Economics
Using Bilateral Investment Treaties to Protect Digital Infrastructure
Quick fact
BITs are increasingly being used by technology companies to claim billions in compensation when governments restrict or seize their digital operations, such as data centers and undersea cables, under the guise of regulation.
Why this is interesting
Imagine a foreign company builds a massive data center in your country, then the government changes the rules. Can the company sue you for lost profits? In many cases, yes—thanks to a bilateral investment treaty.
Read the full explanation
Understanding Using Bilateral Investment Treaties to Protect Digital Infrastructure
Think of a bilateral investment treaty (BIT) as a legal safety net for foreign investors. When a company from country A invests in country B, a BIT between the two countries promises that the investment will be treated fairly and not be unfairly taken away. Traditionally, these treaties protected things like factories, mines, or power plants. But in the digital age, the 'infrastructure' that matters is different: data centers that store our information, undersea cables that connect continents, and even the software platforms that run our lives. These are all considered 'digital infrastructure assets.' When a government does something that harms these assets—like passing a law that forces data to be stored locally, which raises costs, or even shutting down a data center—the investor can claim that its investment has been 'expropriated.' Expropriation doesn't just mean physical seizure; it can also be 'indirect,' when regulations make the investment worthless. This is where the treaty comes in. BITs usually include an investor-state dispute settlement (ISDS) clause, which allows the investor to bypass local courts and directly sue the host state in an international arbitration tribunal. The tribunal can order the state to pay compensation to the investor. This mechanism was designed to encourage foreign investment by giving investors confidence, but it can also clash with a state's desire to regulate its own digital space.
A deeper explanation
The underlying principle is that BITs create binding obligations on states to protect foreign investment. When a state signs a BIT, it promises to treat investments from the other party fairly and equitably, and not to expropriate them without just compensation. These obligations are enforceable through an international legal process, usually ISDS. With digital infrastructure, the challenge is that these assets are often intangible or cross borders. A data center is physical, but the data it holds is not. A undersea cable may land in several countries. This creates ambiguity: what exactly is the 'asset' being protected? In recent cases, investors have argued that the right to process and transfer data is part of their investment. When a state imposes data localization or other restrictive measures, it can be seen as interfering with that right, thus breaching the treaty. Why does this matter? BITs were once used mainly in sectors like oil and mining. Now they are being used to challenge digital regulations that states see as essential for privacy, security, or sovereignty. This can put states in a bind: they want to protect their citizens' data, but doing so might expose them to costly international arbitration. The result is that BITs have become a powerful tool for tech investors to resist government regulation, and this has significant implications for political geography, as states must weigh their domestic digital policies against international legal obligations.