All the versions of this article: [English] [Español]
Argentina: what to do with the BITs?
By Javier Echaide
Freely translated by Anoosha Boralessa in 2015 for bilaterals.org
The idea is firmly established: we need to attract foreign direct investment (FDI) to promote the development of countries which, like ours, sit on the periphery of the global economic system. This thinking pushed countries on a crusade to try to capture these capital flows by introducing measures such as increasing job insecurity, reducing salaries, eroding social rights, reducing the role of the State, etc. However, they also entered into international legal arrangements which, although very powerful, are not so well known: World Trade Organisation agreements since 1995, double tax treaties, becoming a member of ICSID (which Argentina did in 1994), ratifying bilateral investment protection treaties (BITs). These are all indicators that this neoliberal economic liberalisation continues today.
Argentina took all these measures without much thought, believing that if it did not do so, it would be outcast, a pariah. So, our country signed 58 BITs (55 of which are in force), believing that these would provide a legal framework sufficient to snare foreign investment, giving us an advantage over our competitors. However, capital liberalisation led us to compete in a race to the bottom, leading to emaciated social rights.
With the neoliberal peak in our region now passed, in 2009 UNCTAD published a report on international investment agreements that made reference to BITs. This report held that preferential trade agreements are normally more influential than BITs on the decision where to invest. Brazil is not a party to the ICSID Convention nor does it have any BITs in force, and this supports the present argument, since businesses invest motivated by potential profitability rather than by the existence of treaties that only operate when problems arise signalling the failure of a transaction. No one makes an investment for the purpose of taking a loss and then bringing a claim.
Cepal recently published another report that states that profits made by transnational businesses that operate in Latin America and the Carribean increased 5.5 times in 9 years, increasing from $20.425 billion in 2002 to $113.067 billion in 2011 and that, on average, transnational corporations repatriate to their parent companies 55% of their earnings. The remaining 45% is invested in countries within the region where they were generated. This neutralises the potential positive effects of the entry of FDI on the balance of payments. If we look at the maths: transnational businesses invest 1 dollar in the region and obtain 5.5 dollars per year. They then reinvest in the region 2.47 dollars (i.e. 45%) and remit 3.09 dollars to their parent companies. If this sequence is repeated for ten years, businesses will have invested almost 6,000 dollars and will have repatriated to their parent companies more than triple this amount: so for each dollar that is invested in the region, the return is 3 dollars.
It is clear that we are not talking of a poor region as it has increased the profits of investors fivefold, and it is not bad business to invest in these parts despite one might suspect. Evidence of this is that the majority of companies investing in the region have stayed even though they have brought ICSID claims against Latin American countries. So here lies the dilemma: any public policy implemented to try to retain the profits generated by Latin Americans or to regulate foreign investment, or still worse to enforce the conditions of privatisation concessions, has meant claims for fabulous sums before ICSID; claims that vastly exceed the amounts invested by the companies and function as a factor to put pressure on a state to negotiate for yet more profit.
If this macroeconomic panorama endures, the region will demonstrate that it is a good place for multinationals to invest; it is they that are the big winners of this decade. However, our governments subscribe to the paradigm that unless we keep our BITs in force, investors will not come, while empirical data presents evidence to the contrary: investors have come and will continue to come even in this international economic crisis. Argentina is the country that has been faced with the most ICSID claims in the world and the total amount at stake is $65 billion: 13.7% of our GDP, an amount that would have to be added to the earnings that have been remitted abroad since the ICSID reports demonstrate that transnationals have high chances of succeeding with ICSID claims. So the question remains: why do we continue to be bound to this investment protection regime when it is not a determinant of FDI but makes it harder for us to retain our resources?