international disputes

Four years have passed since the cancellation of the new Texcoco international airport. Since then, the risk of international investors going to court to sue the federal government for the cancellation of mega-projects and contracts for the provision of services has been permanent.

The ability to anticipate and prevent the application of the new public policies from leading to an international dispute would be questioned ever since. The last instance to resolve those claims is in the judicial systems. Trade agreements include mechanisms to resolve this type of dispute, the end of which is almost always unfavorable for state economies. A study prepared by the Georgetown University Center for Strengthening the Rule of Law revealed that Latin American nations have faced lawsuits for more than 1.5 trillion dollars over the last 25 years and have been ordered to pay 32 billion dollars. in awards and extrajudicial agreements.

According to that same study, internal governance and institutional problems—among them poor coordination between the competent ministries and the inclusion of different branches and levels of government—are among the main obstacles to preventing claims and successfully managing litigation. .

The contracts inherited from the peñismo energy reform, but above all the obligations derived from the new Trade Agreement with the United States and Canada, were high risk. However, the Fourth Transformation has invoked the public interest to oppose the operation of electrical, mining and bottling companies.

Argentina, Mexico and Venezuela are the three Latin American nations with the highest number of claims processed by foreign investors due to non-compliance with the conditions of their trade agreements.

Among the most invoked claims is fair and equitable treatment (FET) and of the 202 complaints filed up to April of this year, 34 have been against Mexico and another 32, for alleged indirect expropriations. Both usually go together. There is only one case of “umbrella clause” -which many States avoid in their treaties– and four complaints for direct expropriations. There are 13 other complaints about the lack of full protection and security.

The Top 10 of the most exorbitant claims does not involve the Mexican government, although there is one – for 439 million dollars – processed by Gruma against Venezuela. In the list of the five most expensive lawsuits, on the contrary, there are two lawsuits: one, from Holcim, for 650 million, and another from Cemex, for 500 million, both against the government headed by Nicolás Maduro.

Most investor-State disputes are administered by arbitration centers. The most used by the nations of the hemisphere is the International Center for the Settlement of Investment Disputes (ICSID) of the World Bank. The Permanent Court of Arbitration in The Hague, the London Court of International Arbitration, the International Court of Arbitration of the International Chamber of Commerce and the Arbitration Institute of the Stockholm Chamber of Commerce are also instances authorized to intervene. Of the 340 existing records, 295 are currently in the ICSID.

At Georgetown Law, CAROLA has implemented an initiative to identify and map the institutional capacity of Latin American countries to prevent and manage claims from foreign investors. Its researchers have found that many investors use the costs, tedium and unfavorability of dispute procedures against states to coerce them. And despite the fact that the amount awarded in arbitrations is usually much lower than that claimed by investors, the amount of awards is astonishingly high.

And they have also detected that law firms are very well paid for this type of litigation. According to some reports, the legal fees and expenses for litigation are around 4.9 million dollars for States and 6 million dollars for investors.

Twitter: @aguirre_alberto

alberto.aguirre@eleconomista.com.mx