The New Brazilian Cooperation and Facilitation Investment Agreement: An Analysis of the Conflict Resolution Mechanism in Light of the Theory of the Shadow of the Law

• Published date: 01 December 2016
• DOI: http://doi.org/10.1002/crq.21177
• Date: 01 December 2016
• Author: Vivian Gabriel

C R Q, vol. 34, no. 2, Winter 2016 141

© 2016 Association for Confl ict Resolution and Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com) • DOI: 10.1002/crq.21177

The New Brazilian Cooperation and Facilitation

Investment Agreement: An Analysis of the Con ict

Resolution Mechanism in Light of the Theory of the

Shadow of the Law

Vivian Gabriel

 is article focuses on the changes that have occurred in Brazil ’ s posi-

tion in the regulatory regime of investments. My main interest is the

dispute settlement method adopted in the new Cooperation and Facili-

tation Investment Agreement, which consists of a preventive mechanism

and a jurisdictional method. Using the metaphor of the “shadow of the

law” and relying on a comparative data analysis of the South Korean

model of investment protection, I explore whether this dispute settle-

ment method represents a stimulus or an obstacle to negotiations.

B razil has always been recognized as a major recipient of investments,

maintaining a high level of reception even without international legal

protection. After the political and economic transformations that occurred

at the end of the twentieth century, the new century began with Brazilian

enterprises spreading around the world, mainly throughout Latin America

and Africa.  is situation has warranted a new plan of action in the inter-

national arena in order to protect Brazilian investors abroad (Confederação

Nacional da Indústria 2015 ).

 e Brazilian state has always rejected entering investment agreements

and investor-state arbitration. During the early 1990s, Brazil signed four-

teen bilateral investment treaties that included an investor-state arbitration

clause, but none of them were ratifi ed. However, in 2015, due to its new

status as an exporter of capital, the Brazilian government, supported by the

biggest associations of entrepreneurs, Confederação Nacional da Indús-

tria and Federação das Indústrias do Estado de São Paulo, designed a new

142 gabriel

C R Q • DOI: 10.1002/crq

model of investment agreement: the Cooperation and Facilitation Invest-

ment Agreement (CFIA).

What lies at the core of this agreement is the mitigation of risks and the

prevention of investment disputes with a dispute settlement system formed

by a negotiation phase. Hence, the aim of this article is to analyze the new

CFIA standard of protection, its preventive mechanism to settle disputes,

and the dispute settlement chosen.

In this context, I deem it useful to use the “shadow of the law” metaphor

coined by Mnookin and Kornhauser ( 1979 ) to explain that the outcome

in a given dispute is not determined solely by the law but instead by the

negotiating parties themselves, who primarily take into account their own

interests in achieving the best solution.  e role of the law is thus confi ned

to a secondary place and therefore limited to merely casting a shadow on

the parties. Applying the shadow metaphor to the case of CFIAs, I examine

whether these negotiations could help the parties gain some leverage dur-

ing the preventive phase, even if the CFIA jurisdictional mechanism has

already been chosen.

Brazil and the International Investment Regime

Brazil has a good record of attracting foreign direct investment. During the

1990s the country established itself as a highly attractive destination, espe-

cially for capital from developed countries. In the fi rst decade of the 2000s,

this process advanced even more, despite the global economic crisis begin-

ning in 2008.  e amounts recorded in 2012, 2013, and 2014 remained

above US$60 billion annually, a level reached only in 2011 (Confederação

Nacional da Indústria 2015 ).

In 2014, incoming foreign direct investment in Brazil totaled US$62.5

billion, a decrease compared to 2013, when it reached a level of US$64.05

billion. It turns out that this decline was not enough to unseat Brazil as one

of the main recipients of direct foreign investment in the world, rising from

seventh place in 2013 to sixth place in 2014 (behind China, Hong Kong,

the United States, the United Kingdom, and Singapore) and remaining the

leader in channeling investments toward Latin America (United Nations

Conference on Trade and Development 2015 ).

Despite the wave of adherences to bilateral investment treaties (BITs)

by other Latin American countries, which acted on the assumption that

the BITs would be the key to attracting foreign investment and provide