Withdrawing from Investment Treaties but Protecting Investment
| Date | 01 November 2016 |
| Published date | 01 November 2016 |
| Author | Clint Peinhardt,Rachel L. Wellhausen |
| DOI | http://doi.org/10.1111/1758-5899.12355 |
Withdrawing from Investment Treaties but
Protecting Investment
Clint Peinhardt
University of Texas at Dallas
Rachel L. Wellhausen
University of Texas at Austin
Abstract
A backlash against Investor State Dispute Settlement (ISDS), in which multinational corporations can sue governments, has led
some states to unilaterally withdraw from some of the thousands of investment treaties that facilitate ISDS. But thanks to
redundancies in the dense, decentralized network of investment treaties, states can reject some treaty commitments to ISDS
and maintain most (if not all) international legal protections for foreign investors. In this article, we explain the source of
redundancies, document the group of states that have taken advantage of unilateral withdrawal, and demonstrate that states
can recalibrate their international legal commitments without eschewing contemporary international investment law.
Backlash and its limits
States know that tying their hands by signing international
treaties can have drawbacks. If states only accept the commit-
ments that they intend to keep, then abrogation should only
occasionally happen, off the equilibrium path (e.g. Kore-
menos, 2005; Mitchell, 1994; Rosendorff and Milner, 2001. But
see Helfer, 2005.) Yet since the late 2000s, a growing number
of states has abrogated international investment treaties.
Some states have unilaterally withdrawn from some invest-
ment treaties to protest Investor State Dispute Settlement
(ISDS) provisions. ISDS allows foreign investors to sue states in
international tribunals, should investors feel a state has vio-
lated its commitments to treat them fairly. Sometimes, foreign
investors win big awards. ISDS thus triggers domestic frustra-
tion about the balance between foreign investors’rights and
national sovereignty (e.g. Poulsen, 2015; Wellhausen, 2015)
The fact that states are taking the radical action of abrogating
ISDS-enabling treaties has led many to worry about a backlash
against the evolving international investment regime (e.g.
Haftel and Thompson, 2013; Waibel et al., 2010).
We document limits to this backlash. Even states that
have abrogated some investment treaties have not with-
drawn from all international legal commitments to investor
protection. In part that choice is due to the difficulty of exit-
ing the dense, decentralized network of 3,000-odd invest-
ment treaties. At the same time, overlapping sources of
access to ISDS allow states to use unilateral withdrawal to
recalibrate rather than reject substantive or procedural inter-
national legal commitments. In this article, we explain the
source of states’redundant commitments to ISDS, survey
the group of states that has unilaterally withdrawn from
investment treaties, and show that their withdrawals have
thus far resulted in little to no real reduction in foreign
investors’access to international legal protections.
Overlap and redundancy in investment treaties
States around the world have signed some 3,000 investment
treaties in hopes of enhancing foreign investment (Elkins
et al., 2006; Jandhyala et al., 2011).
1
In exchange for that
uncertain benefit, states constrain their policymaking so as
to prioritize the property rights of foreign investors. Invest-
ment treaties expose states to litigation brought by foreign
investors over property rights issues, via ISDS. If the interna-
tional tribunal enabled by ISDS finds that a state has vio-
lated its legal commitments, it can require the state to
compensate the foreign investor. Commitments to ISDS in
investment treaties limit a state’s sovereignty and transfer
rights to foreign investors, in exchange for the hope of
more investment. Unsurprisingly, domestic audiences are
sometimes frustrated with this tradeoff.
Most investment treaties are bilateral investment treaties
(BITs), such that only investors originating from the two sig-
natory states gain access to the treaty’s protections.
2
Inves-
tor protections are also present in some multilateral treaties,
such as NAFTA and now the Trans-Pacific Partnership (TPP).
These treaties, too, provide protection to the subset of for-
eign investors from signatory states. One prominent multi-
lateral investment treaty, the Energy Charter Treaty (ECT),
protects only investors in energy industries from signatory
states. While foreign investors’precise legal protections in
all these treaties have similarities, they are not identical
(Allee and Peinhardt, 2010, 2014; Blake, 2013). As a result, a
foreign investor’s nationality is an important determinant of
the scope of protection available to it (Wellhausen, 2015).
Global Policy (2016) 7:4 doi: 10.1111/1758-5899.12355 ©2016 University of Durham and John Wiley & Sons, Ltd.
Global Policy Volume 7 . Issue 4 . November 2016 571
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