Money makes the world go round. Although money flows are global, the rules governing investment are bilateral and regional. Cross-border investment is governed by a patchwork of over 3,000 bilateral investment treaties (BITs), regional and bilateral trade agreements (FTAs) with investment chapters, as well as the trade-related investment provisions of the World Trade Organization. While many states have signed international investment agreements (IIAs), they do not cover all states, investors, or categories of investments. Taken in sum, these IIAs have many problems, including:
- The 3,000-plus IIAs vary significantly and do not offer clear and uniform guidelines to protect international investment.
- Tribunals have no effective means of enforcing their decisions.
- Some investors and states take advantage of the hodgepodge of rules to “game the system” through forum-shopping and other strategies.
- Investors are increasingly challenging government regulatory or budgetary policies that reduce the value of their investments as “indirect expropriations.”
- Citizens in the United States, EU, and other countries are increasingly critical of the balkanized, uneven investor-state arbitration process.
We believe it is time for a fresh approach to international investment agreements: one that builds a more universal, consistent, and accountable system. In this policy brief, we put forward three concrete steps that can promote and protect foreign investment, advance the rule of law, preserve the ability of governments to regulate, and link trade and investment.
Step 1: At the behest of the G-20, the WTO and international organizations with investment competence should establish a committee of experts to develop a code of norms and best practices. G-20 members should use this code as a template for future investment agreements and encourage all WTO member states to sign up.
Step 2: WTO members should set up an Investment Appellate Body to review and if necessary, override controversial arbitrations where the rights of investors or governments were inadequately protected. The Investment Appellate Body will stand beside the WTO’s Trade Appellate Body.
Step 3: To give the Investment Appellate Body teeth, one or more WTO member states should ask the WTO Secretariat to explore the feasibility of using trade policy to retaliate against states that fail to comply with its decisions.