United States: Multilateralism In Limbo: How Bilateral Treaties Can Fill The Void For International Investors

 As highlighted on p.4 recent actions by the United States and the United Kingdom call into question their status as global leaders of multilateral trade and investment co-operation. The United States, under the Trump Administration, and the United Kingdom, following the Brexit referendum, have embraced "go it alone" policies.

The results have been dramatic. In the first few months of the Trump Administration, the United States called for the renegotiation of the North American Free Trade Agreement (NAFTA) and halted its involvement in multilateral trade and investment treaties with various countries that border the Pacific Ocean (the Trans-Pacific Partnership). The United Kingdom is currently negotiating its withdrawal from the European Union, arguably one of the most comprehensive examples of multilateral co-operation.

Both countries have challenged the benefits of multilateral trade and investment agreements, contending that they have lost far more than they have gained by being part of the multi-country approach to investment co-operation. In the place of multilateral agreements, the United States and United Kingdom are hoping to negotiate bilateral treaties that make them better able to leverage their position to get more from the partnering country.

THE IMPORTANCE OF INTERNATIONAL TRADE AND INVESTMENT TREATIES

International trade and investment treaties come in a variety of structures. From the most comprehensive, which include provisions on both investment and trade, e.g., NAFTA, to those that focus solely on investment or trade.

These treaties can also be among multiple participating countries (known as multilateral) or they can be between two countries (known as bilateral).

The various permutations of these treaties allow countries to tailor them to their specific trade and investment relationships. Their flexibility has helped fuel an explosion of such treaties over the last 50 years. There are now over 3,200 international trade and investment treaties worldwide.

Regardless of how they are structured, international trade and investment treaties are a motivating factor in an international investor's decision on whether or not to invest in a potential cross-border project.

First, such treaties can break down trade barriers by reducing or eliminating tariffs between countries.

Second, some treaties provide legal protections to private parties against state involvement. These protections include national treatment and most-favoured nation clauses, which require the state to offer the same or better terms to foreign investors as those offered to any domestic entity or other foreign investor. Other protections prohibit the state from expropriating the assets of a foreign investor or from violating its other commitments to the investor, sometimes referred to as an umbrella clause. Another protection is the application of a standard of fair and equitable treatment to the foreign entity's investments.

Third, many international trade and investment treaties offer an investor-state dispute settlement mechanism that allows the investor to bring a claim directly against the state before an arbitral tribunal, often in a neutral seat. If a state violates the protections afforded to international investors under the treaty, the investor has a mechanism to recoup the cost of the harm it suffered as a result of the state's actions. In concert, these provisions reduce risk and provide significant incentives to international investors in an effort to increase trade and investment flows between participating countries.

A multilateral approach to trade and investment treaties may offer even greater opportunities for cross-border trade and investment flow. By having multiple countries join under the umbrella of a single treaty, a multilateral trade and investment treaty opens multiple markets and creates consistency of investment and trade rules across several countries. Such a system can allow global companies with multinational supply chains to efficiently move goods, services and capital freely across borders without risk of sovereign interference, depending on the terms of the relevant treaties.

MULTILATERALISM UNDER FIRE

Despite the advantages multinational treaties offer cross-border entities, the United States and United Kingdom—once leaders in promoting multilateral trade and investment deals—have backed away from some of the most influential trade and investment agreements of the last 30 years.

In both countries, nationalist politics has brought greater scrutiny to these treaties. Some policymakers argue that multilateral trade and investment treaties threaten national sovereignty by allowing the interests of other countries and private, cross-border entities to take precedence over national interests. At the same time, certain politicians have tied these treaties to the outsourcing of domestic industries and greater immigration that allegedly erode the cultural fabric of the country. As a result, multilateralism is perceived as globalist, which flies in the face of the currently popular nationalist agenda both countries are experiencing.

The Trump Administration, in particular, views multilateral negotiations as a zero-sum game, whereby one country's loss in another country's gain. With this in mind, the current US Government argues that multilateral treaties put the United States at a negotiating disadvantage, where it is forced to negotiate away its own interests in order to bring more countries into agreement. There doesn't appear to be much appetite for the argument that international trade and investment agreements provide win-win scenarios where all countries benefit. The result, some argue instead, is unfavourable trade and investment treaties that do more harm than good to the US economy.

At the time of going to press, the United Kingdom has expressed no intention of voluntarily withdrawing from multilateral treaties to which it is a member, such as the Energy Charter Treaty. Until negotiations are concluded, investors will not know whether or not the United Kingdom i) will automatically cease to be a party to all or parts of investment agreements to which it was a party as a result of its EU membership, ii) must formally give notice of termination, or iii) can pursue other options. The impact of "sunset clauses" within its current agreements, which provide for the continuation of certain provisions for a certain period of time, often decades after termination, is also unclear.

BILATERALISM IN THE SPOTLIGHT

Although the United States and United Kingdom appear to be embracing bilateralism instead of multilateral trade and investment agreements, leaders in both countries still appear to believe in global trade and investment. The Trump Administration and the UK Government have both signalled that each will work on a bilateral level to promote their country's trade and investment abroad.

They argue that bilateral treaties provide a better opportunity to extract more gains in the zero-sum game of treaty negotiation. By being able to negotiate one-on-one, the US and UK Governments believe they have better leverage. Both governments have already started eying other potential bilateral partners, including Japan, Russia, Taiwan and Vietnam.

IMPACT ON CROSS-BORDER BUSINESS

The transition from multilateral to bilateral agreements has the potential to disrupt the current international trade and investment landscape.

Several bilateral treaties in lieu of a single multilateral treaty may take longer to enact. Each treaty will likely require several rounds of negotiation, approval and ratification by a legislative authority. It may therefore take several years for new bilateral treaties to replace any multilateral treaties that have been eliminated.

Bilateral treaties may create a greater patchwork of trade and investment protections with varying mandates and provisions. If the United States and United Kingdom attempt to leverage one-on-one negotiations, investors should expect to see treaties that are highly specific to the participating countries. The greater specificity in treaties, the less integrated they are across other agreements. This has the potential to hinder efficiency and promote complexity in an already confusing landscape.

The added time and complexity brought on by bilateralism could increase the cost of conducting business across borders. Navigating and interpreting diverging trade and investment regulations, which might contradict one another, will force international businesses to greater scrutinise their international projects.

All is not lost, despite these potential new roadblocks. To avoid increased risk brought on by greater uncertainty and complexity, international investors should seek out ways to take advantage of the bilateral environment.

Investors can do this by considering a multi-tiered investment structure that leverages the benefits of a number of bilateral agreements. Although a more complicated process, investors can gain a competitive advantage by mastering the complexity and ensuring that they comply with any requirements for securing BIT protection in each relevant circumstance.

Investors also can utilise political risk insurance, which is often available in addition to BIT protection, to reduce trade and investment risks.

Through thoughtful project structuring and planning, investors can account for additional risks, notwithstanding some of the options that may disappear or be foreclosed as a result of recent US and UK policy decisions.

Multilateralism in Limbo: How Bilateral Treaties Can Fill The Void for International Investors

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions