Bilateral Economic Policies: US-Brazil Case Study

 Brazil signed a number of traditional Bilateral Investment Treaties but has not yet ratified them. They have recently switched to a new type of bilateral investment agreement called an Investment Cooperation and Facilitation Agreement. There are two claims in the literature about the change from traditional Bilateral Investment Treaties to Investment Cooperation and Facilitation Agreements. Claim Not ratifying the traditional BITs has not hurt Foreign Direct Investment into Brazil. This claim calls the purpose of Bilateral Investment Treaties into question. People say that Investment Cooperation and Facilitation Agreements are better than traditional bilateral investment treaties in some ways, but overall they are not as good as traditional bilateral investment treaties. From the point of view of observational economics, we look at both claims. We add to what has already been written about Brazil's stance on Bilateral Investment Treaties, which can be understood through (i) a historical legacy; (ii) domestic efforts; and (iii) a political U-turn. By looking at real-life examples of how Bilateral Investment Treaties affect foreign direct investment, we can draw the following conclusions: Regarding claim, there is proof from both the real world and Brazil that the country has missed out on Foreign Direct Investment by not signing traditional Bilateral Investment Treaties.

Concerning claim, Investment Cooperation and Facilitation Agreements have different dispute resolution mechanisms 


That are meant to get states to follow the rules of the agreements better rather than making foreign investors whole. However, because the State–State dispute settlement mechanism is not as strict as the Investor–State dispute settlement mechanism, Investment Cooperation and Facilitation Agreements are not as useful. However, this impact must be weighed against the benefits for Foreign Direct Investment that come from new clauses in Investment Cooperation and Facilitation Agreements. These clauses are not present in many traditional Bilateral Investment Treaties. People think that Foreign Direct Investment (FDI) is a key part of a country's plan to grow. The governments of developing countries are always competing for FDI, and it's common for these countries to be neighbors with similar levels of growth. Countries could end International Investment Agreements (IIAs) by signing and ratifying them. Dolzer and Schreuer (2008) say that "investment treaties are today seen as entry tickets to international investment markets." While it may be controversial in some cases, their effect on the host state's authority is limited. This is a necessary part of making the environment more investment-friendly. Treaties for investments are built on the idea that there is a problem with holding up investments between countries (Hart 1995). More and more developing countries have signed IIAs over time. IIAs are a type of Bilateral Investment Treaty (BIT), which is a treaty with investment provisions and instruments relating to investments.2 It is clear that IIAs are only one piece of the puzzle of location factors that matter when deciding where to spend. Even though there are small differences, Elkins et al. (2006, p. 7) stress that there has been one major treaty model in the past that mostly served the needs of developed countries. The developing world could choose to accept it or not.

The same thing was said by Alschner and Skougarevskiy


Who said that "wealthier states achieve considerably more consistent IIA networks than their poorer counterparts." This supports the idea that developed countries make the rules for the IIA system, while developing countries usually follow them. There's no doubt about this, but not all growing countries have always followed the rules. One country that has done things that are in line with the Washington consensus and good for FDI is Brazil. It has trade policies (like negotiating the trade deal between the European Union and Mercosur, Baur et al. 2023) and other economic policies (like privatization programs). Companies and their relationships with the government in Brazil are not very well organized, which has led to policies that are not as good for doing business in the country. Instead, a strategy has been put in place to promote financial stability and bring in foreign investors (Pedersen 2009, p. 472). When it came to FDI policies, Brazil took a unique road. "It is generally agreed that Brazil has been the slowest to sign BITs because of worries about how they might limit the country's ability to make developmental policies (Barbosa 2003)." Dixon and Haslam 2016, p. 1091, says this. According to records, Brazil has never signed any traditional BITs. However, it has recently signed a new type of BIT called the Investment Cooperation and Facilitation Agreements (CFIAs). These are different from traditional BITs in both what they include and how they are enforced. A lot of people don't like the current (traditional) system of foreign investment policies, especially BITs. For example, Tienhaara et al. (2023, p. 1197) say that the way traditional BITs implement them "likely obstructs a just transition by chilling supply-side climate measures and diverting public funds away from efforts to mitigate and adapt to climate change." It's possible that Brazil's CFIAs could be used as an example for a new type of BIT that doesn't have the problems that older BITs do, like supposedly making public control less effective, but also encourages FDI.

Our goal with this paper is to give a full and organized look at how Brazil's old and new BIT policies are likely to affect FDI


To do this, we looked at the legal, economic, and political science literature that talks about how BITs affect FDI in general and how Brazil doesn't have any traditional BITs in specific. To give the study some structure, we use two claims made by scholars about how well Brazil's BIT policies work for FDI. We looked at both theoretical and empirical writings to come up with our answer about how true the two claims were in the real world. So, we only looked at works that were written in English and ignored the large body of legal writing that was written in Portuguese. We often use straight citations (in “”) to make sure we don't go off track from what the papers we looked at originally said and how they meant it. Lastly, this study mostly looked at FDI coming into the country. However, it is clear that BITs also have an effect on FDI going out of the country. In fact, one of the main reasons Brazil is negotiating with the CFIA is to encourage FDI of Brazilian companies going out of the country. This is how the paper is put together we look at the background of Brazil's BIT policies and two claims made by experts about how these policies have affected FDI. Section 3 gives an overview of the theoretical (economic, political science, and law) reasons for BITs. In Section 4, the history of BITs in Brazil is looked at. Section 5 gives an overview of the proven empirical evidence of four types of effects of BITs on FDI. It also talks about how Brazil changed to a new type of BITs based on this evidence. In Section 6, a summary is given, and in Section 7, some problems and possible future study directions are listed.

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