Beyond credible commitments: (investment) treaties as focal points

Beyond credible commitments: (investment) treaties as focal points

by Lauge Poulsen, University College London

6 September 2019

Full article here (pdf)


Why do states enter into treaties? In literature on international economic relations, the dominant answer is that treaties allow governments to make credible commitments to traders, investors, domestic actors, and other governments. This view is particularlypronounced in the growing scholarship on investment treaties, but ithas difficulty accounting for the establishment of the regime itself during the Cold War. This article will show that before the 1980s capital-exporting states mainly intended investment treaties to serve as salient focal points for investment disputes, where the parties had an interest in reaching a negotiated outcome. Rather than providing judicialized dispute settlement, sanctions and penalties to make credible commitments, Western architects of the regime expected the treaties to play a standard-setting role to be used in informal bargaining with host states. The aim was coordination rather than hands-tying.

The articlemakes threecontributions. Empirically, it uses archival resources to explore theorigins of the investment treaty regime in developed countries. This contrastswith almost allpolitical economy literatureon the regime, which has focused onthe adoption and effects of investmenttreaties in developing countries from the 1980s onwards.1In additiontothe two largest capital-exporting states during the Cold War -the United States andthe United Kingdom–the article also focuses onGermany, as Bonnproduced the first-ever bilateral investment treaty (BIT), whichin turn provided the templatefor later European BIT programsusing similar boilerplate language. Inthese three critical cases, draftershad very different views on the function of investment treaties than the one portrayed inliteraturetoday.

The article also makes a theoretical contribution by puttingfocal points at the front and centre of a literature otherwise dominated by the credible commitment narrative. This includes the extensive scholarship on trade agreements, where the coordinating role of treaty obligations is oftenignored or only alluded to in passing.2By contrast, focal pointsplay a core role in other areas of liberal institutionalist scholarship (e.g. Drezner 2009; Simmons 2011; Büthe and Mattli 2011) and the concept is being embraced inrecent scholarship oninternational law as well (e.g. Ginsburg and McAdams 2003; Goldsmith and Posner 2005, ch. 1; Huth, Croco and Appel 2012; 2013). Building on these insights fill important gaps in our understanding of the investment treaty regime and are likely to do so for other areas of international economic lawas well.

Finally, the findings arenot just of historical and theoretical interest. Capital-exporting states are currently struggling to respond to the growing pushback against investment treaties. The core concern is the potent investor-state dispute settlement (ISDS) mechanism, which by 2019 had resulted in about 1,000internationalinvestor claimsagainst states -more than halfbroughtsince 2009. ISDSis as close to a credible commitment as we come in international law, yet many states arenowseeking to reign in the mechanismand somehave begun to question the needforitall-together. The historical context is notable here, as earlydraftersof investment treaties did not regard judicialised dispute settlement as a core component of the treaties and therefore excluded ISDS,or saw it as less of a priority.Perhaps this is one question where modern investment treaty drafters could find inspiration from their predecessors? And beyond the realm of investment, the analysis also invite comparisons with other regimes,where opposition to judicialized dispute settlement is on the riseas well, such as human rights, international criminal law, and trade.

source: Lauge Poulsen