Jonathan C. Hamilton, “Beyond ‘El No de Tokyo,’” surveying articles in the Virginia Journal of International Law (2014)

This is a survey of articles from the Virginia Journal of International Law related to investment and dispute resolution in Latin America, by Jonathan C. Hamilton, former Editor-in-Chief of the Journal while a student at the University of Virginia School of Law and member of the Board of Advisors.

To understand the present and anticipate the future, it often helps to look to the past. The archives of the Virginia Journal of International Law reveal the evolution of political and legal treatment of foreign investment in Latin America over the final decades of the Twentieth Century.

Precursors and the Evolving Concepts of Investment - The advent of the 1970s was marked by "a crisis in US Latin American economic relations," according to a 1970 special edition of the Virginia Journal of International Law, at that time a pioneer in its field, publishing a series of papers from a meeting of the American Society of International Law focusing on foreign investment in Latin America.

Investment really began to emerge as the commanding issue of US Latin American relations" in the 1920s, comments William Rogers (subsequently U.S. Assistant Secretary of State for Inter-American Affairs), citing to Mexican-American oil disputes after the Mexican Revolution. By the time of his article in 1970, Rogers stated that there had emerged "a crisis in US Latin American economic relations," including in connection with Peru's expropriation of IPC, Bolivia's expropriation of Gulf, and the then emerging political shift in Chile; "all surface evidences of a deep and critical problem in hemispheric relations." Future executive director of the Inter-American Development Bank Enrique Iglesias comments on the Latin American development model of that era.

In this context, it is not surprising that in one article Paul Szasz, then a World Bank official, discusses the initial refusal of Latin American states to join the "Investment Disputes Convention," commonly known as the “Washington Convention” or the “ICSID Convention.” He points to Latin American concerns at the World Bank meeting in Santiago in 1964. By the Tokyo round of discussions later that year, the region had formed a position known as "El No de Tokyo." Despite that phrase, some Latin American states participated and furthered discussions regarding the treaty, even if most only ratified it many years later. The author thus concluded, from his vantage point in 1970, that ratification of the Washington Convention by Latin American states, "should not be considered impossible that such a development may occur within the none-too-distant future."

The Lost Decade - The 1980s then featured debt crises and Cold War proxy fights. Commentaries of the day thus focused on topics such as the origins of “the International Debt Problem,” and civil strife and international relations related to Central America (such as an article by subsequent Georgetown University professor, the late Chris Joyner).

The Washington Consensus - For Latin America, the 1990s were marked in significant part by the “Washington Consensus” of macroeconomic policies and legal frameworks favoring investment, as well as the broad ratification of the then lesser-noted Washington Convention providing a vehicle for investor-state disputes before the International Centre for Settlement of Investment Disputes (ICSID) at the World Bank. The relative consensus of the 1990s thus became an historic moment that established the foundation for the comparative courses of stability versus change across Latin America in the past two decades. The issues of the moment remain central issues in the region today:

Foreign Judgments and Judicial Reform - “The need for foreign judicial assistance has increased dramatically in the last few decades with the internationalization of trade, investment and financing,” wrote Jose Daniel Amado (now of Mirando & Amado in Lima) in 1990. At the time, the focus was on effective recognition of cross-border judgments, and judicial reform, as highlighted by an article by a World Bank lawyer setting out a strategy for judicial reform in the region.

Treaty Protections - State-specific judiciaries were being supplemented by the advent of new trade and investment protection treaties and international arbitration mechanisms. In 1990, there were no investment protection treaties ratified by Latin American states, but that quickly changed with the ratification of NAFTA and the adoption of dozens and eventually hundreds of bilateral investment treaties (BITs), as well as corresponding ratification of the ICSID Convention. A comparison of the ratification of such treaties is available in my Latin American Arbitration Law Compendium.

Marking the ambitions of the era, emerging from the 1995 Summit of the Americas, there was a dream of a Free Trade Agreement of the Americas (FTAA), which never came to pass. One article of the moment highlight the dilemmas of piecemeal accession to such a treaty regime. In one prescient article in the Virginia Journal, Andrew Guzman, now of Berkeley, wrote "Why LDCs Sign Treaties That Hurt Them: Explaining the Popularity of Bilateral Investment Treaties".

The FTAA never came to pass, and instead we see sub-regional agreements such as CAFTA and, most recently, the Alliance of the Pacific, which originated with the "Declaration of Lima" and through which Chile, Colombia, Mexico and Peru are collaborating and countries that have sought to exit the prevailing investment and trade treaty regime (such as Ecuador, as indicated in my recent post) are absent.

Managing Political Risk – With pro-investment policies, legal frameworks and treaties in place, the 1990s was marked by tremendous new flows of foreign investment. That meant new transactional and lending structures, and new ways to manage political risk. As one article highlighted, “Latin American firms needed to develop new ways of appealing to foreign investors fearful of political risk” and securitization was one key vehicle was “helped ease the firms, and their home countries, into the increasingly global financial community.” New legal frameworks and new deal structures nurtured investment and put into places the seeds of the eventual political backlashes in some countries and emergence of the expansive field of Latin American arbitration.

Controlling Corruption - Latin America confronted the historical issue of corruption in the 1990s. From the 1970s to the 1990s, the U.S. Foreign Corrupt Practices Act (FCPA) had stood as a unique legal protection against transnational bribery. In 1996, at a special conference of the OAS, the Inter-American Convention Against Corruption established “the first international legal framework aimed at eliminating bribery and corruption of government officials,” as Lucinda Low and others discussed in an article.

Environmental Protection and Public Health - The emergence of the environment and public health as transnational public policy issues was reflected in articles on topics such as liability for environmental conditions in the Panama Canal zone, at the time of its historic transfer from the U.S., and the impact of natural resource extraction by multinational corporations on the environment, indigenous persons and host states for foreign investment.

These commentaries from the 1970s to the 1990s reveal the origins and fault lines of policies, investment, international relations and legal practice that shape the work today of lawyers in and focused on Latin America, and the deals and disputes of the region.

At the World Bank Tokyo round of discussions in 1964, Latin American government had formed a position known as “El No de Tokyo,” and declined to join the nascent International Centre for Settlement of Investment Disputes (ICSID) for investor-state disputes. By the 1990s, everything was changing.

Jonathan C. Hamilton