The Impacts of Local Equity Requirements on Competition

In international investment law, local equity requirements are often provided in domestic investment laws and compel foreign investors to enter the market of the host state by joining forces with a local partner. Further, local equity requirements generally guarantee that control over the domestic entity rests with the local partner by prohibiting foreign investors from acquiring a majority stake in the local entity. In past eras with priority given to state planning, such requirements were explained by the dominance of the state in all aspects of the domestic economy. In the current era of privatization, they have been justified on different grounds. However, one key element that is often absent from the debate surrounding local equity requirements is their far-reaching, and possibly negative, impacts on the competitive state of markets.