Transcription of the speech by Eng. Werner Corrales at CEDCA´s event

“Investment Arbitration in Comparative Law”

April 28, 2009

 

The past 28th of April of 2009, CEDCA held the event “Investment Arbitration in Comparative Law”, in which engineer Werner Corrales participated as a guest speaker in the panel entitled The State and the Possible Unilateral offer of Arbitration. In light of how current this topic is, we have decided to transcribe engineer’s Corrales speech, presented next:

 

Werner Corrales: I am a strange specialist in this event: I am not an attorney; I am not an expert in international investments arbitration. I am rather a specialist on international development and economy and this is what has placed me in the circumstance of participating as co-drafter of the draft Law for the Promotion and Protection of Investments in Venezuela. I understand that the intention of this invitation has to do with the interest this community – who works in investment arbitration – has in knowing the background or what you would call the “drafter’s intention” for the law –and not the legislator- since Venezuela’s investment law was a decree issued by the Executive power. So my speech will be about the background which contributed to making up this “intention” when we participated in writing the draft of this law.

I am going to put forward this background in two parts. The first has to do with the protection to the investors and promoting the development of the recipient nation as the purpose of any legal regime that regulates foreign investments, whether it be an international treaty or a national law. This will take us back to 1998, a bit before the law was first drafted when the negotiation of a bilateral investment promotion and protection treaty (BIT for its acronyms in Spanish) between the republic of Venezuela and the United States of America was in the course of being finalized – or so we thought. The second part shall refer very concretely to the formulation of the draft law, which took place throughout 1999, and the reasons which inspired certain contents in it, framed within the abovementioned conception of the purposes of a foreign investment legal regime.

At that time I was the Venezuelan ambassador at the World Trade Organization in Geneva and I followed up on preparing negotiations for a multilateral investment treaty with the WTO which never had a formal start. I also followed up on negotiations at the failed Multilateral Investments Agreement (MIA) which were taking place in Paris, among the member states of the OCDE.

 

The negotiation of the BIT between Venezuela and the United States as the background for the Investments Law

The investment protection treaty which was being negotiated in 1998 between Venezuela and the United States was never finally signed, among other reasons because there was opposition by some persons who at that time participated in the drafting of public policies to one of the demands the U.S. negotiators were making. The principal argument of this opposition was that an investment treaty must promote a positive impact of the investments in the development of the receiving nation and at the same time effectively protecting the investors, meaning to say that it cannot be limited to protecting the investors, ignoring the development interests of the receiving nation. And in this general framework, it was unacceptable to accept that Venezuela renounce the use of performance requirements to promote technology transfer, on the use of which no limitation whatsoever existed in the international norms and the use of which had been very successful for our country between 1982 and 1993, as part of PDVSA´s development program of national capabilities.

Seven years after the nationalization of the oil industry in 1982, Venezuela was investing 1.5 billion dollars a year to maintain its production capacity and barely 15% of those investments consisted in capital goods or services produced in Venezuela; barely 15%, in a country which at that time had almost 70 years of oil history. As a result of applying a series of policies based on research and development and technological strengthening performance requirements, by 1992, when Venezuela was investing 2.5 billion dollars to keep up its production capacity, 60% of all capital goods employed in the construction of production facilities was manufactured by Venezuelan companies and 93% of all process engineering was produced by national firms. A success of this nature is hard to find in any other developing country, based on the application of policies such as the investment agreement with the United States which included the prohibition thereof.

But the waiver requirement to the use of the foregoing active policies had a lot to do with a question recently posed by Luis Xavier Grisanti. These were the years in which the ideology of absolute liberalization predominated, when very influential people posed that it was sufficient to liberalize the rules of commerce and investment to automatically produce a sustained development process in our nations, not only to induce growth but to grow, absorb technologies, diversify, integrate the economy and leave poverty behind. The fashionable phrase was “the best industrial policy is to have no industrial policy”.

These premises had already been proven to be false in the experience of the developing countries, much before the eruption of the present international economic crisis, in view of which it has become commonplace to question them among the economists who formerly used to defend them. In effect, since the late ´90s, analysts have recognized that out of one hundred and thirty-something developing countries only sixteen had taken a path in which they grew, became innovative, dominated technology, improved the distribution of income and opportunities for their people and noticeably reduced poverty. In evaluating the behavior of the developing countries from the ´80s to date, only sixteen may be considered to be successful in implementing a sustained development program and all of them –without exception- combined economic liberalization and active development policies. None was able to achieve this by liberalizing international trade and investment relations. In our criterion, this fact reiterates the importance of a foreign investment regulating regime effectively protecting the investors but is not limited thereto but rather also promotes the development of the recipient nation, maintaining “spaces for active policies”

The history and leanings of the draft Law on Investments in Venezuela

Chavez, the current president of Venezuela, won the elections in December 1999. At the time, I was the ambassador at the WTO and had led – so to speak- those who opposed the signing of the bilateral investment treaty with the United States. In those days, the president elect, having been visited by a delegation from VenAmCham and later by a delegation of the U.S. senate accompanied by VenAmCham representatives, invited me to converse with him about the investments agreement with the United States, the negotiation of which I had contributed to halt.

The argumentation I have just given was exposed to the president elect. He was accompanied by persons who were later named as his cabinet ministers. Stating their interest in attracting foreign investment, they asked me to offer suggestions to breach the impasse at the same time as safeguarding the two goals the investment regime should encompass: contributing to the development of Venezuela and not only some specific businesses and effectively protecting the investors. My response was that a law should be drafted that would serve as the compulsory framework for all international treaties or negotiations on investments in which these premises should be sufficiently clearly stated.

Conversations ensued with top government levels once President Chávez was invested, which led to Cordiplan, in the person of its then minister Jorge Giordani, entrusting me to prepare reference terms to write the draft law, direct the preparation thereof and suggest the name of an experienced attorney in this subject matter, who would be in charge of the legal drafting. This is how Gonzalo Capriles, who had been the legal consultant of the Institute of Foreign Trade – of which I had been chairman- and myself, worked in the preparation of the draft project law which was submitted to two discussions at the economic cabinet and one at the cabinet in full.

One of the specific topics in the draft project comprehensively debated in the economic cabinet – by the way with the support of the ministers present except for one- was the proposal that the investments regime should foresee a recourse to international arbitration. I am referring to facts that are known by all since this matter was profusely covered by the Venezuelan press at the time.

Today this forum is discussing whether article 22 of the official version of the Investments law really includes a unilateral or open offer of arbitration. As I stated at the beginning of my intervention I am not a lawyer but I am contributing to clarify the doubts on the vision with which I participated in the project with respect to which there were no differences among the co-authors of the draft project. I am merely providing information which could be useful to evaluate the “drafters´ intention”.

In my scope of competence at least, I can state the intention of offering the possibility of open unilateral arbitration and this can be verified in several articles on the matter which we published in international journals and which we also took to international congresses. I particularly recommend reading two successive articles published by me, one which we took to an investments congress in the Andean Community of Investors held in Lima in October or November 1998, and another one is a revised version of this first article which was published in a book compiled by Julia Barragán, entitled “The WTO as a regulatory space, a challenge for Venezuela”, published by Velea in 1999. Referring to the protection of investors, after dealing with contributions to development, in the first article of 1998, it states more or less something like “the possibility to arbitration must be opened”, and in the second article it states “the unilateral possibility of arbitration must be opened to foreign investors”.

With this, I hope to leave sufficiently clear that my purpose as co-drafter was to offer in the broadest and most transparent manner the possibility of the investors resorting to international arbitration as a unilateral offer made by the Venezuelan state. And I add that whoever participates in public policies -including those who participate in the drafting or administration of a law or any legal policy instrument- must act with very clear objectives and be always respectful of the principles therein created. At that time we thought –as I continue to believe- that it was absolutely necessary for a public policy closely linked to promoting development such as the case of an investment policy, must aid in the investments acting in pro of development and we thought – as I think today- that it is absolutely indispensable for legal instruments to protect the investments from the possibility that the justice system of the country receiving the investment not be independent, as is unfortunately the case we are seeing in Venezuela today. Thank you very much.

 

Werner Corrales. I wish to reiterate my contribution to this forum. It has to do only with the background I participated in, meaning to say that I was co-drafter; not being a lawyer and least of all a specialist in international law, but as a specialist in international development and economics, who at that time was following on behalf of Venezuela the multilateral investment negotiations which were being held.

However, I wish to add one thing, seeing that one of the sources of information to structure an argument could be whether there was at that time the intention, of the co-drafters or of whoever took the executive decision to enact the decree. In the first place, two economic cabinet meetings took place and one meeting of the cabinet in full before the decree-law was enacted. At the economic cabinet meetings there was only one member, only one minister of economy that opposed arbitration. He did not even oppose there being an open offer; he opposed arbitration per se, invoking the Calvo doctrine, etc. He is one of the citizens who presented the appeal at the Supreme Court.

 

Werner Corrales: Former minister of CORDIPLAN, president of the ICE and ambassador of Venezuela at the WTO. Co-drafter of the Law for the Protection of Investments in Venezuela. He chaired international meetings on investment agreements in Latin America and Asia, organized by the UNDP and UNCTAD, and was senior advisor to the latter’s joint globalization and development program. He is currently a Senior Fellow at the InternationalCenter for Trade and Sustainable Development (ICTSD), based in Geneva.