Rachel L. Wellhausen

Investor–State Disputes When Can Governments Break Contracts?

Since 1990, governments around the developing world have broken contracts made with multinational corporations (MNCs), but the incidence of breach varies across countries and over time. I argue that shared firm nationality is a key determinant of contract sanctity. MNCs are likely to divert investments or exit in response to breach with a firm of the same nationality but unlikely to react in ways costly to the host government otherwise. At the level of the economy as a whole, host governments gain permissive space to trade-off among national groups of investors when a greater diversity of foreign direct investment nationalities is present. I use national-, firm-, and dyadic-level data from 1990 to 2008 to demonstrate nationality-tied firm responses to breach. Counterintuitively, deeper integration with more nationally diverse MNCs enables more breach, as governments gain space to prioritize other goals over the property and preferences of foreign capital.

Under One Roof: Supply Chains and the Protection of Foreign Investment

We argue that economic links, such as supply chains, can create a common roof that protects foreign investors in host countries that lack strong institutions to protect property rights. Supply chains link the activities of firms: when a host government breaks a contract with one firm, other firms in the supply chain are harmed. These partner firms therefore have incentive to protect one anothers property rights. This leads to the key implication of our argument: host governments are less likely to violate the property rights of firms that are more tightly linked with other firms in the host economy. We test our argument with cross-national data on investment arbitration, a survey of US multinational subsidiaries in Russia, and case studies from Azerbaijan. Our findings imply that one benefit of outsourcing in developing and transition economies is the creation of a network of partner firms that protect each others property rights.

The Intellectual Commons and Property in Synthetic Biology

Is the development of synthetic biology threatened by sharing and ownership issues? What measures are synthetic biologists taking to address intellectual property and commons issues that may threaten development of the field? Part I presents a conceptual framework for the analysis of ownership and sharing in emerging technologies, organized around two dimensions – a private ownership vs commons axis and a clarity vs ambiguity axis. It then uses the framework to assess the fit between conventions governing intellectual property and elements of synthetic biology. Part II describes internal positions on ownership and sharing within the community of synthetic biologists, highlighting areas of agreement on common ownership of registries of parts for basic research and education, standards for performance and interoperability, and design and testing methods; and agreement on private ownership of designs of devices ripe for commercialization. Part II also discusses the varied views of synthetic biologists on precisely where to draw the line on public vs private ownership of biological parts and design principles. The conclusions examine domestic and international forces that may shape the evolution of formal legal conventions and informal practices in synthetic biology.

The shield of nationality : when governments break contracts with foreign firms

1. Nationality and leverage in a globalized world 2. When governments break contracts 3. National diversity and contract sanctity 4. Explaining breach around the world: quantitative tests 5. Foreign firms and their diplomats in Ukraine 6. Moldovan deterrence versus Romanian gold 7. Investor-government relations in history 8. When national diversity erodes property rights Appendix. Case studies: methodology.

Aspects of the political economy of development and synthetic biology

What implications might synthetic biology’s potential as a wholly new method of production have for the world economy, particularly developing countries? Theories of political economy predict that synthetic biology can shift terms of trade and displace producers in developing countries. Governments, however, retain the ability to mitigate negative changes through social safety nets and to foster adaptation to some changes through research, education and investment. We consider the effects the synthetic production of otherwise naturally derived molecules are likely to have on trade and investment, particularly in developing countries. Both rubber in Malaysia and indigo dyes in India provide historical examples of natural molecules that faced market dislocations from synthetic competitors. Natural rubber was able to maintain significant market share, while natural indigo vanished from world markets. These cases demonstrate the two extremes of the impact synthetic biology might have on naturally derived products. If developing countries can cushion the pain of technological changes by providing producers support as they retool or exit, the harmful effects of synthetic biology can be mitigated while its benefits can still be captured.

Withdrawing from Investment Treaties but Protecting Investment

A backlash against Investor State Dispute Settlement (ISDS), in which multinational corporations can sue governments, has led some states to unilaterally withdraw from some of the thousands of investment treaties that facilitate ISDS. But thanks to redundancies in the dense, decentralized network of investment treaties, states can reject some treaty commitments to ISDS and maintain most (if not all) international legal protections for foreign investors. In this article, we explain the source of redundancies, document the group of states that have taken advantage of unilateral withdrawal, and demonstrate that states can recalibrate their international legal commitments without eschewing contemporary international investment law.

The Shield of Nationality: When Governments Break Contracts

There is extraordinary variation in how governments treat multinational corporations in emerging economies; in fact, governments around the world have nationalized or eaten away at the value of foreign-owned property in violation of international treaties. This even occurs in poor countries, where governments are expected to, at a minimum, respect the contracts they make with foreign firms, lest foreign capital flee. In The Shield of Nationality, Rachel L. Wellhausen introduces foreign-firm nationality as a key determinant of firms’ responses to government breach of contract. Firms of the same nationality are likely to see a compatriot’s broken contract as a forewarning of their own problems, leading them to fight or to take flight. In contrast, firms of other nationalities are likely to meet the broken contract with apparent indifference. Evidence includes quantitative analysis and case studies that draw on field research in Ukraine, Moldova, and Romania.