Bilateral international tax treaties govern host-country taxation for the majority of the world's FDI. The tax rates used under these treaties are gradually falling over time. To explain such behavior, we explicitly recognize the irreversibility of FDI. As the extent of irreversibility increases, Pareto optimal tax rates are less likely to be self-enforcing in the initial period of a bilateral tax treaty. More modest tax reductions, from the non-treaty levels, are still possible. These limited tax reductions generate an increase in bilateral, and irreversible, FDI so that further tax reductions become self-enforcing. Depending on the extent of irreversibility and asymmetry, Pareto optimal tax rates may be obtainable in the long run.