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Bilateral Investment Treaty FASD Elliot Grizzard & Preston Black

Negative Region IX Clark/Grizzard & Black/Thomas


Bilateral Investment Treaty Negative
By: Elliot Grizzard & Preston Black
Openers............................................................................................................................................... 3
Generic................................................................................................................................................5
Definitions: Clarification................................................................................................................... 5
Methodologies..................................................................................................................................6
Tables.............................................................................................................................................. 7
Source Indictments..........................................................................................................................9
Topicality – Reform............................................................................................................................ 11
Standards....................................................................................................................................... 11
Definitions...................................................................................................................................... 11
Interpretation.................................................................................................................................12
Violation......................................................................................................................................... 12
Impacts.......................................................................................................................................... 13
Solvency 1: Alt Cause – Financial Policy............................................................................................13
Financial Policy...............................................................................................................................13
Tax System.................................................................................................................................... 14
Impact: Zero Positive Effect...........................................................................................................15
Solvency 2: Russia Won’t Ratify........................................................................................................ 16
Russia Doesn’t See the Point.........................................................................................................16
Impact: Russia Won’t Ratify........................................................................................................... 17
Solvency 3: Alternative Evidence  FDI Ø ↑....................................................................................18
General: Alternative Evidence Proves............................................................................................18
Alt Ev 1: Political Risk Ratings........................................................................................................20
Alt Ev 2: Political Risk Insurers.......................................................................................................21
Alt Ev 3: Investor Knowledge & Appreciation.................................................................................23
Impact: FDI Ø ↑..............................................................................................................................25
Response – Formal Law Ø Impact Commercial Affairs....................................................................27
Response – “Investors Should Care” is Irrelevant..........................................................................28
Solvency 4: Law & Society Empirics  FDI Ø ↑.................................................................................29
General: Law & Society Empirics Prove..........................................................................................29
Empiric 1: Legal Ignorance............................................................................................................. 30
Empiric 2: Legal Pluralism..............................................................................................................31
Empiric 3: Legal Ambiguity............................................................................................................32
Impact: Investment Decisions Ø Effected.......................................................................................33

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IPR Disadvantages – Uniqueness and Link........................................................................................34
Uniqueness: Russian IPR Enforcement Bad Now............................................................................34
Internal Link: BITs Enhance IPRs....................................................................................................35
Internal Link: Plant and Animal Patents..........................................................................................36
Disadvantage 1: Capital Controls......................................................................................................37
Link: Russian Economic Recovery..................................................................................................37
Internal Link: Outdated Capital Controls........................................................................................38
Link: Decreased Policy Space.........................................................................................................40
Brink: Economic Recovery..............................................................................................................41
Response – Historical Precedent – Russian Capital Account Convertibility.....................................44
Response – Historical Precedent – Chilean Encaje.........................................................................45
Response – Historical Precedent – Malaysian Capital Controls.......................................................46
Impact 1: Anti-American Backlash................................................................................................. 47
Impact 2: Anarchy..........................................................................................................................48
AT: NPM Clause..............................................................................................................................49
AT: Not Russia Specific...................................................................................................................49
AT: Not Current Crisis Specific....................................................................................................... 49
Disadvantage 2: Drug Access............................................................................................................50
Link: Drug Access Denied...............................................................................................................50
Impact 1: Death.............................................................................................................................52
Impact 2: Public Health..................................................................................................................53
Implication: Human Rights.............................................................................................................54
AT: Pharmaceutical Innovation.......................................................................................................55
AT: Exemptions.............................................................................................................................. 56
AT: Compulsory Licensing..............................................................................................................57
Disadvantage 3: Food Sovereignty....................................................................................................58
Link: GMOs are Patented................................................................................................................ 58
Link: Farmers put out of business..................................................................................................59
Impact: Food Sovereignty..............................................................................................................62
Food Sovereignty Violated.......................................................................................................... 62
Food Sovereignty is a Human Right............................................................................................64
Disadvantage 4: Innovation.............................................................................................................. 65
Link: Innovation Destroyed............................................................................................................ 65
Impact 1: Injustice..........................................................................................................................67
Impact 2: Life Saving Research Hindered.......................................................................................68

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Refutation: Historical Precedent  Italy.........................................................................................69
Refutation: Historical Precedent  Silicon Valley...........................................................................71
Disadvantage 5: Freedom of Information Violated............................................................................73
Internal Link: Indigenous Rights Implicated...................................................................................73
Internal Link: Economic Reforms Implicated..................................................................................74
Internal Link: Right to Water Implicated.........................................................................................75
Internal Link: Freedom of Assembly Implicated.............................................................................76
AT: Historical Precedent – Arbitrators Protect Rights.....................................................................78
Brink: Investment Arbitration Non-Transparent.............................................................................79
Impact: Human Rights Obligations Not Met...................................................................................80

Openers
Jason Yackee 10 – If developing countries want to attract FDI, they need
something other than BITs
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Jason W. Yackee [Assistant Professor of Law, University of Wisconsin Law School; J.D. (Duke University School
of
Law); M.A., Ph.D., Political Science (University of North Carolina at Chapel Hill)] “Do Bilateral Investment
Treaties Promote Foreign Direct Investment? Some Hints from Alternative Evidence” [VIRGINIA JOURNAL OF
INTERNATIONAL LAW, 2010, Forthcoming] <accessed September 4, 2010>
http://ssrn.com/abstract=1594887 (EG)
“This conclusion admittedly has an unfortunate aspect to it. BITs are unlikely to be a quick‐
and‐easy cure‐all for whatever ails the developing country that is failing to receive all the
foreign investment that it wants. BITs are not magic wands, the wave of which produces,
with a poof and a cloud of smoke, a foreigner with pockets stuffed with cash. If developing
countries wish to attract foreign investment, they probably need to do something other
than sign and ratify BITs.”

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Generic
Definitions: Clarification
Prabhash Ranjan 09 – Definition: Bilateral Investment Treaty (FDI)
Prabhash Ranjan [PhD in Philosophy, King's College London, University of London; M.Phil (Master of
Philosophy), WB National University of Juridical Sciences; LL.M (Master of Laws) in International Commercial
Law, SOAS, London; LL.B (Bachelor of Laws) Campus Law Centre, Faculty of Law, University of Delhi; BA in
Economics, Ramjas College, University of Delhi; Former Visiting Scholar, Sydney Law School, University of
Sydney; Expert on international investment law, Ministry of Finance, Government of India; Assistant Professor
of Law, WB National University of Juridical Sciences; Former Research Assistant, University College London;
Former Legal Researcher, CUTS Centre for International Trade, Economics and Environment, Jaipur, India]
“Tread Cautiously on Bilateral Investment Treaties” November 25, 2009 THE HINDU BUSINESS LINE
<accessed August 30, 2010> http://ssrn.com/abstract=1598767 (EG)
“BITs, often perceived as admission tickets to foreign investments, are international
agreements signed between two countries under which each country binds itself,
internationally, to offer legal protection and nondiscriminatory treatment to foreign
investments of the other country.”

Sarah Anderson 09 – Definition: Direct/Indirect Capital Controls [With Examples]


Sarah Anderson [MA in International Affairs, The American University; BA in Journalism, Northwestern
University; Director of the Global Economy Project, Institute for Policy Studies; Served 1998 and 1999 on the
staff of the bipartisan International Financial Institutions Advisory Commission; Member of the Investment
Subcommittee of the U.S. Department of State’s Advisory Committee on International Economic Policy; Co-
author of the books Field Guide to the Global Economy and Alternatives to Economic Globalization] “Policy
Handcuffs in the Financial Crisis: How U.S. Trade and Investment Policies Limit Government Power to Control
Capital Flows” (February 2009) INSTITUTE FOR POLICY STUDIES <accessed August 31, 2010> www.IPS-
DC.ORG (EG)
“To meet various objectives, capital controls have taken many different forms that can be
loosely grouped into direct or indirect controls.
1. Direct: These measures seek to directly affect the volume of cross-border financial
transactions through outright prohibitions, quantitative limits, or government
approval procedures.

Examples:

Malaysia: At the height of the Asian financial crisis, Malaysia placed a one-
year ban on the repatriation of capital (for details, see p. 7).

Argentina: When the country’s financial and currency crises of 2001 became
unsustainable, the government prohibited domestic and foreign investors from
transferring funds abroad, required central bank approval of wire transfers, and
banned foreign currency futures transactions.

2. Indirect: These measures seek to make cross border flows more costly. One of the
most common is a reserve requirement with a central bank, set at a certain
percentage of the investment and for a certain length of time.

Examples:

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Chile: From 1991-1998, the government required foreign investors to place a
deposit in a non-interest paying account with the central bank for one year (for
details, see p. 7).

Colombia: In 2007, the government acted to combat inflation by introducing a


special deposit requirement on short-term foreign portfolio capital and
requiring foreign direct investment to stay in the country for a minimum of two
years.5 These controls were relaxed in September 2008.”

Methodologies
Rudiger Ahred 00 – Survey Methodology
Rudiger Ahrend [*CRED*] “Foreign Direct Investment into Russia – Pain without Gain? A Survey of Foreign
Direct Investors” May 2000 RECEP Discussion Paper [*Pub*] <accessed September 3, 2010> [*URL*] (EG)
“The survey, that we developed (and upon which this article is based) was conducted in the spring of
2000 by the European Business Club in Moscow among its members. For confidentiality reasons
we do not know the names of the surveyed enterprises. We do have some data that allow us to classify them
by sector and size - both of the investing parent company, as well as of their Russian subsidiary. We were told
that the 46 enterprises that responded are mainly European, or if they were non-European
multinationals they have at least a large presence in Western Europe. As all surveyed enterprises have
at least some presence in Moscow, there may be some bias towards the Russian capital in our sample.
Still, a very large part of FDI has in fact gone to Moscow, and many of the surveyed investors also have
investment projects in Russian regions. Given the limits of our sample, especially the focus on European
investors, it is certainly not representative for all foreign direct investors in Russia. Nonetheless we would
expect foreign direct investors from other continents to face similar problems as those enterprises that we
surveyed. Our limited sample size does not allow for more elaborate econometric techniques, but we are
convinced that the survey nevertheless offers insights into foreign direct investment in Russia. For the
surveyed enterprises the number of employees in Russia ranges from 2 to 2500, with an
average number slightly below 200. The size of parent companies range from 15 to
400,000 employees, with a mean of 44,000. Roughly one third of the enterprises surveyed
are actively producing industrial goods in Russia, approximately one third are distribution &
sales companies, and roughly 10% are in banking, consulting and transport respectively.”

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Tables

Yackee 2010,

Yackee 2010,

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Yackee 2010, “Figure 4, below, shows distributions of responses for all six scalar questions. It is notable,
for instance, that only approximately 20 percent of GCs reported higher than medium (>3) familiarity with
BITs, that no GC reported that non‐lawyer senior executives were “very familiar” with BITs, and that only
approximately five percent of GCs viewed BITs as “very important” to the typical FDI decision.”

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Source Indictments
Jason Yackee 10 – Source Indicts: UNCTAD 98, Hallward-Dremeier 03, Salacuse &
Sullivan 05 &, Neumayer & Spess 05: Methodological challenges result in
inconsistent results, once accounted for, the BIT-FDI link disappears
Jason W. Yackee [Assistant Professor of Law, University of Wisconsin Law School; J.D. (Duke University School
of
Law); M.A., Ph.D., Political Science (University of North Carolina at Chapel Hill)] “Do Bilateral Investment
Treaties Promote Foreign Direct Investment? Some Hints from Alternative Evidence” [VIRGINIA JOURNAL OF
INTERNATIONAL LAW, 2010, Forthcoming] <accessed September 4, 2010>
http://ssrn.com/abstract=1594887 (EG)
“Surprisingly, however, analysts have had great difficulty reliably demonstrating a
statistically significant, substantively meaningful correlation between BITs and FDI using
more sophisticated multivariate frameworks. In the remainder of this section, I present a brief summary of the
principle existing studies.30 UNCTAD provided the first important econometric study of the relationship
between BITs and FDI.31 In a 1998 publication, UNCTAD report results of a cross sectional time‐series model of the determinants of
bilateral FDI inflows. The study covered 72 host states over 23 years. The authors found that the relationship
between BITs and FDI was statistically weak, both in the sense of statistical significance and in the sense of
magnitude of effect. The authors concluded that BITs could be expected to only “marginally increase” FDI.32 A 2003 study by
Hallward‐Driemeier, a World Bank researcher, reported somewhat more pessimistic results.33 Hallward‐Driemeier
conducted a TSCS analysis of 20 years of bilateral FDI flows from OECD countries to
developing countries. In most of her models BITs are either insignificantly correlated with FDI,
or are significantly and, counter‐intuitively, negatively associated, implying that BITs might actually
harm a country’s FDI prospects.34 Other of her models show a statistically significant, positive correlation, but only for
countries that already have strong domestic property‐rights regimes—countries that, Hallward‐Driemeier suggests, are “the least in
need of a BIT to signal the quality of their property rights”.35 Hallward‐Driemeier concludes that there is “little evidence that BITs have
In a 2005 law review article, Salacuse and Sullivan analyze the
stimulated additional investment.”36
effects of BITs on aggregate (rather than bilateral) FDI flows, focusing in particular on the effects of signing a BIT with the
United States.37 They report a statistically significant and massive positive effect: entering a BIT with
the United States is associated with an “increased global FDI to a given country in a given year by 77%‐85% (at a 1%‐5% significance
level).”38 In other words, entering a United States BIT might nearly double a country’s FDI inflows. Curiously, however, Salacuse and
Sullivan report that entering BITs with other OECD countries has no significant effect on FDI. The authors suggest that the source of the
Neumayer and Spess’s 2005 study is perhaps
differential effect is the comparative liberality of United States BITs.39
report(s) evidence that
the most cited and influential of the various econometric studies of BITs and FDI.40 The authors
BITs have a highly significant and substantively important positive impact on FDI inflows,
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such that, for example, a country might nearly double its FDI by signing BITs with a large number of capital‐exporting countries.
However, the authors find that this relationship is conditional on the strength of domestic political institutions in the host state. Host
states with domestic institutions that are ineffective at protecting the property rights of foreign investors are likely to see a significant
impact on FDI upon signing a BIT. That positive effect declines as domestic institutions improve. Neumayer and Spess conclude that BITs
appear to be useful “substitutes” for domestic political reform. Rather than investing in improving domestic institutions, a state that
wishes to attract additional investment need only sign a BIT. Neumayer and Spess’s positive results are roughly consistent with results of
a 2004 study by Egger and Pfaffermayr of the effects of BITs on FDI outflows. The authors of the latter study find that ratifying a BIT is
associated with a 30% increase in outflows from the capital exporting country to the ratifying country. They conclude, “BITs exert a
One potential problem with the studies
positive and significant effect on real stocks of outward FDI”.41
discussed so far is that they typically fail to distinguish between differences in what might
be called the “strength” of investment treaties.42 As I have suggested above, if investors are likely to see great
utility in BITs, it is because the treaties give investors the right to sue states for treaty breaches. However, most BITs signed prior to
1985 do not contain investorstate arbitration provisions. In a 2009 article, I argued that if BITs impact FDI, we should be most likely to
see that effect as to “strong” BITs—e.g. those BITs that provide for arbitration. In other words, perhaps the inconsistent results of
existing studies is due to the fact that those studies lump together “strong” and “weak” BITs.43 I found, however, little evidence that
even strong BITs were correlated with FDI inflows. I suggested that these results cast doubt on the validity of the hypothesis that BITs
in the most econometrically sophisticated study to
should induce large inflows foreign investment. Finally,
date, Emma Aisbett identifies a number of serious methodological challenges that existing
studies largely ignore, including problems of endogeneity, autocorrelation, and omitted
variables.44 She finds that once these problems are addressed using appropriate statistical
methods, significant correlations between BIT ratification and FDI inflows disappear.”

Law & Society Rev. 08 – Source Indict: Bubb & Rose-Ackerman 07, Guzman 98 [on
the enforceability of investment contracts in international law]
Jason Webb Yackee [Assistant Professor of Law, University of Wisconsin Law School; J.D. (Duke University
School of
Law); M.A., Ph.D., Political Science (University of North Carolina at Chapel Hill)] “Bilateral Investment Treaties,
Credible Commitment, and the Rule of (International) Law: Do BITs Promote Foreign Direct Investment?” (Dec
2008) LAW & SOCIETY REVIEW, Vol. 42, Iss. 4; pp. 805-832 (EG) (PB)
“Bubb and Rose-Ackerman (2007) and Guzman (1998) claim that in the absence of BITs,
investment contracts are not legally binding upon host states as a matter of international
law. This is simply mistaken. Long-standing international arbitral practice demonstrates
that international tribunals are very willing to enforce investment contracts against host
states (KoIo & Walde 2000).6”

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Topicality – Reform
Standards
A- Brightline: Definitions should provide a clear distinction between what does and does
not meet its standards optimizing clarity and enhancing education.

B- Education: Policy debate, particularly in NCFCA is an education activity. Thus, whatever


definitions provide the parameters that best enhance the educational value of the debate
should be accepted as the definitive boundary for the round.

C- Fairness: Definitions should define a reasonable and fair interpretation of the


resolution. A resolution too narrow offers the affirmative no room to research for a good
case, whereas one too broad would make it impossible for my partner and I to prepare for
debates.

Definitions
A- Reform:
- “to put or change into an improved form or condition” – Merriam-Webster Online
Dictionary (2010) <http://www.merriam-webster.com/dictionary/reform>
- “(1) to change for the better [or] (2) Social or political change that seeks to remove
corruption or malpractice” – Webster’s II New Riverside Dictionary (1984)

B- Policy:

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- “an overall plan, principle, or guideline; esp : one formulated outside of the judiciary”
– Merriam-Webster's Dictionary of Law (1996)

Interpretation
A- Change Must Be Made: If the affirmative supports a policy that is already
implemented, then they support the status quo and they only affirm the legitimacy of
current system.
- This interpretation provides a clear brightline. Cases that affirm existing policies fall
outside the resolution, and cases that change policies are fine.
- This interpretation is educational because it allows to compare and contrast the
difference between the current system and the affirmative plan. If the case affirms
the status quo, there is no room for comparison or debate.
- This interpretation is fair because it allows the affirmative plenty of avenues for
research and support, but sets a boundary that allows for negatives to

Violation
A- Status Quo: US and Russia have already negotiated and signed a BIT and are still
discussing ratification
Anderson & Razavi 10 – A US-Russia BIT is a possible reality; negotiations are
underway and remain positive
Alan M. Anderson [J.D., M.B.A., Cornell University; M.A., Norwich University; B.A., Coe College. Shareholder,
Briggs and Morgan, P.A., Minneapolis, MN.] & Bobak Razavi [J.D., University of Wisconsin Law School; B.A.,
Amherst College. Associate, Briggs and Morgan, P.A., Minneapolis, MN.] “THE GLOBALIZATION OF
INTELLECTUAL PROPERTY RIGHTS: TRIPS, BITS, AND THE SEARCH FOR UNIFORM PROTECTION” GEORGIA
JOURNAL OF INTERNATIONAL AND COMPARATIVE LAW, [Vol. 38, No. 2 (2010)] (EG)
“Arguably, the extent of U.S. loyalty to TRIPS will be measured in large part by whether the U.S. continues to push for Russian
Since late 2007, the U.S. and Russia have discussed the possibility of a
membership in the WTO.
U.S.- Russia BIT.127 Negotiators from the two countries held formal discussions in February
2008, discussing their respective model BITs and conducting a preliminary evaluation of
the potential for finding common ground that could eventually make a U.S.-Russia BIT a
reality.128 Presently, negotiations remain nascent but positive.129 An agreement between the
U.S. and Russia would complete a protracted post-Cold War courtship between the two that
extends back to 1992, when they negotiated and signed a BIT that the Russian Duma
ultimately never ratified.130”

B- Affirmative Plan: The aff plan has the US Federal Government negotiate, sign, and
ratify a BIT with Russia.

C- Violation: No Change – The United States has already negotiated and signed a BIT, so
2/3 of the plan has already been completed; but furthermore, they are also pushing
forward on ratification. Every provisions of the affirmative plan is in the status quo already.

The aff violated the status quo because they don’t actually change anything at all. They are
advocates of the status quo.

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Impacts
A- Education: Non-topical plans destroys education because it makes it virtually
impossible to predict cases and prepare for them. When we do predict it and research it, it
harms education by forcing us to divert focus away from legitimate plans that fit within the
parameters of the resolution.

B- Fairness: Non-Topical plans destroys fairness; they already have infinite prep time, but
non-topical plans are almost impossible to predict so it doesn’t make for a fair competition.

Analogy: Counsels preparing for the merits of the case in order to have a fair and just trial.

Solvency 1: Alt Cause – Financial Policy


Financial Policy
William Cooper 07 – Russian economic policies and regulations a major inhibitor
of trade and investment
William H. Cooper [Specialist in International Trade and Finance Foreign Affairs, Defense, and Trade Division]
“Permanent Normal Trade Relations (PNTR) Status for Russia and U.S.-Russian Economic Ties” July 10, 2007
CONGRESSIONAL RESEARCH SERVICE <accessed August 25, 2010>
http://www.fas.org/sgp/crs/row/RS21123.pdf (EG)
“Russian economic policies and regulations have been a source of concerns. The United
States and the U.S. business community have asserted that structural problems and
inefficient government regulations and policies have been a major cause of the low levels
of trade and investment with the United States. Russia maintains high tariffs on some
goods that U.S. manufacturers try to export. For example, tariffs on cars plus the excise tax that is
prorated for engine displacement adds close to 70% on the price imported U.S. passenger cars and sports
utility vehicles. Russia also maintains a 20% tariff on aircraft. U.S. exporters have also cited problems with
Russian customs regulations that are complicated and time-consuming.”

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William Cooper 07 – Russian end of the investment climate proves inhospitable
for US investors
William H. Cooper [Specialist in International Trade and Finance Foreign Affairs, Defense, and Trade Division]
“Permanent Normal Trade Relations (PNTR) Status for Russia and U.S.-Russian Economic Ties” July 10, 2007
CONGRESSIONAL RESEARCH SERVICE <accessed August 25, 2010>
http://www.fas.org/sgp/crs/row/RS21123.pdf (EG)
“While they consider the investment climate to be improving, U.S. investors and potential
investors complain that the climate for investment in Russia remains inhospitable. For
example, U.S. financial services providers have criticized Russian government restrictions
on foreign investment in the banking and insurance sectors and prohibitions on the
establishment of branches of foreign-owned insurance companies and banks.7 Investors
have been also been wary of Putin Administration actions in reestablishing Russian
government control over oil and natural gas operations and over other natural resources.”

Tax System
Rudiger Ahred 00 – A reasonable, transparent, and predictable tax system is
needed before Russia can create a good investment climate
Rudiger Ahrend [*CRED*] “Foreign Direct Investment into Russia – Pain without Gain? A Survey of Foreign
Direct Investors” May 2000 RECEP Discussion Paper [*Pub*] <accessed September 3, 2010> [*URL*] (EG)
“Even though improvements in a wide range of areas will be required before Russia can create
a good investment climate, foreign direct investment - especially when one produces locally in Russia – appears to be a
much more attractive prospect than the general view in the Western press would suggest. Still, there should be swift
progress on at least the most pressing issues. Improving the tax law seems an absolute
priority. As indicated by the low significance of tax incentives for investment and location
decisions, foreign companies are not asking for temporary better treatment or tax rates far
below international standards; however, they are looking for a reasonable, transparent, and
predictable tax system.”
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Rudiger Ahred 00 – The most important issue for investors is the ever changing
tax law; even more important than Russian trade policy itself
Rudiger Ahrend [*CRED*] “Foreign Direct Investment into Russia – Pain without Gain? A Survey of Foreign
Direct Investors” May 2000 RECEP Discussion Paper [*Pub*] <accessed September 3, 2010> [*URL*] (EG)
“We provided the surveyed companies with a large list of problems that foreign investors
might potentially face, and asked them to rate them for their degree of importance.
According to the responses the most important problems by far are simply the inadequate
and ever changing tax law. Next in the order come problems with property- and creditor rights, customs, the risk of political
change, macroeconomic instability, a weak banking sector, the Russian accounting system, and corruption. It is striking that
the tax law in itself is perceived as a much bigger problem than the tax authorities that are
supposed to enforce it. On the contrary custom authorities, and to a minor degree the frequent
changes in trade policy, are rated as bigger problems than Russian trade policy itself.”

Impact: Zero Positive Effect


Prabhash Ranjan 09 – BITs have zeronegative effect on FDI; investment
depends mainly on economics
Prabhash Ranjan [PhD in Philosophy, King's College London, University of London; M.Phil (Master of
Philosophy), WB National University of Juridical Sciences; LL.M (Master of Laws) in International Commercial
Law, SOAS, London; LL.B (Bachelor of Laws) Campus Law Centre, Faculty of Law, University of Delhi; BA in
Economics, Ramjas College, University of Delhi; Former Visiting Scholar, Sydney Law School, University of
Sydney; Expert on international investment law, Ministry of Finance, Government of India; Assistant Professor
of Law, WB National University of Juridical Sciences; Former Research Assistant, University College London;
Former Legal Researcher, CUTS Centre for International Trade, Economics and Environment, Jaipur, India]
“Tread Cautiously on Bilateral Investment Treaties” November 25, 2009 THE HINDU BUSINESS LINE
<accessed August 30, 2010> http://ssrn.com/abstract=1598767 (EG)
“Studies that examine the effect of BITs on foreign investments conclude that either there
is no effect of BITs on investment flows, or that there is a weak or even negative effect in
certain cases. In fact, foreign investment flows, much more than BITs, depend on
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macroeconomic factors such as the host country’s overall economic stability, advantages
as a location, level of infrastructure and other related factors. Another example is of Brazil that has
no BITs, but is still one of the leading recipients of foreign direct investment in Latin
America — once again showing that foreign investment inflows depend mainly on
economics and not so much on BITs.”

Solvency 2: Russia Won’t Ratify


Russia Doesn’t See the Point
Rubins & Nazarov 08 – Russia sees no benefit in limiting its own freedom in order
to grant privileges to foreign investors
Noah Rubins [M.A. in Dispute Resolution & Public International Law, Fletcher School of Law and Diplomacy;
J.D., Harvard Law School; B.A. in International Relations, Brown University; Member of the international
arbitration and public international law groups specializing is investment treaty arbitration] & Azizjon Nazarov
[B.A. in Finance, Tashkent State University of Economics; M.A. in International Law and Economics, Bern
University, Switzerland; PhD Candidate, Tashkent State Institute of Law; Senior Lecturer in Law and teaches
Labour Law and International Commercial Arbitration, Westminster International University] “Investment
Treaties and the Russian Federation: Baiting the Bear?” BUSINESS LAW INTERNATIONAL Volume 9, Number 2,
(May 2008) <accessed August 28, 2010> (EG)
“Rising natural resource prices and the stabilisation of the Russian economy after 2000
would appear to be far more likely motivation for the changes in treaty policy. Russia’s
Deputy Minister of Economic Development and Trade admitted as much in 2001, stating
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that the freeze on new BITs was undertaken to avoid granting any ‘new privileges’ to
foreign investors.24 With no particular need to attract foreign capital, and still relatively
limited outward investment on the part of Russian companies, the Government could see
no particular benefit to limiting its freedom to act in relation to foreign investors. Whatever
the motivation, the result is that the Russian Federation has placed its investment treaty
negotiation and ratification programme in stasis.”

Rubins & Nazarov 08 – Putin’s administration marked a change in Russian policy


that marked a sharp decrease in signed investment treaties
Noah Rubins [M.A. in Dispute Resolution & Public International Law, Fletcher School of Law and Diplomacy;
J.D., Harvard Law School; B.A. in International Relations, Brown University; Member of the international
arbitration and public international law groups specializing is investment treaty arbitration] & Azizjon Nazarov
[B.A. in Finance, Tashkent State University of Economics; M.A. in International Law and Economics, Bern
University, Switzerland; PhD Candidate, Tashkent State Institute of Law; Senior Lecturer in Law and teaches
Labour Law and International Commercial Arbitration, Westminster International University] “Investment
Treaties and the Russian Federation: Baiting the Bear?” BUSINESS LAW INTERNATIONAL Volume 9, Number 2,
(May 2008) <accessed August 28, 2010> (EG)
“The beginning of Putin’s administration marked a cardinal change in Russian policy with
respect to investment protection treaties. Most importantly, the rate at which new BITs
were signed dropped sharply. Only three treaties with relatively insignificant trading
partners – Jordan, Thailand and Armenia – were concluded after 1999. Just as disturbing, hardly
any investment treaties were ratified by the Duma, an essential prerequisite for any such
instrument entering into force. The failure to ratify was particularly pronounced with
respect to treaties representing potentially significant inward capital flows: the US-Russian
Federation BIT, for example, was signed in 1994 and has languished in Duma committees
ever since.”

Impact: Russia Won’t Ratify


Rubins & Nazarov 08 – Controversial legal issues will prevent the Duma from
ratifying a dozen or so BITs; Russia is mostly uncompromising
Noah Rubins [M.A. in Dispute Resolution & Public International Law, Fletcher School of Law and Diplomacy;
J.D., Harvard Law School; B.A. in International Relations, Brown University; Member of the international
arbitration and public international law groups specializing is investment treaty arbitration] & Azizjon Nazarov
[B.A. in Finance, Tashkent State University of Economics; M.A. in International Law and Economics, Bern
University, Switzerland; PhD Candidate, Tashkent State Institute of Law; Senior Lecturer in Law and teaches
Labour Law and International Commercial Arbitration, Westminster International University] “Investment
Treaties and the Russian Federation: Baiting the Bear?” BUSINESS LAW INTERNATIONAL Volume 9, Number 2,
(May 2008) <accessed August 28, 2010> (EG)

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“Time will tell whether these and other controversial legal issues will be resolved in favour
of claimant investors or the Russian Government. It is already certain that the arbitration
claims submitted by Menatep and the other Yukos shareholders will prevent the ratification
by the Russian Duma of the ECT (as well as a dozen or so BITs) in the foreseeable future. It is very
unlikely that even total victory in arbitration against the Russian Federation will not lead directly to monetary compensation for
aggrieved investors. The enforcement of arbitral awards in Russia has long presented serious problems for foreign contracting parties.
The Russian courts’ consistent application of international conventions on the enforcement of foreign commercial arbitration awards does
appear to be improving in recent years.52 However, there is little sign that the Russian Government has changed its recalcitrance with
respect to arbitration awards rendered against it. The Russian Government has often taken advantage of the inability of foreign creditors
to enforce against state assets in Russia, combined with sovereign immunity rules in other countries, to delay payment of awards for
years. Only dogged persistence and skilled investigators and lawyers have managed to locate and attach Russian Government assets
abroad – as in the Sedelmayer case, described above. In other instances, payment may be even longer in coming.53 Nevertheless, the
existing Russian investment treaty regime may provide a realistic avenue to limit or rectify unfair and unexpected government
interference in commercial affairs. Russia has signed and ratified more than 30 BITs, of which at least half were drafted according to a
more or less standard OECD template. Already, many foreign investors in Russia are structuring their investments not only to minimise
tax burdens and to access advantageous regulatory regimes, but also to benefit from investment treaty protection. Carefully examining
the provisions of investment treaties in force and considering incorporation of project vehicles in appropriate jurisdictions have become
For now, the Russian Federation has been relatively immune
an essential part of business planning.
from the effects of the investment protection treaties it has signed. But increasing
knowledge about the function of these instruments among the foreign investment
community has already led to an increasing number of arbitration claims against the
government. It is still unclear whether most of these claims will result in enforceable judgments, or influence Russia’s policy
towards foreign capital. At the very least, these new actions may provide a new way to procure a seat at the negotiating table with a
government otherwise disinclined to compromise.”

Solvency 3: Alternative Evidence  FDI Ø ↑


General: Alternative Evidence Proves
Jason Yackee 10 – Three alternative sources of evidence prove that BITs have not
been a major source or even a partial source of increased FDI since the ‘90s

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Jason W. Yackee [Assistant Professor of Law, University of Wisconsin Law School; J.D. (Duke University School
of
Law); M.A., Ph.D., Political Science (University of North Carolina at Chapel Hill)] “Do Bilateral Investment
Treaties Promote Foreign Direct Investment? Some Hints from Alternative Evidence” [VIRGINIA JOURNAL OF
INTERNATIONAL LAW, 2010, Forthcoming] <accessed September 4, 2010>
http://ssrn.com/abstract=1594887 (EG)
“I pursue three alternative avenues of inquiry. First, I examine whether investment treaties
appear to influence rankings of “political risk” provided by for‐profit business consultants. If
investment treaties are important elements in the foreign investment decision‐making
process because they protect against the risk of adverse political actions (like expropriation), we might expect that
companies whose line of business is to gauge such risks will incorporate the presence or
absence of treaties into their evaluations. In other words, I use political risk rankings as a dependent variable, in
substitution for the more commonly used dependent variable of FDI inflows. Second, I present results from a small e‐
mail survey of providers of political risk investment insurance, in which I ask respondents to describe the
extent to which investment treaties enter into their underwriting decisions. I suggest that if BITs matter to investors
because they successfully reduce political risk, we might expect insurers to take the
treaties into account when deciding whether to issue investment insurance on particular terms.
Third, I present results from an original, mail‐based survey of general counsel (GCs) in
large U.S.‐based corporations, in which I ask respondents whether investment treaties influence their companies’
decisions to invest. I suggest that if investment treaties meaningfully impact FDI, that influence is
likely to flow into the corporation’s decision‐making process through the GC’s office, which acts
as a repository of legal knowledge within the corporation and which is typically tasked with advising on the legal implications of
corporate decisions. If the GC’s office has little knowledge or appreciation of BITs as risk‐reducing devices, it is unlikely that corporate
The results of these three lines of inquiry
decision‐makers factor the treaties into their investment decisions.
provide only weak evidence that BITs meaningfully influence FDI decisions. BITs are not strongly correlated
with political risk rankings, and providers of political risk insurance only inconsistently take
BITs into account when making underwriting decisions. Indeed, the majority of providers
surveyed do not view BITs as relevant to their underwriting decisions. Finally, general
counsel report relatively low corporate familiarity with or appreciation of BITs as risk‐
reducing devices. These results by no means definitively prove that BITs never matter to investors when they
decide whether and where to invest. Nor do they prove that BITs won’t matter more to investors at some time in the future, as
knowledge of BITs and confidence in the strength of their protections grows. What the study does suggest, however, is that grandiose
claims about the historically demonstrated ability of BITs to promote investment should be consumed with caution. BITs may influence
certain investment decisions. From the results presented below, we can somewhat confidently conclude that they don’t seem to
BITs have probably not been the primary cause, and perhaps not
particularly influence many others.
even a partial cause, of the massive increase in foreign investment to the developing world
that began in the 1990s.”

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Alt Ev 1: Political Risk Ratings
Jason Yackee 10 – If political risk raters take BITs into account, investors will
also; If BITs reduce political risk, raters will take them into account; analysis
proves that BITs fail to significantly affect political risk
Jason W. Yackee [Assistant Professor of Law, University of Wisconsin Law School; J.D. (Duke University School
of
Law); M.A., Ph.D., Political Science (University of North Carolina at Chapel Hill)] “Do Bilateral Investment
Treaties Promote Foreign Direct Investment? Some Hints from Alternative Evidence” [VIRGINIA JOURNAL OF
INTERNATIONAL LAW, 2010, Forthcoming] <accessed September 4, 2010>
http://ssrn.com/abstract=1594887 (EG)
“The PRS Group48 and BERI, SA49 are two prominent private, for‐profit providers of political
risk ratings. Both organizations provide business clients with qualitative analysis of
business‐related political and other developments in various countries. They also provide quantitative
evaluations of various kinds of “risk”.50 For example, the PRS Group produces three “International Country Risk Guide” (ICRG) indexes gauging levels of “political risk”, “financial risk,
and “economic risk”. The political risk index is a 100‐point index based on subjective in‐house evaluations of a number of variables, such as the level of “ethnic tensions”, the degree
of “government stability”, and the extent of “corruption”.51 For present purposes, the most important component is a 12‐point sub‐index of a country’s “investment profile”, which
itself consists of expert evaluations of three further sub‐categories of risk: the risk of breach of contract and expropriation, the risk of interference with the repatriation of investor
profits, and the risk of delay in payments. I use the 12‐point investment profile index in the analyses below.52 BERI produces a similar index of “operations risk” that is based on
subjective evaluations by what BERI describes as a permanent panel of approximately 100 experts.53 BERI’s operations risk index incorporates a sub‐index that evaluates a country’s
“attitude” toward foreign investors, and I use that sub‐index in the analysis below.54 I use the ICRG and BERI sub‐indexes because the organizations’ aggregate political risk indexes
include a number of risk‐related factors not directly related to the legal protections that BITs provide. In other words, I am examining the impact of BITs on political risk narrowly rather
than broadly construed. This is because there is no theoretical reason to expect BITs to be causally associated with variables like political instability, risk of war or insurgency, or other
factors that might form part of a more general definition of “political risk”. Unlike political risk insures (discussed in more detail in Part 5, below), neither the PRS Group nor BERI insure
both organizations have an
against political risks, and neither company has a direct financial stake in the quality or accuracy of its evaluations. On the other hand,
indirect financial interest in providing evaluations useful to corporate clients. If either organization
consistently errs in its evaluations of risk, presumably corporate clients will stop using their services. That risk
of loss of business arguably provides the organizations with some degree of incentive to produce accurate
evaluations of risk. These quantitative ratings of the investment‐related aspects of political risk provide us with an alternative means of testing whether BITs promote FDI.
If BITs work by reducing political risk (e.g. risk of expropriation), then we might expect to see that
organizations like the PRS Group or BERI systematically assign more favorable risk ratings
to those states that enter into BITs. If foreign investors rely on these ratings when deciding whether and where to invest, then BITs may influence
the investment decision‐making process indirectly, or at least independently of any specific knowledge or appreciation of BITs by foreign investors themselves. Alternatively, we might
view the process by which organizations like the PRS Group and BERI make political risk evaluations as likely to mirror the processes that businesses use when deciding whether to

invest.If PRS Group and BERI experts take BITs into account, then investors may do so as well.
To examine whether BITs impact political risk ratings, I regressed the ICRG Investment Profile and the BERI Investment Attitude indexes against a simple model of the determinants of
political risk. I also include results for a third measure of political risk, a rating of “expropriation” risk developed by the University of Maryland’s IRIS Center and used by Knack and
Keefer.55 The IRIS measure is based on ICRG data, and arguably provides a more specific measure of the kinds of risk that BITs might reduce than does the more aggregate ICRG
“Investment Profile” measure. For all three measures, a higher rating means less risk (or, a higher rating means a more favorable investment climate). The ICRG Investment Profile
variable has an observed range of 0 to 12, with a mean of 6.7; the BERI Investment Attitude variable has an observed range of 0 to 0.2 to 4.8, with a mean of 2.4; the IRIS variable has
an observed range of 0.5 to 10, with a mean of 7.1. My dataset is structured as a pooled cross‐sectional time series (CSTS), meaning that data is organized by country‐year. The
sample of countries included in the models depends on the dependent variable used, but in all models is limited to developing (capital importing) countries. All models share a
common suite of control variables. While the models are relatively parsimoniously specified, it is important to note that adding more control variables would not necessarily reduce
any potential problem of “omitted variable bias”.56 Per capita gross domestic product (GDP) is included to control for the possibility that less developed countries may face increased
incentives to expropriate foreign investment. The annual inflation rate controls for incentives to expropriate during times of economic instability. Both variables are taken from the
World Bank’s World Development Indicators. To control for a state’s history of investor‐unfriendly behavior, I include a dummy variable indicating whether a state was identified as a
“mass expropriator” in Kobrin’s classic empirical study of the determinants of expropriation in the 1960s and 1970s.57 I also include a state’s “birth year” to control for the possibility
that newer states will face greater incentives to expropriate.58 Finally, I include the Polity IV Project’s measure of democracy in the host state.59 Political science scholarship suggests
that the risk of expropriation and other forms of opportunistic anti‐investor behavior are lower in democracies than in autocracies.60 The explanatory variable of principle interest in all
of the models is a count of the number of strong bilateral investment treaties (or strong investment chapters in free trade agreements) that a state has in force with major capital‐
exporting countries. I consider a BIT to be “strong” if it contains the state’s pre‐consent to investor‐initiated arbitration for a wide range of potential investor‐state disputes.61 This
variable ranges from 0 to 15. Figure 2, below, provides a preliminary graphical analysis that sets the stage for the more complex statistical analysis that follows. The figure shows
scatterplots for the strong BITs variable (lagged one year) and the three measures of political risk. The data points are all country‐years for which political risk data is available. The
scatterplots show a generally modest positive correlation between the number of strong BITs in force and a country’s level of political risk, as indicated by the upward sloping trend
lines. (Recall that a higher value on all three indicators indicates less risk). However, we also see substantial variance around the trend lines. That variance suggests that BITs are, at
best, a highly partial predictor of political risk ratings. Results for the regressions are presented in Table 1, below. The Table 1 models were estimated using two alternative strategies:
first, generalized least squares (GLS) with fixed effects (FE), a common approach for estimating CSTS models,62 and second, using an alternative panel corrected standard error
(PCSE) approach recommended by Beck and Katz for CSTS data.63 All models include a lagged dependent variable (LDV) (the country’s political risk rating in the prior year) in order to
control for autocorrelation, as recommended by Keele and Kelly.64 We can think of the LDV as controlling for the probability that a current year’s risk rating will be influenced by last

analysis
year’s risk rating, the latter of which the expert rater will undoubtedly consult when evaluating the level of risk in the upcoming year. The regression

provides little evidence that BITs meaningfully influence political risk ratings. The BITs variable is
statistically significant in only two of the six models, those using the ICRG Investment Profile rating as the dependent variable. BITs are not a significant

predictor of either the BERI measure of Investment Attitude or the IRIS measure of risk of
expropriation, with the latter result especially notable, given that BITs are often said to “work” precisely by reducing the risk of expropriation. In the ICRG
models, where the BIT variable is significant and positively signed, the magnitude of the effect is nonetheless substantively
weak. For example, the coefficient on the BIT variable in Model One of 0.0740 implies that entering ten additional BITs with major
capital‐exporting countries might raise a country’s ICRG Investment Profile rating by less than a single
point on the ICRG’s 12‐point index. Model 2’s coefficient of 0.0375 implies an even less impressive effect. Moreover, if we include a year variable in the
ICRG models in order to control for time trends (results not shown), the BIT variable falls from significance, while the time counter is highly significant. What does influence risk
evaluations? The LDV proves to be a highly significant and substantively important predictor of risk ratings. A country’s perceived level of risk in 1989, for example, will strongly
influence its perceived level of risk in 1990. Risk ratings are, in other words, relatively “sticky”, and that stickiness suggests that host states desiring greater investment should not
expect relatively easy policy changes (like the decision to enter into BITs) to influence investor perceptions of risk, at least over the short term. We also see relatively consistent

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evidence that political democracy positively impacts risk ratings, a finding in line with past research on democracy and foreign investment: the Polity variable is significant and
positive in four of the six models (the ICRG and IRIS models), suggesting that greater levels of democracy are associated with less perceived political risk. In brief, the Table 1 models

BITs do not appear to


suggest either that BITs have no statistically significant impact on political risk ratings, or, if they have an impact, it is quite small.

meaningfully influence subjective expert evaluations of political risk. These results appear
consistent with the simple bivariate graphical analysis presented in Figure 1, which showed only a
modest positive correlation between BITs and risk ratings.”

Alt Ev 2: Political Risk Insurers


Jason Yackee 10 – If political risk insurers take BITs into account when issuing
PRI, then investors likely do so when making investment decisions; Most insurers
do not take BITs into account, and when they do, the impact is slight
Jason W. Yackee [Assistant Professor of Law, University of Wisconsin Law School; J.D. (Duke University School
of
Law); M.A., Ph.D., Political Science (University of North Carolina at Chapel Hill)] “Do Bilateral Investment
Treaties Promote Foreign Direct Investment? Some Hints from Alternative Evidence” [VIRGINIA JOURNAL OF
INTERNATIONAL LAW, 2010, Forthcoming] <accessed September 4, 2010>
http://ssrn.com/abstract=1594887 (EG)
“Unlike political risk rating organizations like the PRS Group, which merely provide companies with investment‐related analysis,
political risk insurers provide foreign investors with insurance against certain adverse
events, such as uncompensated expropriation by the host state, damage resulting from political violence, and currency
inconvertibility. Political risk insurance (PRI) has traditionally been provided by public agencies of capital exporting states (such as the
United States Overseas Private Investment Corporation (OPIC)). However, private insurers also increasingly offer the product as well.65
Political risk insurers provide us with another alternative means of examining whether BITs
succeed in promoting FDI.66 First, if insurers take BITs into account when deciding whether
and on what terms to issue PRI, that suggests that investors—who, like insurers, have direct financial
incentives to gauge political risk before deciding whether to invest—are themselves likely to consider BITs as part
of the investment decision‐making process. 67 Second, if PRI providers take BITs into
account when deciding whether to issue insurance, BITs may indirectly promote FDI
(regardless of investor knowledge of appreciation of BITs) by making PRI more available and more
affordable.68 An investor who will not invest absent PRI may be more likely to find affordable PRI— and thus to invest—if BITs
impact the insurer’s underwriting decisions. Of course, that latter possibility assumes that investors investigate the availability and price
of PRI at a relatively early stage in the investment decision‐making process, before the investor’s organization has become either
formally or informally committed to a particular investment decision. That assumption may be unrealistic, as investors typically apply for
PRI late in the investment process, with PRI providers requiring such things as an underlying investment contract and other detailed
information about the planned investment.69 At that late stage, the professional and financial sunk costs may be so high that corporate
decision‐makers unwilling to back out of the decision to invest even if PRI is unable to more costly than initially assumed.70 In any event,
the question of whether PRI promotes investment is beyond the scope of the present article. My main goal in this section is rather to
Email surveys were
present results from a small e‐mail survey of PRI providers that I conducted during the summer of 2008.
sent to 56 companies across the globe. Responses were received from 14 companies, for a
response rate of 25 percent, and represented a mix of large and small public and private
providers.71 Respondents were asked two main questions: first, was it the firm’s “standard practice to determine whether the
investment project will be covered by a BIT before agreeing to issue the insurance policy”? Second, “Does the presence or absence of a
BIT influence the premiums that your organization charges investors for expropriation insurance”? Respondents answering “yes” to the
second question were then asked to provide an estimate of the magnitude of any effect on premiums. Respondents were also asked to
Of the 14 respondents, eight said that it was not standard
provide explanatory comments if possible.
practice to determine whether an investment would be covered by a BIT prior to issuing a
policy, and nine indicated that BITs have no impact on rates charged for expropriation
insurance. Furthermore, those respondents that indicated that BITs impact expropriation
insurance rates suggested that the impact was often apparently rather slight.”

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Jason Yackee 10 – BITs don’t systematically affect PRI availability or premiums;
this indicates that investors likely don’t value BITs much and unlikely indirectly
promotes FDI
Jason W. Yackee [Assistant Professor of Law, University of Wisconsin Law School; J.D. (Duke University School
of
Law); M.A., Ph.D., Political Science (University of North Carolina at Chapel Hill)] “Do Bilateral Investment
Treaties Promote Foreign Direct Investment? Some Hints from Alternative Evidence” [VIRGINIA JOURNAL OF
INTERNATIONAL LAW, 2010, Forthcoming] <accessed September 4, 2010>
http://ssrn.com/abstract=1594887 (EG)
“The number of respondents is too low to permit any sort of statistical evaluation, but the pattern of
responses suggests, at a minimum, that BITs only imperfectly and inconsistently impact PRI
decisions. For many underwriters, including large private providers motivated primarily by considerations of
profit, BITs have no impact on insurance decisions. For others, that impact may be relatively slight. In short,
the practices of PRI providers provide little evidence in support of the hypothesis that BITs
should have substantively meaningful impacts on FDI. If PRI underwriters don’t highly value
BITs, then foreign investors are unlikely to value them much either. And if BITs don’t
systematically influence PRI availability or premiums, then the treaties are unlikely to
indirectly promote FDI by making investments more readily insurable.”

Jason Yackee 10 – Survey respondents opinions and statements


Jason W. Yackee [Assistant Professor of Law, University of Wisconsin Law School; J.D. (Duke University School
of
Law); M.A., Ph.D., Political Science (University of North Carolina at Chapel Hill)] “Do Bilateral Investment
Treaties Promote Foreign Direct Investment? Some Hints from Alternative Evidence” [VIRGINIA JOURNAL OF
INTERNATIONAL LAW, 2010, Forthcoming] <accessed September 4, 2010>
http://ssrn.com/abstract=1594887 (EG)
“For example, a large private provider responded that “We rarely get info relating to a BIT
until the later stages of any disclosure info”, that BITs have “no direct influence—country
risk factors may be affected a little but usually other factors driving the price…aggregate
pressure, competition, prices from [public providers]”, and that BITs might impact pricing
“less than 5%, if anything.” Another private provider responded that

In short BITs don’t effect pricing at all for me. I don’t regard the process as
being robust enough with enough of a successful track record. Furthermore, if
one looks at Latin America at the moment countries seem to unilaterally pull
out of international arbitrations, so ultimately we give the structure no credit.

This view of the limited utility of BITs and of international arbitration was echoed by
another private underwriter:

A BIT is only of any real value to us if it is supported by bonds or letters of


credit lodged with a third party outside the country that may be drawn on
relatively easily to compensate expropriation not otherwise adequately
compensated by the country in question. Promises of arbitration and
compensation not supported by realizable assets (and in most cases I suspect
they are not) are not that persuasive in reducing premiums (IMO). But then I
am just a cynical underwriter[.]

… the BIT is not a deciding underwriting factor in most cases and other issues
relating to the character of the government in power, local government…,

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semi‐official corruption, the character of the foreign company, the social,
employment and poverty situation in the country and economic issues
regarding, say, any increase in commodity prices since a company won its
license to drill or extract are far more important.

A fourth private provider indicated that BITs were taken into account but were “not always
required”, but that their impact on premiums was only to “make[] the risk a bit more
palatable”. Public providers also suggested that BITs were largely irrelevant to their
decisions. A developed‐country public provider commented that “the existence of a [BIT] is
a comfort but does not itself influence premium pricing”. Another developed‐country public
provider noted that “[BITs are considered a “minor factor” in assessing a government’s
attitude toward business and foreign investment” but “the premium rates quoted or
charged are not influenced by the presence or absence of a BIT alone”. On the other hand,
one public provider responded that the presence of a BIT would have a relatively large
impact on premiums, raising premiums from 0.5% of insured value up to 0.94%
“depending on the project and country concerned”.72 A small private provider responded
that “it is very important that a [BIT] exist”, but suggested that the importance was due to
the firm’s “small investment book”. Another public provider affirmed that “the Board of
Directors take seriously into account the fact that a BIT exists. … [T]his is considered as a
“positive” eligibility criterion for the Board of Directors’ decision. On the other hand, if
there is not a BIT, this does not mean that the application is rejected automatically. In that
case, we evaluate more strictly the political situation in the Host Country, and of course,
we set a lower percentage of cover and a higher annual premium.” However, the
respondent added that it was impossible to indicate any general effect of BITs on
premiums, because “we evaluate each application on a ‘case‐by‐case’ basis.”

Alt Ev 3: Investor Knowledge & Appreciation


Jason Yackee 10 – Anecdotal and historical survey evidence suggests investors
don’t know about or care about BITs (3 examples)
Jason W. Yackee [Assistant Professor of Law, University of Wisconsin Law School; J.D. (Duke University School
of
Law); M.A., Ph.D., Political Science (University of North Carolina at Chapel Hill)] “Do Bilateral Investment
Treaties Promote Foreign Direct Investment? Some Hints from Alternative Evidence” [VIRGINIA JOURNAL OF
INTERNATIONAL LAW, 2010, Forthcoming] <accessed September 4, 2010>
http://ssrn.com/abstract=1594887 (EG)
“The hypothesis that BITs are likely to lead to large inflows of FDI typically seems to rely on
a three‐stage assumption about investor knowledge and behavior. First, potential investors
are aware of the treaties.73 Second, investors appreciate the treaties either as actual, direct
reducers of risk (and thus as enhancers of expected profitability) or as reliable signals of a low‐risk
environment. Third, investors base their investment decisions on the presence or absence
of a treaty because of their risk‐reducing or low‐risk‐signaling attributes. But do investors
really know or care much about BITs? Anecdotal and historical survey evidence suggests
they might not. A small survey of business executives conducted in 1976 found that only 16 percent of respondents were
“familiar” with the ICSID system generally, and that only 4 percent felt that ICSID provided “adequate safeguards”.74 A somewhat more
Even in the late 1990s BITs and BIT‐based
recent study confirmed the continued validity of these results.75
arbitration appear to have remained an “often overlooked tool” in the legal arsenal of
multinational corporations.76 The international law firm Allen & Overy has recently

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advertised BITs to potential clients as entailing “rights you never knew you had”.77 And a
1999 survey suggested that “many chambers of commerce indicated that they had no
familiarity with” the Energy Charter Treaty, a prominent multilateral “BIT” covering energy
sector investments.78”

Jason Yackee 10 – GCs Survey: Respondents indicate unfamiliarity with Bits, and
did not view them as effective protections against expropriation, adverse
regulatory change, or influential in the “typical” FDI decision
Jason W. Yackee [Assistant Professor of Law, University of Wisconsin Law School; J.D. (Duke University School
of
Law); M.A., Ph.D., Political Science (University of North Carolina at Chapel Hill)] “Do Bilateral Investment
Treaties Promote Foreign Direct Investment? Some Hints from Alternative Evidence” [VIRGINIA JOURNAL OF
INTERNATIONAL LAW, 2010, Forthcoming] <accessed September 4, 2010>
http://ssrn.com/abstract=1594887 (EG)
“We see that the companies surveyed reported relevantly frequent consideration of foreign
investment (median response of 4, where 5 indicated “frequently” and 1 indicated “never or rarely”). We also see that
the median GC is relatively unfamiliar with BITs (2, where 1 indicated “not at all familiar” and 5 indicated “very
familiar”). Non‐lawyer senior executives were somewhat less familiar with BITs, as the lower mean
score (2.04) indicates. Respondents did not view BITs as particularly effective at protections
against expropriation (a median response of 3, where 5 indicated “very effective” and 1 indicated “not at all effective”).
They were less impressed with BITs as an effective shield against adverse regulatory
change (median score of 2). This latter result is important, because expropriation, in the classic sense, has
become an exceedingly rare phenomenon, and most investments are probably not at any significant, real risk of classic expropriation.85
If BITs have an important role to play in reducing risk, it is probably at reducing the risk of so‐called
“regulatory expropriation”—that is, at protecting companies against adverse regulatory changes that
amount to less than a full “taking” of the investment. In fact, GC skepticism about the ability of BITs to protect
against regulatory change is consistent with the jurisprudence of arbitral tribunals, which have so far refused to read an ambitious
Finally, BITs don’t appear to be all that important a
regulatory takings doctrine into the treaties.86
consideration in the “typical” FDI decision, and only four respondents report that their
company has declined an investment opportunity specifically because of the absence of
BIT protections.87”

Jason Yackee 10 – GCs (Fortune 200) survey: Indicates little knowledge of BITs
and a pessimistic view of their ability to influence FDI decisions [Includes:
Methodology + defense]
Jason W. Yackee [Assistant Professor of Law, University of Wisconsin Law School; J.D. (Duke University School
of
Law); M.A., Ph.D., Political Science (University of North Carolina at Chapel Hill)] “Do Bilateral Investment
Treaties Promote Foreign Direct Investment? Some Hints from Alternative Evidence” [VIRGINIA JOURNAL OF
INTERNATIONAL LAW, 2010, Forthcoming] <accessed September 4, 2010>
http://ssrn.com/abstract=1594887 (EG)
“In an attempt to arrive at a more scientifically sound basis for gauging investor awareness
of BITs I conducted a mail survey of general counsel (GC) in large U.S.‐ based corporations.
A copy of the survey instrument is included as an appendix to this article. The survey was mailed to GCs in the top

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200 U.S. corporations on the Fortune 500 list, with a first mailing followed by a second
mailing to non responders. The survey was purposefully short (one single‐sided page) to promote responses, and a small
incentive was included in each mailing.79 A second round of surveys was sent to U.S. corporations ranked between 201‐400 on the
Fortune 500 list, but the results from the second administration were not compiled in time for inclusion in this article. Respondents were
promised that their identities and the identities of their corporations would not be revealed. Using surveys to evaluate the extent to
which BITs enter into corporate FDI decisions poses certain obvious difficulties, the primary of which is that a corporation is a complex
organization consisting of numerous individuals, each of whom may or may not posses relevant knowledge of the corporate practices
with which the study is concerned. Identifying relevant contacts, and persuading those contacts to participate, can be highly challenging,
especially when the goal is a survey covering a broad selection of corporations. I elected to direct my survey at GCs for both practical
and substantive reasons. First, contact information for GCs is readily identifiable in corporate documents, on corporate websites, and
through mailing‐list companies like InfoUSA. Second, GCs were probably more likely to respond to the survey than other high‐ranking
corporate officials, such as CEOs, who may generally be both busier and less inherently interested in a questionnaire probing the extent
to which legal instruments influence corporate decisions. Third, and more substantively, there is good reason to expect that GCs are in a
good position to gauge the importance BITs to corporate decisions. In‐house counsel increasingly enjoy significant power and prestige
within large corporations, and they are frequently called upon to perform legal risk analysis of corporate proposals and decisions.80 GCs
are often part of the senior management team (or consult frequently with it), and Kobrin indicates that political risk analysis is often
conducted at the senior management level and/or within in‐house legal departments.81 Furthermore, given the highly technical and
relatively inaccessible nature of BIT jurisprudence, busy non‐legal senior executives are unlikely to be in a position to either monitor or
evaluate BIT developments.82 If BITs come to the attention of FDI decision‐makers, they may be most likely to come to their attention
Seventy‐five surveys were returned, for a response rate
through communications with an in‐house lawyer.
of 37.5 percent. This response rate is relatively high considering the nature of the
respondents.83 Responses were distributed across the Fortune 200, as Figure 3, below, illustrates. Respondents were asked the
following seven questions, the first six of which were answered on a scale of 1 to 5, where 1 was labeled “not at all familiar” (or its
equivalent, depending on question wording) and 5 was labeled “very familiar” (or its equivalent). The last question was in “yes/no/don’t
know” format.
Q1. To your knowledge, how regularly does your company actively consider investing in foreign (nonUS.) operations,
businesses, joint ventures, or other projects?
Q2. How familiar are lawyers in your office with the basic provisions of Bilateral Investment Treaties (BITs)?
Q3. How familiar are nonlawyer senior executives in your corporation with the basic provisions of BITs?
Q4. In your view, how effective are international treaties like BITs at protecting foreign investments from expropriation
by a foreign government?
Q5. In your view, how effective are international treaties like BITs at protecting foreign investments from adverse
regulatory change in the foreign country?
Q6. How important is the presence or absence of a BIT to your company’s typical decision to invest in a foreign
country?
Q7. To your knowledge, has your company ever declined to invest (or to consider investing) in a particular foreign
project specifically because of the absence of a BIT?
Overall, the responses indicate a relatively low level of familiarity with BITs, a relatively
pessimistic view of their ability to protect against adverse host state actions, and a
relatively low level of influence over FDI decisions.”

Impact: FDI Ø ↑
Jason Yackee 10 – Intl gas & oil chair informant: BITs generally do little to
promote FDI
Jason W. Yackee [Assistant Professor of Law, University of Wisconsin Law School; J.D. (Duke University School
of

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Law); M.A., Ph.D., Political Science (University of North Carolina at Chapel Hill)] “Do Bilateral Investment
Treaties Promote Foreign Direct Investment? Some Hints from Alternative Evidence” [VIRGINIA JOURNAL OF
INTERNATIONAL LAW, 2010, Forthcoming] <accessed September 4, 2010>
http://ssrn.com/abstract=1594887 (EG)
“With the caveat that anecdotes aren’t proof, but merely another source of data from
which to triangulate, I offer the observations of an informant interviewed in the course of
the survey of GCs discussed above. The informant is the chair of the oil and gas section of
a major international law firm, and has extensive experience in facilitating and advising on
all stages of major international and domestic oil and gas projects. The informant also lectures regularly
at professional conferences on legal risk assessment in the international oil and gas sector, and has authored practitioner‐oriented
papers on the topic, including papers that discuss BITs. After explaining my project,I asked the informant his thoughts
on the role that investment treaties play in oil and gas investment decisions. Given the history of
expropriation in that sector, one would think that oil and gas investors would be keenly interested in BITs.105 The informant
emphasized that for him personally, identifying the possibility of “treaty support” for a potential investment opportunity should
be a “common sense” part of due diligence. However, he added that many legal issues, including BITs, typically
only come up “after the fact” (after a dispute has arisen). It was only the relatively infrequent “sophisticated” client
who would engage in rigorous legal due diligence prior to the decision to invest, and if BITs came into the process, it
was almost always part of a discussion of how to structure (e.g. trans‐ship) a given investment
that was already going to be made. This kind of structuring consideration was much more common for tax purposes
than to achieve BIT coverage, but he advocated (and had been involved in) considerations for BIT coverage purposes as well. I
specifically asked the informant if he was aware of any investment deals that had not gone forward because of the absence of a BIT, and
his answer was quick and unambiguous:he had “never seen anyone not do a deal because there wasn't
an investment treaty.” Why weren’t BITs more relevant to investor decisions? In his view, it
was the "nature of the business", which was "not driven by lawyers", but by "commercial"
people whose job was to “get the deal done as soon as possible”. Rigorous legal due
diligence (even, he said, applying for OPIC or MIGA insurance) holds up the deal, and for that reason is often
avoided. The informant’s comments may or may not reflect wider industry practice; they may or may not reflect practice in other
sectors, such as manufacturing or services. They may reflect a totally and completely atypical set of professional experiences.106
Indeed, in a sense they must, if it is really true that a country can nearly double its FDI inflows merely by entering investment treaties. I
the informant’s observations fit rather well into the preceding pages of
would suggest that
analysis and exposition. They confirm my sense, backed up by a lack of consistent
empirical evidence, that BITs generally play little causal role in promoting foreign
investment.”

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Response – Formal Law Ø Impact Commercial Affairs


Jason Yackee 10 – Formal law only plays a limited role in commercial affairs:
Developing countries need not sing BITs to attract investment and countries
refusing BITs won’t see a meaningful reduction in FDI
Jason W. Yackee [Assistant Professor of Law, University of Wisconsin Law School; J.D. (Duke University School
of
Law); M.A., Ph.D., Political Science (University of North Carolina at Chapel Hill)] “Do Bilateral Investment
Treaties Promote Foreign Direct Investment? Some Hints from Alternative Evidence” [VIRGINIA JOURNAL OF
INTERNATIONAL LAW, 2010, Forthcoming] <accessed September 4, 2010>
http://ssrn.com/abstract=1594887 (EG)
the article’s empirical results would seem to confirm
“What are the article’s larger implications? Theoretically,
the limited and indirect role that formal law plays in the
that Law and Society observations about
organization of commercial affairs domestically also applies internationally. While foreign investors
are presumably more in need of legal protection against adverse government action than are purely domestic
investors, who may enjoy greater access to and influence over the domestic political system, and who are less able to be scapegoated as
the business decisions of foreign investors don’t seem to be particularly motivated
“outsiders”,
by the availability of special international legal protections—at least not of the variety routinely
included in BITs. More practically, the results suggest that developing countries that wish to attract
investment, or to continue to attract investment, need not sign on to the rigors and
disciplines of BITs. Countries that refuse to sign BITs, or who allow their BITs to lapse, will
probably not see a meaningful reduction in investment flows. Nor will they fall ever more
behind in the so‐called “competition for capital”.”

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Response – “Investors Should Care” is Irrelevant


Jason Yackee 10 – Whether or not (potential) investors should care about BITs,
they don’t; this is consistent with previous anecdotal evidence
Jason W. Yackee [Assistant Professor of Law, University of Wisconsin Law School; J.D. (Duke University School
of
Law); M.A., Ph.D., Political Science (University of North Carolina at Chapel Hill)] “Do Bilateral Investment
Treaties Promote Foreign Direct Investment? Some Hints from Alternative Evidence” [VIRGINIA JOURNAL OF
INTERNATIONAL LAW, 2010, Forthcoming] <accessed September 4, 2010>
http://ssrn.com/abstract=1594887 (EG)
“This evidence of a relative lack of appreciation of BITs by foreign investment decision‐
makers is consistent with the anecdotal evidence already discussed above. It is also
broadly consistent with a number of earlier studies of corporate “political risk” analysis and
management. Kobrin’s work on this subject is perhaps the most well known. In an impressive 1982 study of corporate practice,
he found that political risk analysis was often weakly institutionalized, with managers often possessing only a “diffuse, subjective, and
impressionistic” perception of political risk.88 As he noted in an earlier (1979) study, “most managers’ understanding of the concept of
political risk, their assessment and evaluation of politics, and the manner in which they integrate political information into their decision‐
making are all rather general, subjective, and superficial.” This finding illustrated an “interesting paradox. With very few exceptions,
managers rate political instability (or political risk) as one of the major influences on the foreign investment decision. Yet, again with very
few exceptions, the same surveys report the absence of any formal or even rigorous and systematic assessment of political
environments and their potential impact upon the firm”. 89 Kobrin’s findings accorded with various earlier studies from the 1960s, which
generally found that “even large and active [multinational corporations] do not analyze political risk in a very sophisticated manner”.90
They also accord with studies contemporaneous to Kobrin’s own, as well as more recent studies, which continue to suggest that
multinational corporations often implement political risk assessment in ad hoc, weakly institutionalized kinds of ways. For example, in a
1982 survey that focused on the foreign investment decision making process, Kelly and Philippatos found that multinationals
tended to employ a rather casual attitude toward foreign investment decisions and risk analysis. They concluded that their respondents
“seldom compare and rank [prospective] investments as advocated in normative micro‐investment theory”, the “vast majority of
companies do not employ the advocated methods to measure overseas risks”, “most companies allow for risks by arbitrarily adjusting
the required return or payback of a project”, and that “it is obvious that field implementation of risk analysis most likely leads to
suboptimal decisions on FDIs [sic] and market allocation of productive resources”.91 In a 1996 survey of highly internationalized Dutch
firms, de Mortanges and Allers report that the companies used unsophisticated, subjective approaches to political risk analysis. 92
Given the apparently casual approach to political risk analysis of many multinational corporations, it would not be surprising if those
same corporations failed to undertake sophisticated legal analyses of investment prospects that included, for example, identifying at the
pre‐investment stage any relevant investment treaties, understanding the formal content and associated jurisprudence of those treaties,
and plugging that understanding into some sort risk‐adjusted cost benefit analytic framework. Indeed, Lothian and Pistor have
recently report results from a “panel discussion with legal practitioners about the relevance of local institutions to foreign direct
investors”.93 The authors find that “law plays a minor role in the decision to enter a market.”94 They conclude in part that the success
of investment projects may often be adequately ensured through “informal institutions and a broader set of investment relations with
different constituencies in the host country” rather than through formal legal instruments or arrangements.95 The
results of my
survey similarly suggest that corporate decision‐makers approach the analysis of the
intersection of international law and political risk in a way that fails to accord with the
implicitly “normative” micro‐investment theory that underlies studies suggesting that BITs should
greatly influence FDI decisions. While scholars might argue that investors should care
deeply about BITs when deciding whether and where to invest, the data presented above
suggests that many investors (and potential investors) don’t.”

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Solvency 4: Law & Society Empirics  FDI Ø ↑


General: Law & Society Empirics Prove
Law & Society Rev. 08 – Credible commitment theories about BITs miss 3
empirics of law: Legal ignorance, pluralism, and ambiguity  little if any direct
effect on investor behavior
Jason Webb Yackee [Assistant Professor of Law, University of Wisconsin Law School; J.D. (Duke University
School of
Law); M.A., Ph.D., Political Science (University of North Carolina at Chapel Hill)] “Bilateral Investment Treaties,
Credible Commitment, and the Rule of (International) Law: Do BITs Promote Foreign Direct Investment?” (Dec
2008) LAW & SOCIETY REVIEW, Vol. 42, Iss. 4; pp. 805-832 (EG) (PB)
“Credible commitment theories of BITs ignore the "three distinct [empirical] characteristics
of law" identified by scholars operating in the law and society tradition: legal ignorance,
legal pluralism, and legal ambiguity (Suchman & Edelman 1997:930). These characteristics suggest, in
contrast to extant studies, that BITs should not have much if any direct effect on investor
behavior.”

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Empiric 1: Legal Ignorance


Law & Society Rev. 08 – Compartmentalization of BIT knowledge means investors
don’t even know about the available options
Jason Webb Yackee [Assistant Professor of Law, University of Wisconsin Law School; J.D. (Duke University
School of
Law); M.A., Ph.D., Political Science (University of North Carolina at Chapel Hill)] “Bilateral Investment Treaties,
Credible Commitment, and the Rule of (International) Law: Do BITs Promote Foreign Direct Investment?” (Dec
2008) LAW & SOCIETY REVIEW, Vol. 42, Iss. 4; pp. 805-832 (EG) (PB)
“Research suggests that decision makers in business often have little accurate knowledge
of the content of governing legal rules. There is, unsurprisingly, also very little evidence
that foreign investors have much knowledge of the existence or content of particular BITs,
or much appreciation for the theoretical ways in which the international legal system might
secure their investments. A small survey of business executives conducted in 1976 found that only 16 percent of
respondents were "familiar" with the ICSID system generally, and that only 4 percent felt that ICSID provided "adequate safeguards"
(Ryans & Baker 1976); a more recent study confirmed these results (Baker 1987). It appears that BITs and BIT-based arbitration remain
an "often overlooked tool" in die legal arsenal of multinational corporations (Freyer et al. 1998). Even
where certain
individuals within those corporations might follow BIT developments (such as lawyers within the general counsel's
office), this specialized legal knowledge may fail to flow to the nonlawyer managers and
executives who actually make business decisions. Compartmentalization of knowledge of
BITs is probably exacerbated by the tendency of corporations to have relatively
underdeveloped internal systems for evaluating "political risk" and incorporating those
general evaluations into the investment process (Kobrin 1982).”

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Empiric 2: Legal Pluralism


Law & Society Rev. 08 – Host states that desire FDI likely have powerful,
attractive incentives rendering BITs largely redundant
Jason Webb Yackee [Assistant Professor of Law, University of Wisconsin Law School; J.D. (Duke University
School of
Law); M.A., Ph.D., Political Science (University of North Carolina at Chapel Hill)] “Bilateral Investment Treaties,
Credible Commitment, and the Rule of (International) Law: Do BITs Promote Foreign Direct Investment?” (Dec
2008) LAW & SOCIETY REVIEW, Vol. 42, Iss. 4; pp. 805-832 (EG) (PB)
“Credible commitment theories of BITs tend to ignore alternative informal and formal
institutions that might successfully resolve problems of obsolescing bargain, rendering
BITs, as credible commitment devices, largely redundant. For example, credible commitment
theories of BITs often seem to uncritically adopt a view of investor-host state relations where
"one-shot transactions are performed largely because of the threat of the [international legal]
sanctions that follow a breach" (Macaulay 1984:523), a view that leads them to assume that obsolescing bargain-type
risks are, in the absence of formal legal sanctions, quite severe. But transactions between host states and investors are never one-shot
Host states that desire future
affairs, nor are they isolated from host state transactions involving other investors.
foreign investment are likely to have powerful reputational incentives to treat current
foreign investors favorably, regardless of the existence of any international treaty commitments - e.g., regardless of
any formal threat of international legal sanction.4 Foreign investors rely to a great extent,
and perhaps primarily, on the views and experiences of other investors when deciding to
invest (Spar 1998). Unfavorable host state behavior is likely to have strong ripple effects beyond the investment immediately
affected, as other investors withdraw from the host state, and as potential investors redraw their investment plans. This threat of "gossip
and ostracism" (Suchman & Edelman 1996:931) may be sufficient to render obsolescing bargain risks relatively slight, meaning that BITs
This is especially likely in the natural resources sector, where, as
have little risk-reducing role to play.
KoIo and Walde note, reputations for living up to one's bargains "become known quite rapidly in
the rather narrow community" of relevant players and where both host states and investors
"often welcome being seen as reasonable partners with whom one can do business" (2000:6).”

Law & Society Rev. 08 – Investment contracts exist as an alternative to BITs and
are just as enforceable against state as BIT based arbitrations
Jason Webb Yackee [Assistant Professor of Law, University of Wisconsin Law School; J.D. (Duke University
School of
Law); M.A., Ph.D., Political Science (University of North Carolina at Chapel Hill)] “Bilateral Investment Treaties,
Credible Commitment, and the Rule of (International) Law: Do BITs Promote Foreign Direct Investment?” (Dec
2008) LAW & SOCIETY REVIEW, Vol. 42, Iss. 4; pp. 805-832 (EG) (PB)
“Buteven if a host state's general reputational interest in maintaining a favorable
investment climate is insufficient to render problems of credible commitment negligible,
foreign investors have long had the ability to create their own individualized "BITs" in the
form of a legally binding investment contract.5 Investment contracts are especially common in the highest-risk
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investment sectors (natural resource concessions and infrastructure development), and are often required as a condition for obtaining
Investment contracts typically include binding, enforceable
project financing or investment insurance.
agreements to arbitrate investment disputes. These contract-based arbitration agreements
often reference the very same arbitral facilities named in BITs (e.g., the ICC or ICSID), and they, as
well as any resulting arbitral awards, are just as enforceable against host states as are BIT-
based arbitrations and awards.”

Empiric 3: Legal Ambiguity


Law & Society Rev. 08 – Substantive ambiguity renders it difficult if not
impossible for an investor to predict how a tribunal would interpret or apply BIT
promises in any given situation
Jason Webb Yackee [Assistant Professor of Law, University of Wisconsin Law School; J.D. (Duke University
School of
Law); M.A., Ph.D., Political Science (University of North Carolina at Chapel Hill)] “Bilateral Investment Treaties,
Credible Commitment, and the Rule of (International) Law: Do BITs Promote Foreign Direct Investment?” (Dec
2008) LAW & SOCIETY REVIEW, Vol. 42, Iss. 4; pp. 805-832 (EG) (PB)
“The substantive promises contained in BITs consist almost entirely of highly ambiguous
standards of uncertain meaning and application. This ambiguity is arguably so great that
the treaties "may best be conceptualized not as an objective external constraint but rather
as a source of uncertainty" (Suchman & Edelman 1996:932). Substantive ambiguity means that
arbitral tribunals have trouble interpreting or applying the treaties consistently, a problem
that has lead some observers to claim that the BIT system is suffering from a "legitimacy
crisis" (Franck 2005). Substantive ambiguity also means that the treaties are unlikely to be of
much concrete use to investors in the investment-planning process, as it is difficult, if not
impossible, for the investor to determine a priori how a tribunal will interpret or apply a
given promise in a given fact situation.”

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Impact: Investment Decisions Ø Effected


Law & Society Rev. 08 – Three critiques  little reason to think that BITs have a
significant effect on investment decisions
Jason Webb Yackee [Assistant Professor of Law, University of Wisconsin Law School; J.D. (Duke University
School of
Law); M.A., Ph.D., Political Science (University of North Carolina at Chapel Hill)] “Bilateral Investment Treaties,
Credible Commitment, and the Rule of (International) Law: Do BITs Promote Foreign Direct Investment?” (Dec
2008) LAW & SOCIETY REVIEW, Vol. 42, Iss. 4; pp. 805-832 (EG) (PB)
“If these three critiques are accurate, it suggests that we should be skeptical of claims that
BITs are or should be causally associated with massive increases in foreign investment. If
investor knowledge of BITs is weak; if reputational concerns are sufficient to render
obsolescing bargain-type risks objectively low; if the widespread use of investment
contracts means that BITs add very little to the formal law-based "credible commitment"
table than was already available to investors on an individualized basis; and if the
substantive content of BITs is too uncertain to aid in rational business planning, then there
is little reason to expect the presence or absence of a particular treaty to have any
significant effect on particular investment decisions.”

Law & Society Rev. 08 – Research indicates that investors are unlikely to give the
(non)existence of BITs decisive weight
Jason Webb Yackee [Assistant Professor of Law, University of Wisconsin Law School; J.D. (Duke University
School of
Law); M.A., Ph.D., Political Science (University of North Carolina at Chapel Hill)] “Bilateral Investment Treaties,
Credible Commitment, and the Rule of (International) Law: Do BITs Promote Foreign Direct Investment?” (Dec
2008) LAW & SOCIETY REVIEW, Vol. 42, Iss. 4; pp. 805-832 (EG) (PB)
“The discussion above suggests competing theoretical expectations. The standard credible commitment theory of
BITs suggests that BITs should meaningfully impact investment decisions, and that this
impact should be greatest in regard to the formally strongest treaties. On the other hand,
research in the law and society tradition suggests a more pessimistic assessment: for
reasons of legal ignorance, pluralism, and ambiguity, even the formally strongest BITs are
unlikely to be associated with significant increases in foreign investment, as investors are
unlikely to give the presence or absence of the treaties decisive weight.”

Law & Society Rev. 08 – BITs have little or no impact on investment decisions; b/c
formal law has little effect on private behavior
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Jason Webb Yackee [Assistant Professor of Law, University of Wisconsin Law School; J.D. (Duke University
School of
Law); M.A., Ph.D., Political Science (University of North Carolina at Chapel Hill)] “Bilateral Investment Treaties,
Credible Commitment, and the Rule of (International) Law: Do BITs Promote Foreign Direct Investment?” (Dec
2008) LAW & SOCIETY REVIEW, Vol. 42, Iss. 4; pp. 805-832 (EG) (PB)
“The standard credible commitment story of BITs suggests that the treaties have great
promise to increase foreign investment to developing countries by using the formal
trappings of international law to prevent host states from treating investors badly. My
contribution has been to take this story seriously by examining whether the formally strongest treaties are statistically associated with
While I find some tentative evidence that privatization programs and the World
increased FDI.
Bank's investment insurance program may promote FDI, my results suggest that BITs have
little or no impact on investment decisions, a result consistent with research suggesting
that the formal trappings of law often have only modest effects on private behavior.”

IPR Disadvantages – Uniqueness and Link


Uniqueness: Russian IPR Enforcement Bad Now
Coalition for IPRs 10 – Lack of political dedication undermines Russian
enforcement, the key to protection
Coalition for Intellectual Property Rights [The Coalition for Intellectual Property Rights (CIPR) is a private-
public partnership dedicated solely to the advancement of intellectual property protection and reform in the
Baltic States, Russia, Ukraine, and other countries of the former Soviet Union; CIPR is accredited with formal
Observer Status by the intergovernmental CIS Interstate Council on Industrial Property Protection. The U.S.-
Russia Business Council is an Associate Member of CIPR] “Intellectual Property Rights: A Key to Russia’s
Economic Revival” 2010 <accessed July 12, 2010> http://www.cipr.org/activities/articles/RBWipr.pdf (EG)
“However,the key to adequate IPR protection is enforcement, and Russia’s lack of
enforcement of existing IP law is a major impediment to improving the IPR climate in the
country. Many CIPR survey respondents believe that the Russian government and its leading
politicians underrate IPR protection as a public policy priority.”

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Internal Link: BITs Enhance IPRs


Journal of World IP 01 – BITs promote adequate and effective enforcement of
intellectual property
Peter Drahos [Professor in Law and the Director of the Centre for the Governance of Knowledge and
Development in the Regulatory Institutions Network, College of Asia and the Pacific, at the Australian National
University, Canberra; He currently holds a Chair in Intellectual Property at Queen Mary, University of London;
Herchel Smith Senior Fellow in Intellectual Property, Queen Mary College, University of London] “BITS and
BIPS: Bilateralism in Intellectual Property” THE JOURNAL OF WORLD INTELLECTUAL PROPERTY Volume 4,
Issue 6, pages 791–808 (November 2001)
“Broadly speaking, the belief is that foreign investment and trade flows are intimately
related and that liberalizing the rules on investment will also enhance trade. Adequate and
effective protection for intellectual property is an explicit goal of the U.S. BIT Program. The
Nicaraguan BIT, like other BITS, does not set specific standards of intellectual property. Instead, it protects the rights of
investors who use intellectual property as a mode of investment. The BIT accomplishes this
by including intellectual property in its definition of investment (much like the draft MAI did). Intellectual
property is defined widely to include copyright, patents, rights in plant varieties, designs, semi-conductor chips, trade secrets, trade and
The licensing of intellectual property also falls within the meaning of
service marks and trade names.
investment since the definition of investment includes “rights conferred pursuant to law,
such as licences and permits.”7”

Journal of World IP 01 – BITs create obligations to enforce TRIPs within a


reasonable time
Peter Drahos [Professor in Law and the Director of the Centre for the Governance of Knowledge and
Development in the Regulatory Institutions Network, College of Asia and the Pacific, at the Australian National
University, Canberra; He currently holds a Chair in Intellectual Property at Queen Mary, University of London;
Herchel Smith Senior Fellow in Intellectual Property, Queen Mary College, University of London] “BITS and
BIPS: Bilateralism in Intellectual Property” THE JOURNAL OF WORLD INTELLECTUAL PROPERTY Volume 4,
Issue 6, pages 791–808 (November 2001)
“Typically, a BIT creates MFN obligations and national treatment obligations for the parties
to the treaty. These principles are not of much use to U.S. investors if the developing
country in question does not have intellectual property laws, has low standard law or is taking advantage
of the transitional provisions under TRIPS MFN and national treatment in bilateral treaties have the effect of equalising treatment but not
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of raising standards within a country. It is for this reason that “prospective BIT partners are generally
expected, at the time the BIT is signed, to make a commitment to implement ... TRIPS
Agreement obligations within a reasonable time.”* If this expectation is not met, the United
States is ready to use its 301 process to secure the necessary commitment (on t h s as a
negotiating strategy see Section VII).”

Anderson & Razavi 10 – TRIPS failed in its basic mission: but BITs have raised the
standards
Alan M. Anderson [J.D., M.B.A., Cornell University; M.A., Norwich University; B.A., Coe College. Shareholder,
Briggs and Morgan, P.A., Minneapolis, MN.] & Bobak Razavi [J.D., University of Wisconsin Law School; B.A.,
Amherst College. Associate, Briggs and Morgan, P.A., Minneapolis, MN.] “THE GLOBALIZATION OF
INTELLECTUAL PROPERTY RIGHTS: TRIPS, BITS, AND THE SEARCH FOR UNIFORM PROTECTION” GEORGIA
JOURNAL OF INTERNATIONAL AND COMPARATIVE LAW, [Vol. 38, No. 2 (2010)] (EG)
“On the heels of thirty-five years of BITs, the TRIPS [Trade related Aspects of Intellectual
Property Rights] agreement set out to deliver a level playing field for all IPR players by eschewing the
bilateral BITs model in favor of a multilateral model. The multilateral framework was appealing because it
brought together many scores of nations as one big group. These nations then negotiated and agreed to common investment terms en
much like other multilateral regimes that preceded it, TRIPS
masse, instead of simply in pairs. Regrettably,
has failed in its basic mission. It did not effect a comprehensive, level playing field with
respect to IPR protection. Instead, TRIPS merely established a baseline of minimum protections. This is evidenced by the
fact that in the years since TRIPS’s adoption, BITs have proliferated more rapidly than ever before. Thus, the multilateral TRIPS regime
Today, TRIPS and BITs
did not do away with the preexisting bilateral BITs regime. Instead, it simply added to it.
represent two core layers of nation-to-nation IPR protection mechanisms. In most cases, the
new fleet of post-TRIPS BITs have raised the standards set forth in TRIPS.”

Internal Link: Plant and Animal Patents


Anderson & Razavi 10 – BITs have resulted in the inclusion of plants and animals
in signatories’ patent laws
Alan M. Anderson [J.D., M.B.A., Cornell University; M.A., Norwich University; B.A., Coe College. Shareholder,
Briggs and Morgan, P.A., Minneapolis, MN.] & Bobak Razavi [J.D., University of Wisconsin Law School; B.A.,
Amherst College. Associate, Briggs and Morgan, P.A., Minneapolis, MN.] “THE GLOBALIZATION OF
INTELLECTUAL PROPERTY RIGHTS: TRIPS, BITS, AND THE SEARCH FOR UNIFORM PROTECTION” GEORGIA
JOURNAL OF INTERNATIONAL AND COMPARATIVE LAW, [Vol. 38, No. 2 (2010)] (EG)
“BITs represent the latest wave of IPR protection. BITs are bilateral agreements, typically
between a developed nation and a developing one, which establish additional IPR commitments that are
layered upon preexisting IPR obligations set forth in TRIPS and other agreements.73 Various
influential industry interests are the key drivers behind these increases in standards.74 In
practice, this has meant that plants and animals, for example, can no longer be excluded
from signatory nations’ patent laws.75”

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Disadvantage 1: Capital Controls


Link: Russian Economic Recovery
Congressional Research Service 10 – Russia’s economy has been hit hard by the
global financial crisis (5.6% decreased GDP)
7 Authors Jim Nichol, Coordinator [Specialist in Russian and Eurasian Affairs] William H. Cooper [Specialist in
International Trade and Finance] Carl Ek [Specialist in International Relations] Steven Woehrel [Specialist in
European Affairs] Amy F. Woolf [Specialist in Nuclear Weapons Policy] Steven A. Hildreth [Specialist in Missile
Defense] Vincent Morelli [Section Research Manager] “Russian Political, Economic, and Security Issues and
U.S. Interests” RL33407 (January 29, 2010) CONGRESSIONAL RESEARCH SERVICE <accessed July 23, 2010>
www.opencrs.com (EG)
“As is the case with most of the world’s economies, the Russian economy has been hit hard
by the global financial crisis and resulting recession. However, even before the financial crisis, Russia was
showing signs of economic problems when world oil prices plummeted sharply around the middle of 2008, diminishing a critical source of
The financial crisis brought an abrupt end to about a
Russian export revenues and government funding.
decade of impressive Russian economic growth that helped raise the Russian standard of living and
brought economic stability that Russia had not experienced for more than two decades.
Russia had experienced strong economic growth over the past 10 years (1999-2008), during which time its GDP increased 6.9% on
average per year in contrast to an average annual decline in GDP of 6.8% during the previous seven years (1992-1998). In 2008 and into
2009, however, Russia faced a triple threat with the financial crisis coinciding with a rapid decline in the price of oil and the costs of the
These events exposed three fundamental weaknesses in the
country’s military confrontation with Georgia.
Russian economy: substantial dependence on oil and gas sales for export revenues and government
revenues, a rise in foreign and domestic investor concerns, and a weak banking system. The
economic downturn is showing up in Russia’s performance indicators. Although Russia’s real GDP increased 5.6%
in 2008 as a whole, it declined during the final two quarters of that year and continued to
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decline the first two quarters in 2009 It declined an estimated 8.0% in 2009, although began to
show signs of recovery, albeit weak, in the last quarter of 2009.28 The Russian government has implemented a number of stimulus
programs to boost economic growth. Oil, natural gas, and other fuels account for about 65% of Russia’s export revenues. In addition, the
Russian government is dependent on taxes on oil and gas sales for more than half of itsrevenues. Oil prices have been very volatile in
the last two years which have affected the Russian economy. As of January 22, 2010, the price of a barrel of Urals-32 (the Russian
benchmark price) oil was $75.06, a 45.5% drop from its July 4, 2008, peak of $137.61 but a 119.5% rise from its January 2, 2009 low
The drop in oil prices forced the government to
point of $34.02. The volatility has challenged Russian fiscal policy.
incur a budget deficit in 2009 estimated to be around 7% of GDP; however, the rise in oil prices during
the later months of 2009 prevented the deficit from being even higher.29 Russian foreign currency reserves declined from $597 billion at
the end of July 2008 to $368 billion at the end of April 2009, but have since increased to $436 billion as of January 22, 2010. 30”

Internal Link: Outdated Capital Controls


Sarah Anderson 09 – US BIT model reflects an outdated stance on capital control
that fails to protect the integrity of the financial system
Sarah Anderson [MA in International Affairs, The American University; BA in Journalism, Northwestern
University; Director of the Global Economy Project, Institute for Policy Studies; Served 1998 and 1999 on the
staff of the bipartisan International Financial Institutions Advisory Commission; Member of the Investment
Subcommittee of the U.S. Department of State’s Advisory Committee on International Economic Policy; Co-
author of the books Field Guide to the Global Economy and Alternatives to Economic Globalization]
“COMMENTS ON THE U.S. MODEL BILATERAL INVESTMENT TREATY BEFORE THE UNITED STATES
DEPARTMENT OF STATE AND THE OFFICE OF THE U.S. TRADE REPRESENTATIVE” July 17, 2009 INSTITUTE FOR
POLICY STUDIES <accessed August 28, 2010> (EG)
“The U.S. model bilateral investment treaty reflects an outdated position that capital
controls are virtually always bad and should be prohibited. Article 7 obliges governments to "permit all
transfers relating to a covered investment to be made freely and without delay into and out of its territory" and “in a freely usable
The model treaty offers no exceptions for capital controls used in the context of a
currency.”
financial crisis, even if they are temporary and nondiscriminatory. Article 20(2)(a) does state that
"nothing in this Treaty applies to nondiscriminatory measures of general application taken by any public entity in pursuit of monetary
and related credit policies or exchange rate policies." However, the text makes clear that this paragraph does not apply to a
Exceptions that do exist in the model treaty (see Article 7(4)) are
government's obligations under Article 7 on Transfers.
extremely limited and inadequate to protect policies aimed at safeguarding the integrity of
the state's financial system. Most of these exceptions allow governments to introduce restrictions only after economic
problems arise, rather than acting to prevent crisis. For example, if a state’s laws require that firms under bankruptcy protection be
Moreover, all of
prevented from sending capital out of the country, then transfers restrictions can be applied on these firms.
the exceptions must be carried out through the “equitable, non-discriminatory, and good

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faith application” of the state’s laws – vague terms subject to the interpretation of
arbitration tribunals.”

Sarah Anderson 09 – US capital control policy is outdated; capital controls helped


countries insulate against the financial crisis
Sarah Anderson [MA in International Affairs, The American University; BA in Journalism, Northwestern
University; Director of the Global Economy Project, Institute for Policy Studies; Served 1998 and 1999 on the
staff of the bipartisan International Financial Institutions Advisory Commission; Member of the Investment
Subcommittee of the U.S. Department of State’s Advisory Committee on International Economic Policy; Co-
author of the books Field Guide to the Global Economy and Alternatives to Economic Globalization]
“COMMENTS ON THE U.S. MODEL BILATERAL INVESTMENT TREATY BEFORE THE UNITED STATES
DEPARTMENT OF STATE AND THE OFFICE OF THE U.S. TRADE REPRESENTATIVE” July 17, 2009 INSTITUTE FOR
POLICY STUDIES <accessed August 28, 2010> (EG)
“While the U.S. model treaty has remained rigid on capital controls, there has been a major
rethinking of this issue in the economics field. The International Monetary Fund (IMF)
abandoned its blanket opposition to capital controls after several countries used these
measures effectively to avoid the worst impacts of the Asian crisis in the late 1990s."2 In
recent years, the Fund has advised at least two countries, Bulgaria and Croatia, to
strengthen one type of capital control, reserve requirements on capital inflows.3 And when Iceland imposed controls
on capital outflows in the aftermath of the country’s banking sector meltdown, the IMF advised the government “not to lift these
restrictions before stability returns to the foreign exchange market.”4 A March 2009 IMF report notes that "The existence of capital
controls in several countries and structural factors have helped to moderate both the direct and the indirect effects of the financial
Former IMF chief economist Kenneth Rogoff underscored this point in a New York
crisis."5
Times article about India, in which he stated that the country’s stringent capital controls
were helping to insulate that nation from the current crisis.6 Columbia University economist Jagdish
Bhagwati, a strong advocate of trade liberalization, and many others have pointed out that there is little to no
evidence that capital account liberalization is necessary for developing countries to attract
foreign investment. In fact, six of the top ten non-OECD foreign direct investment recipients
[including Russia] (China, Hong Kong, Russia, Brazil, Saudi Arabia, and India) have never signed a U.S.
agreement restricting capital controls.7”

Sarah Anderson 09 – As the crisis furthers, the US is eroding capital controls


(proven effective) through BITs
Sarah Anderson [MA in International Affairs, The American University; BA in Journalism, Northwestern
University; Director of the Global Economy Project, Institute for Policy Studies; Served 1998 and 1999 on the
staff of the bipartisan International Financial Institutions Advisory Commission; Member of the Investment
Subcommittee of the U.S. Department of State’s Advisory Committee on International Economic Policy; Co-
author of the books Field Guide to the Global Economy and Alternatives to Economic Globalization] “Policy
Handcuffs in the Financial Crisis: How U.S. Trade and Investment Policies Limit Government Power to Control
Capital Flows” (February 2009) INSTITUTE FOR POLICY STUDIES <accessed August 31, 2010> www.IPS-
DC.ORG (EG)
“As the global economy descends further into crisis, many governments are searching their tool bags for
instruments to protect their people from the ravages of financial volatility. Dozens of governments are lacking one
particular tool that has proved effective in past crises: capital controls. For more than 20
years, the U.S. government has pushed other governments to give up their power to
restrict the speed with which money flows in and out of financial markets. This effort was part of a
broader agenda to handcuff policymakers, limiting their ability to intervene in the economy in ways that curb the power of global

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corporations and financial firms. U.S. officials have eroded capital controls both indirectly, through their influence
with international financial institutions, and also directly, through bilateral investment treaties and the investment
chapters of trade agreements. To put teeth into these deals, they required that governments respect
the “rights” of investors to file claims against them in international tribunals.”

Sarah Anderson 09 – The US restricts capital controls through BITs and FTAs
Sarah Anderson [MA in International Affairs, The American University; BA in Journalism, Northwestern
University; Director of the Global Economy Project, Institute for Policy Studies; Served 1998 and 1999 on the
staff of the bipartisan International Financial Institutions Advisory Commission; Member of the Investment
Subcommittee of the U.S. Department of State’s Advisory Committee on International Economic Policy; Co-
author of the books Field Guide to the Global Economy and Alternatives to Economic Globalization] “Policy
Handcuffs in the Financial Crisis: How U.S. Trade and Investment Policies Limit Government Power to Control
Capital Flows” (February 2009) INSTITUTE FOR POLICY STUDIES <accessed August 31, 2010> www.IPS-
DC.ORG (EG)
“The United States has negotiated restrictions on capital controls through both bilateral
investment treaties (BITs) and free trade agreements (FTAs) with 52 national governments.
In the 1980s, U.S. officials began pursuing BITs, primarily with developing countries. These deals require
each party to uphold long lists of investor rights, including the right to transfer capital into
and out of their territory “freely and without delay.” To date, the United States has forged
40 such treaties that have entered into force. Another seven BITs have been signed but not yet
ratified.6”

Link: Decreased Policy Space


Prabhash Ranjan 09 – BITs restrict the policy space of host nations, particularly
their ability to regulate in the event of an economic crisis
Prabhash Ranjan [PhD in Philosophy, King's College London, University of London; M.Phil (Master of
Philosophy), WB National University of Juridical Sciences; LL.M (Master of Laws) in International Commercial
Law, SOAS, London; LL.B (Bachelor of Laws) Campus Law Centre, Faculty of Law, University of Delhi; BA in
Economics, Ramjas College, University of Delhi; Former Visiting Scholar, Sydney Law School, University of
Sydney; Expert on international investment law, Ministry of Finance, Government of India; Assistant Professor
of Law, WB National University of Juridical Sciences; Former Research Assistant, University College London;
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Former Legal Researcher, CUTS Centre for International Trade, Economics and Environment, Jaipur, India]
“Tread Cautiously on Bilateral Investment Treaties” November 25, 2009 THE HINDU BUSINESS LINE
<accessed August 30, 2010> http://ssrn.com/abstract=1598767 (EG)
assume that signing BITs positively influences foreign investment, there are
“Even if India were to
other factors about BITs that are worth considering. There is a growing literature to show that BITs
restrict the space of a host nation (investment receiving country) to pursue policies in the national
interest, such as imposing restrictions on foreign investors in the event of an economic
crisis. The restriction on policy space by BITs arises because majority of BITs are structured
purely from the perspective of foreign investors, granting them extensive rights without
recognizing the right of sovereign states to regulate in the national interest. For example, most
BITs, and this includes BITs entered by India, bind the host nation not to discriminate between foreign
and national investments, allow full repatriation of income in foreign exchange to the home
country of the investor, provide an extremely wide definition of foreign investment which
includes portfolio investment and intellectual property rights, and provide very high
compensation criteria for both direct and indirect expropriations with very limited
manoeuvrability to the host state.”

Brink: Economic Recovery


Sarah Anderson 09 – Capital controls have effectively addressed financial market
volatility, yet the US continues to forge agreements restricting capital controls
Sarah Anderson [MA in International Affairs, The American University; BA in Journalism, Northwestern
University; Director of the Global Economy Project, Institute for Policy Studies; Served 1998 and 1999 on the
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staff of the bipartisan International Financial Institutions Advisory Commission; Member of the Investment
Subcommittee of the U.S. Department of State’s Advisory Committee on International Economic Policy; Co-
author of the books Field Guide to the Global Economy and Alternatives to Economic Globalization] “Policy
Handcuffs in the Financial Crisis: How U.S. Trade and Investment Policies Limit Government Power to Control
Capital Flows” (February 2009) INSTITUTE FOR POLICY STUDIES <accessed August 31, 2010> www.IPS-
DC.ORG (EG)
“■■U.S. Web of Capital Control Limits: Many countries have used capital controls effectively to
address financial market volatility. And yet 52 national governments face restrictions on
the use of capital controls as the result of trade or investment agreements with the United
States. These countries include 19 in Eastern Europe and Central Asia, 18 in the Americas and the Caribbean, 6 in the Middle East
and North Africa, 5 in Sub-Saharan Africa, 2 in South Asia, and 2 in East Asia and the Pacific.
The International Monetary Fund abandoned its
■■ IMF Learns from Asian Crisis, U.S. Does Not:
blanket opposition to capital controls after some countries used this tool to avoid the worst
effects of the Asian financial crisis that erupted in 1997. The U.S. government, on the other
hand, forged ahead after that global catastrophe, initiating agreements restricting the use
of capital controls with 22 more countries. Such restrictions are also in the pending U.S.-Colombia Free Trade
Agreement.”

Sarah Anderson 09 – Capital Controls Quotes


Sarah Anderson [MA in International Affairs, The American University; BA in Journalism, Northwestern
University; Director of the Global Economy Project, Institute for Policy Studies; Served 1998 and 1999 on the
staff of the bipartisan International Financial Institutions Advisory Commission; Member of the Investment

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Subcommittee of the U.S. Department of State’s Advisory Committee on International Economic Policy; Co-
author of the books Field Guide to the Global Economy and Alternatives to Economic Globalization] “Policy
Handcuffs in the Financial Crisis: How U.S. Trade and Investment Policies Limit Government Power to Control
Capital Flows” (February 2009) INSTITUTE FOR POLICY STUDIES <accessed August 31, 2010> www.IPS-
DC.ORG (EG)

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Response – Historical Precedent – Russian Capital Account
Convertibility
Bhagwati & Meyer 03 – Russia would have done better after the Asian crisis had
it used capital controls
Jagdish Bhagwati [Professor of Economics, Columbia University] & Andre Meyer [Senior Fellow in International
Economics, Council on Foreign Relations] Testimony before the U.S. House of Representatives Committee on
Financial Services Subcommittee on Domestic and International Monetary Policy, Trade and Technology –
(Tuesday, April 1, 2003) (EG)
“But consider a yet different, third question: you have gone to capital account convertibility, like Malaysia had, and capital starts leaving
in huge amounts due to panic. Do you then clamp down capital controls? So, we are then considering using capital controls when capital
is leaving, not to moderate its size when it is entering. Here, again, there seems to be a sound body of opinion that Malaysia did well to
by segmenting the capital markets (as noted by many economists at the time,
use capital controls. The reason is that,
Malaysia managed to lower interest rates compared to what
including Paul Krugman and Dani Rodrik),
would have been necessary otherwise because of rising interest rates elsewhere, and thus
Malaysia managed to follow an expansionary policy that enabled it to escape the deflation
that followed rising rates in other afflicted countries which followed the wrongheaded deflationary
conditionality imposed by the IMF in the first year of the Asian crisis. Again, for Russia, the Russian
scholar Padma Desai of Columbia University has argued that Russia would have done
better in the aftermath of the Asian crisis if de facto capital account convertibility had been
immediately suspended temporarily.”

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Response – Historical Precedent – Chilean Encaje
Sarah Anderson 09 – Chile’s encaje allowed it to fare better than most others
during the peso crisis ’94 & Asian crisis
Sarah Anderson [MA in International Affairs, The American University; BA in Journalism, Northwestern
University; Director of the Global Economy Project, Institute for Policy Studies; Served 1998 and 1999 on the
staff of the bipartisan International Financial Institutions Advisory Commission; Member of the Investment
Subcommittee of the U.S. Department of State’s Advisory Committee on International Economic Policy; Co-
author of the books Field Guide to the Global Economy and Alternatives to Economic Globalization] “Policy
Handcuffs in the Financial Crisis: How U.S. Trade and Investment Policies Limit Government Power to Control
Capital Flows” (February 2009) INSTITUTE FOR POLICY STUDIES <accessed August 31, 2010> www.IPS-
DC.ORG (EG)
“Chile is often cited as an example of effective use of capital controls through an ongoing
policy. Throughout most of the 1990s, the Chilean government subjected capital inflows to
the encaje (“strongbox” in Spanish)— a one year, non-interest paying deposit with the central
bank. The deposit requirement varied from 10% to 30%, and the penalty for early withdrawal ranged from 1% to 3%. Chile
faired better than most other Latin American countries during the Mexican peso crisis in
1994 and the Asian crisis a few years later. While the role of capital controls has been intensely debated, an IMF
research review concluded that Chile’s encaje, combined with other financial sector
reforms, allowed the government more monetary policy autonomy and shifted the
composition of foreign investment towards the longer term.14”

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Response – Historical Precedent – Malaysian Capital Controls


Sarah Anderson 09 – Malaysia’s capital controls prove that countries are better
off with them as a possibility
Sarah Anderson [MA in International Affairs, The American University; BA in Journalism, Northwestern
University; Director of the Global Economy Project, Institute for Policy Studies; Served 1998 and 1999 on the
staff of the bipartisan International Financial Institutions Advisory Commission; Member of the Investment
Subcommittee of the U.S. Department of State’s Advisory Committee on International Economic Policy; Co-
author of the books Field Guide to the Global Economy and Alternatives to Economic Globalization] “Policy
Handcuffs in the Financial Crisis: How U.S. Trade and Investment Policies Limit Government Power to Control
Capital Flows” (February 2009) INSTITUTE FOR POLICY STUDIES <accessed August 31, 2010> www.IPS-
DC.ORG (EG) [Brackets Added]
“Malaysia adopted capital controls at a moment when the sun was decidedly not shining.
At the height of the Asian financial crisis in 1998, the government abruptly imposed a mix
of exchange and capital controls. “It was the moment of truth,” explains Third World Network Director Martin Khor. “They
had followed the IMF policies for a year and the economy had still collapsed. Fortunately, our Prime Minister was not an economist– it’s
what saved Malaysia. He ignored the economists and put in place common sense policies.”16 The Malaysian controls prevented
repatriation of capital for one year, an action that would be a clear violation of standard U.S. investment
and trade agreements. The government also banned transfers between domestic and foreign accounts, fixed the local currency to
the U.S. dollar, and restricted the amount of currency and investments that residents could take abroad. An IMF report in 2000 gave the
Malaysian plan a fairly favorable review: “In conjunction with other macroeconomic and financial policies, the controls helped to stabilize
the exchange rate. Since the introduction of the controls, there have been no signs of speculative pressures on the exchange rate,
despite the marked relaxation of fiscal and monetary policies to support weak economic activity. Nor have there been signs that a
parallel or non deliverable forward market is emerging; and no significant circumvention efforts have been reported.”17 Three years
[former World Bank Chief Economist, Joseph] Stiglitz wrote that “it was clear that
later,
Malaysia’s capital controls allowed it to recover more quickly with a shallower downturn,
and with a far smaller legacy of national debt burdening future growth. The controls
allowed it to have lower interest rates than it could otherwise have had; the lower interest
rates meant that fewer firms were put into bankruptcy and so the magnitude of publicly
funded corporate and financial bailout was smaller. The lower interest rates meant too that recovery could
occur with less reliance on fiscal policy, and consequently less government borrowing. Today, Malaysia stands in a far better position
than those countries that took IMF advice.”18 Of course no one argues that capital controls are effective
100% of the time. Wily investors often find ways to evade them. There are risks of high administrative
costs, of unintentionally discouraging valuable investment, and of distracting from the root causes of financial instability. However,
a growing number of noted economists maintain that on balance, governments are better
off with capital controls in their tool bag than without them.19 (See box, p. 10-11.)”

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Impact 1: Anti-American Backlash


Sarah Anderson 09 – The presence of capital controls enforced by the US in an
economic crisis would result in anti-American backlash
Sarah Anderson [MA in International Affairs, The American University; BA in Journalism, Northwestern
University; Director of the Global Economy Project, Institute for Policy Studies; Served 1998 and 1999 on the
staff of the bipartisan International Financial Institutions Advisory Commission; Member of the Investment
Subcommittee of the U.S. Department of State’s Advisory Committee on International Economic Policy; Co-
author of the books Field Guide to the Global Economy and Alternatives to Economic Globalization]
“COMMENTS ON THE U.S. MODEL BILATERAL INVESTMENT TREATY BEFORE THE UNITED STATES
DEPARTMENT OF STATE AND THE OFFICE OF THE U.S. TRADE REPRESENTATIVE” July 17, 2009 INSTITUTE FOR
POLICY STUDIES <accessed August 28, 2010> (EG)
“Businesses, workers, and the environment in this country are undermined by instability in
other parts of the world, as crisis countries purchase fewer U.S. products, cut
environmental spending, and expand the global pool of unemployed labor. And when
governments are constrained in their use of capital controls, they have few other tools to
prevent speculative bubbles or stem panic-driven capital flight. Dramatically raising interest rates may
slow capital outflows, but at the risk of causing a serious recession. Mexico, which has extremely limited authority to apply capital
controls under the investment rules in the North American Free Trade Agreement, has resorted to depleting its foreign reserves in the
face of massive capital flight (foreign investors withdrew more than $22 billion in the last few months of 2008).11 Struggling to prop up
the value of its currency, the central bank has spent $27.5 billion from its foreign reserves since last October.12 Depleting reserves to
fight devaluation not only reduces the funds available for development, it also raises the risk of even further capital flight, as low reserve
levels undermine investor confidence. In another attempt to restore confidence, the Mexican government has opened a $47 billion line of
credit with the IMF, raising the prospect of another debt crisis that could undermine development and stability in the United States’
southern neighbor for many years to come. Daniel Tarullo, a member of the Federal Reserve Board, has spoken out forcefully against the
U.S. government’s insistence on including capital control restrictions in trade agreements — restrictions that are nearly identical to those
in the model BIT. In testimony during the debate over the Chile and Singapore free trade agreements in 2003, Tarullo described this as
not only “bad financial policy and bad trade policy,” but also “bad foreign policy.” He went on to lay out what would likely happen if a
“As the country
government bound by these rules were to use short-term capital controls during a severe financial crisis:
struggles to emerge from its recession…U.S. investors file their claims for compensation.
And, of course, under the bilateral trade agreement they are entitled to that compensation.
Thus the still-suffering citizens of the country are treated to the prospect of U.S. investors
being made whole while everyone else bears losses from an economic catastrophe that has
afflicted the entire nation. Regardless of what one thinks of the merits of capital controls,
one would have to be naïve not to think that an anti-American backlash would result.”13”

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Impact 2: Anarchy
VA J. of Intl. L. 08 – Social and political anarchy followed the Argentine financial
collapse
William W. Burke-White [Assistant Professor of Law, University of Pennsylvania Law School. Ph.D. (Cambridge,
2006); J.D. (Harvard, 2002), M.Phil. (Cambridge, 2000), B.A. (Harvard, 1998).] & Andreas Von Staden [Ph.D.
Candidate, Princeton University; M.A. mult. (Princeton, 2006; Yale, 2000; Hamburg, 1998).] “Investment
Protection in Extraordinary Times: The Interpretation and Application of Non-Precluded Measures Provisions in
Bilateral Investment Treaties” VIRGINIA JOURNAL OF INTERNATIONAL LAW [Vol. 8, No. 2, (2008)] (EG) (PB)
“In the last weeks of 2001, Argentina experienced a financial collapse of catastrophic
proportions.1 In one day alone, the Argentine peso lost 40% of its value.2 As the peso
collapsed, a run on the banks ensued. According to The Economist, throughout the
collapse, “income per person in dollar terms…shrunk from around $7,000 to just $3,500”
and “unemployment [rose] to perhaps 25%.”3 This economic chaos meant that by late
2002, over half the Argentine population was living below the poverty line.4 The crisis soon
spread from the economic to the political sphere. In December 2001, one day of riots left
30 civilians dead and led to the resignation of President Fernando de la Rua and the
collapse of the government. A “tragicomic spectacle of a succession of five presidents
taking office over a mere ten days” followed.5”

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AT: NPM Clause


VA J. of Intl. L. 08 – Argentina’s NPM claims have been met with contradictory
rulings; indicative of very different understandings of NPM bargains and
functions
William W. Burke-White [Assistant Professor of Law, University of Pennsylvania Law School. Ph.D. (Cambridge,
2006); J.D. (Harvard, 2002), M.Phil. (Cambridge, 2000), B.A. (Harvard, 1998).] & Andreas Von Staden [Ph.D.
Candidate, Princeton University; M.A. mult. (Princeton, 2006; Yale, 2000; Hamburg, 1998).] “Investment
Protection in Extraordinary Times: The Interpretation and Application of Non-Precluded Measures Provisions in
Bilateral Investment Treaties” VIRGINIA JOURNAL OF INTERNATIONAL LAW [Vol. 8, No. 2, (2008)] (EG) (PB)
“Two of the BITs under which cases have been brought against Argentina— the U.S.-
Argentina BIT and the Belgium-Luxembourg Economic Union-Argentina BIT (BLEU-Argentina BIT)—include
NPM clauses.349 In each of these cases Argentina has invoked the NPM clause,350 arguing that the
measures it took were not precluded by the BIT, that there was no internationally wrongful act, and, hence, no compensation is due to
investors. Moreover, based on the long-standing United States policy of self-judging NPM clauses, Argentina has claimed that the NPM
provision in the U.S.-Argentina BIT is selfjudging and Argentina’s invocation of the clause subject only to good faith review.351
Though more than forty cases are presently pending against Argentina, only four awards
involving NPM clauses have been handed down by ICSID tribunals as of October 2007.352
The four awards illustrate both the interpretive challenges presented by NPM clauses and
the dangers of interpretive short-cuts by arbitral tribunals. Moreover, the four awards
highlight very different understandings of the risk allocation functions of NPM clauses.
Whereas the tribunals in the cases of CMS v. Argentina, Enron v. Argentina and Sempra v. Argentina found the NPM clause inapplicable,
the tribunal in LG&E v. Argentina found the clause properly invoked and Argentina’s liability precluded for a specified period during the
crisis.353 Though
the contradictory outcomes cannot be reconciled, they can be explained by
the tribunals’ very different understandings of the bargain that lies behind the U.S.-
Argentina BIT and the risk allocation function of the NPM clause in the treaty.”

AT: Not Russia Specific

AT: Not Current Crisis Specific


Sarah Anderson 09 – The effects of both crisis’s are very similar; Russia may be
considering some type controls in light of billions in capital flight
Sarah Anderson [MA in International Affairs, The American University; BA in Journalism, Northwestern
University; Director of the Global Economy Project, Institute for Policy Studies; Served 1998 and 1999 on the
staff of the bipartisan International Financial Institutions Advisory Commission; Member of the Investment
Subcommittee of the U.S. Department of State’s Advisory Committee on International Economic Policy; Co-
author of the books Field Guide to the Global Economy and Alternatives to Economic Globalization] “Policy
Handcuffs in the Financial Crisis: How U.S. Trade and Investment Policies Limit Government Power to Control
Capital Flows” (February 2009) INSTITUTE FOR POLICY STUDIES <accessed August 31, 2010> www.IPS-
DC.ORG (EG)
“Although the current crisis originated in the United States rather than Asia, the effects on
the rest of the world are reminiscent of those in the late 1990s crisis—plunging stock
markets, withering consumer confidence, capital flight, and currency devaluations. In the face
of this spreading crisis, some countries have maintained capital controls (e.g., China37 and Thailand38), while others have imposed or
tightened them (e.g., Iceland,39 Ukraine,40 and Argentina41). There has been much speculation that Russia
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may be considering some type of controls, as it continues to hemorrhage capital in the
midst of both the financial crisis and the conflict with Ukraine. In 2008, the country lost a
record $130 billion through capital flight.42 Other countries facing severe capital flight are as farflung as Pakistan,
Indonesia, South Korea, Mexico, and Nigeria.”

Disadvantage 2: Drug Access


Link: Drug Access Denied
Boldrin & Levin 08 – IPR increases prices on AIDs drugs which places them out of
the reach of Africa
Michele Boldrin PhD [Professor of economics; fellow of the Econometric Society; research associate of the Center for Economic Policy
Research in London and for FEDEA in Madrid.] David K. Levine PhD [John H. Biggs Distinguished Professor of Economics at Washington
University in St. Louis; President of the Society for Economic Dyamics; fellow of the Econometric Society; research associate of the
NBER; member of the Sloan Research Fellowship Program Committee;co-editor of NAJ Economics] “Against Intellectual Monopoly”
January 2, 2008 [EG] <accessed 19/01/09> http://www.dklevine.com/papers/imbookfinalall.pdf
“AIDS drugs are relatively inexpensive to produce. They are so sufficiently inexpensive to
produce that the benefits to Africa in lives saved exceed the costs of producing the drugs
by orders of magnitude. But the large pharmaceutical companies charge such a large
premium over the cost of producing the drugs – to reap profits from sales in Western countries where those
drugs are affordable – that African nations and individuals cannot afford them. They create artificial scarcity
– excluding Africa from AIDS drugs – in order to garner a higher price for their product in
the U.S. and Europe.”

Cato Institute 00: Patent right Drugs are out reach of most sick Africans
Michael Kremer is a senior fellow at the Brookings Institution, a professor of economics at Harvard University,
and a faculty fellow at the Center for International Development, Harvard University. At the time this article
was written, Rachel Glennerster was a visiting scholar at the Center for International Development at Harvard
University. She is currently a staff member at the International Monetary Fund. The views expressed here, as
well as any errors, are the sole responsibility of the authors and do not necessarily reflect the opinions of the
Executive Directors of the IMF, or other members of the IMF staff. {Regulation Volume 23, No. 2 August 28,
2000} http://www.cato.org/pubs/regulation/regv23n2/kremer.pdf
“The monopoly pricing of patented goods prevents some people who need those goods
from buying them. This problem is illustrated vividly by the recent dispute between the
United States and South Africa over aids drugs. Up to 20 percent of pregnant women in
South Africa are infected with HIV. Aids drugs cost more than $10,000 annually, well
beyond the reach of most South Africans. Alternative, generic versions of the drugs would
be much cheaper, but buying these products would violate the patent rights of the original
drug developers. ”

Cato Institute 00: Under the status-quo current institutions Patents prevent
people from obtaining drugs they need to Survive
Michael Kremer is a senior fellow at the Brookings Institution, a professor of economics at Harvard University,
and a faculty fellow at the Center for International Development, Harvard University. At the time this article

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was written, Rachel Glennerster was a visiting scholar at the Center for International Development at Harvard
University. She is currently a staff member at the International Monetary Fund. The views expressed here, as
well as any errors, are the sole responsibility of the authors and do not necessarily reflect the opinions of the
Executive Directors of the IMF, or other members of the IMF staff. {Regulation Volume 23, No. 2 August 28,
2000} http://www.cato.org/pubs/regulation/regv23n2/kremer.pdf
“To enable its citizens to obtain aids drugs more cheaply, South Africa is considering
legislation to compel patent holders to license their discoveries to generic manufacturers
and to allow the importing of cheap generic drugs from countries that do not respect the
original patents. Opponents of the legislation argue that if intellectual property rights are
not respected, private firms will lose their incentive to develop new drugs. The United States
initially opposed the legislation. However, when aids activists began protesting against Al Gore, who had raised the issue as a chair of
the U.S.-South Africa Binational Commission, the United States rapidly backed down. The issues raised by the confrontation are deep.
Patents, and the resulting legal monopolies, create incentives for research and
development that drive medical progress. But under our current institutions, those same
patents can sometimes prevent people from obtaining drugs that they need to survive.”

Globalization and Health 07 – High prices bar developing countries from access
to new drugs
Greg Martin [Science and Research Department, World Cancer Research Fund] Corinna Sorenson [London
School of Economics] and Thomas Faunce [College of Law, Medical School, Globalization and Health Project –
Centre for Governance of Knowledge and Development, Australian National University, Australia] “Balancing
intellectual monopoly privileges and the need for essential medicines” Globalization and Health, Vol. 3, No. 4,
(June 12, 2007) <accessed May 30, 2010> [EG] http://ssrn.com/abstract=1408836
high prices for brand name and patented pharmaceuticals often create a barrier to
“Second,
access in developing countries. Patent monopoly protection of new drugs allows the
inventing company sufficient time to recoup their controversially-estimated R&D costs.
Sponsors, however, often seek extra patent reward for innovation via a number of existing 'loopholes'. For example, companies often use
bilateral trade agreements to eliminate reference pricing that bases the price of a new drug on pharmacoeconomic evidence, such as its
Such tactics make patented
efficacy, safety, and cost effectiveness relative to comparable existing therapies.
medications prohibitively expensive for people living in poorer countries. As a result,
international trade agreements have become an exceedingly important issue for access to
essential medicines and health services.”

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Impact 1: Death
AfricaFocus 05: A hike in prices will cause thousands of death
AfricaFocus This website features high-quality analysis and progressive advocacy on African issues, with
particular attention to priority issues affecting the entire continent. “India/Africa: Threat to Generic Drugs”
Mar 7, 2005 [EG] <accessed 01/12/09> http://www.africafocus.org/docs05/ind0503.php
“Many patients need this second line of medications to survive. At least 20% of patients
need these drugs after three years of taking the initial course, and if they do not get the
medication they will die. The costly, brand-name versions are out of reach of most people
living with AIDS. Brand-name versions of these drugs can cost 26 times as much as the generic versions that India could make
under appropriate and flexible patent standards. The global goal for the end of this year is to deliver AIDS medication to 3 million of the
people that need them. 20% of these people can be expected to need these second line drugs in three years time, and that adds up to
600,000 people! These 600,000 people could die without continued access to affordable
medication.”

Bird & Cahoy 07 – Drug controls can cost thousands of lives


Robert C. Bird [Assistant Professor, School of Business, University of Connecticut] & Daniel R. Cahoy
[Associate Professor of Business Law, Smeal College of Business, the Pennsylvania State University] “The
Emerging BRIC Economies: Lessons from Intellectual Property Negotiation and Enforcement”
NORTHWESTERN JOURNAL OF TECHNOLOGY AND INTELLECTUAL PROPERTY, Vol. 5, No. 3, pp. 400-
425(Summer 2007) <accessed June 17, 2010> (EG)
“Like many nations in the developing world, citizens of the BRIC economies are badly in
need of medicines invented and sold by the very multi-national organizations pressing for
strong protection. Whereas restrictions on cell phone technology or Harry Potter books are
rarely fatal, controls of any sort on anti-retroviral drugs and other medicines can cost
thousands of lives.”

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Impact 2: Public Health


CRS 07: Stronger IPR enforcement would negatively impact public health
Michael F. Martin (Coordinator) [Analyst in Asian Political Economy Foreign Affairs, Defense, and Trade
Division] K. Alan Kronstadt [Specialist in South Asian Affairs Foreign Affairs, Defense, and Trade Division]
“India-U.S. Economic and Trade Relations” August 31, 2007 CONGRESSIONAL RESEARCH SERVICE Order Code
RL34161 [EG] <accessed 12/15/08>
“Opponents of inserting “data exclusivity”146 clauses into Indian law assert that they
constrict India’s generic drug industry’s ability to compete both domestically and
internationally, and place a large financial burden on firms that must repeat expensive
clinical trials. By removing the availability of inexpensive and oftentimes life-saving
medications, the argument goes, would have a seriously detrimental resulting impact on public
health.”

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Implication: Human Rights


UN Econ & Social Council 01 – AIDs significantly decreases the enjoyment of HRs
The High Commissioner for Human Rights “Report of the High Commissioner on the Impact of the Agreement
on Trade-Related Aspects of Intellectual Property Rights on Human Rights” (June 27, 2001) UNITED NATIONS
ECONOMIC AND SOCIAL COUNCIL 10-15, 27-58, U.N. Doc. E/CN.4/Sub.2/2001/13 <accessed June 24, 2010>
(EG)
“The HIV/AIDS pandemic has a significant impact on the enjoyment of human rights. Not
only does it concern the enjoyment of the right to health, it is also a significant obstacle to
the realization of the right to development. Looking at the health dimension: in 1999, 5.4
million people were newly infected with HIV, 34.3 million people were living with HIV/AIDS
throughout the world and 2.8 million people had died from the virus. A recent report of UNAIDS
illustrates the developmental dimensions of HIV/AIDS. For example, surveys note that households caring for a
family member with AIDS suffer dramatic decreases of income. In education, HIV is taking its toll, first by
eroding the supply of teachers who fall ill as a result of the virus, second, by health treatment eating into family education budgets, third,
by adding to the pool of children who are growing up without parental support which may affect their ability to stay at school. In the
agricultural sector, sickness of farm workers has resulted in a fall in agricultural output and might threaten food security. HIV is hurting
business through absenteeism, lower productivity, and higher overtime costs for workers obliged to work longer hours to replace sick
Indeed, the effects of HIV on the enjoyment of the right to development are so
colleagues.61
strong that the Secretary-General in his address to the African Summit described HIV/AIDS
as “our biggest development challenge”.62”

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AT: Pharmaceutical Innovation


UN Econ & Social Council 01 – “unprofitable diseases” are under-researched
because of the economic incentive
The High Commissioner for Human Rights “Report of the High Commissioner on the Impact of the Agreement
on Trade-Related Aspects of Intellectual Property Rights on Human Rights” (June 27, 2001) UNITED NATIONS
ECONOMIC AND SOCIAL COUNCIL 10-15, 27-58, U.N. Doc. E/CN.4/Sub.2/2001/13 <accessed June 24, 2010>
(EG)
“As IPRs are limited commercial rights, they are essentially driven towards economic
reward; the objective of promoting respect for human rights would at best appear to be secondary consideration. Two issues arise.
First, as WHO has noted, the commercial motivation of IPRs means that research is directed, first
and foremost, towards “profitable” disease. Diseases that predominantly affect people in
poorer countries - in particular tuberculosis and malaria - still remain relatively under-
researched.44 The fact that patents create opportunities for economic reward that are
optimized when market conditions are right logically leads researchers away from
“unprofitable” diseases to diseases that affect people in markets where the return is likely
to be greater. According to WHO, “questions remain as to whether the patent system will ensure investment for medicines
needed by the poor. Of the 1,223 new chemical entities developed between 1975 and 1996, only 11 were for the treatment of tropical
disease”.45”

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AT: Exemptions
Globalization and Health 07 – TRIPS flexibilities cannot be utilized by many
Greg Martin [Science and Research Department, World Cancer Research Fund] Corinna Sorenson [London
School of Economics] and Thomas Faunce [College of Law, Medical School, Globalization and Health Project –
Centre for Governance of Knowledge and Development, Australian National University, Australia] “Balancing
intellectual monopoly privileges and the need for essential medicines” Globalization and Health, Vol. 3, No. 4,
(June 12, 2007) <accessed May 30, 2010> [EG] http://ssrn.com/abstract=1408836
“Despite the flexibilities granted by the TRIPS agreement, few developing countries have
employed them to develop policies to protect public health. Consequently, organizations such as Medecins
Sans Frontieres and Oxfam argue that the provisions have had minimal impact on improving access to affordable medicines for the
Effective implementation of such provisions, most notably compulsory licensing,
world's poor.
has been adversely affected by several factors. First, the implementation of compulsory
licensing is complex and requires a sufficient local administrative infrastructure, which is
often prohibitively expensive, with costs in excess of US$1.5 million. Second, the
flexibilities provided by the TRIPS agreement have been limited by a number of recent developments,
such as bilateral and regional free trade agreements. Free trade agreements, negotiated by the USTR industrialised countries (e.g.,
[that] require commitments beyond those specified by TRIPS. Such
Australia and South Korea),
provisions include 1) extending patent terms beyond 20 years for delayed marketing approval, 2)
limiting parallel imports of patented drugs, restricting grounds for compulsory licensing, 3) imposing 'data
exclusivity' rules, 4) defining 'innovation' to include minor 'me-too' molecular variations, 5) facilitating
elimination of reference pricing, and 6) introducing the pro-evergreening 'linkage' of safety and quality
regulatory assessments of proposed new generic market entrants with patent checks.”

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AT: Compulsory Licensing


Ian Fergusson 03 – There is no guarantee the drug will be manufactured due to
low economic incentives and restrictions
Ian F. Fergusson [Analyst in International Trade and Finance Foreign Affairs, Defense, and Trade Division]
“The WTO, Intellectual Property Rights, and the Access to Medicines Controversy” Order Code RS21609
November 5, 2003 www.opencrs.com <accessed May 30, 2010> (EG)
“There also may be little economic incentive for a supplier to manufacture the product in
the case of an LDC issuing a compulsory license. Under the system contemplated by the Decision of August 30,
2003, a developing country with no manufacturing capability may use a compulsory license
to obtain a product for a generic manufacturer in another country. However, the generic manufacturer
in the second country may have no economic incentive to do so, especially in limited quantities to poor countries. In addition,
under many of the proposals the product would have to use special packaging or distinctive shapes
to avoid diversion. Under such restrictions, it is not certain that a generic producer would
undertake the development and formulation costs for such a limited market.15 Thus, even
though a compulsory license was issued, the drugs may never be manufactured. According to
some NGOs and AIDS activists, this is precisely the result being sought. One activist claimed that restrictions advocated by
the U.S. create “a watertight system so that no generic drugs ever get through to the
patients in developing countries who desperately need them.”16”

Vanderbilt J. Enter. & Tech. L. 08 – The WTO discourages the use of compulsory
licenses
Sara Beth Myers [J.D. Candidate, Vanderbilt University Law School, 2009; M.A., Yale University, 2005; B.A.,
Duke University, 2003] “A Healthy Solution for Patients and Patents: How India’s Legal Victory Against a
Pharmaceutical Giant Reconciles Human Rights with Intellectual Property Rights” VANDERBILT JOURNAL OF
ENTERTAINMENT AND TECHNOLOGY LAW Vol. 10 No. 3, pp. 763-798 (2008) <accessed May 30, 2010> [EG]

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“Novartis was adamant in asserting that its case against India was not about compulsory
licenses,181 yet the company would have been in a much stronger legal position if India had
granted a patent for Glivec and then attempted to issue a compulsory license for the drug.
Knowing this, Novartis made it clear that it “fully supports flexibilities in the TRIPS agreement that allow governments to make
exceptions to patent rights and import pharmaceuticals produced under compulsory license in case of a national emergency or a lack of
Although the WTO recognizes the need for compulsory licenses in
supply from the patent-holder.”182
order to combat threats to global health such as HIV/AIDS and the avian flu, it still
discourages the extended use of such licenses.183”

Disadvantage 3: Food Sovereignty


Link: GMOs are Patented
Hastings International and Comparative Law Review 06 – IPR rights on GE crops
have raised concerns of farmers and NGO’s
Peter Straub [LL.M., Between 1997 and 1999 he studied Law at the Philipps-University of Marburg, Germany,
where he passed the First State Examination in Law. In 2002 he passed the Second State Examination in Law.
Between 2002 and 2004 he worked for different law firms in Singapore and China. From 2004 to 2005 he
studied at the National University of Singapore, where he graduated as Master of Laws with a specialization in
International and Comparative Law. He currently practices as an attorney-at-law in Hanover, Germany],
“Farmers in the IP Wrench - How Patents on Gene-modified Crops Violate the Right to Food in Developing
Countries,” Hastings International and Comparative Law Review, Winter, 2006, (29 Hastings Int'l & Comp. L.
Rev. 187) (PV)
“A major goal of the United States during the TRIPS negotiations was to obtain intellectual
property protection for its agricultural biotechnology industry. In North America, and n1

around the world, the economic effects of strengthened intellectual property rights on
genetically engineered (GE) crop plant varieties have raised concerns of farmers and non-
government organizations. Unfortunately, they seldom argue within the framework of internationally recognized human
rights. Instead, they make reference to rather fuzzy values, such as "food sovereignty.””

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Link: Farmers put out of business


Hastings International and Comparative Law Review 06 – Because of GE crop
patents, it may become impossible for farmers to find seed they can use without
infringing on IPRs
Peter Straub [LL.M., Between 1997 and 1999 he studied Law at the Philipps-University of Marburg, Germany,
where he passed the First State Examination in Law. In 2002 he passed the Second State Examination in Law.
Between 2002 and 2004 he worked for different law firms in Singapore and China. From 2004 to 2005 he
studied at the National University of Singapore, where he graduated as Master of Laws with a specialization in
International and Comparative Law. He currently practices as an attorney-at-law in Hanover, Germany],
“Farmers in the IP Wrench - How Patents on Gene-modified Crops Violate the Right to Food in Developing
Countries,” Hastings International and Comparative Law Review, Winter, 2006, (29 Hastings Int'l & Comp. L.
Rev. 187) (PV)
farmers who do not grow GE crops themselves are still affected when their
“As noted above,
neighbors grow such crops. In developing countries, farmers are highly dependent on saving seeds or on cultivating wild
varieties. When transgenic contamination of seed stock and wild varieties occurs, as has already
happened, it might become impossible for farmers to find seed that they can still use without
infringing intellectual property rights. Small and peasant farmers in developing countries
are in even less of a position to pay license fees or legal expenses in defense of their rights
than their counterparts in developed countries. As a result, they could be forced to
abandon farming which would further limit the local availability of food.”

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Hastings International and Comparative Law Review 06 – Farmers in the US have
been driven out because of a ‘violation’ of GE crops, even though it was in
situations completely beyond their control
Peter Straub [LL.M., Between 1997 and 1999 he studied Law at the Philipps-University of Marburg, Germany,
where he passed the First State Examination in Law. In 2002 he passed the Second State Examination in Law.
Between 2002 and 2004 he worked for different law firms in Singapore and China. From 2004 to 2005 he
studied at the National University of Singapore, where he graduated as Master of Laws with a specialization in
International and Comparative Law. He currently practices as an attorney-at-law in Hanover, Germany],
“Farmers in the IP Wrench - How Patents on Gene-modified Crops Violate the Right to Food in Developing
Countries,” Hastings International and Comparative Law Review, Winter, 2006, (29 Hastings Int'l & Comp. L.
Rev. 187) (PV)
in the case of Monsanto Canada v. Schmeiser, n21 the Supreme Court of Canada
“For example,
ruled that a farmer had infringed a patent under the Canadian Patent Act even though he
had admittedly never bought or used GE seed from Monsanto. n22 Canola plants containing a patented
gene for herbicide resistance were found on the defendant's fields. These plants were indistinguishable from other non-GE canola unless
It remained unclear how the GE seeds had arrived on the
sprayed with one of Monsanto's herbicides.
defendant's fields, as the defendant only saved and developed his own seeds. The
defendant claimed they must have been blown onto his fields thereby contaminating his
own crops. As a result of legal costs and court injunctions that permanently forbid farmers
to sell Monsanto's products, many farmers in the United States have been driven out of
business by Monsanto's lawsuits.”

Hastings International and Comparative Law Review 06 – Small farmers in


developing countries will be unable to take precautions against ‘violating’ the
IPRs of GE crops
Peter Straub [LL.M., Between 1997 and 1999 he studied Law at the Philipps-University of Marburg, Germany,
where he passed the First State Examination in Law. In 2002 he passed the Second State Examination in Law.
Between 2002 and 2004 he worked for different law firms in Singapore and China. From 2004 to 2005 he
studied at the National University of Singapore, where he graduated as Master of Laws with a specialization in
International and Comparative Law. He currently practices as an attorney-at-law in Hanover, Germany],
“Farmers in the IP Wrench - How Patents on Gene-modified Crops Violate the Right to Food in Developing
Countries,” Hastings International and Comparative Law Review, Winter, 2006, (29 Hastings Int'l & Comp. L.
Rev. 187) (PV)
in developing countries, where the wild ancestors of crop plants can still
“It can be expected that
be found, manipulated DNA from GE varieties will contaminate other crop varieties, especially
"landraces." n32 The term "landraces" is used to describe plants that are selected by traditional farmers from wild populations. n33
Due to illiteracy and the lack of information, small farmers in developing countries will be
unable to take precautions against the contamination of these other varieties. n34 In 2001 it
was discovered that landraces of maize in Mexico had already been contaminated by
transgenic DNA from GE maize varieties from the United States even though a national
moratorium against GE crops had been in place since 1998.”
Hastings International and Comparative Law Review 06 – Because of IPR laws,
small farmers in developing countries might soon find themselves in a situation
similar to that currently experience by US farmers
Peter Straub [LL.M., Between 1997 and 1999 he studied Law at the Philipps-University of Marburg, Germany,
where he passed the First State Examination in Law. In 2002 he passed the Second State Examination in Law.
Between 2002 and 2004 he worked for different law firms in Singapore and China. From 2004 to 2005 he
studied at the National University of Singapore, where he graduated as Master of Laws with a specialization in
International and Comparative Law. He currently practices as an attorney-at-law in Hanover, Germany],
“Farmers in the IP Wrench - How Patents on Gene-modified Crops Violate the Right to Food in Developing
Countries,” Hastings International and Comparative Law Review, Winter, 2006, (29 Hastings Int'l & Comp. L.
Rev. 187) (PV)
“The governments of developing countries find themselves under pressure from the United
States and other developed countries to join international (TRIPS) and bilateral (TRIPS plus)
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agreements on the protection of intellectual property. These agreements would obligate
them to modify their domestic IP laws and to protect foreign intellectual property according
to Western standards. As a result, traditional small-hold farmers in developing countries
might soon find themselves in a situation similar to that currently faced by farmers in North
America.”

Hastings International and Comparative Law Review 06 – GE crops undermine


farmers self-reliance
Peter Straub [LL.M., Between 1997 and 1999 he studied Law at the Philipps-University of Marburg, Germany,
where he passed the First State Examination in Law. In 2002 he passed the Second State Examination in Law.
Between 2002 and 2004 he worked for different law firms in Singapore and China. From 2004 to 2005 he
studied at the National University of Singapore, where he graduated as Master of Laws with a specialization in
International and Comparative Law. He currently practices as an attorney-at-law in Hanover, Germany],
“Farmers in the IP Wrench - How Patents on Gene-modified Crops Violate the Right to Food in Developing
Countries,” Hastings International and Comparative Law Review, Winter, 2006, (29 Hastings Int'l & Comp. L.
Rev. 187) (PV)
“Sustainability has different aspects. Environmental sustainability, for example, requires a
judicious use of natural resources to guarantee the stability of food supply for the future.
n43 Economic and social sustainability are meant to guarantee food supply in times of
recession or other economic crises through effective markets and public policies. n44
Opponents of agricultural gene-engineering have argued that GE crops threaten the
sustainability of food access in various ways. One main criticism is that such crops
undermine farmers' self-reliance by making them dependent on the TNCs that market GE
crops.”

Thai Indian News 08: The spread of GM food is harming farmers b/c of IPR
Thai Indian News “Farmers protest over genetically modified crops in Delhi” May 6th, 2008 [EG] <accessed
February 25, 2009> http://www.thaindian.com/newsportal/south-asia/farmers-protest-over-genetically-
modified-crops-in-delhi_10045775.html
“New Delhi, May 6 (ANI): Farmers from different parts of the country on Tuesday demonstrated at the
Jantar Mantar on Parliament street over the use of genetically modified crops in the country. Organised by
Coalition for a GM-free India, the protesting farmers demanded that the genetically modified
technology should be banned in the country, as it was against the Indian farmers interest.
Protestors said that with the spread of genetically modified (GM) crops, farmers rights
could be seized in the name of the Intellectual Property Rights and patents.”

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Impact: Food Sovereignty
Food Sovereignty Violated
David Kaplan 04 – WTO trade policies violate food security and human rights
David M. Kaplan [Ph.D. and Assistant Professor of Philosophy at Polytechnic University, Brooklyn; He is the
editor of readings in the Philosophy of Technology and co-editor of Society, Ethics, and Technology
(Wadsworth, 2005). Recently, he has turned his attention to the moral and political dimensions of of
technologically modified food and enhancement technologies.] “What’s Wrong with Genetically Modified
Food?” in Frederick Adams, ed. Ethical Issues of the 21st Century ((Charlottesville: Philosophy Documentation
Center Press, 2004) “What’s Wrong with Genetically Modified Food?” http://www.csid.unt.edu/files/What's
%20Wrong%20With%20Genetically%20Modified%20Food.pdf <accessed May 30, 2010> [EG]
“Now, instead of entering the thickets of scientific debates, we can make a stronger
argument on principle: GM food production, distribution, and consumption, driven by
market imperatives, backed by institutional power, violates our human rights. Specifically,
the trade policies enforced by the WTO that requires nations to purchase GM food, privatize
public farms, and transform agricultural production from subsistence to export violates the
internationally recognized right to food security.”

David Kaplan 04 – TRIPs undermines food security


David M. Kaplan [Ph.D. and Assistant Professor of Philosophy at Polytechnic University, Brooklyn; He is the
editor of readings in the Philosophy of Technology and co-editor of Society, Ethics, and Technology
(Wadsworth, 2005). Recently, he has turned his attention to the moral and political dimensions of of
technologically modified food and enhancement technologies.] “What’s Wrong with Genetically Modified
Food?” in Frederick Adams, ed. Ethical Issues of the 21st Century ((Charlottesville: Philosophy Documentation
Center Press, 2004) “What’s Wrong with Genetically Modified Food?” http://www.csid.unt.edu/files/What's
%20Wrong%20With%20Genetically%20Modified%20Food.pdf <accessed May 30, 2010> [EG]
“There is growing consensus among Non-Governmental Agencies (NGOs) that the WTO
agreement on Trade Related Aspects of Intellectual Property (TRIPs) unfairly benefits agri-
business at the expense of developing nations.
Among other things, TRIPs requires that food and medicine that was once under the public domain must now
be privatized through global patent law. This allows food manufacturers to modify traditionally-bred seeds,
patent them, and then sell them back to people who had always used them for free. The patenting of GM
seeds will deepen the plight of farmers around the world who are already struggling. If a farmer switches to a
genetically engineered seed, that farmer has to sign a gene licensing agreement, which specifies royalty fees
and dictates the seed, fertilizer, and chemicals to be used.3 In the U.S it is now illegal for farmers to save
patented seeds without paying licensing fees; in India a bio-tech firm patented a version of basmati rice and
is attempting to make farmers pay for essentially the same seeds they had formerly used for centuries. 97%
of the agricultural patents are owned by five bio-tech corporations: Monsanto, AstraZeneca, Novartis,
DuPont/Pioneer, and Avantis.4 TRIPs also covers microorganisms such as cell lines, genes, and plant
varieties, many of which are used for medicine. It allows for the private sector to own the diversity of nature
itself.
The United Nations Development Program (UNDP) criticized the TRIPs agreement in its
1999 Human Development Report as “undermining food security and public health in
developing nations.”5 The UNDP reports that TRIPs rules make it much more costly for poor
and developing countries to procure seeds for crops and to make medicine more accessible
to the public.”

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David Kaplan 04 – GM foods exacerbates hunger because if IPRs


David M. Kaplan [Ph.D. and Assistant Professor of Philosophy at Polytechnic University, Brooklyn; He is the
editor of readings in the Philosophy of Technology and co-editor of Society, Ethics, and Technology
(Wadsworth, 2005). Recently, he has turned his attention to the moral and political dimensions of of
technologically modified food and enhancement technologies.] “What’s Wrong with Genetically Modified
Food?” in Frederick Adams, ed. Ethical Issues of the 21st Century ((Charlottesville: Philosophy Documentation
Center Press, 2004) “What’s Wrong with Genetically Modified Food?” http://www.csid.unt.edu/files/What's
%20Wrong%20With%20Genetically%20Modified%20Food.pdf <accessed May 30, 2010> [EG]
“The right to be free from hunger means that the state, minimally, has the obligation to
prevent people from starving. But it also implies the right of citizens to access food. The negative obligation of the state is
to refrain from interfering with the enjoyment of that right by its citizens; the positive obligation of the state is to take action to protect
The state must protect citizens from hunger and enable
citizens when that right is violated by others.
citizen to have the physical and economic access to adequate food and clean drinking
water. By adequate food means adequate in quality and quantity to allow for a healthy life that is also culturally acceptable – so long
as its enjoyment does not infringe upon the rights of others and it acquired in a way that is environmentally and socially sustainable. The
state is rarely obligated to feed people, unless there is exists a specific constitutional provision. Rather the obligation is to refrain from
interfering in the efforts of citizens to provide for themselves, to protect our rights against other individuals and groups, and to create
opportunities and enable people to secure and maintain their right to food. The state is obligated to respect, protect, and promote rights
related to food, water, and nutrition – all of which are necessary conditions for our enjoyment of our basic political and entitlement rights.
Unfortunately, the TRIPs agreement is likely to threaten food security increasing both the
number of people who live in hunger and poverty. WTO policy not only requires nations to buy GM seeds, but it
also requires that they change the nature of farming from small farms that produce food for local people to eat, to large farms that grow
export crops like coffee, sugar, cotton, fruits, and flowers. These large farms replace human labor with machinery thereby displacing
millions of people every year while eradicating societies based on rural farming, where one half of the world’s population still lives and
works. As farming communities dwindle in the face of competition, people are driven off their land and into poverty, usually settling in
Even if GM foods could produce more
urban centers. Hunger actually increases as farm size increases.9
abundant crops they would do little to solve hunger. The issue is poverty and poor
governance, not lack of food. By turning food into intellectual property, biotech is likely to
exacerbate hunger by increasing dependence on the corporate sector for seeds and
materials.”

Hastings International and Comparative Law Review 06 – small farmers are very
important in developing countries as they are usually the primary produces of
staple food
Peter Straub [LL.M., Between 1997 and 1999 he studied Law at the Philipps-University of Marburg, Germany,
where he passed the First State Examination in Law. In 2002 he passed the Second State Examination in Law.
Between 2002 and 2004 he worked for different law firms in Singapore and China. From 2004 to 2005 he
studied at the National University of Singapore, where he graduated as Master of Laws with a specialization in
International and Comparative Law. He currently practices as an attorney-at-law in Hanover, Germany],
“Farmers in the IP Wrench - How Patents on Gene-modified Crops Violate the Right to Food in Developing
Countries,” Hastings International and Comparative Law Review, Winter, 2006, (29 Hastings Int'l & Comp. L.
Rev. 187) (PV)
“These small-hold farmers are very important for sustainable access to food in these
countries as they are usually the primary producers of staple food. Their production n50

contributes to the local availability of food and helps shield the population from price spikes on regional and
world markets. In many developing countries, the small-hold farming sector is, for a majority of the
population, also the only possibility of earning a livelihood. n51 Small-hold farmers are usually self-reliant in
their food production, and play important roles in the local food supply. Through the cultivation of
landraces and seed exchange with other farmers, they create new varieties that are
especially adjusted to the climatic conditions of the particular region. n52 The cultivation of

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such indigenous varieties is a further safeguard for food security. The use of GE seed would
compromise all of these important functions.”

Food Sovereignty is a Human Right


David Kaplan 04 – Food security is a basic human right
David M. Kaplan [Ph.D. and Assistant Professor of Philosophy at Polytechnic University, Brooklyn; He is the
editor of readings in the Philosophy of Technology and co-editor of Society, Ethics, and Technology
(Wadsworth, 2005). Recently, he has turned his attention to the moral and political dimensions of of
technologically modified food and enhancement technologies.] “What’s Wrong with Genetically Modified
Food?” in Frederick Adams, ed. Ethical Issues of the 21st Century ((Charlottesville: Philosophy Documentation
Center Press, 2004) “What’s Wrong with Genetically Modified Food?” http://www.csid.unt.edu/files/What's
%20Wrong%20With%20Genetically%20Modified%20Food.pdf <accessed May 30, 2010> [EG]
“The right to food is a basic human right and an integral part of international human rights
law. The right to food is recognized directly or indirectly by every country in the world (either
written into their constitutions or by virtue of their membership in the United Nations). Article 25 of the 1948 Universal
Declaration of Human Rights states that “everyone has the right to a standard of living
adequate for the health and well-being of himself and of his family, including food, clothing,
housing, medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability,
The United Nations again affirmed
widowhood, old age or other lack of livelihood in circumstances beyond his control.”6
the right to food security in the 1996 World Food Summit. The U.N considered it
“intolerable that more than 800 million people throughout the world, and particularly in
developing countries, do not have enough food to meet their basic nutritional needs.”

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Disadvantage 4: Innovation
Link: Innovation Destroyed
Dr. Natalia Karpova 00 – Historically, patent legislation decreases innovation is
Russia
Dr. Natalia N. Karpova [Professor of the Academy of National Economy at the Russian Government] “LEGAL
PROTECTION AND COMMERCIALISATION OF INTELLECTUAL PROPERTY IN RUSSIA” 2000 Paper for Panel 2
<accessed July 12, 2010> http://www.unece.org/operact/enterp/documents/panel2.pdf (EG)
“A reduction of inventive activity was observed after implementation of the Patent Law of
the Russian Federation in 1992. There has been a sharp drop in the number of invention
applications submitted by Russian applicants (from 200 000 in 1989 up to 28 000 in
1993).”

Michele Boldrin & David Levin 08: An absence of patent protection could increase
innovation in the software industry by 15%
Michele Boldrin PhD [Professor of economics; fellow of the Econometric Society; research associate of the
Center for Economic Policy Research in London and for FEDEA in Madrid.] David K. Levine PhD [John H. Biggs
Distinguished Professor of Economics at Washington University in St. Louis; President of the Society for
Economic Dyamics; fellow of the Econometric Society; research associate of the NBER; member of the Sloan
Research Fellowship Program Committee;co-editor of NAJ Economics] “Against Intellectual Monopoly” January
2, 2008 [EG] <accessed 19/01/09> http://www.dklevine.com/papers/imbookfinalall.pdf
“Notice, in particular, that patenting is found to be a substitute for R&D, leading to a
reduction of innovation. In the authors’ calculation, innovative activity in the software
industry would have been about 15% higher in the absence of patent protection for new
software.”

Michele Boldrin & David Levin 08: Intellectual monopoly decreases economic
freedom
Michele Boldrin PhD [Professor of economics; fellow of the Econometric Society; research associate of the
Center for Economic Policy Research in London and for FEDEA in Madrid.] David K. Levine PhD [John H. Biggs
Distinguished Professor of Economics at Washington University in St. Louis; President of the Society for
Economic Dyamics; fellow of the Econometric Society; research associate of the NBER; member of the Sloan
Research Fellowship Program Committee;co-editor of NAJ Economics] “Against Intellectual Monopoly” January
2, 2008 [EG] <accessed 19/01/09> http://www.dklevine.com/papers/imbookfinalall.pdf
“What we have argued so far may not sound altogether incredible to the alert observer of the economics of innovation. Theory aside,
thriving innovation has been and still is commonplace in the
what have we shown, after all? That
absence of intellectual monopoly and that intellectual monopoly leads to substantial and
well-documented reductions in economic freedom and general prosperity.”

Michele Boldrin & David Levin 08: Switzerland benefited from not having patents
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Michele Boldrin PhD [Professor of economics; fellow of the Econometric Society; research associate of the
Center for Economic Policy Research in London and for FEDEA in Madrid.] David K. Levine PhD [John H. Biggs
Distinguished Professor of Economics at Washington University in St. Louis; President of the Society for
Economic Dyamics; fellow of the Econometric Society; research associate of the NBER; member of the Sloan
Research Fellowship Program Committee;co-editor of NAJ Economics] “Against Intellectual Monopoly” January
2, 2008 [EG] <accessed 19/01/09> http://www.dklevine.com/papers/imbookfinalall.pdf
“Mid-nineteenth century Switzerland [a country without patents], for example, had the
second highest number of exhibits per capita among all countries that visited the Crystal
Palace Exhibition. Moreover, exhibits from countries without patent laws received
disproportionate shares of medals for outstanding innovations.7”

Michele Boldrin & David Levin 08: IPR is unnecessary and bad ;)
Michele Boldrin PhD [Professor of economics; fellow of the Econometric Society; research associate of the Center for Economic Policy
Research in London and for FEDEA in Madrid.] David K. Levine PhD [John H. Biggs Distinguished Professor of Economics at Washington
University in St. Louis; President of the Society for Economic Dyamics; fellow of the Econometric Society; research associate of the
NBER; member of the Sloan Research Fellowship Program Committee;co-editor of NAJ Economics] “Against Intellectual Monopoly”
January 2, 2008 [EG] <accessed 19/01/09> http://www.dklevine.com/papers/imbookfinalall.pdf
“...most innovations have taken place without the benefit of intellectual monopoly. Indeed,
the system of intellectual monopoly as it exists today is of recent vintage – some parts of
the current system are only a few years old and their damaging effects are already visible
and dramatic.”

Michele Boldrin & David Levin 08: IPR is harm and no good
Michele Boldrin PhD [Professor of economics; fellow of the Econometric Society; research associate of the Center for Economic Policy
Research in London and for FEDEA in Madrid.] David K. Levine PhD [John H. Biggs Distinguished Professor of Economics at Washington
University in St. Louis; President of the Society for Economic Dyamics; fellow of the Econometric Society; research associate of the
NBER; member of the Sloan Research Fellowship Program Committee;co-editor of NAJ Economics] “Against Intellectual Monopoly”
January 2, 2008 [EG] <accessed 19/01/09> http://www.dklevine.com/papers/imbookfinalall.pdf
“Intellectual monopoly is not a cause of innovation, but it is rather an unwelcome
consequence of it. In a young dynamic industry full of ideas and creativity, intellectual
monopoly does not play a useful role. It is when ideas run out and new competitors come in
with fresher ideas, that those bereft of them turn to government intervention – and
intellectual “property”– to protect their lucrative old ways of doing business.”

Michele Boldrin & David Levin 08: Patent protection is unneeded and undesirable
Michele Boldrin PhD [Professor of economics; fellow of the Econometric Society; research associate of the Center for Economic Policy
Research in London and for FEDEA in Madrid.] David K. Levine PhD [John H. Biggs Distinguished Professor of Economics at Washington
University in St. Louis; President of the Society for Economic Dyamics; fellow of the Econometric Society; research associate of the
NBER; member of the Sloan Research Fellowship Program Committee;co-editor of NAJ Economics] “Against Intellectual Monopoly”
January 2, 2008 [EG] <accessed 19/01/09> http://www.dklevine.com/papers/imbookfinalall.pdf
“...there is little need to strengthen patent protection since alternative appropriation
methods are available and widely preferred. Instead, stronger patent protection could be
leading to undesirable ‘second-order’ effects such as the use of patents to block
competitors.14”

Michele Boldrin & David Levin 08: Low IPR protection increases the quality of
innovation
Michele Boldrin PhD [Professor of economics; fellow of the Econometric Society; research associate of the Center for Economic Policy
Research in London and for FEDEA in Madrid.] David K. Levine PhD [John H. Biggs Distinguished Professor of Economics at Washington
University in St. Louis; President of the Society for Economic Dyamics; fellow of the Econometric Society; research associate of the
NBER; member of the Sloan Research Fellowship Program Committee;co-editor of NAJ Economics] “Against Intellectual Monopoly”
January 2, 2008 [EG] <accessed 19/01/09> http://www.dklevine.com/papers/imbookfinalall.pdf
“...lowering intellectual property protection decreases the monopoly distortions for all
consumers of the “good” ideas. With a larger market, many more consumers benefit from
the greater usefulness and availability of all these “good” ideas. Second, lowering
intellectual property protection makes it harder for “marginal” ideas to make it into the
market.”
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Michele Boldrin & David Levin 08: Patents don’t increase but stifle innovation
Michele Boldrin PhD [Professor of economics; fellow of the Econometric Society; research associate of the Center for Economic Policy
Research in London and for FEDEA in Madrid.] David K. Levine PhD [John H. Biggs Distinguished Professor of Economics at Washington
University in St. Louis; President of the Society for Economic Dyamics; fellow of the Econometric Society; research associate of the
NBER; member of the Sloan Research Fellowship Program Committee;co-editor of NAJ Economics] “Against Intellectual Monopoly”
January 2, 2008 [EG] <accessed 19/01/09> http://www.dklevine.com/papers/imbookfinalall.pdf
“In fact the evidence shows that the invention of marvelous machines, drugs and ideas
does not require the spur of patents. If anything, the evidence shows, it is the other way
around: patents protection is not the source of innovation, but rather the unwelcome
consequence that, eventually, tames it.”

Michele Boldrin & David Levin 08: Patents would have stifled software innovation
(prior to 1981)
Michele Boldrin PhD [Professor of economics; fellow of the Econometric Society; research associate of the Center for Economic Policy
Research in London and for FEDEA in Madrid.] David K. Levine PhD [John H. Biggs Distinguished Professor of Economics at Washington
University in St. Louis; President of the Society for Economic Dyamics; fellow of the Econometric Society; research associate of the
NBER; member of the Sloan Research Fellowship Program Committee;co-editor of NAJ Economics] “Against Intellectual Monopoly”
January 2, 2008 [EG] <accessed 19/01/09> http://www.dklevine.com/papers/imbookfinalall.pdf
“Each and every one of these key innovations occurred prior to 1981 and so occurred
without the benefit of patent protection. Not only that, had all these bits and pieces of
computer programs been patented, as they certainly would have in the current regime, far
from being enhanced, progress in the software industry would never have taken place.
According to Bill Gates – hardly your radical communist or utopist – “If people had understood how
patents would be granted when most of today's ideas were invented, and had taken out
patents, the industry would be at a complete standstill today.” 2”

Impact 1: Injustice
Boldrin & Levine 08 – Intellectual monopoly gives all the rewards to an often
undeserving person, damages society and is unfair
Michele Boldrin PhD [Professor of economics; fellow of the Econometric Society; research associate of the
Center for Economic Policy Research in London and for FEDEA in Madrid.] David K. Levine PhD [John H. Biggs
Distinguished Professor of Economics at Washington University in St. Louis; President of the Society for
Economic Dyamics; fellow of the Econometric Society; research associate of the NBER; member of the Sloan
Research Fellowship Program Committee;co-editor of NAJ Economics] “Against Intellectual Monopoly” January
2, 2008 [EG] <accessed 19/01/09> http://www.dklevine.com/papers/imbookfinalall.pdf
“The moral of these – and dozens of other stories: calculus, clipper sailboat, bicycles, motion pictures, MRI imaging, automobiles, duct
tape … – is simple. Most great inventions are cumulative and simultaneous; most great inventions could have been introduced
simultaneously, or almost so, by many different inventors and companies, competing among them to improve the product and to sell it
to consumers at a price as low as possible; most great inventions could have spread more rapidly and improved more quickly if the social
productive capacity that simultaneous inventions generate had been usable; all of us, but a dozen undeserving monopolists, would have
been better off. None of this has happened, and none of this is happening, because the system of intellectual monopoly blocks it.
Intellectual monopoly has historically given and still gives all the rewards to a lucky and
often undeserving person who manages, in one way or other, to get the patent and grab
the monopoly power. As the stories we have told show, this is absolutely not necessary for great inventions
to take place. It is damaging for society, as valuable productive capacity is literally
destroyed and thrown away. Finally, if you allow us, it is also awfully unfair.”

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Impact 2: Life Saving Research Hindered


Boldrin & Levine 08 – Research & Development into cancer is hindered because
of patent protection
Michele Boldrin PhD [Professor of economics; fellow of the Econometric Society; research associate of the
Center for Economic Policy Research in London and for FEDEA in Madrid.] David K. Levine PhD [John H. Biggs
Distinguished Professor of Economics at Washington University in St. Louis; President of the Society for
Economic Dyamics; fellow of the Econometric Society; research associate of the NBER; member of the Sloan
Research Fellowship Program Committee;co-editor of NAJ Economics] “Against Intellectual Monopoly” January
2, 2008 [EG] <accessed 19/01/09> http://www.dklevine.com/papers/imbookfinalall.pdf
“It could be, and sometimes is, argued that the modern pharmaceutical industry is substantially different from the chemical industry of
the last century. In particular, it is argued that the most significant cost of developing new drugs lies in testing numerous compounds to
it would seem that the development of new drugs is not so
see which ones work. Insofar as this is true,
dependent on the usage and knowledge of old drugs. However, this is not the case
according to the chief scientific officer at Bristol Myers Squib, Peter Ringrose, who ‘told The
New York Times that there were ‘more than 50 proteins possibly involved in cancer that the
company was not working on because the patent holders either would not allow it or were
demanding unreasonable royalties.’”

Boldrin & Levine 08 – Patents do not have a helpful role in pharmaceutical


innovation
Michele Boldrin PhD [Professor of economics; fellow of the Econometric Society; research associate of the
Center for Economic Policy Research in London and for FEDEA in Madrid.] David K. Levine PhD [John H. Biggs

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Distinguished Professor of Economics at Washington University in St. Louis; President of the Society for
Economic Dyamics; fellow of the Econometric Society; research associate of the NBER; member of the Sloan
Research Fellowship Program Committee;co-editor of NAJ Economics] “Against Intellectual Monopoly” January
2, 2008 [EG] <accessed 19/01/09> http://www.dklevine.com/papers/imbookfinalall.pdf
patents do not play a helpful role in pharmaceutical innovation. Far
“That said, we have seen that
from encouraging great new health and life-saving products, the system instead produces
too much innovation and expense of the wrong kind – “me-too” drugs to get around others’
patents and get a share of a lucrative monopoly, and all the advertising and marketing
expenses attendant upon monopoly power.45 In the play that is life, health is the ultimate
commodity – we all want to live longer and stay healthier. As we have just seen, patents do not
have a useful role in this play.”

Refutation: Historical Precedent  Italy


Boldrin & Levine 08 – The growth of India’s industry is similar to Italy’s before
patent protection
Michele Boldrin PhD [Professor of economics; fellow of the Econometric Society; research associate of the
Center for Economic Policy Research in London and for FEDEA in Madrid.] David K. Levine PhD [John H. Biggs
Distinguished Professor of Economics at Washington University in St. Louis; President of the Society for
Economic Dyamics; fellow of the Econometric Society; research associate of the NBER; member of the Sloan
Research Fellowship Program Committee;co-editor of NAJ Economics] “Against Intellectual Monopoly” January
2, 2008 [EG] <accessed 19/01/09> http://www.dklevine.com/papers/imbookfinalall.pdf
“Since 1978, India has taken over as the primary center of pharmaceutical production
without patent protection. The growth and vitality of the Indian industry is similar to that of
the pre-1978 industry in Italy. In fact much more so, as the sheer size of the national
market has turned Indian generic drug producers into big players in the global
pharmaceutical industry.”

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Boldrin & Levine 08 – Italy had a thriving pharmaceutical industry without
patents; No innovation has improved since Italy’s adoption of patents; if
anything, patents hurt Italy instead of helping
Michele Boldrin PhD [Professor of economics; fellow of the Econometric Society; research associate of the
Center for Economic Policy Research in London and for FEDEA in Madrid.] David K. Levine PhD [John H. Biggs
Distinguished Professor of Economics at Washington University in St. Louis; President of the Society for
Economic Dyamics; fellow of the Econometric Society; research associate of the NBER; member of the Sloan
Research Fellowship Program Committee;co-editor of NAJ Economics] “Against Intellectual Monopoly” January
2, 2008 [EG] <accessed 19/01/09> http://www.dklevine.com/papers/imbookfinalall.pdf
“In other words, a thriving pharmaceutical industry had existed in Italy for more than a
century, in the complete absence of patents. That is point one. Point two is that neither the
size, nor the innovative output, nor the economic performances of that industry have
improved, to any measurable extent, during the thirty years since patents were adopted.
Every indicator one can look at suggests that, if anything, the Italian pharmaceutical
industry was hurt, not helped, by the adoption of patents, and every expert that has looked
the matter has reached this same conclusion.”

Boldrin & Levine 08 – Italy did not achieve any significant increase in the
discovery of innovative drugs after it enacted patent protection laws
Michele Boldrin PhD [Professor of economics; fellow of the Econometric Society; research associate of the
Center for Economic Policy Research in London and for FEDEA in Madrid.] David K. Levine PhD [John H. Biggs
Distinguished Professor of Economics at Washington University in St. Louis; President of the Society for
Economic Dyamics; fellow of the Econometric Society; research associate of the NBER; member of the Sloan
Research Fellowship Program Committee;co-editor of NAJ Economics] “Against Intellectual Monopoly” January
2, 2008 [EG] <accessed 19/01/09> http://www.dklevine.com/papers/imbookfinalall.pdf
“During the period 1961-1980 a total of 1282 new active chemical compounds was
discovered around the world. Of these, a total of 119 came from Italy (9.28%). During the
period 1980-1983 a total of 108 compounds were discovered. Of these, 8 came from Italy
(7.5%).20 While we do not have data covering the most recent decades, the very clear
impression of the informed observer is that innovations have decreased. Professors Scherer
and Weisburst, in fact, took pains to carefully study the evolution of the Italian
pharmaceutical industry after the adoption of patents. Here is the summary verdict, in Scherer’s
own words ‘Research by Sandy Weisburst and mentored by me showed, for example, that Italy, with a vibrant generic drug industry, did

not achieve any significant increase in the discovery of innovative drugs during the first
decade after the Italian Supreme Court mandated the issue of pharmaceutical product
patents.’”

Boldrin & Levine 08 – Without patent protection, Italy was the fifth world
producers or pharmaceuticals and the seventh exporter
Michele Boldrin PhD [Professor of economics; fellow of the Econometric Society; research associate of the
Center for Economic Policy Research in London and for FEDEA in Madrid.] David K. Levine PhD [John H. Biggs
Distinguished Professor of Economics at Washington University in St. Louis; President of the Society for
Economic Dyamics; fellow of the Econometric Society; research associate of the NBER; member of the Sloan
Research Fellowship Program Committee;co-editor of NAJ Economics] “Against Intellectual Monopoly” January
2, 2008 [EG] <accessed 19/01/09> http://www.dklevine.com/papers/imbookfinalall.pdf

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“In Italy, pharmaceutical patents were prohibited until 1978, when the Supreme Court ruled
in favor of eighteen pharmaceutical companies, all foreign, requesting the enforcement of
foreign patents on medical products in Italy. Despite this complete lack of any patent
protection, Italy had developed a strong pharmaceutical industry: by the end of the 1970s
it was the fifth world producer of pharmaceuticals and the seventh exporter.”

Boldrin & Levine 08 – If patent protection was a requirement for pharmaceutical


innovation, history should tell a diametrically different tale than it does
Michele Boldrin PhD [Professor of economics; fellow of the Econometric Society; research associate of the
Center for Economic Policy Research in London and for FEDEA in Madrid.] David K. Levine PhD [John H. Biggs
Distinguished Professor of Economics at Washington University in St. Louis; President of the Society for
Economic Dyamics; fellow of the Econometric Society; research associate of the NBER; member of the Sloan
Research Fellowship Program Committee;co-editor of NAJ Economics] “Against Intellectual Monopoly” January
2, 2008 [EG] <accessed 19/01/09> http://www.dklevine.com/papers/imbookfinalall.pdf
if
“You may wonder why we are offering all these details about specific countries, patenting of chemical processes, and pharmaceutical products. For a very simple reason:

patents were a necessary requirement for pharmaceutical innovation as claimed by their


supporters, the large historical and cross country variations in the patent protection of
medical products should have had a dramatic impact on national pharmaceutical
industries. In particular, at least between 1850 and 1980, most drugs and medical products
should have been invented and produced in the United States and the United Kingdom, and
very little if anything in continental Europe. Further, countries such as Italy, Switzerland
and, to a lesser extent, Germany, should have been the laggards of the pharmaceutical
industry until recently. Instead the opposite was true for longer than a century.”

Refutation: Historical Precedent  Silicon Valley


Boldrin & Levine 08 – Silicon Valley grew by leaps and bounds when they were
free of intellectual monopolization
Michele Boldrin PhD [Professor of economics; fellow of the Econometric Society; research associate of the
Center for Economic Policy Research in London and for FEDEA in Madrid.] David K. Levine PhD [John H. Biggs

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Distinguished Professor of Economics at Washington University in St. Louis; President of the Society for
Economic Dyamics; fellow of the Econometric Society; research associate of the NBER; member of the Sloan
Research Fellowship Program Committee;co-editor of NAJ Economics] “Against Intellectual Monopoly” January
2, 2008 [EG] <accessed 19/01/09> http://www.dklevine.com/papers/imbookfinalall.pdf
“While Route 128 companies spent resources to keep knowledge secret – inhibiting and preventing the growth of the high tech industry – in California this was not possible. And so,

Silicon Valley – freed of the millstone of monopolization – grew by leaps and bounds as
employees left to start new firms, rejoined old firms and generally spread socially useful
knowledge far and wide.”

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Disadvantage 5: Freedom of Information Violated
Internal Link: Indigenous Rights Implicated
Intl Ctr for HRs & Dem Dev 09 – Policies designed to protect privileges of
indigenous peoples or minorities may conflict with investment treaty
protections; exception clauses are rare
Luke Eric Peterson [International investment arbitration reporter and consultant and has reported on
investor-state arbitration for The Financial Times, The Economist and The American Lawyer; Affiliate,
Investment Law Project, NYU Law School.] “Human Rights and Bilateral Investment Treaties: Mapping the role
of human rights law within investor-state arbitration” (2009) INTERNATIONAL CENTRE FOR HUMAN RIGHTS
AND DEMOCRATIC DEVELOPMENT <accessed August 31, 2010> http://www.dd-
rd.ca/site/_PDF/publications/globalization/HIRA-volume3-ENG.pdf (EG)
“Often governments may introduce policy measures or preferences which are designed to
boost the prospects of certain marginalized or disadvantaged persons or groups whether
they be indigenous persons, ethnic minorities (or majorities), women, or others. On the face of it,
such policies could come into friction with investment treaty protections accorded to
foreign investors, particularly where certain duties or obligations are to be borne by foreign
investors or foreign-owned companies, or where certain benefits or preferences are denied
to foreign investors. Nonetheless, it is unusual for governments to make reservations or
exceptions to investment treaty protections in this context. On rare occasions, some
treaties include exceptions to ensure that positive discrimination measures taken in favor
of designated groups cannot be challenged by foreign investors as a violation of the investment treaty
guarantees of nondiscrimination (or national treatment).130 In other words, where special programs or policies are put in place to
provide benefits or preferences to a targeted group or minority, a foreign investor would not be able to invoke his own entitlement to
“national treatment” in an effort to obtain the same preferences or benefits meted out to these groups. However, such
exception clauses do not appear in all treaties.”

Intl Ctr for HRs & Dem Dev 09 – General excpetion clauses are exceedingly rare
(New Zealand-Thailand ex.)
Luke Eric Peterson [International investment arbitration reporter and consultant and has reported on
investor-state arbitration for The Financial Times, The Economist and The American Lawyer; Affiliate,
Investment Law Project, NYU Law School.] “Human Rights and Bilateral Investment Treaties: Mapping the role
of human rights law within investor-state arbitration” (2009) INTERNATIONAL CENTRE FOR HUMAN RIGHTS
AND DEMOCRATIC DEVELOPMENT <accessed August 31, 2010> http://www.dd-
rd.ca/site/_PDF/publications/globalization/HIRA-volume3-ENG.pdf (EG) [Emphasis in Original]
“It is exceedingly rare for a government to insert a general exception into an investment
agreement so that none of the investment protection provisions may be invoked in an
effort to challenge special preferences or policies for historically disadvantaged groups.
Notably, the New Zealand Government in an agreement with Thailand includes such a sweeping general
exception, thus making clear that none of the investor protections will override the government’s capacity to
accord special or more favorable treatment to the indigenous Maori people.131”

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Internal Link: Economic Reforms Implicated


Intl Ctr for HRs & Dem Dev 09 – BITs complicate land redistribution or reform
activities
Luke Eric Peterson [International investment arbitration reporter and consultant and has reported on
investor-state arbitration for The Financial Times, The Economist and The American Lawyer; Affiliate,
Investment Law Project, NYU Law School.] “Human Rights and Bilateral Investment Treaties: Mapping the role
of human rights law within investor-state arbitration” (2009) INTERNATIONAL CENTRE FOR HUMAN RIGHTS
AND DEMOCRATIC DEVELOPMENT <accessed August 31, 2010> http://www.dd-
rd.ca/site/_PDF/publications/globalization/HIRA-volume3-ENG.pdf (EG)
“While clearly allowing expropriation of foreign-owned land, the compensation standards
provided under these BITs may complicate the efforts of developing country governments
that are contemplating land redistribution policies. As the next section makes clear, there are a
number of live legal cases where foreign investors are objecting to land reform activities.
The factual circumstances of such disputes can differ widely— with some governments
appearing to follow carefully-prescribed legal procedures and safeguards, while others
appear to make capricious land-grabs. One major recurring issue in these disputes will be
the actual amount or level of compensation owing for breach of BITs in cases of land
reform.”

Intl Ctr for HRs & Dem Dev 09 – European investors challenging South African
policies to eradicate the effects of apartheid
Luke Eric Peterson [International investment arbitration reporter and consultant and has reported on
investor-state arbitration for The Financial Times, The Economist and The American Lawyer; Affiliate,
Investment Law Project, NYU Law School.] “Human Rights and Bilateral Investment Treaties: Mapping the role
of human rights law within investor-state arbitration” (2009) INTERNATIONAL CENTRE FOR HUMAN RIGHTS
AND DEMOCRATIC DEVELOPMENT <accessed August 31, 2010> http://www.dd-
rd.ca/site/_PDF/publications/globalization/HIRA-volume3-ENG.pdf (EG)
“Such matters are not of mere hypothetical interest. For years, controversy has swirled
around the Black Economic Empowerment (BEE) policies being developed by the South
African Government in an effort to ameliorate the lingering effects of the Apartheid
system.132 BEE policies include a range of measures targeted at Historically Disadvantaged South Africans (HDSAs), including
employment equity schemes, preferential access to government contracts and licenses, and divestment policies which oblige businesses
to sell shareholdings to HDSA partners. While well-intended, the policies have attracted criticism both from those who say that the
policies impose too great a burden on business, as well as those who complain that the BEE policies benefit only a layer of well-
connected wealthier HDSAs.133 In response to such criticisms, the South African Government has adapted its BEE policies over time—
both as an effort to water down proposals for larger scale share divestments, as well as to ensure that the benefits of such policies are
“broad-based” and beneficial for poorer, disadvantaged persons. Some foreign businesses have responded warily to BEE, with the
policies widely viewed as having contributed to the deadlock of major trade negotiations between South Africa and the United States.
Meanwhile, some countries with whom South Africa has concluded economic agreements have expressed the view that the imposition of
BEE measures on foreign enterprises may contravene South Africa’s international economic commitments.134 Recently,
a group
of European investors in the South African mining sector took the unprecedented move of
filing a legal claim against South Africa, alleging that various BEE requirements violate the
terms of investment protection treaties with Italy and Luxembourg. The investors own several South
African mining companies, and held various mining rights which were subject to a mandatory “conversion” process, whereby all South
African mineral resources are to be brought under state control and re-licensed to miners for fixed periods of time. As part of this
conversion process, companies are assessed on their progress towards social, labour, and development objectives, including the hiring of
HDSA managers and provision of special programs and benefits for HDSA workers. In the view of the investors, these BEE-inspired
policies impose significant costs on company operations and amount to an “expropriation” of the companies’ preexisting mining rights,
In their
as well as “unfair” and “inequitable” treatment, contrary to the terms of South Africa’s investment protection treaties.
request for arbitration filed in 2006—which was still confidential at the time of this writing— the investors allege
that they may suffer upwards of $350 million (US) in damages, depending upon the final

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effects of the BEE mandates introduced by the South African Government. In 2007, an arbitration panel was convened to
hear the dispute, however progress to date has been slow; written arguments in the case will play out over 2008 and 2009, with hearings
At this stage, any legal arguments tabled in the case remain
expected to be held later in 2009.
confidential. However, already, it is clear that human rights policies are implicated in the
dispute.”

Internal Link: Right to Water Implicated


Intl Ctr for HRs & Dem Dev 09 – A government’s human rights obligations may
conflict with BITs
Luke Eric Peterson [International investment arbitration reporter and consultant and has reported on
investor-state arbitration for The Financial Times, The Economist and The American Lawyer; Affiliate,
Investment Law Project, NYU Law School.] “Human Rights and Bilateral Investment Treaties: Mapping the role
of human rights law within investor-state arbitration” (2009) INTERNATIONAL CENTRE FOR HUMAN RIGHTS
AND DEMOCRATIC DEVELOPMENT <accessed August 31, 2010> http://www.dd-
rd.ca/site/_PDF/publications/globalization/HIRA-volume3-ENG.pdf (EG)
“One of the most visible circumstances where a government’s human rights obligations to
those living within its territory may come into the frame of investment treaty arbitrations is
in relation to foreign investments in the water and sanitation sector. Over the last decade,
there have been at least a dozen BIT arbitrations brought against governments in relation
to disputes in this sector.59 Ten of these cases have been brought against Argentina, whereas the remaining two were
brought against Bolivia and Tanzania respectively.60 Others may have been launched without publicity, given that there are no universal
United Nations bodies have increasingly emphasized
requirements for such lawsuits to be publicly disclosed.
that a right to water can be inferred from several of the rights in the International Covenant
on Economic, Social and Cultural Rights, including the right to the highest attainable
standard of health, the right to housing, and the right to food; what’s more human rights
obligations related to water are explicitly referenced in several other human rights
instruments, including the UN Convention on the Rights of the Child, and the UN Convention on the Elimination of all forms of
Discrimination against Women.61 At a minimum, states have obligations to progressively realize economic and social rights to the
maximum of their available resources. The Committee on Economic Social and Cultural Rights, in its General Comment No.15—a non-
binding, but authoritative interpretation of the ESCR—has set forth a number of steps which governments must pursue, including steps to
ensure that third parties entrusted with water delivery are not permitted to compromise “equal, affordable and physical access to
sufficient, safe and acceptable water.”62 It has long been conjectured that human rights might be at stake in certain of the disputes
which gave rise to these investor-state arbitrations in the water sector.63 New research conducted for Rights & Democracy finds clear
evidence that human rights arguments have been raised by the respondent host-government in at least one of these ongoing
international arbitrations arising out of the Aguas Argentinas concession.64 As will be described below, the tabling of these human rights
arguments in the Aguas Argentinas arbitration tribunal to address such
case places the onus squarely upon the
acknowledged at an
arguments and to consider their relevance to the legal dispute. Indeed, the tribunal hearing the dispute
early stage of the proceedings that the case “may raise a variety of complex public and
international law questions, including human rights considerations.”65”

Intl Ctr for HRs & Dem Dev 09 – Argentina referenced the right to water in its BIT
case against Aguas Argentinas
[Background Knowledge or Evidence]
Luke Eric Peterson [International investment arbitration reporter and consultant and has reported on
investor-state arbitration for The Financial Times, The Economist and The American Lawyer; Affiliate,
Investment Law Project, NYU Law School.] “Human Rights and Bilateral Investment Treaties: Mapping the role
of human rights law within investor-state arbitration” (2009) INTERNATIONAL CENTRE FOR HUMAN RIGHTS

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AND DEMOCRATIC DEVELOPMENT <accessed August 31, 2010> http://www.dd-
rd.ca/site/_PDF/publications/globalization/HIRA-volume3-ENG.pdf (EG)
“Argentina has insisted that its BIT obligations must not be interpreted in a vacuum
divorced from the rest of international law. In particular, Argentina stresses that the BIT
“must be construed in a manner which does not affect the fulfillment of other international
obligations between the states signatory of such BITs.”67 According to Argentina, such an
approach would ensure that BIT obligations would be read in light of other rules of
international law linking Argentina, the United Kingdom, France and Spain, including “any
treaty on human rights contemplating the human right to water”.68 Second, after arguing for
the applicability of human rights law, Argentina insists that its treatment of the claimants in
the Aguas Argentinas arbitration was motivated by various business failings on the part of
Aguas Argentinas, coupled with an overriding obligation on Argentina’s part to protect the
population’s right to water.69 In Argentina’s view, these shortcomings by Aguas Argentinas
compelled the Argentine authorities to intercede so as to ensure that the right to water was
not undermined by third parties.70”

Internal Link: Freedom of Assembly Implicated


Intl Ctr for HRs & Dem Dev 09 – Investment treaties can be interpreted to protect
projects against non-violent protests; a state human rights obligation
Luke Eric Peterson [International investment arbitration reporter and consultant and has reported on
investor-state arbitration for The Financial Times, The Economist and The American Lawyer; Affiliate,
Investment Law Project, NYU Law School.] “Human Rights and Bilateral Investment Treaties: Mapping the role
of human rights law within investor-state arbitration” (2009) INTERNATIONAL CENTRE FOR HUMAN RIGHTS
AND DEMOCRATIC DEVELOPMENT <accessed August 31, 2010> http://www.dd-
rd.ca/site/_PDF/publications/globalization/HIRA-volume3-ENG.pdf (EG)
“States have various international human rights law obligations to protect the right of
citizens to assemble peacefully, express themselves, and to take part in non-violent
protests. The International Covenant on Civil and Political Rights contains such obligations, as do regional human rights
conventions.93 Furthermore, under some circumstances, states may need to take certain “positive” or “proactive” measures to ensure
the effectiveness of such rights. For example, the European Court of Human Rights has held that governments have an obligation to
provide a degree of police protection at public protests which might be targeted by disruption or violence.94 These particular rights are
especially germane in any discussion of foreign investment, as some FDI projects can be controversial and subject to opposition. Just
as states have clear human rights obligations in relation to freedom of expression and
assembly, governments may undertake in their international investment treaties to provide
foreign investors and/ or investments with “full protection and security”. At a minimum,
this obligation requires that states provide a baseline of police protection for foreign-owned
projects; this is not a strict liability obligation, but it does mandate a certain level of due diligence on the part of the host country.
For instance, in a 1990s-era FDI dispute between an American corporation and (then) Zaire, the Government was found by arbitrators to
have breached the “full protection and security” obligation because it had taken no steps whatsoever to prevent the ransacking and
looting of privately owned manufacturing facilities by the state’s armed forces. This legal obligation on states to exercise due diligence in
protecting foreign-owned investment also extends to the actions of non-state actors (e.g. citizens, other businesses, criminals, etc.)95
some investment treaty arbitrators have taken the view that the
Further muddying the picture,
“protection and security” standard includes not only the physical protection of foreign-owned investments, but also
security from other forms of “harassment” which pose no physical threat to assets or
threat of violence.96 While a disputed interpretation, it is conceivable that activist
campaigns, even when unaccompanied by physical efforts to blockade or picket an
investment, might be construed as forms of “harassment”.97 It should also be stressed that host
governments may take on even more extensive physical protection and security
obligations in individual contracts or host government agreements with a particular foreign
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investor. For example, a host state may agree to provide 24-hour-a-day police protection for particular facilities, or commit particular
resources (such as helicopters, police vehicles, etc.), or pledge to prevent any “interferences” by outside actors with an investor’s
operations.98 Such obligations go beyond the standards found in international treaties, and are
beyond the purview of this paper. However, they may impose more stringent legal obligations—whose relationship with human rights
will be even more friction-generating—even as such contract obligations remain hidden
from public view by virtue of being buried in confidential business arrangements concluded
with foreign investors.99”

Intl Ctr for HRs & Dem Dev 09 – Treaties are typically silent on how to reconcile
freedom of assembly and right to security leaving room for governments to feel
legally obligated to smooth the path for FDI projects
Luke Eric Peterson [International investment arbitration reporter and consultant and has reported on
investor-state arbitration for The Financial Times, The Economist and The American Lawyer; Affiliate,
Investment Law Project, NYU Law School.] “Human Rights and Bilateral Investment Treaties: Mapping the role
of human rights law within investor-state arbitration” (2009) INTERNATIONAL CENTRE FOR HUMAN RIGHTS
AND DEMOCRATIC DEVELOPMENT <accessed August 31, 2010> http://www.dd-
rd.ca/site/_PDF/publications/globalization/HIRA-volume3-ENG.pdf (EG)
“At the best of times, governments may walk a tight-rope in balancing legitimate rights of
protest, while offering basic police protection to FDI projects. From a human rights perspective, great
sensitivity is called for in such situations where protestors are objecting to a foreign investor’s activities, as there is
ample evidence of overzealous use of force by police and security forces in relation to the protection of
foreign investments in the developing world.100 Indeed, there is some anecdotal evidence to suggest
that governments feel under varying degrees of legal compulsion to smooth the path for
FDI projects. For example, the government of Guatemala has professed to being torn between its duties to provide
security for a highly controversial foreign-owned gold and silver mine in the country’s western region and the
government’s obligations to uphold the rights of citizens and indigenous groups to assemble and protest the mining
operation. As has been widely reported in the mainstream news media, public opposition to the project ultimately tipped
over into violence as locals and security forces clashed over efforts by protestors to blockade roadways and impede
further mining activity at the mining site.101 Media coverage of these events has alluded to the government’s feeling
under legal duties to ensure that protests do not derail the investment in question. In April of 2005, the Associated Press
noted that “(t)he government said it had to honor the mining concession, or risk a huge lawsuit by the company.”102 By
and large however, investment protection treaties are typically silent on the obligations of
states to respect human rights to expression and assembly much less the complex
challenges inherent in balancing and reconciling such human rights obligations with the
policing and provision of security of FDI projects. For instance, exactly what degree of disruption of
business activities must be borne by foreign investors facing citizen protests? Protestors might blockade roadways or
facilities for a period of hours in order to conduct a protest march. Conversely, protest activities might shut down business
activity for a period of weeks or even months. Similarly, labour unrest could lead to losses or disruption on the part of

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foreign owned businesses, either through picketing, sit-ins or other activities. However, investment treaties offer
no guidance to arbitrators as to how to reconcile—in concrete circumstances—a state’s human
rights obligations and its security obligations to foreign investors. A review of known
investment treaty arbitration disputes finds that in several legal disputes, foreign investors
have sued states and alleged that citizen or worker protests lead to a breach of the host
state’s “protection and security” obligations towards the affected investor.”

AT: Historical Precedent – Arbitrators Protect Rights


Intl Ctr for HRs & Dem Dev 09 – Arbitrators are under no obligation to adhere to
precedent; no guarantee of uniform approach
Luke Eric Peterson [International investment arbitration reporter and consultant and has reported on
investor-state arbitration for The Financial Times, The Economist and The American Lawyer; Affiliate,
Investment Law Project, NYU Law School.] “Human Rights and Bilateral Investment Treaties: Mapping the role
of human rights law within investor-state arbitration” (2009) INTERNATIONAL CENTRE FOR HUMAN RIGHTS
AND DEMOCRATIC DEVELOPMENT <accessed August 31, 2010> http://www.dd-
rd.ca/site/_PDF/publications/globalization/HIRA-volume3-ENG.pdf (EG) [Brackets Added]
“A review of known investment treaty arbitration disputes finds that in several legal disputes, foreign
investors have sued states and alleged that citizen or worker protests lead to a breach of the host state’s “protection and security”
obligations towards the affected investor. The available record is silent in these cases as to whether the states raised explicit human
rights defenses, for example by referring to human rights law obligations. In each case, arbitrators ruled that the alleged disruptions
suffered by the investors did not rise to the level where the host state failed to provide for basic security and protection. In fact, as will
provide(s) some grounds for cautious optimism that the particular
be seen, these particular cases
treaty obligation (full protection and security) is of limited reach and that tribunals are also
attentive to the delicate balancing acts faced by states needing to protect foreign
investment and the democratic rights of citizens. Still, it should be reiterated that
arbitrators are under no strict duty to follow the path set by earlier tribunals; as such there
is no guarantee that future tribunals will approach doctrinal questions in similar ways.”

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Brink: Investment Arbitration Non-Transparent


Intl Ctr for HRs & Dem Dev 09 – Investment treaty arbitration is not a
transparent system
Luke Eric Peterson [International investment arbitration reporter and consultant and has reported on
investor-state arbitration for The Financial Times, The Economist and The American Lawyer; Affiliate,
Investment Law Project, NYU Law School.] “Human Rights and Bilateral Investment Treaties: Mapping the role
of human rights law within investor-state arbitration” (2009) INTERNATIONAL CENTRE FOR HUMAN RIGHTS
AND DEMOCRATIC DEVELOPMENT <accessed August 31, 2010> http://www.dd-
rd.ca/site/_PDF/publications/globalization/HIRA-volume3-ENG.pdf (EG)
“Even where observers are convinced that important human rights issues may be
implicated in the international legal system which protects foreign direct investment, it is
not always straightforward for such interested parties to monitor—much less have a stake
or influence in—this system. The procedures for resolving investment treaty disputes do
not provide for the same levels of transparency seen in other areas of international law,
particularly those in the human rights system. Even dedicated investigation and reporting
will only bring a certain degree of information to light. Some arbitrations remain confidential
because the parties wish to keep it this way, or because they are forbidden from speaking publicly about the
cases.”

Intl Ctr for HRs & Dem Dev 09 – Treaties fail to mandate transparency and thus
defects to traditional confidentiality considerations

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Luke Eric Peterson [International investment arbitration reporter and consultant and has reported on
investor-state arbitration for The Financial Times, The Economist and The American Lawyer; Affiliate,
Investment Law Project, NYU Law School.] “Human Rights and Bilateral Investment Treaties: Mapping the role
of human rights law within investor-state arbitration” (2009) INTERNATIONAL CENTRE FOR HUMAN RIGHTS
AND DEMOCRATIC DEVELOPMENT <accessed August 31, 2010> http://www.dd-
rd.ca/site/_PDF/publications/globalization/HIRA-volume3-ENG.pdf (EG)
“There are two factors which accommodate this confidentiality. First, the treaties
themselves rarely stipulate that investor state arbitrations be open to public scrutiny.
Although Canada and the United States have embraced a move towards openness in their recent investment treaties, many other
governments have not followed suit. Thus, it often falls to the given procedural rules that govern a given dispute—for example, the World
To a
Bank’s ICSID rules or the United Nation’s ad-hoc UNCITRAL rules —to stipulate how open the proceedings shall be.
considerable degree, these procedural rules have not been designed with transparency or
openness in mind. Indeed, in the case of the UNCITRAL [United Nations Commission on
International Trade Law] rules, and the rules of certain Chambers of Commerce, these rules
were tailored to private commercial arbitration between two parties, where confidentiality
has long been a major consideration.”

Intl Ctr for HRs & Dem Dev 09 – Absent procedural reforms, resolution of
investor-state disputes will happen in the shadows
Luke Eric Peterson [International investment arbitration reporter and consultant and has reported on
investor-state arbitration for The Financial Times, The Economist and The American Lawyer; Affiliate,
Investment Law Project, NYU Law School.] “Human Rights and Bilateral Investment Treaties: Mapping the role
of human rights law within investor-state arbitration” (2009) INTERNATIONAL CENTRE FOR HUMAN RIGHTS
AND DEMOCRATIC DEVELOPMENT <accessed August 31, 2010> http://www.dd-
rd.ca/site/_PDF/publications/globalization/HIRA-volume3-ENG.pdf (EG)
“Although the ICSID [International Centre for Settlement of Investment Disputes] system
offers the greatest level of transparency thanks to a public docket listing all cases being
arbitrated at the Centre, ICSID proceedings are themselves closed to the public unless both
parties desire openness. What’s more, a move several years ago to bring greater transparency
to ICSID proceedings was watered down in the face of objections from many ICSID
stakeholders. To the extent that governments continue to negotiate investment treaties
which draw upon procedural rules that provide for scant levels of transparency, the
resolution of investor-state disputes will continue to take place (to varying degrees) in the
shadows.”

Impact: Human Rights Obligations Not Met


Intl Ctr for HRs & Dem Dev 09 – Information claims might be present to HRs fora
to construe that non-transparency violates a state’s HRs obligations (freedom of
information)
Luke Eric Peterson [International investment arbitration reporter and consultant and has reported on
investor-state arbitration for The Financial Times, The Economist and The American Lawyer; Affiliate,
Investment Law Project, NYU Law School.] “Human Rights and Bilateral Investment Treaties: Mapping the role
of human rights law within investor-state arbitration” (2009) INTERNATIONAL CENTRE FOR HUMAN RIGHTS
AND DEMOCRATIC DEVELOPMENT <accessed August 31, 2010> http://www.dd-
rd.ca/site/_PDF/publications/globalization/HIRA-volume3-ENG.pdf (EG)
it is easy to envision alleged human rights violations which might
“As Margarete Stevens has suggested,
be raised by media organizations, non-governmental organizations, or concerned citizens,
in relation to the non-disclosure by a given government of relevant information about
foreign investor arbitrations mounted against that government. This might take the form of
requests made of governments for disclosure of any and all arbitrations (including those
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whose existence is unknown to the public). Indeed, in the North American context there have been some uses of
access-to-information laws in order to access information about investor-state lawsuits whose existence was known, but whose details
were confidential. In the Loewen v. United States case, a NAFTA tribunal acknowledged that governments may have legal obligations to
release documents related to arbitral proceedings. This acknowledgement came after the US Government approached the tribunal
claims might be
following a Freedom-of-Information request filed by US non-governmental organizations.141 Additionally,
presented to human rights fora, including regional human rights courts, in an effort to construe the lack
of transparency surrounding investor-state arbitration as a violation of a state’s human
rights obligations.”

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