The political economy of investment protection reform in South American PTAs

In South America, investment chapters have been used by some governments, notably in Chile, Colombia and Peru, to replace outdated bilateral investment treaties and extend countries’ investment protection commitments. In other countries, such as Brazil, investment chapters are a means to rethink the governance of foreign investment altogether. This chapter traces the evolution of South America’s PTA investment chapters from 2001 to 2022, focusing on the types of reforms adopted and the domestic factors that shape the reforms governments are willing to accept. It finds that PTA investment chapters exhibit an increasing diversity of reforms over time, although the vast majority of agreements are designed to maintain traditional investment protection standards. This variation is partly driven by the legitimacy crisis of international investment law. Arguably, this crisis has created more political space for South American preferences in investment treaty lawmaking. However, who dominates reform debates is just as important for countries’ reform preferences as their experience with investor-state arbitration. Regardless of reform preferences, the main outcome of PTA investment chapters has been further fragmentation in an already complex and incomplete area of international economic law. This fragmentation, if allowed to continue, may exacerbate the very challenges that governments are seeking to address through their reform efforts in order to promote sustainable and inclusive development.