Most of this blog's readers are probably aware that the debate over international investment rules can get pretty heated. The supporters fight hard to beat back any criticism; the critics get very frustrated over perceived corporate influence and bias.
I'm a bit of an outsider to all of this, and I have found the state of the law, and the debate, a bit surprising. I have what could be called a reasonable and centrist view that searches for a middle ground (as I like to think), or, alternatively, could be seen as a view so "radical" that even some investor-state critics will be skeptical (as an investment law friend told me).
I'll let you be the judge -- feel free to tell me in the comments why my Cato paper on this subject is heretical and awful, or brilliant and visionary (or something in between). In this paper, I take a side in the debate, although to be honest, I feel like perhaps I've created a third side, and I'm not sure to what extent anyone will agree with me. (But then, I work at the Cato Institute, so I'm used to that.)
To whet your appetite, here's the conclusion:
If the major economic powers that have pushed for the current international investment system were to re-evaluate these issues, they might consider the following. Many of the rules in the existing regime seem positive in and of themselves. A wide range of countries have domestic laws that deal with expropriation and regulatory expropriation. And due process–type requirements are also common. Taking these domestic principles and elevating them to international legal status is not inherently objectionable.
But there are important implications from doing so, as these rules have a real impact on domestic policymaking. To some extent, these implications are obscured when the principles are made part of an international investment regime. It makes the rules seem limited to “foreign investment” matters, whereas in reality they are much broader. This is domestic law being pushed to the international level. If this is going to be done, it should be discussed more explicitly. A global agreement on rules for expropriation, in which governments gather with the explicit task of developing common rules on compensation for expropriation, would be one thing. Applying these principles only to foreign investors, and doing so as part of what is characterized as an investment treaty, is another thing entirely.
The current set of international investment rules was created to deal with problems faced by Western companies investing in the developing world decades ago. But what rules are appropriate in today’s more balanced world of investment, where companies with multiple national affiliations invest in multitudes of countries around the world? What rules are appropriate in a world where the nationality of companies is increasingly irrelevant, as companies operate globally and have little allegiance to particular governments? Liberalizing foreign investment is an important goal. But we need to make sure that any international rules in this area take on this task in an appropriate way, and it is worth examining how the existing system is performing. In this regard, this paper has proposed the following reforms to the system: any rules in this area should be multilateral, not bilateral or regional; the core principle should be nondiscrimination, with some of the broader principles currently in effect taken out; and state-state dispute settlement should be used, rather than investor-state. Rules along these lines would better reflect the current state of foreign investment flows, promote foreign investment, and maintain domestic regulatory autonomy.
