Argentina Dodges Bullet; Policy Space Call Left for Another Day

A World Bank tribunal has annulled a decision that Argentina has to compensate U.S. investors for measures following the flawed privatization of its gas utilities and a later set of economic crisis measures that affected investors in the privatized utility. (You can read the whole decision over at the Investment Arbitration Reporter.)

The original case, known as Sempra v. Argentina, was decided back in 2007. In the case, Argentina claimed that its economic crisis measures were necessary to protect the country's essential security. The Kirchner administration advocated for an interpretation of the U.S.-Argentina Bilateral Investment Treaty (BIT) that countries get to "self-judge" whether and when such national emergencies arise.

The World Bank panel that decided the original case said that, even though evidence was shared that the U.S. and Argentine governments currently favored a self-judging interpretation of essential security provisions, the fact that predecessor governments either didn't favor such an interpretation, or that they hadn't stated so succinctly enough, was grounds for deciding that the measure was not self-judging. (They also noted that panels at the WTO and other fora had regularly butted their nose in domestic regulatory affairs, suggesting that there would be a high bar conceptually for  a self-judging interpretation.)

This annulment panel held back from deciding whether the BIT allows the government of Argentina to be the judge of whether an economic crisis constitutes a threat to the country's essential security. Instead, the annulment panel wrote:

It is true that the BIT does not prescribe who is to determine whether the measures in question are or were “necessary” for the purpose so invoked – whether, in other words, Article XI is or is not self-judging. But if the measures in question are properly judged to be “necessary”, then there is no breach of any Treaty obligation.

In other words, not only might a foreign panel get to decide when a country's future is at risk, but arguably they also get to decide whether a certain response is "necessary" - a very restrictive term of art in trade law that can put pressure on countries to use light-touch or no-touch regulation.

On the one hand, Argentina dodged a bullet in that it does not have to pay off Sempra for its emergency policies. On the other hand, this latest ruling will offer little lasting comfort to anyone that thinks that the people and their democratically elected representatives, rather than panelists operating outside of domestic court systems (who often seem even less deferential to the "political branches" than our own Supreme Court), ought to get to decide when they face a national emergency without being subject to claims to pay off a bunch of well-heeled corporations for the privilege.

Moreover, as the point about the intentions of previous vs. current governments indicates, Reagan and Bush may have found a way to have their pro-corporate legacy outlast even lifetime Supreme Court appointments: the signing of trade and investment pacts with substantive provisions that promote deregulation and corporate welfare that live on forever... even after voters have voted in governments that campaigned on reversing the Reagan-Bush agenda.