Study On The Challenges And Countermeasures Of Latin America Against ICSID

The ICSID Convention contributes significantly to the multilateralization of international investment law. It establishes a uniform framework for the settlement of investor-State disputes. In addition, the ICSID Convention multilateralizes the enforcement of rights and obligations stemming from investment treaties as it require States to recognize and enforce awards rendered under the Convention. This responds to the objective of implementing an arbitral award effectively across several jurisdictions, but also transforms the effect of an award concerning a specific BIT into an obligation that has to be complied with by all State parties to the ICSID Convention.According to United Nations Conference on Trade and Development (UNCTAD)'s report by the end of 2009, ICSID has become the most popular chosen international investment arbitration with 63% of treaty cases and most claims have been initiated by investors from developed countries (91% of the total cases).International Investment Law, however, has suffered fragmentation into bilateral treaties or regional agreements and the inconsistent and contradictory decisions by international investment arbitration, in special ICSID, make it impossible to understand this area of law as a system of law.1. Theoretical and Practical Observations1.1. Observations of Latin American Countries against ICSID proceedingsAlthough the importance of the ICSID Convention procedural framework in comparison with other Arbitration Centres, some observations on its proceedings lacks its legitimacy:1. The time period of the proceedings:The ICSID average of 263 days from the request for arbitration to constitute the tribunal seems over long and disproportionate in comparison with the maximum of 30 days to compose a WTO panel (Article 8.7 of the Dispute Settlement Understanding-DSU-). Moreover the average of 3.6 years to obtain the award (without annulment proceedings) is excessive considering the term of 1 year for the WTO's dispute settlement system.2. The rules governing the challenge of the arbitrator before the ICSID provoke objections in detriment of ICSID's impartiality. According ICSID rules the investor selects one arbitrator and the respondent state picks a second arbitrator. The presiding arbitrator can be chosen by agreement of both parties, and where the parties cannot agree, ICSID makes the final appointment. It is important to consider the close relationship that exists between the ICSID and the World Bank Group, which in some cases may have an equity share or some regulatory influence over the Investor. This relationship would clearly create a source of potential conflict of interests. For example in the case Compania de Aguas del Aconquija S.A. Here the International Bank for Reconstruction and Development (IBRD) had played a key role in the design of the regulatory framework for public services under concession and in the privatization process, and the IFC held a percentage of Compania de Aguas del Aconquija S.A, the investor, equity shares.In relation with the disqualification of the arbitrator the Rule 6 (2) of the ICSID Arbitration Rules requires an arbitrator to sign a declaration which includes a disclosure of his past and professional, business and other relationships with the parties and any other circumstances which might cause the arbitrator's reliability for independent judgment to be questioned by a party. But the ICSID Arbitration Rules do not contain a list, nor do they provide any guidance, on the situations or relationships that ought to be disclosed under Rule 6 (2). The phrase "any other circumstance" is potentially very broad. Moreover, Article 57 of the ICSID Convention provides that a party may propose that an arbitrator be disqualified on the basis "of any fact indicating a manifest lack of the qualities required by paragraph (1) of Art.14. The need to show a "manifest lack of the qualities required" is a decidedly higher threshold to satisfy when set against the standards in other arbitral rules and national arbitration laws. As will be shown below, several institutional rules merely require an applicant to show that are "justifiable doubts" as to the arbitrator's impartiality and independence. Rule 9 (1) requires that a challenge must be brought "promptly and in any event before the proceeding is closed.' In Compania de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic brought a challenge against Yves Fortier (the President of the ad hoc Committee) because his law firm had previously been instructed by a party connected to Vivendi in an unrelated matter. The Tribunal concluded that Fortier's independence was not impaired by the disclosure of the client relationship and rejected the challenge.3. ICSID proceedings do not have consolidation claims. The internal structure of the arbitration panels was questioned, because the situation could arise that two different tribunals made different judgments on the same complaint presented by different stockholders of a company. This situation has occurred because in the ICSID Convention or the ICSID arbitration Rules there no a consolidation provision. One example of this situation is CMS v. Argentina and in LG&E v. Argentina, the two tribunals, while reaching similar conclusions on the substantive treatment standards but came to a diametrically opposing result on the question whether Argentina had been in a state of necessity during a specific period of time relevant to the dispute.4. ICSID tribunals do not bound by precedents and coexist without hierarchy and their awards are not subject to appeal nor any other form of external control by a supervisory body that could ensure consistency in the decision making process.1.2 The Challenges against ICSID by Latin America CountriesThe number of arbitrations filed against Latin American Countries before the ICSID, since the filing of the first such case in 1996 until 2011, are 132 cases (65 pending cases and 67 concluded cases) from the total of 341 cases (122 pending and 219 concluded). These amounts represent el 39% cases of the total ICSID cases (54% of the pending cases and 31% of the concluded cases) and demonstrate the increased role of the region in international investment cases in recent years. In relation to UNASUR,9 of the 12 its countries faced 103 cases before ICSID, mostly with activities related to natural resources. Among Latin American States, alone Argentina accounts 49 cases (27 pending cases and 22 concluded cases) representing its pending cases 42% of the pending ICSID arbitrations involving a Latin American State (27 out of 65 cases) and 22% of the total pending ICSID cases.In relation to Argentina, the fact that ICSID Arbitral Tribunals have not been uniform in the application of criterion to accept the defense of necessity alleged by Argentina and ICSID proceeding lacked of transparency in some cases; this entire situation has generated great concern for the Argentine government. To resolve this contingency, Argentina implemented a process of public contract's renegotiation with the claimants to obtain an agreement to withdrawals or suspend the proceeding of the ICSID cases. This strategy has achieved 15 withdrawal cases and 6 cases have been suspended by agreement between the parties. In addition, Argentina resorted to Article 52 of the ICSID Convention to seek the annulment of awards and requested a stay in the enforcement of the award based on Rule 54 of the ICSID Rules of Arbitration. The coordination and successful work between the Argentine General Attorney's and the Unit for the Renegotiation and Analysis of Public Service has reduced the total amount of the claims from approximately USD 50 billion to USD 16 billion by March 2010.All these arbitrations against Latin American developing countries have brought to the surface an urgent need to define the limits of investor rights and protections more clearly when balanced against the duties and obligations of the State to its citizens. Specifically these countries started to formulate against ICSID the following complaints such as:ICSID connection with the World Bank; concerns by some Latin American states that hostility toward ICSID may hamper access to World Bank credit; non-commercial interests, such as health or environmental protection, have not received adequate attention in the arbitration cases; a lack of transparency by arbitration panels; a shadow of arbitrator bias in favor of the investor, with different ad hoc tribunals analyzing similar cases reaching disparate results; the absence of an appeals process, only a limited annulment procedure; and the cost of the litigation. All of this has a negative impact upon the legitimacy of ICSID. Thus, Latin America tries to delimit the jurisdiction of ICSID, if not exclude it altogether, reviving some aspects of the Calvo Doctrine. The most critical examples of recent hostility from developing countries of Latin American against ICSID are found in the cases of the Bolivian Alliance for the Latin America and Caribe-TCP (ALBA TCP) Declaration in 2007, the denunciation of ICSID Convention by Bolivia (in 2007) and Ecuador (in 2009), the public manifestation of Nicaragua's and Venezuela's intention to withdraw from ICSID (they have not done yet), Venezuela's anti arbitration measures, the amendment of Bolivia's and Ecuador's Constitution forbidden the State's participation in international arbitral proceedings relating to commercial disputes, the denunciation of BITs and the proposal of Ecuador to study the creation of Arbitration Centre in the UNASUR. In addition, Argentina's experience with investment arbitration, the fact that Brazil (the most successful country in Latin America in attracting flows of foreign direct investment -FDI-) is not a signatory of the ICSID Convention nor has ratified any BITs and Mexico still seems reluctant to enter the ICSID system, notwithstanding its being part of the North American Free Trade Agreement (NAFTA). All these situations suggest that the desire to create a regional center for arbitration will be a slow process, with lot of internal and external political constraints, but firm.The Ecuadorian proposal to create a system of alternative dispute resolution is contained in three documents:1) creation of an Arbitration Centre, 2) establishment of a Counselling Centre for Responsible Investment Disputes and 3) a Code of Conduct for UNASUR's Arbitrators and Mediators.The scope of UNASUR Arbitration Centre covers any disputes that require the assistance of the centre for arbitration and is not only limited to the issue of investment. It allows settlement of disputes between States and between a State and a legal person (investor), includes previous stages of consultation and mediation; the awards create jurisprudence or precedents and specifies that public policies issued by sovereign States are not object of arbitration. The Counselling Centre will provide legal guidance, technical assistance, research, specialized studies and legal representation in terms of investment disputes. Both the Arbitration Centre and the Counselling Centre will have an initial stage of use only for countries that are part of UNASUR. A second stage may use its services in Central America and the Caribbean and in the final stage it will be open to any country wishing to use it.This proposal has interesting characteristics, such as:1. Includes previous stages of consultation and mediation. It will important for this stage to consider the success of the WTO's consultant to resolve disputes. A majority of disputes in the WTO have not proceeded beyond consultations (until 1 January 2010, there have been 402 WTO complaints and only 126 panel reports).2. Awards create jurisprudence or precedents. The consistency and coherence of jurisprudence create predictability and enhance the legitimacy of the system of investment arbitration. ICSID lacks this feature.3. The Arbitration Centre and the Counselling Centre will have different stages of implementation (an initial stage of use only for countries that are part of UNASUR, a second stage may use its services in Central America and the Caribbean and in the final stage it will be open to any country wishing to use it). This gradual process of implementation will facilitate steady development of the Arbitration and the Counselling Centre.If the Ecuador proposal is adopted by Latin American Countries, could jeopardize the future of ICSID. It is important to consider that 9 of the UNASUR Countries members faced 103 cases before ICSID.Although UNASUR Arbitration Centre is created and ICSID arbitral proceedings might be improved in the future (duration of the proceeding, arbitrator Independence, consolidation of claims, confidentiality and transparency and appeal mechanisms), the current fragmentation of the International Investment Law and the inconsistent and the conflicting decisions, in the investment treaty arbitrations will continue without resolution. The causes of this situation are twofold and concern the substantive as well as the procedural law. Concerning substance, due to the large number of BITs, one State measure might be assessed differently under two existing investment treaties depending on the nationality of the investor affected. Inconsistent decisions can also result from the possibility of having multiple proceedings relating to an identical set of facts that can arise from independent claims by shareholders at different levels of a corporate structure.In addition, nowadays it is necessary to balance foreign investment law with other competing principles of international law. The private disputes between a State and an investor on a variety of investment matters are having massive impacts on public matters. Moreover, many developing countries that opposed the adoption of a multilateral investment treaty within WTO, have been forced through the signature of BITs and the decisions of ICSID and other investment tribunals to accept higher pro investment standards.Thus, it would be better for the Latin American developing countries to have a comprehensive global investment treaty than to continue signing BITs and being forced by ICSID or other international investment arbitrations'decisions to accept higher pro-investment standards. However, the negotiation of a global treaty on foreign investment law is not currently on the agenda of any international organization, but is more compelling the conclusion of such treaty today than even before. With the experience obtained before ICSID, it is evident that Latin America should take the initiative in setting the rules necessary to balance foreign investment law with other principles of international law though a plurilateral investment agreement within WTO in the face of difficulty obtaining a multilateral agreement by consensus. Further, these countries should establish that the foreign investors must seek resolution through the domestic judicial procedures, with the possibility for the investor to appeal the final decision before the WTO. Given the right of individual investors to pursue claims against host States, though in the WTO's dispute settlement mechanisms. Although the recommended change to the DSU would be very difficult to achieve by consensus, it is necessary for the development of the WTO and its Dispute Settlement Body (DSB). 2. The Structure of the Present ThesisThis thesis is structured in seven Chapters. The Preface introduces background, purpose and the principal hypothesis. Chapter 1 summarizes the principal and distinguish features of ICSID, as the most popular Arbitration Centre. Chapter 2 analyses Argentina's experience as the most litigated country in ICSID. It briefly examines Argentina's doctrines that influenced the rest of the Latin American countries, the situation of the foreign investment during the last forty years that generated the 2000s economy crisis, the main characteristics of the Argentine BIT's dispute settlement clause, the main objections raised against ICSID Rules by the Argentine government, the measures to obtain the withdrawal of ICSID cases by the investors and the countermeasures taken by Argentine Courts against ICSID awards. Chapter 3 compares some Latin American developing countries and their background, the evolution of the relationships between these countries and foreign investors. It also examines the individual and collective countermeasures taken by these countries against the ICSID. The Chapter 4 briefly analyses the amendments of 2006 and describes the principal challenges against the ICSID proceeding. Concluding with some suggestions that could improve the ICSID Rules performed on the basis of comparison with other selected arbitration rules. The Chapter 5 analyses the fragmentation of International Investment Law, into BITs and other kind of agreements, and some attempts to establish a multilateral investment framework. The Chapter 6 observes the diversification of international investment Arbitration Centres and its consequences. Finally, the Chapter 7 gives a possible solution for the future to resolve the fragmentation of international investment law and specially avoid inconsistent and contradictory decisions by international investment arbitration. In the Conclusion brings together the integral analysis and research of the present thesis.3. ConclusionLatin America developing countries need to secure a stable legal environment for international investment. International Investment Law has suffered fragmentation into BITs or regional agreements and the inconsistent and contradictory decisions by international investment arbitrations, in special ICSID, make it impossible to understand this area of law as a system of law or perceive it as part of an overarching order for international economic relations.The past two decades have seen a virtual explosion in investor-State arbitrations before ICSID. A significant proportion of the total ICSID caseload are against Latin American countries involving claims amounting to millions and even billions of dollars brought by foreign investors. In many cases, the disputes have arisen from regulatory measures involving matters of public interest, including general welfare, health, environment, security or economy. In most of the cases, these arbitrations have brought to the surface an urgent need to define the limits of investor rights and protections more clearly when balanced against the duties and obligations of the State to its citizens. Important legal questions must be settled regarding the limitations and conditions of the State's consent to arbitrate such disputes, as well as the applicable standards for reviewing investor-State claims. Many inconsistent decisions appear to represent diametrically opposed doctrines. Jurisprudential inconsistency is particularly problematic in light of the substantial amounts of the claims in the arbitration. This has an impact upon the legitimacy of ICSID.Thus, some of Latin American countries are changing their position on ICSID and are considering reviving some aspects of the Calvo Doctrine, trying to delimit or/and exclude the jurisdiction of ICSID and declaring the necessity for the creation of an International Centre for Conciliation, Mediation and Arbitration within UNASUR as an alternative of ICSID.China, as a developing country, has risen to first place as FDI recipients and is ranked second in the world, after Germany, as the country with the most BITs signed. As a capital importing country, China needs to consider the Argentinean's experience before the ICSID to realize the potential costs to host governments. In addition, China is also an emerging capital exporter, so it needs to discuss very carefully the broader interpretation realized by ICSID, in relation of the first generation of Chinese BIT's arbitration clause in the case that Tza Yap Shum. It needs to analyze the current movement of Latin American Countries because China's investments have grown considerably over the last few years in this region.