(i) the requirement to observe obligations required by Art. II(2)(c) of the BIT;
(ii) the requirement to provide treatment in accordance with international law, including fair and equitable treatment and full protection or security, as required by Art. II(2)(b) of the BIT, as well as MFN treatment under Art. II(2)(a);
(iii) the requirement to permit all transfers relating to an investment without delay, set out in Art. V of the BIT; and
(iv) the requirement to pay compensation upon acts of expropriation, set out in Art. IV of the BIT.
(i) "Argentina has not given its consent to submit to this arbitration;"
(ii) "The dispute submitted by Claimant does not comply with the requirements of the Convention or those under the U.S.-Argentina BIT," particularly as to (a) the existence of a legal dispute and as to (b) the requirement that the legal dispute arises directly out of an investment;
(iii) "The company may not file a claim because the claim is premature ‘or not ripe';"
(iv) "Continental's lack of action to submit a dispute to this Tribunal: the ius standi.
a. that the dispute is between Argentina (as a contracting party to ICSID and the BIT) and a national of the U.S.A., as defined in the BIT;
b. that the dispute is a "legal" dispute (Art. 25(1) ICSID Convention);
c. that said legal dispute arises "directly" out of an investment (Art. 25(1) ICSID Convention);
d. that said dispute is "an investment dispute" within the meaning of Art. VII of the BIT, namely "arising out or relating to....(c) an alleged breach of any right conferred or created by this Treaty with respect to an investment;" and
e. that such investment is of the type covered under the BIT in accordance with the definition of "investment" found in Art.I(1)(a) of the BIT.11
As to the facts of the case, the presentation of the Claimant is fundamental: it must be assumed that the Claimant would be able to prove to the Tribunal's satisfaction in the merit phase the facts that it invokes in support of its claim. This does not mean necessarily that the "Claimant's description of the facts must be accepted as true," without further examination of any type. The Respondent might supply evidence showing that the case has no factual basis even at a preliminary scrutiny, so that the Tribunal would not be competent to address the subject matter of the dispute as properly determined. In such an instance, the Tribunal would have to look to the contrary evidence supplied by the Respondent and should dismiss the case if it found such evidence convincing at a summary exam.13 (Footnotes omitted)
1. - In the hard road towards restoring the country's economic and financial situation to normal, different options were available to the holders of deposits made with financial institutions.
2. - The holders of deposits had to state whether they wanted to choose any of the options offered by the Argentine Government, which varied according to the progress of the recovery of the country's economic, financial and social situation.
3. - That being so, three options were available to CNA ART in order to get back its deposited amounts, and it decided to go for the third of them.
4. - Through the option chosen by CNA ART, it had access to the release of its rescheduled deposits receiving also "BODEN 2013" bonds for the difference between the original face value of the Rescheduled Deposit adjusted by CER as of April 1, 2003 and the value of the dollar in the exchange market as of the same date.
5. - CNA ART was able to recoup its deposited amounts thanks to the options offered by the Argentine State, as it prevented the financial system from falling apart [...]
6.- Notwithstanding the option exercised by CNA ART, it should be noted that financial institutions could offer enhancements on the conditions established for the return of rescheduled deposits, such as bringing forward the schedule of payments, prepayments or acknowledgement of higher interest rates. If the banks with which CNA ART made the deposits offered no enhancement, this is attributable only to those banks and ultimately to CNA ART, which is responsible for choosing the financial institutions with which the deposits were made.32
a) At all times CONTINENTAL's investment was granted fair and equitable treatment in accordance with international law.
b) The fair and equitable treatment is the minimum international treatment, understanding that the latter is a standard which means reasonability, proportionality and no discrimination.
c) The measures alleged to be infringing are proportional to the situation in which they were passed, and they are reasonable. The reasonability of such measures was based on the re-establishment of a balance among all the economic agents of society. The measures were not inconsistent because not only did they take into account the whole society, but also they re-adapted the circumstances to the prevailing economic situation.37
For purposes of an arbitration held under paragraph 3 of this Article, any company legally constituted under the applicable laws and regulations of a Party or a political subdivision thereof but that, immediately before the occurrence of the event or events giving rise to the dispute, was an investment of nationals or companies of the other Party, shall be treated as a national or company of such other Party in accordance with Article 25(2)(b) of the ICSID Convention.58
The right to property is inviolable and no inhabitant of the Nation can be deprived of it except by judicial decision founded in the law.61
Investment shall at all times be accorded fair and equitable treatment, shall enjoy full protection and security and shall in no case be accorded treatment less than that required by international law.
Continental asserts further that Argentina cannot rely on Article IV(3) to avoid such compensation. "Regardless of whether Argentina faced circumstances falling within the scope of Article IV(3), the Investor does not claim Argentina has compensated foreigners and locals unequally and, therefore, Article IV(3) is irrelevant to this claim."76
The Convertibility Law, which pegged the Argentine currency to the U.S. dollar in April 1991, was a response to Argentina's dire economic situation at the beginning of the 1990s. Following more than a decade of high inflation and economic stagnation, and after several failed attempts to stabilize the economy, in late 1989 Argentina had fallen into hyperinflation and a virtual economic collapse [...]. The new exchange rate regime, which operated like a currency board, was designated to stabilize the economy by establishing a hard nominal peg with credible assurances of non reversibility. The new peso (set equal to 10,000 australes) was fixed at par with the U.S. dollar and autonomous money creation by the central bank was severely constrained, though less rigidly than in a classical currency board. The exchange rate arrangement was part of a larger Convertibility Plan, which included a broader agenda of market-oriented structural reforms to promote efficiency and productivity in the economy. Various service sectors were deregulated, trade was liberalized, and anti-competitive price-fixing schemes were removed; privatization proceeded vigorously, notably in oil, power, and telecommunications, yielding large capital revenues. [footnotes omitted]118
The investment made by Continental in Omega ART (later CNA ART) in 1997 and completed in 2000 was made in a newly privatized sector (in June 1996), that of workers' accident insurance.119 In general, foreign direct investment inflows were sustained after the convertibility, representing more than 2-3% of GDP from 1995 to 2000 with a peak of 8.46% in the year 1999.120
There was a marked improvement in Argentina's economic performance under the Convertibility Plan, particularly during its early years. Inflation, which was raging at a monthly rate of 27 percent in February 1991, declined to 2.8 percent in May 1991; on an annual basis, inflation fell to single digits in the summer of 1993 and remained low (or even negative) from 1994 to the end of the convertibility regime in early 2002. The overall fiscal balance of the federal government improved significantly from the previous years, with an average budgeted deficit of less than 1% of GDP during 1991-98.
Growth performance was impressive through early 1998, except for a brief set back in 1995 when Argentina was adversely affected by the Mexican crisis. For 1991-98, GDP growth averaged nearly 6 percent a year, vindicating the market-oriented reforms introduced in the early 1990s. Attracted by a more investment-friendly climate, there were large capital inflows in the form of portfolio and direct investments.127 During 1992-99, Argentina received more than $100 billion in net capital inflows, including over $ 60 billion in gross foreign direct investments.
The resilience of the convertibility regime was severely tested by the Mexican crisis in 1995. In response, Argentina launched a rigorous adjustment program under IMF financial support consisting of strong fiscal action and structural reform. When the peg survived and a V-shaped recovery ensued, this was widely interpreted as evidence of the convertibility regime's robustness and credibility. Favorable external circumstances also contributed to this outcome. This was a period in which the U.S. dollar was relatively weak, so the peg did not entail a loss of competitiveness, particularly given the improvements in productivity. Tariff reductions achieved under MERCOSUR also helped promote exports, particularly to Brazil, Argentina's largest trading partner. Capital flows to emerging markets were strong in the mid-1990s and Argentina was a major beneficiary. Argentina was relatively unaffected by the outbreak of the East Asian crisis in 1997; it quickly returned to the international capital markets in December of that year.
In October 1998, the performance of Argentina received the attention of the world when President Carlos Menem shared the podium of the Annual Meetings with the IMF Managing Director, who characterized "the experience of Argentina in recent years" as "exemplary." The Managing Director further remarked: "Argentina has a story to tell the world: a story which is about the importance of fiscal discipline, of structural change, and of monetary policy rigorously maintained."
As it happened, Argentina's performance deteriorated from the second half of 1998, owing to adverse external shocks, including a reversal in capital flows to emerging markets following the Russian default in August 1998; weakening of demand in major trading partners, notably in Brazil; a fall in oil and other commodity prices; general strengthening of the U.S. dollar against the euro; and the 70 percent devaluation of the Brazilian real against the U.S. dollar in early 1999. Real GDP fell by over 3 percent in the second half of 1998, there was a mild pickup in economic activity in the second half of 1999, spurred by increasing government spending in the run-up of the October presidential elections, but this was not sustained and GDP declined by 3½ percent for 1999 as a whole. The economy never recovered through the end of the convertibility regime.
The economic slowdown, coupled with the election-driven surge in public spending in 1999, had important implications for fiscal solvency. Argentina's consolidated fiscal balance had been in deficit throughout the 1990s except in 1993, but the magnitude was not large. Consolidated public sector debt, however, increased more rapidly because of the periodic recognition of off-budget liabilities, including the court-ordered payments of past pension benefits, which averaged over 2 percent of GDP a year during 1993-99. Even so, the rise in the debt-to-GDP ratio was modest as long as growth remained high, and there was even a small decline in the ratio from 1996 to 1997. The situation changed in 1999, when growth decelerated and the public finances deteriorated sharply. The debt-to-GDP ratio rose from 37.7 percent of GDP at end-1997, to 47.6 percent at end-1999, an increase of 10 percentage points in just two years. The ratio would eventually reach 62 percent at end of 2001.
Argentina's problems intensified in 2000, when growing solvency concerns over the cumulative increase in public debt was exacerbated by the continued appreciation of the U.S. dollar and a further drying up of capital flows to emerging market economies. These developments would normally require a smaller current account deficit and a depreciation of the real exchange rate, but the convertibility regime placed severe limitations on the ability of Argentina to achieve this adjustment in a manner that could avoid recession. Argentina initially sought to restore market confidence by negotiating a SBA with the IMF, which it indicated would be treated as precautionary.
Market confidence did not recover as expected and market access was effectively lost later in the year, leading Argentina to seek an augmentation of IMF support. From December 2000 to September 2001, the IMF made a series of decisions to provide exceptional financial support to Argentina, which ultimately amounted to SDR 17 billion, including the undrawn balance under the existing arrangement. However, stabilization proved elusive. The augmentation announced in December 2000 and formally approved in January 2001 had a favorable effect, but it was short-lived. Pressure built up again as it became evident that political support for the agreed measures was lacking and program targets were unlikely to be met.
From the spring of 2001, the authorities took a series of measures in quick succession, including: an announced plan to change the anchor of the convertibility regime from the U.S. dollar to an equally weighted basket of the dollar and the euro (the switch to take effect only when the two currencies reached parity); a series of heterodox industrial or protectionist policies (called "competitiveness plans") involving various tax-exemptions measures in sectors most adversely affected by the recession; and an exchange of outstanding government bonds totaling $30 billion in face value for longer maturity instruments (the so-called mega-swap). Many of these measures, which were taken without consultation with the IMF, were perceived by the markets as desperate or impractical and served to damage market confidence.
Despite these initiatives and the financial support of the IMF, market access could not be restored, and spreads on Argentine bonds rose sharply in the third quarter of 2001. Amid intensified capital flight and deposit runs, capital controls and a partial deposit freeze were introduced in December 2001. With Argentina failing to comply with the fiscal targets, the IMF indicated that it could not clear the disbursement scheduled for December. At the end of December, following the resignation of President Fernando De La Rùa the country partially defaulted on its international obligations. In early January 2002, Argentina formally abandoned the convertibility regime and replaced it with a dual exchange rate system.
Executive Directors welcomed the authorities' strong ownership of, and demonstrated commitment to, their economic program, and the significant progress made so far in improving the fiscal position at both the federal and provincial level, despite cyclical adverse conditions, and in implementing structural reforms (...)
While recognizing these concerns, Directors concurred with the authorities' view that, within the framework of the convertibility regime, the resumption of sustainable growth depended crucially on credible further progress in fiscal consolidation and structural reform. (...)
Directors noted that the convertibility regime, together with a strong financial system, had served Argentina well in weathering the major external shocks that had affected it in recent years. They also noted the strong support of the population for the regime, its demonstrated success in anchoring inflation expectations, and the high degree of de facto dollarization in the economy... Directors considered that, with an improved competitive position, both the current account and the public sector deficits on a declining path, and important structural reforms enacted or under way, the Argentine economy was now in a good underlying position to resume sustainable growth.145
In the middle of the meeting I received a phone call from the city of Cordoba, where my in-laws lived, to inform me that a horde or a mob had attacked my inlaws' home thinking that I was there. There were shouts, "The judge should come out, the judge should come out," so my father-in-law went out to see what was happening, and they thought I was him [i.e. Judge Belluscio], and they began to throw pieces of stone which didn't hit him, but which did do harm to the facade of the house. He was with - one of his sons was with him, one of my brothers-in-law. My brother-in-law went out. He tried a dialogue with the mob and get them to see that it wasn't the judge who was in the house because evidently they wanted to attack me, and the response was that he was attacked, he was beaten, and he suffered a fracture in one finger. Well, this obviously upset me a great deal [...].183
i) maintaining the portfolio in peso denominated assets, which were earning a much higher return than comparable dollar denominated assets;
ii) transferring all of CNA ART's assets in excess of minimum capital requirements out of Argentina to be held by CNA; and
iii) moving CNA ART's investment portfolio to lower return U.S. dollar assets with greater credit worthiness."186
CNA ART has come out very reinforced both economically and financially from the severe economic crisis that the country has suffered during the last years. CNA ART enjoys a very solvable economic situation and a very comfortable financial situation, with an extraordinary degree of liquidity. CNA ART has an average investment of almost P. 850 for each insured. This amount is almost four times the average for the other insurers of workmen risks. Moreover only 30% of CNA ART investments are represented by public debt instruments, while the market average as to this indicator amounts to almost 50% of the investment papers. As to the average level of reserves per insured, CNA ART has about P. 270 that is more than the double than the other companies in the market. The net assets of the Company at the closing of the financial amounts to P. 106,004,253, so as to allow the company to present a substantial excess (superavit) in respect to the minimum capital, which amounts at said date to 102,626,233, after having the company obtained during the business year an after taxes profit of P. 39,531,719. The level of investments of the Company at the closing of the financial year amounts to P. 195,602,044. The level of reserves and of technical commitments amounts to P.62.283.313.
a. Whether the economic political and social crisis, with its specific aspects, in Argentina during 2001-2002 qualify under Art. XI in that they involved the "maintenance of public order" and/or the protection of Argentina's "essential security interests;"
b. Whether the invocation of Art. XI is "self-judging," in the sense that the Party relying on it has absolute discretion to invoke it;
c. Whether the Measures challenged were "necessary" in order to maintain the Argentine public order and protect the essential security interests of Argentina that were at stake;
d. The effect of the application of Art. XI to the evaluation by the Tribunal of the lawfulness under the BIT of Argentina's Measures challenged by Claimant.
United States treaty practice since the Second World War has acknowledged that the interest in protecting United States investment overseas may be subordinate to certain other national interests, primarily the interest in protecting the national security and the health, safety and welfare of the people. Investment-related treaties thus have had provisions which permit the United States to deny protection to foreign investment in its territory where necessary to these other interests. The price paid by the United States for reserving the right to derogate from investment-related treaties on these grounds has been the recognition of a corresponding right in its treaty partners.258
[...] the reach of the word "necessary" is not limited to that which is "indispensable" or "of absolute necessity" or "inevitable." Measures which are indispensable or of absolute necessity or inevitable to secure compliance certainly fulfill the requirements of Article XX (d). But other measures, too, may fall within the ambit of this exception. As used in Article XX (d), the term "necessary" refers in our view to a range of degrees of necessity. At a one end of this continuum lies "necessary" understood as "indispensable;" at the other, is "necessary" taken to mean as "making a contribution to." We consider that a "necessary" measure is, in this continuum, located significantly closer to the pole of "indispensable" than to the opposite pole of simply "making a contribution to."293
The necessity of a measure should be determined through "a process of weighing and balancing of factors" which usually includes the assessment of the following three factors: the relative importance of interests or values furthered by the challenged measures, the contribution of the measure to the realization of the ends pursued by it and the restrictive impact of the measure on international commerce.294
[...] an alternative measure may be found not to be "reasonable available," however, where it is merely theoretical in nature, for instance, where the Responding Member is not capable of taking it, or where the measure imposes an undue burden on that Member, such as prohibitive costs or substantial technical difficulties. Moreover a "reasonable available" alternative measure must be a measure that would preserve for the responding Member its right to achieve its desired level of protection with respect to the objective pursued under paragraph (a) of Article XIV.295
i) alternatives to the Measures, not in breach of the BIT, that might have been available when the Measures challenged were taken (thus from November 2001 onwards) and that would have yielded equivalent results/relief; and
ii) whether Argentina could have adopted at some earlier time different policies, that would have avoided or prevented the situation that brought about the adoption of the measures challenged.
If the result of such additional analysis shows that such alternatives would not have been reasonably available or would have been impracticable or speculative as to their effects, the conclusion that the measures were necessary under Art. XI of the BIT would be confirmed.
In the situation of Argentina in the autumn of 2001, the impossibility for Argentina to maintain convertibility was reasonably foreseeable and was even widely expected; the need to take strict remedial actions against massive withdrawals from the banks, widespread requests of exchange of pesos for dollars and capital flight was inevitable.303
be more secure than holders in pesos in case of crisis.324 That burden was charged to the entire economy.325
(a) the late date in which the swap was offered, when Argentina's financial conditions were evolving towards normality;336
(b) the reduced percentage of the original value of the debt that Argentina unilaterally offered to recognize;
(c) the condition that any other rights would be waived, which entailed also waiving the protection of the BIT.337
"Argentina could have implemented economic policies that would have supported the ability of the currency board to withstand an economic recession."338
The "avoidance of restrictions on current payments" (Art. VIII), except with the approval of the Fund, is a "general obligation" of IMF members, adhered to by their vast majority that do not avail themselves of the transitional regime of Art. XIV. It reflects one of the key purposes of the Fund, "to assist in the establishment of a multilateral system of payments in respect of current transactions" as stated in Art. I (iv), as was the case of Argentina when its currency was freely convertible. On the other hand, capital movements may be subject to exchange controls by individual members, inter alia in view of their possible speculative nature and destabilizing effects on national economies.
i) Continental cannot invoke legitimate expectations as to the change of the convertibility regime of 1991, notwithstanding political declarations by various authorities that convertibility would not be abandoned.
ii) Continental should have maintained a reduced trust in the Intangibility Law of September 2001, since this was enacted when the worsening of the crisis was evident and indeed made in order to try to support dwindling confidence in the sustainability of the convertibility. (Even more so since Continental and CNA were professional operators in the financial sector).
iii) As far as the de-dollarization and its specific modalities could be considered contrary to any fair and equitable treatment in the light of previous assurances by Argentina (including the Intangibility Law),391 the Tribunal considers that the necessity defense under Art. XI is available to Argentina for the reasons explained above.
iv) The Measures were not discriminatory;392 they were general, affecting all sectors of the national economy and all classes of depositors and investors, nor did they affect the carrying-on of the insurance business of Continental in respect of which the reliance on stability of the legal environment could have been properly focused.393
Investments shall not be expropriated or nationalized either directly or indirectly through measures tantamount to expropriation or nationalization except for a public purpose; in a non-discriminatory manner; upon payment of prompt, adequate and effective compensation; and in accordance with due process of law and the general principles of treatment provided for in Article II(2).
i) the pesification of CAN's dollar-denominated deposits and securities at a much "below market exchange rate;"
ii) the restructuring of the GGLs at terms that did not reflect their acquisition value; and
iii) the fact that the LETEs have been deprived of their value after CNA had not accepted the "unreasonable" terms of their restructuring offered by Argentina on May 31 and September 16 of 2002.397
(A) Save for the Claimant's claim relating to the LETEs, all substantive claims made by the Claimant are dismissed;
(B) As regards the claim relating to the LETEs, the Respondent is liable to pay compensation to the Claimant in the principal sum of U.S. $2,800,000 (United States dollars two million eight hundred thousand) and compound interest thereon at the rates for U.S.$ 6 month Libor (as published in the Financial Times) plus 2 per cent compounded annually from January 1, 2005 until payment, subject to the Claimant first procuring the surrender of all LETEs held by its subsidiary, not previously tendered to and accepted by Argentina;
(C) The Parties shall bear all their own legal costs and expenses, without recourse to each other; and
(D) The Parties shall bear equally the costs and expenses of the Tribunal and ICSID.
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GATS General Agreement on Trade in Service
GATT 1947 General Agreement on Tariffs and Trade
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ILA International Law Association
ILC International Law Commission
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The World Bank International Bank for Reconstruction and Development
WTO World Trade Organization
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