A recent empirical paper by CPB Netherlands Bureau for Economic Policy Analysis, a research institute under the Dutch Ministry of Economic Affairs, explains the effects of BITs (Bilateral Investment Treaties) on bilateral foreign direct investment (FDI) stocks for various regions and country income groups.
The sample in this paper is formed by 217 countries from 1985 to 2011, making it the largest and most recent period utilized in nearly all studies covering the effect of BITs on FDI. Other papers have often used a shorter period of time or a smaller sample. Reference can be made to a paper by the United Nations Conference on Trade and Development which reviews different studies on this issue. Our previous post has discussed this paper.
Below are some findings of the CPB paper:
- If countries have ratified a BIT then they invest on average 35% more in terms of stocks than country pairs without a ratified BIT.
- The effect differs between countries classified by income group (based on World Bank’s classification). Upper middle income countries seem to benefit the most from BITs. The impact on FDI stocks is about twice the average effect. Examples of upper middle income countries are Romania, Greece and Hungary.
- Region-wise, FDI impact is much larger if the host country is located in East Asia or Middle and Eastern Europe.
- The number of BITs among developed countries is about 500.
The International Bar Association, which has a membership of 55,000 individual lawyers across the globe, recently published a paper on ISDS. It is not only fact-based, but it also brings out some unfounded claims about ISDS that have not been widely addressed.
The paper mentions that it would be incorrect to state that ISDS is biased against developing countries as data on ISDS show no correlation between the success rates against states and their income levels.
Neither does ISDS enable investor to make “a fortune” from the system. Data show that even when investors won in ISDS, they have only recovered on average, less than half of the amount they claimed.
ISDS has at times been described as a one-sided system as it only allows investor to bring a claim against States. From a legal perspective, whether or not States can equally bring a claim in ISDS entirely depends on the exact language of the international investment agreement (IIA). This means that States retain the option to include this in the IIA. Case law also demonstrate that State-owned companies have frequently used ISDS.
Above all, it is not true that ISDS is not needed when domestic courts are already sophisticated. ISDS concerns questions of international law, hence international tribunal is needed to resolve those questions.
The IBA is further taking an initiative to analyse both the benefits and criticism on ISDS to make it a better system. To this end, the IBA is engaging with governments from both developed and developing countries, arbitral institutions, corporations and the legal profession.