CHAPTER 4 BILATERAL INVESTMENT TREATIES

• Jurisdiction: Derecho Internacional

International Mining Law and Investment in Latin America and the Caribbean
(Apr 2005)
CHAPTER 4
BILATERAL INVESTMENT TREATIES
Adolfo Dura §ona (with the collaboration of Joaquin Kersman and Mario Pallaoro)
Baker & McKenzie
Buenos Aires, Argentina

Adolfo Dura&tildecmb;nona is a Principal of the law firm Baker & McKenzie. His areas of Practice are Mining and Natural Resources, Commercial Agreements, Major Projects, and Mergers & Acquisitions.

He holds a Juris Doctor from the University of Buenos Aires School of Law and an LL.M. from Southern Methodist University in Dallas, Texas (1988). He was awarded a fellowship by the Winegardner Companies Foundation.

He is the author of "MIGA," a new mechanism to secure investments in Argentina, Economic Laws, year II, No. 15 (December 1990-January 1991); US-Argentina, Investment Treaty; International Company and Commercial Law Review (Sweet & Maxwell, September 1995); "Extended Liability for Environmental Damages (Mining Code)," Oil and Gas, Law and Taxation Review (Sweet & Maxwell, July 1996); "A New Perspective for the Argentine Mining Industry," Oil and Gas, Law and Taxation Review (Sweet & Maxwell, September 1996); "Digital Signatures and the Argentine Legal System," International Internet Law Review (May 2000).

He was Ad-honorem Advisor at the Legal and Technical Secretariat of the Presidency of the Argentine Republic in 1990. He is a member of the Buenos Aires Bar Association and of the Rocky Mountain Mineral Law Foundation. He is fluent in English and Spanish.

International Mining Law & Investment in Latin America and the Caribbean

1. Introduction

During the last years most of the countries of the region started to look for alternatives to promote foreign investments and to offer the developed countries or capital-exporting countries an attractive environment for their investment.

The treaty programs to protect foreign investment started after the second world war when capital-exporting countries began to be worried about the risk that its nationals were facing when investing abroad (expropriations, nationalization, currency restrictions, etc). United States, Germany, Japan and other countries put in place different insurance or guarantee mechanisms. For example, we can mention the Overseas Private Investment Corporation (Foreign Assistance Act 1948), issued by USA, or the Multilateral Investment Guarantee Agency.

These were country programs (OPIC) or multilateral programs (MIGA) where if nationals were expropriated or suffered any of the guaranteed risks, the USA government (OPIC) or Agency (MIGA) would pay the foreign investor and subrogate on its rights and initiate legal actions against the expropriating country.

The concept of the Bilateral Investment Treaties ("BIT") is different since the host country provides specific protection to the foreign investments and accepts that the dispute be resolved through international arbitration.

The execution of BIT started during the last twenty years and one of the most relevant issues was the forum to resolve the dispute. Under the pressure of the World Bank the International Centre for the Settlement of Investment Disputes ("ICSID") was created in 1965 in Washington and as of today 154 countries have signed the Treaty and 140 have ratified this agreement.

This paper will describe the applicability of BIT in Argentina, Chile and Peru, its guidelines and the benefits that they could provide to the mining industry.

2. BIT in the region

To analyze the relevance that BIT treaties may have in Latin America, we have made a chart including the traditional major mining investors of the region, that is to say Canada, Australia and USA, and the BITs that these countries have executed with Latin American countries. For its potentiality, we also included China. Spain and Netherlands were included not because they were mining investment countries, but due to tax reasons, since corporate vehicles of those countries are often used to invest in the region. ¹ The UK was included too given its important BIT network.

Also, we have marked the countries of the region that have ratified the ICSID agreement. Countries that have not signed this agreement can still resolve the dispute through international arbitration as UNCITRAL, -ad-hoc arbitration or the ICSID additional facility, however, the enforceability of an additional facility award is not as efficient as it is in the case of an ICSID award. ²

BIT

Canada	Australia	USA	China	Holland	Spain	U.K.
N%go%g of BIT	N%go%g of	N%go%g of BIT	N%go%g of	N%go%g of	N%go%g of	N%go%g of
signed	BIT	signed	BIT	BIT	BIT	BIT
(17)	signed	(37)	signed	signed	signed	signed
not a	(12)	ICSID	(71)	(58).	(37).	(84).
member	ICSID	Member	ICSID	ICSID	ICSID	ICSID
of ICSID	Member	Member	Member	Member	Member
Argentina	X	X	X	X	X	X	X
N%go%g of BIT
signed
(38)
Bolivia	X	X	X	X
N%go%g of BIT
signed
(19)
Chile	X	X	X	X
N%go%g of BIT
signed
(30)
Per´cmb;u	X	X	X	X	X
N%go%g of BIT
signed
(24)
Brazil	X
N%go%g of BIT
signed
(10)
Not a
member of
ICSID
M´cmb;exico	X	X	X	X
N%go%g of BIT
signed
(16)
Not a
member of
ICSID
Ecuador	X	X
N%go%g of BIT
signed
(16)
Venezuela	X
%w

The chart shows interesting results, as an example, Canada, a significant player in the region, is not a member of ICSID nor has it signed BIT with any of the countries of the region (except for that signed with Argentina). All the Latin American countries listed above, except for Brazil and Mexico, are members of ICSID.

Spain and Holland, on the contrary, have not only signed BIT with most of the countries, are ICSID members, but also have signed double taxation treaties with several Latin American countries (see Annex A). This shows the intention of these governments to provide investors with attractive corporate vehicles, even to invest offshore.

Finally, most of the Latin American countries have executed BIT among themselves and with Caribbean countries (see Annex B).

Argentina is by far the country with more cases pending against it. According to the information provided by ICSID data base (www.worldbang.org/ICSID/cases/) as of January 2005, Argentina had thirty five (35) pending cases ³ for more than US$10,000 million and four concluded cases. ⁴ At least, 76% percent of these cases are claims related to (i) the suspension of the tariffs adjustment or the conversion into pesos of tariffs which before were in US dollars ⁵ and (ii) the alteration - rescission of agreements. None of the claims has been filed by a mining company but at least five claims have been filed by oil companies, ⁶ six by gas transportation and distribution companies, ⁷ and one by a gas exploitation company. ⁸ As said before, in most of these cases the claim is based on the "pesification" of the agreement, not in the revocation of an agreement or nationalization of the company. Many of the companies that are filing these claims are still operating in Argentina and are renegotiating the concession agreement executed with the government; ⁹ however, none of them has withdrawn its arbitration complaint and most of them are using ICSID legal claims to improve their negotiation position.

The situation of Chile and Peru is significantly different. Chile has only three pending cases and Peru only two, but none of them is related to mining or oil and gas industry. The three cases against Chile are:

(i) Victor Pery Casada and President Allende Foundation v. Republic of Chile (case N%go%g ARB/98/2) filed on April 20, 1998 and is related to the rights on a publishing enterprise.

(ii) MTD Equity Sdm Bhd and MTD Chile SA v. Chile (case N%go%g ARB 01/07) filed on August 6, 2001, related to the construction of a residential and commercial complex. The award against Chile was rendered on May 25, 2004 but Chile requested the annulment proceeding which is pending.

(iii) SA Eduardo Vieira v. Republica of Chile, filed on February 27, 2004 related to a fishing company.

The first case against Peru is Lucchetti SA and Lucchetti Peru SA v. Republica of Peru, filed in March 26, 2003, related to a pasta factory. The award has been issued on February 7, 2005, and is available at www.asil.org/pdfs/luchetti050217.pdf.

The other case against Peru is Duke Energy International v. Republic of Peru, filed on October 24, 2003, and related to a power generation project.

Among the cases concluded against Peru is Compagnie Mini&gravecmb;ere Internationale Or S.A. v. Republic of Peru (Case No. ARB/98/6), where a Gold mining project was involved and settlement was agreed by the parties and proceeding discontinued at their request (Order taking note of the discontinuance of the proceeding issued by the Secretary-General on February 23, 2001, pursuant to Arbitration Rule 43(1)).

In the rest of the region, according to the official web page of ICSID, the amount of cases filed before ICSID are not significant. For example, Venezuela 2, Mexico 4, Ecuador 3, Bolivia 1, El Salvador and Honduras 1.

3. Basic Guidelines of the BIT

In general, BIT provide for special protections mechanisms which could be summarized as follows:

3.1 Treatment and Protections.

Most BIT provide that investments and activities associated with investment of either contracting party shall receive "fair and equitable" treatment and shall enjoy protection in the territory of the host country. ¹⁰

This means that the host country cannot discriminate the investments of the other contracting country. Its treatment shall not be less favorable to that accorded to investment of investors of third countries (most favorable nation treatment "MFNT") and of local investors...