Balancing International Commitments and Democratic Accountability: Exit Clauses in Investment Agreements

Abstract

Why do states sign international agreements with varying commitment lengths? Growing literature examines when states exit international institutions. However, international agreements differ in how long a state must commit before it is legally free after a withdrawal decision. Notably, bilateral investment treaties (BITs) exhibit significant variation in commitment periods even in the same issue area. We argue that exit clauses in BITs depend on both domestic uncertainty and international commitment issues. Capital-exporting countries aim to lock in importers to protect their firms, while maintaining withdrawal flexibility to adapt to domestic politics. This trade-off is pressing for governments accountable for public demands. They prefer longer commitments with importers having weak property rights and shorter ones with those having strong protections. Analyzing original dataset of 2,500 BITs, we find that democratically accountable governments adjust BIT duration based on partner states’ credibility. This research enhances understanding of international institutions' durability and negotiations of economic agreements.