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Building multilateralism on bilateralism: Evidence from networked governance of FDIS in Asia.

In this article, I analyze the possibility that bilateralism may provide a pathway to multilateralism as a mode of international economic governance. "The bilateral-multilateral dichotomy is a staple of the International Relations Literature" (Verdier 2008, 439). Examining the density and similarity of bilateral investment treaties (BITs) in the Asia Pacific, I show that multiple networks of BITs can be bilateral in form, yet multilateral in effect.

Regions are an important unit of analysis in international relations, and interest in regional political economies has surged since the 1990s. Multilateralism, as a mode of regional governance, has been considered a "shared secular religion" (Alvarez 2000, 394). Asia is not the exception in this regard (Katzenstein 2005). However, few authors have linked the Asian mode of regionalism with multilateralism; arguably, the region is still in the beginning stages of multilateral institutionalization. Compared to Europe, where economic interdependence has typically been associated with formal multilateral organizations, economic governance in Asia is driven by multiple bilateral arrangements and suffers from a paucity of multilateral institutions. The course of economic multilateralism in the region has been "tortured" by geopolitical and strategic concerns (Calder and Fukuyama 2008, 3). As a result, there is little evidence that significant regionwide intergovernmental collaboration is emerging in Asia (Ravenhill 2010), and bilateralism appears to fill the void of multilateralism. This institutional shallowness or "organization gap" has been regarded as a critical weakness of Asian regional governance (Calder and Fukuyama 2008), and much scholarly attention has been paid to the possible negative implications of such bilateralism for regional integration. (1)

Indeed, the current state of Asia Pacific economic governance is characterized by the rise of bilateralism in both trade and investment. (2) There is no regional trade agreement that covers major economies in the region. Rather, Asia Pacific nations have managed free trade through bilateral free trade agreements (FTAs), and a hub of global FTA networks has formed. The number of concluded bilateral FTAs in Asia increased sharply from three in 2000 to more than 71 in 2012. Bilateral FTAs comprise 76 percent of Asia's concluded FTAs. Thus, the proliferation of bilateral trade agreements is a defining characteristic of Asian trade governance.

With regard to investment, without a multilateral framework to protect foreign investments, the total number of world BITs reached 2,676 at the end of 2008. Among developing countries, those from Asia and Oceania accounted for the majority of BITs signed in 2008. Thirty-one new BITs were signed, bringing the total of BITs involving nations from Asia and Oceania to 1,112, or 41 percent of all BITs (UNCTAD 2009). The China-Japan investment treaty was signed in 1988, while the Korea-China investment protection agreement and the Korea-Japan investment treaty were concluded in 1992 (renewed in 2007) and 2001, respectively. Asia is replete with investment treaties.

The absence of a multilateral governance architecture in Asia stands in stark contrast to the tremendous growth of intraregional economic transactions. Over the past decades, the region has witnessed deepening economic interdependence based largely on continued economic growth and liberalization of trade and investment. Intraregional trade as a proportion of the total trade of Asian countries increased from 34.4 percent in 1986 to 45.1 percent in 1990 and to 56.1 percent in 2008. In terms of investment, the share of intraregional foreign direct investment (FDI) increased from 51.36 to 79.11 percent during the same period, and the intraregional portfolio investment from 9.6 percent in 2001 to 16.6 percent in 2007. (3) However, the increases in intraregional trade and FDI flow have not been coupled with any multilateral schemes, despite the growing need for institutionalization of economic integration. The lack of multilateral schemes could make Asian regionalism fragile and messy due to the so-called noodle bowl syndrome (Baldwin 2006, 1491).

However, jumping to the conclusion that there is no multilateralism in Asia would be premature. At first glance, bilateral dynamics has little to do with multilateralism. Bilateralism has been successful exactly where multilateralism has failed. However, in this article, I demonstrate that multilateralism can also be achieved on bilateral grounds. That is why we need to examine closely the substance of Asian bilateralism. Multilayered bilateral networks have multilateral effects, especially when they are dense and homogeneous. Based on the observation of an increase in density as well as a convergence in the structure, scope, and contents of BITs in the Asia Pacific region, I argue that bilateralism is multilateral in effect, particularly in regulating foreign direct investments in the Asia Pacific region.

This multilateralism-through-bilateralism (MTB) thesis on investment regimes makes important contributions to the literature on Asian regionalism and the international political economy. It enriches studies on different institutional forms of regionalism by refining the conventional view that bilateralism is an alternative and hence a stumbling block to multilateralism. Even though the literature on the rational design of international institutions has been expanding (Abbott et al. 2000; Abbott and Snidal 2000; Koremenos, Lipson, and Snidal 2001), (4) the dimension of bilateral vs. multilateral cooperation has been neglected (Rixen and Rohlfing 2007; Thompson and Verdier 2014). Comparative analyses of regional integration have contrasted Asian bilateralism with European multilateralism, implying that the latter represents a higher level of regionalism and a goal that Asian countries should seek to reach. However, the emergence of converging bilateral networks is a form of substantive multilateralism. Multilateralism is understood as "an institutional form that coordinates relations among three or more states on the basis of generalized principles" (Ruggie 1993, 11). Thus, BITs are indeed multilateralizing the bilateral mode of FDI governance by introducing increasingly generalized standards of investment promotion and protection.

Furthermore, this research fills a void in the Asian political economy literature. In fact, the politics of foreign investment and BITs in Asia are largely uncharted waters. While many studies have focused on trade, understanding the political economy of Asian BITs is important because it provides a barometer to fathom the depth of Asian economic integration. Given that investment rules are not on the agenda of the current Doha Round of global trade talks, no general multilateral rules on investment exist. Instead, a web of bilateral investment treaties governs international investment. The most remarkable feature is that FDI governance in Asia, as well as in the world, is predominantly bilateral (Kahler 2009). Usually, BITs are adopted as a precursor to FTAs, a form of deep economic integration. Furthermore, as shown in the trilateral investment treaty signed in 2012 among China, Japan, and Korea, bilateral agreements can be transformed relatively easily into a multilateral regime. Thus, BITs can be viewed as both qualitative and quantitative indicators of regional investment regimes.

To develop my MTB thesis, I divide this article into four parts. In the next section, I critically review the literature on East Asian regionalism and show that the literature has been heavily skewed toward trade, with little attention paid to the issue of bilateralism vs. multilateralism as governance architectures for foreign investments. I then present the theoretical framework of the MTB thesis, with the two key variables of density and uniformity of BITs. In the last part, I test the MTB thesis on empirical grounds by analyzing the density and similarity of Asian BITs.

The Literature on Asia Pacific Economic Governance

Many students of international relations, comparative politics, and area studies have investigated the politics of economic integration in Asia for two main purposes--to compare Asian and European regionalism, and to evaluate the relative strengths of multilateral and bilateral modes of governance. When Asia is compared with other regions, the implicit assumption is made that successful regional integration should have a form similar to that of the European Union (EU) (Breslin 2010). For much of the second half of the twentieth century, regionalism has been conceptualized with reference to Europe (Warleigh 2004; Yeo 2010). Even though the European experience is only one of many models of regional integration, it has become the widely accepted benchmark against which Asia's integration processes are evaluated. Direct comparisons have usually resulted in a Eurocentric assessment of the immaturity of Asian regionalism (Katzenstein and Shiraishi 1997). Despite myriad forms of regionalism in the world, the typical conclusion about Asian regional governance is that its current modes do not match up with the EU-centric expectations of what regionalism should be (Breslin 2010). When Asia and Europe are characterized in terms of governance architecture, the governance of the former is characterized as informal and networked, while that of the latter is characterized as legalistic and formal, (5) implying that Asian countries lag far behind European ones in institutionalizing regional projects. As a corollary, the European mode is understood to be the rule, and that of the other regions the exceptions. In other words, the European mode has been treated not as one of many possible modes but as the archetypal norm for regional governance.

However, the real world of regionalism has multiple forms and layers of regional institutions for integration (Hettne, Inotai, and Sunkel 1999; Soderbaum 2004; Boas, Marchand, and Shaw 2005; Farrell, Hettne, and van Langenhove 2005; Hettne 2005; Hao 2009). New regionalism distinguishes regionalism and regionalization. The former refers to regions with a formally agreed-upon membership and boundaries that emerge as a result of intergovernmental dialogues and treaties. While such formal regions will necessarily encompass some form of institutionalization, no specific form of institutionalization is required to qualify as regionalism.

Whereas regionalism refers to form, regionalization refers to the processes by which societies and economies become integrated (Vayrynen 2003). The distinction between regionalization and regionalism is useful when assessing Asia, because economic integration has occurred with few formal institutions. Nevertheless, new regionalism has important weaknesses with regard to explaining and accounting for the unique paths of Asian regional governance. Although some studies of new regionalism have explicitly focused on comparing non-European cases, their main intention is to shed light again on Europe, and to enrich the Europe-originated integration theory through comparative analyses of more recent episodes of integration observed in Asia, the Pacific, Latin America, and Africa.

Another key element in the literature on regionalism is that it is unduly biased toward multilateralism as a desirable institutional form of regional governance. Since Jacob Viner (1950) coined the terms "trade diversion" and "trade creation," scholars and policymakers have been curious about the welfare implications of bilateral and other preferential trade agreements. Twenty-five years ago, Paul Krugman (1989) asked if bilateralism was bad, and he answered yes. Using a formal model, he argued that while bilateral and regional trading arrangements simultaneously reduced tariffs, their net effects would be to reduce world welfare. Later, informed by Bhagwati's (1995; 2008) insights into the "spaghetti bowl" of trade deals, the negative effects of bilateral economic governance have been highlighted. (6) Furthermore, some students of regionalism have shown increasing interest in the rise of bilateralism in Asia over the past decade. For example, they note the new trend toward the frequent use of bilateral trade agreements (Heydon and Woolcock 2009). Kawai and Wignaraja (2011) studied the business impact of the Asian "noodle bowl" of multiple and overlapping FTAs in six East Asian countries.

Proponents of multilateralism argue that bilateralism is far from optimal because of incoherence and inefficiency (Baldwin and Low 2009). Moreover, in East Asia, bilateral arrangements can be detrimental to broader regional cooperation. In trade, for example, each agreement has unique rules of origin; hence, the proliferation of preferential trade agreements acts as an obstacle to collaboration on a wider geographical basis (Ravenhill 2008).

Thus, bilateralism can hardly be considered a substitute for multilateralism. There is clearly the need for a strong and vigorous multilateral system (Heydon and Woolcock 2009). "Whether Asia's future is characterized by cooperation or confrontation will be determined in large part by the region's ability to construct effective multilateral institutions for integration, collaboration, and cooperative problem-solving--what is now being called the new Asian institutional 'architecture'" (Green and Gill 2009, 1).

Before unconditionally endorsing the suboptimality of bilateralism, we need to be cognizant of the possibility that the vices of bilateralism and the virtues of multilateralism have both been overstated (e.g., Blum 2008). (7) The literature remains uncertain as to whether these various forms of cooperation are substitutes or complements (Zawahri and Mitchell 2011). Bilateral agreements could undermine multilateral cooperation efforts or could strengthen cooperation in multilateral regimes (Odell 2000; Verdier 2008). Furthermore, due attention needs to be paid to the dynamic relationship between multilateralism and bilateralism. With very few exceptions (Rosecrance and Stein 2001; Rixen and Rohlfing 2007; Verdier 2008), the international relations literature has tended to examine multilateral cooperation separately from bilateral cooperation (Denemark and Hoffmann 2008). As articulated in the next section, I show that bilateral economic arrangements might have multilateral effects in tandem with density and uniformity.

The Multilateralism-Through-Bilateralism Argument

The thrust of this study is that networks of multiple overlapping bilateral economic agreements can have the effect of de facto multilateralism. That is, multilateralism is a natural extension of bilateralism if two key conditions are satisfied: the networks of bilateral agreements are dense, and the contents of those agreements are identical. (8) Despite increased interest in the distinctiveness of Asian economic governance, the possibility of and conditions for bilateralism-extended multilateralism have not been explicitly articulated in the literature. When scholars use the term "networked regionalism," they understand it as a synonym for informal and thus "under-institutionalized" modes of regional governance (Katzenstein and Shiraishi 1997; Aggarwal and Morrison 1998; Pempel 2005; Jetschke 2009). Thus, they conclude that network regionalism in Asia is starkly different from institutional regionalism in Europe (Hemmer and Katzenstein 2002; Katzenstein 2005; Yeo 2010).

What is more relevant to our thesis is the concept of "region-convergent bilateralism" or "lattice bilateralism" (Dent 2003; 2006), because it captures the impact of increasing bilateralism in Asia on the regional governance of trade relations. Region-convergent bilateralism is one in which intensified bilateralism makes positive contributions to the development of regionalism. Bilateralism provides a substructural or "latticed" foundation for regionalism to develop (Dent 2006, 84). There are two requirements for the gradual evolution of bilateral-toplurilateral rationalization of trade arrangements. The first is the substantive content of the bilateral FTAs, and the second is the merger of bilateral FTAs into new plurilateral or subregional trade arrangements. For Dent, the spaghetti-bowl effect is not necessarily detrimental to networking the region because complex rules of origins and other provisions in FTAs can provide greater incentive to unify the FTAs into a wider plurilateral agreement with common rules and provisions. However, he finds that bilateral FTAs have been more region-divergent than region-convergent, and rejects the hypothesis of lattice regionalism. By analyzing the Asia Pacific regime of foreign investments, I extend Dent's inquiry into the path of bilateral-toplurilateral economic governance and develop the multilateralismthrough-bilateralism thesis and arrive at conclusions that are different from Dent's.

The MTB thesis is built on two attributes of bilateral networks--their density and homogeneity. First, a dense network means that the majority of actors in the region, including systemically significant ones, are interconnected through dyadic arrangements. Density, as a structural property of the overall network of relations, is measured by the proportion of actual ties to the number of possible ties (Lloyd 2002). It tells us about the level of connectivity and the volume of relationships. Thus, as more countries participate in bilateral economic deals, the density of dyadic networks increases.

An increase in density of bilateral treaties has dynamic effects. On the one hand, as more agreements are concluded, they may become more attractive (Petri 2008). As with FTAs, BITs have domino effects, because the economies left out of a BIT may seek to secure market access lost in the countries participating in the BIT (Elkins, Guzman, and Simmons 2006). Once the process of BIT formation gathers momentum, it is likely to generate forces that will sustain it. (9) On the other hand, cost-benefit analysis of bilateral and multilateral modalities can shift from favoring bilateral agreements to favoring multilateral agreements as the density of BITs increases, which could happen for two reasons. First, the costs involved in administering many agreements tend to rise with the number of agreements in force. Second, the value of preferential treatment of investments tends to decrease as those markets provide similar preferential treatment to more competitors. Thus, the density of dyadic investment arrangements paves the way for multilateral economic governance.

Second, network homogeneity indicates the extent to which the substantive content of bilateral agreements is identical and uniform. For bilateral networks to have multilateral aspects, they need to be similar enough so that states behave as if a single multilateral framework exists. Multilateralism is "an institutional form that coordinates relations among three or more states on the basis of generalized principles of conduct"--a definition that logically entails indivisibility among the members of a collective with respect to the range of behavior in question (Ruggie 1993, 11). Therefore, the multilateral characteristics of bilateral networks depend on whether those networks have generalized princi ples in common. Using terminology from social network analysis (Grewal 2008), countries within bilateral networks should share a common standard. A standard is a shared norm or practice that enables network members to gain access to one another. It must be shared among members of a network to a sufficient degree that it defines the particular way in which a group of countries is interconnected in a network. In that sense, the similar substance of bilateral pacts is tantamount to such a generalized principle or a standard that may have multilateral effects.

Based on the above two attributes of bilateral networks, I identify four modes of regional economic governance in Asia (Figure 1). The MTB thesis holds when both the density and homogeneity of bilateral networks are relatively high (upper-left cell). If bilateral networks are dense but heterogeneous, as in the upper-right cell, then the spaghetti-bowl effect ensues. Due to different institutional forms and contents, the transaction costs of economic interactions in the region increase under these conditions. A combination of low density and high similarity is likely to result in minilateral regionalism. In this case, the majority of countries in the region lack an institutional instrument that regulates interstate economic transactions, and only a small number of countries are equipped with a highly uniform treaty. If density and similarity are both low, then the economic interactions are at the stage of regionalization, which is still far from any form of institutionalization (Ravenhill 2010). For instance, in this case, foreign investments increase with no formal legal basis to protect or promote such investments.

In the following section, I show how Asian regionalism can be understood as a bilateralism-extended form of multilateral regionalism, with a specific focus on the network properties of bilateral investment treaties. (10)

Multilateral Aspects of Asia Pacific BITs

Density of BIT Networks

In this section, I show how networks of bilateral investment treaties in Asia become dense and substantively identical so that they function as the de facto multilateral architecture for foreign investment governance in the region. Social network analysis (SNA) provides a useful description of the structure of Asian BIT networks and gives us a sense of what is happening in a specific point in time. The sample is composed of forty countries that are listed in the Asian Development Bank's (ADB) Asia Regional Integration Center database and affiliated with the Asia-Pacific Economic Cooperation (APEC) forum. I chose the years 1990 and 2010 as reference points and traced the configurations of BITs. BIT information was derived from the BIT database of the UN Conference on Trade and Development (UNCTAD) and the investment chapters of FTAs. (11)

Figure 2 shows the changing pattern of BIT networks in the Asia Pacific over time. The thin lines indicate signed BITs, while thicker ones signify BITs that have entered into force. As expected, BITs were a phenomenon of the 1990s. The number of participants in BITs increased sharply during the 1990s. In 1990, twenty-three of forty countries in the sample had not concluded any BIT with other Asian nations, but twenty years later, only four countries--Afghanistan, Nepal, East Timor, and Tonga--had not concluded any BIT with other Asian nations. Now, all Asian countries are included in the universe of Asia Pacific BITs.

The BIT networks have also become much thicker, and network density has thus increased drastically--from 5.64 percent in 1990 to 66.28 percent in 2010. Density, a fairly simple measure of network structure, is the ratio of the number of actual ties divided by the number of possible ties in a network. In 1990, for instance, about five of the 100 possible BITs were signed or had taken effect, whereas in 2010, the density of BITs had increased more than tenfold.

Another way to assess trends in changing network structures is to examine the transitivity of BIT networks. Density is the simplest and most intuitive description of network configuration. It measures the degree of connectivity, controlling for network size and the range of relationships that exist within it. The main problem with density measures is that they tell us only about the volume of relationships and not about the structure of relationships within a network. In this regard, the measure of transitivity is useful (Maoz 2011). High transitivity implies a consistent cooperative relationship in which the parties to one BIT tend to be partners with each other. Transitivity measures the number of closed triads divided either by the number of possible triads in a network or by the number of cases where a single link could complete the triad.

As with density, transitivity scores have been increasing steadily. Transitivity as the ratio of closed triads to possible triads in a network increased from a mere 0.04 percent in 1990 to 9.72 percent in 2010, while transitivity as the number of cases where a single link could close the triad increased from 16 percent in 1990 to 59.26 percent in 2010. Thus, the BIT networks of Asian countries have been moving toward becoming more transitive and at equilibrium.

The idea of transitivity also provides a different perspective of network structure. As Watts (2003) pointed out, there is often a structural pattern in large networks that seems somewhat paradoxical. Most actors live in local neighborhoods where most others are also connected to one another. That is, in most large networks, a very large proportion of the total number of ties is highly clustered into local neighborhoods. The density in local neighborhoods tends to be much higher than that of the entire network. A familiar example is that most of the people we know may also know one another.

One common way to measure the extent to which a graph displays clustering is to examine the local neighborhood of an actor--that is, all actors who are directly connected to that node--and to calculate the density in this neighborhood. This overall clustering coefficient is simply the average of the densities of the neighborhoods of all of the actors. (12) To assess the degree of clustering, I compared the cluster coefficient to the overall density. In the sample, I found that all of the countries surrounded by local neighborhoods are fairly dense, implying that they are embedded in dense local neighborhoods to a fairly high degree. As shown in Figure 2, the local density scores (0.393 and 1.247) are two- to eightfold higher than the overall density scores discussed above, implying that local or subregional dynamics of BIT networks are much more active than the dynamics of the entire region.

To identify these locally dense groupings, we need to look for factions or blocks within the network. (13) To determine the similarities among subgroups, I measured the degree of factionalization within a network by grouping forty countries into four factions according to geographical lines of the Asia Pacific: Northeast, Southeast, Central, and the Pacific. This analysis revealed that dense and relatively closed factions are present in East Asia and Central Asia. As shown in Table 1, only one relatively dense subnetwork that included China, Japan, Korea, Malaysia, Pakistan, Singapore, Sri Lanka, and Thailand was evident in 1990; this subnetwork had an in-group density of 0.29 (indicating that 29 percent of all the possible ties in the substructure were actually connected). In 2010, along with the East Asian faction, a Central Asian subnetwork with a high density of 0.67 emerged.

Finally, we can identify some actor-level attributes of the network by examining centrality measures such as degree, closeness, and betweenness. Table 2 shows that by all measures of centrality, China is the most important player in Asian BIT networks. By and large, the top five countries in terms of degree and closeness centralities are almost identical. However, the rank order of betweenness centrality is reshuffled, with Singapore in but Vietnam out of the 2010 sample. In a nutshell, the Asian BIT networks have become much denser regionally and subregionally, with China playing a leading role.

Homogeneity of BIT Networks

The other condition under which bilateralism has the effect of de facto multilateralism is when the BIT networks are homogeneous. Lack of similarity in the contents of BITs may entail the noodlebowl effect whereby overlapping yet heterogeneous BITs place large administrative burdens on investors, distort investment flows, and threaten to erode the multilateral aspects of bilateral networks. The MTB process refers to the practice of augmenting the multilateral effects of bilateral webs through homogeneous interplays, even in the absence of explicit and formal multilateral agreements. The multilateral dimension of bilateral investment agreements can be conceptualized as "de facto multilateralism" (Chalamish 2009, 305). It is basically built on the content of BITs, the BIT signing mechanism, and the case laws that have arisen from bilateral and regional agreements.

BITs are distinguished in terms of two principal elements: the level of protection the host country affords to foreign investors and the level of enforcement it undertakes. For example, broader protection can be provided by including more investors under the BIT's protection, expanding the scope of protected investments, or granting more rights to investors. Specifically, BITs start by defining investors and investments covered by the treaty. Furthermore, they stipulate a set of investor rights: most-favored-nation (MFN) status, national treatment, and the principles of expropriation and compensation. For investment dispute settlement, BITs provide various enforcement mechanisms such as international arbitration.

The subsequent discussion examines the degree of homogeneity in the contents of BITs, with special emphasis on the BITs concluded by core countries in the Asia Pacific political economy. Of 174 BITs or FTA investment chapters signed by Asian countries as of 2010, I compare the Japan-Korea-China Investment Agreement (2012) (14) as a reference BIT with the Association of Southeast Asian Nations Comprehensive Investment Treaty (2009), (15) chapter 11 of the ASEAN-Australia-New Zealand (AANZ) FTA (2010), and chapter 11 of the North American Free Trade Agreement (NAFTA) (1994).

My selection of these BITs can be justified on the following grounds. First, the three countries--Japan, Korea, and China--are a k group that is required for substantial economic cooperation in the Asia Pacific region. (16) They have been sympathetic to advancing multilateral cooperation for foreign direct investment in East Asia. China has become more active in cooperating with other countries concerning investments compared with trade and currency, although China first proposed a trilateral free trade pact at the 2002 China-Japan-Korea summit. Japan also argued that a tripartite investment treaty needed to be negotiated, and China started to consider this as a prerequisite for regional economic cooperation. On December 13, 2008, the foreign ministers of the three countries agreed on the "Action Plan for Promoting Trilateral Cooperation," and on negotiations to conclude a trilateral agreement for the promotion, facilitation, and protection of investment. The trilateral BIT signed among them in 2012 will build further consensus for developing a multilateral framework of foreign investments in Asia.

Second, the k-group countries have material capabilities in terms of trade, investment, foreign exchange reserves, and energy supply, such that they could set a standard for regional coordination and hence wield network externalities or "network power" over other countries in the region. "The concept of network power joins two ideas: first, that standards are more valuable when greater numbers of people use them because they offer a form of coordination that exhibits economies of scale: and second, that one effect of this coordination is over time to eliminate the alternative standards that might have been freely chosen" (Grewal 2008, 26). (17) In particular, the economic weight of these countries is well captured by several indicators. As shown in Table 3, these three countries accounted for 35.44 percent of the total GDP of APEC economies and 34 to 38 percent of exports and imports in 2010. Likewise, they sent out 20 percent of foreign direct investments to other regional peer nations. By implication, when their BITs converge on other BITs, they would have network externalities, and hence induce the other Asian countries to adopt a similar BIT.

The units of comparison are definitions of investments, treatment of investments, expropriation and compensation, dispute settlement procedures, institutional arrangements for managing BITs, and safeguard measures. (18) The overall similarity of BIT contents and inclusion of MFN treatment provisions have significant implications for de facto multilateralization of bilateral treaties. (19) I found that the core BITs are very homogeneous in most aspects of comparison (see the Appendix).

Elements of Homogeneity

First, the definitions of investments and investors concern the coverage of the BIT. When BITs focus on the transborder movements of capital and resources, they tend to adopt a narrow definition of foreign investment and ensure investors' rights to companies. In contrast, a broader and more comprehensive definition is used mainly in those BITs that emphasize protection of investments. This definition includes not only the capital and resources necessary for the establishment or acquisition of companies but also the assets of companies and investors (UNCTAD 2011). All the BITs under analysis here have adopted a relatively comprehensive definition of foreign investment, with emphasis on protection rather than free movement. The term "investment" is defined as "every kind of asset" owned or controlled by an investor. The items specified on the treaties are illustrative, but not exclusive. Typically, they include (in)tangible and (im)movable assets such as intellectual property rights.

Second, with respect to treatment of foreign investments, all investment agreements set the minimum standard of treatment as fair and equitable treatment and full protection and security of investments. Furthermore, all four BITs explicitly endorse not only national treatment but also MFN treatment that requires treating investments and business activities of partner nations on a basis no less favorable than that accorded to its own nationals or nationals of any third country. These types of treatment are provided for admission, investment-related activities, access to courts, and compensation for damages due to emergencies. However, the provision of national treatment is more similar among the BITs than MFN clauses, in the sense that the AANZ FTA has no clause on MFN treatment.

Such relatively uniform rules concerning MFN status are important for BITs to have multilateral effects. With some variations, these clauses are reciprocal and unconditional. They oblige the contracting parties granting MFN treatment to extend to the beneficiary state treatment as favorable as that accorded to third states, and thus require nondiscrimination between the beneficiary and any third state. An investor covered by a BIT that includes an MFN clause can therefore invoke the benefits granted to thirdparty nationals by another BIT of the host state and have them applied to its relationship with the host state. Consequently, MFN clauses multilateralize bilateral investment treaty relationships and harmonize the protection of foreign investments in a specific host state. They prevent states from shielding bilateral bargains from multilateralization and keep them from making exclusive or preferential promises to specific states and their nationals (Schill 2009; 2010). These MFN clauses weaken claims that bilateralism permits differential treatment of investments, thereby adversely affecting regional integration. "States reach bilateral agreements and then, through application of the norm of nondiscrimination, extend these agreements to other members of the system" (Martin 1992, 774). Bilateral agreements inclusive of unconditional MFN treatment could make states involved in an "exchange of hostages" in the form of asset-specific investments (Yarbrough and Yarbrough 1986). Thus, MFN clauses lead to stable cooperation without the use of a formal multilateral international organization that has enforcement power.

Third, the provisions on expropriation, compensation, and dispute settlement also show high homogeneity. Expropriation of foreign investments is considered acceptable only for public purposes, in a nondiscriminatory manner, with prompt, adequate, and effective compensation that will be paid without delay and at fair market value. Furthermore, the other BITs, except for NAFTA's chapter 11, guarantee compensation for losses due to armed conflict or a state of emergency. All BITs under analysis have procedures to deal not only with state-to-state disputes but also with investor-to-state disputes. The primary method of settlement is consultation and, if necessary, international arbitration.

Adoption of investor-state arbitration may endow bilateral investment agreements with a multilateralizing effect. Granting investors the right to initiate arbitration enforces host countries' compliance with the treaties, and thereby excludes bilateral postbreach bargaining. These provisions can ensure that investment treaties are enforced independently of relative power relations between the host and home countries. Investor-state dispute settlement procedures thus restrict countries engaged in bilateralism from enforcing investment treaty obligations by removing the power of states to defect from their treaty obligations based on bargaining with the investor's home state.

In addition, the rules of the International Center for Settlement of Investment Disputes (ICSID) and the UN Commission on International Trade Law (UNCITRAL), incorporated in all four BITs, constitute a multilateral convention. (20) Consequently, investor-to-state disputes are addressed using the same procedural rules, and equal transaction costs are imposed on dispute settlements and enforcement of treaty obligations. Multilateral rules for investment arbitration create a level playing field for interstate investment games. Furthermore, by automatically recognizing ICSID awards as final and binding in all member states, the ICSID convention elevates the enforcement of awards from a bilateral to a multilateral level.

Investor-state arbitration also empowers tribunals to function as lawmakers for the entire investment treaty regime. For example, investor rights, such as national and MFN treatments, are wide open to interpretation. These investor rights are understood as general clauses that delegate substantial rule-making power to judicial bodies. In turn, arbitral tribunals emerge as essential lawmakers in international investment law. They do not interpret BITs according to methods specific only to bilateral treaties, but employ rationales that suggest the existence of an overarching body of international investment law. Frequently used references are prior arbitral awards and third-party investment treaties. Using these references creates uniformity in treaty interpretation and embeds BITs in an overarching treaty framework. Thus, investment tribunals translate the similarities of bilateral treaties into multilateral reality beyond the existing elements of multilateralism (Schill 2010).

Finally, most BITs (except for NAFTA) have ad hoc or permanent organizations, such as the Joint Committee of the JapanKorea-China BIT or the ASEAN Investment Area (AIA) Council of the ASEAN BIT. These bodies review the operation of agreements and discuss other investment-related matters. These organizations can make recommendations to the contracting parties on investment policies to facilitate more effective functioning of the BIT.

Despite the strong similarity among BITs, differences and variations also exist. For instance, the provisions for exceptions and exemptions vary across the four BITs. A health exemption is found only in the ASEAN BIT, for example, while environmental obligations are included only in the Japan-Korea-China BIT and NAFTA's investment chapter.

Conclusion

By analyzing investment regimes in the Asia Pacific, my study constructed a multilateralism-through-bilateralism thesis, which posits that dense and homogeneous bilateral investment agreements facilitate de facto multilateralism as a mode of regional governance. Even though many studies have considered regions as important units of analysis in international relations, very few have linked Asian governance architecture to multilateralism. Typically, authors who have compared Asian experiences with European ones have concluded that the former are based largely on bilateral foundations, thereby suffering from a paucity of multilateral institutions. Indeed, the nonexistence of a multilateral governance apparatus in Asia stands in stark contrast to the startling growth of intraregional economic transactions. This institutional deficit has been regarded as a grave vulnerability of Asian regional governance, and much attention has focused on the negative impacts of bilateralism on regional integration.

However, I looked at bilateral economic arrangements in the region from a different perspective. Seemingly, bilateralism has little to do with multilateralism in that the former begins with the latter's failure. But my research shows that if two requirements are satisfied, multilateral governance is plausible on bilateral grounds. That is, when networks of bilateral investment treaties are dense and homogeneous, they can function as a multilateral architecture that reinforces region-converging effects.

Using social network analysis methods and data from forty Asia Pacific economies between 1990 and 2010, I found that BIT networks have become much denser in terms of the number of network participants and measures of density, transitivity, and subregional clustering. As expected, indices of network centrality revealed that China has taken center stage in Asian BIT networks.

I assessed the second component of the MTB thesis by investigating homogeneity in the contents of four BITs concluded among the key regional powers: China, Japan, Korea, and the United States. I compared typical components, including definitions of investment, treatment, expropriation and compensation, dispute settlement procedures, institutional arrangements, and safeguard measures among the four BITs. For almost all components but exceptions and exemptions, the four BITs have very similar structures and specific provisions. In particular, similar provisions regarding MFN treatment and dispute settlement may promote the multilateralizing effect of bilateral treaties. The MFN clause multilateralizes the dyadic arrangements of investment protection by dampening the incentive to discriminate against other countries. Thus, it undermines the bilateral grounds that support differential treatment of investments. Furthermore, the adoption of investor-state disputes and international arbitration rules empowers investment tribunals to function as lawmakers within the regional investment regime. In effect, those tribunals translate the similarities of bilateral treaties into multilateral reality.

Thus, the finding that Asian BIT networks are both dense and homogeneous suggests that multilateralism by bilateral means is plausible, and I argue that the multilateralism-through-bilateralism thesis provides a compelling understanding of the nature and future of Asian regionalism. My study enriches the literature on international cooperation in general and regionalism in particular because it refines the conventional wisdom that bilateralism is an alternative and hence a stumbling block to multilateralism. It has important implications for policymakers who hammer out strategies to achieve multilateral governance arrangements. To achieve multilateralism from bilateral paths, they first need to connect as many countries as possible within a web of bilateral links, and, second, they need to reduce the heterogeneity of bilateral treaties. My study highlights the availability of bilateral roads toward a de facto multilateral mode of regional governance in the Asia Pacific region.

Appendix

Sample Countries

Country            Code   ADB    APEC

Afghanistan        AFG    1966
Armenia            ARM    2005
Australia          AUL    1966   1989
Azerbaijan         AZE    1999
Bangladesh         BGD    1973
Brunei             BRN    2006   1989
Cambodia           KHM    1966
Canada             CAN    1966   1989
Chile              CHL           1994
China              CHN    1986   1991
Georgia            GEO    2007
India              IND    1966
Indonesia          IDN    1966   1989
Japan              JPN    1966   1989
Kazakhstan         KAZ    1994
Korea              KOR    1966   1989
Kyrgyzstan         KGZ    1994
Laos               LAO    1966
Malaysia           MYS    1966   1989
Mexico             MEX           1993
Mongolia           MNG    1991
Myanmar            MYR    1973
Nepal              NPL    1966
New Zealand        NZL    1966   1989
Pakistan           PAK    1966
Papua New Guinea   PNG    1971   1993
Peru               PER           1998
Philippines        PHL    1966   1989
Russia             RUS           1998
Singapore          SGP    1966   1989
Sri Lanka          LKA    1966
Taiwan             TWN    1966   1991
Tajikistan         TJK    1998
Thailand           THA    1966
Timor              TME    2002
Tonga              TON    1972
Turkmenistan       TKM    2000
United States      USA    1966   1989
Uzbekistan         UZB    1995
Vietnam            VNM    1966   1998

Comparison of Major Asia Pacific BITs

                              Japan-Korea-China       ASEAN
                              Investment Treaty,    Investment
                                     2012          Treaty, 2009

Intellectual                          **                **
  property rights (a)
Minimum treatment                     **                **
  of investment (b)
Preestablishment rights (c)         * (d)               **
Most-favored nation                   **                **
  treatment
National treatment                    **                **
Expropriation and
  compensation (e)                    **                **
Compensation for losses (f)           **                **
Control clause (g)                    **                **
Health exemptions                     x                 **
Security exceptions                   **                **
Financial crisis safeguards           **                **
Environmental obligations             **                x
Managerial nationality                x                 **
  requirements prohibited
Board nationality                     x                 x
  requirements prohibited
Transparency (h)                      **                **
Export requirements                   **                x
  prohibited
Local content requirements            **                **
  prohibited
Technology transfer                   **                x
  requirements prohibited
Investor-state arbitration            **                **
State consent (i)                     **                **
Domestic courts (k)                   x                 x
Arbitration waiting                4 months          6 months
  period
ICSID                                 **                **
ICSID additional facility             **                **
UNCITRAL                              **                **
Institutional                  Joint Committee     AIA Council
  arrangement

                               AANZ FTA        NAFTA
                              Chapter 11,   Chapter 11,
                                 2010          1994

Intellectual                      **            **
  property rights (a)
Minimum treatment                 **            **
  of investment (b)
Preestablishment rights (c)       **            **
Most-favored nation                x            **
  treatment
National treatment                **            **
Expropriation and
  compensation (e)                **            **
Compensation for losses (f)       **             x
Control clause (g)                **            **
Health exemptions                  x             x
Security exceptions                x             x
Financial crisis safeguards        x             x
Environmental obligations          x            **
Managerial nationality             x            **
  requirements prohibited
Board nationality                  x             x
  requirements prohibited
Transparency (h)                  **            **
Export requirements                x            **
  prohibited
Local content requirements        **            **
  prohibited
Technology transfer                x            **
  requirements prohibited
Investor-state arbitration        **            **
State consent (i)                 **            **
Domestic courts (k)                x             x
Arbitration waiting            6 months      6 months
  period
ICSID                             **            **
ICSID additional facility         **            **
UNCITRAL                          **            **
Institutional                 Investment         x
  arrangement                  Committee

Notes: (a). The definition of investment covers intellectual
property rights.

(b.) It is stipulated that foreign investments be given fair and
equitable treatment, and full protection and security.

(c.) Investments are protected at the stage of entry into host
states.

(d.) MFN is permitted, but not national treatment.

(e.) There are four principles of expropriation and compensation:
public purpose, nondiscrimination, prompt-adequate-effective
compensation, and due process of law.

(f.) Provision is made for treatment for losses due to armed
conflict or a state of emergency.

(g.) Host countries can deny rights and benefits to home-country
investors.

(h.) Contracting governments must disclose any changes in
investment regulations and laws.

(i.) Investor-state arbitration is permitted.

(j.) The host state automatically consents to arbitration.

(k.) Investor-state disputes must first be submitted to a
domestic court before international arbitration.

** = provision is included; * = provision is partially included;
x = provision is not included.


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Notes

(1.) For a detailed elaboration of the "organization gap," see Calder and Ye (2004), Calder (2008).

(2.) In this article, East Asia includes the ten member states of the Association of Southeast Asian Nations (ASEAN), plus Korea, Japan, and China.

(3.) Relevant data are available from ADB Asia Regional Integration Center's Integration Indicators Databases.

(4.) For recent literature on this topic, see Barnett and Coleman (2005), Haftel (2007), Kelly (2011), Rathbun (2011), and Trager (2011).

(5.) For discussions of the informal characteristics of Asian regionalism, see Katzenstein and Shiraishi (1997), Pempel (2004), and Katzenstein (2005).

(6.) Bhagwati (1995) provides an early discussion of the "spaghetti bowl" problem in the context of extending the North American Free Trade Agreement into new countries, starting with Chile, and transforming the AsiaPacific Economic Cooperation (APEC) into an FTA. Bhagwati (2008) provides a conceptual update and discusses the phenomenon in East Asia.

(7.) For arguments that bilateralism can be beneficial to the promotion of trade liberalization regionally and globally, see Kemp and Wan (1976), Grinols (1981), Desker (2004), and Wong (2006).

(8.) For an examination of modes of network governance and their effectiveness, see Thompson (2003), and Provan and Kenis (2007).

(9.) For similar logic and its application to the dynamics of FTAs, see Baldwin (2006). Baldwin suggests that the proliferation of preferential trade agreements will ultimately provide a platform for trade liberalization on a broader geographical scale.

(10.) For explanations of increasing bilateral modes of international cooperation, see Lazer (1999), Elkins, Guzman, and Simmons (2006), and Coutain (2009).

(11.) FTAs with investment chapters or provisions include the ASEANAustralia-New Zealand FTA, US-Peru TPA, US-Singapore FTA, USAustralia FTA, US-Korea FTA, US-Chile FTA, Japan-India CEPA, JapanPhilippines EPA, Japan-Chile EPA, Japan-Thailand EPA, Korea-Peru FtA, and Singapore-Peru FTA.

(12.) Meanwhile, the weighted clustering coefficient gives weight to the neighborhood densities proportional to their size. That is, actors with larger neighborhoods get more weight when computing the average density. Because larger graphs are generally less dense than smaller ones, the weighted coefficient is usually less than the unweighted version (Hanneman and Riddle 2005).

(13.) For various methods of subgrouping in a network, see Hanneman and Riddle (2005).

(14.) Previously, there were three separate BITs: the China-Korea BIT (1992/2007), Japan-Korea BIT (2002), and China-Japan BIT (1988).

(15.) The ASEAN investment regime has been built upon the ASEAN Comprehensive Investment Agreement (2009) that streamlined and enhanced the existing ASEAN investment agreements--the Agreement for the Promotion and Protection of Investments (1987), the Protocol to Amend the 1987 Agreement (1996), the Framework Agreement on the ASEAN Investment Area (1998), and the Protocol to Amend the 1998 Framework Agreement (2001).

(16.) This grouping is also called a "minimal contributing set," defined as the smallest number of countries that would provide public goods if they wanted to do so. For a discussion of three paths toward multilateralism--individualistic, social-communicative, and institutional--see Caporaso (1992).

(17.) The strength of network power depends on three network attributes: membership size, the desirability of networks, and the significance of network members (Grewal 2003; 2005; 2008).

(18.) For criteria for comparison of different BITs, see OECD (1996) and Houde and Yannaca-Small (2004).

(19.) For the multilateral effects of MFN clauses, see Chalamish (2009); Morin (2009); Schill (2009).

(20.) The ICSID is an autonomous international institution established under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. The center has over 140 member states.

Chi-Wook Kim is associate professor of international relations at the University of Ulsan. Before joining the university, he worked for the Sejong Institute as a fellow. His research interests include middle-power diplomacy, global governance, and international political economy. His work has been published in various political science and international relations journals. He can be reached at cwkim@ulsan.ac.kr. This work was supported by the 2013 Research Fund of the University of Ulsan.

Table 1 Substructure of Asia Pacific BIT Networks

     1990                        2010

1.   CHN JPN KOR LAO MYS    1.   AUL BGD BRN KHM
     NZL PAK SGP LKA TWN         CHL CHN IND IDN
     THA (0.29)                  JPN KOR LAO MYS
                                 MNG MYR NZL PAK
2.   AZE BGD BRN KHM CAN         PHL SGP LKA THA
     PER RUS USA VNM             VNM (0.74)
     (0.07)
                            2.   ARM AZE GEO KAZ
3.   AFG AUL IND IDN KAZ         KGZ RUS TJK TKM
     KGZ MNG MYR NPL PNG         USA UZB (0.67)
     (0.02)
                            3.   CAN MEX NPL PNG
4.   ARM CHL GEO MEX PHL         PER (0.20)
     TJK TME TON TKM
     UZB (0.0)              4.   AFG TWN TME
                                 TON (0.0)
                                 s
Notes: See the Appendix for an explanation of the country
codes used here. Densities between the
fractions are in parentheses.

Table 2 Top Five Countries in Network Centralities

Degree                             Closeness

1990            2010         1990         2010

CHN (8.0)    CHN (32.0)   CHN (3.95)   CHN (16.46)
KOR (6.0)    MYS (26.0)   LKA (3.94)   MYS (16.06)
LKA (5.0)    KOR (25.0)   KOR (3.94)   KOR (16.0)
SGP (4.0)    VNM (25.0)   SGP (3.94)   VNM (16.0)
CAN (3.0)    IDN (24.0)   THA (3.93)   IDN (15.9)

Betweenness

1990            2010

CHN (7.46)   CHN (9.01)
KOR (4.5)    MYS (4.15)
SGP (3.19)   KOR (3.03)
THA (2.35)   IND (2.87)
BGD (2.14)   SGP (2.83)

Table 3 China-Japan-Korea BIT Weights in the Asia Pacific
(percentage)

                          1990     2000    2005    2010

GDP                       31.47   32.94    30.17   35.44
Imports                           24.61    29.28   34.96
Exports                           28.86    34.84   38.43
Current account balance           -85.11   52.82   67.31
FDI flows, inward         6.51    10.15    26.11   19.30
FDI flows, outward        51.54   11.79    43.58   20.28

Source: Asia-Pacific Economic Cooperation, StatsAPEC,
http://statistics.apec.org.
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