《国际政治经济学》文献资料（Political Economy of International Development）Competing for Capital. Diffusion of Bilateral Investment Treaties

Competing for Capital:The Diffusion of Bilateral Investment Treaties,1960-2000 Zachary Elkins,Andrew T.Guzman, and Beth A.Simmons Abstract Over the past forty-five years,bilateral investment treaties (BITs)have become the most important international legal mechanism for the encouragement and governance of foreign direct investment.The proliferation of BITs during the past two decades in particular has been phenomenal.These intergovernmental treaties typ- ically grant extensive rights to foreign investors,including protection of contractual rights and the right to international arbitration in the event of an investment dispute. How can we explain the widespread adoption of BITs?We argue that the spread of BITs is driven by international competition among potential host countries-typically developing countries-for foreign direct investment.We propose a set of hypotheses that derive from such an explanation and develop a set of empirical tests that rely on network measures of economic competition as well as more indirect evidence of com- petitive pressures on the host to sign BITs.The evidence suggests that potential hosts are more likely to sign BITs when their competitors have done so.We find some evidence that coercion and learning play a role,but less support for cultural expla- nations based on emulation.Our main finding is that the diffusion of BITs is associ- ated with competitive economic pressures among developing countries to capture a share of foreign investment.We are agnostic at this point about the benefits of this competition for development. The global market for productive capital is more integrated than ever before.The growth of foreign direct investment(FDI)is a clear example.According to World Bank data,gross FDI as a percentage of total world production increased seven- fold from 1.2 percent to 8.9 percent between 1970 and 2000.Though such invest- ments tend to be highly skewed across jurisdictions-developed countries account For useful comments on earlier drafts of this article,we thank Bill Bernhard,Bear Braumoeller, Frank Dobbin,Robert Franzese,Jeffry Frieden,Geoffrey Garrett,Tom Ginsburg,Jude Hays,Lisa Mar- tin,Bob Pahre,Mark Ramsayer,Steven Ratner,Susan Rose-Ackerman,and John Sides.For research assistance,we thank Elizabeth Burden.Raechel Groom,and Alexander Noonan. International Organization 60,Fall 2006,pp.811-846 2006 by The IO Foundation. D0L:10.1017/S0020818306060279

Competing for Capital: The Diffusion of Bilateral Investment Treaties, 1960 – 2000 Zachary Elkins, Andrew T+ Guzman, and Beth A+ Simmons Abstract Over the past forty-five years, bilateral investment treaties ~BITs! have become the most important international legal mechanism for the encouragement and governance of foreign direct investment+ The proliferation of BITs during the past two decades in particular has been phenomenal+ These intergovernmental treaties typ￾ically grant extensive rights to foreign investors, including protection of contractual rights and the right to international arbitration in the event of an investment dispute+ How can we explain the widespread adoption of BITs? We argue that the spread of BITs is driven by international competition among potential host countries—typically developing countries—for foreign direct investment+ We propose a set of hypotheses that derive from such an explanation and develop a set of empirical tests that rely on network measures of economic competition as well as more indirect evidence of com￾petitive pressures on the host to sign BITs+ The evidence suggests that potential hosts are more likely to sign BITs when their competitors have done so+ We find some evidence that coercion and learning play a role, but less support for cultural expla￾nations based on emulation+ Our main finding is that the diffusion of BITs is associ￾ated with competitive economic pressures among developing countries to capture a share of foreign investment+ We are agnostic at this point about the benefits of this competition for development+ The global market for productive capital is more integrated than ever before+ The growth of foreign direct investment ~FDI! is a clear example+ According to World Bank data, gross FDI as a percentage of total world production increased seven￾fold from 1+2 percent to 8+9 percent between 1970 and 2000+ Though such invest￾ments tend to be highly skewed across jurisdictions—developed countries account For useful comments on earlier drafts of this article, we thank Bill Bernhard, Bear Braumoeller, Frank Dobbin, Robert Franzese, Jeffry Frieden, Geoffrey Garrett, Tom Ginsburg, Jude Hays, Lisa Mar￾tin, Bob Pahre, Mark Ramsayer, Steven Ratner, Susan Rose-Ackerman, and John Sides+ For research assistance, we thank Elizabeth Burden, Raechel Groom, and Alexander Noonan+ International Organization 60, Fall 2006, pp+ 811–846 © 2006 by The IO Foundation+ DOI: 10+10170S0020818306060279

812 International Organization for more than 93 percent of outflows and 68 percent of inflows-foreign capital has come to play a much more visible role in many more countries worldwide. It is widely recognized that economic globalization requires market-supporting institutions to flourish.But unlike trade and monetary relations,virtually no multi- lateral rules for FDI exist.?Direct investments in developing countries are over- whelmingly governed by bilateral investment treaties(BITs).BITs are agreements establishing the terms and conditions for private investment by nationals and com- panies of one country in the jurisdiction of another.Virtually all BITs cover four substantive areas:FDI admission,treatment,expropriation,and the settlement of disputes.These bilateral arrangements have proliferated over the past forty-five years,and especially in the past two decades,even as political controversies have plagued efforts to establish a multilateral regime for FDI. Why the profusion of bilateral agreements?The popularity of BITs contrasts sharply with the collective resistance developing countries have shown toward pro- investment principles under customary international law and the failure of the inter- national community to make progress on a multilateral investment agreement.3 On its face,this seems to suggest that BITs do not simply reflect the ready accep- tance of dominant international property rights norms.Our theory and findings support the competitive economic explanations described in the introduction to this symposium:the proliferation of BITs-and the liberal property rights regime they embody-is propelled in good part by the competition among potential host countries for credible property rights protections that direct investors require. The article is organized as follows.The first section describes the spread of BITs in some detail.The second section presents a model of competition for invest- ment that could lead to diffusion among competitors.The third section discusses the methods we use to test our propositions (and a range of alternatives),and the fourth section discusses our findings.Our data are consistent with competitive pres- sures for BIT proliferation:governments are influenced by competitors'policies and by the mobility of FDI in manufactures,which tends to intensify competition among hosts.We interpret our findings as evidence of pressure for certain govern- ments to adopt capital-friendly policies in highly competitive global capital markets. Securing Investors'Legal Rights From Customary Law to Bilateral Investment Treaties FDI has always been subject to contractual and political hazards that raise the expected costs of investing.5 Before the use of BITs,few mechanisms existed to 1.UNCTAD.FDI/TNC Database.Available at (http://www.unctad.org).Accessed 20 June 2006. 2.For a review of the relevant legal literature,see Dolzer 1981;Minor 1994;Sornarajah 1994;and Vagts 1987. 3.Guzman 1998. 4.Simmons,Dobbin,and Garrett,this volume. 5.Henisz 2000

for more than 93 percent of outflows and 68 percent of inflows1 —foreign capital has come to play a much more visible role in many more countries worldwide+ It is widely recognized that economic globalization requires market-supporting institutions to flourish+ But unlike trade and monetary relations, virtually no multi￾lateral rules for FDI exist+ 2 Direct investments in developing countries are over￾whelmingly governed by bilateral investment treaties ~BITs!+ BITs are agreements establishing the terms and conditions for private investment by nationals and com￾panies of one country in the jurisdiction of another+ Virtually all BITs cover four substantive areas: FDI admission, treatment, expropriation, and the settlement of disputes+ These bilateral arrangements have proliferated over the past forty-five years, and especially in the past two decades, even as political controversies have plagued efforts to establish a multilateral regime for FDI+ Why the profusion of bilateral agreements? The popularity of BITs contrasts sharply with the collective resistance developing countries have shown toward pro￾investment principles under customary international law and the failure of the inter￾national community to make progress on a multilateral investment agreement+ 3 On its face, this seems to suggest that BITs do not simply reflect the ready accep￾tance of dominant international property rights norms+ Our theory and findings support the competitive economic explanations described in the introduction to this symposium: 4 the proliferation of BITs—and the liberal property rights regime they embody—is propelled in good part by the competition among potential host countries for credible property rights protections that direct investors require+ The article is organized as follows+ The first section describes the spread of BITs in some detail+ The second section presents a model of competition for invest￾ment that could lead to diffusion among competitors+ The third section discusses the methods we use to test our propositions ~and a range of alternatives!, and the fourth section discusses our findings+ Our data are consistent with competitive pres￾sures for BIT proliferation: governments are influenced by competitors’ policies and by the mobility of FDI in manufactures, which tends to intensify competition among hosts+ We interpret our findings as evidence of pressure for certain govern￾ments to adopt capital-friendly policies in highly competitive global capital markets+ Securing Investors’ Legal Rights From Customary Law to Bilateral Investment Treaties FDI has always been subject to contractual and political hazards that raise the expected costs of investing+ 5 Before the use of BITs, few mechanisms existed to 1+ UNCTAD+ FDI0TNC Database+ Available at ^http:00www+unctad+org&+ Accessed 20 June 2006+ 2+ For a review of the relevant legal literature, see Dolzer 1981; Minor 1994; Sornarajah 1994; and Vagts 1987+ 3+ Guzman 1998+ 4+ Simmons, Dobbin, and Garrett, this volume+ 5+ Henisz 2000+ 812 International Organization

Diffusion of Bilateral Investment Treaties 813 make state promises about the treatment of foreign investment credible.Custom- ary international law,expressed succinctly in the "Hull Rule,"held that "no gov- ernment is entitled to expropriate private property,for whatever purpose,without provision for prompt,adequate,and effective payment therefore."7 Apart from the obvious problem of enforcement,this approach did not allow potential hosts to voluntarily signal their intent to contract in good faith. Both customary international law and its practice were under attack by developing country hosts by the 1950s.The nationalization of British oil assets by Iran in 1951, the expropriation of Liamco's concessions in Libya in 1955,and the nationaliza- tion of the Suez Canal by Egypt a year later served notice of a new militancy on the part of investment hosts.The nationalization of sugar interests by Cuba in the 1960s further undercut assumptions about the security of international investments.3 Mean- while,collective resistance to the Hull Rule in the United Nations was on the rise. In 1962,the UN General Assembly adopted the "Resolution on Permanent Sover- eignty over Natural Resources"that provided for merely "appropriate"compensa- tion in the event of expropriation.Several more UN resolutions followed in the 1970s,along with a string of undercompensated expropriations around the world.10 Bilateral treaties made their debut in the late 1950s,just as consensus on cus- tomary rules began to erode.BITs were innovative in a number of respects.They 6.For a discussion of the historical protection of foreign investment,see Lipson 1985 7.See Cordell Hull's note to the Mexican Minister of Foreign Affairs during a 1938 dispute over land expropriations,reprinted in Green H.Hackworth,Digest of International Law v.3,228 (1942). The Rule itself predates Cordell Hull's statement,and various statements of it can be found in deci- sions from the early part of the twentieth century.See Concerning the Factory at Chorzow (Ger.v. Pol.),1926-29 P.C.IL.(ser.A),Nos.7,9,17,19;and Norwegian Shipowners Claims Arbitration (U.S.v.Nor.)1 Rep.Int'l Arb.Awards 307 (1922). 8.Guzman 1998. 9.These are discussed in Lipson 1985.In 1966 the General Assembly reaffirmed states'rights to nationalize resources without reference to international legal principles.In 1972,the UN General Assem- bly passed Resolution 3041(XXVII),which contained an endorsement of the Trade and Development Board's resolution 88(XII)of 19 October 1972,regarding permanent sovereignty over natural resources, and claimed that compensation for natural resource nationalization cases was to be fixed by the nation- alizing state,with jurisdiction for such cases falling within the sole jurisdiction of the nationalizing country's courts.The 1973 Resolution on Permanent Sovereignty over Natural Resources(Resolution 3171)stated that in the event of nationalization "each State is entitled to determine the amount of possible compensation and the mode of payment."The 1974 Charter of Economic Rights and Duties of States [GA Res.3281(xxix),UN GAOR,29th Sess.,Supp.No.31,50]specified the right of each state"To nationalize,expropriate or transfer ownership of foreign property,in which case appropriate compensation should be paid by the State adopting such measures,taking into account its relevant laws and regulations and all circumstances that the State considers pertinent,"with national courts taking jurisdiction in case of disputes [Art.2(c)]. 10.See Kobrin 1980. 11.Other mechanisms have been used to try to protect foreign investment,of course.One possibil- ity since 1988 is to apply for insurance through the World Bank's Multilateral Insurance Guarantee Agency (MIGA).MIGA covers risks associated with transfer restriction,expropriation,breach of con- tract,and risks relating to war and civil disturbances.See (http://www.miga.org/).Accessed 20 June 2006.U.S.businesses can also insure against risks associated with currency inconvertibility,expropri- ation,and political violence by applying for investment insurance from the Overseas Private Invest- ment Corporation (OPIC),a U.S.government agency.See (http://www.opic.gov/Insurance/).Accessed 20June2006

make state promises about the treatment of foreign investment credible+ 6 Custom￾ary international law, expressed succinctly in the “Hull Rule,” held that “no gov￾ernment is entitled to expropriate private property, for whatever purpose, without provision for prompt, adequate, and effective payment therefore+”7 Apart from the obvious problem of enforcement, this approach did not allow potential hosts to voluntarily signal their intent to contract in good faith+ Both customary international law and its practice were under attack by developing country hosts by the 1950s+ The nationalization of British oil assets by Iran in 1951, the expropriation of Liamco’s concessions in Libya in 1955, and the nationaliza￾tion of the Suez Canal by Egypt a year later served notice of a new militancy on the part of investment hosts+ The nationalization of sugar interests by Cuba in the 1960s further undercut assumptions about the security of international investments+ 8 Mean￾while, collective resistance to the Hull Rule in the United Nations was on the rise+ In 1962, the UN General Assembly adopted the “Resolution on Permanent Sover￾eignty over Natural Resources” that provided for merely “appropriate” compensa￾tion in the event of expropriation+ Several more UN resolutions followed in the 1970s, 9 along with a string of undercompensated expropriations around the world+ 10 Bilateral treaties made their debut in the late 1950s, just as consensus on cus￾tomary rules began to erode+ BITs were innovative in a number of respects+ 11 They 6+ For a discussion of the historical protection of foreign investment, see Lipson 1985+ 7+ See Cordell Hull’s note to the Mexican Minister of Foreign Affairs during a 1938 dispute over land expropriations, reprinted in Green H+ Hackworth, Digest of International Law v+ 3, § 228 ~1942!+ The Rule itself predates Cordell Hull’s statement, and various statements of it can be found in deci￾sions from the early part of the twentieth century+ See Concerning the Factory at Chorzow ~Ger+ v+ Pol+!, 1926–29 P+C+I+L+ ~ser+ A!, Nos+ 7, 9, 17, 19; and Norwegian Shipowners Claims Arbitration ~U+S+ v+ Nor+! 1 Rep+ Int’l Arb+ Awards 307 ~1922!+ 8+ Guzman 1998+ 9+ These are discussed in Lipson 1985+ In 1966 the General Assembly reaffirmed states’ rights to nationalize resources without reference to international legal principles+ In 1972, the UN General Assem￾bly passed Resolution 3041 ~XXVII!, which contained an endorsement of the Trade and Development Board’s resolution 88 ~XII! of 19 October 1972, regarding permanent sovereignty over natural resources, and claimed that compensation for natural resource nationalization cases was to be fixed by the nation￾alizing state, with jurisdiction for such cases falling within the sole jurisdiction of the nationalizing country’s courts+ The 1973 Resolution on Permanent Sovereignty over Natural Resources ~Resolution 3171! stated that in the event of nationalization “each State is entitled to determine the amount of possible compensation and the mode of payment+” The 1974 Charter of Economic Rights and Duties of States @GA Res+ 3281~xxix!, UN GAOR, 29th Sess+, Supp+ No+ 31, 50# specified the right of each state “To nationalize, expropriate or transfer ownership of foreign property, in which case appropriate compensation should be paid by the State adopting such measures, taking into account its relevant laws and regulations and all circumstances that the State considers pertinent,” with national courts taking jurisdiction in case of disputes @Art+ 2~c!#+ 10+ See Kobrin 1980+ 11+ Other mechanisms have been used to try to protect foreign investment, of course+ One possibil￾ity since 1988 is to apply for insurance through the World Bank’s Multilateral Insurance Guarantee Agency ~MIGA!+ MIGA covers risks associated with transfer restriction, expropriation, breach of con￾tract, and risks relating to war and civil disturbances+ See ^http:00www+miga+org0&+ Accessed 20 June 2006+ U+S+ businesses can also insure against risks associated with currency inconvertibility, expropri￾ation, and political violence by applying for investment insurance from the Overseas Private Invest￾ment Corporation ~OPIC!, a U+S+ government agency+ See ^http:00www+opic+gov0Insurance0&+ Accessed 20 June 2006+ Diffusion of Bilateral Investment Treaties 813

814 International Organization require an explicit commitment on the part of the potential host government and involve direct negotiations with the government of potential investors.In this way, BITs up the political ante for the host government and raise expectations of per- formance.The typical BIT offers a wider array of substantive protections than did the customary rule.For example,BITs typically require national treatment and most-favored-nation treatment of foreign investments in the host country,2 pro- tect contractual rights,3 guarantee the right to transfer profits in hard currency to the home country,and prohibit or restrict the use of performance requirements.14 Finally,and perhaps most importantly,BITs provide for international arbitration of disputes between the investor and the host country,5 typically through the Inter- national Center for Settlement of Investment Disputes (ICSID)or the UN Com- mission on International Trade Law (UNCITRAL). The Spread of BITs Despite the aggressive campaign waged by some developing countries against the relevant customary international law,BITs were embraced by many potential host governments.6 Figure 1 documents the geometric growth of both investment trea- ties and mean inflows of FDI as a percentage of GDP from 1960 to 2000.Early BITs typically involved a midsized European power and one of the least devel- oped countries,often in Africa(see Table 1).The negotiation of BITs proceeded at a moderate pace until the mid-1980s,rarely exceeding twenty new treaties per year.Late in the decade,however,the rate of signings accelerated dramatically, with an average of more than one hundred new treaties a year throughout the 1990s. The United States embraced BITs later than did its West European counterparts. Between 1962 and 1972,during which time West Germany entered into forty-six BITs and Switzerland entered into twenty-seven,the United States eschewed such treaties and signed only two Friendship Commerce and Navigation Treaties-with Togo and Thailand.7 One reason for the delayed U.S.participation in bilateral arrangements may have been the hope of retaining a multilateral approach.The United States was one of the most aggressive proponents of the Hull Rule and 12.For example,the 1994 U.S.Prototype Bilateral Investment Treaty,Office of the Chief Counsel for International Commerce,U.S.Department of Commerce;Article 2(1),2(2)(a).For convenience, throughout this article we label the more developed partner in a BIT the "home"country (meaning the home of investors)and the less-developed partner the "host."The treaty obligations bind both parties, but in the vast majority of treaties there is a developed country that will be the source of most FDI and a developing country that will be the recipient. 13.For example,1994 U.S.Prototype BIT,Article I(d)(ii). 14.For example,ibid.,Article V(1-2). 15.For example,ibid.,Article IX. 16.It is interesting to note,however,that some of the most vociferous opponents of the Hull Rule were in fact latecomers to the BITs movement.As of the late 1990s,Mexico for example had signed only two BITs,with Spain and Switzerland.Brazil did not sign a BIT until 1994,and as of the late 1990s none of its 10 bilateral agreements had entered into force.India's pattern is similar to that of Brazil.See (http://www.worldbank.org/icsid/treaties/treaties.htm).Accessed 10 December 2003. 17.Vandevelde 1988

require an explicit commitment on the part of the potential host government and involve direct negotiations with the government of potential investors+ In this way, BITs up the political ante for the host government and raise expectations of per￾formance+ The typical BIT offers a wider array of substantive protections than did the customary rule+ For example, BITs typically require national treatment and most-favored-nation treatment of foreign investments in the host country, 12 pro￾tect contractual rights, 13 guarantee the right to transfer profits in hard currency to the home country, and prohibit or restrict the use of performance requirements+ 14 Finally, and perhaps most importantly, BITs provide for international arbitration of disputes between the investor and the host country, 15 typically through the Inter￾national Center for Settlement of Investment Disputes ~ICSID! or the UN Com￾mission on International Trade Law ~UNCITRAL!+ The Spread of BITs Despite the aggressive campaign waged by some developing countries against the relevant customary international law, BITs were embraced by many potential host governments+ 16 Figure 1 documents the geometric growth of both investment trea￾ties and mean inflows of FDI as a percentage of GDP from 1960 to 2000+ Early BITs typically involved a midsized European power and one of the least devel￾oped countries, often in Africa ~see Table 1!+ The negotiation of BITs proceeded at a moderate pace until the mid-1980s, rarely exceeding twenty new treaties per year+ Late in the decade, however, the rate of signings accelerated dramatically, with an average of more than one hundred new treaties a year throughout the 1990s+ The United States embraced BITs later than did its West European counterparts+ Between 1962 and 1972, during which time West Germany entered into forty-six BITs and Switzerland entered into twenty-seven, the United States eschewed such treaties and signed only two Friendship Commerce and Navigation Treaties—with Togo and Thailand+ 17 One reason for the delayed U+S+ participation in bilateral arrangements may have been the hope of retaining a multilateral approach+ The United States was one of the most aggressive proponents of the Hull Rule and 12+ For example, the 1994 U+S+ Prototype Bilateral Investment Treaty, Office of the Chief Counsel for International Commerce, U+S+ Department of Commerce; Article 2~1!, 2~2!~a!+ For convenience, throughout this article we label the more developed partner in a BIT the “home” country ~meaning the home of investors! and the less-developed partner the “host+” The treaty obligations bind both parties, but in the vast majority of treaties there is a developed country that will be the source of most FDI and a developing country that will be the recipient+ 13+ For example, 1994 U+S+ Prototype BIT, Article I~d!~ii!+ 14+ For example, ibid+, Article V~1-2!+ 15+ For example, ibid+, Article IX+ 16+ It is interesting to note, however, that some of the most vociferous opponents of the Hull Rule were in fact latecomers to the BITs movement+ As of the late 1990s, Mexico for example had signed only two BITs, with Spain and Switzerland+ Brazil did not sign a BIT until 1994, and as of the late 1990s none of its 10 bilateral agreements had entered into force+ India’s pattern is similar to that of Brazil+ See ^http:00www+worldbank+org0icsid0treaties0treaties+htm&+ Accessed 10 December 2003+ 17+ Vandevelde 1988+ 814 International Organization

Diffusion of Bilateral Investment Treaties 815 200 Number of treaties signed Average FDI Average 150- 6 100 inflows 50- GDP) 0- 1960 1970 1980 1990 2000 Year FIGURE 1.Number of bilateral investment treaties signed and mean global foreign direct investment as a proportion of GDP,by year,1959-99 may have feared that BITs represented a threat to its claim that investment was already protected under customary international law.Moreover,potential hosts may have had incentives to resist the relatively onerous provisions the U.S.govern- ment typically tried to secure.One of the prime differences between the terms typically offered by the Europeans and the United States at this time was the former's emphasis on investment protection and the latter's additional insistence on liberalization.18 It was not until 1981 that the United States changed its view on BITs.There is evidence that some officials in the administration of U.S.President Ronald Reagan viewed BITs as an alternative way to protect the principles contained in the embat- tled Hull Rule.Secretary of State George Schultz argued that BITs were designed "to protect investment not only by treaty but also by reinforcing traditional inter- national legal principles and practice regarding foreign direct private invest- 18."Multilateral or Bilateral Investment Negotiations:Where Can Developing Countries Make Them- selves Heard"Briefing Paper No.9.Available at (http://cuts-international.org/9-2002.pdf).Accessed 12 July 2006.Some observers note that the insistence on liberalization explains the inability of the United States to secure agreements with East and Southeast Asian countries until quite recent years; see Reading 1992

may have feared that BITs represented a threat to its claim that investment was already protected under customary international law+ Moreover, potential hosts may have had incentives to resist the relatively onerous provisions the U+S+ govern￾ment typically tried to secure+ One of the prime differences between the terms typically offered by the Europeans and the United States at this time was the former’s emphasis on investment protection and the latter’s additional insistence on liberalization+ 18 It was not until 1981 that the United States changed its view on BITs+ There is evidence that some officials in the administration of U+S+ President Ronald Reagan viewed BITs as an alternative way to protect the principles contained in the embat￾tled Hull Rule+ Secretary of State George Schultz argued that BITs were designed “to protect investment not only by treaty but also by reinforcing traditional inter￾national legal principles and practice regarding foreign direct private invest- 18+ “Multilateral or Bilateral Investment Negotiations: Where Can Developing Countries Make Them￾selves Heard” Briefing Paper No+ 9+ Available at ^http:00cuts-international+org09-2002+pdf&+ Accessed 12 July 2006+ Some observers note that the insistence on liberalization explains the inability of the United States to secure agreements with East and Southeast Asian countries until quite recent years; see Reading 1992+ FIGURE 1. Number of bilateral investment treaties signed and mean global foreign direct investment as a proportion of GDP, by year, 1959–99 Diffusion of Bilateral Investment Treaties 815

816 International Organization TABLE 1.The first forty bilateral investment treaties signed Investing country Host country Year BIT signed Germany Dominican Republic 1959 Germany Pakistan 1959 Germany Malaysia 1960 Germany Greece 1961 Switzerland Tunisia 1961 Germany Togo 1961 Germany Thailand 1961 Germany Liberia 1961 Germany Morocco 1961 Switzerland Niger 1962 Switzerland Cote d'Ivoire 1962 Switzerland Guinea 1962 Germany Cameroon 1962 Switzerland Congo 1962 Switzerland Senegal 1962 Germany Guinea 1962 Germany Turkey 1962 Germany Madagascar 1962 Switzerland Rwanda 1963 Netherlands Tunisia 1963 Switzerland Liberia 1963 Switzerland Cameroon 1963 Germany Sri Lanka 1963 Germany Tunisia 1963 Germany Sudan 1963 Italy Guinea 1964 Switzerland Togo 1964 Germany Senegal 1964 Germany Niger 1964 Switzerland Madagascar 1964 Belgium-Luxembourg Tunisia 1964 Germany Korea 1964 Switzerland Tanzania 1965 Switzerland Malta 1965 Germany Sierra Leone 1965 Switzerland Costa Rica 1965 Germany Ecuador 1965 Netherlands Cameroon 1965 Netherlands Cote d'Ivoire 1965 Sweden Cote d'Ivoire 1965 ment."9 By the mid-1980s,the United States pursued investor protection in the same fashion as did the Europeans.Schultz noted in his communication with the 19.George P.Schultz,transmission letter to the president recommending transmission of the U.S.- Turkey Bilateral Investment Treaty,1985.Available at(http://www.state.gov/documents/organization/ 43615.pdf).Accessed 12 July 2006

ment+”19 By the mid-1980s, the United States pursued investor protection in the same fashion as did the Europeans+ Schultz noted in his communication with the 19+ George P+ Schultz, transmission letter to the president recommending transmission of the U+S+- Turkey Bilateral Investment Treaty, 1985+ Available at ^http:00www+state+gov0documents0organization0 43615+pdf&+ Accessed 12 July 2006+ TABLE 1. The first forty bilateral investment treaties signed Investing country Host country Year BIT signed Germany Dominican Republic 1959 Germany Pakistan 1959 Germany Malaysia 1960 Germany Greece 1961 Switzerland Tunisia 1961 Germany Togo 1961 Germany Thailand 1961 Germany Liberia 1961 Germany Morocco 1961 Switzerland Niger 1962 Switzerland Cote d’Ivoire 1962 Switzerland Guinea 1962 Germany Cameroon 1962 Switzerland Congo 1962 Switzerland Senegal 1962 Germany Guinea 1962 Germany Turkey 1962 Germany Madagascar 1962 Switzerland Rwanda 1963 Netherlands Tunisia 1963 Switzerland Liberia 1963 Switzerland Cameroon 1963 Germany Sri Lanka 1963 Germany Tunisia 1963 Germany Sudan 1963 Italy Guinea 1964 Switzerland Togo 1964 Germany Senegal 1964 Germany Niger 1964 Switzerland Madagascar 1964 Belgium-Luxembourg Tunisia 1964 Germany Korea 1964 Switzerland Tanzania 1965 Switzerland Malta 1965 Germany Sierra Leone 1965 Switzerland Costa Rica 1965 Germany Ecuador 1965 Netherlands Cameroon 1965 Netherlands Cote d’Ivoire 1965 Sweden Cote d’Ivoire 1965 816 International Organization

Diffusion of Bilateral Investment Treaties 817 30 25 ● Dyads signing BITs ● 20 15- 10- ● All dyads at risk 1960 1970 1980 1990 2000 Year Note:Data points shown are for dyads signing BITs. FIGURE 2.Mean difference in GDP per capita between dyad members president after completion of six BITs in 198620 that,"[o]ur BIT approach fol- lowed similar programs that had been undertaken with considerable success by a number of European countries,including the Federal Republic of Germany and the United Kingdom,since the early 1960s."21 By the late 1980s,most analysts would agree that governments in countries home to large multinational corporations (MNCs)had nearly converged on a single treaty model.Developing countries could, increasingly,opt to take it or to leave it.As Figure 1 attests,many did the former. Early on,BITs were primarily agreements between countries of starkly varying developmental levels and political traditions.Figure 2,which plots the mean dif- ference in gross domestic product(GDP)per capita between BIT partners as well as that between states in all other dyads"at risk"of signing in a given year,dem- onstrates that the economic differences within these dyads have declined fairly substantially over time,even while the wealth disparities between non-BIT dyads have increased.As is the case with wealth,the "political gap"between new BIT signers has also diminished significantly over the past thirty years.Figure 3 plots the mean difference in the level of democracy (as measured by Polity scores)of 20.Turkey,Morocco,Haiti,Panama,Senegal,and Zaire. 21.George P.Schultz,transmission letter to the president recommending transmission of the U.S.-Turkey Bilateral Investment Treaty,1985.Available at (http://www.state.gov/documents/ organization/43615.pdf).Accessed 12 July 2006

president after completion of six BITs in 198620 that, “@o#ur BIT approach fol￾lowed similar programs that had been undertaken with considerable success by a number of European countries, including the Federal Republic of Germany and the United Kingdom, since the early 1960s+”21 By the late 1980s, most analysts would agree that governments in countries home to large multinational corporations ~MNCs! had nearly converged on a single treaty model+ Developing countries could, increasingly, opt to take it or to leave it+ As Figure 1 attests, many did the former+ Early on, BITs were primarily agreements between countries of starkly varying developmental levels and political traditions+ Figure 2, which plots the mean dif￾ference in gross domestic product ~GDP! per capita between BIT partners as well as that between states in all other dyads “at risk” of signing in a given year, dem￾onstrates that the economic differences within these dyads have declined fairly substantially over time, even while the wealth disparities between non-BIT dyads have increased+ As is the case with wealth, the “political gap” between new BIT signers has also diminished significantly over the past thirty years+ Figure 3 plots the mean difference in the level of democracy ~as measured by Polity scores! of 20+ Turkey, Morocco, Haiti, Panama, Senegal, and Zaire+ 21+ George P+ Schultz, transmission letter to the president recommending transmission of the U+S+-Turkey Bilateral Investment Treaty, 1985+ Available at ^http:00www+state+gov0documents0 organization043615+pdf&+ Accessed 12 July 2006+ FIGURE 2. Mean difference in GDP per capita between dyad members Diffusion of Bilateral Investment Treaties 817

818 International Organization 20 15- Dyads signing BITs 10- All dyads at risk 。● 1960 1970 1980 1990 2000 Year Note:Universe consists of states with more than 1 million inhabitants between 1960 and 1999. Data points shown are for dyads signing BITs. FIGURE 3.Mean difference in democracy between dyad members BIT partners in the year of their signing against that of all other dyads at risk of signing.Over time,new BIT partners have become more similar,evidence that the institution is spreading to a population of dyads of similar political and eco- nomic structure and,presumably,with less reason to sign such agreements. By the late 1990s,there emerged a few twists to the basic theme of wealthy countries picking off potentially lucrative but risky venues one at a time.From about 1999,developing countries began a rather more proactive effort to create bilateral investment treaties among themselves.These activities have been coordi- nated through the UN Conference on Trade and Development (UNCTAD),and sometimes with the assistance of a major capital exporting country,such as Ger- many or France.During a meeting jointly sponsored by UNCTAD,the Swiss gov- ernment,and a group of fifteen developing countries(G-15),seven developing countries signed eight bilateral treaties among themselves.22 Individual develop- ing countries soon began to seize the initiative.At the request of Thailand,a mini- lateral conference yielded seven more developing country BITs,23 and furthered discussions on several more.Bolivia(2000),India (2001),and Croatia (2001) initiated minilateral discussions on a similar model.France financed a round of 22.Egypt,India,Indonesia,Jamaica,Malaysia,Sri Lanka,and Zimbabwe. 23.Thailand-Zimbabwe,Thailand-Croatia,Thailand-Iran,Zimbabwe-Croatia,Zimbabwe-Sri Lanka, Croatia-Iran,Thailand-Kazakhstan,Zimbabwe-Kazakhstan,and Croatia-Kazakhstan.Sweden also par- ticipated and concluded a BIT with Thailand

BIT partners in the year of their signing against that of all other dyads at risk of signing+ Over time, new BIT partners have become more similar, evidence that the institution is spreading to a population of dyads of similar political and eco￾nomic structure and, presumably, with less reason to sign such agreements+ By the late 1990s, there emerged a few twists to the basic theme of wealthy countries picking off potentially lucrative but risky venues one at a time+ From about 1999, developing countries began a rather more proactive effort to create bilateral investment treaties among themselves+ These activities have been coordi￾nated through the UN Conference on Trade and Development ~UNCTAD!, and sometimes with the assistance of a major capital exporting country, such as Ger￾many or France+ During a meeting jointly sponsored by UNCTAD, the Swiss gov￾ernment, and a group of fifteen developing countries ~G-15!, seven developing countries signed eight bilateral treaties among themselves+ 22 Individual develop￾ing countries soon began to seize the initiative+ At the request of Thailand, a mini￾lateral conference yielded seven more developing country BITs, 23 and furthered discussions on several more+ Bolivia ~2000!, India ~2001!, and Croatia ~2001! initiated minilateral discussions on a similar model+ France financed a round of 22+ Egypt, India, Indonesia, Jamaica, Malaysia, Sri Lanka, and Zimbabwe+ 23+ Thailand-Zimbabwe, Thailand-Croatia, Thailand-Iran, Zimbabwe-Croatia, Zimbabwe-Sri Lanka, Croatia-Iran, Thailand-Kazakhstan, Zimbabwe-Kazakhstan, and Croatia-Kazakhstan+ Sweden also par￾ticipated and concluded a BIT with Thailand+ FIGURE 3. Mean difference in democracy between dyad members 818 International Organization

Diffusion of Bilateral Investment Treaties 819 discussions primarily among the Francophone countries in 2001 that attracted twenty participants and yielded forty-two BITs,many of which involved noncontiguous, poor,highly indebted African countries for which it is difficult to imagine much benefit.(What are the chances that capital from Burkina Faso would flow to Chad, or investors from Benin would soon demand entree to Mali?)More understand- able,from an economic point of view,was the German-funded and supported meet- ing in October 2001 that drew together seven capital-poor countries(five of which were officially"highly indebted poor countries")and four wealthy European coun- tries,24 yielding both understandable (Belgium-Cambodia)and bizarre (Sudan- Zambia)bilateral treaty combinations.25 This recent turn toward BITs between developing states is more difficult for our theory to explain.It does seem to sug- gest that more political or sociological explanations may be increasingly relevant quite recently in some regions.However,these cases are still relatively few and of such recent vintage that they do not affect the broader relationships we report below. Leaders and Followers in BIT Agreements BITs present potential benefits for both capital-exporting and capital-importing countries.But which group of countries initiates and drives the signing of such agreements?Our theory,to anticipate the following section,assumes that poten- tial host countries have an important(although not exclusive)role in initiating or nurturing BIT negotiations.Is this a plausible assumption?After all,power- based theories-or "coercive"theories in the language of Simmons,Dobbin,and Garrett26-suggest that dominant capital-exporting countries such as Germany or the United States control the agenda and begin BIT negotiations according to their schedule and needs.Indeed,the chronology described above suggests that some home countries establish BIT"programs"and sign agreements with a slate of devel- oping countries in concentrated periods of time. If the dominant powers determine the BIT schedule,then we should see evi- dence of home country"programs"when we look at BITs,by country,across time. Programs would look like clusters,or peaks,of activity in certain eras in a home country's history.By the same logic,if host countries take a lead role in produc- ing BITs,their histories would also show some evidence of concerted,program- matic activity.Figure 4 and Figure 5 chart the number of BITs signed since 1959 for the twelve most active BIT signatories from both home (Figure 4)and host (Figure 5)countries.It appears that most home countries have BIT activity that 24.Participants included Cambodia,Eritrea,Malawi,Mozambique,Sudan,Uganda,and Zambia. Upon the request of these countries,Belgium,France,the Netherlands,and Sweden were both invited to participate and responded affirmatively. 25.Notice that even multilateral meetings of this sort have not yielded multilateral treaties on invest- ment.The states involved have always chosen instead to sign a series of BITs.The question of why multilateral approaches are not adopted is interesting,but we leave it for another day. 26.Simmons.Dobbin,and Garrett,this volume

discussions primarily among the Francophone countries in 2001 that attracted twenty participants and yielded forty-two BITs, many of which involved noncontiguous, poor, highly indebted African countries for which it is difficult to imagine much benefit+ ~What are the chances that capital from Burkina Faso would flow to Chad, or investors from Benin would soon demand entrée to Mali?! More understand￾able, from an economic point of view, was the German-funded and supported meet￾ing in October 2001 that drew together seven capital-poor countries ~five of which were officially “highly indebted poor countries”! and four wealthy European coun￾tries, 24 yielding both understandable ~Belgium-Cambodia! and bizarre ~Sudan￾Zambia! bilateral treaty combinations+ 25 This recent turn toward BITs between developing states is more difficult for our theory to explain+ It does seem to sug￾gest that more political or sociological explanations may be increasingly relevant quite recently in some regions+ However, these cases are still relatively few and of such recent vintage that they do not affect the broader relationships we report below+ Leaders and Followers in BIT Agreements BITs present potential benefits for both capital-exporting and capital-importing countries+ But which group of countries initiates and drives the signing of such agreements? Our theory, to anticipate the following section, assumes that poten￾tial host countries have an important ~although not exclusive! role in initiating or nurturing BIT negotiations+ Is this a plausible assumption? After all, power￾based theories—or “coercive” theories in the language of Simmons, Dobbin, and Garrett26—suggest that dominant capital-exporting countries such as Germany or the United States control the agenda and begin BIT negotiations according to their schedule and needs+ Indeed, the chronology described above suggests that some home countries establish BIT “programs” and sign agreements with a slate of devel￾oping countries in concentrated periods of time+ If the dominant powers determine the BIT schedule, then we should see evi￾dence of home country “programs” when we look at BITs, by country, across time+ Programs would look like clusters, or peaks, of activity in certain eras in a home country’s history+ By the same logic, if host countries take a lead role in produc￾ing BITs, their histories would also show some evidence of concerted, program￾matic activity+ Figure 4 and Figure 5 chart the number of BITs signed since 1959 for the twelve most active BIT signatories from both home ~Figure 4! and host ~Figure 5! countries+ It appears that most home countries have BIT activity that 24+ Participants included Cambodia, Eritrea, Malawi, Mozambique, Sudan, Uganda, and Zambia+ Upon the request of these countries, Belgium, France, the Netherlands, and Sweden were both invited to participate and responded affirmatively+ 25+ Notice that even multilateral meetings of this sort have not yielded multilateral treaties on invest￾ment+ The states involved have always chosen instead to sign a series of BITs+ The question of why multilateral approaches are not adopted is interesting, but we leave it for another day+ 26+ Simmons, Dobbin, and Garrett, this volume+ Diffusion of Bilateral Investment Treaties 819

15 154 15H 820 Germany Switzerland France United Kingdom 10 10 10 10 5 0 19601970198019902000 19601970198019902000 1960197019801990 2000 1960 1970198019902000 15- 15H 15 15 Italy Spain International Organization Netherlands Belgium 10 10 10 10- 5- 0 an n al n 0- 19601970198019902000 19601970198019902000 19601970198019902000 19601970198019902000 15 15 15H Sweden Denmark United States Finland 10 10、 10- 10- 5- 5、 19601970198019902000 1960 1970198019902000 19601970 19801990 2000 19601970198019902000 Year Note:Figure includes twelve most active BIT signers of capital-exporting countries. FIGURE 4.Number of BITs signed,by country,1959-99

FIGURE 4. Number of BITs signed, by country, 1959–99 820 International Organization