Over the past years, the web of international treaties offering legal protection of foreign investment has grown at an astonishing pace. Of the approximately 2000 bilateral investment treaties (BITs) in existence in 2002, over 1500 were concluded after 1987. Moreover, regional and bilateral free trade agreements now routinely include chapters on investment, while efforts are made to create rules on foreign investment at the multilateral level in the WTO.
However, despite references to common legal norms, the policies towards these agreements differ considerably among capital-exporting countries. Since 1982, the US has concluded a moderate number of treaties, but they incorporate the liberalization of investment regimes in host countries. In contrast, the policies of European countries and Japan converge on the negotiation of moderately constraining treaties concomitant with a strong preference for multilateral rules.
Why do Japan and the EU choose this particular avenue to create legal rules? What determines how much legal protection states want for their investors?
First, I contend that the sectoral composition of FDI outflows determines the political demand for international legal protection. Given the shift in the sectoral composition of (FDI) from resources and manufacturing to infrastructure and utilities, investors in more and more countries seek their governments’ international protection, as these sectors entail greater risk. Second, I argue that as small and medium-sized enterprises become active as investors abroad, they ask for legal protection because their bargaining power vis-à-vis host states is limited. Finally, I contend that multilateral rules are not inherently more desirable for states, but that a combination of bureaucratic politics and domestic interests leads to similar outcomes in the EU and Japan.
The project combines qualitative research based on interviews in Tokyo, Brussels and Washington, DC, source materials in Japanese, English and French, and a quantitative study based on data on stock, flow and sectoral composition of FDI collected by the OECD.