On December 1, 2023, the Global South in the World Order network, led by two experts from Latin America and the Caribbean, explored current North-South trade and investment practices, digging into the challenges Global South countries often face with trade and investment frameworks that are unbalanced and inequitable. Although hyper-trade liberalization has encouraged worldwide acceptance of free-trade agreements and investment treaties, these deals have not yielded the expected economic development in many Global South countries.
The tools and institutions guiding international trade and development are in severe need of reassessment, given the various ways in which they disadvantage Global South countries. The network focused on several critical areas, including the extension of corporate power over states, thanks to the Investor-State Dispute Settlement (ISDS) system. The current system has the potential to collapse the economies of small, developing nations should a company decide that local regulations impede too deeply on its interests. Addressing these threats would require a holistic approach, including input from academics, nongovernment experts, government officials, and policymakers from the Global South, as well as the Global North, to more clearly define policies and requirements surrounding issues such as investor qualifications, investment allocation-versus-regional needs, sustainability measures, and state autonomy.
But Global South countries should also be empowered to take action. Internally, countries that invest in their civil societies can use that advantage as leverage over investors, as Barbados is doing with its highly educated and skilled local workforce. Externally, the formation of regional coalitions, especially those controlling a large percentage of the global supply of a particular resource, can give those countries within the coalition far more leverage in negotiating with powerful, and often opportunistic, actors.
Though countries will always have their own self-interest in mind, it is also critical that foreign trade agreements and development investments prioritize sustainable practices that maximize mutual benefit. To do so, stakeholders from both the Global South and the Global North should take an evidence-based approach to negotiations that prioritizes proven outcomes over optics.
It is Time for the Global South to Speak Up
José Miguel Ahumada, Institute of International Studies, University of Chile, Assistant Professor, @jmahumadaf
The free trade international system is in crisis. For example, the World Trade Organization is unable to confront the trade war between China and the United States, and it has failed to push forward any agenda to address current global challenges — such as climate, inequality, and underdevelopment, among others. As a result, the free-trade international architecture is experiencing unsustainable inertia and undergoing a crisis of legitimacy, notably in the Global South.
This is particularly notable in the investment regime. The architecture of foreign investment regulations functioned, from the 1990s onwards, as a kind of Global Lochner Era — state policies aiming to impose rules on investments to ensure they would spur national development were largely restricted by ad hoc tribunals. For example, technology-transfer requirements, local content, and rules that could affect profit expectations were legally prohibited — on the grounds of protecting the investor’s private property and free trade — and subject to ad hoc supranational tribunals and the International Centre for Settlement of Investment Disputes rules.
This architecture, however, is now questionable. Although initially promoted by the United States, the United States-Mexico-Canada agreement has eliminated these supranational tribunals for US-Canada relations and restricted their scope to Mexico. The European Union (EU), for its part, following criticism from civil society, has proposed an Investment Court to replace the ad hoc tribunal, while the Regional Comprehensive Economic Partnership in Asia has excluded these tribunals from its agreements.
Nonetheless, while the developed world reforms this system for its own benefit, the Global South is still, for the most part, subject to this regime. For instance, a U.S. company recently sued Honduras for an amount equating to two-thirds of Honduras’ annual budget, through an ad hoc tribunal enabled by investor protection clauses in the Central American Free Trade Agreement and the Honduras-United States Bilateral Investment Treaty. The plaintiff’s claim argues that Honduras’ repeal of a law allowing the U.S. company to create a charter city in a special economic zone in the country breached the investment agreement. In practice, the decision of Honduras’ new government to repeal that law aimed to reclaim legitimate territorial sovereignty over the land targeted by the U.S. investor.
This highlights a double standard: The United States and the EU reformed their investment regimes precisely to regain leverage vis-à-vis foreign capitals. Moreover, in their trade and investment agreements with Global South countries, Global North countries now restrict certain industrial policies they benefited from years ago. For instance, the Global North made technical progress thanks to technology transfer, a flexible patent regime to adapt foreign knowledge more quickly and easily, selective subsidies, and even temporary tariffs. Today, these states argue, the road to development is free trade and overprotecting foreign capital — precisely the road they are currently abandoning.
In other words, Global North countries prevent the Global South from enjoying the same policies they benefited from or still benefit from; this is untenable. This hypocrisy is particularly striking in the case of the United States, which currently applies these protective policies to its economy through, for example, the Inflation Reduction Act or the CHIPS Act, or, in the case of the EU, its new industrial strategy.
Global South countries have the need and the right to promote their own vision of international trade, one that helps stimulate commerce but also guarantees national autonomy to implement policies that promote productive and sustainable development. It is time for the Global South to speak up.
The United States Needs to Leverage its Economic Partnerships with India to Protect the Environment
Anuttama Banerji, South Asia Visiting Fellow, Stimson Center, @BanerjiAnuttama
In recent years, India and the United States have emerged as major allies. The United States has become India’s largest trading partner, with bilateral trade standing at $128.55 billion in 2022-2023, compared to $119.5 billion in 2021-2022. India has also leveraged its burgeoning defense partnership with the United States to build an economic alliance with the United States — it aspires to become a $5-trillion economy by 2025. However, while India focuses on national security and economic development through international cooperation, domestically, the government fails to implement a sustainable development policy that also accounts for climate change and the need to protect the environment. This is an opportunity for the United States to demonstrate its commitment to climate security and leverage existing trade agreements and diplomatic ties with India so New Delhi aligns its existing domestic policies with international environmental priorities.
For instance, in recent years, the Indian government has undertaken major road construction projects along the India-China border, near the Himalayas, some of which have led to increased hazards and risks of natural disasters that directly impact civilian populations. A 2021 report by India’s National Disaster Management Authority, which studied the causes and impact of the 2021 Uttarakhand flood, found that local authorities’ level of preparedness for climate disasters and infrastructure-related risks was insufficient.
To be sure, given India’s role as a major strategic bulwark against China, the United States may be incentivized to solely focus on security and economic partnerships that support India’s efforts to counter China. But it would be a mistake for both India and the United States to pursue such a strategy at the expense of the environment. For instance, the natural disasters potentially arising from infrastructure projects near the India-China border would exacerbate the current instability in the region.
Therefore, the United States needs to ensure that it remains focused on meeting prerogatives associated with climate change through its economic agreements — or else climate fatigue could set in. U.S. President Joe Biden should make climate change a priority in his bilateral engagements with India and not allow defense and other burgeoning trade ties to make issues like climate change peripheral to the diplomatic discourse between the two states.
In that sense, the absence of President Biden at 2023 United Nations Climate Change Conference may be viewed as a missed opportunity; his presence at the summit would have allowed the United States to engage with India specifically on environmental issues.
International Investment Agreement Reform is Critical for Global South Countries
Alicia Nicholls, Trade Consultant and Junior Research Fellow, The Shridath Ramphal Centre, The University of the West Indies, Cave Hill, Barbados
More than half a century since the world’s first Bilateral Investment Treaty (BIT) was signed between Germany and Pakistan in 1959, countries are increasingly recognizing that signing International Investment Agreements (IIAs) does not necessarily lead to greater Foreign Direct Investment (FDI) inflows and that attracting greater FDI inflows does not automatically produce positive development outcomes.
The unequal balance of power between capital-exporting countries — which historically have been Global North countries — and capital-importing countries — mainly Global South countries — in treaty negotiations has led to unbalanced investment treaties that afford investors and their investments broad protections, with limited possibilities for states desiring to regulate in the public interest. The dispute-settlement provisions of these so-called “older generation” treaties often include the option of ISDS, which allows investors to bring a claim against a host state before an international tribunal, often without first having to exhaust local remedies. To be sure, Global North countries have not been immune to adverse ISDS outcomes, as seen with the spate of claims under the Energy Charter Treaty and the North Atlantic Free Trade Agreement, which was renegotiated, including the investment chapter, and is now called the US-Mexico-Canada Agreement. But some of the most consequential ISDS disputes have been between investors from Global North countries and Global South respondent states — for example, Conoco Philips v. Venezuela and Tethyan Copper Company v. Pakistan — and Global South countries are less able to weather the economic and reputational fallout from an adverse arbitral decision. Even when a respondent state successfully defends the claim, the economic costs, including the fees and expenses of legal counsel, expert witnesses, and the like, could be taxing for resource-constrained states. The largest ISDS compensation awards have been in the billions of dollars, exceeding the GDP of many small states.
Although many Global South countries might consider investment treaties as key to their economic development, governments need to make certain that investment promotion and facilitation efforts are moored to development objectives and targeted to areas of development priority. To support this, Global South governments should promote a holistic approach that includes leveraging technical expertise from academia and civil society, to ensure that investment policymaking is truly evidence-based and development-focused.
Importantly, in recent decades large emerging economies, such as China and India, have become major capital-exporting countries and now rival the economic growth of some Global North countries. As such, even some South-South investment treaties between Global South countries, such as some of China’s and India’s older-generation BITs with Caribbean countries, as well as the CARICOM-Dominican Republic BIT annexed to their free trade agreement, have replicated these unequal power relations traditionally seen in North-South investment treaties. That being said, investment treaty practices are evolving in Global South countries. The adverse decision against India in the White Industries Australia v. India case compelled New Delhi to revamp its IIA practices, including through unilateral termination of many of its existing BITs — for example, the India-Trinidad and Tobago BIT — and substantially revising its model BIT to be more development-friendly.
Within this context, it is critical for all countries to scrutinize their networks of existing IIAs, including those with fellow Global South countries, to determine whether they are truly designed to attract investment for development. This includes employing some of the new best practices, such as the reforms proposed by the United Nations Conference on Trade and Development and reforms being undertaken by African countries, to make their treaties more development-friendly. These also include narrowing the scope of the definitions of “investor” and “investment,” defining what is meant by “fair and equitable treatment” and other protections, greater use of carve-outs for state regulatory action, and narrowing the scope of ISDS or even, in some cases, eliminating it as an option under the dispute settlement provisions.
Moving From Unequal to Win-Win Partnerships
Global South Experts Turn the Tables
By Aude Darnal Lead Author • José Miguel Ahumada Contributor • Anuttama Banerji Contributor • Alicia Nicholls Contributor • Hunter Slingbaum
Grand Strategy
Every month, the Global South in the World Order Project convenes a meeting of experts from across the Global South to discuss international relations from their perspectives, challenge conventional thinking, and inject non-Western viewpoints into prominent policy circles in Washington. This publication is part of the Global South Experts Turn-the-Tables series, which highlights insights from select participants in these discussions.
On December 1, 2023, the Global South in the World Order network, led by two experts from Latin America and the Caribbean, explored current North-South trade and investment practices, digging into the challenges Global South countries often face with trade and investment frameworks that are unbalanced and inequitable. Although hyper-trade liberalization has encouraged worldwide acceptance of free-trade agreements and investment treaties, these deals have not yielded the expected economic development in many Global South countries.
The tools and institutions guiding international trade and development are in severe need of reassessment, given the various ways in which they disadvantage Global South countries. The network focused on several critical areas, including the extension of corporate power over states, thanks to the Investor-State Dispute Settlement (ISDS) system. The current system has the potential to collapse the economies of small, developing nations should a company decide that local regulations impede too deeply on its interests. Addressing these threats would require a holistic approach, including input from academics, nongovernment experts, government officials, and policymakers from the Global South, as well as the Global North, to more clearly define policies and requirements surrounding issues such as investor qualifications, investment allocation-versus-regional needs, sustainability measures, and state autonomy.
But Global South countries should also be empowered to take action. Internally, countries that invest in their civil societies can use that advantage as leverage over investors, as Barbados is doing with its highly educated and skilled local workforce. Externally, the formation of regional coalitions, especially those controlling a large percentage of the global supply of a particular resource, can give those countries within the coalition far more leverage in negotiating with powerful, and often opportunistic, actors.
Though countries will always have their own self-interest in mind, it is also critical that foreign trade agreements and development investments prioritize sustainable practices that maximize mutual benefit. To do so, stakeholders from both the Global South and the Global North should take an evidence-based approach to negotiations that prioritizes proven outcomes over optics.
It is Time for the Global South to Speak Up
José Miguel Ahumada, Institute of International Studies, University of Chile, Assistant Professor, @jmahumadaf
The free trade international system is in crisis. For example, the World Trade Organization is unable to confront the trade war between China and the United States, and it has failed to push forward any agenda to address current global challenges — such as climate, inequality, and underdevelopment, among others. As a result, the free-trade international architecture is experiencing unsustainable inertia and undergoing a crisis of legitimacy, notably in the Global South.
This is particularly notable in the investment regime. The architecture of foreign investment regulations functioned, from the 1990s onwards, as a kind of Global Lochner Era — state policies aiming to impose rules on investments to ensure they would spur national development were largely restricted by ad hoc tribunals. For example, technology-transfer requirements, local content, and rules that could affect profit expectations were legally prohibited — on the grounds of protecting the investor’s private property and free trade — and subject to ad hoc supranational tribunals and the International Centre for Settlement of Investment Disputes rules.
This architecture, however, is now questionable. Although initially promoted by the United States, the United States-Mexico-Canada agreement has eliminated these supranational tribunals for US-Canada relations and restricted their scope to Mexico. The European Union (EU), for its part, following criticism from civil society, has proposed an Investment Court to replace the ad hoc tribunal, while the Regional Comprehensive Economic Partnership in Asia has excluded these tribunals from its agreements.
Nonetheless, while the developed world reforms this system for its own benefit, the Global South is still, for the most part, subject to this regime. For instance, a U.S. company recently sued Honduras for an amount equating to two-thirds of Honduras’ annual budget, through an ad hoc tribunal enabled by investor protection clauses in the Central American Free Trade Agreement and the Honduras-United States Bilateral Investment Treaty. The plaintiff’s claim argues that Honduras’ repeal of a law allowing the U.S. company to create a charter city in a special economic zone in the country breached the investment agreement. In practice, the decision of Honduras’ new government to repeal that law aimed to reclaim legitimate territorial sovereignty over the land targeted by the U.S. investor.
This highlights a double standard: The United States and the EU reformed their investment regimes precisely to regain leverage vis-à-vis foreign capitals. Moreover, in their trade and investment agreements with Global South countries, Global North countries now restrict certain industrial policies they benefited from years ago. For instance, the Global North made technical progress thanks to technology transfer, a flexible patent regime to adapt foreign knowledge more quickly and easily, selective subsidies, and even temporary tariffs. Today, these states argue, the road to development is free trade and overprotecting foreign capital — precisely the road they are currently abandoning.
In other words, Global North countries prevent the Global South from enjoying the same policies they benefited from or still benefit from; this is untenable. This hypocrisy is particularly striking in the case of the United States, which currently applies these protective policies to its economy through, for example, the Inflation Reduction Act or the CHIPS Act, or, in the case of the EU, its new industrial strategy.
Global South countries have the need and the right to promote their own vision of international trade, one that helps stimulate commerce but also guarantees national autonomy to implement policies that promote productive and sustainable development. It is time for the Global South to speak up.
The United States Needs to Leverage its Economic Partnerships with India to Protect the Environment
Anuttama Banerji, South Asia Visiting Fellow, Stimson Center, @BanerjiAnuttama
In recent years, India and the United States have emerged as major allies. The United States has become India’s largest trading partner, with bilateral trade standing at $128.55 billion in 2022-2023, compared to $119.5 billion in 2021-2022. India has also leveraged its burgeoning defense partnership with the United States to build an economic alliance with the United States — it aspires to become a $5-trillion economy by 2025. However, while India focuses on national security and economic development through international cooperation, domestically, the government fails to implement a sustainable development policy that also accounts for climate change and the need to protect the environment. This is an opportunity for the United States to demonstrate its commitment to climate security and leverage existing trade agreements and diplomatic ties with India so New Delhi aligns its existing domestic policies with international environmental priorities.
For instance, in recent years, the Indian government has undertaken major road construction projects along the India-China border, near the Himalayas, some of which have led to increased hazards and risks of natural disasters that directly impact civilian populations. A 2021 report by India’s National Disaster Management Authority, which studied the causes and impact of the 2021 Uttarakhand flood, found that local authorities’ level of preparedness for climate disasters and infrastructure-related risks was insufficient.
To be sure, given India’s role as a major strategic bulwark against China, the United States may be incentivized to solely focus on security and economic partnerships that support India’s efforts to counter China. But it would be a mistake for both India and the United States to pursue such a strategy at the expense of the environment. For instance, the natural disasters potentially arising from infrastructure projects near the India-China border would exacerbate the current instability in the region.
Therefore, the United States needs to ensure that it remains focused on meeting prerogatives associated with climate change through its economic agreements — or else climate fatigue could set in. U.S. President Joe Biden should make climate change a priority in his bilateral engagements with India and not allow defense and other burgeoning trade ties to make issues like climate change peripheral to the diplomatic discourse between the two states.
In that sense, the absence of President Biden at 2023 United Nations Climate Change Conference may be viewed as a missed opportunity; his presence at the summit would have allowed the United States to engage with India specifically on environmental issues.
International Investment Agreement Reform is Critical for Global South Countries
Alicia Nicholls, Trade Consultant and Junior Research Fellow, The Shridath Ramphal Centre, The University of the West Indies, Cave Hill, Barbados
More than half a century since the world’s first Bilateral Investment Treaty (BIT) was signed between Germany and Pakistan in 1959, countries are increasingly recognizing that signing International Investment Agreements (IIAs) does not necessarily lead to greater Foreign Direct Investment (FDI) inflows and that attracting greater FDI inflows does not automatically produce positive development outcomes.
The unequal balance of power between capital-exporting countries — which historically have been Global North countries — and capital-importing countries — mainly Global South countries — in treaty negotiations has led to unbalanced investment treaties that afford investors and their investments broad protections, with limited possibilities for states desiring to regulate in the public interest. The dispute-settlement provisions of these so-called “older generation” treaties often include the option of ISDS, which allows investors to bring a claim against a host state before an international tribunal, often without first having to exhaust local remedies. To be sure, Global North countries have not been immune to adverse ISDS outcomes, as seen with the spate of claims under the Energy Charter Treaty and the North Atlantic Free Trade Agreement, which was renegotiated, including the investment chapter, and is now called the US-Mexico-Canada Agreement. But some of the most consequential ISDS disputes have been between investors from Global North countries and Global South respondent states — for example, Conoco Philips v. Venezuela and Tethyan Copper Company v. Pakistan — and Global South countries are less able to weather the economic and reputational fallout from an adverse arbitral decision. Even when a respondent state successfully defends the claim, the economic costs, including the fees and expenses of legal counsel, expert witnesses, and the like, could be taxing for resource-constrained states. The largest ISDS compensation awards have been in the billions of dollars, exceeding the GDP of many small states.
Although many Global South countries might consider investment treaties as key to their economic development, governments need to make certain that investment promotion and facilitation efforts are moored to development objectives and targeted to areas of development priority. To support this, Global South governments should promote a holistic approach that includes leveraging technical expertise from academia and civil society, to ensure that investment policymaking is truly evidence-based and development-focused.
Importantly, in recent decades large emerging economies, such as China and India, have become major capital-exporting countries and now rival the economic growth of some Global North countries. As such, even some South-South investment treaties between Global South countries, such as some of China’s and India’s older-generation BITs with Caribbean countries, as well as the CARICOM-Dominican Republic BIT annexed to their free trade agreement, have replicated these unequal power relations traditionally seen in North-South investment treaties. That being said, investment treaty practices are evolving in Global South countries. The adverse decision against India in the White Industries Australia v. India case compelled New Delhi to revamp its IIA practices, including through unilateral termination of many of its existing BITs — for example, the India-Trinidad and Tobago BIT — and substantially revising its model BIT to be more development-friendly.
Within this context, it is critical for all countries to scrutinize their networks of existing IIAs, including those with fellow Global South countries, to determine whether they are truly designed to attract investment for development. This includes employing some of the new best practices, such as the reforms proposed by the United Nations Conference on Trade and Development and reforms being undertaken by African countries, to make their treaties more development-friendly. These also include narrowing the scope of the definitions of “investor” and “investment,” defining what is meant by “fair and equitable treatment” and other protections, greater use of carve-outs for state regulatory action, and narrowing the scope of ISDS or even, in some cases, eliminating it as an option under the dispute settlement provisions.
Recent & Related