Trade-Related Investment Measures: U.S. Efforts to Shape a Pro-Business World Legal System

The United States transfers significant amounts of capital to both developed and developing states, through direct aid, government loans and business investment. Although money can bring benefits to the recipient, not all states are happy with what American money does in their countries, especially money from corporations, called foreign direct investment (FDI). During the 1960s French President Charles de Gaulle was the foremost critic of American foreign investment activities. The third world states, many of them newly independent, attacked all Western investment, and many of them nationalized foreign businesses in the name of domestic control of the economy. These states resisted Western concepts of the sanctity of business, expropriating without compensation and attempting to alter international investment law to reflect their positions on foreign investment. Restrictive investment policies are another popular measure by which states have attempted to control the activities of foreign enterprises on their territory. These generally are state policies designed to promote development goals such as an improved trade balance, technology transfer, employment and development of domestic industry. American policy makers have argued that such measures distort trade and constrict the flow of capital. In response, Washington has led an attack against third world policies that restrict investment (which the United States has labeled trade-related investment measures, or TRIMs) in both multilateral and bilateral forums. Many Western European nations, beginning with West Germany, countered opposition to Western investment by negotiating bilateral investment treaties (BITS), which ensured special protection and treatment for investment from the contracting parties in each other's territories. The United States was slow to follow this trend, and when it did so in the 1980s its goal was different. The United States has signed a small number of treaties, with the explicit purpose not of changing the other state's laws to better protect U.S. investment, but rather of simply reinforcing the U.S. view of international law, a view which contradicts many developing states' policies and interpretations of sovereignty and international law. In its approach to TRIMs, Washington has sought to reassert the U.S. view of international law and also to press for the interests of U.S. multinational corporations (MNCs). Its actions in bilateral and multilateral negotiations show that the U.S. government wants to guarantee property and profits for U.S. MNCs abroad to the greatest extent possible. Washington uses bilateral treaties and multilateral debates to affirm its view of a pro-investor international legal system, even when its refusal to sign treaties that do not completely conform to U.S. views of law comes at the expense of investors' rights. The principles behind U.S. policy can be recognized in the pattern of U.S. behavior in investment law negotiations. In this article I argue that the chief motivation of the U.S. government in responding to TRIMs is to assert its view of international law and to secure greater profits for U.S. MNCs. First, the U.S. government's rhetoric that restrictions on investment diminish world welfare will be debunked. There are no data to support this position, and the total trade effects of TRIMs are asserted to be small. The United States appears to have expended disproportionate political effort on this issue. Second, I will show through separate analyses of what the U.S. government is aiming to accomplish in bilateral and multilateral negotiations that Washington is openly trying to strengthen its view of international law. This is an attempt to garner higher profits and greater protection for MNCs without regard to the effects on world trade or the host states. U.S. negotiators concede that U.S. investment treaties have no effect on investment flows. Also, the United States is trying to prohibit abroad what it does at home. …