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International Investment Agreement Pdf

61 See Brazil Direct Investment Abroad, CEIC, on 57 This category includes both free trade agreements and customs unions. 133 However, full compensation would lead to over-investment (due to the moral hazard resulting from insurance against regulation) and an optimal compensation mechanism would only provide compensation for certain contingencies (ideally only if regulation is ineffective at the global level). If this condition is not verifiable, there are different second options in their model. See also Aisbett – Bonnitcha, supra note 2 (distinction between regulatory changes due to temporal inconsistencies, those caused by new information). This article argues that international investment agreements (AI) serve a dual economic function – to discipline the host country`s policy that imposes international externalities on foreign investors and reduce the inefficient risks associated with agency fees, risk aversion, asymmetrical information and temporal inconsistency problems that unprofitably increase the cost of imported capital in host countries. It uses economic analysis to explain the essential characteristics of AI and its evolution over time, and to address various controversial issues in international investment disputes. 74 U.S. Model BIT, supra note 71, art. 5 (2). This development of the two concepts is not included in NAFTA and was included in the ILO model in response to some early NAFTA cases, which have expanded the minimum standard of treatment above what international law implies. 38 It is interesting to note that there is again a parallel with the literature on international trade agreements.

Even in the absence of international externalities, trade agreements can help governments “bind hands” in the face of problems of temporal inconsistency. Standard models include a government that wants to commit itself ex ante to an effective trade policy, avoids protectionism and discourages wasted national investment in sectors that are not competitive. However, as soon as investments are made, the government knows that it will be under overwhelming political pressure to protect itself in adverse scenarios.