment (ILO 2022a). 5 MNEs and their investments can also contribute to skills development, technology transfer, and increasing competition in local markets (UNESCAP 2019, p. 1). The contribution of FDI to fostering sustainable economic and social development is especially critical for least developed countries (LDCs) (UN-OHRLLS 2011). However, the presence of FDI does not automatically translate into more and better jobs in the host country (ILO 2023a, 2). Acknowledging this reality, the Doha Programme of Action emphasizes the need for concerted efforts to advance trade and investment policies to leverage FDI for the achievement of sustainable development objectives in LDCs. 6 There is a need for governments to adopt decisive measures to attract sustainable FDI and maximize its developmental impact. While these challenges are prominent in LDCs, they are also shared by many developing and transition economies and are universally relevant. Developments in global trade and investment policy increasingly emphasize not only the volume of FDI, but also its quality – namely, its capacity to contribute to economic and social progress, in line with the Sustainable Development Goals (SDGs), especially SDG 8 on decent work and economic growth. As