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March 26, 2012

Investor-State Arbitration Strikes Again, Now in Argentina

Today the Obama administration announced that it would remove Argentina from the list of countries that receive certain trade preferences. The administration claims that Argentina has not complied with a orders from World Bank tribunals to hand over the about $300 million in cash to two foreign investors, so its trade prefrences had to be revoked. Did Argentina steal the investors' assets in a Cuban-style expropriation? No. Argentina was merely trying to conduct some reasonable policies in the spheres of water utility management and macroeconomic policy when these companies filed cases under the investor-state lawsuit provisions of the U.S.-Argentina Bilateral Investment Treaty (BIT). The two companies, Azurix and CMS Gas Transmission Company, argued that Argentina's regulations infringed on their profit rights, and the arbitration panels agreed.

Azurix's case against Argentina stemmed from the sky-high prices the company charged for water when it took over a newly-privatized water utility. When the Argentine government sought to bring the prices back into the range of affordability in 1999, Azurix tried to escape the regulations by filing a case under the BIT. It eventually won over $165 million through this tactic, but the company has so far refused to collect its claim in Argentine courts as required by Argentine law.

CMS Gas Transmission Company sued Argentina on the basis of its foreign exchange and capital control policies in the wake of the meltdown of the peso-to-dollar peg in 2001. Apparently, Argentina can't even run its macroeconomic policy without being second-guessed (and sued) by a foreign investor. Citizens of Argentina had to endure the rocky domestic economy for a few years while Argentina got back on its feet, but CMS Gas Transmission Company used the BIT to get special treatment and the arbitration panel ordered Argentina to pay over $133 million. (CMS later sold the arbitration case to Blue Ridge Investment, a Bank of America subsidiary, thereby broadening the horizons of the financialization of everything.)

Multinational corporations would love to expand this investor-state system that places investor profits above sound public policy. They may get their wish if the Trans-Pacific Partnership (TPP) “free trade” agreement were to go into effect. As of now, the U.S., Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam are participating in the TPP talks, but Japan could join soon. Importantly, the investor-state system works both ways: U.S. regulations would be under threat just as much as regulations of the other TPP countries would be under threat.

The case of Argentina just underlines the fact that the investor-state system enables a two-track system of justice in which foreign investor rights are perfectly enforceable, but the rights of citizens are not. As we have discussed on this blog recently, Chevron is using the investor-state system to avoid paying a court award of $18 billion for punitive damages and cleanup for its huge oil spills in the Ecuadorean Amazon. The Obama administration should be focused on rolling back this system instead of expanding it under the TPP.

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