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Página 12 | 25-11-12
(Freely translated by Anoosha Boralessa in 2015 for bilaterals.org)
Argentina: Loss of sovereignty
The neoliberal political plan, of which BITs are an integral and specific component, is highly incompatible with the nation-state and furthermore with the national-democratic state.
By Roberto Briscioli
A key feature of foreign direct investment is that it applies to the real economy and that is rolls out over a long period of time.
Its positive aspect is that it can bring economic growth and consequently can create jobs.
Its negative aspect becomes evident in that a high percentage of profits gained by foreign companies, making using of this investment, is repatriated to parent companies abroad.
This is not an infrequent occurrence.
According to Cifra, these remittances in 2011 were equal to 45.4% of Argentina’s balance of payments. This represents a genuine source of foreign currency that could pay for imports, loan repayments and interest on debt.
Indirect foreign investment (on paper) is associated with speculative financial activity and foreign debt.
One of its prerequisites is high local interest rates compared to international interest rates and the "free circulation of capital."
Most of the 1990s was a heyday for indirect foreign investment, as investors were guaranteed a fixed and backdated exchange rate.
This implies an explicit political will to put finance above production, and with that maintain high interest rates.
It also implies the devaluation of trade-able goods in relation to non-tradeable goods.
What we have described is the ontological essence of the neoliberal plan, that is, the promotion of rent-generating financial activity and external debt resulting in the destruction of socially useful job creation.
The icing on this bitter neoliberal cake was the signing of 59 investment protection treaties between 1990 - 2000 to safeguard the interests of foreign investors.
Of the terms of these treaties, the so-called stablisation clause stands out and its text is reproduced in part below:
".... neither of the contracting parties will take, directly or indirectly, any measures of expropriation or nationalisation nor any other similar measure including modifying or derogating from their laws..."
This means that any legal modification that is considered prejudicial to the interests of foreign investors gives rises to the possibility of a legal claim for compensation.
For example, following the signature of these treaties the option of derogating from the Convertibility Law was foreclosed.
This is precisely what happened at the end of 2001 when, during a severe social uprising that provoked the death of more than 30 demonstrators, the country’s president, Minister of the Economy and rest of the cabinet had to abandon their office due to popular pressure instead of repealing a law that largely called for their removal.
What this brought about was as serious as what caused the current political situation in some countries of the European Community.
Currently our country finds itself the respondent before ICSID, in the majority of cases by private firms that are basing their legal claims on devaluation, pesification and the freezing of tariffs.
What is more, these treaties cannot be rescinded given that they include a "sunset clause" which means they remain in force for 10 or more years beyond what the country wants.
This means that when a country signs these BITs, it abdicates its role as sovereign lawmaker.
In relation to the potential legal disputes, these treaties provide that ICSID has jurisdiction.
What is ICSID? It is the International Centre for the Settlement of Investment Disputes. It is an institution that is part of the World Bank Group and was established in 1966 and has its offices in Washington.
Its function is to establish ad hoc arbitral tribunals. When ICSID arbitral tribunals resolve claims according to the law, the only law they take into account are BITs.
Furthermore, the ad hoc tribunals established by ICSID are unique; there is no superior tier of justice. Their decisions cannot be appealed nor can they be revised and therefore are binding on States party to the ICSID Convention as res judicata.
BITs always contain a "most favored nation" clause and a "fair and equitable treatment" clause. These clauses aim at maintaining equal competition among investments originating from different countries.
In practice, both investments and investors are at issue.
That is to say, they defend legally the interests of transnational corporations that are originating from developed countries, by guaranteeing to them benefits that include the free availability of and transfer of foreign currencies.
Consequently, as soon as a host state signs these treaties, it loses its capacity to sanction regulatory laws on the foreign investment. But it can channel, for example, certain investments from the internal savings with credit lines at negative rates to small and medium sized enterprises, to favour growth and economic development.
Should it do this, it must extend these privileges to foreign investors, otherwise, according to a large number of ICSID awards, it may be respondent to a claim of unjust and discriminatory treatment by the State that hinders private activity.
This same argument can be used to base a legal claim before ICSID if the State tries to establish mechanisms to regulate the ratio of profits achieved to profits transferred to parent companies by transnational corporations.
As it can be appreciated the neoliberal political plan as a whole in which BITS feature as an integral and specific part is highly incompatible with the Nation State and, furthermore, with the national-democratic state.
This political plan, which has been developed by international organisations, is structured to try to preserve sovereign and democratic states. But its real effect is to divest the state of its sovereignty.
* Professor, Member of the Club Argentino Arturo Jauretche