Trade Agreements Between Countries Attract Investors

This system ensures that all respect the same rules of investment protection and tries to strike a balance between protecting investors in terms of protection and respecting a state`s right to regulate the objectives of public order. These characteristics allow companies, especially large multinationals, to be relatively easily covered by investment agreements. Velocity Global, a company that specializes in providing technical assistance to international expansion, estimates that the cost of setting up a subsidiary costs approximately $15-20,000, with an additional $40,000 per year in maintenance costs for companies with an employee. Footnote 7 Although these costs are relatively modest, these subsidiaries are only useful to companies that can plausibly and credibly afford the cost of arbitration, which can be in the millions of dollars. Large multinationals responsible for most of international trade and investment (Helpman et al. 2004; Bernard et al. 2007; 2018), have transactions to a extent that justifies the legal cost of the investment arbitration procedure. They are also exposed to political risks in several markets simultaneously. We also show that these corporate reactions have an impact on the overall distribution of investments and the role of investment agreements in reporting investment flows, and we propose several new implications for the global investment regime. In general, we draw attention to the ownership structure of companies – which includes decisions on where investments should be implemented and where participation in these investments should be implemented – as a theoretically important aspect of global financial relations. In recent decades, with changes in financial markets and technology, ownership of the company has become increasingly flexible and fragmented. The largest multinational companies are invested in dozens of countries.

While the dominant theories of foreign direct investment focus on production processes to explain this fragmentation of firms between countries, these investments often also have financial links with each other, created by a company`s ownership structure. Multinational companies choose where they invest, for example. B by creating production or distribution sites in several countries. But for each investment site, companies also decide where they place ownership of that investment, either through a stake or through financial instruments. The potential compensation for costly government policies is valuable in itself. Arbitration decisions have several times exceeded $1 billion. The results of the arbitration favour on average companies: more than 60% of cases end either by comparison or by a price for the company (Wellhausen 2016); This figure is even higher for governments in middle- and low-income countries (Behn et al. 2018). In addition, governments in middle- and low-income countries are likely to resolve disputes they may have won in arbitration proceedings, as governments often face significant legal costs (Strezhnev 2017).