Terminating to Renegotiate? Strategic Exit from International Investment Treaties

How can dissatisfied parties adjust the terms of international cooperation in asymmetric agreements? While powerful states can often effectively demand renegotiation, others may struggle to convince their partners to redistribute the gains from cooperation. Strategic exit, whereby a dissatisfied state conducts unilateral exit from an agreement to initiate new negotiations, may become an attractive option in such situations. This paper investigates the prevalence of strategic exit in the international investment treaty regime, where backlash against investment dispute settlement has led some governments to exit from their bilateral investment treaties. I present evidence from two theory-building case studies of investment treaty terminations and renegotiations by Ecuador and Indonesia, including elite interviews with key policymakers. I show that while exit has successfully led to some new negotiations, dissatisfied governments have been unlikely to exit treaties only for the purposes of catalyzing reform. Rather, exit becomes attractive when domestic political benefits mitigate the international reputational costs of exit. The strategic benefit of terminations for catalyzing new negotiations, although not necessarily sought after by the withdrawing state, more likely emerges as a secondary benefit of exit. The theoretical insights from the investment treaty regime can also inform renegotiation dynamics in other international regimes.