INVESTMENT CONTRACTS & GOVERNMENT CONDITIONING

Interview to Dr. Enrique Viana

By Andres Núñez Leites and Diego Estín

Montevideo, 2015

[You can watch the full video in Spanish here]


The investment contracts have different clauses by which the will of the three branches of the State are conditioned. The two examples to understand what the investment contracts are are the Montes del Plata investment contract and the Mega-mining Law itself, because it already anticipates what those clauses will be, what clauses are going to have those contracts. For example, they have what are called "stability clauses", on the one hand, the "freezing clauses of the Law" that affect the Legislative Branch, they have the "scope clauses" that are what allow securing the obtaining of certain permits, that they affect the Executive Power, and they have the "clauses of extension of jurisdiction" that are those that affect the Judicial Power.


To explain it: the clauses that affect the Executive Power are those for which the Executive Branch already commits itself in an investment contract to grant a series of authorizations and permits, ranging from tax exemptions - many are in free tax zones -, the obligation to supply infrastructure-call bridges, call roads, ports, dredging of ports, that is very noticeable in the contract with Montes del Plata, which authorize certain activities. For example, in the case of Montes del Plata, it authorized afforestation within a radius of 200km taking as a central point the installation of the industrial plant, with a change in the categorization of soils that allowed afforestation that otherwise would not have been possible. What is done in the contract ?: In advance it is said that it will be granted, without having even followed the respective procedures, before the respective ministries, the administrative procedures to then recruit the technical opinions and then decide. No: already in the contract it is anticipated that this will be done, which mocks any of the procedures for an authorization of those characteristics. For example, the Uruguayan State committed to dredging the access channel to the port of Conchillas, among many other things. That is conditioning the Executive Power: the Executive Power is conditioned by a contract to grant those authorizations that have to follow their legal processes but in the facts they will be mere staging and nothing else.


The most complex and most serious conditioning is that of the Legislative Power. They establish what are called clauses of "stability", of "legal security", of "freezing of the right", clauses of "armoring" are also called, which consist, roughly, of the following: it is established that once signed the contract, any subsequent modification that the State wants to make, even if it is a law, especially if it is a law, that modification, is a modification of tax nature, authorization, permits, environmental protection, be a new legislation in the field of public health, be a new legislation, for example a labor law that reduces working hours, any new legislation that the company understands that affects its financial equation, the company has a right of redress, compensation for what will lose, the lost profit, what will lose to win under that legislative amendment, which is not a mechanism that prevents the legislator from legislating, but every time that the legislator will legislate will be careful not to affect the interests of the company. We have seen it with some of the cases of land tax, the Primary tax: every time a new tax had to be applied, it went to consult the company and in some cases exceptions have been established. Because there can happen three things: or it is said "the new law does not apply to the company", or "if it is applied is set compensation", or the third option is "I will apply the law and I'm not going to establish any kind of exception or anything and I will not compensate ", then the company has - and that's where the third power of the State is affected - the possibility of going to claim for compensation to an agency of private international arbitration.


These mechanisms of private international arbitration are those of the clauses of "extension of jurisdiction", which establish that in certain conflicts that arise between the company and the State, it will not be judged by the judges of the State but will be judged by arbitration mechanisms, among others the ICSID is generally provided, there are others, but generally the ICSID is established. That supposes a double thing: supposes that the judge is going to be a private one, it is going to be a private individual, a foreign private arbitrator and supposes the following thing: that it is going to fail not in function of the national regulation but in function of a series of axioms and of principles that that court elaborates and develops throughout the cases. In other words, it will not take into account national law. It is also a way to avoid native law and national law. It is a little what comes with the TISA, it is a little what has happened with Phillip Morris in a trial that surely Uruguay will lose - a kind of conflict between the right to health and commercial law - and it is very likely that the ICSID, which is a mechanism that depends on the World Bank, which is a bank that generally finances this type of investment, makes Uruguay lose that conflict, as Argentina has lost a number of conflicts with contracts and treaties of that characteristic .


That is the conditioning of the will of the three powers of the State. The worst: it is the Executive Power that conditions its own will, not being able to do it without breaking the due process, but it also conditions the will of the Legislative Power - and that is much more serious. Because it is the Executive Power that in name and without authorization of the Legislative Power, that conditions the will of the Legislative Power. That is one of the things for which contracts are secret, for which they have a reservation: because it is a way of avoiding any intervention, in theory, of the legislator.


We understand that we are witnessing a figure that has even been recognized by the United States itself. In the United States has been identified that figure of the "State hired" by the immense power that has, for example, the oil industry, especially in recent times in relation to fracking and just talk about that image: a State that is hired. At first the concept may sound shocking, but when one observes the figure, precisely, of the investment contract and the investment contract assumes that the State is committed in favor of the interest of a foreign private company, that is clearly seen. These contracts are also made secretly and one always has, with the subject of reservation, secrecy or confidentiality ... sometimes one is baffled, but really the secret, the reservation, is not because companies have some kind of element that they try to hide to the competition, but that through the secret, the reserve, what is wanted to keep hidden is the violation of the national sovereignty, the violation of the republic. That is what is kept secret. Then, it is more the interest of the State for the secret that the one of the private company. And the other question that the issue of confidentiality poses to me is confidentiality for whom. Obviously here we face a bit of a concept that has been reiterated and that bothers me enough that it is the existence of a ruling class and a class of the governed. It seems that the ruling class can know certain things that the governed have no right to know. Someone would say: "Well no, the governed can be rulers and the rulers can be to be governed" and in that alternation we would be before a republic and a democracy, but the truth is that many times you have the suspicion that these contracts are known in detail by the ruling class - I include government and political opposition there - but it is kept in absolute secrecy with respect to citizenship, which is what they are harming.