Investor-State Cases Could Have Cost Cash-Strapped Argentina $80B, Paper Says

A new developing country group policy brief warns against use of the investor-state dispute settlement mechanism, arguing that it has a low capacity to adapt to exceptional circumstances that can afflict developing countries.

The policy brief, published by the intergovernmental South Centre, is entitled, “Crisis, Emergency Measures and the Failure of the ISDS System: The Case of Argentina. It describes Argentina’s experience with the investor-state dispute settlement mechanism (ISDS) during the period 2001-2014.

The ISDS mechanism is the subject of debate in current trade negotiations, including the Transatlantic Trade and Investment Partnership (TTIP) between the United States and European Union.

ISDS clauses allow private companies to directly sue governments for damages for implementing policies (such as for environmental or public health purposes) that the companies claim harmed their economic expectations.

According to the document, between 2002 and 2007, Argentina was the subject of a quarter of all the cases initiated within the framework of the International Centre for Settlement of Investment Disputes (ICSID) Convention.

The policy brief, authored by Federico Lavopa, professor at the University of San Andrés and University of Buenos Aires, states: “These claims before international arbitral tribunals challenged the changes to the economic rules that Argentina had implemented to contain the effects of perhaps the worst economic cycle of its history.”

If the claims had been fully addressed, it is estimated that Argentina would have had to face compensation for some US$80 billion, the author said.

The policy brief addresses three main characteristics of the Argentinian situation, Lavopa said. These are: the “extraordinary” situation which triggered the claims against Argentina; the general overview of the current status of all the cases initiated against the country; and an analysis of difficulties encountered by the ISDS system to tackle the particular circumstances of the Argentinian case.