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This chapter assesses whether BITs have achieved their objectives. The first part of the chapter examines the historical movement to form BITs. The second part explores the goals motivating BITs, namely foreign investment protection, market liberalization, and foreign investment promotion. The next three parts assess the success of BITs in achieving each of these goals. The chapter concludes by considering the implications of the BIT movement for the further development of international investment law.

This chapter presents an overview of the most common provisions found in International Investment Agreements (IIAs), focusing on bilateral investment treaties (BITs), as they represent the most common type of IIA. These provisions include the preamble, provisions defining the scope of application of the treaty, standards of treatment, and dispute settlement clauses.

This chapter empirically examines the effect of bilateral investment treaties (BITs) and double taxation treaties (DTTs) on foreign direct investment. This chapter is structured as follows: firstly it describes bilateral investment and tax treaties, and reviews existing empirical studies on both BITs and DTTs. It then describes the methodology and data, and discusses the estimation technique and results, and conclusions. The chapter shows that transition countries that have BITs with developed countries receive more FDI inflows from these countries. It also provides evidence that BITs function to some extent as substitutes for institutional quality. There was no robust effect of tax treaties on FDI.

This chapter looks at why BITs have become the preferred method for governing the relationship between foreign investors and host governments in developing countries. It offers a novel explanation of why developing states fought aggressively against the former rule of “prompt, adequate, and effective” compensation for expropriation and in favor of a more lenient standard, and yet contemporaneously flocked to sign treaties that offer investors much greater protection than did the old rule of customary international law. It shows that although an individual country has a strong incentive to negotiate with and offer concessions to potential investors—thereby making itself a more attractive location relative to other potential hosts—developing countries as a group are likely to benefit from forcing investors to enter contracts with host countries that cannot be enforced in an international forum, thereby giving the host a much greater ability to extract value from the investment. The chapter offers a comprehensive explanation for the behavior of developing countries and assesses the desirability of BITs. It discusses the welfare implications of BITs as compared to the “appropriate compensation” standard that developing countries have advocated at the UN. It demonstrates that although BITs increase global efficiency, they likely reduce the overall welfare of developing countries. Finally, the chapter discusses the impact of BITs on customary international law.

This chapter focuses on the creation of new independent regulatory agencies and signing of thousands of bilateral investment treaties during the era of liberalization. This was another massive experiment with the logic of discipline. But the experiment did not always produce the expected results. Governments sometimes escaped the constraints they had promised to honor. And where constraints continued to bind, troubling questions about the corrosion of democratic governance were raised.

This chapter examines the correlation between previous foreign investment and the signing of bilateral investment treaties (BITs) to explore whether there is any evidence that the signing of BITs is investor-driven. It also looks at how BITs affect the flow of investments between countries when a wide range of controls for the economic environment, such as home and host GDP, wage rates, and risk measures are considered. The chapter identifies two factors that are likely to influence the observed benefits of country decisions to enter into BITs. First, although treaties are viewed as forward-looking tools that are signed to gain future investments, treaty signing also has a backward-looking element. In particular, countries that had already received larger stocks of foreign investment are more likely to sign BITs than countries that had been less successful in attracting foreign investment. This result suggests that the interest of exiting foreign investors drove the signing of BITs, at least in part. The second conclusion of this chapter is that controls for timing, intrinsic country attractiveness, and investor identity are all important. When these issues are addressed, BIT signing did help developing countries attract a larger volume of foreign investment.

This chapter provides yet another eclectic analysis, this time of the still-irreconcilable controversy surrounding the “appropriate” kinds and extent of governmental regulation of MNCs as entities and FDI as process. The initial section explains why so little progress has been made in establishing meaningful international rules covering these international business phenomena. Next is an abbreviated survey of the major bilateral agreements and voluntary codes of conduct that seek to regulate FDI-related activities to serve the common good. The conflicting attitudes towards the appropriate kinds and extent of multilateral regulations are explained in depth by examining two major loci of contention: the would-be Multilateral Agreement on Investment, and the existing Chapter 11 of the North American Free Trade Agreement (NAFTA). The increasing significance of activist non-government organizations as unofficial regulators of MNC behavior is examined in the concluding section.

This chapter examines the impact of bilateral investment treaties (BITs) on foreign direct investment (FDI). It introduces the basic theoretical framework developed in Bubb and Rose-Ackerman (2007) and in Tobin and Rose-Ackerman (2008), and then summarizes the empirical finding of Tobin and Rose-Ackerman. It offers some thoughts on the rise of the BITs regime and its implications for the possibility of a Multilateral Investment Agreement. The chapter shows that BITs have a positive impact on FDI flows to developing countries, but only in interaction with the political and economic environment for investment.

This chapter reviews the provisions in BITs and PTAs that grant foreign investors greater predictability on the policy framework regulating their investment, enumerates their purported benefits of increased investment flows, and considers the costs associated with disputes lodged under these agreements. These agreements typically provide for transparency, non-discrimination among foreign and domestic investors, and guarantees against expropriation. Some agreements do prevent contracting parties from imposing trade-related investment measures (TRIMS), such as local content requirements and local hiring requirements. Nearly all provide for some sort of dispute settlement. There is some tentative evidence that provisions in these arrangements have contributed to increased flows, especially towards stable countries with otherwise less-developed property rights or those initiating reforms, and they appear to be most helpful in attracting foreign investment when undertaken in combination with multilateral or preferential trade agreements.

Eric Neumayer and Laura Spess (2005) recently published in the journal World Development the first peer-reviewed, methodologically sophisticated econometric analysis of the effects that bilateral investment treaties (BITs) might have on foreign direct investment (FDI) inflows. The authors provided robust statistical evidence that developing countries that sign BITs with important capital-exporting countries enjoy potentially massive increases in FDI. This chapter replicates, expands, and critiques Neumayer and Spess's study with the purpose of probing how much is known about the effects of BITs on FDI inflows.

This chapter discusses the emergence of modern international investment law (IIL). It identifies three unique features: its decentralized composition; organic emergence; and the fact that it is highly contested but dynamically stable. It argues that IIL was not rationally designed or entered into at one given point but slowly developed over time from a series of small, historically-contingent and often accidental steps — not just by treaty or bilateral investment treaty (BIT) negotiators but also by contract drafters, international institutions and, most notably, arbitrators and litigators. Countries keep signing BITs and free trade agreements (FTAs) partly because they perceive them to be in their interest, partly because of network effects and path dependency.

This chapter discusses the development and significance of regional and bilateral investment agreements. The first two sections evaluate the reasoning behind the liberalization of trade and investment and the assumptions in favor of free trade agreements (FTAs) and bilateral investment treaties (BITs). The third section critiques different arguments in favor of negotiating and concluding BITs and FTAs. The fourth section proposes legal principles and standards to guide the application of bilateral trade and investment agreements in the future.

Chapter 6 addresses the Union law effects of EU foreign investment law. It begins with identifying the EU law rights and obligations of EU institutions and Member States arising from the regulation of foreign investment by the EU, focusing on the Union law obligation to comply and perform EU IIAs. Chapter 6 looks also extensively into the scope and application of the Union law obligation to respect the primacy and autonomy of Union law in the field of foreign investment regulation. It examines the compatibility of EU IIAs and, more importantly, of Member States BITs with EU law, it identifies the violations of Union law and assesses the suggested proposals for their remedy. This chapter considers also the enforceability of these Union law obligations, focusing on the scope of judicial review of EU and Member States actions in light of EU IIAs and the creation of individual rights.

This chapter deals with the last year of the 1980s and all of the subsequent decade. Though mostly placid for ICSID, the period was one of momentous change elsewhere in the World Bank Group and, of course, in the world at large. Section I describes the growing network of investment treaties, which was to have a tremendous impact on ICSID. The Multilateral Agreement on Investment episode is also discussed. There were many new signatures and ratifications of the ICSID Convention in the 1990s. They are recounted in Section II, which also looks at the working of the ICSID Secretariat during the decade. An overview of the cases submitted to ICSID between 1989 and 2000 is provided in Section III. Among them were the first Additional Facility cases. The Additional Facility cases, six of which were brought to the Centre under the investment chapter of the NAFTA, are examined in Section IV. The potential of bilateral investment treaties (BITs) to generate cases for ICSID started to be realized in earnest in this period. Several of the new BIT cases led to decisions that were particularly influential in the development of subsequent jurisprudence. These leading BIT cases are examined in Section V.

Wanting to sound a memorable theme in his 1949 inaugural address, President Truman adopted as “Point Four” of his address a proposal from a mid-level State Department official that the United States promote economic development in other countries through the provision of technical assistance and the encouragement of foreign investment. To implement the Point Four program, the State Department considered the negotiation of bilateral treaties addressing solely investment protection, but then decided that FCN treaties would serve as the desired bilateral investment treaties. Drawing on its evolving post–foreign investment policy statement and on experience with the ITO Charter, the State Department strengthened the investment protection provisions of the FCN treaties, through the inclusion of new provisions on fair and equitable treatment, unreasonable or discriminatory treatment, and exchange controls. The new language was incorporated into treaties with Colombia, Uruguay, and Ireland.

This chapter explores the relationship between free transfer clauses and exchange restrictions. The transfer of funds provision is a common feature of bilateral investment treaties (BITs). The free transfer provision is particularly important in difficult economic times, when the host country faces complex policy trade-offs. It argues that over the past two decades, the rise of a new generation of BITs has led to a patchwork liberalization of the capital account. This liberalization is slow and gradual, but the general direction is clear: greater openness. Taken together, the universe of existing BITs and free trade agreements (FTAs) substantially limits countries' freedom to impose restrictions on the capital account. This liberalization does not appear to follow general principles other than increased openness. It risks undermining macroeconomic stability and complicating the resolution of future financial crises.

This chapter focuses on the approach of the Andean States to the treatment of foreign investment capital, which underwent a fundamental change in the course of time. A common regime for the treatment of foreign investment which has now been in place for more than seventeen years was successively liberalized, and, although it is today characterized by a sufficient degree of openness, should be modified again and adjusted to the prevailing requirements of an ever more strongly globalized world economy. Despite several attempts, no separate comprehensive investment regime for the Andean region has been elaborated to date, so that the three different systems continue to exist side by side and compete with one another: (a) alongside the common rules of Decision 291, there are (b) national provisions which have not been harmonized yet, as well as (c) still applicable investment protection agreements (BITs) concluded by individual Andean States.