Bonn: Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH
International investment agreements (IIAs) have recently been the focus of increased public attention in many countries. Critics fear that IIAs, and especially the investor–state dispute settlement (ISDS) mechanism, may have detrimental effects on public policymaking. In light of this criticism, some observers argue that the international investment regime is facing a profound crisis of legitimacy. IIAs have come under increased scrutiny in countries like Bolivia, Ecuador and Venezuela, which have withdrawn from the International Centre for Settlement of Investment Disputes (ICSID), and Indonesia and South Africa, which have announced their decision to terminate many if not all of their IIAs. Despite these prominent examples, however, many countries are continuing to negotiate investment rules – albeit at a much slower pace – in particular in the context of bilateral and regional trade agreements. Against this background of divergent responses to the supposed crisis of legitimacy, it is becoming increasingly difficult for stakeholders in developing countries to navigate the international investment regime and decide whether to continue negotiating IIAs – and, more importantly, which kind of IIAs – or to ‘press the escape key’ and unilaterally terminate investment treaties. This study provides an introduction to the history and current state of international investment rule-making with a special focus on developing countries. It reviews empirical evidence on the impact of IIAs on foreign direct investment (FDI) flows and discusses to what extent IIA’s protection standards and dispute settlement arrangements lead to a reduction of developing countries’ policy space. This study reviews developing countries’ different reactions to the supposed legitimacy crisis of the international investment regime and argues that each reaction can be categorised as one of four distinct approaches: do nothing, ‘NAFTA-isation’, terminate to renegotiate, and terminate to exit.