Bilateral Investment Treaties Research Articles

The indirect expropriation in the Colombian Model of bilateral Investment Treaty and its impact in Latin American BITS: an overview from Cuba

El objetivo principal de este artículo es examinar el pronunciamiento sobre la expropiación indirecta en el Modelo de Tratado de Inversión Bilateral Colombiano vigente y su incidencia en los Acuerdos de Inversión latinoamericanos rubricados, teniendo como antecedentes los dos (2) modelos anteriores adoptados por este pais. El método empleado ha consistido en el estudio de la expropiación indirecta del Modelo colombiano del 2017 y su comparación con la establecida en los Modelos del 2008 y 2011, con el propósito de conocer su admision o exclusión en los Acuerdos de Inversión de Colombia y demás naciones del área. Sobre el análisis de los Acuerdos de Inversión se identificó el Modelo Colombiano incorporado y por ende utilizado como fundamento en las demandas contra los Estados de la región posteriores al 2017 y hasta el 2021. El resultado principal de este trabajo ha sido la constatación de las falencias y disfuncionalidades de cada una de las claúsulas de expropiación incorporadas en relación con la expropiación indirecta a partir del Modelo de Tratado de Inversión colombiano abrazado y cual de ellos provee una mayor protección, convirtiéndose entonces en la claúsula referente para la región latinoamericana.

Bilateral investment treaties and sovereign default risk: Evidence for emerging markets

AbstractThis paper analyses the impact of bilateral investment treaties (BITs) on sovereign default risk using monthly data for 29 emerging markets from 1996 to 2016. Under a BIT, foreign investors can use an international arbitration scheme to enforce compensation claims against the host country's government. We focus on the so far unexplored legal risk associated with BITs since a higher likelihood of government expropriations implicitly increases public debt. We do not find a significant unconditional effect of BITs on sovereign default risk (measured by the month‐over‐month percentage change in a country's Emerging Market Bond Index). Considering the heterogeneity of BITs and political risk, we find robust and strong negative effects of BITs on sovereign bond returns. In countries with high political risk of expropriation (measured by low executive constraints), we find that the implementation of BITs with strong investor protection is associated with a significantly negative impact on sovereign bond returns (−0.45 percentage points), which compares to roughly 11.7% of bond returns' monthly standard deviation.

The Effects of Investment Treaties and Trade Agreements on FDI: The Case of Serbia

ABSTRACT This study explores the effects of Bilateral Investment Treaties (BIT) and Regional Trade Agreements (RTA) on foreign direct investment (FDI) inflows into Serbia, utilizing panel data for 2010–2021. The results indicate that both BIT and RTA independently exert positive impacts on Serbia’s inward FDI. Also, the interaction effects between BIT and RTA dummies and export/import variables on inward FDI are positive. This suggests that the implementation of BITs and/or RTAs fosters a complementary relationship between trade and FDI in Serbia as the predominant type of FDIs from partner states with which Serbia shares BITs and/or RTAs is vertical and export-platform rather than horizontal.

Navigating the Complexities of International Economic Law: Implications for Global Trade and Investment

This paper explores the multifaceted landscape of international economic law and its profound implications for global trade and investment. Through a detailed examination of key legal instruments and treaties, including the World Trade Organization (WTO) agreements, Bilateral Investment Treaties (BITs), and Regional Trade Agreements (RTAs), the study elucidates how these frameworks shape the regulatory environment for international commerce. Central principles of non-discrimination, most-favored-nation (MFN) treatment, and national treatment are dissected to understand their practical application and impact on trade and investment flows. The role of international organizations in creating, enforcing, and shaping the norms and standards of global economic interaction is critically assessed. Furthermore, the paper delves into the legal challenges and strategic considerations businesses face in navigating international trade, investment protection, intellectual property rights, and the burgeoning digital economy. By examining case studies and practical implementations, the study highlights the dynamic interaction between legal frameworks and business strategy in the context of digital trade, data protection, and the use of digital currencies and blockchain in trade finance. This comprehensive analysis aims to provide insights into the evolving landscape of international economic law and offer strategic guidance for businesses and policymakers navigating these complexities.

The Compatibility of the Spanish Windfall Levy on Credit Institutions with EU Law and International Economic Law (Investment Law and Tax Treaties)1

Abstract This contribution serves to provide a fully-fledged analysis of the compatibility of the Spanish windfall tax on credit institutions with EU law (EU monetary and banking policy, EU Fundamental Freedoms, and state aid) and international law (investment law and double tax treaties). Our analysis reveals that the design of the Spanish tax captures windfall profits that are large and easy to detect due to inflation and high interest rates. Although the tax is compatible with EU law, it compromises the area of bilateral investment treaties and bilateral tax treaties.

Bilateral Investment Treaties in the Russian Federation and the State of Qatar in the wake of Maritime Investment. Part 1: Gaps in Regulation

Today one of the most useful and significant means in supporting and maintaining the foreign investment process is Bilateral Investment Treaties (BIT). The Russian Federation (Russia) and Qatar have actively concluded 84 and 63 BITs, respectively. Unfortunately, the existing BITs do not provide a comprehensive legal framework making it possible to deal with the maritime investments. Hence, the basic question raised in the article is whether the current BITs are a suitable legal framework to protect maritime investments? Having conducted a qualitative and quantitative analysis of all the BITs that Russia and Qatar are parties to, the authors come to the conclusion that the existing BITs are not suitable due to the lack of attention to the necessary issues related to maritime investment. These issues include: (1) the exact scope of maritime areas, (2) definition and types of maritime investment, (3) definition of maritime investor.

Foreign direct investment and inclusive finance: do financial markets and quality of institutions matter?

AbstractWe examine the impact of foreign direct investment (FDI) on financial inclusion. To identify the causal effect of FDI on financial inclusion, we use plausibly exogenous source of variations in bilateral investment treaties (BITs) as a novel instrumental variable (IV) for net FDI inflows. Using annual data for a broad panel of 90 countries over the period 2004 to 2017, our results show that FDI improves financial inclusion for both “access to finance" and “use of financial services". This impact is more pronounced for relatively poor countries and developing countries compared to rich and developed countries. We also find that higher financial market development and quality institutions improve financial inclusion directly. Moreover, financial market development and institutional quality can serve as potential channels and moderating variables through which FDI affects financial inclusion. Our results are robust to various estimations and sample splitting and have important implications for policy on financial inclusion.

Bilateral Investment Treaties Within the EU

Foreign direct investment falls under the scope of the common commercial policy, a competence exclusively defined for the Union by the Lisbon Treaty. Bilateral investment treaties are also encompassed within the realm of foreign direct investment. Within the context of the European Union, this area is also important from the perspective of completing the EU's internal market. EU Member States have been, and continue to be, parties to numerous bilateral investment treaties. The present article aims to delineate the effects of the Lisbon Treaty on bilateral investment treaties, both intra- and extra-EU, and to present the status quo of this area under analysis within the European Union. A partial objective is also to scrutinize the potential impact on practice and assurances afforded to investors within the Union.

One-size-does-not-fit-all: The heterogeneous impact of BITs on regions participating in GPNs

Bilateral Investment Treaties (BITs) are vital for safeguarding and enhancing foreign investments, pivotal in Global Production Networks (GPNs). This study assesses the impact of BITs on GPNs driven by EU multinational enterprises, with a focus on regions hosting corporate headquarters due to their influence on the local economy. While considering the endogeneity of BITs and their diverse effects on GPN structures, our findings reveal a positive correlation between BITs and GPNs, notably stronger in less globally integrated regions. Additionally, the influence varies based on firms' network role (headquarters or subsidiaries) and the spatial distribution of headquarters. BITs stimulate GPNs in less internationalized regions but have minimal impact in headquarters-rich regions.

An NLP-based novel approach for assessing national influence in clause dissemination across bilateral investment treaties.

International investment agreements (IIAs) promote foreign investment. However, they can undermine crucial health programs, creating a dilemma for governments between corporate and public health interests. For this reason, including clauses that safeguard health has become an essential practice in IIAs. According to the current literature, some countries have played a pivotal role in leading this inclusion, while others follow the former ones. However, the existing literature needs a unique approach that can quantify the influence strength of a country in disseminating clauses that explicitly mention health provisions to others. Following an NLP (Natural Language Processing)-based text similarity analysis of Bilateral Investment Treaties (BITs), this study proposes a metric, 'Influence' (INF), which provides insights into the role of different countries or regions in the propagation of IIA texts among BITs. We demonstrate a comprehensive application of this metric using a large agreement dataset. Our findings from this application corroborate the evidence in the current literature, supporting the validity of the proposed metric. According to the INF, Germany, Canada, and Brazil emerged as the most influential players in defensive, neutral, and offensive health mentions, respectively. These countries wield substantial bargaining power in international investment law and policy, and their innovative approaches to BITs set a path for others to follow. These countries provide crucial insights into the direction and sources of influence of international investment regulations to safeguard health. The proposed metric holds substantial usage for policymakers and investors. This can help them identify vital global countries in IIA text dissemination and create new policy guidelines to safeguard health while balancing economic development and public health protection. A software tool based on the proposed INF measure can be found at https://inftool.com/.

Bilateral treaty networks: assessing cooperative spillover in defense and investment

Abstract The potential for mutual influence or “spillover” between economic and security cooperation is a long-standing area of interest for policymakers and scholars alike. This paper examines how network dynamics affect spillover. We focus on two prominent types of formal bilateral cooperation—defense cooperation agreements (DCAs) and bilateral investment treaties (BITs)—both of which have proliferated dramatically in the post-Cold War international system. We argue that existing theoretical and empirical approaches to economic-security spillover focus too strictly on influences at the bilateral level. As with other forms of international cooperation, BITs and DCAs comprise larger international networks. Governments develop portfolios of BITs or DCAs with distinct structural goals in mind, and they implement specific strategies in pursuing those goals. With BITs, governments follow a network-hierarchy strategy that allows them to influence treaty design and protect their firms. In DCAs, governments instead favor a network-community strategy focused on pooling collective security goods among groups of like-minded collaborators. When these network strategies complement one another, they promote cooperative economic-security spillover. When they conflict, however, they inhibit spillover, such that cooperation in economic or security issues discourages cooperation in the opposing issue area.

A BIT of Protection for Non-Fungible Tokens: Digital Assets as a Catalyst for Economic Growth

Abstract An inevitable consequence of technological advancement is that it triggers regulatory challenges for law and policymakers. The regulation of digital assets has generated much debate in this regard. The central objective of this article is to examine the regulation of one particular type of digital asset, NFTs, through an international investment law lens. The international investment regime offers investors high levels of protection against breaches of obligations by host states for covered investments. The aim of the article is to determine whether NFTs can be considered as covered investments for the purposes of the application of bilateral investment treaties (BITs) and treaties with investment provisions (TIPs), and further to examine whether that regime would provide an appropriate regulatory framework for investment in NFTs.

Complementarity Versus Substitution Relationship Between Outward FDI and Exports: Evidence from India

The article is concerned with the relationship between foreign direct investment (FDI) flows and exports and asks if these two flows are substitutes or complement each other. Empirical work in this area employing industry- or country-level data has generally found a positive or complementary relationship between exports and FDI. Our empirical strategy is different in that we try to throw some light on the issue of substitution versus complementarity between FDI and exports by carrying out econometric analyses directed at assessing how India’s mass termination of bilateral investment treaties (BITs) in March 2017 and such BIT terminations during September–December 2016 and April 2017 to December 2018 impacted India’s FDI inflows and imports. Our finding of a significant negative effect of BIT termination on FDI inflows, corroborating the findings of two earlier studies and the finding of a significant positive impact of BIT termination of India’s imports is conceivably reconcilable only if there is a substitution relationship between FDI and exports. Hence, we find some empirical evidence of a substitution relationship between FDI and exports—at least, this has been the relationship between India’s inflow of FDI and the inflow of goods as imports, if not valid for other countries. JEL codes: C31, C33, K33, F21

Bilateral investment treaty, technological intensity, and international trade

Bilateral investment treaty, technological intensity, and international trade

Emerging market multinationals and international investment agreements

This study investigates the effects of international investment agreements (IIAs) on the internationalization decisions of emerging market multinationals (EMNEs). Drawing on the POLI advantage framework, we argue that bilateral investment treaties (BITs) add to the political and institutional capabilities of EMNEs, enhancing their OLI advantages in host countries. We identify two mechanisms through which BITs facilitate EMNEs’ internationalization: by offsetting political risk and by mitigating the informational asymmetries and transaction costs associated with investing in unfamiliar destinations. We probe the plausibility of our claims with data from an original survey of firms in four emerging economies and a larger sample of bilateral FDI flows from UNCTAD’s FDI/MNEs database. Our findings show a positive association between BITs and FDI from the South, especially in politically unstable and unfamiliar contexts. Apart from adding to the International Business literature on EMNEs, this study contributes to International Political Economy scholarship on FDI by highlighting the growing relevance of South-South IIAs.

Does the quality of bilateral investment treaties matter for outward foreign direct investment?

Bilateral investment treaties (BITs) have been attracting the attention of policymakers with an interest in hosting foreign direct investment (FDI) to promote economic growth. Studies on the impacts of BITs on FDI inflows have produced mixed results. Unlike many studies, this research considers the quality of BITs. The analysis of FDI locational choices of Chinese multinational enterprises reveals significantly positive impacts of high-quality BITs. Furthermore, BITs exhibit a significantly amplified influence on the FDI of multinational corporations upon their implementation, in contrast to when they are initially signed. Additionally, private enterprises are more inclined towards engaging in FDI with nations possessing high-caliber BITs than state-owned enterprises. These findings suggest policymakers prioritize the quality of BITs and guarantee a seamless transition into effect after their signing, rather than solely focusing on their establishment.

When the Dragon comes Home to Roost: Chinese Investments in the EU, National Security, and Investor–State Arbitration

Abstract The gradual rise of China as an economic, normative, and lending power has resulted in more protectionist measures in areas of the world that traditionally championed economic liberalization. Currently, 21 out of 27 European Union (EU) Member States have national laws or measures in place for the screening or review of foreign investments. However, such restrictive national measures can result in investment treaty-based arbitration under the existing bilateral investment treaties concluded by 26 EU Member States with China, as evidenced by the recent arbitration initiated by Huawei against Sweden. Therefore, this article assesses whether EU Member States are likely to see a spike in investor–State arbitral claims initiated by Chinese investors as a result of the former’s investment screening measures. To achieve this aim, the article first looks at the bilateral investment treaties (BIT)-level variables that can influence the initiation of arbitration against EU Member States, such as the presence and type of investor–State arbitration (ISA) clauses, the types of investments being made, the coverage of the pre- and/or post-establishment phases, or the inclusion of ‘non-precluded measures’ clauses. This is then followed by a look at other variables, such as the decreasing number of Chinese foreign direct investment into EU countries, the treatment of Chinese investors in recent high-profile cases, and the importance of security alliances. The article concludes that those EU States are at a higher risk of being respondents in arbitrations initiated by Chinese investors whose BITs with China include modern ISA clauses, cover the pre-establishment phase, and lack non-precluded measures clauses. However, EU States should wait for the outcome of the Huawei v Sweden arbitration before deciding whether the amendment or termination of the existing BITs with China is needed.

The Compatibility of the Substance over Form Doctrine with Tax and Investment Treaties: A Case Study of Lone Star v the Republic of Korea

Abstract In late August 2022, the Lone Star tribunal concluded one of the latest awards in tax-related investment treaty disputes (the tax-related claims account for almost USD 1.5 billion of the total of almost USD 4.7 billion claimed in compensation). It also is the first award in which the tribunal dealt with the application of the substance over form doctrine (SOFD) by tax authorities and courts of the host state to prevent the abuse of a double tax treaty (DTT), and the impact of the refusal to accord the claimants the benefits under the DTT via a domestic (Korean) SOFD on the investment protection standards under the bilateral investment treaty (BIT). The Lone Star tribunal implicitly considered the Korean SOFD to be a suitable rule to prevent abuses of the Korea-Belgium DTT and thus compatible with the BLEU-Korea BIT. This article critically analyses the tribunal’s methodology and reasoning in reaching that conclusion. Notably, the article highlights the need to consider the principle of an abuse of rights while examining the compatibility of a SOFD with a BIT and a DTT. Such an approach could enhance the rule of law in the interpretation of tax and investment treaties in other similar cases. It is also in accordance with the principle of systemic integration. The article argues that it is increasingly more important to properly understand the concept of economic substance insofar as denial of benefits (DoB) clauses in investment treaties and principal purposes test (PPT) in tax treaties appear to specifically prevent abuses of those treaties by arrangements with no or insufficient economic substance. Global and regional tax developments, including the implementation of anti-base erosion and profit shifting (BEPS) rules, as well as Pillar Two rules (global minimum tax of 15%), strengthen the need for a comparative research on economic substance under tax and investment treaties. Such research may reveal that a convergence in denying benefits under DTTs and BITs will enhance the rule of law and increase legal certainty in tax and investment domains.

Analyzing the Legal Framework of Bilateral Investment Treaties (BITs) and Foreign Direct Investment (FDI) in Nigeria: Understanding Regulatory Structures, Resolving Disputes, and Evaluating Economic Effects

Analyzing the Legal Framework of Bilateral Investment Treaties (BITs) and Foreign Direct Investment (FDI) in Nigeria: Understanding Regulatory Structures, Resolving Disputes, and Evaluating Economic Effects

Bilateral investment treaties and portfolio investment

We analyze the effect of bilateral investment treaties (BITs) on bilateral foreign portfolio investment in equity and debt securities. We find that expropriation risk and the level of a BIT’s investor protection are complementary. Applying a Poisson Pseudo-Maximum-Likelihood model to a panel of 60 home and 39 host countries from 2002 to 2017, we find that host countries receive 40% more bilateral equity investment when they protect foreign investors with a BIT. This effect almost doubles when investment protection of BITs is strong, and the political risk of the host country is high.