Making (even more) money from the corona crisis

It was to be feared, and it has now become reality. As revealed by the Transnational Institute, Peru, Mexico and Argentina constitute at least three Latin American countries threatened with lawsuits before arbitral tribunals over measures they have introduced to fight the corona crisis. What exactly has taken place? In early April, when growing numbers of Peruvians risked losing their jobs, the Peruvian Parliament adopted a law suspending highway tolls in an attempt to facilitate or promote the movement of goods and people. The reaction of the foreign companies that hold the corresponding highway concessions was not long in coming. As early as June they announced that Peru would be brought before a World Bank arbitral tribunal (ICSID — International Centre for Settlement of Investment Disputes). This scared the Minister for Economic Affairs into launching a process to circumvent the law and maintain the toll charges, despite the potential unconstitutionality of that process. This is known as the chilling effect: fearful of the prospect of having to pay rather hefty compensation to the foreign investor — plus court costs — a government renounces a measure it has taken in the public interest. Peru’s Constitutional Court must now rule on the legality of the executive climb-down, and depending on the decision, the complaining parties will decide whether or not to take their case to the arbitral tribunal.

Mexico and Argentina in the hot seat

Shortly thereafter it was Mexico's turn to irk foreign investors by restricting the production of renewable energies owing to a drop in power consumption. Several law firms specialising in international arbitration immediately encouraged the foreign energy companies concerned to bring a potentially lucrative action against Mexico. Spanish and Canadian companies have already expressly raised this possibility. Lastly, there is the case of Argentina, which is sinking ever deeper into a never-ending crisis. On 22 May the government announced that it was defaulting on its debts to foreign creditors, including BlackRock, the world's largest asset management company. With the blessing of the International Monetary Fund (IMF), negotiations were also taking place on the rescheduling of 66 billion US dollars of sovereign debt. On 4 August, Argentina announced its readiness to pay 54.8 per cent of its debt – BlackRock had demanded 56 per cent and Argentina had initially offered 39 per cent. This capitulation was no chance matter. On 17 June, BlackRock's law firm White and Case had threatened to use all means at its disposal to force Argentina to back down – a thinly veiled reference to international arbitration. It was the same law firm that had successfully sued the Argentine State for 1.35 billion US dollars on behalf of 60,000 Italian bondholders in 2016. In what is known as the Abaclat case, they had rejected the bond exchange offer launched by the government in its endeavour to deal with the 2001 economic crisis.

When multinationals go treaty shopping

Still in Latin America, and more specifically in Bolivia, there are two arbitration proceedings pending between the State and Glencore, the commodity trading company domiciled in Switzerland. In the light of the pandemic, Bolivia had requested the temporary suspension of arbitral proceedings in two mining disputes. Invoking force majeure, La Paz argued that the pandemic was hindering the Bolivian Government from submitting the requisite documentation. Yet it failed. What is noteworthy is that the Glencore lawsuits are not based on the investment protection treaty between Switzerland and Bolivia, as that treaty had been renounced by the Andean country, like other developing and emerging countries (Ecuador, Indonesia, India, South Africa). For the arbitration proceedings, Glencore managed to identify itself as a British company and invoked an investment protection treaty between Great Britain and Bolivia. This approach is by no means unusual and in expert circles is beautifully termed "treaty shopping". This means that a multinational invokes the international treaty that promises to be the most lucrative. Chevron is yet another company that practices treaty shopping. The US energy company that has been embroiled in a legal dispute with Ecuador over negligent environmental pollution for 30 (!) years now, has instituted proceedings against the Philippines over an offshore gas drilling platform. In this latter case, Chevron is able to invoke the Swiss-Philippine investment protection treaty, which obviously offers better prospects of winning the legal battle against the Asian island nation.

The routine threat and frequent filing of actions by multinational corporations against countries have prompted a growing number of States to question the meaning and purpose of investment protection treaties. This trend is being even further stoked by the abysmal failure of many of these agreements to attract anything like the level of investment hoped for by the recipient countries. The topics up for discussion are the abolishment of these agreements, or at least the ruling out of the use of the controversial international arbitration approach in dispute settlement, and turning instead to domestic courts.