http://online.wsj.com/article/0,,BT_CO_20050412_007587,00.html

Dow Jones Newswires     April 12, 2005

Argentina Justice Min Seeks To Declaw World Bk Tribunal

By Michael Casey

Of Dow Jones Newswires

michael.j.casey@dowjones

Buenos Aires -- In threatening to get a local court to void possibly adverse

rulings by a World Bank-sponsored arbitration tribunal, Argentine Justice

Minister Horacio Rosatti insists he is acting as any responsible attorney

general would under the circumstances.

To Rosatti, resorting to local jurisdiction is all about "controlling

constitutionality," a matter of ensuring that the essential principles of a

country's highest law are not laid waste by an unaccountable foreign body.

In an interview at his offices this week, Rosatti dismissed concerns that

foreign investors will take flight if Argentina carries out its threat to

reject arbitration rulings delivered under the auspices of the World

Bank-sponsored International Center for the Settlement of Investment

Disputes, or ICSID. Critics worry that this response - unprecedented in

ICSID history - to more than 30 cases brought by foreign-owned public

utilities since the 2002 Argentine financial crisis will undermine

confidence in an international network of bilateral investment treaties.

These treaties, to which Argentina is one of the most common signatories,

typically defer disputes to arbitration by a three-person panel in an ICSID

tribunal.

"For us, there is a very direct relationship between the seriousness of a

country that defends its rights and its investment flows," Rosatti said.

"Genuine investment will stay in such countries."

Critics contend that Argentina is going back on its word: it agreed to let

the tribunal have the final say in such matters, they contend, when it

signed the so-called BITs, which grant "self-executing" authority to the

arbitration panel in a way that supersedes local courts. But Rosatti says

1994 constitutional reforms determining that commercial international

treaties are subordinate to the constitution impose a duty on him to

challenge any arbitration interpretation of those treaties that contravenes

basic constitutional protections.

Among those protections, he says, is "equality under the law." Argentine law

"gives the same civil and property rights to foreigners as (Argentine)

nationals, but never did anyone think that the foreigner would have more

rights than nationals," Rosatti said.

Foreign companies who saw their dollar-based contracts forcibly converted

into devalued pesos in 2002 have no greater right to compensation than

Argentines who lost money under the same broadly applied "pesification"

policy, he said. And they must resort to the same mechanism to recoup

losses: the renegotiation of their contracts with the other party.

Indeed, Argentina has sought to get companies engaged in long-running

negotiations to end a three-year rate freeze to drop their ICSID cases as a

precursor to talks. The companies have mostly been reluctant to do so, in

part because they feel unprotected by an Argentine court system whose

independence is questioned and which faces big caseload delays.

Rosatti said the companies' arguments that they suffered "discrimination" or

"expropriation" of their assets - both prohibited under the treaties - are

flawed. Pesification was a policy of "public character," an "imperial act,"

he said, that had little to do with the commercial matters addressed in the

treaties.

He specifically attacked the argument that de facto expropriation occurred

because the pesification of the companies' rates destroyed the profitability

of their contracts and thus rendered their principal asset worthless. This,

he said, is based on a "lie": the notion that the valuation of a 30-year

public service concession should be permanently fixed in 2002, clearly its

lowest point ever.

"How can a lawyer defend one of those companies that are still operating in

Argentina - such as the telecoms - when they still have their assets, they

are still functioning, they are still making profits year after year? Where

is the expropriation in that?" Rosatti asked.

The expropriation argument, which hinges on the fact that the companies

can't repay their foreign debt, also ignores the "irresponsible" manner in

which the debt was accumulated before the crisis, he said. "Do Argentine

users of public services have to suffer the consequences of a policy of

indebtedness?" Rosatti asked.

But if these arguments are so compelling, why not trust an ICSID tribunal's

capacity to weigh them? Because, Rosatti said, the tribunals - which treat

each case separately with a different panel of arbitrators each time - do

not offer a comprehensive system of justice that's fair to all affected

parties, including Argentine taxpayers.

Under the ICSID model, "you can have plaintiff A obtaining judgment 1 and

plaintiff B obtaining judgment 0," Rosatti said. "There is no shared vision,

there is no unification of jurisprudence, no case law, no appeals to an

appellate court. It doesn't function as a system."

"No corporate lawyer believes that the solution to the problem of the rates

for public services and investment (incentives) will come from 31

arbitration rulings issued by 31 trios of different arbiters"

Rosatti said that for now, Argentina has no plans to challenge separate

arbitration rulings delivered under the United Nations Commission on

International Trade Law, or UNCITRAL, where British investors have filed for

breach of Argentina's treaty with the U.K. That's because UNCITRAL

incorporates a right to appeal, he said.

He insisted that Argentina wasn't invalidating the treaties but rather is

challenging the method for arbitrating disputes under them. He said the

"avalanche" of Argentine cases "reveals the insufficiency of this mechanism"

for resolving investment disputes.

He cited the example of CMS Energy Corp., whose right to file for breach of

the U.S.-Argentina bilateral treaty was upheld by ICSID even though the

company was only a minority shareholder in the gas project in question, a

status that would have denied it "investor" status under both U.S. and

Argentine law.

It shows that "these three people are above the will of both governments,"

Rosatti said. "The treaties aren't bad. It's the interpretation of the

treaties that is bad."