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The analysis carried out in this paper has several implications for how we should view the regulation of foreign investment and the presence of BITs. First, consider the implications for efficiency. There is no question that BITs compare favorably, on efficiency grounds, to either the Charter of Economic Rights and Duties, which does very little to constrain LDC behavior toward foreign investment, and the Hull Rule, which regulates only "expropriation," leaving open the question of what constitutes expropriation and what rights the firm has when less extreme action is taken by the host.
Like the Hull Rule, BITs typically provide for prompt, adequate, and effective compensation in the event of expropriation. The reality of modern foreign investment practices, however, is that full expropriation of the hard assets of an investor is extremely rare. The more important aspects of BITs is how they treat the overall relationship between investor and host. This includes the broad scope of activity covered by the BITs definition of investment, the requirement of providing the more favorable of national treatment or most favored nation treatment, the transfer of assets in and out of the country, the prohibition of performance requirements, and perhaps most importantly, binding dispute resolution mechanisms. These conditions allow a host and a potential investor to negotiate over the terms of the investment, and allow the host to bind itself to a contract. As with any two contracting parties, if the host and the investor are able to create a binding contract, the result will be an efficient allocation of assets.
This binding contractual mechanism of BITs is made possible by the dispute settlement procedures. To the extent that the damages scheme under BITs is interpreted as "expectation damages," (as opposed to, say, restitution damages) the efficient outcome is achieved. Moreover, even if the damage measure is not expectation damages, the BIT regime is more efficient than the Charter of Economic Rights and Duties or the Hull rule because it governs a wide range of issues and not merely expropriation. 
The efficiency of BITs, however, is not the whole story. Under a network of BITs, relative to the regime of the Charter, the market for the resources of developing countries is competitive, implying a minimal return to the host country. Under the regime of the Charter, the market for foreign investment and LDC resources would be imperfectly competitive, allowing developing countries (the sellers) to capture a larger share of the rents. This implies that capital importers are likely to be better off under the regime of the Charter than under the BIT regime. Indeed, from the point of view of the welfare of developing countries, this paper demonstrates that the best of the three regimes is the Charter, followed by the Hull Rule, which only covers expropriation, and finally, the BIT regime, which allows even more competition among developing countries than does the Hull Rule because it includes a more expansive definition of investment.
Of course, the increased welfare that developing countries would enjoy under the Charter comes at the expense of investors. Like any monopolistic behavior, the behavior of host countries under a regime without contracting would lead to a deadweight loss. That is, the benefits to the host would be smaller than the loss to investors.
This paper does not advocate either the ever more popular regime of BITs, or the fading regime of the Charter of Economic Rights and Duties. Rather, it seeks to point out that the distributional issue is relevant. Without a mechanism to redistribute wealth between countries, the distributional consequences of a particular policy should be considered. The rise of BITs has reduce the market power held by developing countries which, in turn, reduces the benefit they capture from any particular investment. For this reason, the BIT regime is likely to have the effect of reducing the overall welfare of developing countries and should not be cheered by those who seek the interests of LDCs.
On the other hand, there can be no serious doubt that, from a global efficiency perspective, a regime that allows for contracting between host governments and investors is more desirable that a regime in which potential hosts cannot effectively commit to any particular behavior or agreement.
There is ongoing debate about the role of BITs in the establishment of customary international law. Do these treaties codify an agreed upon set of principles that applies to all countries regardless of whether a country has signed such an agreement or do they merely represent lex specialis as between the parties. Those who believe the treaties represent the codification and entrenchment of customary principles of international law point to the large number of such treaties and the fact that many nations that claimed to reject the traditional Hull rule standard of compensation have signed BITs. In other words, the argument is essentially that BITs demonstrate that both developed and developing countries consider the traditional compensation standard to be the relevant standard of international law.
Other commentators remind us that "the repetition of common clauses in bilateral treaties does not create or support an inference that those clauses express customary law . . . . To sustain such a claim of custom one would have to show that apart from the treaty itself, the rules in the clauses are considered obligatory." It is pointed out by these commentators that developing countries receive benefits in exchange for accepting treaties that include a full compensation standard. This demonstrates, the argument goes, that BITs are contractual agreements that result from negotiation between countries. A related argument is that BITs have flourished because of "the uncertainty that pervades international investment law since the advent of the developing countries on the international scene."
The analysis of this paper implies that the popularity of BITs should not be taken as evidence in support of customary international law. Indeed, it suggests that BITs have come about because developing countries successfully challenged the Hull standard. Once the standard of full compensation was undermined, developing states, as a group were better off. The absence of international law protecting investors and the refusal of international law to recognize and uphold agreements between host countries and investors would have allowed developing states to enjoy monopoly profits in the sale of their resources to investors. It is, however, in the interest of individual LDCs to gain a competitive advantage vis-a-vis other LDCs by signing BITs. Developed states have, thus, regained the protections of the Hull Rule and, indeed, much more protection than that rule of customary law provided, through the establishment of BITs. That is, by negotiating bilaterally, they have established a web of treaties that establishes international law to protect investors. Increasing numbers of developing states have accepted BITs out of economic necessity. The bilateral nature of the treaties drives these countries to compete for foreign investment and confers an advantage in that competition to those countries that have signed a BIT. BITs, therefore, rather than representing the codification of customary law, are actually a derogation from it -- the existence of BITs should be taken as evidence that there is no customary law guaranteeing prompt, adequate and effective compensation.
 See, e.g. Model BIT of the United States, art. III, ¶ 1, supra note 74.
 See Minor, The Demise of Expropriation, supra note 40, passim. Minor states that:
[E]xpropriations of foreign affiliates generally rose through the 1960s. A sharp increase occurred through the early 1970s, which peaked in 1974 and 1975. This was followed by a marked decline during the latter 1970s. . . . [T]he declining trend extended through the 1980s. Expropriations maintained a fairly constant, but very low, level through 1986, but appear to have disappeared afterwards.
Id. at 2.
 See Frank H. Easterbrook & Daniel R. Fischel, The Corporate Contract, 89 COLUM. L. REV. 1416 (1989).
 Although rarely clear on the question, most commentators appear to view the "prompt, adequate, and effective" standard as a form of expectation damages. See, e.g., Bruce M. Clagett, Protection of Foreign Investment Under the Revised Restatement, 25 VA. J. INT'L L. 73, 75 & n. 8 (1984) ("The standard method of establishing [adequate compensation] is called discounted cash flow analysis." Citing Jones & Laughlin Steel Corp. v. Pfeifer, 103 S. Ct. 2541, 2550-51 (1983)); Schachter, supra note 8, at 124-25 (stating that the Hull standard was "full value," i.e., fair market value).
 For a detailed argument that BITs do not contribute to the formation of customary law, see Bernard Kishoiyian, The Utility of Bilateral Investment Treaties in the Formulation of Customary International Law, 14 NW. J. INT'L L. & BUS. 327, 329 (1994) (""[E]ach BIT is nothing but a lex specialis between parties designed to create a mutual regime of investment protection."). For the opposing view, see Asoka de Z. Gunawardana, The Inception and Growth of Bilateral Investment Promotion and Protection Treaties, 86 AM. SOC'Y INT'L L. PROC. 544, 550 (Gennady Pilch, Reporter) (1992) ("Although the provisions of bilateral investment treaties may not have attained the status of customary international law, they have an undoubted part to play in that regard."); David R. Robinson, Expropriation on the Restatement (Revised), 78 AM. J. INT'L L. 176, 177 (1984) ("[M]any of the same developing nations that support these [United Nations] declarations as political statements have, in their actual practice, signed bilateral treaties reaffirming their support for the traditional standard as a legal rule.").
 See F.A. Mann, British Treaties for the Promotion and Protection of Investment, 52 BRIT. Y.B. INT'L L. 241, 249 (1981); Clagett, supra note 131, at 81-85.
 Schachter, supra at 8 126.
 See id. at 127; Dolzer, supra note 4, at 567.
 Kishoiyian, supra note 129, at 329 (1994).
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