The International Investment Regime Since the 1980s: A Transnational 'Hands-Tying' Regime for International Investment

Abstract

The papers in this collection address an important question about the institutions that govern trade and investment internationally: What explains the variance in their existence, scope and content? Most of the papers in this collection focus on international trade agreements, and represent a tremendous investment coding a increasingly detailed set of provisions from a proliferating number of legal provisions. Their purpose is not only to explain variation across institutions as an end in itself, but also to find out if the variance in these agreements matters for outcomes many of us care about: economic interdependence, trade and investment flows, non-discrimination, the distribution of benefits across parties to an agreement, and more. The assumption of the project is that international economic agreements represent a technology for a government to make credible commitments to market actors and to other governments. If "hands-tying" motivates the proliferation of preferential trade agreements (PTAs), why do these agreements vary, and with what consequences? This paper focuses on the international investment regime rather than on trade in goods or services. By "international investment regime" I mean the collection of often decentralized (even sometimes incoherent) rules about the promotion and protection of international direct investment. I will make three points. First, the variance across the trade and the investment regimes are significant, notably in their degree of centralization but also by the nature of the rights of the central players. Second, in the absence of a centralized framework for developing rules and dispute settlement procedures, bilateral hands-tying is the outcome of dyadic bargaining. Hands-tying in this context is dependent on the relative strength of the country whose hands are most likely to be tied – the capital importing country. In the final two sections, I show that BITs don’t "solve" governments’ time inconsistency problems. The evidence suggests that they have under-delivered investment and served up an unexpectedly large wave of litigation. The evidence suggests that resistance to certain forms of hands-tying is growing and may augur some significant changes in the terms of the central bargain of credibility for constraint.