Rhein on Energy and Climate

Western democracies are committed to the respect of public and private international law. But when exposed to infringements, they often feel powerless.

The Argentinian nationalisation of 51 per cent of the oil and gas company YPF, owned by the Spanish Repsol is the latest case in point.

Argentina argues it needs to exert full control over its oil and gas resources. This is far-fetched: YPF has been subject to Argentinian national jurisdiction, and the nationalisation of the company will not make the country self-sufficient with oil and gas.

Under international law, Argentina is authorised to nationalise YPF provided there is a public interest and shareholders receive fair compensation, which Argentina is not prepared to grant. What is called “nationalisation” is therefore a multi-billion Euro criminal act of plain theft!

In the case of trade disputes, the WTO Tribunal offers a well-established platform for settling dispute. WTO members respect its rulings, if only for fear of reprisals.

Disputes concerning investments in third countries are a different matter, as they usually involve big financial interests. The World Bank International Centre for Settlement of Investment Disputes (ICSID) lack the clout to impose its rulings. Argentina has been taken before the ICSID more than any other country and become notorious for non-compliance.

The EU has offered Spain its “support”. Both the EP and foreign ministers have issued appropriate declarations.

Theoretically, the EU could retaliate by suspending imports of beef, soy beans and other agricultural products from Argentina. This would inflict considerable damage on Argentina, but China would be happy to come to the rescue. More important, it would not be legal under WTO rules. Last not least, Spain might not even obtain a majority within the EU for such a far-reaching act of solidarity.

This leaves Spain with no alternative but to sue Argentine for infringement of the existing bilateral treaty on investment protection and accept the mediation that Columbia has graciously offered to the two parties.

In an era of increasing direct investments in third countries it is high time for the international community to firmly establish the principle of equitable compensation in case of nationalisation and adopt an international treaty defining the rights obligations of host governments and investors.

The EU should take an appropriate initiative, if possible jointly with USA and China.


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