Investment Treaty News (ITN)

Entrevista con Alejandro Faya-Rodríguez, asesor jurídico especial, Ministerio de Economía mexicano

Damon Vis-Dunbar — Mon, 25 Aug 2008 08:54:00 GMT

Alejandro Faya-Rodríguez fue Director General Adjunto de Asuntos Internacionales de la Dirección General de Inversión Extranjera del Ministerio de Economía de México hasta marzo pasado. En dicho cargo negoció diez tratados bilaterales de inversión y un capítulo de inversión en el marco de un acuerdo de libre comercio. Recientemente, pasó a ocupar un cargo como asesor jurídico principal del Ministerio de Economía para el "Proceso MARCO", un proyecto encaminado a la elaboración de propuestas para fomentar la competencia económica y mejorar la regulación en sectores clave. Todavía asesora regularmente al Ministerio sobre asuntos de inversión extranjera. NTI contactó telefónicamente al Sr. Faya-Rodríguez en su oficina de la Ciudad de México.

NTI: Como negociador de tratados de inversión, ¿cómo describiría su principal responsabilidad?

AFR: La tarea radica en elaborar un buen instrumento legal. Es una gran responsabilidad, que no todos los negociadores manejan bien. Muchos de ellos tratan de terminar las negociaciones demasiado rápido para complacer a su jefe o líder. Sin importar que tan comprensible pueda ser esto, se trata de un acto altamente irresponsable. El deber de todo negociador reside en lograr el equilibrio justo entre la protección a las inversiones, a efecto de cumplir con el objetivo del tratado y, al mismo tiempo, establecer estándares y reglas claras, tanto de sustancia como de procedimiento, que den certeza legal y prevengan, en un grado razonable, reclamos frívolos. Esto no siempre es fácil y puede llevar tiempo.

NTI: La tendencia de acelerar un acuerdo, imagino, puede provenir de presiones políticas. ¿Cómo pueden trabajar los negociadores para cubrirse de las presiones para hacer concesiones, o acelerar el proceso, lo cual podría resultar en un tratado que perjudique los intereses del país?

AFR: Es importante entender que los negociadores son técnicos, no políticos. El negociador necesita articular claramente su opinión, formularla por escrito y circularla. Si no está de acuerdo con algún tema, debe tener la habilidad de comunicar sus inquietudes y ponerlas a la discreción de los altos rangos. Un negociador cumple su función siempre que exprese su opinión, y no tema hacerlo, aun cuando esto implique retrasar una negociación. Por supuesto, esto requiere de una habilidad para distinguir los temas cruciales y prioridades.

NTI: ¿Cuáles son algunas de las negociaciones de tratados de inversión más difíciles en las que haya participado?

AFR: Existen un par de negociaciones que destacan. Una de ellas fue la reciente negociación para un TBI (tratado bilateral de inversión) con China, el cual será firmado en breve. Esa negociación llevó más de tres años e implicó seis rondas de negociación, así como también una serie de conferencias telefónicas y otros intercambios. Hubo una gran brecha en términos culturales y de perspectiva legal. Para China, esta fue la primera desviación de su modelo de TBI, el cual es mucho más básico y general. Por ejemplo, fue difícil y llevó un intensivo trabajo de persuasión convencer a China sobre la necesidad de incluir cierto contenido en la sección procesal. Nuestro modelo contiene disposiciones relativas al alcance y la legitimidad para la presentación de demandas, el establecimiento de un tribunal arbitral, la ley aplicable, la consolidación y las características de los laudos y sus condiciones de ejecución, entre otros elementos. Nuestro modelo también es explícitamente claro en que sólo cubre diferencias que surgen de presuntas violaciones al tratado, y no de violaciones de legislación interna o de acuerdos de inversión. Afortunadamente, nos encontramos con muy buenos negociadores en el otro lado de la mesa y, finalmente, todos resultamos convencidos sobre la calidad del texto final.

Aun más intensivas en cuanto al tiempo dedicado fueron nuestras negociaciones para un TBI con el Reino Unido (RU). Ese TBI, vigente desde julio de 2007, tomó 10 años negociar. Desde un comienzo, el RU solicitó fórmulas que no eran aceptables para México. Para el RU, este TBI también marcó una desviación de su modelo tradicional. Tengamos en cuenta que el modelo mexicano sigue el enfoque del TLCAN, que es mucho más elaborado. No fue fácil, por ejemplo, convencer al RU sobre la importancia de vincular expresamente la norma de trato justo y equitativo con el derecho internacional consuetudinario.

Estas dos negociaciones son muy buenos ejemplos de que la paciencia y el trabajo dedicado rinden sus frutos al final. En ambos casos, el ambiente entre los negociadores fue muy positivo y constructivo, lo que también ayudó. Los negociadores deben procurar fomentar estas condiciones tanto como sea posible.

NTI: ¿Cuáles lecciones ha aprendido de sus negociaciones de tratados que le gustaría trasmitir a otros negociadores?

AFR: Les recomendaría paciencia, y aprender a decir “no” en algunas ocasiones. Es preferible no lograr un tratado que obtener uno malo. Acelerar el proceso no debe ser una opción. El otro consejo es aprender y estudiar tanto como sea posible. Para tener una posición fuerte de negociación, es necesario que los negociadores posean una pericia técnica sólida. He conocido negociadores con una preparación deficiente, que no están en posición de hacer frente a demandas que pueden ir en contra de sus mejores intereses, o que no están capacitados para discutir términos o enfoques específicos. En otros casos, son inseguros e incapaces para avanzar de manera constructiva.

NTI: Hay evidencia que apoya el argumento de que la IED es un elemento importante para el desarrollo económico general de un país. Sin embargo, no hay evidencia concluyente de que los tratados bilaterales de inversión realmente generen un aumento de la IED. En su opinión, ¿cuales son los mejores argumentos a favor de que un país celebre TBIs?

AFR: No creo que la evidencia siquiera pueda ser llamada concluyente. Es claro que los TBIs por sí solos no atraen IED. No importa cuántos TBIs posea un país, si éste no cuenta con un buen clima de negocios, no atraerá IED. Hay características mucho más importantes, tales como las condiciones macroeconómicas, el marco regulatorio interno, la solidez de las instituciones públicas y la calidad de la infraestructura y educación. Esto no quiere decir que los TBIS no cumplan una función. Dediqué cuatro años de mi vida a negociar este tipo de tratados y creo que son bastante positivos. Los TBIs desempeñan un papel suplementario dentro de un conjunto general de factores conducentes para atraer IED. Cuando tuve que explicar a nuestros senadores porqué deberían ratificar un TBI, nunca manifesté que atraería inversión per se; mas bien, les expliqué que los TBIs emiten una señal positiva a los inversores y complementan otras políticas.

Sin embargo, no todos los países deberían negociar TBIs. Tal es el caso de aquellos países cuyos objetivos de políticas contradicen los del TBI, o de países muy pequeños que no poseen una infraestructura institucional sólida a nivel interno, o de aquellos que no podrían afrontar el costo de un eventual laudo. Los TBIs son como tarjetas de crédito: son positivos siempre y cuando estén en las manos correctas. Pueden generar responsabilidades, y no hay nada de malo en eso, ya que es parte del concepto, siempre que estas responsabilidades estén controladas y puedan ser administradas correctamente.

NTI: Recientemente Usted expuso sobre el funcionamiento de la disposición de Nación Más Favorecida (NMF) en un artículo del Journal of International Arbitration. ¿Cuál es su opinión sobre la manera en que la disposición de NMF debería ser interpretada en los TBIs?

AFR: Esencialmente, sostengo que la cláusula de NMF, por cuestión de principio general, no debería ser utilizada como una herramienta para atraer disposiciones de otros tratados (treaty shopping). Esto corresponde a la mayoría de las cláusulas de NMF, que se encuentran expresadas en términos muy generales. Esa no es la intención original de la cláusula, y conforme a mi experiencia como negociador, ciertamente ese no ha sido el efecto deseado. Su función es la de eliminar distorsiones en términos de condiciones competitivas, tales como evitar un trato diferencial entre dos inversores extranjeros con respecto a temas como impuestos, bienes raíces y regulación comercial, solo para mencionar algunos. Amén de unas pocas excepciones, como el pre-establecimiento y transferencias, los tratados de inversión no tienen que ver con cuestiones competitivas, sino con estándares legales de protección. Las condiciones competitivas están establecidas a nivel interno. Por lo tanto, a menos que se indique lo contrario de forma claro - algo que no he visto hasta ahora - la disposición de NMF no debería ser interpretada para atraer cláusulas de otros tratados.

NTI: ¿Adonde cree que se verá dirigido el régimen legal que rige la inversión internacional durante la próxima década?

AFR: No preveo que vaya a adoptarse un enfoque multilateral en un futuro cercano. Todavía hay países que no están seguros sobre los beneficios de la IED, e incluso aquellos países que sí lo están, dudan sobre el régimen legal apropiado que debería regir la IED a nivel internacional. No creo que estemos en un escenario mejor al que había cuando el AMI se vio frustrado a fines de la década de 1990, e incluso podríamos encontrarnos en un peor escenario. Así que seguiremos observando la celebración de tratados de inversión a nivel bilateral, aunque a un ritmo más lento, debido a que muchos TBIs ya han sido negociados. También creo que en un futuro veremos reducido el número de arbitrajes que surgen de los TBIs.

NTI: ¿Por qué predice menos arbitrajes de inversión?

AFR: Hemos sido testigos de una especie de burbuja respecto de los arbitrajes de inversión basados en tratados. Durante mucho tiempo, nadie prestó demasiada atención a estos acuerdos. Sólo después de que surgieran los primeros casos, especialmente aquellos relacionados con el TLCAN, los abogados e inversores se dieron cuenta de que se trataba de instrumentos legales que podrían operarse y generar el pago de laudos pecuniarios. Pero, en mi opinión, se ha exagerado a este respecto. Creo que con el correr del tiempo esta exageración se corregirá por sí sola por varias razones. Primero, a medida que emergen patrones de interpretación, los límites tanto para el Estado como para los inversores serán más claros. Hoy resulta bastante difícil, por ejemplo, probar un caso de expropiación indirecta. Bajo el TLCAN, sucede lo mismo con la norma de trato justo y equitativo. En segundo lugar, existen consecuencias por presentar reclamos frívolos. Es caro, y puede tornarse más costoso, ya que algunos inversores que perdieron han sido condenados a pagar la totalidad o la mayor parte de las costas legales de los procedimientos de arbitraje. Por último, la transparencia aportará mucho a la legitimidad del sistema y la calidad de las decisiones. Los árbitros deben saber que sus laudos serán evaluados por un círculo que está en crecimiento.

Por supuesto, actualmente existe discusión y debate sobre temas como la cláusula paraguas (umbrella clause), NMF, y trato justo y equitativo y plena protección y seguridad fuera del TLCAN. En mi opinión, se han realizado interpretaciones bastante expansivas de estas disposiciones. Personalmente no estoy a favor de interpretaciones que impongan obligaciones poco razonables sobre los Estados o que se aparten de conceptos ampliamente reconocidos por el derecho internacional, o de perspectivas pro-Estado que no condenen actos arbitrarios en contra de los inversores. Al final, el mejor escenario es encontrar el equilibrio, y si el sistema alguna vez se desvía demasiado en alguna de estas direcciones, posiblemente se verá quebrantado. Y esto no es conveniente para aquellos países que son tanto exportadores como receptores de inversiones.

News in Brief: Tribunal declines jurisdiction in African Holding Company of America, INC et Société Africaine de construction au Congo SARL (SAFRICA) v. République Démocratique du Congo

Damon Vis-Dunbar — Wed, 13 Aug 2008 13:00:00 GMT

By Suzy H. Nikièma
13 August 2008

An ICSID tribunal has declined jurisdiction in a dispute over a failed construction contract between the Democratic Republic of Congo (DRC) and two U.S. investors. Two members of the three-person tribunal held that the dispute began when the investment was under the control of a Belgium company, therefore disqualifying the claimants from seeking protection under the US-DRC bilateral investment treaty.

The claim arose out of the alleged non-payment of invoices under a construction contract between the DRC and SAFRICA, a Belgium company at the time that the contract was concluded in the early 1990s. (The exact date of the contract is unknown, as the contract was lost at some point in the 1990s during the civil strife that gripped the country. But the tribunal concluded that a contract existed on the basis of “indirect proofs” and the conduct of the parties).

In 2000 SAFRICA was sold to a company constituted under the laws of the Cayman Islands, but controlled by an American investor, the Blattner family. In 2004, the debt was transferred an American company, African Holding.

The two claimants, SAFRICA and African Holding, alleged that the DRC breached its obligations under the US-DRC BIT when it announced in 2005 that it would not pay the full amount of debt claimed by the investors.

In declining jurisdiction, the majority of tribunal determined that “the events giving place to the dispute” – i.e., the non-payment of invoices - stretched back to the early 1990s, when the company was under Belgium control. As such, the co-arbitrators ruled that the claim was outside their jurisdiction for reasons of ratione temporis (temporal jurisdiction).

In a dissenting opinion, Otto de Witt Wijnen disagreed on the grounds that the events that occurred before 2000 were not “litigious in nature.” According to Mr. Wijnen, the non-fulfilment of a contract does not in itself constitute a dispute.

Source: decision on jurisdiction in African Holding Company of America, INC et Société Africaine de construction au Congo SARL (SAFRICA) v. République Démocratique du Congo

News: An update on the ACP-EU Economic Partnership Agreements

Damon Vis-Dunbar — Fri, 08 Aug 2008 10:04:00 GMT

By Suzy H. Nikièma and Damon Vis-Dunbar
8 August 2008

Over the last six years the European Commission and 77 African, Caribbean, Pacific (ACP) countries have been negotiating free trade agreements, which they call Economic Partnership Agreements (EPAs). The EPAs are intended to end the non-reciprocal trade preferences given to Europe’s former colonies which are now in conflict with certain WTO rules.

Despite striving for an end-of-2007 deadline for the conclusion of the negotiations, only one negotiating group, the bloc of Caribbean countries known as CARIFORUM, were able to reach an agreement with the EU member states. Interim agreements were signed between the EU and the other ACP states. These interim agreements function as transitional agreements; they include some new commitments on trade in goods, and set a loose agenda for negotiation on the other issues which will comprise the comprehensive EPAs.

Seven interim agreements have been signed in total: one with the States of the Community of East Africa (Burundi, Kenya, Rwanda, Tanzania and Uganda); one with the five states of the Common Market for Eastern and Southern Africa (Zimbabwe, Seychelles, Mauritius, Comoros and Madagascar); one with two Pacific countries, Papua New Guinea and Fiji; and one with the five states of the Southern African Development Community (Botswana, Lesotho, Namibia, Swaziland and Mozambique). Meanwhile, individual agreements were signed with Côte d'Ivoire and Ghana, which form part of the State Economic Community of West Africa (ECOWAS), and with Cameroon, which belongs to the Economic and Monetary Community of Central Africa (CEMAC).

The presence of investment within the agreements

Investment liberalization has been one of the more controversial topics within the EPA negotiations. The European Commission has held that establishing a legal framework for investment liberalization within the EPAs would be beneficial to the economic development all parties. However, many of the ACP countries have said that they lack the technical expertise to negotiate on investment effectively.

The EU-CARIFORUM EPA contains commitments on investment only with respect to trade in services and the movement of capital. In the case of services, the EPA builds on the WTO’s general agreement on trade in service (GATS). The EPA also guarantees the free movement of capital related to foreign investments made in accordance with the laws of the host country.

While the interim agreements limit their commitments to trade in goods, they also outline areas for further negotiation, including in some cases on investment. None of the interim agreements commit the parties to include rules on investment liberalization in the EPAs. However, they do signal a willingness to discuss the topic.

All but two of the interim agreements name investment as a topic for further negotiation. The exceptions are EU-Cameroon and the EU-Papua New Guinea-Fiji deals. In the case of the former, the interim agreement only mentions investment as it relates to the free movement of capital. The former has no mention of investment at all.

With the five other interim agreements, the articles that reference investment vary slightly. But essentially, the agreements affirm a desire to conclude complete EPAs, or “global” EPAs, as a follow up step to the interim deals.

In the case of Ghana, for instance, the interim agreement states that “The Parties will take all necessary measures to endeavour to conclude a global EPA,” including in the areas of investment, intellectual property, and trade in services.

Central and West Africa states maintain united front on investment liberalization

Côte d'Ivoire, Ghana and Cameroon came under criticism for breaking regional integration when they entered into their own interim agreements with the EU. Their reasons for doing so, however, were clear. Unlike their neighbours, these countries do not benefit from the preferential treatment granted to exports under the EU’s Everything But Arms (EBA) program. Fearful of having exports like bananas and cocoa come under the WTO’s General System of Preferences, in which case they would receive the same treatment as competitors in Latin America, they preferred to begin a process of gradual liberalization through the interim agreements.

In addition to commitments on trade in goods, the interim agreements signed by Côte d'Ivoire and Ghana mention investment as topic for future negotiation. This is notable given the fact that Central and West African states have vocally resisted invitations by the European Commission to include provisions on investment liberalization in the EPAs.

However, Côte d'Ivoire and Ghana are clear that they are not making a break with their regional partners: rules that liberalize investment will only be pursued with the full backing of their regional partners.

It appears unlikely that ECOWAS or CEMAC will endorse a commitment to begin negotiating on investment liberalization within the time table currently set for completing the negotiations (end of 2008, according to the European Commission and June 2009 according to ECOWAS). Both blocs say they must first harmonize their investment laws on a regional basis, before they can begin agreeing to investment liberalization commitments with the EU.

To a limited degree, such regional integration has already taken place. ECOWAS has the Protocol on Energy, which contains rules on investment in the energy sector. CEMAC has the Charter of Investment, which is a framework agreement that consists mainly of provisions designed to improve the institutional, fiscal and financial environment for companies. But both regions stress that they have a ways to go, and neither group is currently engaged in formal negotiations to broadly harmonize legislation on foreign investment.

Commentary: A case for an international investment court

Damon Vis-Dunbar — Thu, 07 Aug 2008 15:45:00 GMT

By Gus Van Harten
Assistant Professor, Osgoode Hall Law School, York University
7 August 2008

I shall lay out an argument for an international investment court, not because I wish to associate myself with grandiose schemes for international reform, but because I see it as the most pragmatic and appropriate way to fix serious problems in the existing system of investment treaty arbitration.

Investment treaty arbitration differs from other forms of international arbitration

There are two initial points to keep in mind. The first is that investment treaty arbitration is unlike other forms of international adjudication in that it is a public law system. This is not to say that investment treaty arbitration is precisely the same as domestic public law. But it does differ from other forms of adjudication that are reciprocal (i.e., in which either of the disputing parties can bring a claim against the other) such as conventional international adjudication between states and international commercial arbitration between private parties.

Investment treaty arbitration is different in that only one class of parties, the investor, brings the claims and only one class of parties, the state (acting as sovereign), is punished for breach of treaty. Moreover, the disputes in question arise from the regulatory relationship between individual investors and the state. The system reviews and disciplines legislators, judges, and other public officials in order to protect business. It does not regulate business in order to protect the public. It is in this sense more akin to domestic systems of constitutional or administrative law than to international adjudication as normally understood.

Moreover, investment treaty arbitration goes beyond other forms of international adjudication that resemble domestic public law – especially in the human rights field – because investment treaties remove the duty of investors to use domestic remedies before bringing a claim, and because they allow for damages to be awarded in favour of investors that are enforceable by domestic courts around the world, while barring the courts from reviewing any legal errors made by the arbitrators.

Investment treaty arbitration lacks basic requirements of openness and independence

This leads to the second item to keep in mind. In establishing such an exceptionally powerful system of regulatory adjudication, investment treaties should have been written to ensure a very high level of openness and independence in the adjudicative process. For whatever reason, they were not so written. Instead, the treaties import the model of private arbitration into the public sphere, creating numerous problems of which two are especially serious.

The first is that in many instances the arbitrations can be kept secret at the option of the disputing parties. This may be appropriate in private law or even in inter-state arbitration. But it simply does not square with principles of democratic accountability in public law adjudication, where fundamental choices are made about the lawfulness of sovereign decisions and the allocation of public funds.

Linked to this is the issue of independence. One does not have a properly independent judicial body where the adjudicative process is closed to public scrutiny. Secrecy is therefore the first nail in the coffin of judicial independence under the current system. Another nail, less widely recognized, relates to security of tenure.

In public law, judges are appointed for a set term – typically for life or until a set retirement age – so as to insulate them from inappropriate influences that may be brought to bear by powerful forces in government or the private sector. Security of tenure does not guarantee judicial independence, but it is long recognized as a vital prerequisite.

Arbitrators do not have tenure, nor are they subject to other objective guarantees of judicial independence (such as prohibitions on outside remunerative activity). Instead, arbitrators are appointed on a case-by-case basis. Again, this may not pose any problem in private law or in inter-state adjudication. But in public law, where only one class of parties brings the claims, a system of case-by-case appointment creates an unfortunate perception that arbitrators may decide cases and interpret the law in ways that favour investors, so as to encourage claims. As an informed observer can readily see, more claims means more business for the arbitration industry. For the outsider, it is troubling to see how, in numerous cases, the arbitrators have interpreted the treaties creatively in favour of investors and to the detriment of the regulatory position of states.

Investment treaty arbitration is thus a unique form of international adjudication that protects a small class of persons, mainly large firms, and that is structurally slanted in favour of those persons. By design, then, the system disadvantages those who stand to benefit from business regulation that is foreclosed by arbitration awards, or from other public initiatives that are made too costly or fiscally uncertain by the threat of investor claims.

I doubt that this type of system would ever fly in a domestic context as a means to resolve regulatory disputes between business and the state. It would be outlandish for a claim of ‘unfair regulation’ brought by a company against a government to be decided by an ad hoc tribunal, the president of which was appointed by the national chamber of commerce. But this is the effective state of affairs under the many investment treaties that assign appointing authority to the International Chamber of Commerce, for example.

An international investment court is the best solution

What can be done? The best option, without falling back on domestic courts and abandoning the use of international adjudication to protect investors, is an international investment court. This need not be a grandiose thing and it need not depend on agreement by all. Rather, groups of like-minded states might agree to establish an international judicial body to replace the role of private arbitrators in the existing system by providing for claims under the states’ existing treaties to be channeled through the new entity. They could then appoint an appropriate roster of judges to the court for a set term and direct the judges to develop rules for the court according to well-known principles of judicial decision-making.

Such a court would enable greater fairness and accountability in this tremendously powerful arm of the international legal system. It is thus desirable for reasons of public interest. But investors would also benefit in an important way. Most investors will never bring a claim under an investment treaty. Claims are costly and best regarded as a last resort. As such, the system’s main benefit for investors is the deterrence of regulatory abuse by states. An international court, properly established, would deliver this benefit on a much more credible and lasting basis than the current system.

South American alternative to ICSID in the works as governments create an energy treaty

Damon Vis-Dunbar — Wed, 06 Aug 2008 08:23:00 GMT

By Fernando Cabrera Diaz
6 August 2008

A July 16-17 meeting of the Bolivarian Alternative for the Americas (comprised of Bolivia, Cuba, Dominica, Nicaragua, and Venezuela)* ended without public mention of the International Centre for Settlement of Investment Disputes (ICSID), the World Bank agency that administers investor-state arbitrations. Nonetheless, the bloc’s push for a regional alternative to the Centre initiated at last year’s forum is gaining some momentum.

The Energy Council for South America ― represented by energy ministers from all 11 South American sovereign nations ― met for the first time in May to discuss a regional Energy Security Treaty. At the conclusion of that meeting, the Venezuelan energy minister, Rafael Ramírez, announced that the Council had approved working groups whose task is to design a legal mechanism to settle investor-state disputes related to the energy sector.

These rules would eventually replace those of ICSID as the preferred means to settle disputes between foreign energy companies and governments of Latin America, said Mr. Ramírez. The Energy Council has given itself six months to finalize the Energy Security Treaty.

During last year’s 5th annual ALBA Congress, President Evo Morales famously announced that ALBA members had agreed as a group to withdraw from the ICSID Convention.

While Bolivia followed through on its promise, informing ICSID of its withdrawal from the Convention by letter dated May 1, 2007, other ALBA members have not followed suit. Nicaragua and Venezuela remain ICSID members, while Cuba and Dominica were never signatories to the Treaty.

Nicaragua, which has only faced one case at ICSID, has given mixed signals as to whether it intends to withdraw from the Centre. On April 14, the Managua-based newspaper La Prensa reported Attorney General Hernán Estrada as saying that Nicaragua was looking closely at Bolivia’s experience, before determining its next step.

Nicaragua has for a year now stopped referring to ICSID in its investment treaties, opting instead for the Paris-based International Court of Arbitration, added Mr. Estrada.

However, in a rare move, Nicaragua lodged an ICSID case in June against the Spanish hotel group Barceló. Nicaragua is seeking US$ 30 million, which it claims to be owed from a disputed 1993 resort property sale to Barceló. Only two other cases have been registered by a government against a foreign investor at ICSID, according to ICSID records: a 1975 dispute over the construction of a maternity ward filed by Gabon against Société Serete S.A., and a pending dispute over a coal mining contract between the Government of the Indonesian Province of East Kalimantan and PT Kaltim Prima Coal.

Venezuela is also sending mixed signals. On February 13, the country’s National Assembly passed a resolution approving Venezuela’s withdrawal from ICSID, but the very next week Venezuela asked ExxonMobil to drop judicial proceedings at London and Paris arbitration courts, and instead return to ICSID to resolve their ongoing dispute over the nationalization of oil fields in the Orinoco.

*Honduras president Manuel Zelaya announced on July 30 that his country will shortly be joining ALBA.

An interview with Alejandro Faya-Rodriguez, special legal advisor, Mexican Ministry of Economy

Damon Vis-Dunbar — Mon, 28 Jul 2008 14:03:00 GMT

17 July 2008

Alejandro Faya-Rodriguez was the Deputy Director-General for International Affairs of the Directorate-General of Foreign Investment at the Mexican Ministry of Economy until last March, where he negotiated ten bilateral investment treaties and one investment chapter within a free trade agreement. He recently moved to a new post as a senior legal advisor to the Ministry of Economy, at the “Proceso MARCO”, a project aimed at crafting proposals that foster competition or improve the regulation in key sectors. He still regularly advises the Ministry on matters of foreign investment. ITN reached Mr. Faya-Rodriguez by phone at his office in Mexico City.

ITN: As a negotiator of investment treaties, how would you describe your fundamental responsibility?

AFR: The task is to deliver a good legal instrument. It’s a major responsibility, and one that not all negotiators handle well. Many negotiators try to finish negotiations too quickly in order to please a boss or leader. No matter how understandable this might be, it is highly irresponsible. The duty of a negotiator lays in capturing a proper balance between establishing legal protection to investments, in order to fulfill the treaty´s objective, and, at the same time, provide well-defined rules and standards, of both substance and procedure, which give legal certainty and prevent, to a reasonable extent, frivolous claims. This is not always easy and it may take some time.

ITN: The tendency to rush an agreement, I imagine can come from political pressures. How can negotiators work to shield themselves from the pressure to make concessions, or rush the process, which may result in a treaty that is detrimental to the interests of the country?

AFR: It’s important to understand that negotiators are technicians, not politicians. The negotiator needs to clearly articulate his opinion, put it in writing and circulate it. If he disagrees with something, he has to have the ability to communicate his concerns and put them at the discretion of the higher ranks. A negotiator fulfills his role as long he gives his opinion, and is not afraid of doing so, even it that implies delaying a negotiation. Of course, this requires an ability to distinguish critical issues and priorities.

ITN: What are some of the most difficult investment treaties negotiations that you have been a part of?

AFR: There are a couple negotiations that stand out. One was our most recently concluded negotiation for a BIT with China, which may be signed shortly. That negotiation took more than three years and involved six negotiating rounds, as well as many more conference calls and other exchanges. There was a big gap in terms of culture and legal perspective. For China, it was the first major departure from their BIT model, which is far more basic and general. For instance, it was hard and it took intensive persuasive work to convince China of the need to include certain content in the procedural section. Our model contains provisions that relate to the scope and legal standing for the submission of claims, the establishment of an arbitral tribunal, applicable law, consolidation, characteristics of the awards and enforcement conditions, among other things. Our model is also explicitly clear that it only covers disputes that arise from alleged breaches of the treaty, and not for breaches of domestic law or investment agreements. Fortunately, we faced very good negotiators on the other side of the table, and, in the end, we were both convinced on the quality of the final text.

Even more time-intensive was our BIT negotiations with the UK. That BIT, which has been in force since last July 2007, took 10 years to conclude. From the very beginning, the UK was asking for formulas that were not acceptable to Mexico. For the UK, also, this BIT marked a departure of their traditional model. Bear in mind that the Mexican model follows the NAFTA approach, and is far more elaborate. It was not easy, for example, to convince the UK on the importance of tying the fair and equitable treatment standard expressly to customary international law.

These two negotiations are very good examples of the fact that patience and hard work, at the end, render a good outcome. In both cases, the atmosphere between the negotiators was very positive and constructive, which also helps matters. Negotiators should try to encourage these conditions as much as possible.

ITN: What lessons have you learned from your treaty negotiations that you would pass on to other negotiators?

AFR: I would recommend patience, and learning how to say ‘no’ sometimes. It is better to not have a treaty then to have a bad one. Rushing should not be an option. The other advice is to learn and study as much as possible. Negotiators need to have solid technical expertise if they are going to have a strong negotiating position. I have encountered poorly prepared negotiators, and they are not in a position to struggle back against demands which may not be in their best interest, or to discuss specific wordings or approaches. In other cases, they are insecure and not ready to move forward in a constructive manner.

ITN: There is evidence supporting the argument that FDI is an important element in a country’s overall economic development. Yet there is no conclusive evidence that bilateral investment treaties actually lead to an increase in FDI. In your opinion, what are the best arguments in favour of a country entering into BITs?

AFR: I don’t think that the evidence can even be called inconclusive. It is clear that BITs alone will not attract FDI. No matter how many BITs a country has, if it doesn’t have a good business environment, it will not attract FDI. Far more important are features like macroeconomic conditions, the domestic regulatory framework, sound public institutions, and good infrastructure and education. This is not to say BITs do not have a function. I devoted four years of my life negotiating them and I believe they are quite positive. BITs play a supplementary role within an overall package that is conducive to attracting FDI. When I had to explain to our senators why they should ratify an investment treaty, I never said that it would attract investment per se; instead, I explained that BITs send a positive signal to investors and complement other policies.

However, not all countries should negotiate BITs. For instance, those whose policy objectives are in contradiction with the BIT itself, or some very small countries without a strong domestic institutional infrastructure, or countries that could not afford the cost of an eventual award. BITs are like credit cards: they are positive as long as they are in the correct hands. They may trigger liabilities, and there is nothing wrong with that, as that is part of the concept, so long as these liabilities are under control and can be administered properly.

ITN: You commented recently on the functioning of the Most Favoured Nation (MFN) provision in an article in the Journal of International Arbitration. What’s your take on how the MFN provision should be interpreted in BITs?

AFR: Essentially, I argue that the MFN clause, as a matter of principle, should not be used as a tool for treaty shopping. This goes for most MFN clauses, which are worded in very general terms. That is not the original intention of the clause, and in my experience as a negotiator, that is certainly not the intended effect. Its function is to eliminate distortions in terms of competitive conditions, such as preventing differentiated treatment among two foreign investors with respect to matters like taxation, real estate, and commercial regulation, to name a few. Apart from a few exceptions, such as pre-establishment rights and transfers, investment treaties are not concerned with competitive conditions, but rather establish legal standards of protection. Competitive conditions are established at the domestic level. Therefore, unless clear working indicates otherwise – something I have not seen -the MFN provision should not be read as applying to clauses of third treaties.

ITN: Where do you see the legal regime governing international investment headed in the next decade?

AFR: I don’t see a multilateral approach any time soon. There are still some countries that are not sure about the benefits of FDI, and even among those countries that are, they are not sure about the proper legal regime that should govern FDI internationally. I don’t think we are in a better scenario than when the MAI was frustrated in the late 1990’s, and we may even be in a worse scenario. So we will continue to see investment treaties signed at the bilateral level, although at a slower pace, given the fact that so many BITs have already been concluded. I also think in the future we will also see the number of arbitrations that arise out of BITs decrease.

ITN: Why do you forecast fewer investment arbitrations?

AFR: We’ve been witnessing a bubble with respect to investment treaty-based arbitrations. For a long time, no one paid much attention to these treaties. It was only after the first cases arose, especially those of NAFTA, that lawyers and investors realized that these were legal instruments that could be operated and which could lead to pecuniary awards. But there has been an overreaction, in my opinion. Over time I think this overreaction will correct itself for a number of reasons. First, as patterns of interpretation emerge the limits to both the State and investors are becoming clearer. It’s now quite hard, for example, to prove an indirect expropriation case. Under the NAFTA, the same goes for the fair and equitable treatment standard. Second, there are consequences for submitting a frivolous claim. It is costly, and it may grow more expensive, as some losing investors have been condemned to pay the totality or majority of the legal fees of the arbitral proceedings. Finally, transparency would do much for the legitimacy of the system and the quality of decisions. Arbitrators must know their awards will be assessed by a circle that is growing.

Of course, there are currently discussions and debate on issues such as the umbrella clause, MFN, and fair and equitable treatment and full protection and security outside the NAFTA. There have been, in my opinion, some quite expansive interpretations of these provisions. Personally I do not favor interpretations that impose unreasonable obligations upon States or deviate from well-recognized concepts of international law, or pro-State views that do not condemn arbitrary acts against investors. At the end, the best scenario is a balance, and if the system ever deviates too far in either direction, it may well break down. This is not in the interest of those countries which are both exporters and receivers of investments.

News: Trans-Global Petroleum Inc. v. Hashemite Kingdom of Jordan: First Application of ICSID Arbitration Rule 41(5)

Damon Vis-Dunbar — Fri, 25 Jul 2008 12:42:00 GMT

By Elizabeth Whitsitt
25 July 2008

Tribunal considers whether a claim by an U.S. investor against Jordon is “manifestly without legal merit”, and rejects all but one of Jordan’s objections

An ICSID tribunal has ruled on whether to uphold objections filed by the Hashemite Kingdom of Jordan pursuant to Rule 41(5) of the ICSID Arbitration Rules in response to claims made by Trans-Global Petroleum Inc., a U.S. corporation based in Texas The Tribunal’s decision, handed down on 12 May 2008, marks the first time that Rule 41(5) has been considered since its introduction into the ICSID Arbitration Rules in April 2006.

Similar to domestic rules of civil procedure that allow a party to request summary dismissal of frivolous claims prior to trial, Rule 41(5) permits a party to an arbitral proceeding to object (no later than 30 days after the constitution of an arbitral tribunal) to any claim made by an opposing party on the basis that the claim is “manifestly without legal merit.”

In this case, the dispute arises out of the TGPI’s investment of US $29 million in a ten-year petroleum exploration venture in Jordan's national territory that confirmed the existence of oil deposits in the Dead Sea and Wadi Araba basin. According to TGPI, Jordan commenced a systematic campaign to destroy TGPI’s investment by preventing Trans-Global Petroleum Jordan, Ltd. (TGPJ), a subsidiary of TGPI, from pursuing any further role in the development of those oil deposits.

Specifically, TGPI alleges that after confirming the existence of oil deposits, the Jordanian government removed TGPJ as project operator and "forced" the company to assign 80% of its interest in the project to Porosity Limited, a company that was “accepted and liked” by the Jordanian National Resource Authority. In addition, TGPI asserts that Jordan revoked TGPJ's contractual customs exemptions, ordered its workers out of Jordan and refused to communicate with TGPJ regarding its remaining investment in the development of the newly-found oil deposits.

In determining whether to uphold the Respondent’s objections under Rule 41(5), the tribunal examined the meaning of the terms “manifestly” and “without legal merit” and found that Rule 41(5) will only apply to a “clear” and “obvious” case in which the claims made are “patently unmeritorious.” Moreover, the tribunal held that while a tribunal should not weigh the credibility of a disputed factual allegation when considering the legal merits of a party’s claim, a tribunal “need not accept at face value any factual allegation which may be regarded as (manifestly) incredible, frivolous, vexatious or inaccurate or made in bad faith; nor need a tribunal accept a legal submission dressed up as a factual allegation.”

Applying the above principles, the Tribunal went on to reject all but one of Jordan’s objections to TGPI’s claims, a result which may signal the difficulty of avoiding arbitration of claims by objecting under Rule 41(5).

Analysis: Latin America's new model bilateral investment treaties

Damon Vis-Dunbar — Thu, 17 Jul 2008 07:35:00 GMT

By Damon Vis-Dunbar
17 July 2008

For the longest time, bilateral investment treaties were quintessential bureaucrats’ agreements. Terse and technical, these treaties were drafted by a handful of trade officials, with little consideration for their wider ramifications for public policy.

On the surface, therefore, many investment treaties look surprisingly similar. Although, they contain certain nuances and variations, the overall structure of such agreements has long been one-dimensional and focused largely on protecting foreign investors’ property interests.

However, the BIT landscape is gradually evolving. In large part, this is in reaction to the ways investment treaties have been in interpreted by tribunals in international arbitrations. These disputes between foreign investors and host states have led tribunals to carefully weigh the language in investment treaties. States have learned that a word, or an absence of one, can make the difference between an arbitration won or lost.

The first major innovators were the United States and Canada. The investment chapter of the 1994 North American Free Trade Agreement (NAFTA) was more ambitious than its predecessors, offering extensive protections and liberalizations to foreign investors operating in a host NAFTA state. All three NAFTA members (Canada, Mexico and the United States) have since found themselves targets of investor-state lawsuits; in the past, developing countries were the overwhelming target of investor-state lawsuits.

Even when they emerged victorious, defending these lawsuits drain government resources. They also plant a degree of uncertainty into policy making. Government regulation in areas such as environment, taxation and healthcare that exert a cost on a foreign investor could become the basis for a lawsuit.

Canada and the United States temporarily put their investment treaty-making activities on hold. When they emerged again, both countries brandished new model agreements. The treaties constructed on these templates send a clearer message to tribunals as to how the treaty should be interpreted, by, for example, including provisions that refer to a host government’s right to regulate in the public interest.

Now, greater precision in treaty making is spreading southward. More than any other region in the world, governments in Latin America have found themselves at the receiving end of lawsuits brought under investment treaties. Argentina has lost several arbitration cases related to measures taken to stem an economic crisis in 2001, while Ecuador has also been hit with a series of suits as it re-negotiates long-term contracts in the extractive industries.

In response, governments in Latin America have gone to the drawing board to draft templates which will guide the negotiation, or renegotiation, of future investment treaties. Argentina, Bolivia, Colombia, Ecuador, and Venezuela are all at different stages in the exercise. Colombia, which began developing its model BIT in 2002, has led the pack.

“Our model reflects the fact that a developing economy is more likely to be a respondent in an arbitration,” said José Antonio Rivas-Campo, Director of Foreign Investment and Services for Colombia’s Ministry of Ministry of Trade, Industry and Tourism.

The model demands, for example, that at least a year pass between when an investor provides a notice of arbitration, and when it can register a claim. The norm has been six months. Colombia hopes that extra time will increase the odds that the disputing parties will agree on a settlement. It also provides a period for the government to mount its defense.

Should a dispute proceed to arbitration, the Colombian model is mindful of the government’s defense; it attempts to shield itself from frivolous claims, does not allow investors to sue in multiple venues (for example, domestic courts and arbitration), and draws a line between disputes related to a contract and those related to the treaty.

The result, according to Colombia, is a BIT that strikes a balance between “according protection standards to investors and provisions enabling the State to perform an appropriate defense if it is ever brought to an international arbitration.”

With the new template in hand, Colombia has embarked on an ambitious treaty making spree: negotiations are currently underway with Germany, the U.K, China and Sweden. Having a model does not guarantee that Colombia’s investment treaties will mirror the template, said Mr. Rivas-Campo. But it does ensure that Colombia enters negotiations better prepared and with an end-goal in mind.

Bolivia is also in the process of finalizing a new model BIT, which aims to bring its investment treaties in line with a revised constitution that was introduced at the end of 2007. Bolivia, like some other countries in Latin America, has been critical of the system of international arbitration used to settle investment disputes, and last year it became the first country to withdraw from the World Bank’s arbitration facility, the International Centre for the Settlement of Investment Disputes (ICSID). Bolivia’s new model will reflect this fact, said a Bolivian official, who declined to detail how the model would treat dispute settlement.

However, not all countries in Latin America are convinced of the benefits of bilateral investment treaties, even if based on progressive models. Brazil, for example, has never ratified a bilateral investment treaty, and remains skeptical of doing so. The government has indicated that it is unlikely that its congress would agree to an investment treaty, particularly if it allowed for disputes settlement through international arbitration.

Ecuador, meanwhile, has also adopted a more defensive posture. Its inter-ministerial process for developing a model BIT was recently put on hold, at the same that it announced plans to denounce at least nine of its existing investment treaties. Ecuador’s focus will now turn to updating its domestic laws on investment, rather than expanding its network of international investment agreements, said an official in that country.

News: ECJ advocate general argues some Austrian and Swedish BITs are incompatible with EU law

Damon Vis-Dunbar — Thu, 17 Jul 2008 07:29:00 GMT

By Damon Vis-Dunbar
17 July 2008

The ECJ advocate general sides with the European Commission in arguing that Austria and Sweden should have amended some of the pre-accession BITs with non-EU countries.

In an opinion issued on 10 July 2008, the European Court of Justice’s advocate general argues that provisions guaranteeing the free movement of capital in some of Austria and Sweden’s bilateral investment treaties (BIT) clash with European Community law.

The European Commission brought Austria and Sweden to the ECJ after they refused to amend pre-accession BITs with third countries that allegedly disagree with the EU Community law. A similar case has been launched by the Commission against Finland, although it is behind the Austria and Swedish cases in procedure.

The BITs in question contain ‘transfer clauses’ that guarantee investors the right to move investment-related capital without undue delay. Such provisions are common to BITs; however, under EU law, the European Community is allowed to regulate the movement of capital between EU Member States and third countries, including restricting capital flows in exceptional circumstances.

In 2004 the European Commission asked Austria, Sweden and Finland to modify the offending treaties, noting that Member States are required to amend agreements that are incompatible with the EU Treaty. But Sweden and Austria refused, countering that the European Community has never acted on its right to restrict capital flow, and therefore any incompatibility is “hypothetical.”

The advocate general, Poiares Maduro, did find that Austria and Sweden’s international obligations with regard to the free transfer of capital were incompatible with the EU Treaty. For example, Article 59 allows the European Community to enact safeguard measures against third countries for up to six months. “It is difficult to envisage how such measures could be adopted and imposed in time upon the countries that are parties to the agreements entered into by Austria and Sweden,” writes Mr. Maduro.

Thus the advocate general concludes that Austria and Sweden did have an obligation to eliminate incompatibilities between their bilateral investment treaties and the EU Treaty.

The opinion of the advocate general provides guidance but is not binding on the full court. A decision from the court could still be several months away.

The ECJ decision could have wider ramifications for who holds responsibility for legislation related to international investment. Currently, international investment is characterized as having “mixed-competence”, meaning that it is a shared responsibility between the European Community and individual Member States.

Some European Member States have feared that the European Community is moving to grab exclusive competence over investment agreements with non-EU countries. A number of other European countries intervened in support of Austria and Sweden, including Finland, Germany, Hungary and Lithuania.

“As some of the intervening Member States have pointed out, to impose an obligation on Member States to refrain from legislating, whether by national measures or international instruments, to prevent any potential conflict with future Community legislation would turn the free movement of capital to and from third countries into an area of exclusive competence. In fact, any area of shared competence would be liable to suffer the same fate,” explained the advocate general.

In coming to his opinion, Mr. Maduro agreed that Austria and Sweden could not be expected to change the treaties because of the “potential” for conflict with the EU Treaty. “Only if the agreements are liable seriously to compromise the exercise of a Community competence will there be an incompatibility,” wrote Mr. Maduro.

Opinion of Advocate General Poiares Maduro in Case C-205/06 Commission of the European Communities v Republic of Austria and Case C-249/06 Commission of the European Communities v Kingdom of Sweden is available on-line: http://curia.europa.eu/jurisp/cgi-bin/form.pl?lang=EN&Submit=Rechercher$docrequire=alldocs&numaff=C-249/06&datefs=&datefe=&nomusuel=&domaine=&mots=&resmax=100

Decrying past “contradictory” rulings, Argentina challenges arbitrator, By Luke Eric Peterson

Damon Vis-Dunbar — Thu, 10 Jul 2008 08:33:00 GMT

Among the grounds upon which Argentina is seeking to vacate a $185+ Million
arbitration award in favour of British Gas (see previous item) is one which criticizes the
International Chamber of Commerce for failing to disqualify one of the three arbitrators
presiding in the BG v. Argentina arbitration.

Argentina had moved in June of 2007 to challenge the impartiality of Prof. Albert van
den Berg, on the basis of what it characterizes as “contradictory” rulings signed by Prof.
van den Berg in his capacity as arbitrator in other ICSID cases involving Argentina.
Although the disqualification bid was one of a growing list of challenges filed by the
Argentine Government in relation to the dozens of investment treaty arbitrations that it
faces, the grounds for the challenge were novel.

In the BG case, the Argentine Attorney General’s Office contended that it had “justifiable
doubts” as to the independence and impartiality of Prof. van den Berg due to the fact that
he had signed earlier arbitration awards – in the LG&E v. Argentina and Enron v.
Argentina cases – which Argentina says run “contrary” to one another on key points of
law.

A particular concern for Argentina is the different disposition of a central question in the
LG&E and Enron cases: whether Argentina can claim that it acted out of a “state of
necessity” due to its recent financial crisis, thus absolving the country of liability for
treaty breaches suffered by foreign investors.

Whereas the tribunal in the LG&E v. Argentina case accepted Argentina’s necessity
arguments - at least for a 17 month window of time when the financial crisis was at it
peak - the tribunal in the Enron case rejected the necessity defence.

Argentina maintains that the LG&E and Enron disputes involve similar investments (in
Argentina’s natural gas sector) and raise similar allegations of breach of the USArgentina
bilateral investment treaty. Yet, Argentina contends that Prof. van den Berg
endorsed “contradictory” conclusions in those two cases, without issuing a dissenting
opinion or offering some explanation for this “drastic change of mind”.

As part of its challenge-bid, the Attorney General’s Office argued that the only
explanation for this sharp divergence can be “arbitrariness or caprice” on the part of Prof.
van den Berg, thus raising doubts as to his capacity for impartiality and independence in
the ongoing BG v. Argentina arbitration.

ITN understands that Prof. van den Berg – who as an arbitrator cannot comment on the
BG case - rejected Argentina’s charge that he lacks the requisite impartiality or
independence to sit in the case. Prof. van den Berg declined to withdraw from the BG
tribunal, and informed the parties to that proceeding that he was unable to discuss the
deliberations in the Enron and LG&E cases. Further, it is understood that he informed the
parties that he takes the view that collegiality demands that arbitrators sitting on threemember
tribunals reach a common view as to how the case should be resolved. (Prof. van
den Berg is not known to have authored a dissenting opinion in any case where he has sat
as arbitrator.)

In the face of Prof. van den Berg’s decision to remain on the tribunal, Argentina
proceeded with its challenge-bid by referring the matter to the Appointing Authority in
the case: the Court of Arbitration of the International Chamber of Commerce (ICC).
In the course of so doing, Argentina also criticized the view that an arbitrator sitting on a
three-person tribunal should reach a conclusion as a “collegial” body. Indeed, the
Attorney General’s Office argued that such a posture is antithetical to the requirement for
arbitrators to exercise “independent” judgment.

Argentina had requested that the ICC provide reasons for any decision taken on its
challenge-bid; as noted in past ITN reporting, Argentina has bristled at the practice of
certain arbitration institutions which provide no reasons for decisions taken in relation to
challenges to arbitrators.*

In a subsequent ruling by the ICC Court of Arbitration Argentina’s challenge to Prof. van
den Berg was rejected. However, the ICC did not offer any reasons for this decision.
In papers filed in the D.C. District Court, Argentina has decried the failure by the ICC to
provide reasons for the rejection of its challenge, and characterized this failure as an
excess of powers contrary to the U.S. Federal Arbitration Act. At the same time,
Argentina has also argued in its filings before the DC Court that the BG arbitration was
not resolved in an impartial fashion.

* See “Argentina and UK firm send arbitrator-challenge to venue where reasons are
provided”, By Luke Eric Peterson, Investment Treaty News, October 30, 2007, available
on-line at: http://www.iisd.org/pdf/2007/itn_oct30_2007.pdf