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Termination of Bilateral Investment Treaties Has Not Negatively Affected Countries’ Foreign Direct Investment Inflows

Countries have received more investment after terminating bilateral investment treaties from former treaty partners in over half the cases of termination.

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Proponents of the controversial investor-state dispute settlement (ISDS) regime convinced governments to sign bilateral investment treaties (BITs) that included ISDS terms with the promise that such investor protections were necessary to encourage inward foreign direct investment (FDI). But the empirical evidence does not support this claim.

This paper provides an analysis of official government statistics on foreign investment in five countries that have terminated BITs1 – Ecuador, Bolivia, South Africa, Indonesia and India – that reveals that investment flows from former BIT partner countries were more likely to increase rather than decrease after BIT termination. This paper does not explore whether inclusion of ISDS in Free Trade Agreements (FTAs) that combine ISDS-enforced investor protections with preferential market access for goods produced in outsourced facilities leads to increased FDI in lower-wage FTA partners.

As investor-state challenges against legitimate public interest policymaking have increased at a rapid rate since 2000, some governments have determined that existing BITs with ISDS clauses are not in their national interest and have terminated those treaties. But other countries with similar concerns have not acted because of apprehensions that foreign investors will leave the country or not seek to invest in the country in the first instance if BITs are terminated. Countries began to cancel ISDS-enforced BITs mainly after 2012, so a clear picture of trends over time is just now becoming available.

Summary of Findings

This analysis of official government statistics on foreign investment in five countries terminating BITs – Ecuador, Bolivia, South Africa, Indonesia and India – reveals that investment flows from former BIT-partner countries were more likely to increase rather than decrease after termination. In the 32 cases of BIT termination for which official FDI statistics are available, more than half of the time (18) the country experienced larger investment inflows from the former BIT-partner country after termination as compared to prior to termination. Specifically, we compare bilateral FDI stock/flows in the five years prior to termination to the five years after termination.2 In only 14 instances did investment inflows decrease over this time span.

While the findings do not suggest terminating BITs directly boosts investment inflows, they do point to an extremely weak or non-existent relationship between BITs and the magnitude of investment inflows. A wide range of factors drives investment flows, and the presence of a BIT is clearly not a determining factor in most cases. Notably, sovereign debt ratings, seen as one driver of FDI inflows, improved for four of the countries – Ecuador, Bolivia, Indonesia and India – after they began terminating BITs.

We found the following trends with respect to the countries included in this analysis:3

Ecuador began to terminate BITs in 2008. From 2008 to today, overall FDI stock into Ecuador increased by 38 percent, from $13 billion to $17 billion. After Ecuador terminated its BIT with Uruguay in 2008, FDI from the country increased 420 percent, from an annual average of $6.3 million before termination to $32.6 million after termination.

Bolivia began terminating BITs in 2009, and since then the country’s overall FDI stock grew 61 percent, from $7.3 billion to $11.8 billion today. Bolivia terminated its BIT with Spain in July 2012, but FDI inflows from Spain more than doubled, from an annual average of $163 million before termination to an annual average of $457 million after termination.

South Africa decided in 2010 to terminate 20 BITs. FDI stock increased 10 percent since that time, from 1.8 trillion rand to 2.0 trillion rand. After South Africa terminated its BIT with Germany in August 2014, FDI stock from Germany in South Africa increased from an annual average of 93 billion rand before termination to 95 billion rand after termination.

Indonesia gave notice in 2014 that it would terminate its 67 BITs, and its overall FDI stock increased by 5 percent, from $228 billion in 2014 to $240 billion in 2016. Indonesia terminated its BIT with the Netherlands in June 2015, and saw investment inflows from the country increase from an average annual $715 million net outflow before termination to a $1.7 billion net inflow after termination.

India gave notice in early 2016 that it would terminate 58 BITs, and early indications are that the country has continued to experience robust and growing investment inflows. India terminated its BIT with the Netherlands in December 2016. FDI from the Netherlands increased from an annual average of $3.4 billion before termination to $3.8 billion after termination.


  1. Brazil is another country that has taken action to modify its investment regime by announcing a new template for its investment agreements in 2013 (Cooperation and Investment Facilitation Agreement), but since it has not terminated agreements in the same manner as the five countries reviewed, it is not included.
  2. If five years have not yet transpired after termination of a specific BIT or five years of pre-termination FDI data are not made available by the relevant government, we average over as many years of annual data as are available up to five years.
  3. Collecting and analyzing bilateral FDI statistics is complicated by the lack of a common framework among countries for reporting FDI statistics. Countries report in local currency or U.S. dollars, using different time periods (fiscal or calendar year), in terms of stocks or flows, and usually with varying delays in reporting.  Often only data from sizable investment partners are provided by national authorities. Data remain in the currency in which they were reported. For Indonesia, data from national authorities are reported in U.S. dollars. For Bolivia and Ecuador, raw data from national authorities are reported in U.S. dollars. For South Africa, raw data from national authorities were reported in local currency. India reports values in both local currency and U.S. dollars. All data were adjusted for inflation using GDP deflators from International Monetary Fund “Gross Domestic Product, Deflator,” World Economic Outlook, Oct. 2017. Available at: https://www.imf.org/external/pubs/ft/weo/2017/02/weodata/index.aspx.