The Role of Bilateral Investment Treaties (BITs) in Switzerland: Importance and Alternatives from an Entrepreneurial Perspective

Abstract

Bilateral investment treaties (BITs) are instruments that aim at promoting and protecting foreign direct investment (FDI). Switzerland holds a leading position worldwide with regard to the negotiation and conclusion of BITs: The Swiss government has ratified 113 of such treaties so far, which means that about every 23rd BIT worldwide is concluded between Switzerland and a third state. Other alternatives for the protection of FDI include (i) political risk insurance (PRI), such as multilateral and national investment guarantees or private investment insurances, (ii) traditional diplomatic protection, and (iii) state contracts, such as concession agreements.The purpose of this paper is to analyze the importance of BITs as well as alternative instruments to safeguard FDI from an entrepreneurial perspective, and to verify whether Swiss enterprises investing abroad appreciate the efforts undertaken by their government. In this endeavor, the first part of the paper outlines the theoretical framework of different instruments offering political risk protection for FDI. The second part of the paper presents the results of an empirical analysis conducted in Switzerland. In this part, a qualitative analysis through explorative and semi-structured interviews, as well as a quantitative analysis using a two-page questionnaire was conducted.The results of the study indicate that BITs are accepted instruments to safeguard FDI in the community of states, and BITs will remain important to private sector companies as long as no multilateral agreement emerges. Particularly small and medium-sized enterprises (SMEs) appreciate these treaties, while state contracts seem to be the most important alternative to BITs, and PRI schemes are fairly unpopular among Swiss enterprises. Although the relationship between BITs and PRI is by far not clear, it is widely acknowledged among practitioners that there is a need for comprehensive strategies, including PRIs in the first place followed by BITs as well as other international institutions.