International investment agreements and services markets: locking in market failure?

Bilateral investment treaties (BITs) and investment chapters in preferential trade agreements have become popular measures to guarantee investor-friendly policies.While they reassure multinational firms, they also constrain host country authorities in regulating markets to stimulate competition. These problems are widespread in service industries characterized by significant economies of scale. This paper presents case studies of the difficulties the Chilean regulatory authorities faced in regulating the financial services, telecom, and energy industries. It concludes that able regulators are necessary,but that international agreements need to also leave enough policy space.