ARGENTINA OPENS DOORS TO U.S. INVESTORS
© 1995 published in International Financial Law Review 48 (March 1995) (Euromoney Publications PLC) by David R. Martin sub nom David R. Martínez
On October 20, 1994, the US-Argentine bilateral investment treaty came into effect, offering U.S. investors brighter prospects in Argentina. The treaty, which has an initial term of 10 years and applies retroactively to pre-existing investments, provides enhanced safeguards to U.S. businesses.
What are the main features of this treaty and how it will encourage U.S. investment? First and foremost, the treaty requires that U.S. investments in Argentina receive the better of national treatment or most-favored nation status. This is the same standard of protection given to U.S. investors in Mexico under the North American Free Trade Agreement.
Exceptions to national and most-favored nation treatment are listed in the Protocol attached to and made a part of the treaty. The exceptions apply to investments in certain border areas, air transportation, shipbuilding, nuclear energy centers, insurance, mining, and fishing.
Investments under the treaty are defined broadly to include every kind of investment owned or controlled directly or indirectly by U.S. enterprises or persons.
Under the treaty, Argentina undertakes not to hinder the management, operation, maintenance, acquisition, expansion or disposal of investments by “arbitrary or discriminatory measures.”
Subject to local immigration regulations, the treaty recognizes the right of U.S. investors to enter Argentine territory to establish, expand and maintain their investments, where substantial capital or resources have been or will be committed.
Another safeguard to U.S. investment provided in the treaty is the freedom to engage top-level managers without regard to nationality. This enables U.S. companies to appoint executives and other personnel from within their own ranks.
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U.S. investors are also exempt from the need to satisfy performance requirements as a condition of establishing, expanding or maintaining their investments. One performance requirement specifically removed was the obligation to purchase local goods and services. In the Protocol, however, Argentina reserves the right to maintain, but not increase, performance requirements in the automotive industry.
The treaty also promises effective means of enforcing rights regarding investments, investment agreements, and investment authorizations in Argentina. This provision should supply a basis for inter-government dialogue on any shortcomings in Argentina’s judicial system and the need for reform.
The specter of expropriation has often haunted U.S. investors venturing abroad. The treaty tackles the issue directly by providing that Argentina may not expropriate investments except for “a public purpose” and in “a non-discriminatory manner.” Also required is prompt, effective and adequate compensation.
In addition, the treaty recognizes a U.S. investor’s right to make investment transfers freely. Transfers include profits, dividends, interest, capital gains, royalty payments, management or technical assistance fees, and proceeds from the sale or liquidation of all or part of an investment. Generally, transfers are to be made in freely usable currency at the prevailing market rate of exchange with respect to spot transactions in the currency to be transferred.
According to criteria of the International Monetary Fund, there are five “freely usable” currencies: the U.S. dollar, the Japanese yen, the German mark, the French franc, and the British pound. The rule of free transfers does not, however, bar Argentina from requiring currency transaction reporting and the withholding of taxes.
In a landmark break with the past, the treaty allows U.S. investors to submit investment disputes with the government to binding arbitration outside the country. Investors are no longer required to exhaust domestic remedies before seeking arbitration. With this change, Argentina now affords U.S. investors free access to arbitration for investment-related disputes.
The treaty is the first of its kind concluded between the U.S. and a Latin American country under the Enterprise of the Americas Initiative, which seeks hemispheric economic integration and development. If the objectives of the Summit of the Americas are reached, the rest of Latin America will afford comparable investment protections by the year 2005.
Attracted by positive economic conditions and other business-friendly reforms, U.S. investment in Argentina grew significantly before the treaty. The added protection offered by the treaty should make Argentina even more attractive
