from Development Channel

Effects of Investment Treaties in the Global South

April 23, 2013

U.S. President George W. Bush shakes hands with Rwandan President Paul Kagame after signing a bilateral investment treaty during a news conference at the Presidency in Kigali February 19, 2008 (Jason Reed/Courtesy Reuters).
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Last week Lori Wallach, Director of Public Citizen’s Global Trade Watch, joined me at CFR for a rare on the record roundtable meeting. Living up to her reputation for incisive and provocative remarks, Wallach sparked a heated debate about the impacts of investment treaties in the global south. She argued that Bilateral Investment Treaties (BITs), which aim to protect foreign investors from unfair and arbitrary treatment by governments, are themselves arbitrary and unfair.

BITs are treaties between governments that guarantee foreign investors a number of rights, including protection against expropriation and limitations on capital controls and performance requirements, and give foreign investors the ability to bring cases against governments in binding international arbitration to enforce these rights.

Wallach pointed out that investors have no corresponding obligations, so it can be difficult for governments and citizens to hold them accountable for playing by the rules. She also detailed a number of rulings by arbitral panels (pages ten through twelve of Wallach’s slide deck, PDF) in investor-state disputes that have undermined government efforts to protect the environment and promote human rights. And, according to Wallach, these arbitral panels in any case lack legitimacy as a global governance regime; she reported that “15 arbitrators alone have captured the decision-making in 55 percent of the total investment treaty cases known today” (page nine of slide deck). In short, Wallach argued that BITs as currently designed disadvantage governments and local small business owners, so are “antithetical to equitable and inclusive economic growth.”

Citing the academic research, Wallach said that these treaties do not in fact promote foreign direct investment (FDI)--meaning that the “grand bargain,” under which capital-importing countries relinquish domestic policy space in order to increase FDI and therefore growth, is not delivering as promised. If BITs do not actually empirically increase FDI, what do they do, and what are they good for, she asked the audience.

Many participants had very different views, arguing that these investment treaties generate important beneficial outcomes for both developing and developed countries by fostering investment and growth. This debate will be examined further in upcoming Development Channel articles and CFR meetings.

You can view Lori Wallach’s presentation here.  A recording of the roundtable meeting is available here.

More coming soon on poverty, inequality, and global economic governance.