Shift of Power and Transformation of IIAs: A Power Structure Analysis of International Investment Agreements Regime

Abstract

Doctrinal analysis of IIAs explains little about the convergence in contents yet divergence in forms of IIAs. The evolutionary paradox of IIAs regime demands the political analysis of international legal process. This research is devoted to critically appraise the desirability and feasibility of IIAs from the perspective of power shift under international investment law regime. Supply of IIAs as public good implies the dominating role of major states in the collective governance of transnational investment activities. The power underlying IIAs negotiating states functions as a tool to drive the initiation and compromise of IIAs negotiations and to commensurate and aggregate the divergent or even conflicting IIAs preferences. This research identifies three functioning mechanisms of power in legal process of IIAs, namely coercion with unilateral concessions of weak states to strong states, contract with bilateral concessions between negotiating states, and preference output.

From a static perspective, coercion functions as a reveal mechanism of the centricity of conflicted preferences and would be adopted first in the negotiation while contract function only when coercion fails. IIAs would be supplied through coordination approach if the preference difference between contracting states are inessential and powerful state is willing to bear the cost to initiate the negotiation, and by coercion (contract) approach if the centricity of conflicting preference is low (high) and asymmetry of power disparity between states is high(low).

From a dynamic perspective, this research proposes the power structure in terms of diffusion and aggregation underlying IIAs regime at systematic level shifts from a Centre-Fringe Structure to a Multi-hub Network Structure. During the transition, the importance of coercion as preference reveal mechanism decreases in contrast to the increasing function of contract and therefore, the number of new initiated and successful concluded IIAs decreases but the proportion of IIAs with bilateral concessions increases. As a complex system, the long term evolution of IIAs regime is oriented by shift of underlying power structure, diluted by institutional inertia and perturbed by incidental events.

Keywords: international investment agreement; political economy; power structure; transaction cost