Costs and benefits of investment treaties

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CCSI | March 2018

Costs and benefits of investment treaties

Many governments around the world are thinking critically about their international investment treaties and international investment policy, spurred in part by growing public pressure and debate about how to best attract and govern multinational enterprises.

Several phenomena are driving this heightened attention: One is that
investor-state dispute settlement (ISDS) claims brought under
international investment treaties have been on the rise, involving a
broadening set of claims, and seeking millions, or even billions, of
dollars in damages for alleged breaches of fairly open-ended treaty
standards. As of July 31, 2017, 817 known ISDS claims had been filed,
and at least 114 states had faced formal claims.1 This is particularly
staggering given that the first ISDS case was filed only 30 years ago and
fewer than 50 cases had been filed before the year 2000.2 This means
that the implications of investment treaties and ISDS have really only
become apparent in the last 15 years.

A second and related factor is that negotiations of new treaties have
attracted greater public attention. Some of these new agreements are
unprecedented in terms of the breadth of investment they cover, the
restraints they place on countries’ powers to regulate investors and
investments and the complexity of their provisions; others, such as
the texts concluded by Brazil, are also attracting attention for their
decision to eschew strong investor protections in favor of a more
pragmatic focus on investment promotion.3

A third factor is that states are focused on attracting investment that
will help propel their sustainable economic growth and development
and, in that context, are evaluating the policies and tools that are
effective and efficient in advancing that aim. As part of that evaluation,
they are reassessing whether investment treaties do in fact help
increase investment flows and, more specifically, whether induced flows are the types of investment they want. States are also
considering whether any potential benefits in terms of investment
flows outweigh the costs of these treaties in terms of litigation
expenses, potential liability, reduced policy space, or other
considerations; and whether there are other policies that are better
tailored to meet their investment attraction and development
objectives. Some traditionally capital exporting states are also
assessing whether their investment treaties are consistent with their
stated development policies toward their capital importing partners.4

Accordingly, states increasingly recognize the importance of taking
stock of existing investment treaties as well as policies regarding
future texts, and are more strategically considering the advantages
and disadvantages of these agreements, and whether, when and on
what terms to sign, maintain, or amend them. This research paper
aims to help that analysis by (1) providing an overview of literature
on the costs and benefits of investment treaties with ISDS, and (2)
examining policy implications and conclusions.

In summary, this paper highlights that the costs of investment treaties
are increasingly apparent, but the benefits largely unproven; thus, it
is an opportune time for countries to review their policies and
practices regarding these instruments. The conclusion of this paper
also suggests practical steps that states can take to assess these costs
and benefits, and identifies considerations and strategies relevant for
managing obligations contained in existing treaties and shaping
future agreements.

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source: CCSI