Legalization, diplomacy, and development: Do investment treaties de-politicize investment disputes?

Abstract

Developing countries have entered into investment treaties for decades. One promise of signing up to these potent agreements was that it would allow risky investment climates to attract more capital. This proclaimed benefit of the investment treaty regime is subject to a large, and growing, empirical literaturewith mixed findings. Yet, another, and potentially far more important promise of the treaties has been entirely ignored in empirical literature. Architects of the investment treaty regime as well as many current proponents have suggested that the treaties would allow developing countries to de-politicize investor-state disputes; i.e. shield commercial disputes from broader political and diplomatic considerations with developed states. While this argument is widely accepted by legal scholars and practitioners and explicitly promoted by capital-exporting states, it has never been subjected to empirical investigation. We provide the first such test, using an original dataset of US diplomatic actions in 219 individual investment disputes across 73 countries as well as detailed case studies drawing on internal US State Department diplomatic cables. We find no evidence for the de-politicization hypothesis: diplomatic engagement remains important for investor-state dispute settlement, and American diplomats are just as likely to intervene in developing countries that have ratified investment treaties with the US as those that have not. And though aggressive, coercive American intervention in investment disputes is rare, this is a general feature of American investment diplomacy after the Cold War, rather than one limited to investors with recourse to legalized dispute settlement procedures. These findings provide a critical corrective to our understanding of the investment treaty regime, and have important implications for understanding the effects of international legalization on developing countries.

Do Investor–State Dispute Settlement Cases Influence Domestic Environmental Regulation? the Role of Respondent State Capacity

“…Studies looking at the effects of IIAs have focused on the benefit side of the agreements, that is, their ability to attract investment (Bonnitcha, Poulsen, and Waibel 2017, 155-166) and to depoliticize disputes (Gertz, Jandhyala, and Poulsen 2018). Although enforceability through ISDS is the component of IIAs that make them credible commitments to foreign investors (Elkins, Guzman, and Simmons 2006), the legitimacy debate in the investment treaty regime seems to be driven by the realization that IIAs also carry "low-probability, high-impact risks" (Poulsen 2014, 2).…”

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The Political Economy of Foreign Direct Investment to Developing Countries

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Commercial Diplomacy as a Part of National Transformation and its Impact on the Internationalization of SMEs: Evidence from Saudi Arabia

“…Several studies have argued that there is an immense need for research on CD based on the escalated contemporized market integration practices, processes, and structures. Accordingly, past researches such as Georgiadou (2018) and Gertz et al (2018) have also highlighted that developing countries are unable to recognize the importance of CD.…”