Brazil’s New Investment Treaty Model: Why Now?

Abstract

The investment treaty regime, unlike other economic regimes, lacks common substantive multilateral rules and depends on countries signing bilateral or plurilateral investment treaties. As the regime presented a pro-developed country bias, developing countries, especially in Latin America, avoided signing investment treaties up to the 1980s. Brazil followed this trend and did not start an investment treaty program until the late 1990s. However, the treaties never entered into force. The country also avoided acceding to the World Bank agency responsible for investment arbitration proceedings - the International Centre for Settlement of Investment Disputes (ICSID). In 2015, Brazil started a new investment treaty program. However, the timing seems counterintuitive. The investment treaty regime had already been criticized, including inefficiency in attracting foreign investment, the potential to encroach on countries’ regulatory sovereignty and the lack of legitimacy of its investor-state dispute settlement (ISDS) procedure. Furthermore, the favorable foreign economic scenario did not force the country to seek an inflow of foreign capital at that time. The new Cooperation and Facilitation Investment Agreement (CFIA) is presented as an investment treaty model for developing countries, since it responds to major criticisms to the investment treaty regime, and at the same time meets the demands of an important domestic interest group, the Brazilian industrial sector, for a legal framework that mitigates the political risk of its increasingly internationalized operations. Brazil’s CFIA may be viewed as a model that other developing countries could emulate in the face of the failure of the traditional paradigm of investment dispute settlement.