Abstract
Given that their main function is to forge durable commitments, it is notable that many international treaties change over time through the practice of renegotiation. While some agreements have remained intact after their initial conclusion, others are amended, updated, or replaced. Why are some international agreements renegotiated while others remain stable? This paper offers a systematic analysis of treaty renegotiation by presenting theoretical propositions and testing them in the context of bilateral investment treaties (BITs). We argue that states renegotiate when they learn new information about the legal and political consequences of their treaty commitments, and that such learning is most likely to take place when states are involved in investor-state dispute settlement cases. Employing an original data set on renegotiated BITs, we find robust empirical support for the learning argument. We conclude by discussing implications for the study of institutional change and the evolving investment regime.
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Notes
“India to Renegotiate all Bilateral Investment Pacts: Nirmala Sitharaman,” Economic Times, July 25, 2016.
“Official Warns EU-US Trade Deal at Risk over Investor Cases,” Financial Times, March 27, 2014.
On obstacles to investment treaty ratification generally, see Haftel and Thompson (2013).
It is possible for any treaty to be renegotiated if all parties can agree on new terms and, indeed, BITs are sometimes renegotiated early. For example, the Israel-Romania and Finland-Poland BITs were renegotiated well before their stipulated duration had expired.
In practice, renegotiation affects a wide variety of BIT provisions, so explaining changes in design would require a comprehensive coding of all initial and renegotiated treaty texts. This is beyond the scope of the current study but we have begun to examine this issue in other research (Broude et al. Forthcoming).
As Alter and Meunier (2009) note, regime complexity contributes to rule ambiguity and forces actors to learn over time about the effects of different policies.
For the text of the new BIT, see: http://investmentpolicyhub.unctad.org/Download/TreatyFile/4811. Accessed December 26, 2016.
We tested the proportional hazard assumption with Schoenfeld residuals and found that it is not violated by any of the models and variables.
Using two-dimensional clustering with the two countries in the dyad does not change the results.
The Appendix is available on the Review of International Organizations website.
Analysis of outliers was conducted with the dfBeta statistic. It indicated that Argentine BITs have an undue influence on the dispute variables. Keeping Argentine BITs in the analysis does not change the results in a meaningful manner.
We thus exclude investment treaties that were signed and then renegotiated before entry into force. In such instances the original treaty was not legally binding.
It is possible that governments react not only to cases in which they are defendants but also to cases in which their investors are claimants. It may also be the case that disputes within the dyad are especially relevant to the renegotiation of a given BIT. An empirical assessment of these intriguing conjectures is complicated by the fact that in almost all cases the claimant is a private investor whose home country is not always evident. That some investors engage in “treaty shopping” (using foreign subsidiaries to launch complaints) further complicates efforts to identify the home country. Thus, coding variables that account for the home country, in either a monadic or a dyadic set up, is necessarily incomplete and perhaps inaccurate. Nevertheless, we used available information on the claimant’s home country to assess the robustness of the results to the number of all monadic disputes (respondent and claimant) and the number of bilateral disputes. The former parallels the results on Dispute Respondent. The latter, on the other hand, is statistically insignificant.
Running similar models with two- and five-year lags does not change the results. The same conclusion holds for similar lagged transformations of Dispute Global.
It is also possible that states learn from disputes involving a subset of countries, such as those that are more proximate. We have examined this idea with a spatial lag of ISDS claims, weighted by geographical distance. The results, reported in the online Appendix, resemble those obtained for Dispute Global.
Investment Treaty News, May 31, 2006.
In line with conventional practice, we define the party with lower income per capita as the host country.
http://unctadstat.unctad.org/ReportFolders/reportFolders.aspx. Accessed January 6, 2013.
Data are from La Porta et al. (2008).
In additional models we included a variable for shared language. This variable was not statistically significant and did not change the results.
Including Dispute Respondent and Dispute Global in the same model does not change the results meaningfully. See the online Appendix.
The calculation is based on Model 6 in Table 1. We use this particular variable because it benefits from greater variation and because it demonstrates the effect of cumulative ISDS experience. One standard deviation below the mean is negative, so we substitute it with the minimum value (zero).
For example, the exclusion of Lagged Renegotiated BITs from models 2 and 8 renders Dispute Global statistically insignificant (but has no effect on Dispute Respondent). Possibly, the negative effect is an artifact of the moderately high correlation between the two variables (R2 = 0.46).
Investment Treaty News, November 21, 2005.
Unlike its counterparts, Romania renegotiated many of its BITs in the 1990s, well ahead of its accession to the EU. Excluding Romanian BITs from the analysis does not change the results.
Testing for shifts to the right and shifts to the left separately indicates that this result is driven mostly by the latter (both have positive coefficients but only a shift to the left is statistically significant). This interesting finding echoes Grieco et al. (2009).
We also tested for the cumulative gap in economic size, measured with GDP. This variable was statistically insignificant and did not change the results.
Author’s interview with an UNCTAD official, September 26, 2013, Geneva, Switzerland.
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Acknowledgements
The authors are listed in alphabetical order. For comments on previous drafts, we thank Todd Allee, Patrick Bayer, Tomer Broude, Raphael Cunha, Cédric Dupont, Virginia Haufler, Raymond Hicks, Robert Keohane, Helen Milner, Lauge Poulsen, Katherine Sawyer, Johannes Urpelainen, Daniel Verdier, Rachel Wellhausen and Jason Young. We also thank the Editor and three anonymous reviewers for their comments. We thank David Carlson, Moshe Goldman, Anahit Gomtsian, and Maayan Morali for helpful research assistance. Yoram Haftel received financial support from the Marie Curie FP7 Integration Grant (Project 333374) within the 7th European Union Framework Programme.
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Haftel, Y.Z., Thompson, A. When do states renegotiate investment agreements? The impact of arbitration. Rev Int Organ 13, 25–48 (2018). https://doi.org/10.1007/s11558-017-9276-1
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DOI: https://doi.org/10.1007/s11558-017-9276-1