THE AUTHOR:<\/strong> Latin American Arbitration Practitioners EU<\/strong> (LATAP EU<\/a>) is an association aimed at building a network of practitioners focused on international arbitration and with strong ties to, or experience in, Latin America and based in Europe. On September 2023, LATAP EU organized its first Annual Conference in Paris, France<\/a>, hosted by Mayer Brown<\/a>.<\/p>\n<\/blockquote>\n\n\n\n On 6 September 2023, the Latin American Arbitration Practitioners EU (\u201cLATAP EU\u201d) organized its first Annual Conference in Paris, France<\/a>, which was hosted by Mayer Brown<\/a>. The conference program included discussions on five different topics related to the LATAM region with the fifth panel considering the challenges and opportunities for the international arbitration community within the current political trend towards left-wing governments in Latin American democracies (the \u201cPink Tide\u201d).<\/p>\n\n\n\n The panel featured Karthik Balisagar<\/strong> (FTI Consulting<\/a>), Manuel Casas<\/strong><\/a> (Twenty Essex<\/a>), Timothy L. Foden<\/strong><\/a> (Boies Schiller Flexner<\/a>), Alejandro I. Garc\u00eda<\/strong> (Stewarts<\/a>), Luciana Ricart<\/strong><\/a> (Curtis, Mallet-Prevost, Colt & Mosle LLP<\/a>) as the panelists, while the discussion was moderated by Andreas Schregenberger<\/strong><\/a> (Gabriel Arbitration<\/a>).<\/p>\n\n\n\n Mr. Schregenberger<\/strong><\/a> opened the discussion by introducing each of the speakers and providing a brief overview of the topic. The panel discussion was based on specific questions in a Q&A format, as reflected in the following overview.\u00a0\u00a0\u00a0<\/p>\n\n\n\n Mr. Balisagar <\/strong>first outlined how the Pink Tide phenomenon in LATAM results from economic and geopolitical cycles which ultimately influence foreign investment policy. Mr. Balisagar asserted that the global credit situation represents a challenge to both developed and developing economies. He recalled Ray Dalio\u2019s ominous warning regarding threats to the existing world order: (i) the ballooning debt and deficit of the West; (ii) the rise of left and right populism and the increasing wealth gap; and (iii) the rise of superpowers in the global South. This has resulted in nationalistic tendencies and sharply reduced free trade as we have known in the last few decades.<\/p>\n\n\n\n Mr. Balisagar stated that certain LATAM countries have been recipients of significant foreign debt that has resulted in financial distress given the increasing trend in the interest rate cycle. This cyclical phenomenon of attracting foreign capital has not been exclusive to LATAM, as it has also been occurring in other resource-rich but capital-constrained countries (i.e.<\/em>, Africa and parts of Asia).<\/p>\n\n\n\n He also analysed how the economic and political cycles tend to be deeply intertwined, with the rise of prices and inflation driving political change (i.e.<\/em>, populist and leftist governments). For example, when commodity prices rise, there have been instances of governments tending to intervene by renegotiating contracts, increasing royalties, nationalizing (in full or partially) private companies and sometimes even expropriating assets. Conversely, when prices have declined, some States have sought to attract and incentivise foreign investment.<\/p>\n\n\n\n Building up on LATAM economic cycles, Mr. Garc\u00eda<\/strong> referred to the constant swaying of political trends going from liberal to interventionist approaches in the region. By way of example, Mr. Garc\u00eda mentioned the foreign investment protection consequences that stemmed from the \u201cfirst\u201d Pink Tide, which encompassed, amongst others, the presidencies of Evo Morales (Bolivia<\/a>), Hugo Chavez (Venezuela<\/a>) and Rafael Correa (Ecuador<\/a>). Amongst these, Mr. Garc\u00eda referred to the initiation of numerous international arbitrations, withdrawals from the ICSID Convention and the termination of several BITs.<\/p>\n\n\n\n However, according to Mr. Garc\u00eda, at the time of the current \u201csecond\u201d Pink Tide, the lines have been blurred between the traditional \u201cleft\u201d and \u201cright\u201d approaches and the electorate, increasingly dissatisfied with the status quo<\/em> has leaned towards candidates that do not purely fall into one or the other category (e.g.<\/em>, US, Brazil<\/a> and potentially Argentina<\/a>). Against this backdrop, foreign investment policy plays a key part. For instance, the government of Chilean President Gabriel Boric\u2014an exponent of the \u201csecond\u201d Pink Tide\u201d\u2014has shown circumspection in respect of ISDS during the TPP-11 negotiations by trying to exclude ISDS mechanisms through the signing of side letters.<\/p>\n\n\n\n In addition, Mr. Garc\u00eda explained that some voices consider that the Chilean government is taking measures that may affect the inflow of foreign investment under pressure from its voter base, often based on environmental concerns. Such voices add that this is apparent, for example, from the current delays in the granting of mining permits.<\/p>\n\n\n\n He affirmed that while environmental concerns are legitimate, Latin American governments should reconcile them with the need for foreign investment especially when the region can greatly benefit from the current commodities boom, fuelled to a great extent by the transition to green economies.<\/p>\n\n\n\n Opposed to the Chilean experience, Ms. Ricart<\/strong><\/a> described how Argentina may be on the verge of turning away from its left-leaning governments with the potential presidency of the new libertarian candidate Javier Milei. Ms. Ricart explained how the unexpected outcome of the August 2023 primary election reflects a similar phenomenon to that in Chile, with the candidate Milei campaigning against the traditional political status quo<\/em> (i.e.<\/em>, \u201can outsider\u201d to the traditional party division). Milei\u2019s government proposal includes measures that aim to attain a considerable downsizing and de-regulation of State bodies through public spending cuts and State companies\u2019 privatizations. In terms of foreign investment policy, Milei champions its promotion particularly in the renewables, mining, and forestry sectors.<\/p>\n\n\n\n There is much uncertainty as to whether the outcome of the August preliminary elections will be replicated in the October presidential elections and, if so, whether Milei\u2019s party will obtain a majority in Congress to fully implement its policy agenda. Nonetheless, Ms. Ricart<\/a> agreed with Mr. Garcia that it remains to be seen whether the incoming administration will strike the right balance between encouraging foreign investment and the State\u2019s right to regulate and protect its own natural resources.<\/p>\n\n\n\n In this same vein, Mr. Casas<\/strong><\/a> pointed out that there\u2019s a general perception that left-wing governments are more committed to regulation, including environmental regulation. For example, in the extractive industry we may see an increase in environmental standards which may lead to permitting restrictions or even cancellations, while in large infrastructure projects we may see cases of permitting or impact assessment delays, or even more stringent environmental controls.<\/p>\n\n\n\n The implementation and enforcement of environmental protection measures however may present LATAM countries with some opportunities, according to Mr. Casas. First, these measures may effectively protect the environment (e.g.<\/em>, lower rates of Amazonian deforestation in Brazil<\/a>). Second, these measures may create incentives and investment opportunities in the renewables sector (e.g.<\/em>, the solar industry and biofuels should be well-placed to reap such benefits). Third, these measures may welcome investments originating from ideologically aligned countries. This was one of the main takeaways from the \u201cfirst\u201d Pink Tide where, for example, President Chavez rejected foreign investment originating from western countries but welcomed investment from ideologically aligned States (e.g.<\/em>, Rosneft or CNPC). Illustratively, Mr. Casas remarked the Venezuelan government\u2019s inaction before the current environmental disaster caused by ideologically friendly investors and local miners within the same geographical area where Crystallex used to operate.<\/p>\n\n\n\n Nonetheless, all these opportunities risk being overshadowed should the measures not be in compliance with the rule of law (i.e.<\/em>, \u201cif properly done\u201d). Mr. Casas<\/a> emphasized that the main issue resides in the way the State applies its environmental protection measures rather than the measures themselves. The measures should thus be applied in a reasonable and non-arbitrary manner and avoid targeting specific investors from certain nationalities and\/or from specific sectors. Sadly, this may not always be the case.<\/p>\n\n\n\n In light of the previous discussions, Mr. Foden<\/strong><\/a> delved into the weaponization of the \u201cESG\u201d narrative against investors and, in particular, into the nebulous concept of \u201csocial licence\u201d, which is found at the core of such narrative when it comes to extractive industries. He underscored the importance of distinguishing between the State\u2019s bona fide<\/em> environmental defences \u2013those meritoriously deployed against investment treaty claims\u2013 from post hoc<\/em> rationalizations, which utilize ESG-related concepts to excuse conduct that could otherwise lead to liability under an investment treaty. Admittedly, there are cases where investors failed to comply with necessary environmental thresholds, but these generally revolve around non-compliance with a specific regulatory requirement and, hence, States tend to resort to more tangible and legitimate defences rather than hazy ESG claims.<\/p>\n\n\n\n Mr. Foden<\/a> warned that today we are witnessing the State\u2019s strategic bastardization of the ESG narrative (and its \u201csocial licence\u201d sub-component) as a way to \u201cwin over\u201d the tribunal. The \u201csocial license\u201d concept remains largely undefined and so States make use of it as a sword to defeat legitimate claims brought by investors (rather than a shield to protect themselves in the first place). Its blade is further sharpened as the defence reverses the burden of proof against the investor who will ultimately need to extensively prove compliance with the blurred standard.<\/p>\n\n\n\n In their last remarks, Mr. Garc\u00eda and Mr. Casas both agreed the Pink Tide phenomenon may present States with opportunities should they take a more proactive stance, namely, by negotiating individual agreements or new BITs with tailored and\/or narrower dispute resolution provisions (e.g.<\/em>, Ecuador<\/a>) or international protections (e.g.<\/em>, the Colombia<\/a>–Spain<\/a> BIT including a strict FET provision).<\/p>\n\n\n\n
Guillermina Huber<\/strong><\/a>, Associate at LALIVE<\/strong><\/p>\n\n\n\n
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Introducing the Panel<\/strong><\/h2>\n\n\n\n
Navigating Pink Tide<\/strong><\/h2>\n\n\n\n