Bellak, Ch is ian; Leib ech , Ma kus
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The (poli ical) economics o bila e al in es men ea ies:
The unique ajec o y o B azil
Economies
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Sugges ed Ci a ion: Bellak, Ch is ian; Leib ech , Ma kus (2024) : The (poli ical) economics o bila e al
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Ci a ion: Bellak, Ch is ian, and
Ma kus Leib ech . 2024. The (Poli ical)
Economics o Bila e al In es men
T ea ies—The Unique T ajec o y o
B azil. Economies 12: 130. h ps://
doi.o g/10.3390/economies12060130
Academic Edi o s: B uce Mo ley and
E. M. Ekanayake
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economies
Re iew
The (Poli ical) Economics o Bila e al In es men T ea ies—The
Unique T ajec o y o B azil
Ch is ian Bellak 1and Ma kus Leib ech 2,*
1Depa men o Economics, Vienna Uni e si y o Economics and Business, 1020 Vienna, Aus ia;
[email p o ec ed]
2School o Finance, Ci y Uni e si y o Macau, Macau, China
*Co espondence: [email p o ec ed]
Abs ac : B azil, a e signing se e al adi ional Bila e al In es men T ea ies wi hou a i ying
hem, ecen ly shi ed owa ds a di e en ype o bila e al in es men ag eemen , i.e., In es men
Coope a ion and Facili a ion Ag eemen s. Two claims ha e been made in he li e a u e ega ding he
ansi ion om adi ional Bila e al In es men T ea ies o In es men Coope a ion and Facili a ion
Ag eemen s—Claim #1: The non- a i ica ion o he adi ional BITs has no ha med Fo eign Di ec
In es men in o B azil, a claim which pu s in o ques ion he pu pose o Bila e al In es men T ea ies.
Claim #2: While In es men Coope a ion and Facili a ion Ag eemen s a oid some o he p oblems o
adi ional Bila e al In es men T ea ies, on balance hey a e less e ec i e han adi ional Bila e al
In es men T ea ies would ha e been. We examine he wo claims om an empi ical economic
poin o iew. We build on he li e a u e abou B azil’s posi ion is-à- is Bila e al In es men
T ea ies, which mus be iewed by an amalgama ion o (i) a his o ical legacy; (ii) domes ic ini ia i es,
and (iii) a pa icula U- u n in he poli ical deba e. Using empi ical e idence on Fo eign Di ec
In es men e ec s o Bila e al In es men T ea ies, he ollowing conclusions eme ge: Wi h ega d o
claim #1, empi ical e idence in gene al as well as speci ic o B azil sugges s ha B azil has o gone
Fo eign Di ec In es men by no a i ying adi ional Bila e al In es men T ea ies. Conce ning
claim #2, while In es men Coope a ion and Facili a ion Ag eemen s include al e na i e dispu e
se lemen mechanisms, which aim a a be e compliance o s a es wi h he In es men Coope a ion
and Facili a ion Ag eemen s’ ules, a he han he compensa ion o o eign in es o s, he lowe
s ingency o he S a e–S a e dispu e se lemen mechanism compa ed o In es o –S a e dispu e
se lemen mechanism makes In es men Coope a ion and Facili a ion Ag eemen s less e ec i e.
Ye , his weakening e ec mus be weighed agains he e ec s on Fo eign Di ec In es men om
inno a i e clauses in In es men Coope a ion and Facili a ion Ag eemen s, which a e absen in many
adi ional Bila e al In es men T ea ies.
Keywo ds: in es men ea ies; B azil; o eign di ec in es men ; hold-up
1. In oduc ion
Fo eign Di ec In es men (FDI) is conside ed as an impo an pa o a coun y’s
de elopmen s a egy.
1
De eloping coun ies’ go e nmen s egula ly compe e o FDI,
o en wi h neighbo ing coun ies o simila le els o de elopmen . One possible ou e
aken by coun ies is o conclude, i.e., sign and a i y, In e na ional In es men Ag eemen s
(IIAs). Dolze and Sch eue (2008) (p. 9) e en s ess ha “in es men ea ies a e oday
seen as admission icke s o in e na ional in es men ma ke s. Thei limi ing impac on
he so e eign y o he hos s a e, con o e sial as i may be in he indi idual case, is in his
sense a necessa y co olla y o he objec i e o c ea ing an in es men - iendly clima e”.
In es men ea ies a e based on he p esump ion o he exis ence o a hold-up p oblem
(Ha 1995) in in e na ional in es men . O e ime, mo e and mo e de eloping coun ies
ha e concluded IIAs, which all in o Bila e al In es men T ea ies (BITs), ea ies wi h
Economies 2024,12, 130. h ps://doi.o g/10.3390/economies12060130 h ps://www.mdpi.com/jou nal/economies
Economies 2024,12, 130 2 o 19
in es men p o isions and in es men - ela ed ins umen s.
2
Clea ly, IIAs a e jus one
puzzle s one in he puzzle o loca ion ac o s ha ma e in an in es men decision.3
Despi e sub le di e ences, Elkins e al. (2006, p. 7) emphasize he ac ha in he pas ,
he e has been one dominan ea y model, mainly e lec ing he in e es s o de eloped
na ions. De eloping coun ies could op o ake i o o lea e i . A simila conclusion has
been eached by Alschne and Skouga e skiy (2016, p. 562) who ind ha “weal hie s a es
achie e conside ably mo e consis en IIA ne wo ks han hei poo e coun e pa s, which
lends suppo o he a gumen ha de eloped coun ies a e he IIA sys em’s ule-make s,
while de eloping coun ies end o be i s ule- ake s”. While his is undispu ed, no all
de eloping coun ies ha e been ule- ake s a all imes.
A case in ques ion is B azil, which undoub edly enac ed ade policies (e.g., nego ia ing
he ade ag eemen be ween he Eu opean Union and Me cosu , Bau e al. 2023) and o he
economic policies, like p i a iza ion p og ams, in line wi h he Washing on consensus and
conduci e o FDI. In B azil, he o ganiza ion o companies and hei in e ac ion wi h he
s a e a e ela i ely weak, which esul ed in policies less conduci e o domes ic business.
Ins ead, a policy o ien ed owa ds inancial s abili y aiming a a ac ing o eign in es o s
has been conduc ed (Pede sen 2009, p. 472).
B azil ollowed a special pa h wi h espec o FDI policies. “I is widely acknowledged
ha B azil has been he mos e icen o conclude BITs as a esul o na ional conce ns
o e he e ec o such ag eemen s on limi ing de elopmen al policy space (Ba bosa 2003).”
(quo ed om Dixon and Haslam 2016, p. 1091). Indeed, B azil ne e a i ied any adi ional
BITs, bu i has ecen ly a i ied a new ype o BIT, namely he In es men Coope a ion
and Facili a ion Ag eemen s (CFIAs), which de ia e om adi ional BITs subs an i ely
(i.e., ega ding he clauses included) and p ocedu ally (i.e., ega ding he en o cemen
mechanism included).
The cu en ( adi ional) in e na ional in es men policy egime, no ably BITs, is
con on ed wi h subs an ial c i icism. Fo example, Tienhaa a e al. (2023, p. 1197) s a e ha
he en o cemen mechanism included in adi ional BITs “likely obs uc (s) a jus ansi ion
by chilling supply-side clima e measu es and di e ing public unds away om clima e
change mi iga ion and adap a ion e o s”. B azil’s CFIAs could po en ially ac as a ole
model o a new gene a ion o BITs, which a oids he pi alls o adi ional BITs (like an
asse ed chilling e ec on public egula ion) bu a he same ime also ac s as a p omo o
o FDI.
Wi h his pape , we aim a p o iding a sys ema ic and s uc u ed e iew o he likely
e ec s o B azil’s old and new BIT policies on FDI. Ou analysis adds new insigh s o he
discussion o “FDI, BITs, and he B azilian way” as hi he o he li e a u e on B azil’s CFIAs
mainly ocused on legal issues and has la gely neglec ed economic and poli ical science
issues. The indings o his e iew will help policy make s in hei a emp o o m a new
ins i u ional se -up o in e na ional in es men .
To achie e his goal, we ha e su eyed he legal, economic, and poli ical science
li e a u e dealing wi h e ec s o BITs on FDI in gene al and wi h he absence o adi ional
BITs in B azil in pa icula . To pu s uc u e in he su ey, we use wo claims made by
schola s ega ding he e ec i eness o B azil’s BIT policies o FDI (see Sec ion 2). We
su eyed he heo e ical and empi ical li e a u e o p o ide ou answe ega ding he
empi ical alidi y o he wo claims made. The eby, we ocused only on s udies a ailable
in he English language and we le ou he as legal li e a u e w i en in he Po uguese
language. To a oid de ia ions om he o iginal con en o and con eyed implica ions by
he su eyed pape s, we equen ly use di ec ci a ions (in “ ”). Finally, h oughou his
e iew, we ocused on inwa d FDI, while i is undispu ed ha BITs also a ec ou wa d FDI
and indeed a cen al mo i a ion o B azil o en e in o CFIA nego ia ions is o s imula e
ou wa d FDI o B azilian i ms.
This pape is o ganized as ollows: Sec ion 2pu s B azil’s BIT policies in con ex and i
in oduces wo claims made by schola s ega ding he impac o hese BIT policies on FDI.
Theo e ical (economic, poli ical science, and legal) jus i ica ions o BITs a e summa ized in
Economies 2024,12, 130 3 o 19
Sec ion 3. Sec ion 4 e iews he his o ical genealogy o BITs in B azil. Sec ion 5p o ides an
o e iew on he es ablished empi ical e idence o ou ypes o e ec s o BITs on FDI, and
i e lec s on he B azilian ansi ion o he new ype o BITs in he ligh o his e idence.
Sec ion 6summa izes, and Sec ion 7ske ches limi a ions and a enues o u he esea ch.
2. B azil’s BIT Policies in Con ex
B azil has signed se e al BITs be ween 1994 and 2020. These include 14 adi ional BITs
be ween 1994 and 1999, 13 CFIAs be ween 2015 and 2020, and 20 ea ies wi h in es men
p o isions ( he eo 16 in o ce)—mos o hem ela ed o MERCOSUR.
4
In addi ion, B azil
has adop ed 20 in es men - ela ed ins umen s.
Only h ee BITs, bo h om he second pe iod (2015–2020), ha e been a i ied and hus
a e ac ually in o ce.
5
Monebhu un (2017, p. 100) s esses ha hese ag eemen s “symbolize
B azil’s ue en y in he landscape o in e na ional in es men law”. Ca alho (2018, p. 33)
ema ks conce ning he ea ies o he second pe iod ha “ he signed ag eemen s seem o
be ollowing he same pa h owa ds a i ica ion as he wo al eady a i ied ag eemen s”.
I is o su e ha in ecen yea s, o he coun ies ha e aken di e en unila e al and
mul ila e al ou es o IIAs (see Behn e al. 2015;S . John 2018, p. 239; Table 1below),
and hey a e uni ed in hei discon en wi h he cu en BIT sys em. The lis o s a es
ha some imes adically change hei posi ion owa ds adi ional BITs con inues o g ow
(Soop amanien 2017, p. 609). Ye , he ou e ha he B azilian s a e has aken, ha is back o
a S a e–S a e dispu e se lemen (SSDS) and expanding excep ion clauses, ce ainly is o
special economic in e es .
Table 1. Coun y-le el eac ions o c i ical issues abou IIAs on he na ional le el.
•
Denouncing he sys em o BITs and o In es o –S a e dispu e se lemen (ISDS; e.g.,
Sou h A ica)
•No enewing hei BITs (India, see Ko y lo and Kalachyhin 2023)
•Following indi idual ajec o ies (e.g., B azil and i s ea y pa ne s (back o
S a e–S a e dispu e se lemen ); China (new dispu e se lemen mechanism ISDS))
•
Wi hd awing om he sys em (e.g., Venezuela in 2012, Boli ia since 2009, Ecuado
om 2009 o 2021) and he denuncia ion o he Con en ion on he Se lemen o
In es men Dispu es be ween S a es and Na ionals o O he S a es, which
cons i u ed ICSID (Bas 2022)
•
Te mina ing BITs (e.g., India’s unila e al mass e mina ion); g adually e mina ing
BITs (e.g., Indonesia; Pakis an, which e mina ed 23 ou o 48 BITs and will no
a i y 16 signed BITs)
•Conside ing mo ing o ac ually mo ed away om he Ene gy Cha e T ea y (in
2023, he Eu opean Commission (EC) o mally ecommended a coo dina ed
Eu opean Union (EU) wi hd awal om he Ene gy Cha e T ea y6; see
Uni ed We Lea e o Di ided We S ay? Why i ’s ime o he EU o speak wi h one oice
ega ding he Ene gy Cha e T ea y | In e na ional Ins i u e o Sus ainable
De elopmen (iisd.o g accessed on 20 May 2024))
•Expanding he ole o excep ion clauses (e.g., B azil)
•USA phasing ou i s ISDS wi h CAN in he new NAFTA (USMCA—Uni ed
S a es–Mexico–Canada Ag eemen )
•Shi ing o he mega- egional le el: In eg a ion o in es men issues in o ade
ag eemen s (e.g., he Regional Economic Comp ehensi e Pa ne ship)
Sou ce: Au ho s’ compila ion.
Economies 2024,12, 130 4 o 19
Rega ding he swi ch o B azil o CFIAs, wo undamen al claims ha e been made in
he li e a u e:
Claim #1: The swi ch o CFIAs and away om adi ional BITs is jus i ied as he
non- a i ica ion o he adi ional BITs has no ha med FDI in B azil.
This claim pu s in o ques ion he pu pose o adi ional BITs. Fo example, Vidigal
and S e ens (2018, p. 486) s ess ha “a leas o a coun y wi h he cha ac e is ics o B azil,
i appea s ha IIAs a e no de e minan o a ac ing FDI”. Ca allo (2019, p. 69) men ions
ha “B azil has consequen ly been seen as an example ha BITs do no ha e any e ec s on
FDI in lows, o ha coun ies can do wi hou hem”.7
Claim #2: While CFIAs a oid some o he p oblems (i.e., di ec and indi ec cos s) o
adi ional BITs, on balance hey a e less e ec i e han adi ional BITs would ha e been
had hey been a i ied (e.g., Hegdeka e 2023;Sa men o 2021).
In wha ollows, we e iew he heo e ical and empi ical li e a u e and in es iga e
he empi ical alidi y o hese wo claims. Wi h ega d o claim #1, empi ical e idence in
gene al as well as speci ic o B azil sugges s ha B azil has o gone FDI by no a i ying
adi ional BITs. The CFIA pa ne coun y mix and ecen es ima es o a a he low impac
o BITs on FDI sugges ha one should no be o e ly op imis ic wi h ega d o CFIAs as a
p omo o o FDI.
Conce ning claim #2, while CFIAs include an al e na i e dispu e esolu ion mecha-
nism, which aims a a be e compliance wi h a BIT’s ules, a he han he compensa ion
o o eign in es o s, he lowe s ingency o he dispu e esolu ion mechanism makes
CFIAs less e ec i e. Ye , his weakening e ec included in CFIAs mus be weighed agains
po en ially posi i e e ec s on FDI om inno a i e clauses (such as en i onmen , labo ,
human igh s, and in es o obliga ions), which a e absen in many adi ional BITs.
3. Theo e ical Jus i ica ions o BITs: A Re iew
The o e a ching mo i e o he conclusion o BITs is o a ac FDI. BITs can be sep-
a a ed in o wo ypes: BITs o FDI p o ec ion and BITs o FDI libe aliza ion. Mos BITs
ha en e ed in o o ce in he 20 h cen u y we e o he p o ec ion ype, while he libe al-
iza ion ype has become he mains eam in he 21s cen u y (U a a and Baek 2022). The
B azilian go e nmen has ecen ly added a hi d ype, which may be e med he acili a ion
ype. While he p o ec ion ype has a ocus on he p o ec ion o p ope y igh s o o eign
in es o s, he libe aliza ion ype emphasizes ma ke access (admission and es ablishmen ;
see Dolze and Sch eue 2008, p. 79 .) as well as he p o ec ion o in es o s and in es men s
in he p e-en y s age. The acili a ion ype aims a os e ing he compliance wi h he ea y
(i.e., on de e ence o a b each).
Common o all BITs is he inclusion o p ope y igh s p o ec ion clauses and p ocedu-
al clauses. P ope y igh s p o ec ion clauses may include, o example, he Mos Fa o ed
Na ion (MFN) clause, he Fai and Equal T ea men (FET) clause, o a Non-Disc imina ion
(ND) clause. P ocedu al clauses ypically include some o m o dispu e esolu ion mecha-
nism, ei he an In es o –S a e dispu e se lemen (ISDS) o S a e–S a e dispu e se lemen
(SSDS). F om he iewpoin o o eign in es o s, he dispu e esolu ion clauses a e a he
hea o BITs, as hey include p ocedu es as o how dispu es be ween he in es o and
he hos coun y go e nmen can be esol ed ou side he domes ic legal sys em. While
in in e na ional law, SSDS is s anda d, IIAs ha e inc easingly shi ed o ISDS.
8
Va ious
disciplines p o ide a ange o heo e ical jus i ica ions o BITs.
3.1. Economic Jus i ica ions
F om an economic pe spec i e, a c edibili y p oblem (due o in o ma ion asymme y)
exis s be ween he o eign in es o and he de eloping hos coun y go e nmen . No
all in o ma ion abou u u e go e nmen policy is publicly a ailable and, he e o e, he
in es o conside s he possibili y o oppo unis ic beha io o go e nmen s, once he
in es men is unde aken. This c ea es he so-called hold-up p oblem (poli ical isk; in he
con ex o in es men ea ies, Odoemena and Ho i a 2017;Bonni cha e al. 2017;Ho n and
Economies 2024,12, 130 5 o 19
No bäck 2019). The idea o eneging con o ms wi h he obsolescing ba gain iew, whe e
he ex an e powe o he in es o , who p omises posi i e e ec s on de elopmen , shi s o
he hos coun y go e nmen , which may enege on he ag eemen ex pos once he asse s
ha e been in es ed (“sunk”) in he hos coun y.
In o he wo ds, “one possible ole ( o BITs, au ho s) is o se e as a commi men
de ice o go e nmen s ha lack he abili y o make c edible unila e al commi men s
o p o ec inwa d in es men ” (Ho n and No bäck 2019, p. 14). Ca allo (2019, p. 72)
summa izes he economic iew s a ing ha “a hos go e nmen ’s c edibili y o abide by
he e ms o a con ac inc eases when i en e s in o a BIT, which hen s imula es g ea e
FDI in lows”.
F om a heo e ical pe spec i e, how do BITs p o ide a possibili y o sol e he hold-up
p oblem?
9
B oadly speaking, when hey con ain a clause, which makes ex pos eneging on
he ag eemen by he go e nmen i ele an o in es o s, because hey a e compensa ed
(i.e., in es men neu ali y). I he clause p o ides o ull compensa ion o losses a e
exp op ia ion, his educes he poli ical isk o a o eign in es o and, hence, is an e icien
solu ion o he hold-up p oblem (e.g., Guzman 1997). The abo e-men ioned ISDS clause
is a clause in ques ion, as i p o ides o a dispu e se lemen mechanism ou side he
domes ic legal sys em o he hos coun y. Indeed, his clause is conside ed “ he mos
impo an aspec o he in e na ional p o ec ion o in es men s’” om he iewpoin o
o eign in es o s (Sch eue 2013).
10
F enkel and Wal e (2019, p. 1316) men ion ha “ he
li e a u e a gues ha in e na ional dispu e se lemen clauses a e a c ucial componen o
BITs, as hey p o ide a way o sanc ion de ia ing beha io , de e mine he c edibili y o
legal p omises and allow in es o s o en o ce hei igh s independen o he local le el o
he ule o law”.
In addi ion o he commi men e ec , some au ho s a gue o a signaling e ec o
BITs—Ca allo (2019, p. 72): “(B)y signing BITs, hos go e nmen s signal hei unde lying
in en ion no o in e e e wi h o eign in es men ”. When a coun y a i ies a BIT, “i
sends a signal o in es o s om all o eign coun ies, including hose no co e ed by
in es men ea ies, ha i has laws and policies in place ha p o ec o eign in es men .”
(Bonni cha e al. 2017, p. 158). And, om a p ac ical economic pe spec i e, Magge i
and Mo aes (2018, p. 301) a gue ha “many coun ies signed up o BITs con aining ISDS
clauses—especially de eloping coun ies—as his was conside ed an impo an signal by
cash-s apped economies o a ac much-needed o eign in es men ”.
To ac as a c edible signal, i mus be less cos ly o s a es wi h a o able in es men
clima es “ o become and emain pa ies o in es men ea ies han i is o s a es wi h
bad in es men clima es. I ha we e no he case, all s a es would be equally likely o
a i y in es men ea ies, and he exis ence o a ea y would no con ey any meaning ul
in o ma ion abou he quali y o he in es men clima e” (Bonni cha e al. 2017, p. 158). Fo
he c edibili y o he signal, hus, ISDS again is c ucial. Fo s a es wi h in e io in es men
condi ions, i.e., high poli ical isk, he p obabili y o ace cos s a ising om ISDS claims is
high, while o coun ies wi h good in es men clima es, he isk is miniscule.
Ha el (2010, p. 359) poin s ou ha only signing, bu no a i ying, a BIT does no
send a posi i e signal o in es o s: “since signing a BIT is no cos ly, o eign in es men
canno ely on his ac ion o dis inguish be ween p o-FDI and an i-FDI coun ies. In his
in e p e a ion, signing a BIT does no add belie able in o ma ion o o eign in es o s. A
signed BIT does no p o ec in es o s in si ua ions in which he hos go e nmen iola es
hei legal igh s. I is no su p ising, hen, ha signed ea ies ail o boos FDI”.
In addi ion, signing bu no a i ying could be seen by o eign in es o s as e idence
ha he hos go e nmen does no in end o hono he e ms o he ea y and ha he
igh s o o eign in es o s ensh ined in he ea y a e no ully gua an eed, o e en ha
he in en ion o he hos coun y is no o p o ide he igh s o he signed ea y o o eign
in es o s. Thus, while he commi men e ec is ele an only o o eign in es o s co e ed
by he BIT, a possible signaling e ec is ele an o all o eign in es o s.
Economies 2024,12, 130 6 o 19
3.2. Poli ical Science Jus i ica ions
F om a poli ical science pe spec i e, he a ionales o home coun ies o FDI o a i y
BITs a e he de-poli iza ion o dispu es and he educ ion in diploma ic in e en ions, which
may jeopa dize o eign policy goals (Jandhyala 2015). Howe e , Ge z e al. (2018) ind no
e idence o he de-poli iza ion o dispu e esolu ion h ough BITs.
Ano he poli ical science- ela ed jus i ica ion o BITs is exp essed by Os ˇ anskýand
Azna (2023), who a gue ha “con en ional accoun s p esume ha hese ea ies imp o e
na ional go e nance, leading o good go e nance and he ule o law o all”. Ye , c i ical
accoun s cha ge ha in es men ea ies empowe o eign in es o s and cause a egula o y
chill.
11
Indeed, he mos compelling ca ea o BITs om he go e nmen ’s poin o iew
conce ns egula o y chill as a eac ion o in es men dispu es and his pe ains o all a eas
o economic ac i i y (Be ge and Be ge 2019;Ho n and No bäck 2019). Ho n and No bäck
(2019, p. 26) e en a gue ha egula o y chill is “one o he mos pe asi e claims” in he
deba e abou BITs. They, howe e , also men ion ha he e is li le sys ema ic empi ical
e idence o suppo his claim.
Conce ning he possibili y o egula o y chill, ISDS is again o special impo ance.
Acco ding o Bas (2022, p. 3), he ISDS mechanism “ac s as a il e ha cons ains na ional
policy space by allowing o eign in es o o ques ion measu es aken in exe cise o he
igh o egula e ( he hea o he policy space)”. Due o ISDS, “in es men cou s ope a e
as ex e nal con ol bodies o he legali y o S a es’ ac ions, e en ega ding human igh s,
public heal h o en i onmen al p o ec ion” (Bas 2022, p. 2).
3.3. Legal Jus i ica ions
F om a legal poin o iew, he p o ision o legal s anda ds o an in es o - iendly
en i onmen aims a “sa egua ding o eign in es men agains in e e ence o he hos
s a e” (Sch eue 2013). To his end, a BIT de ines “obliga ions o he hos s a es o ea
o eign in es men acco ding o speci ic s anda ds” (Bonni cha e al. 2017, p. 11).
I is impo an o no e ha in e na ional in es men law “se s accep ed s anda ds o
he unila e al conduc o he hos s a e” (Dolze and Sch eue 2008, p. 22). The p o ision
o legal sa egua ds includes he s abili y o he legal condi ions unde which he o eign
in es o can ope a e, he quali y o he local public adminis a ion, he anspa ency o he
sys em o local egula ions, and an e ec i e sys em o dispu e se lemen (Sch eue 2013).
The la e is backed by a heo e ical a gumen , ini ially ad anced by Allee and Peinha d
(2014, p. 60), who main ain ha “i he hos has a pa icula ly s ong need o con ey i s
in en o espec FDI, i is mo e likely o sign ea ies ha con ain elemen s o s eng hen
en o ceabili y, including p econsen clauses and mul iple, ins i u ionalized en o cemen
op ions”. These legal sa egua ds comp ise domes ic laws and IIAs.
Fu he mo e, om a legal pe spec i e, in es men ea ies espond o he bias and
un eliabili y o domes ic cou s. Hence, conce ning a bi a ion, i is claimed ha in es men
a bi a ion ad ances ai ness and he ule o law in he esolu ion o in es men dispu es
(Van Ha en 2010). In pa icula , legal schola s emphasize he inc eased e iciency o he
p ocess o in es men dispu es and he inal execu ion o e dic s (no legal ecou se) as
well as anspa ency.
None o hese legal jus i ica ions ha e, howe e , ully ma e ialized. The e a e majo
conce ns abou he e iciency o he p ocess, as he a e age leng h o decided cases is
3.73 yea s (Behn e al. 2020, p. 209). Also, he inal execu ion o e dic s poses emendous
p oblems in some o he dispu es, and Pohl e al. (2012, p. 36) no e ha “in only 35 ou o
1600 ea ies examined, he e dic s o he a bi a ion councils ha e o be published”.
Table 2summa izes he main mo i a ions o he conclusion o BITs. In mos o hese
mo i a ions, an e ec i e ISDS mechanism plays a key ole.
Economies 2024,12, 130 7 o 19
Table 2. Summa y o main mo i a ions.
App oach Mo i a ion o IIAs is o inc ease FDI (inwa d and ou wa d) ia...
Economic Commi men e ec
Signaling e ec
Poli ical Science De-poli iza ion and educ ion in diploma ic in e en ions
Imp o emen s in na ional go e nance
Legal P o ision o legal sa egua ds
Inc easing he e iciency o he p ocess
Final execu ion o e dic s
T anspa ency o p ocess and easoning
Sou ce: Au ho s’ compila ion.
We now u n o a discussion o B azil’s posi ion owa ds BITs o e ime.
4. B azilian Bila e al In es men T ea ies: An O e iew
This sec ion e iews he ansi ion om he ea ly s ages o BIT conclusion up o he
p esen si ua ion in B azil.
4.1. The Ea ly S age—1994–1999
Conce ning he adi ional BITs, which B azil did no sign be o e 1994,
12
Escoba
(1996, p. 91) men ions ha “one o he mos p ominen ea u es o hese and o all ecen
in es men ea ies (o B azil, au ho s) is hei p o ision o he se lemen o dispu es be-
ween co e ed in es o s and he hos s a e by means o binding in e na ional a bi a ion”.
13
Rega ding con lic esolu ion ensh ined in hese ag eemen s, i is wo h no ing ha he
BITs o he ea ly s ages ha e shi ed om SSDS o s a e–p i a e en i y dispu e esolu ion
(Magge i and Mo aes 2018).14
Be ween 1994 and 1999, B azil signed 14 adi ional BITs. Ye , “ hey we e ne e
app o ed by he coun y’s Na ional Cong ess, which saw he in es o –s a e a bi a ion
egime as limi ing s a es’ igh o egula e
15
and as g an ing ex ao dina y bene i s o
o eign in es o s, hence disc imina ing agains domes ic in es o s. Fo he same easons,
B azil did no sign he 1965 Con en ion on he Se lemen o In es men Dispu es be ween
S a es and Na ionals o O he S a es (ICSID Con en ion).
16
E en so, i con inued o ecei e
signi ican amoun s o o eign di ec in es men (FDI), consolida ing i s posi ion as one
o he wo ld’s op ecipien s o FDI and ein o cing he unde s anding ha ha ing BITs in
o ce is no decisi e o a ac ing in es men s” (Ma ins 2017, p. 1)17.
Despi e ha BITs we e pa o B azil’s de elopmen s a egy, and despi e B azil’s ques
o a ac FDI men ioned abo e, Welsh e al. (2014, p. 112) explain ha “B azil’s nego ia ions
o e BITs, howe e , mus be unde s ood as la gely eac i e. In mos cases, he home s a es
o in e na ional in es o s ini ia ed he nego ia ion p ocess o B azilian BITs as hey sough
o assis hei co po a ions wi h managing cos s and isk”. This also explains why he ea ly
BITs nego ia ed by B azil e y much adhe e o he model o de eloped coun ies, including
ISDS p o isions (e.g., B azil–Ge many BIT, B azil–UK BIT).
A his poin , i is impo an o unde s and ha du ing he 1990s when B azil’s BIT
nego ia ions s a ed, se e al economic and poli ical ac o s we e gi en ha may ha e
impac ed posi i ely on FDI and which help o explain he non-p io i iza ion o BITs besides
he di ec c i icism o being uncons i u ional:
1.
B azil’s execu i e and legisla i e au ho i ies c ea ed al e na i e sou ces o in es men
p o ec ion (Ca allo 2019, p. 71), so he ejec ion o one ype o in es men p o ec ion
was accompanied by ano he ype o in es men p o ec ion. “Majo elemen s o
in es men p o ec ion iden i ied as in e na ional s anda ds [
. . .
] we e add essed by
he B azilian go e nmen du ing he 1990s and ea ly 2000s” (Welsh e al. 2014, p. 123).
This “me he mos impo an needs o o eign in es o s while p o ec ing he mos
Economies 2024,12, 130 8 o 19
impo an in e es s o he s a e, hus subs an ially e oding he pe cei ed need o a
BIT”. (ibid., p. 123)18.
2.
Wi h ega d o in es men dispu es, B azil buil a “local o na ional-le el sys em
o in es men a bi a ion ha di e s om he ICSID model in e ms o language,
loca ion, he equi emen s o consen , and subjec ma e ju isdic ion” and hus,
“e en wi hou BITs and a sys em o ICSID- s yle quasi-p eceden ial a bi al decisions,
B azil p o ides he same le el o in es men p o ec ion” (Welsh e al. 2014, p. 129).
3.
The BIT policy was no a s and-alone policy, as B azil con inued o in oduce a numbe
o impo an policy measu es conduci e o he a ac ion o FDI.19
4.
B azil joined MIGA in 1993, gi ing ull access o o eign i ms o poli ical i
sk insu
ance.
As a esul o he in e play be ween poli ical and economic ac o s as well as legal
de elopmen s, he adi ional BITs signed in he ea ly pe iod (i.e., 1994–1999) we e e y
much in line wi h he ea ies ha o he La in Ame ican coun ies concluded and indeed
ha e been nego ia ed by coun ies in o he pa s o he wo ld (see also Welsh e al. 2014,
p. 109). This is an exp ession o he ac ha he nego ia ing pa ne s we e powe ul
“no he n” coun ies and also o he con e gence o he BIT model du ing ha pe iod.
E en ually, in 2002, he execu i e b anch wi hd ew he signed ag eemen s om
Cong ess a e de e mining ha “ ea y p o isions on in e na ional In es o -S a e Dispu e
Se lemen (ISDS) we e uncons i u ional” (US Depa men o S a e 2023, p. 12). Ti i (2016,
p. 6) explains: “Ano he elemen ha a leas a some s age seemed o ein o ce B azilian
discom o wi h he ICSID Con en ion was he ac ha he la e signi ied a s ep away
om diploma ic p o ec ion. Wha in o he s a es may ha e played ou in a ou o he
in es o -s a e dispu e se lemen mechanism, in B azil seemed o cons i u e an a gumen
o i s ejec ion”. In addi ion, Monebhu un (2017, p. 82) men ions he “lack o equali y
and ecip oci y be ween he hos S a e on one side and he in es o s and hei home S a es
on he o he ”.
20
“In es o -s a e dispu e se lemen p o isions [
. . .
) we e pe cei ed no only
as uncons i u ional [
. . .
) bu also as con a y o B azil’s wish o adop public policies c i ical
o he coun y’s de elopmen ” (Ti i 2016, p. 6)21.
Welsh e al. (2014) and Campello and Lemos (2015) p o ide a de ailed accoun o he
unde lying poli ical p ocess behind he non- a i ica ion. Ou o he h ee main po en ial
ac o s o he non- a i ica ion o he BITs, none ac ually apply o B azil acco ding o
Campello and Lemos (p. 1064 .): (i) he absence o p esiden ial e o powe ; (ii) cons ain s
on execu i e powe ; and (iii) con en o pa icula ea ies.
22
Campello and Lemos (2015)
a gue ha “ he main ac o o explain he quanda y o non- a i ica ion was an un esol ed
execu i e, which was ne e ully commi ed wi h he ea ies in he i s place, and became
less and less so as hei cos s and bene i s became clea e o e ime”. (p. 1066). One could
say ha his is a case o a lea ning p ocess in he go e nmen on he basis o conce ns aised
by he opposi ion.23
In addi ion, in e na ional de elopmen s became ele an as A gen ina expe ienced a
la ge numbe o in es men dispu es ela ed o eme gency measu es in oduced du ing he
Peso c isis (see Bellak and Leib ech 2021). Pe one and Césa (2015) poin ou , “ he 2001
A gen ine c isis con i med B azil’s conce ns abou in es o -s a e a bi a ion and na ional
so e eign y”. (p. 1).
4.2. The T ansi ion o New Ag eemen s
Why has B azil s a ed new BIT nego ia ions a e a long pe iod o inac i i y and why
is he esul o hese nego ia ions so di e en o he BITs o he ea ly s age? Al eady in 2014,
Welsh e al. (p. 107) hypo hesized ha “(m)eanwhile, B azil’s ole in o eign in es men has
e ol ed as i s own mul ina ional co po a ions inc easingly engage in o eign in es men .
Ine i ably, hese co po a ions seek o educe he isk o hei o eign in es men s. As a
esul , hey may encou age B azil’s execu i e and legisla i e b anches o ake a second look
a BITs. As ci cums ances change, so may he de ini ion o success”.
This mo emen is no ed in he ea ly 2000s, in which “a ansi ion om he B azilian
posi ion as solely a la ge in es men ecipien o also being an in es o has led o he
Economies 2024,12, 130 15 o 19
bo h aspec s, since p ope y igh s, which ha e been key in in es men dispu es (e.g., FET),
and a key en o cemen mechanism (ISDS) ha e been omi ed a he same ime. Hence, i is
undispu ed ha go e nmen s send a nega i e signal o o eign in es o s; whe he i will be
as de imen al as an exi om he sys em o a e mina ion o ea ies, only ime will ell.
Second, wi h espec o he possibili y ha CFIAs a e a ole model o a new gene a ion
o BITs, he answe is nega i e in he sense ha CFIAs likely will no ul ill he p ima y
goal o BITs, namely he a ac ion o FDI. Go e nmen s hus ha e o eso o o he means
o FDI a ac ion like he p o ision o in as uc u e, s epping up in es men p omo ion
ac i i ies ab oad, e c. On he basis o he inclusion o inno a i e clauses in CFIAs, he e is
hope ha go e nmen s will no engage in a ace o he bo om on a b oad scale.
Thi d, he sole eliance on a S a e–S a e dispu e se lemen as an en o cemen mecha-
nism sugges s ha go e nmen s a e awa e o he po en ial cos s/ex e nali ies o a S a e–
S a e dispu e se lemen . As long as FDI is a majo componen o a coun y’s de elopmen
s a egy, he en o ceabili y o p ope y igh s needs o be gua an eed. O cou se, his could
be achie ed by plen y o o he means a he han BITs like impa ial and e icien domes ic
cou s, se ing up an e ec i e sys em o p i a e poli ical isk insu ance (which has been
a he limi ed in he pas ), o ex ending he public sys em o poli ical isk insu ance (e.g.,
MIGA). Addi ionally, he de elopmen o a new (mul ila e al) sys em o in es men p o ec-
ion could be conside ed, bu he e a e no indica ions ha his is ac i ely con empla ed by
B azil a p esen .
As a consequence, coun ies elying on CFIAs will expe ience he loca ional compe i-
ion much s onge han coun ies elying on adi ional IIAs. Hence, he need a ises o
p oac i ely unde ake economic e o ms s emming om he ansi ion o o he in oduc-
ion o CFIAs.
7. Limi a ions and A enues o Fu u e Resea ch
We conclude ha by a oiding ISDS (and FET), B azil likely will o ego FDI. Howe e ,
in his e iew, we only used he li e a u e ha is a ailable in he English language, and we
le ou he ela ed li e a u e in he Po uguese language. We he e o e may ha e missed
s udies ha pain a di e en pic u e ega ding he e ec i eness o B azil’s FDI policies o
FDI. Wha is mo e, wi h his e iew pape , we do no p o ide ou own empi ical e alua ion
o CFIAs’ e ec i eness. Fu u e analyses, he e o e, could be based on Ca allo (2019) and
use he Syn he ic Con ol app oach o Abadie e al. (2010) o in es iga e whe he he
a i ica ion o CFIAs by B azil wi h pa ne coun ies ( he ea men pai s) spu B azilian
inwa d and ou wa d FDI om and o he pa ne coun ies, espec i ely. Ce ainly, whe he
he oppo uni y cos s o ha ing CFIAs a he han adi ional BITs in o ce a e o an
economically meaning ul size needs addi ional in es iga ion.
Au ho Con ibu ions: Bo h au ho s con ibu ed equally o he: Concep ualiza ion: M.L. and C.B.;
in es iga ion: M.L. and C.B.; w i ing—o iginal d a p epa a ion: M.L. and C.B.; w i ing— e iew and
edi ing: M.L. and C.B. All au ho s ha e ead and ag eed o he published e sion o he manusc ip .
Funding: This esea ch ecei ed no ex e nal unding.
In o med Consen S a emen : No applicable.
Da a A ailabili y S a emen : No new da a has been used.
Con lic s o In e es : The au ho s decla e no con lic s o in e es .
No es
1See Jenkins (1987)o Biglaise and DeRouen (2006 on La in Ame ica) o analyses on he ole o FDI as a de elopmen ool.
2
On o he sou ces o in e na ional in es men law, see Sch eue (2013), Mic oso Wo d—EPIL In es men s_In e na ional_
P o ec ion_Re Au _Sch eue _20110201zG.doc (uni ie.ac.a accessed on 20 May 2024).
3Fo a concise summa y o he in e na ional IIA egime, see, e.g., Simmons (2014)o Ho n and No bäck (2019).
4
B azil is a pa ne o se e al egional/mul ila e al ag eemen s, which also con ain in es men - ela ed clauses wi h a po en ial
impac on FDI (see B azil|In e na ional In es men Ag eemen s Na iga o |UNCTAD In es men Policy Hub).
Economies 2024,12, 130 16 o 19
5
Th ee bila e al in es men ea ies a e in o ce (as o 23 May 2024) a e B azil–Mexico BIT (signed 2015) Acue do De Coope ación Y
De Facili ación De Las In e siones En e La República Fede a i a Del B asil Y Los Es ados Unidos Mexicanos (en e ed in o o ce
2018); Angola–B azil BIT (signed 2015) Aco do De Coope ação E Facili ação De In es imen os En e O Go e no Da República
Fede a i a Do B asil E O Go e no Da República De Angola (en e ed in o o ce 2017) and B azil–Uni ed A ab Emi a es BIT
(signed 2019) Aco do De Coope ação E Facili ação De In es imen os En e A República Fede a i a Do B asil E Os Emi ados
Á abes Unidos (en e ed in o o ce only in 2023, a e he da a collec ion p ocess had been comple ed).
6
The Ene gy Cha e T ea y p o ides a mul ila e al amewo k o ene gy coope a ion ha is unique unde in e na ional law (see
Ene gy Cha e T ea y—Ene gy Cha e ).
7
Also see, e.g., F i z (2015), Ma ins (2017), and Monebhu un (2017), as well as Magge i and Mo aes (2018, p. 313) and Ca allo
(2019, p. 70) e e ing o s a emen s made by B azilian o icials.
8
In es o –S a e dispu es a e sol ed in di e en o a, and he mos impo an is he In e na ional Cen e o Se lemen o In es men
Dispu es (ICSID). ICSID has 158 membe s a es and has adminis e ed oughly 70% o all known ISDS cases (Kinnea 2023).
9We ocus on he alloca i e consequences he e and la gely omi dis ibu i e consequences.
10
In his con ex , i is in e es ing o no e ha ac ually “ICSID, in u n, was ne e mean o ope a e as a comp ehensi e emedy o a
hos s a e’s ailu e o hono con ac ual o ea y obliga ions. Wo ld Bank G oup isk mi iga ion p oduc s, pa icula ly ela ing o
PRI (p i a e isk insu ance, au ho s), we e designed o supplemen such obliga ions. O e ime, he PRI ma ke g ew ou o
sync wi h de elopmen s in he in e na ional in es men ea y law” (Soop amanien 2017, p. 609). S . John (2018, p. 186, quo ing
Geo ges Delaume) epo s ha in i s i s wen y yea s, ICSID was “begging o cases bu cases didn’ come”.
11 Van Ha en (2010,2020) includes excellen c i ical e iews o BITs.
12 O he La in Ame ican coun ies, howe e , had signed BITs al eady in he ea ly 1990s.
13 Escoba (1996, p. 91) also makes e e ence o he 1960s: “This is o cou se a comple e e e sal om he posi ion aken en bloc in
he mid-1960s by La in Ame ican go e nmen s agains he c ea ion o an in e na ional a bi a ion mechanism o in es men
dispu es”.
14
B azil had execu ed—and a i ied—a BIT wi h he Uni ed S a es. Howe e , “i c ea ed an eno mous con o e sy, and ne e came
o be applied” (Welsh e al. 2014, p. 112).
15
The igh o egula e is “ he powe o he S a e o limi p i a e eedoms in o de o p o ec a highe legal good: he public in e es ”
(Bas 2022, p. 5).
16 Fi e pe inen ea u es o ICSID a e as ollows (Dolze and Sch eue 2008, p. 20):
(a) Fo eign companies and indi iduals can di ec ly b ing a sui agains he hos s a e.
(b) S a e immuni y is se e ely es ic ed.
(c) In e na ional law can be applied o he ela ionship be ween he hos s a e and he in es o .
(d) The local emedies ule is excluded in p inciple.
(e) ICSID awa ds a e di ec ly en o ceable wi hin he e i o ies o all s a e pa ies o ICSID.
17 Non-membe ship in he ICSID con en ion applies, o example, also o India and Sou h A ica among he BRICS coun ies.
18 In he same ein, see Vidigal and S e ens (2018, p. 486) and Ca allo (2019).
19
Indeed, B azil’s In es men Policy Measu es as collec ed by UNCTAD (see In es men Policy Moni o |UNCTAD In es men
Policy Hub) can be desc ibed as suppo i e o FDI wi h a ew excep ions.
20
“
. . .
only he judicia y had cons i u ional compe ence o adminis a e jus ice in B azil”;
. . .
“in es o -S a e a bi a ion o e ed
p i ileges o he in es o s ha was in con adic ion wi h he p inciple o equali y (and ecip oci y)”. (ibid., p. 90).
21
See also Ca allo (2019, p. 71), Vidigal and S e ens (2018, p. 486), Kalicki and Medei os (2008), and Al a ez e al. (2021). Fo he
majo poin s ha we e aised du ing he Cong essional deba es, see Welsh e al. (2014, p. 116 ).
22
E.g., Ca allo (2019, p. 75) men ions ha he MFN clause made he opposi ion uncom o able “because i pu B azil’s so e eign y
in jeopa dy by o e ing p e e ed e ms o o eign in es o s while aking away B azil’s abili y o decide how and wi h whom o
nego ia e ag eemen s”.
23 These conce ns ha e been summa ized by Campello and Lemos (2015, p. 1068) and by Mo aes and Ca alcan e (2021, p. 5).
24 Model BITs a e bluep in s, which a e adap ed du ing nego ia ions based on comp omises be ween he nego ia ing s a es.
25
See FN 15 in Mo aes and Ca alcan e’s (2021) wo k o e e ences o he legal analysis o his new ype o in es men ea y.
Va ious ac onyms a e used in he li e a u e: CFIAs o ICFAs; CIFAs. Also, se e al di e en e ms a e used in he li e a u e, i.e.,
F iendship Ag eemen s, Coope a ion and F iendship In es men Ag eemen s, e c.
26
The ea u es o he new ea ies a e desc ibed, e.g., by Ca alho (2018), Mo aes and Ca alcan e (2021), and Wei and Ning (2022,
p. 70 ). The di e ences be ween he adi ional and he new ea ies a e desc ibed by Mo aes and Hees (2018), Ca alho (2018), and
B auch (2020), who uses he example o he B azil–India ea y.
27
The “in es o -S a e dispu e se lemen mechanism was seemingly excluded o p ac ical poli ical easons” (Monebhu un 2017,
p. 90).
28
Wha a e he op isks o doing business in La in Ame ica? |Wo ld Economic Fo um (we o um.o g accessed on 5 Feb ua y 2022).
Economies 2024,12, 130 17 o 19
29
These a e IIA wi h no ISDS p o isions; IIA wi h no gua an eed ISDS and limi a ions on scope; IIA wi h no gua an eed ISDS and
no limi a ions on scope; IIA wi h gua an eed ISDS and limi a ions on scope; and IIA wi h gua an eed ISDS and no limi a ions
on scope.
30
The policy change be ween he BIT gene a ions included he opposi e o wha B azil did, i.e., he in oduc ion o ISDS
among o he s.
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