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INVESTMENT REGIMES IN THE EU-MERCOSUR NEGOTIATIONS, by Christian Russau, FDCL, Berlin, September 2005

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Chapter 4. BILATERAL INVESTMENT AGREEMENTS VERSUS DEVELOPMENT
PROMOTING POLICY-MAKING

Free trade agreements provide transnational corporations with the legal framework for their global production networking, enabling them to benefit from production-network strategies that exclusively depend on the respective market situations, and restricting state regulations and interventions with a web of international treaties. Traditionally, until well into the 1990s, European foreign investments in MERCOSUR were more interested in the respective domestic markets: European corporations focussed on the domestic markets of Argentina and Brazil [72], but as a consequence of increasingly volatile markets, the transnational companies are increasingly shifting towards a position which is directed at the world market. The globally operating players are concentrating on export production for the world market, taking advantage of the 'comparative cost advantages', while the respective inter-connecting of corporation-controlled global production networks is proclaimed as a maxim.

The 'certainty of the law' that free trade and bilateral investment agreements grant transnational operating corporations for their foreign direct investments - and consequently the legal guarantee for the integration of as many production units as possible, including their suppliers, into the global production network of the transnational corporations - is ultimately secured by the installation of international 'dispute settlement bodies'. The dispute settlement mechanism in regional free trade agreements like the one planned between the EU and MERCOSUR is limited to the complaints that states can file against other states, whereas in the numerous existing bilateral investment agreements [73], like those between European and MERCOSUR states, private investors have the right to file complaints against states. Consequently, both types of international agreements in place for the 'investment' sector secure in an alarmingly efficient way the deregulation of national markets by regulating international investment regimes according to neo-liberal market rules.[74]

In Latin America, international disputes in the investment sector are not only an intensely discussed issue in the wake of the Argentinian crisis of late 2001, they are a rapidly aggravating, yet widely ignored problem.[75] Argentina in particular, which signed and ratified more than fifty bilateral investment-agreements in the 1990s, had negative experiences with regard to international disputes filed against it at international tribunals on the basis of bilateral investment treaties [76], even if, out of thirty-six complaints filed by early 2005 [77], four have meanwhile been withdrawn.[78] These pending indemnisation requests against Argentina are also one of the reasons why Argentina is currently engaged in a debate on a fundamental revision of the BITs, including at top governmental levels.[79] Paraguay, with sixteen already ratified bilateral investment treaties [80], and Uruguay, with twenty-eight [81], have not yet been accused on the basis of their bilateral investment treaties in front of international tribunals. Yet the experiences of Argentina have put at least Uruguay on alert, where since April 2005 the parliament has been engaged in a heated dispute on these BITs, especially regarding the issue of the BITs between Uruguay and the United States signed by the former government under President Batlle.[82] In June 2005, the controversy on this BIT even extended to MERCOSUR, when an unnamed source in the Brazilian Ministry of Foreign Affairs, Itamaraty, predicted sanctions against Uruguay, on the grounds that these BITs were incompatible with MERCOSUR treaties.[83]

Brazil for its part is a special case among the four MERCOSUR countries: it is one of the few states without a ratified bilateral investment-treaty (BIT). Although Brazil did sign fourteen BITs in the course of the 1990s (1994-1999) [84], none of them have yet been ratified, and so, at present, Brazil still has the autonomy to decide on its investment and industrial policies without restrictions from legally binding international treaties. Six of the fourteen signed but unratified BITs have been transferred to the Brazilian lower house of parliament, the Câmara dos Deputados, by the government of Fernando Henrique Cardoso (FHC). According to Art.49 of the Brazilian Constitution [85] the ratification of all international treaties devolves upon the Brazilian parliament - first the Câmara dos Deputados, then the Senate - before the President declares their final ratification.

Between 2000 and 2002, in the course of attempts to ratify the BITs signed between 1994 and 1999 by the Brazilian government, the Câmara dos Deputados saw an intense debate in which the opposition insisted on two fundamental arguments against the treaties. In addition to the various constitutional conflicts that would arise from these treaties after their ratification [86], the opposition criticised the latter inherent regulations on international jurisdiction in disputes on foreign direct investments [87]: firstly, the better treatment for foreign investors, since national investors have no access to international courts [88], and secondly, the fact that the 'investor-to-state' complaint right inherent to BITs clashes with the first constitutional principle of Brazil.[89]

As a result, none of these BITs were ratified by the Câmara, which was due mostly to the continuing refusal of the oppositional Partido dos Trabalhadores (PT), so in the course of 2002, long after the Special Parliamentary Report had been compiled [90], the Brazilian President FHC withdrew the BITs ratification process (under the lamentations of the then Secretary of Foreign Affairs) [91] from the Câmara dos Deputados.[92]

Partly in response to these experiences, several competing drafts aimed at changing the ratification modalities of international treaties were presented in both houses of the Brazilian Congress (House of Representatives and Senate) in the course of 2004: drafts that aim to restrict the participation margin and ratification modalities of the Brazilian Congress, as well as drafts that aim to widen these capacities. [93] The corresponding parliamentary debates are still in progress.

After the departing government of FHC had declared the formal withdrawal of the ratification process from the Câmara dos Deputados in late 2002, the political decision-making competence on the modalities of the further proceedings relating to the BITs (ratification, modification or refusal) was transferred to the Foreign Trade Chamber (Câmara de Comércio Exterior, Camex) [94]. For the spring of 2005, the Camex commissioned an internal (still unpublished) report from an inter-ministerial committee which gave advice on the declaration of the further proceedings relating to the Brazilian BITs. [95] The still unpublished decision [96] is important insofar as with it, Brazil finds itself at the crossroads between subordination under the neoliberal investment regulatory concept through internationally binding treaties and the fundamental right to make autonomous decisions and implement creative investment policies on its own territory.[97]

 

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Footnotes:

72] 'Brazil and Argentina have long since been a focal point of FDI outside the OECD area by European companies. [...] Traditional FDI patterns were the result of European investors' preference for large and protected markets'. Notably in the automobile and chemical industries, the size and growth of markets provided the major stimulus to FDI in the Mercosur region. Multinational companies used FDI mainly to overcome import barriers', in: Nunnenkamp, Peter: 'Foreign Direct Investment in Mercosur: The Strategies of European Investors', in: Paolo Giordano, Chaire Mercosur de Sciences Po [ed.]: An Integrated Approach to the European Union - Mercosur Association, 2002, p.231; see also: Jost, Thomas / Nunnenkamp, Peter: 'Bestimmungsgründe deutscher Direktinvestitionen in Entwicklungs- und Reformländern - Hat sich wirklich etwas verändert?', Kieler Arbeitspapier Nr.1124, August 2002.
73] See also Chapter 4 of this paper. Between 1991 and late 2004, 415 BITs were signed in LatinaAmerica and the Caribbean, see: Folha de São Paulo, 1 September 2005.
74] On the polarity of regulation and deregulation, see: Russau, Christian, 'Durchsetzung internationaler Handelsregime zwischen der Europäischen Union (EU) und dem Gemeinsamen Markt des Südens (MERCOSUR)? Ausländische Direktinvestitionen als Gegenstand der Freihandelsverhandlungen im Spannungsfeld von Investorenrechten, Entwicklung und Menschenrechten', in: FDCL: EU-MERCOSUR Bulletin Nr.1, January 2004, p. 86.
75] See among others: Lagerberg, Gerry: 'Demand for International Arbitration is growing, according to PriceWaterhouseCoopers', 4 March 2004; 'Arbitration: Sign of the times', in: Legal Week 13 January 2005; Tawil, Guido Santiago: Investor-State Arbitration : A hot issue in Latin America, (Buenos Aires: M.& M.Bomchil, 2002).
76] See also among others: Teitelbaum, Alejandro: Las demandas de las sociedades transnacionales contra el Estado Argentino ante los tribunales arbitrales del CIADI (1), found in: <http://www.argenpress.info/nota.asp?num=018574>; see also: Bissio, Roberto: 'El arbitraje internacional no está por encima de la Constitución', dice el Ministro de Justicia, Red Tercer Mundo, 11 April 2005; also: Verbitsky, Horacio:' Las batallas del tercer año', in:<http://www.pagina12.com.ar>, March 2005; see also: Peterson, Luke Eric, 'ICSID tribunal issues pair of jurisdictional decisions in financial crisis arbitrations', in: INVEST-SD: Investment Law and Policy News Bulletin, 10 June 2005, and: Peterson, Luke Eric, 'Argentine Bondholders girding for multi-billion dollar investment treaty claim', in: INVEST-SD: Investment Law and Policy News Bulletin, 10 June 2005.
77] Peterson, Luke Eric: 'The Global Governance of Foreign Direct Investment: Madly Off in All Directions', in: Friedrich Ebert Stiftung: Dialogue on Globalization. Occasional Papers, Geneva, N° 19, May 2005, p.13.
78] See AFP, 20 July 2005; Peterson, Luke Eric, 'First domino falls on Argentina as tribunal rules in financial crisis arbitration', in: INVEST-SD: Investment Law and Policy News Bulletin, 27 May 2005.
79] See: La Nación, 12 September 2005.
80] UNCTAD database, <http://www.unctadxi.org/templates/DocSearch.aspx?id=779>
81] UNCTAD database, <http://www.unctadxi.org/templates/DocSearch.aspx?id=779>, a number of signed but as yet unratified BITs have to be added, see: <http://www.mrree.gub.uy/Tratados/MenuInicial/busqueda/Tema/Tema2.htm>
82] See among others: Sánchez, Hilda / Orsatti, Alvaro: Los Tratados de Inversión: hechos y políticas en el Cono Sur, August 2005; Vis-Dunbar, Damon: 'Uruguayan Senate debates US BIT, looks for common Mercosur posture on BITs', in: INVEST-SD: Investment Law and Policy News Bulletin, 22 August 2005; also: Observador, 21 September 2005.
83] '[...] provocar sanciones contra Uruguay, por ejemplo, su exclusión del Mercosur por ser el Tratado incompatible', in: La República: 'El tratado uruguayo con EEUU preocupa en Argentina y Brasil', 12 June 2005.
84] On the content, structure, system comformity and risks of the Brazilian BITs see extensively: Russau; Christian: 'Durchsetzung internationaler Handelsregime zwischen der Europäischen Union (EU) und dem Gemeinsamen Markt des Südens (MERCOSUR)? Ausländische Direktinvestitionen als Gegenstand der Freihandelsverhandlungen im Spannungsfeld von Investorenrechten, Entwicklung und Menschenrechten', FDCL: EU-MERCOSUR Bulletin N°1, January 2004, pp. 69.
85] 'Art. 49. É da competência exclusiva do Congresso Nacional: I - resolver definitivamente sobre tratados, acordos ou atos internacionais [...]',Constitution of the Federal Republic of Brazil 1988.
86] See extensively: Bithiah de Azevedo, Déborah: Os acordos para a promoção e a proteção recíproca de investimentos assinados pelo Brasil, Consultoria Legislativa, Câmara dos Deputados, May 2001.
87] See extensively: Diário da Câmara dos Deputadosfom 13 April 2000, reprinted in: Diário da Câmara dos Deputados, August 2003, pp.37782-37809.
88] See also: Russau; Christian: 'Durchsetzung internationaler Handelsregime zwischen der Europäischen Union (EU) und dem Gemeinsamen Markt des Südens (MERCOSUR)? Ausländische Direktinvestitionen als Gegenstand der Freihandelsverhandlungen im Spannungsfeld von Investorenrechten, Entwicklung und Menschenrechten', FDCL: EU-MERCOSUR Bulletin N°1, January 2004, p.80.
89] Thus, the MP José Dirceu warned in the Câmara dos Deputados: '[...é] necessário considerar que o recurso á arbitragem internacional, na forma proposta pelo Acordo Brasil/Alemanha e pelos demais APPI, fere, a nosso ver, o inciso I do artigo 1° da Constituição Federal, o qual afirma a soberania como um dos fundamentos da República Federativa do Brasil'. Diário da Câmara dos Deputados 13 April 2000, reprinted in: Diário da Câmara dos Deputados, August 2003, p.37804; see also: 'Art. 1º A República Federativa do Brasil, formada pela união indissolúvel dos Estados e Municípios e do Distrito Federal, constitui-se em Estado Democrático de Direito e tem como fundamentos: I - a soberania; [...], in: Art. 1 Constitution of the Federal Republic of Brazil 1988.
90] The differing opinions of the members of the Relatório de Grupo de Trabalho were only published in August 2003 in the Diário da Câmara dos Deputados, see Diário da Câmara dos Deputados from 13 April 2000, reprinted in: Diário da Câmara dos Deputados, August 2003, pp.37782-37809.
91] 'Embora o Governo tenha oferecido argumentos para dirimir dúvidas e esclarecer questões levantadas no Congresso, é forçoso constatar que os acordos, por um lado, nunca encontrou o respaldo político necessário para sua aprovação e, por outro, deixaram de refletir as tendências que hoje prevalecem no cenário internacional. É essa a conclusão a que chegamos, meus colegas da Fazenda, do Ministério do Desenvolvimento, Indústria e Comércio Exterior e eu próprio, juntamente com o Presidente do Banco Central, após examinarmos Relatório de Grupo de Trabalho que estabelecemos para debater a matéria. No caso do Acordo firmado com a República Federal da Alemanha, como nos demais, impõe-se nessas condições, a decisão de retirar a Mensagem. Que ora submeto a Vossa Excelência.' Celso Lafer, Records of the 234th Morning Session S 12 December 2002, p.54410. 92 Ibid pp.54410-54415.
93] See: Agência Câmara dos Deputados: 'Deputados querem participar mais de acordos internacionais'consolidated - 19/5/2005 0h15; see also the decision of the Comissão de Constituição e Justiça e de Cidadania from 9 December 2004, in: Agência Câmara dos Deputados - Event - 9/12/2004 16h15; see also draft legislation PL 4291/04, on conferring more participative powers to the Câmara de Deputados in international agreements, in: Agência Câmara dos Deputados - Order - 4/11/2004 9h20; see also: Agência Câmara dos Deputados - consolidated - 20/9/2004 20h01.
94] 'A Câmara de Comércio Exterior - Camex, órgão integrante do Conselho de Governo, tem por objetivo a formulação, adoção, implementação e a coordenação de políticas e atividades relativas ao comércio exterior de bens e serviços, incluindo o turismo', found in: <http://www.desenvolvimento.gov.br/sitio/camex/camex/competencia.php On the importance of Camex and various reform proposals see: Ex-embaixador defende maior poder da Camex, in: Gazeta Mercantil, 18 August 2005.
95] See also: 'Camex define destino de acordos bilaterais', in: Valor Econômico 18 April 2005, and Valor Econômico 9 May 2005.
96] State mid-August 2005.
97] See also: Luke Eric Peterson, 'Brazilian government's decision on ratification of BITs looming', in: INVESTSD: Investment Law and Policy News Bulletin, 27 April 2005.