Flexibility in International Institutional Design: The Case of the OECD MLI

• In Event: International Institutions and Foreign Investment

Abstract

This paper examines the effectiveness of flexibility provisions in promoting cooperation in the design of international institutions. I consider the case of the OECD Multilateral Instrument (MLI), which has achieved broad participation in signing and ratification. Its flexibility measures, however, have resulted in narrow applicability and shallow modifications to existing tax treaties. The study shows that the use of reservations by jurisdictions to opt-out of demanding articles and exclude tax treaties from being modified has limited the actual coverage of the MLI. Furthermore, the findings suggest that the choice of reservations and treaty exclusions depends on the calculated self-interest of jurisdictions, considering both the potential costs and benefits of their involvement in the MLI. Importantly, the study argues that the effectiveness of flexibility measures in promoting cooperation depends on the scope of the existing international regime. Specifically, when a multilateral convention is tasked to reform an existing regime that is mainly built upon bilateral agreements, the effectiveness of flexibility measures can be limited by an uneven distribution of potential benefits and the tendency of states to avoid costly commitments. This paper contributes to the literature on institutional design and compliance and highlights the need for careful consideration of the inclusion of flexibility provisions in the design of similar multilateral conventions in the future.

Author

• Jing Qian, New York University, Shanghai