Sacrificing sovereignty by chance: investment treaties, developing countries, and bounded rationality

One of the striking features of modern globalization is the rising prominence of international law as governing institution for state-market relations. Nowhere has this been as pronounced as in the international investment regime. Although hardly known to anyone but specialized international lawyers merely 15 years ago, bilateral investment treaties (BITs) have today become some of the most potent legal tools underwriting economic globalization. This thesis seeks to explain why developing countries adopted investment treaties as part of their governing apparatus. The study combines econometric analysis with archival work as well as insights from more than one hundred interviews with decision-makers in the international investment regime. On this basis, it finds ‘traditional’ explanatory models of international policy diffusion insufficient to account for the BIT-movement. Instead, both qualitative and econometric evidence strongly indicates that a bounded rationality framework is best suited to explain the popularity of BITs in the developing world. Although careful cost-benefit considerations drove some developing countries to adopt investment treaties, this was rare. By overestimating the benefits of BITs and ignoring the risks, developing country governments often saw the treaties as merely ‘tokens of goodwill’. Many thereby sacrificed their sovereignty more by chance than by design, and it was typically not until they were hit by their first claim, officials realised that the treaties were enforceable in both principle and fact. The thesis is relevant to a wide range of literature. Apart from being the first comprehensive international relations study on investment treaties, its multimethod approach provides a robust and nuanced view of the drivers of international policy diffusion. Moreover, the study is the first major work in international political economy literature applying insights on systematic – and thus predictable – cognitive heuristics found in the behavioural economics discipline

跨大西洋贸易与投资伙伴协定、投资者-国家争端解决机制与中国

This Perspective argues that since China has been a strong proponent of investment arbitration for more than a decade, Beijing is likely to favor the mechanism in a future EU-China deal – irrespective of whether it is included in the Transatlantic Trade and Investment Partnership agreement

When the claim hits: bilateral investment treaties and bounded rational learning

Using the international investment regime as its point of departure, the paper applies notions of bounded rationality to the study of economic diplomacy. Through a multi-method approach, it shows that developing countries often ignored the risks of bilateral investment treaties (BITs) until they themselves became subject to an investment treaty claim. Thus the behavior of developing country governments with regard to the international investment regime is consistent with that consistently observed for individuals in experiments and field studies: they tend to ignore high-impact, low-probability risks if they cannot bring specific ‘vivid’ instances to mind

The importance of BITs for foreign direct investment and political risk insurance: revisiting the evidence

Bilateral investment treaties (BITs) are typically presented as vital risk-mitigating instruments providing foreign investors with “credible commitments” that their assets will not be expropriated, discriminated against, or otherwise maltreated post-establishment. Accordingly, developing countries wanting to attract foreign investment should become more attractive destinations for multinationals when signing the treaties. A great number of studies and surveys indicate, however, that the vast majority of multinationals do not appear to take BITs into account when determining where - and how much - to invest abroad. Apart from reviewing such evidence, this chapter will discuss the feedback from a series of interviews. Firstly, BIT-negotiators from capital exporting states report that investors very rarely inquire about BITs, and when they do it is typically when disputes have arisen and not when they plan their investments. Secondly – and remarkably – the treaties have very little impact on political risk insurance (PRI) providers’ coverage and pricing policies. This is the case for both private companies as well as (almost) all public PRI programs, including the Multilateral Investment Guarantee Agency (MIGA). The chapter will conclude by offering some reflections on why the standard narrative of BITs as credible commitments should perhaps be reconsidered

The politics of South-South bilateral investment treaties

The paper analyzes systematic patterns of investment treaty rule-making using a large sample of bilateral investment treaties (BITs). Focusing on national treatment and transfer provisions, it finds that BITs signed between two developing countries are typically less wide-ranging than North-South BITs. Yet restrictions in South-South BITs are ‘levelled out’ by the treaties’ most-favoured-nation provisions leading to a de‐facto coherence in developing countries’ BIT‐networks. The paper concludes by speculating whether this paradoxical pattern might have been unintended on the part of developing country negotiators

Foreign direct investment in times of crisis

The paper compares the current FDI recession with FDI responses to past economic crises. While the decline in outflows from developed countries has been similar in magnitude to that in previous recessions, the recovery in FDI has been much slower than in the past. Inflows to emerging markets, which remained stable during previous economic crises, have experienced an overall decline. Both patterns indicate that the global scale of the current crisis has had a different and more marked FDI response than after earlier individual country crises. Compared with other global economic downturns since the 1970s, the current FDI recession has also been greater in magnitude. (The exception to this was the large FDI plunge in the early 2000s, despite the much smaller economic crisis at the time.) To the extent past FDI patterns can provide relevant insights to the current FDI slump, this could indicate that global FDI flows may remain below 2007 levels until at least 2014. The paper concludes by recommending policymakers to not just further liberalize FDI regimes - the typical response to earlier crises - but rather to use the downturn to completely rethink their FDI policies, with an enhanced focus on promotion of "sustainable FDI"

The Transatlantic Trade and Investment Partnership, investor-state dispute settlement and China

This Perspective argues that since China has been a strong proponent of investment arbitration for more than a decade, Beijing is likely to favor the mechanism in a future EU-China deal – irrespective of whether it is included in the Transatlantic Trade and Investment Partnership agreement