I conclude with one last point about the contrast between trade and investment. If
a threat of trade sanctions is necessary for monetary penalties to be enforceable in a trade
setting, why not also in the investment context? The answer is that an alternative threat
sits in the background of an investment agreement to induce governments to pay damages, wielded by the global capital market. Any capital importing nation that defaults
on its obligations under a BIT or similar instrument will face an increased cost of capital
that lowers its welfare. Because the importing nation entered the BIT in the first place to
avoid paying such risk premia, it will typically respect a judgment against it absent some
substantial change in circumstances.
Damages in Europe and the United States. The remarks above perhaps prove too
much in light of the difference between NAFTA and the WTO on the one hand, and
Europe and the United States on the other. Damages awards in the U.S. and European
systems are sometimes available to successful plaintiffs, and are collected, without the
need for a trade sanctions regime in the background.39 The reason is likely multifaceted,
relating to the existence of a political body that sits above the member states with various
coercive options, the power of judges to order individual public officials to act and to
punish those who do not, and perhaps a stronger pull of reputation in these more deeply-integrated
systems. Monetary penalties assuredly may have more appeal, other things
being equal, where the member states can be trusted to pay them without a fight.