Bilateral Investment Treaties: Last Resort Strategy to Mitigate Political Risks?

Bilateral Investment Treaties (BITs), and in particular the possibility that they offer international arbitration of disputes between the foreign investor and the host country, represent one of the methods that multinational corporations (MNCs) can use as part of their risk management strategy to mitigate political risks. This article aims to present the constraints identified in using the arbitration procedures of the International Centre for Settlement of Investment Disputes (ICSID): Member States’ ignoring arbitration decisions, ICSID’s lengthy procedures, calculation of the amount for compensation and the general critics on ICSID arbitration. The article also analyses the effectiveness of BITs compared to the use of other methods to mitigate political risks. The case of Repsol and its expropriation in Argentina is used to demonstrate the presence of those constraints. The article concludes that MNCs’ use of BITs to mitigate political risks in order to protect their foreign investments should be left till last after all other methods have been exhausted.