WHEN TO BITE: Why Hasn’t Argentina Terminated Its Bilateral Investment Treaties?
International Trade Law
Law and Politics
Bilateral Investment Treaties (BITs) commit governments to behave “politely” towards foreign investors’ property rights and grant the latter the right to sue governments when violations occur. Some studies show that the greater the exposure to investment arbitration, the more likely states are to terminate their BITs. Other studies show that progressive governments are more likely to terminate treaties than economically liberal ones. In this paper, I argue that both ideology and exposure to investment arbitration are necessary but not sufficient conditions for countries when exiting BITs. As the case of Argentina shows, not all progressive governments prefer to exit the investment regime. As Argentina’s Former General Attorney told me in an interview, “Argentina made the decision, in fact I made the decision, to stay within the system. And overall, we did pretty well.” This study aims at providing an explanation to this preference: more concretely, why has Argentina decided to uphold its BITs during 12 years of progressive rulers? I explore three hypotheses, A) time inconsistencies, B) reputational consequences on FDI inflows, and C) sectoral composition of FDI portfolio. I finally show that sectoral composition of FDI can help predict when international treaties may be rescinded. My model proposes that the size of sunk costs can lead governments to shift their preferences regarding treaty adherence. Because of industry-specific characteristics, the sunk costs in Argentina’s foreign investments are difficult to capture. Hence, Argentina has more to gain from future FDI than from treaty termination. The results of this study provide critical information on BITs’ immune system by producing new data and recording key insights by elite policy-makers. This is particularly valuable considering that the secrecy in the process of investment arbitration is often described as “having gone too far.”