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Doing Business in Latin America By Prof. Attila Andrade Jr. University of Miami Law School – Spring, 2008

Doing Business in Latin America By Prof. Attila Andrade Jr. University of Miami Law School – Spring, 2008. Brief biographical data on Prof. Attila Andrade Jr. Prof. Andrade holds two graduate degrees from the Yale Law School :

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Doing Business in Latin America By Prof. Attila Andrade Jr. University of Miami Law School – Spring, 2008

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  1. Doing Business in Latin America By Prof. Attila Andrade Jr. University of Miami Law School – Spring, 2008

  2. Brief biographical data on Prof. Attila Andrade Jr. Prof. Andrade holds two graduate degrees from the Yale Law School : LLM ( Master of Laws) 1972 and JSD ( Juristic Science Doctor) 1977 He has 16 published books in Brazil and abroad. He is a senior partner at Advocacia Attila de Souza Leão Andrade Jr. , an international law firm based in São Paulo and a law professor at Business School São Paulo.

  3. 1st Week : Expropriation in light of international law. Case discussion. ( Reading Material:Exhibit 1) • Mexican-US relationships in the light of international law: the case of Mexican Expropriation of Agrarian and Oil Properties • What are the controversies all about ? • What is the strength of Secretary Hull in defense of the US interests in Mexico ? • What is the Mexican ambassador’s arguments in reply ? • Do you agree with his contention that not paying immediate compensation for the take-over as long as it is a policy for all would be consistent with international law? • What is the Calvo doctrine in international law ? And how would you counter-argue it ?

  4. Cont. of the Mexican case 5- Do you agree that as Secretary Hull’s contention that principles of international law subscribe to the conclusion that any expropriation must be followed by “adequate, effective and prompt payment for the properties seized”? 5.1- If so, where precisely these principles are written ? Or are they part of general principles of law as natural law ? 6- Do you agree with Prof.Vernon’s conclusion that “concepts of the right of citizens to property or the duty of governments to compensate should be thought of as peculiar to different national traditions rather than as part of an international standard “? 7- Do you agree that foreign investors in any country must necessarily foresee and assume the risks of an eventual unfair take-over ? Please justify your answer.

  5. The new international economic order : The 1962 Resolution of the General UM Assembly over natural resources “4- Nationalization , expropriation or requisitioning shall be based on grounds or reasons of public utility, security or the national interest which are recognized as overriding purely individual or private interests, both domestic and foreign. In such cases the owner shall be paid appropriate compensation, in accordance with the rules in force in the State taking such measures in the exercise of its sovereignty and in accordance with international law. In any case, where the question of compensation gives rise to a controversy, the national jurisdiction of the State taking such measures shall be exhausted. However, upon agreement by sovereign States and other parties concerned, settlement of the dispute should be made through arbitration or international adjudication.”

  6. Cont. on the new international economic order • Questions: • Do you see any ambiguity in the text of the Resolution adopted by the 1962 General Assembly of the UN ? • On the basis of that Resolution, can a US company file a law suit in an international court of law, against a foreign government alleging no compensation or unfair compensation for an expropriation of its assets ? In this case which international court would have venue to hear the case? • Following the same reasoning, could the US Company file the law suit in an international court of justice, alleging that despite the compensation, the expropriation was overtly discriminatory ?

  7. The 1974 Declaration on the Establishment of a New International Economic Order. • “... (e) Full permanent sovereignty of every State over its natural resources and all economic activities. In order to safeguard these resources, each State is entitled to exercise effective control over them and their exploitation with means suitable to its own situation, including the right to nationalization or transfer of ownership to its nationals, this right being an expression of the full permanent sovereignty of the State. No State may be subjected to economic, political or any other type of coercion to prevent the free and full exercise of this inalienable right “ • Questions: • How do you compare this Declaration with the 1962 Declaration? 2) do you read the text above as revoking the right to fair compensation for a nationalization ?

  8. Charter of Economic Rights and Duties of States as of Dec. 12 1974 by the UN “......Each state has the right : © to nationalize, expropriate or transfer ownership of foreign property, in which case appropriate compensation should be paid by the State adopting such measures, taking into account its relevant laws and regulations and all circumstances that the State considers pertinent. In any case where the question of compensation gives rise to a controversy, it shall be settled under the domestic law of the nationalizing State and by its tribunals, unless it is freely and mutually agreed by all States concerned that other peaceful means be sought on the basis of the sovereign equality of States and in accordance with the principle of free choice of means.”

  9. Questions : 1) Do you feel that foreign investors are lesser protected after the text as quoted in the previous slide ? 2) You are a legal adviser for a US company. In view of what the Charter provides for as previous slide , what would you recommend as a means of protection for your client? 3) Do you agree that leaving the matter to national courts of the investment host countries would be better as it would not privilege foreigners in relation to their own national citizens ? 4) Do you believe that developing nations on the basis of that text, might start proceeding with a full fledge nationalization of foreign interests in their countries ?

  10. Other interesting questions about expropriation and injury to US companies’assets and interests by foreign sovereign states 5) A US company waives legal protection in the agreement for the investments it made in a Latin American country. Such a country later expropriated the assets of the US company. Would this US Company be at a complete loss ? Does it have any remedy ? Please consult # 713 of the Restatement on Protection of Persons. 6) In order to resort to arbitral international courts of law or diplomacy of its own national state, do corporations or individuals have to resort to local courts of law in the expropriatory foreign country ? For the answer, kindly consult with #713 of the Restatement on Remedies for injury to nationals or other States.

  11. 7) Can a national of a third party country sue a foreign sovereignty in a US court of law ? We interpret the Hickenlooper Amendments aimed at protecting only US persons assets and interests being expropriated abroad. However, if a third party country person and that foreign expropriating country provide in their agreement, the venue of a US court, then the latter will have jurisdiction. Also the Foreign Sovereign Immunities Act permitted the same in Verlinden B.V. vs. Central Bank of Nigeria ( 461 US 480, 103 S.Ct. 1962, 76 L. Ed. 2d 81 – 1983).

  12. Cont. on Expropriations • Unusual forms of Expropriations • “Creeping expropriation” • It happens when the host State creates a situation under which the holding and operation of a business in that country becomes excessively onerous. Generally, it is done by means of an excessive tax system ( see retroactively the Bolivian case which deleterious affected the investments of Petrobras in that country). By raising taxes on the business, the foreign company will be forced to sell out its assets for an insignificant value. • b) What discriminatory expropriation means in international law ? • The leading case on this is Banco Nacional de Cuba vs Sabbatino ( 376 US 398 1964) please reading material for class discussion

  13. 3) Repudiating or breach of state contract with foreign nationals. Under this concept, “it is a violation of international law if, in repudiating or breaching the contract, the state is acting essentially from governmental motives ( akin to those that operate in cases of expropriation) rather than for commercial reasons, and fails to pay compensation or to accept an agreed dispute settlement procedure.

  14. Final remarks and questions on expropriation • ( support reading material on this : “Protection of Persons “by Ali on the Restatement of US laws on Foreign Relations”) • What is the Hickenlooper Amendment and what does it provide for ? • Can a US company file a law suit against a Latin American country in US in a federal court alleging unfair nationalization and seeking freezing of its assets in US as a means of compensation ? ( see Sabatino case; what is predominant US Supreme Court ruling on the matter ?) • 3) Under the Restatement, what does it constitute a breach of international law whenever a foreign state violates the interests of a US investor abroad ?

  15. Congress has enacted 22 U.S.C.# 2370 also known as the Second Hickenlooper Amendment. This legislation states that US Courts should not apply the Act of State doctrine in cases of expropriation of assets by a foreign government except if the Executive tells them to do so for diplomatic or political reasons. Both the first and the second Hickenlooper Amendments sponsored by Iowa Senator, Bourke Hickenlooper were the Congressional responses to the radicalization of the Act of State doctrine in the US Supreme Court ruling in Banco Nacional de Cuba vs Sabatino. Finally this Amendment entitles the Executive to examine case by case to determine which cases the Judiciary is to hear .However comentators suggest that courts have narrowly interpreted the Second Hickenlooper Amendment to apply it only when the assets are located in the US.

  16. Conclusion on Hickenlooper Amendments , Courts and Act of State Doctrine Therefore many US courts insist in applying the Act of State Doctrine in some cases of expropriation.Then it seems that the only effective deterrence to it is actually the First Hickenlooper Amendment

  17. Powers and Responsibilities of the International Court of Justice The International Court of Justice ( ICJ) has no jurisdiction to hear cases of expropriation of assets of private individuals or companies by foreign sovereign governments. Its jurisdiction is limited to legal disputes between and among nation states.

  18. Conclusion on remedies available for private individuals and companies against foreign expropriation of their assets: • It seems that the international law is quite dubious and timid in protecting private parties against expropriations specially in light of the 1974 UN Declaration on the Establishment of a New International Economic Order; • 2) Likewise the strict jurisdictional power of the International Court of Justice and the resilient application of the Act of State Doctrine by US Courts seriously jeopardize the situation of private US investors in Latin America and elsewhere. • 3) Therefore, lawyers are highly recommended to resort to international arbitral expedients in their agreements with foreign governments or seek US insurance protection.

  19. There are inumerous international arbitral courts to which lawyers can resort to in their agreements, here are the most important: • Court of Arbitration of The International Chamber of Commerce ( ICC) • The International Center for the Settlement of Investment Disputes sponsored by the World Bank • The Arbitral Court of NAFTA ( The North American Free Trade Association) ; • The Arbitral Court of Mercosul ( The South American Common Market) ; and • The Arbitral Court of the European Community ( EC) • Please research them to see their strengths and weaknesses as a form of dispute resolution in the international arena.

  20. We have previously seen how vulnerable the foreign investment can be around the world and LA may not be an exception as potential threats to US investments. Expropriations have periodically taken place throughout the continent . What else, in addition to arbitration clauses in the international agreements, you would recommend your client to obtain ? The US Congress had passed a number of facilities which are designed to protect the US investments abroad. One of these , most relevant is the OPIC , a government-funded and sponsored political risk insurance policy which purports to insure US investments abroad in case of expropriation. The other facility is the MIGA (“Multilateral Investment Guarantee Agency”).

  21. Please read the material on OPIC and MIGA in exhibit1 • And kindly consider the following: • What is the OPIC and the MIGA in greater details ? • What is the OPIC”s and the MIGA’s coverage ? • What are the investor’s requirement to obtain such a coverage ? • What are the countries included in either OPIC or MIGA ? • Does Brazil and US have a bilateral investment guarantee agreement under which the US investors in Brazil would be protected against expropriations ?

  22. Main Similarities and Differences between OPIC and MIGA • Both OPIC and MIGA are insurance mechanisms to protect investors; • Both OPIC and MIGA only cover political risks , not commercial risks; • Both have provisions under which once the insurance is paid for, the corresponding amounts are vested in both OPIC and MIGA as their credits against the expropriation country;

  23. Major differences between OPIC and MIGA • OPIC is na instrumentality of the US federal government and its covenants bear the full faith and credit of the US while MIGA is na instrumentality of the World Bank and its capitalization come from the WB country members; • While OPIC beneficiaries must be US individual or corporate investors abroad, MIGA is more international in scope and it may also cover nationals of the host country ( na expedient supposedly devised to avoid capital flight in developing nations);

  24. Eximbank Export Credit Insurance Program (ECIP) as a tool to prevent expropriation of assets abroad • What is the ECIP ? • How does the ECIP relate to OPIC and MIGA programs and in what ways one may say that the ECIP may also assist US investors abroad against the risks of expropriation of assets by hostile foreign governments ?; • 2.1) ( nature of risk coverage: while OPIC and MIGA only cover political risks , ECIP may cover both political and commercial risks on behalf of US investors abroad).

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