Latin American Arbitration and Investment Protections

Contemporary Latin American history has reflected cycles of privatization and nationalization provoked by diverse legal, political, and economic factors, affecting foreign investment into and across the region and underscoring the critical importance of Latin American investment protections.  Such protections may take the form of laws, policies, treaties or disputes, each impacting a range of stakeholders including investors, States and their legal counsel.  Those stakeholders accordingly take investment protections into account when pursuing economic policies, legal stability, business plans, risk assessment, contract planning and, of course, the avoidance or resolution of disputes should they arise.

In this context, it is notable that Latin American States historically rejected international mechanisms to resolve disputes with foreign investors.  They most often adhered to the so-called Calvo Doctrine, according to which States would not accept international fora for the resolution of disputes relating to foreign investment.  Latin America was perceived as a hostile environment for international dispute resolution. The perception of reliable dispute resolution mechanisms was an impediment to investment.  Indeed, the void of established international dispute resolution mechanisms for foreign investment in Latin America at times prompted diplomatic conflict, economic chaos and even coup d’états.  Observers often note, for example, the classic example of the La Brea y Pariñas dispute over hydrocarbon properties in Peru that spanned nearly seventy years with serious economic and diplomatic consequences.  This type of scenario played out again and again over time. 

Two decades ago, the prevailing attitude toward investment arbitration in Latin America began to shift significantly.  The region’s apparent hostility towards foreign investment and recourse to international arbitration began to fade as the region’s economies liberalized and States agreed to abide by international investment protection instruments and new mechanisms for dispute resolution.  Most Latin American countries adopted a host of legal and policy changes aimed at promoting free markets.  At the same time, they gradually changed their policies with respect to investment protections and international arbitration.  The legal framework for investment arbitration was constructed almost from the ground up in many counties – treaty ratification by treaty ratification, law by law, jurisdiction by jurisdiction.  As part of this process, most Latin American countries ratified the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (known as the “ICSID Convention”), an international treaty that provides a specialized framework for the resolution of investor-State disputes.  In addition, Latin American countries have ratified over 400 bilateral investment treaties as well as a number of multilateral agreements and free trade agreements with investment chapters.

In the past decade, investment arbitration expanded significantly due to the unprecedented combination of the existence of a legal framework for investment arbitration, investment inflows, events alleged to affect investors in certain States and an enhanced willingness to use the legal framework to pursue arbitration.   

The result is a system aimed to promote and protect investments by controlling the risks of doing business across borders.  As the history of foreign investment in Latin America demonstrates, the inability of an investor and a State to reach a compromise through negotiation could result not only in an international dispute, but also in political fragmentation with political, economic, and diplomatic consequences.  The system of international arbitration and investment protection aims to neutralize highly-contentious disputes, in two ways: (1) it allows States to eschew the political and diplomatic consequences of resolving a dispute with a foreign investor by submitting to a panel arbitrators; and (2) it extends protections to foreign investors, which may make the investment climate in any given country more attractive to capital, which in turn presumably promotes economic development. 

Despite its myriad benefits, some Latin American States have taken steps to extract themselves in whole or in part from the legal framework that provides for investment arbitration.  Specifically, Bolivia, Ecuador and Venezuela filed notices of denunciation of the ICSID Convention in 2007, 2009 and 2012, respectively.  International treaties for the promotion and protection of foreign investment also are under intense scrutiny by certain Latin American countries. 

Nevertheless, hints of the demise of investment arbitration may be overstated.  Developments in certain jurisdictions have not stopped the ratification of additional investment treaties.  As one example, the Peru-United States trade promotion agreement entered into force in 2009, and devotes a chapter to investment protections and the resolution of investment disputes.  Similar agreements have been concluded between the United States and Colombia and Panama.  The investment arbitration legal framework established over more than two decades thus continues to evolve.

Moreover, investment treaty protections and arbitration involving Latin America have taken on new relevance as foreign investment across the region originates not only in North America and Europe but also in Asia, the Middle East and other parts of Latin America, such as “South-South” investments originating in Brazil.

This book provides a country-by-country guide to investment protections in Latin America and offers practical information from preeminent authors in each country regarding the intricate web of laws, international treaties and disputes involving foreign investment in the region.  Each chapter explores the relevant country’s domestic and international framework for the protection of foreign investment and resolution of foreign disputes as well as the known investment cases involving the country.  In particular, the book examines each country’s laws regarding State responsibility, domestic law concerning investment protections, international treaties relating to investment protections and arbitration, significant investment disputes, and investment protection treaties.

Each country chapter was authored by a preeminent jurist or jurists from that country who are not only deeply familiar with their country’s investment protections but who also have significant international experience.  This allows the book to examine investment protections in Latin America using a unique combination of local and international perspectives. 

The book’s unique approach allows investors, States, counsel (both transactional and disputes-focused) and policymakers to navigate the complex and changing landscape of investment protections in Latin America, both with regard to the peculiarities of each individual Latin America country and also in relation to the global context.