Importing Nation Exporting Nation
Derives Utility from Derives Utility from
More Secure Commitments More Secure Commitments
to Exporters to Exporters
Investment
Trade
Table 1
The private damages action, which makes exporters more secure, is critical to achieving
the goals of the importing nation in the investment area, but objectionable to the
importing nation in the trade area. This key difference suggests that the private damages
action will be more attractive to states contemplating an investment agreement. The
distinction drawn here, however, is insufficient to establish that the private damages
action will not also be attractive (if less so) to states contemplating a trade agreement. I
now turn to some further considerations that weigh against the private damages action in
the trade area.
The Value of Political Filters. Recall the fact that goods and services importing
nations are interested in making commitments that benefit foreign exporters only if they
result in reciprocal commitments to benefit their own exporters. Likewise, an importing
nation may have little interest in honoring a previously-made commitment to a foreign
exporter unless the violation of that commitment would result in some detriment to its
own exporters, perhaps in the form of direct retaliation or at least some damage to the
importing nation’s reputation that would harm its ability to secure future trade
commitments. This fact suggests the virtue for trade agreements of what I will term a
“political filter.”