The Calvo clause was first articulated by Argentinean jurist Carlos Calvo in 1863 and mainly incorporated in Latin American Investor-State concession contracts, Laws and Constitutions in the late 19th and early 20th century.1 It is a dispute resolution clause providing that investors shall seek redress to claims arising out of or in connection with such contracts by exclusively relying upon the available local remedies, and waiving the right to invoke diplomatic protection of their States of nationality.2
CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No. ARB/01/8, Decision of the Tribunal on Objections to Jurisdiction, 17 July 2003, paras. 81-82; Peruvian Congress, Organic Law Nº 26221 regulating the hydrocarbon activities in the national territory, Article 85; Mexican Constitution of 1917, Article 27; Political Constitution of the State of Bolivia of 2009, Articles 320; Garcia-Mora, M.R., The Calvo Clause in Latin American Constitutions and International Law, Marquette Law Review, 1950, p. 205.
II. Distinction with other related clauses
The Calvo clause seeks the same effect as the traditional National Treatment clauses, that of granting foreign nationals the same rights that the nationals of the host State have. The Calvo clause, however, precludes application of other rights that may be available to the foreign nationals. As a result, foreign nationals may not seek diplomatic protection or redress through means other than domestic courts and tribunals of the host State. However, it does not prevent aliens to seek remedies available under international law.3
The validity of the Calvo Clause remains controversial: while some tribunals have held that, being an expression of the will of the parties as included in the contract, it should be given full effect. Other tribunals deny its validity by reasoning that, since the holder of the right of exercising diplomatic protection is not the investor but its State of nationality, the investor is not the subject who is entitled to renounce to diplomatic protection.4 In contrast with the case of the requirement to exhaust local remedies, that the State can choose to waive, if the injury caused to its national is of such entity that meets the requirements of Article 19 of the ILC Articles on Diplomatic Protection, the State should exercise diplomatic protection.5 Moreover, since the exhaustion of local remedies is a precondition for invocation of diplomatic protection under international law, the effectiveness of the Calvo clause could be deemed obsolete.6
Which claims may be subject to waiver of the resort to diplomatic protection by the investor: Contract claims not covered by the BIT can be subject to the investor’s valid agreement to solely submit them to local remedies, while contract claims falling within the BIT’s scope and purely international law claims are carved out of this power of disposition and may be submitted to local authorities only as a prerequisite of the investor’s State of nationality to exercise diplomatic protection or as a prerequisite of consent to ICSID arbitration. Further, the Washington Convention permits the direct resort to ICSID arbitration provided that both the investor’s State of nationality and the host State are parties to the Convention and that the parties to the dispute have both consented in writing, to the exclusion of any other remedies, thus rendering the applicability of the Calvo Clause obsolete (Article 25(1)). However, it does not preclude the possibility for host States to demand the exhaustion of their local remedies as a precondition for the State consent to ICSID arbitration (Article 26).
AES Corp. v. Argentine Republic, ICSID Case No. ARB/02/17, Decision on Jurisdiction, 26 April 2005, paras. 97-98; Azurix Corp. v. The Argentine Republic (I), ICSID Case No. ARB/01/12, Decision on Jurisdiction, 8 December 2003, paras. 83-84; North American Dredging Company of Texas (U.S.A.) v. United Mexican States, Decision, 31 March 1926, para. 24.