Terminating to Renegotiate? Strategic exit and the case of international investment agreements

Exit from international agreements can severely damage a state’s reputation and hinder prospects for future cooperation. Nevertheless, governments sometimes withdraw from treaties and subsequently seek new agreements with the same partners. This article examines why dissatisfied states exit treaties in the context of international investment agreements, where unilateral withdrawal and renegotiation have become increasingly common. Although existing explanations highlight the importance of domestic political benefits of increasing governments’ ability to regulate foreign investments, they are unable to explain the diverse strategies they employ. Evidence from theory-building case studies and interviews with cabinet ministers in Indonesia and Ecuador suggests that exit was considered as the best way to catalyse renegotiations of their investment agreements. Yet they had to carefully balance between domestic political benefits and international reputational costs of exit when pursuing the strategic benefits. The findings contribute to a more refined understanding of strategic and political dimensions of treaty exit.