Wednesday, May 23, 2007

Should São Paulo be considered the Latin American Arbitration Center?

I have read an article (in Portuguese) the other day which stated that São Paulo will be the most important arbitration venue of Latin America.

I think São Paulo may not necessarily become the leading arbitration venue of Latin America, mainly because:

  1. There is no strong arbitration institution in Brazil, and the existing Brazilian institutions have not signed cooperation agreements with the leading international organizations; and
  2. The Brazilian Arbitration Act must be revised, and the specificity of international arbitration must be expressly recognized by Brazilian law.

Parties from abroad very rarely choose São Paulo (or Rio de Janeiro) as seat of their arbitrations. When either seat is selected, it is not because they offer advantages to the participants, but because the contract has a strong connection with either city or any other strong reason. For example, if the party likely to be the defendant is domiciled in São Paulo, and their assets are located in Brazil, it may make sense to set a Brazilian city as the arbitral seat. Although Brazil is a party to the New York Convention, enforcement proceedings are very slow and it usually takes at least one year until the successful party at the arbitration obtains the so-called exequatur at the STJ (and the party still need to enforce the award through the Federal Court system).

São Paulo is never an option as a purely neutral third-country venue. For São Paulo to become a venue of choice for international arbitration, many things need to change.

Friday, May 04, 2007

FDI in Brazil, and Brazilian FDI Abroad

In my earlier posting I talked about arbitration and foreign direct investment ("FDI") in Brazil, but it is important to point out --again--, that foreign investors doing business in Brazil do not benefit from the arbitration framework set by the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States ("ICSID Convention"). Foreign investors in Brazil do not benefit from protection of bilateral investment treaties ("BITs") either, as to date Brazil has not ratified any of the 14 BITs it entered with different countries --worldwide-- during the 1990s.

It is obvious that the existence of a framework for investment-state disputes in Brazil ("Investment Arbitrations"), would not only bring more certainty for foreign investors investing in Brazil, but also make Brazil an even more attractive destination for FDI.

Brazil’s lack of (i) signature of the ICSID Convention and (ii) ratification of BITs, however, not only has an effect on FDI flows to Brazil --as the lack of Investment Arbitrations subject foreign investors to the slowness of Brazilian courts, in case they have a dispute with the Brazilian government-- but also affects the investment of Brazilian multinational corporations ("Brazilian MNCs") abroad, as the investment of Brazilian MNCs will not be protected by investment treaties affording neutral dispute resolution for foreign investors. This is significant, because in 2006 alone, Brazilian MNCs have invested abroad more than the country has received as FDI, to the extent that Brazilian MNCs currently have a total amount of investment abroad of over $106 billion U.S. dollars (from January 2006 to November 2006, Brazilian MNCs have made FDI overseas of approximately $25 billion U.S. dollars [See Múltis brasileiras crescem mais no exterior (O Globo, January 21, 2007, at 31), available at].

Brazilian MNCs should make FDI overseas using --as vehicles for such investments-- subsidiaries incorporated in countries signatories of the ICSID Convention. This is the case of Petrobrás, Brazil’s state-controlled oil company with an "imbroglio" with the Bolivian government over expropriation of Petrobrás assets in that country. Fortunately for Petrobrás, if negotiations with the Bolivians fail, and Petrobrás is obligated to litigate against Bolivia, Petrobrás can initiate Investment Arbitration proceedings against Bolivia, under the ICSID Convention, instead of bringing suit in Bolivian Courts. This, because (a) Petrobrás’ FDI in Bolivia was made through a Dutch subsidiary company of the Petrobrás’ group, and (b) Bolivia and the Netherlands are both signatories to the ICSID Convention.

Thursday, May 03, 2007

Growth of Arbitration in Brazil

As of 1995, when former President Fernando Henrique Cardoso took office, some amendments to Brazil’s 1988 Federal Constitution have been passed into law. Said amendments opened formerly closed sectors of the Brazilian economy, such as oil and gas, mining, energy, and telecommunications, to the extent that Brazil has become a very attractive destination to foreign direct investment ("FDI").

This boom in infrastructure projects in Brazil, especially those related to power generation and oil and gas, have resulted in a growing number of arbitration proceedings being held in Brazil (invariably involving multinational corporations).

In 2006, Brazil maintained its position as one of the world's most favored destinations for FDI worldwide.

It looks like Brazil has never been more attractive to foreign investors. I say this because Brazil has been enjoying increased levels of FDI in 2007.

It looks like that growth of arbitration in Brazil is guaranteed (at least, the growth of high profile arbitration).