Can Asia transform international investment law?

Stephan W. Schill
University of Amsterdam

European and North American capital exporting countries have shaped international investment law for most of its history. They pushed for the customary international minimum standard of protection, forged the classical model of bilateral investment treaties (BITs) and now drive the present recalibration of international investment law. Despite counter-proposals from the ‘South’ over decades, the making of international investment law has been essentially a transatlantic enterprise with the ‘North’ as predominant global rule-maker.

But the past years have witnessed a marked shift in the geography of international investment law. Despite the Transatlantic Trade and Investment Partnership (TTIP) negotiations, there is little doubt that Asian countries, and particularly the economic powerhouses in the Far East, are becoming focal points in rule-making in international investment law.

The conclusion of the Trans-Pacific Partnership (TPP), the negotiation of the Regional Comprehensive Economic Partnership (RCEP) and the remarkable activity of Asian actors in concluding various international investment agreements (IIAs) indicate a fundamental shift towards the transpacific. Asia’s increasing involvement in investment arbitrations, as both claimants and respondents, is also of significance internationally.

Interestingly, it is not the major powers of the region that are the drivers of this trend. For example, although China has become an important capital exporter, it does not push sufficiently to see its own BIT model prevail. Instead, China’s IIA practice shows little consistency across treaties, hampering its power as a global standard-setter. India, with its new model BIT just finalised, appears too inward-looking and insufficiently concerned with its offensive interests to set a broadly accepted global standard. Japan is also too passive to assume a leading role globally.

Rather, it is the medium-sized powers in Asia that seem better placed to influence international investment law. South Korea is a case in point. It is both a capital importer and exporter, and has had a controversial domestic debate about the benefits and challenges of IIAs when concluding the South Korea–US Free Trade Agreement in 2006. The country’s newer IIA practice is more balanced and may thus become globally attractive.

There are also some promising regional initiatives. In particular, ASEAN has concluded the emblematic ASEAN Comprehensive Investment Agreement among its members and is itself a contracting party to several IIAs. Its ASEAN+ agreements indicate that the trend to integrate trade and investment and to balance investment protection with policy space is pervasive. ASEAN’s practice could therefore be a lodestar for global investment governance.

All in all, as Asian countries become aware of the need to engage more critically and actively with international investment law, their role in the field is likely to become more important. Looking at the TPP, RCEP and the ASEAN+ agreements, it seems that regional approaches so far promise greater global impact than the positions of individual Asian countries. This may change if heavyweights China and India become more aware of their prospects for leadership in international investment governance.

Either way, transatlantic dominance in the field is coming to an end. This suggests that the international investment law of the future may become more balanced and, above all, more representative.

At the same time, the rise of Asia may further propel the European Union and the United States towards the conclusion of TTIP in order to preserve some of their standard-setting clout in international investment law. In this sense, Asia is already determining the fate of global investment governance. Yet, the impact of Asian actors in global investment law rule-making could be even greater with a broader pan-Asian approach or the creation of a more effective regional platform for debating investment law and policy.

Stephan W. Schill is Professor of International and Economic Law and Governance at the University of Amsterdam.

Cross-posted with permission from East Asia Forum. This is an edited version of an article originally published here on Columbia FDI Perspectives.