Why so Many BITs? The Persistence of BITs in a World of Multilateral Agreements.

• In Event: International Collaboration and Foreign Investment

Abstract

Liberal Institutionalists have long suggested that multilateral institutions facilitate cooperation by reducing transaction costs. Yet, why does global FDI continue to be governed by a dense web of Bilateral Investment Treaties (BITs) rather than a single set of rules? According to the institutionalist logic, BITs increase the complexity and opaqueness of FDI regulations thus raising the costs of understanding the rules governing FDI in any country. These transaction costs can be powerful barriers to entry, particularly for smaller investors. A multilateral agreement akin to the WTO that serves as “a ‘one-stop’ substitute for the complex and legally diverse BIT regime would presumably improve transparency, reduce transaction costs and more efficiently facilitate the flow of FDI. This paper uses the failure of the Multilateral Agreement on Investment (MAI) to probe the persistence of  BITs as instruments for regulating FDI. The dominant account posits that external pressure from NGOs and CSOs derailed the MAI in 1998. We propose an alternative internal explanation and use coordination games to show how coordination failures between the main negotiating states hindered a multilateral agreement and resulted in an inefficient status quo.

Authors

• Alvine Nintai, Carleton University

• Inger Weibust, Carleton University