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<ul><li><p>The Latin American Treatment of InternationalArbitration and Foreign Investments and the</p><p>Chile-U.S. Free Trade Agreement</p><p>Gonzalo Biggs*</p><p>I. INTRODUCTION</p><p>LATIN AMERICAN COUNTRIES HAVE through the years adopted anumber of regional arbitration instruments, signed or ratified the leadinginternational arbitration treaties and entered into a multitude of bilateralinvestment treaties (BITs). Among the issues reflected in these various instru-ments are those related to the submission of disputes to foreign jurisdictions,national treatment of foreigners, exhaustion of local remedies, and diplomaticprotection. These issues have been raised repeatedly in different ways andbefore different fora in the context of both public and private proceedings forsettlement of investment disputes. A factor to be noted on the background ofthese developments is that there have been long periods of open hostilitytowards international arbitration in Latin America.</p><p>This article will describe the evolution of Latin American policiesregarding international arbitration and foreign investments. From this per-spective, it will then examine the current treatment of these subjects in theChile-United States Free Trade Agreement (Chile-U.S. FTA),1 in comparisonwith relevant provisions of the North American Free Trade Agreement(NAFTA). The article will conclude with comments and observations on thepractical implications of some innovative solutions adopted by the Chile-U.S.FTA.</p><p>61</p><p>* Partner, Figueroa, Valenzuela &amp; Cia Abogados, Santiago, Chile.</p><p>1 The Chile-U.S. Free Trade Agreement was signed on June 6, 2003 and entered into force onJanuary 1, 2004. The text of the agreement is available at .</p></li><li><p>II. EVOLUTION OF THE LATIN AMERICAN POLICIES RELATINGTO ARBITRATION AND FOREIGN INVESTMENTS</p><p>1. Historical Background</p><p>The first regional instrument in Latin America with provisions relatedto arbitration was a treaty on international procedural law adopted by theCongress of Jurists held in Montevideo on January 11, 1889.2 It included ruleson recognition and enforcement of arbitral awards.</p><p>During the First Pan-American Conference of 1889-1890, held inWashington, an arbitration treaty was concluded, which adopted arbitrationas a principle of American international law.3 However, a special recommen-dation was also adopted, which stated that [a] nation has not, nor recognizesin favour of foreigners, any other obligations or responsibilities than thosewhich in favour of the natives are established, in like cases, by the constitutionand the laws.4 The United States objected to this latter provision arguing thatpractically any change in the existing rules of international law would requirethe consent of the civilized world. As noted by one commentator, the aboverecommendation has been followed consistently by the United States throughthe years.5 As it will be discussed below, subsequent International and Pan-American Conferences have been an important source of various resolutionsand treaties on international arbitration in Latin America. </p><p>At the beginning of the Twentieth century, at the initiative of theLeague of Nations, two major conventions on international arbitration weresigned. These were the Geneva Protocol on Arbitration Clauses of 1923 (theGeneva Protocol) and the Convention on the Execution of Foreign Arbitral</p><p>62 ICSID REVIEWFOREIGN INVESTMENT LAW JOURNAL</p><p>2 Treaty on International Procedural Law (Jan. 11, 1889), reprinted in Organization of AmericanStates Treaty Series, No. 9, Rev. 1980. The treaty, which was ratified by five countries, was subsequent-ly amended on March 19, 1940. The treaty is no longer in force. For historical data regarding earlier par-ticipation of Marcos Antonio DAraujo, Baron DItajub, of Brazil in the 1872 arbitration panel estab-lished to resolve American Civil War claims under the Treaty of Washington between Great Britain andthe United States, see Caleb Cushing, Le Trait de Washington 114 (Paris 1874).</p><p>3 Article 1 of the draft-treaty, which was also known as Plan of Arbitration, reads as follows:The Republics of North, Central and South America hereby adopt Arbitration as a principle ofAmerican international law for the settlement of the differences, disputes, or controversies that may arisebetween two or more of them. The full text of the Plan of Arbitration is reproduced in CarnegieEndowment for International Peace (ed.), International Conferences of American States, 1889-1928(1931), at 40-44.</p><p>4 See Recommendation on Claims and Diplomatic Interventions, International Conferences ofAmerican Sates (1889-1928) (1931), at 45.</p><p>5 Charles G. Fenwick, The Organization of American States: The Inter-American RegionalSystem (1963), at 159.</p></li><li><p>Awards of 1927 (the Geneva Convention). Brazil was the only Latin Americancountry that ratified the Geneva Protocol. None of the Latin American coun-tries, however, ratified the Geneva Convention.6 For different reasons, neitherthe Geneva Protocol nor the Geneva Convention had significant practicaleffects.7 Only in 1958, this time at the initiative of the United Nations, theefforts of the international community to create a multilateral treaty on inter-national arbitration proved to be successful with the adoption of the New YorkConvention on the Recognition and Enforcement of Foreign Arbitral Awardsof 1958 (the New York Convention). To this date, 134 countries have ratifiedthe New York Convention.8 However, the Latin American countries, which atthe time of the adoption of the New York Convention maintained policieshostile to international arbitration, were among the last ones to ratify it. Thiswas the case of Brazil (2002), Dominican Republic (2002), Nicaragua, (2003)and Venezuela (1995), to take a few examples.9</p><p>In 1948, the Organization of American States (OAS) was established.One of the first instruments adopted within the OAS system was the AmericanTreaty for the Pacific Settlement of Disputes, also known as the Pact ofBogota.10 The Pact of Bogota terminated previous agreements concluded inthe region regarding the subject.11 Article VII of the Pact of Bogota and theU.S. reservation to the Treaty are examples of the tensions that persisted inrespect to agreements on dispute settlement, in general, and international arbi-tration, in particular. According to Article VII of the Pact of Bogota,</p><p>[t]he High Contracting Parties bind themselves not to makediplomatic representations in order to protect their nationals,or to refer a controversy to a court of international jurisdictionfor that purpose, when the said nationals have available the</p><p>CHILEU.S. FREE TRADE AGREEMENT 63</p><p>6 See American Arbitration Association, The International Arbitration Kit (compiled by LauraFerris Brown, 1993), at 1-6. Other major global efforts at international dispute settlement were the 1899and 1907 Conventions on the Pacific Settlement of International Disputes (The Hague Conventions).Latin American Countries adhered to the 1907 Hague Convention much later starting from the 1960s. </p><p>7 See John D. Feerick, Toward a More Peaceful World: The New York Convention, in ADR andthe Law (American Arbitration Association, 1997), at 218.</p><p>8 The New York Convention was prepared and opened for signature on June 10, 1958 by theUnited Nations Conference on International Commercial Arbitration, convened in accordance withResolution 604 (XXI) of May 3, 1956 of the U.N. Economic and Social Council. For the current mem-bership of the New York Convention, see .</p><p>9 Id.10 The Pact of Bogota was adopted on April 30, 1948 and entered into force on May 6, 1949.</p><p>The full text of the treaty is reprinted in Inter-American Relations (Committee on Foreign Affairs,1973).</p><p>11 Article LVIII of the Pact of Bogota listed all previous regional treaties, conventions and proto-cols on settlement of disputes which would cease to exist when the Treaty would come into effect. </p></li><li><p>means to place their case before a competent domestic court ofthe respective state. </p><p>The United States reservation stated that,</p><p>[t]he Government of the United States cannot accept ArticleVII relating to diplomatic protection and the exhaustion ofremedies. For its part, the Government of the United Statesmaintains the rules of diplomatic protection, including therule of exhaustion of local remedies by aliens, as provided byinternational law.12</p><p>At the regional level, during its Seventh Conference of American Statesin 1933, the Pan-American Union adopted Resolution No. XLI, which soughtto create the Inter-American Commercial Arbitration Commission(IACAC).13 The IACAC was established in 1934. Among IACACs mainresponsibilities was the establishment of an Inter-American arbitration system.However, this initiative would only materialize some thirty years later. Indeed,in 1967, the OAS approved a draft of an arbitration convention, which latermaterialized in the Inter-American Convention on International CommercialArbitration (or the Panama Convention), adopted by the members of the OASon January 30, 1975.14</p><p>2. The Panama Convention</p><p>The rationale for the adoption of the Panama Convention has beenquestioned by several authors on the ground that it merely replicates, or atleast overlaps in part, the New York Convention.15</p><p>64 ICSID REVIEWFOREIGN INVESTMENT LAW JOURNAL</p><p>12 U.S. Reservation at the time of signature, reprinted in Inter-American Relations, supra note 11,at 186-89. The contrary position of Latin American States was also reflected in the Convention onRights and Duties of States, adopted on December 26, 1933 by the Seventh Pan-American Conference(of 1933). See infra note 14 and the accompanying text. Article 9 of the Convention on the Rights andDuties of States stated that nationals and foreigners are under the same protection of the law and thenational authorities and the foreigners may not claim rights other or more extensive than those of nation-als. See Carnegie Endowment for International Peace (ed.), International Conferences 1933-1940(1940), at 121.</p><p>13 The Seventh Conference of American States was held on December 3-26, 1933 in Montevideo.For the full text of Resolution XLI of December 23, 1933, see International Conferences 1933-1940,supra note 12, at 68. </p><p>14 See generally Charles Norberg, Inter-American Commercial Arbitration Revisited, in 7 Lawyerof the Americas (Institute for Inter-American Legal Studies, University of Miami, 1975), at 280 et seq.</p><p>15 See, e.g., Richard D. Kearney, Development in Private International Law, 81 AJIL 724 (1987);see also Daniele Favalli, The Coexistence of the Panama and New York Conventions (paper submitted atthe Miami International Arbitration Conference, held on January 28-30, 2004). </p></li><li><p>Notwithstanding the validity of the above criticisms, I submit that thefollowing considerations justify the adoption of this Convention:</p><p>i) It was the first collective expression of Latin American countriesin favour of an international commercial arbitration instru-ment;16</p><p>ii) Latin American countries were parties to this Convention togeth-er with the United States: it was, thus, the first hemispheric treatythat would require harmonization of the Latin America civil lawtradition with the U.S. common law system for its operation;</p><p>iii) Unlike the New York Convention, which has no institutionalstructure, the Panama Convention refers to the Inter-AmericanCommercial Arbitration Commission (IACAC) which, in turn,is part of the OAS system;17</p><p>iv) With the adoption of the Panama Convention multiple problemsthat were found in the arbitration laws of the Latin Americancountries were resolved. Among these problems were, for exam-ple, the prohibition to arbitrate future disputes, and to accept theparticipation of foreign arbitrators, or to conduct arbitral pro-ceedings in a foreign country or in a language other than Spanish.The Convention eliminated these various restrictions. </p><p>The approval of the Panama Convention was not unanimous withinthe Latin American countries. Argentina, for example, initially rejected theConvention for being contrary to its Constitution and because the country didnot recognize the validity of arbitrations conducted outside its territory or bynon-Argentine arbitrators. Later on, however, Argentina signed and ratifiedthe Panama Convention.18</p><p>CHILEU.S. FREE TRADE AGREEMENT 65</p><p>16 Before the adoption of the Panama Convention, only two countries from the region were partof the New York Convention (Ecuador and Mexico) and none of them had ratified the InternationalConvention on Settlement of Investment Disputes between States and Nationals of Other States (theICSID Convention). Norberg, supra note 14, at 276.</p><p>17 Article 3 of the Panama Convention establishes that in the absence of agreement between theparties, the arbitration proceeding will be conducted in accordance with the IACAC Rules. The IACACRules closely followed the UNCITRAL Arbitration Rules. They were most currently revised in 2002.The amended rules entered into force on April 1, 2002. See Luis Martinez, IACAC and AAA FormHistoric Alliance, Dispute Resolution Times (American Arbitration Association ed., March-May 2003).</p><p>18 See Norberg, supra note 14, at 283. Argentina signed the Panama Convention on March 15,1991 and ratified it on March 1, 1995. </p></li><li><p>3. The Influence of the Calvo Doctrine </p><p>As from the XVIII century, the European countries applied the doc-trine of diplomatic protection to those countries that they regarded as non-civilized. The doctrine of diplomatic protection, which was developed by theSwiss philosopher and jurist, Emerich de Vattel, was invoked to justify theintervention of one State in the internal affairs of another with the argumentthat an injury to a citizen of a State constituted an affront to that State.19 Thisdoctrine was incorporated into the international policies of European coun-tries and, in its most abusive form, served to justify a number of foreign inter-ventions in Latin America and other regions of the world.</p><p>The Latin American reaction to foreign interventions was the CalvoDoctrine, which invoked the exclusive jurisdiction of states to try and judgethe conduct of foreigners within their borders. It was, basically, an early expres-sion of the principles of territorial sovereignty, juridical equality of States,equal treatment of nationals and foreigners, and of non-intervention.20 Itsfounder, Carlos Calvo,21 based his views on the XIX century practice thatEuropean countries applied to their relationships. According to Calvo, thesame practice ought to be applied to the relationship among European coun-tries and Latin American countries.22 During the XX century, Latin Americancountries applied the Calvo Doctrine to the expropriation and nationalizationof private foreign investments, creating some of the major international con-flicts known in the region.</p><p>Mexico was the first Latin American country to invoke and apply sys-tematically the Calvo Doctrine,23 which rapidly became a generally acceptedprinciple in Latin America and was incorporated into the constitutions andlegislations of almo...</p></li></ul>

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