Using the Theories of Exit, Voice, Loyalty, and Procedural Justice to Reconceptualize Brazil’s Rejection of Bilateral Investment Treaties

Abstract

In the past decade, investor-state arbitration has made tremendous gains in both credibility and use. There is now widespread accession to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. States have executed more than 2,000 bilateral investment treaties (BITs) defining the terms and conditions under which one (“investor”) state’s nationals and companies will invest in the other (“host”) state. Such terms include provisions allowing foreign investors to initiate arbitration proceedings against the host state, and at this point, more than 500 disputes have been submitted to investor-state arbitration. There is, however, one very notable example of a rapidly developing state that has rejected this system of international dispute resolution in favor of nation-level structures. That example is the largely industrialized state of Brazil.

This Article begins by describing the economic and political context within which Brazil began its consideration of BITs. Then, this Article recounts Brazil’s history with BITs in some detail and examines alternative investment protection legislation adopted in Brazil. This Article then turns to Hirschman’s theory of exit, voice, and loyalty, as well as the theories and research of procedural justice, to apply them to Brazil’s history with BITs and to consider the particular relationship between procedural justice and loyalty. Ultimately, the Article urges that Hirschman’s theory and the theories and research regarding procedural justice encourage a reconceptualization of Brazil’s alleged “failure” in choosing not to ratify the BITs that had been negotiated by its diplomats.

Keywords

Brazil, investor-state arbitration, bilateral investment treaties, BITs, Brazil’s economic history, Brazilian politics, Brazilian Constitution, the Calvo Doctrine, Privatization Program, Brazilian Arbitration Act, Hirschman, Theory of Exit Voice and Loyalty

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Authors

Nancy A. Welsh (Pennsylvania State University, Dickinson School of Law)
Andrea K. Schneider (Marquette University Law School)
Kathryn Rimpfel (Pennsylvania State University, Dickinson School of Law)

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