Kenneth J. Vandevelde. The First Bilateral Investment Treaties: U.S. Postwar Friendship, Commerce, and Navigation Treaties. Oxford: Oxford University Press, 2017. xii + 575 pp. $105.00 (cloth), ISBN 978-0-19-067957-6.
Reviewed by Armand de Mestral (McGill University)
Published on H-Diplo (May, 2018)
Commissioned by Seth Offenbach (Bronx Community College, The City University of New York)
Professor Kenneth Vandvelde’s work on international investment law is widely known and respected. Author of three important books on the subject, United States Investment Treaties: Policy and Practice (1992), U.S. International Investment Agreements (2009), and Bilateral Investment Treaties: History Policy and Interpretation (2010), Vandevelde has now given us a remarkable review of the historical foundation of this law in the United States and by implication throughout the world. His review of American treaties of friendship, commerce, and navigation (FCN) provides a much-needed analysis of the origins of international investment law in the United States, which in turn enhances our understanding of the whole field of modern international investment protection law. Given his experience in government service and as a leading exponent of this area, few people are more qualified to undertake the careful legal and historical analysis required, and this book does not disappoint.
The book focuses on American practice and policy with respect to FCN treaties and their significance for the origins of modern international investment law. This book illustrates the United States’ constant and significant use of FCN treaties, beginning with its very first international treaty, the FCN Treaty of 1776 signed with France, until the signing of its last FCN treaty with the Republic of Korea in 1968. The book reviews the early history of American practice but concentrates on the development of the modern US model during the Second World War and the different phases of negotiation and development of this model under successive presidents from the end of the war until 1968. Vandvelde’s purpose is to show how the US FCN treaty program laid the groundwork for the modern bilateral investment treaty (BIT) and subsequently the modern comprehensive regional trade agreements (RTAs), not only in US practice but by implication for the practice of many other states.
This is a work both of legal and historical analysis. Vandevelde provides a detailed analysis of the content of many key FCN treaties. He is also careful to review the thinking behind the design of modern US FCN treaties, starting with the objectives of the Franklin Roosevelt administration's New Deal understood as part of the postwar international economic arrangements. He also examines President Harry Truman’s inaugural address, which made the link between US investment policy and international development. Finally, he concludes with an analysis of the gradual adaptations of the US model FCN in the course of the twenty negotiations of the immediate postwar years, which involved some seventy countries in all between 1945 and 1968.
Far too few analysts of modern investment law look beyond the recent history of BITs and BIT arbitrations, which have exploded into international law and practice in the last twenty years. Vandevelde shows us a much more complex history and one well worth knowing, which enriches our understanding of contemporary BITs and investment chapters in RTAs. Vandevelde carefully analyzes both a number of important FCN treaties and their negotiation. His analysis reveals the origins of many important concepts now found in contemporary international investment treaties.
Although Vandevelde’s thesis is to demonstrate how the FCN treaty became the basis of modern American BITs, he makes it clear that the US FCN treaty always addressed a much broader set of concerns. Particularly in the early years, but even in the twentieth century, the concept of friendship in the US FCN treaty was designed to ensure friendly diplomatic and political relations between the parties and to offer protection to citizens and their commercial interests. The concept of commerce covered the right of establishment and right of traders of both parties to do business in the other’s territory, as well as the right of fair and equitable treatment of traders, including the right to remain and own property and enjoy personal security, exercise a profession, and enjoy and freedom of religion and conscience. Navigation covered the right to sail to enter their respective ports and to trade there and the range of concerns involved in navigation and physically moving goods.
The authors of the New Deal continued to view the general idea underlying the FCN treaty negotiation program from a broad perspective and saw FCN treaties as a means of promoting trade and bringing the values of liberal democracy and the rule of law to the world. In doing so, the New Deal negotiators approached FCN treaty negotiation with a mix of pragmatism and ideology. FCN treaties concluded after 1935 already reflected the objective of alleviating the effects of the Great Depression. The planners of postwar economic diplomacy in Washington continued to view the FCN treaty as a means of both stimulating trade and promoting the rule of law in the world. For this purpose, the program of negotiating FCN treaties was at the center of US trade diplomacy. The program went forward in tandem with the negotiation of the (ultimately unratified) International Trade Organization (ITO). The FCN treaty program remained a central part of US diplomacy, but as Vandevelde shows in his analysis of the treaties signed and many negotiations which did not succeed, it gradually shifted its focus toward investment issues and, in doing so, laid the groundwork of modern international investment treaty law.
Vandevelde analyzes several central purposes of the postwar American FCN treaty. The first was to enable international commerce to expand and bring economic development to the rest of the world. A second and equally important aspect of the FCN treaty objectives was the promotion of the rule of law, which was viewed as essential to the first objective. A third and sometimes misunderstood objective was to encourage two–way trade. US exporters needed markets for American goods and investments, but buyers could only afford American goods if they had dollars to buy them. For this reason, it was essential that FCN treaties be reciprocal in order to allow foreign traders to earn dollars to buy US exports—hence the essential mutuality and reciprocal nature of FCN treaties. This fact remains true of BITs today although their reciprocal nature is often questioned and misunderstood by critics of the modern BIT. The intention is to create two-way trade, not simply one-way protection for American exporters and commerce.
Vandevelde also shows that the negotiators of postwar FCN treaties understood that American investors abroad needed a reasonable degree of protection and that it was appropriate to expand the principles governing their protection against unreasonable and discriminatory treatment or expropriation. But the negotiators also understood that the host state must always enjoy the right to regulate and set its own priorities. These points are clearly made in Vandevelde’s careful analysis of the negotiation of various treaties.
It is interesting to note that, as a matter of US treaty law, FCN treaties required Senate approval—unlike trade agreements under the Reciprocal Trade Agreements Act 1935—because FCN treaties are fundamentally a statement of principles governing mutual relations and govern more than the terms of trade. Interestingly the same has remained true of BITs since the inception of the BIT negotiating program under President Jimmy Carter.
Vandevelde documents the shift of FCN treaty negotiations toward greater emphasis on investment matters. This occurred partly because American business interests called for greater protection and security of their investments, as well as the fact that trade negotiations over goods and services shifted toward the multilateral sphere under the aegis of the GATT and the WTO as well as the subsequent emergence of the modern free trade agreement. Also significant was the emergence of BITs negotiated by European states devoted solely to investment issues. By 1968 the impetus which had existed to negotiate FCN treaties in 1945 had greatly diminished but, while this had occurred, the many FCN negotiations undertaken by the United States had laid the groundwork that allowed the modern US BIT to emerge a decade later. As Vandevelde conclusively shows, the FCN negotiations and treaties concluded laid the groundwork for the definition of such investment protection concepts as equitable or fair and equitable treatment, full protection and security, treatment in conformity with international law, unreasonable or discriminatory treatment, and the adaptation of national treatment and most-favored treatment in the BITs to be negotiated by the United States and others in subsequent years.
A number of very interesting general points emerge from Vandevelde’s careful analysis of successive FCN negotiations. The first is the fact that bilateral FCN negotiations were necessary due to the failure of three successive efforts to promote a multilateral agreement on investment. Another most interesting point that emerges from the analysis of different FCN treaty negotiations is the pitfalls of proposing open-ended MFN clauses and the general desire to restrict their application to nonprocedural matters. Equally interesting is Vandevelde’s analysis of the difficulty of reaching consensus on the meaning of equitable or fair and equitable treatment. A further point that is made in many chapters is the fact that US FCN treaties were designed to grant rights comparable to—but no greater than—those enjoyed by Americans under the Constitution. The same policy continues to be reflected in US BITS and investment chapters in trade agreements today. Anyone concerned with the current debate over the right of the United States to justify increased tariffs on the basis of national security would do well to review the pages on the consistently narrow view taken of the national security clause by US negotiators. Finally, students of BITs will be intrigued by the fact that US negotiations with Pakistan failed in 1959, due to the Pakistani concern that the FCN model was too complex and demanded too much. This happened in the same year that Pakistan and Germany concluded the first—and much more concise—modern BIT.
Professor Vandevelde completes this book with the claim that the FCN negotiation program “established the foundation” of the modern US BIT (p. 544). This careful, comprehensive, and fascinating history of US FCN treaty negotiations amply justifies this claim.
If there is additional discussion of this review, you may access it through the network, at: https://networks.h-net.org/h-diplo.
Citation:
Armand de Mestral. Review of Vandevelde, Kenneth J., The First Bilateral Investment Treaties: U.S. Postwar Friendship, Commerce, and Navigation Treaties.
H-Diplo, H-Net Reviews.
May, 2018.
URL: http://www.h-net.org/reviews/showrev.php?id=51467
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License. |