The intersection of international trade and international arbitration: the use of trade benefits to secure compliance with arbitral awards.

Author:Rosenberg, Charles B.
 
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TABLE OF CONTENTS I. INTRODUCTION II. THE ICSID CONVENTION AND ITS REQUIREMENT TO "ABIDE BY AND COMPLY WITH" ICSID AWARDS III. ARGENTINA'S PURPORTED FAILURE TO COMPLY WITH ICSID AWARDS IV. MEANS OF SECURING COMPLIANCE WITH ICSID AWARDS A. The Two Extremes B. A Middle Path: Suspending Trade Benefits C. Leveraging Argentina D. Future Uses of Trade Benefits to Leverage Compliance with ICSID Awards V. CONCLUSION I. INTRODUCTION

The term "international law" is vague and encompasses a multitude of fields, including international arbitration, international business transactions, international project finance, international tax, and international trade. Although mostly taught in law schools as distinct seminars and organized within law firms as separate practice groups, these fields do not always operate in separate vacuums. Rather, in practice they often overlap. This Article examines a recent example of the intersection of the two related fields of international trade and international arbitration: the suspension of preferential trade benefits to secure compliance with arbitral awards.

On May 28, 2012, the United States suspended Argentina's preferential trade status under the Generalized System of Preferences (GSP), (1) a program that provides duty-free treatment to imports from certain developing states. (2) The suspension was in response to Argentina's purported failure to comply (3) with the International Centre for Settlement of Investment Disputes (ICSID or Centre) arbitral awards (4) in Azurix (5) and CMS Gas (6) in favor of U.S. investors. Furthermore, it was a novel attempt to use international trade to secure compliance with international arbitral awards; indeed, it was the first time in the history of the GSP that the United States has suspended a state's preferential trade status for failing to pay an arbitral award. (7)

This Article examines the United States' decision to suspend international trade benefits to secure compliance with international arbitral awards, in particular investment arbitration awards rendered under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention). Section II briefly describes the ICSID Convention and then discusses the Convention's requirement in Article 53 that parties shall "abide by and comply with" ICSID awards. (8) While states normally comply with ICSID awards, investors have complained that a handful of states, including Argentina, have failed to do so. In light of Argentina's significant caseload at the Centre, Section III examines Argentina's interpretation of the ICSID Convention that, according to Argentina, confirms that it has not failed to "abide by and comply with" ICSID awards. Section IV discusses the spectrum of means to secure compliance with ICSID awards, with a focus on the United States' suspension of Argentina's preferential trade status under the GSP. Section V concludes by endorsing the United States' novel decision, as it would seem to strengthen the legitimacy of international arbitration, particularly ICSID arbitration, as a meaningful form of alternative dispute resolution.

  1. THE ICSID CONVENTION AND ITS REQUIREMENT TO "ABIDE BY AND COMPLY WITH" ICSID AWARDS

    The ICSID Convention is a multilateral treaty that was formulated by the Executive Directors of the International Bank for Reconstruction and Development (the World Bank). (9) The Convention offers a detailed framework for the settlement of international investment disputes by creating the Centre, (10) which provides facilities and procedural rules for the arbitration of international investment disputes between Contracting States and nationals of other Contracting States. (11) ICSID Convention jurisdiction is limited to "any legal dispute arising directly out of an investment, between a Contracting State ... and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre." (12) Mere ratification of the Convention is insufficient to submit a particular dispute to arbitration; (13) there must be a separate basis for consent, which is usually contained in an investment treaty or free trade agreement or, to a much lesser extent, a concession agreement or the investment law of a host state. (14) The Convention was opened for signature on March 18, 1965, entered into force on October 14, 1966, and currently has 147 Contracting States; (15) notable exceptions include Brazil, Canada, India, Mexico, the Russian Federation, and South Africa. (16)

    ICSID arbitration, like other forms of international arbitration, generally results in a tribunal rendering an award. (17) Article 53(1) of the Convention provides that ICSID awards "shall be binding on the parties" and that "[e]ach party shall abide by and comply with the terms of the award." (18) Professor Christoph H. Schreuer explains in his authoritative treatise:

    The obligation to abide by and comply with the terms of the award is a logical consequence of its binding nature. The principle was contained in all drafts leading to the Convention ... and was never cast into doubt during the deliberations. (19) Professor Schreuer further emphasizes that "[t]he obligation to comply applies equally to both parties." (20)

    The drafters of the ICSID Convention shared "a general expectation that compliance by the host State with ICSID awards would not be a practical problem and that voluntary compliance would be a natural consequence of the treaty obligation expressed in Art. 53." (21) In practice, this has proven true: states have generally respected the international law maxim pacta sunt servanda (22) and performed in good faith their treaty obligation to "abide by and comply with" ICSID awards. (23) This is likely because states are reluctant to take actions that might damage their investment environment or credibility in the international community. (24) A foreign investor might, for instance, have reservations about investing in a state that has refused to pay an ICSID award. (25)

    However, in recent years investors have criticized certain states, including Argentina, (26) Congo, (27) Kazakhstan, (28) Liberia, (29) Senegal, (30) and Zimbabwe, (31) for refusing to comply with ICSID awards. (32) Furthermore, there are signs that additional states might refuse to comply with ICSID awards in the future. One example is Venezuela, which denounced the ICSID Convention in January 2012 but still has around thirty cases pending at the Centre. (33) In fact, the late Venezuelan President Hugo Chavez threatened in 2012 that Venezuela would not comply with an ICSID award in the contentious Mobil v. Venezuela dispute. (34) A similarly defiant stance might be adopted in the future by other critics of the ICSID system, such as Bolivia (35) and Ecuador, (36) which also denounced the ICSID Convention and still have a handful of cases pending at the Centre. (37)

    A state's refusal to comply with an ICSID award "could set a precedent for other sovereign states to follow suit." (38) The failure to comply thus raises important systemic issues and calls into question "the value of ICSID arbitration as a meaningful mechanism for the resolution of investment disputes." (39) The utility of ICSID arbitration as a binding means of resolving international investment disputes between investors and states necessarily hinges, like any form of alternative dispute resolution, on the resulting awards being honored and respected by both parties to the dispute.

  2. ARGENTINA'S PURPORTED FAILURE TO COMPLY WITH ICSID AWARDS

    The claim by investors that Argentina has refused to "abide by and comply with" ICSID awards (40) is especially significant because Argentina has faced the most ICSID claims of any state. (41) Moreover, Argentina has around two dozen cases currently pending at the Centre. (42) In light of the large number of foreign investment disputes involving Argentina and the corresponding likelihood that ICSID awards may be rendered against Argentina, this Section examines Argentina's interpretation of the ICSID Convention that, according to Argentina, confirms that it has not failed to "abide by and comply with" ICSID awards.

    Argentina maintains that Article 53 of the ICSID Convention cannot be read in isolation. (43) Rather, Article 53 must be read in context with Article 54 because these provisions, which are both included in Section 6 of Chapter IV of the ICSID Convention, "complement each other." (44) Article 54 is therefore operative from the moment the award becomes binding and not from when the award debtor fails to comply with the award. Article 54(1) of the ICSID Convention provides in relevant part: "Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State." (45)

    Argentina further contends that one of the consequences of Article 54 is that Argentina "is at least entitled to subject compliance with ICSID awards to the same or substantially the same procedures that are applicable to compliance with final judgments of local courts against the State." (46) Accordingly, Argentina maintains that it is not required to pay ICSID awards until the award holder pursues formal proceedings in the Argentine courts to collect payment:

    As it is the case with any final judgment of an Argentine court, compliance with administrative procedures is required in order to satisfy awards against the State ... The ICSID mechanism provides a dispute settlement procedure which improves vis-a-vis other international arbitration systems (inter alia the 1958 New York Convention) but does not provide its award holders with a super-right that renders meaningless the administrative requirements of ICSID Contracting States. (47) Argentina relies on the early decisions of the ad hoc annulment committees in...

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