Multilateral systems around the world are facing multiple overlapping crises, from security and health to the international trading system1. Some international systems lack a multilateral structure all together, for example, the international regime governing foreign investment flows. This system is built on numerous bilateral treaties—2,943 bilateral investment treaties and 417 investment chapters in free trade agreements2—and has seen many failed attempts to establish a centralized multilateral structure. Some argue that the system is facing a legitimacy crisis and needs to be reformed. However, due to the system’s fragmentation3, a general overhaul is difficult to achieve. Countries are currently negotiating the reform of the Investor-State Dispute Settlement (ISDS) system in Working Group III of the United Nations Commission on International Trade Law (UNCITRAL). The negotiations have made little progress to date. Another initiative that is making some headway, on the other hand, are the negotiations on Investment Facilitation for Development (IFD) at the World Trade Organization (WTO). One reason for this might be that the IFD negotiations have shied away from addressing specific issues such as investment protection, liberalization and ISDS. Instead, the negotiations prioritize less controversial and technical issues such as increasing the transparency and predictability of investment frameworks4.
Some have argued that the G20 could serve as a suitable platform for initiating multilateral reforms of the international investment regime5. The G20 was established at the level of heads of states and governments in 2008 and played a crucial role in responding to the global financial crisis and addressing the challenges related to the global financial regulatory framework6. Consisting of 19 large economies plus the European Union (EU), the G20 describes itself as the “premier forum for [...] international economic cooperation”7. In 2016, the G20 adopted nine guiding principles for global investment policymaking at its Hangzhou Summit8. The guiding principles are said to mark an important normative convergence among the G20 members and “could lay the foundation for global consensus building on key issues in 21st century investment policy”9.
The G20, which accounts for around 80 per cent of global foreign direct investment (FDI) flows, brings together major host and home countries of FDI. If reforms can be agreed among the G20, could this potentially open the door to more comprehensive and more effective multilateral initiatives in the international investment regime?
Our research findings published in The World Economy address this question. We first explore whether the mere fact that the G20 consists of major host and home countries of FDI suffices to make it a suitable platform for pursuing reforms of the international investment regime. This, of course, also raises the more fundamental question whether major economic powers should even pursue such reforms without involving the large majority of other countries that make up the international system. We do not deal with this normative question here but empirically analyse whether the G20 could actually initiate such reforms.
For the G20 to be a suitable platform to develop and coordinate multilateral systems, we assume that its member countries must share some common ground. This common ground or zone of agreement10 is reflected in countries’ general and investment-related preferences. We argue that it is too simplistic to deduce the existence of such preferences based only on the fact that the G20 consists of major host and home countries of FDI (these two characteristics often go hand-in-hand in the G20). Instead, a high degree of similarities in international investment agreements (IIA) concluded between G20 countries—compared with other countries—may be a better indication of the existence of more solid common ground among the G20, which could warrant its involvement in reforms that favour the development of a more functional international investment regime.
We thus analyse the degree of similarity of provisions in IIAs concluded between G20 countries and compare the results with IIAs negotiated between non-G20 countries as well as those between these two country groups11. Based on data availability, we were able to analyse 2,282 IIAs covering nearly 90 per cent of mapped IIAs and representing around 60 per cent of all IIAs that have been concluded to date. Over half of all IIAs in our sample did not include a G20 member, and only 89 of all IIAs (4 per cent) had been concluded between G20 members. Around 40 per cent of agreements covered in our sample were concluded between G20 and non-G20 countries. We additionally grouped the treaties by year of signature, namely until 1989; between 1990 and 1999; and since 2000. The crucial years 1989 and 1999 are considered watersheds of international investment policymaking, with IIAs concluded before and after 1989 and 1999, respectively, following very different formats12. One notable feature in our sample is that the share of IIAs concluded between non-G20 countries (often negotiated between developing countries) has increased significantly over time. By contrast, both the share of IIAs signed between G20 and non-G20 countries and those concluded between G20 countries has decreased (see figure below).
To determine the degree of similarity between IIAs, we calculated a rescaled measure of the Euclidean distance (EU-measure), which reveals that IIAs signed between non-G20 countries are statistically significantly more similar to each other, on average, than IIAs concluded between non-G20 and G20 countries and those signed between G20 members only13. Strikingly, after also considering the between-group comparisons, our analysis suggests that the degree of pair-wise similarity of IIAs decreases with the increasing involvement of G20 countries as IIA partners. Grouping IIAs by year of signature, our general finding that the average degree of similarity of IIAs concluded between non-G20 countries is highest amongst all pair-wise comparisons, is even more pronounced for the two more recent periods, particularly since 2000.
Next, we created two subsets of provision elements that were carefully selected from the full set of 53 provision elements to determine whether similarities are higher or lower for IIA provision elements with a long tradition versus those reflected in the WTO’s IFD initiative. The former subset consisted of “traditional” provision elements of IIAs, such as investment protection, liberalization and ISDS while the latter covered elements associated with investment facilitation, e.g. the transparency, efficiency and predictability of investment regimes. We find higher degrees of similarity when we consider the two subsets individually than when we take the full set of 53 IIA provision elements. The degree of similarity among the investment facilitation-related subset is found to be the highest, especially among non-G20 countries14.
Our research findings need to be interpreted with some caution, however. The higher degree of similarity suggests that non-G20 countries seem to share common ideas and approaches and that it might therefore be easier for them to reach consensus when negotiating multilateral investment rules. This does not, however, mean that their common interests and preferences automatically lead to “ideal” provision elements that will, for example, improve the investment environment (which is one of the aims of the WTO’s investment facilitation initiative). In other words, it does not suffice for a group of countries to share common interests and preferences to develop effective international investment rules, their common interests and preferences need to also be navigated towards more cooperative, inclusive and sustainable global development.
Our research, in a nutshell, suggests that a general overhaul of the international investment regime is a difficult endeavour and that the G20 may not be the most suitable platform for launching such a process. Instead, negotiations on subsets of the international investment regime, in particular investment facilitation, among a subgroup of non-G20 WTO members, may be a more promising strategy. The negotiations launched in the WTO to arrive at an IFD agreement, initiated by a group of developing countries15, could play a more active role and help lead the way towards a new set of international investment rules.
Our hopes should not be exclusively pinned on the G20 to promote the development of international investment rules, as their member countries often pursue very divergent interests, which have certainly become much more pronounced in the recent past, with trade tensions intensifying between the U.S. and China and the ongoing Ukraine crisis. It might therefore be more promising if more support is geared towards negotiations on investment facilitation among a subset of WTO members to enhance their contribution to development, a promise that current approaches around IIAs have not yet delivered.
Disclaimer: The views expressed in this article are those of the authors based on their experience and on prior research and do not necessarily reflect the views of UNIDO (read more).
- This piece is based on Berger, A., and Liu, W.-H. (2021). Can the G20 Serve as a Launchpad for a Multilateral Investment Agreement? The World Economy, 44(8), 2284–2302.
- UNCTAD (2021). World Investment Report 2021. Investing in Sustainable Recovery, Geneva: United Nations Conference on Trade and Development.
- Simmons, B.A. (2014). Bargaining over BITs, Arbitrating Awards: The Regime for Protection and Promotion of International Investment. World Politics, 66(1), 12–46.
- WTO (2022). Investment Facilitation for Development in the WTO. Fact sheet November 2021, Geneva: World Trade Organization.
- For further reference please see: Åslund, A. (2013). The World Needs a Multilateral Investment Agreement, Policy Brief 13-01, Peterson Institute for International Economics. Graugnard, N. (2013). Toward a Multilateral Framework for Investment toward a Multilateral Framework for Investment. Columbia FDI Perspectives, 103, Vale Columbia Center on Sustainable International Investment. Lin, J.Y. (2015). China's G-20 Agenda: Call for A Multilateral Investment Framework For Development World Economic Forum, https://www.weforum.org/agenda/2015/07/chinas-g-20-agenda-call-for-a-multilateral-investment-framework-for-development/.
- For further reference please see: Cooper, A.F., and Thakur R.C. (2013). The Group of Twenty (G20), Routledge, London. Drezner, D.W. (2016). The System Worked: How the World Stopped another Great Depression, Oxford University Press. Luckhurst, J. (2016). G20 Since the Global Crisis. Palgrave Macmillan.
- G20 (2009). G20 Leaders Statement: The Pittsburgh Summit, September 24-25, 2009, Pittsburgh. http://www.g20.utoronto.ca/2009/2009communique0925.html.
- G20 (2016). G20 Leaders' Communiqué: Hangzhou Summit, September 5, 2016, Hangzhou. http://www.g20.utoronto.ca/2016/160905-communique.html.
- Zhan, J. (2016). G20 Guiding Principles for Global Investment Policymaking: A Facilitator’s Perspective, International Centre for Trade and Sustainable Development (ICTSD) and World Economic Forum. http://e15initiative.org/wp-content/uploads/2015/09/E15-Investment-Zhan-Final-1.pdf.
- Mansbridge, J., and Martin, C.J. (2013). Negotiating Agreement in Politics. American Political Science Association.
- We used a dataset provided by UNCTAD (from early December 2020), which maps the contents of IIAs along 101 parameters grouped into nine sections (‘Preamble’, ‘Scope and Definitions’, ‘Standards of Treatment’, ‘Other Clauses’, ‘Exceptions’, ‘State-State Dispute Settlement’, ‘Investor-State Dispute Settlement’, ‘Institutional Issues’ as well as ‘Treaty Duration, Amendment and Termination’). The mapping method applied by UNCTAD and the mapped dataset are particularly suitable for our research purposes since we are interested in the underlying concepts of the agreements’ provisions, not in how IIAs are worded in detail. We focused on 53 of the 101 parameters, which describe general features of IIAs, to perform a systematic analysis of the bilateral similarities of as many mapped IIAs as possible.
- For further reference please see: Jandhyala, S., Henisz, W.J., &. Mansfield, E.D. (2011). Three Waves of BITs: The Global Diffusion of Foreign Investment Policy. Journal of Conflict Resolution, 55(6), 1047–1073. Schill, S.W., and Jacob, M. (2013). Trends in International Investment Agreements, 2010–2011: The Increasing Complexity of International Investment Law. In: Sauvant, K.P. (Eds.), Yearbook on International Investment Law & Policy 2011-2012 (pp. 141–179), New YorkOxford University Press.
- Table: Pair-wise similarity levels in group means – general case
- Table: Pair-wise similarity levels in group means – based on a set of traditional IIA provisions Table: Pair-wise similarity levels in group means – based on a set of IFD-related IIA provisions
- Berger, A. and Gsell, S. (2019). How can an International Framework for Investment Facilitation Contribute to Sustainable Development?, Briefing Paper No. 15/2019, German Development Institute.