Prueba de la caja ortogonal

CMS, Enron, LG&E, and Continental Casualty Company (“the Claimants”, which are American foreign investors) respectively commenced arbitration proceedings against the Argentine Republic before the International Centre for Settlement of Investment Disputes (ICSID).2 The Claimants claimed that their rights under the 1991 Bilateral Treaty between the United States of America and the Argentine Republic concerning

1 _{The discourse on the relationship between foreign investment and security in ex-ante terms includes}

permission issues on establishment or mergers and acquisitions of certain industries, mostly, critical industries by foreign investors, which does not involve emergency situations.

2 _{Continental Casualty Company invested in CNA Aseguradora de Riesgos del Trabajo S.A. (CNA),}

48 the Reciprocal Encouragement and Protection of Investment (the Argentina-US BIT),3

the essential security interests clause is reserved only for military considerations as opposed to economic and political ones.4 Therefore this chapter will examine Argentine emergency measures in relation to the cases of CMS v. Argentine Republic,5 LG&E v. Argentine Republic,6 Continental Casualty Company v. Argentine Republic7 and Enron v. Argentine Republic.8

The cases are closely linked to Argentine Economic Reforms in 1989,9 which included economic liberalisation, privatisation of critical industries, and negotiation of bilateral investment treaties in order to foster foreign investment and international trade.10 To privatise Gas del Estado, a state-owned gas entity, the Argentine government enacted the Gas Law (Law 24.076)11 in 1992 and the Gas Decree (Decree 1738/92)12 on gas transportation and distribution for the implementation of the Gas Law. Thus, to implment the privasation, Gas del Estado was divided into two gas transportation and eight distribution companies.13 CMS Gas Transmission Company (CMS) invested in Transportadora de Gas del Norte (TGN), one of the gas transportation companies. Enron Corporation (Enron) invested in Transportadora de Gas del Sur (TGS), the other transporation company. LG&E Corporation invested in gas distribution companies, while Continental Casualty Company invested in the financial sector. The Argentine government also enacted the Convertibility Law in order to stabilise the Argentine peso and encourage foreign investment. From 1992 to 2001, Argentina pegged the Argentine peso at par with the US dollar.14 While Argentina pursued vigorous

3 _{Treaty between United States of America and the Argentine Republic concerning the Reciprocal}

Encouragement and Protection of Investment (1991).

4_{LG&E Energy Corp, LG&E Capital Corp, LG&E International Inc v Argentine Republic, ICSID}

Case No ARB/02/1, Decision on Liability, Oct 3, 2006, (hereinafter LG&E Decision), paras 217-219.

5_{CMS Gas Transmission Company v Argentine Republic, ICSID Case No ARB/01/8, September 2005}

(hereinafter CMS Award).

6_{LG&E Decision, supra note5.}

7_{Continental Casualty Company v Argentine Republic, ICSID Case No ARB/03/9, September 5, 2008}

(hereinafter Continental Award).

8_{Enron Corporation and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3,}

May 2007 (hereinafter Enron Award).

9 _{Law No. 23.696 of 1989 on the Reform of the State.}

10 _{J. Bambaci, T. Saront and M. Tommasi, ‘The Political Economy of Economic Reforms in}

Argentina’, The Journal of Policy Reform, vol. 5, no. 2, 2002, p. 75.

11 _{Law No. 24.076 of 1992 on the Privatization of the Gas Sector (Gas Law).} 12 _{Decree No. 1738/92 on the Implementation of the Gas Law (Gas Decree).}

13 _{J. Crawford, K. Lee and E. Lauterpacht (eds.), ICSID Reports (vol. 14), Cambridge University}

Press, 2009, p. 165.

49 privatisation of critical industries further to its economic plan, a severe economic crisis struck Argentina at the end of the 1990s. To tackle the crisis, the Argentine government enacted economic measures including restricting the right to withdraw money from bank accounts (pesos 250 or US $250 a week).15 Despite these measures, the crisis worsened whereby the government declared a default on its foreign debt.

Emergency Law No. 25.561 was enacted in January 2002 which declared a public emergency until December 10, 2003. The Emergency Law effected a reform in the foreign exchange system16 and abolished the Convertibility Law.17 The calculation of tariffs in US dollars was abandoned, the peso was devalued, and different exchange rates were applied to different transactions. CMS, Continental Enron and LG&E claimed that the Argentine government took the following emergency measures:

i) Termination of the Convertibility Law (1 Argentine peso=1 US dollar) and devaluation of the peso;

ii) Restriction on the right to withdraw deposits from bank accounts; iii) Prohibition on free transfer of funds out of its territory;

iv) Pesification of US dollar-denominated deposits;18 and v) Default on governmental debt.

The Argentine government requested a discussion with the Claimants over a suspension of a tariff adjustment in accordance with the United States Producer Price Index (US PPI) because an increased tariff in the energy sector might well deepen the economic recession. After gas transportation companies including CMS and Enron agreed on the suspension, ENARGAS, the national gas regulatory entity, and the Argentine government decided to continue the suspension of the tariff adjustment based on the US PPI. Moreover, tariffs which had been denominated in dollars were redenominated in pesos at par while governmental or private debt was converted at a rate of 1.40 peso to one US dollar.

15 _{Decree No. 1570/2001, December 3, 2001. The limitations on cash withdrawal are called “the}

Corralito”.

16 _{Law No. 25.561 of 2002 (Emergency Law).}

17 _{Ibid and Decree 260/02 of the National Executive Power, February 8, 2002.}

18 _{Private or governmental debt was calculated at a rate of 1.40 peso for each nominal US dollar and}

50 Following the implementation of those emergency measures, the foreign investors claimed that the Argentine government’s promises and guarantees in the BIT and licences were not fulfilled, especially in light of a real return in dollar terms and the adjustment of tariffs (based on the US PPI),19 and that the devaluation of the peso made a negative impact on cost structures. In addition, CMS asserted that the value of the shares that it acquired in TGN dramatically decreased and that this occurred because tariff adjustments did not take place and tariffs had been calculated in pesos, not in US dollars, which led to a severe decrease in the tariff revenue. The Claimants, thus, claimed that the measures taken by the Argentine government violated commitments made to foreign investors, such as the calculation of tariffs in US dollars, the adjustment of tariff in accordance with the US PPI, and the general adjustment of tariffs every five years in order to keep the real value of tariffs in dollars.20 Besides, the License agreement stipulated that when any regulations on tariffs occurred, the companies in which foreign investors invested would be entitled to compensation for the loss incurred by such regulations and that the rules for the License shall not be changed without licensees’ agreement.21

In addition, Continental, which invested in the financial sector, alleged that the Public Emergency Law 25.561 and measures adopted impaired its interests by abolishing the Convertibility Law, which resulted in forced conversion to pesos of all dollar- denominated financial instruments, indebtedness, and contracts. Continental further claimed that Argentina violated Article IV (expropriation) and Article II(2)(b) (fair and equitable treatment) of the BIT by declaring a default on Argentine internal and external debt.22 In response to this claim, Argentina asserted the measures were legitimised “because of the economic, social and institutional crisis precipitated in the Argentine Republic, which was the gravest of the country’s history”23 and the adoption of the measures was “absolutely exceptional”24 _{“for the recovery of the country’s}

economic, financial and social situation”.25

19_{CMS Award, supra note 6, para 68.} 20 _{Ibid para 85.}

21 _{Decree No. 2255/92, December 2, 1992 (License), para 18.2.} 22_{Continental Award, supra note 8, paras 100, 101.}

23 _{Argentina’s Counter-Memorial on the Merits, May 8, 2006, paras 19-20.} 24 _Ibid.

51 Similarly, CMS argued that it was entitled to the application of the agreed tariff and that the government measures violated the investment protections under the Argentina- US BIT. They also claimed that Argentina expropriated CMS’s investment without proper compensation, violating Article IV (expropriation) of the BIT and failed to provide fair and equitable treatment on Article II(2)(a) and (b).26 In response, the Argentine government argued that transportation and distribution of gas is a national public service with considerable social needs.27 This would imply that industries with public interests should be treated in a different manner. Transportation and distribution of gas or other types of energy sectors have frequently appeared on many national security strategy reports of many countries as energy security although countries have not clearly specified how they will accommodate the energy security.28 The Argentine government, as demonstrated in Ole Wæver’s speech act theory,29 by labelling gas industries as having a national essential security interest, claimed that the measures which influenced the transportation and distribution of gas industries were inevitably implemented for the protection of particular social needs, i.e. essential security interests. Hence, to protect essential security interests, the measures should be justified and the government was obligated to control the undertaking of the contract. Therefore, Argentina denounced the CMS’s claim by arguing that:

(i) the government was entitled to regulate tariffs for social and other public purposes;

(ii) there were no governmental guarantees to maintain economic or exchange rate policies; and

(iii) risks resulting from such policies are not attributable to the government. By referring to a national emergency and particular social needs, the argument of the Argentine government is considerably reliant on the national security exception clause (Essential Security) on the BIT and a state of necessity under customary international law.

26_{CMS Award, supra note 6, para 88.} 27 _{Ibid para 93.}

28 _{This is discussed in the following chapter on National Security Approaches of Countries.} 29 _{See Chapter 1.2.2. The Copenhagen School and Securitisation.}

52 Each article in the BIT is not specifically titled, but Essential Security appears in the United States 2012 Model BIT.

Article 18: Essential Security specifies,

Nothing in this Treaty shall be construed:

1. to require a Party to furnish or allow access to any information the disclosure of which it determines to be contrary to its essential security interests; or

2. to preclude a Party from applying measures that it considers necessary for the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests.30

By stating that a Party shall not be precluded from taking measures “if the Party considers measures necessary”, this article grants a state the discretion to determine the necessity of measures adequate to the situation. Moreover, the expressions, such as “international peace or security” and the “protection of its own essential security interests”, are usually aligned with essential security interests. Although there is no further explanation on those terms, the distinction between international peace or security and its own essential security interests is clear insofar as the former indicates a global scale of threats, while the latter targets domestic concerns.

Likewise, the Argentina-US BIT contains a similar clause. With the goal of legitimising the emergency measures taken and being exempt from the obligation to compensation, Argentina invoked Article XI of the Argentina-US BIT which specifies: This Treaty shall not preclude the application by either Party of measures necessary for the maintenance of public order, the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security, or the protection of its own essential security interests.

Despite the absence of a title on Essential Security in the BIT, when compared to the provisions of the US Model BIT, it can be understood that the article in question

30 _{United States 2012 Model BIT,}

53 provides essential security interests. As above, exceptional clauses often take a negative form because they ought to show that the clause in question is only to be invoked in an exceptional and infrequent manner. Simply put, the article provides that either Party, in this case, either the US or Argentina, can take measures which are regarded as necessary for its essential security interests. At first glance, the difference is whether the clause is self-judging or not. Article 18 of the US Model BIT is a self- judging as a government would have the discretion as to if it is necessary to introduce a measure, whereas Article XI of the BIT provides that “the application of …measures necessary…” shall not be precluded, which means the government may not have the discretion to determine the necessity. And this matter would be determined by a tribunal.

Argentina argued that the national economic and political crisis had to be addressed and therefore the measures were necessary “for the maintenance of public order” and “the protection of its own essential security interests” by invoking Article XI of the BIT. While it is imperative to understand the definition and scope of essential security interests in this context, distinguishing between public order and essential security interests in IIAs is also crucial. Such distinction can help delineate the scope of essential security interests, i.e. whether their scopes overlap or they exist in different spheres. Thus, before examining the tribunals’ awards, it is important to point out the meaning of public order in IIL and the relationship between public order and essential security interests. Additionally, if there is any substantial difference between essential security interests and national security in BITs.