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 http://www.oglobo.com.br/].

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.

15 comments:

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I'd like to say that now in Brazil property investment is much better then business investment. Overseas property investors have come to realize that Brazil is a great place to dip your toe in international real estate investing.

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