PUBLICATIONS

Sticky BITs: Provision Adaptation and Diffusion in the Investment Treaty Network

with Weijia Rao, forthcoming Harvard International Law Journal

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A defining feature of international investment law is its enforceability; almost all bilateral investment treaties (BITs) allow enforcement by investors through investor state arbitration. More than 800 enforcement actions have been initiated by investors and more than 70 billion dollars have been awarded by arbitrators. BIT enforcement has also given rise to a prominent critique from investment policy stakeholders that arbitrators sometimes overstep by expanding treaty protections through judicial interpretations that run counter to the expectations of the signatories. The primary solution advanced by some stakeholders is for states to negotiate new balanced treaties with more precise language to limit the discretion of arbitrators. Using the UNCTAD IIA Database, created by one of us in partnership with the United Nations Conference on Trade and Development (UNCTAD), we show this solution has had limited success. We also present evidence that high contracting costs, incomplete information, and status quo bias all contribute to the persistence of broad treaty provisions in the investment treaty network.

WORKING PAPERS

Do Enforcement Provisions Promote Investment? New Evidence from a Natural Experiment in the Investment Treaty Network

job talk paper

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Many developing countries are considering curtailing enforcement provisions available to investors in bilateral investment treaties (BITs). This change will likely benefit developing countries by restoring a portion of their sovereign autonomy, but perhaps at the cost of a decline in foreign investment. To evaluate whether and how the strength of the enforcement provisions in a BIT affect foreign investment I introduce a new comprehensive database that contains provision level information for over 2,500 BITs. I also identify a natural experiment that endowed some investors with new and stronger enforcement provisions through an unanticipated application of the “most favored nation” principle. I present robust evidence that stronger enforcement provisions do not lead to more investment. I also present suggestive evidence that imposing these provisions on a host economy may lead to a decline in investment as it reacts to its increased exposure to arbitration and tightened constraints on its regulation of foreign capital.

Capital Allocation in a Simple Dynamic Model of Multinational Production

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One of the primary points of contention in U.S. China trade negotiations is the Chinese government’s requirement that U.S. investors provide Chinese investors a 50 percent stake in their business enterprises. The United States argues that, in addition to unfairly enriching the Chinese, this ownership stake is also transferring intellectual property (IP) rights to Chinese investors that they are then using to undermine the global competitive advantage of U.S. firms. This paper presents a two country model of multinational production that precisely outlines the stakes in the U.S. China trade negotiations regarding capital ownership in U.S. investments in China. The model demonstrates that some profit sharing with Chinese households may be necessary to ensure China benefits from U.S. investment. It also shows that the transfer of IP to Chinese investors may substantially erode the incentive for U.S. investors to enter the Chinese economy. These findings suggest that IP protections and some profit sharing may both be necessary to achieve an optimal outcome for both countries.