International arbitration: Latin America and the Caribbean is the most demanded region in the world

The report on international arbitration, Impacts of Investor Arbitration Claims against Latin American and Caribbean States, by Bettina Müller and Luciana Ghiotto, systematizes foreign investor claims against Latin American and Caribbean (LAC) States.

Published by the Transnational Institute (TNI), the report highlights that 86.8% of the claims originate from investors in the United States, Canada and Europe. In addition, more than half of the lawsuits were filed after 2011 and were concentrated in mining, gas and oil.

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The data reveal that international treaties give foreign investors unprecedented rights, including the ability to sue states before international tribunals.

International arbitration: 5 countries account for two thirds of claims

Argentina, Venezuela, Mexico, Peru and Ecuador account for two thirds of the total number of claims against countries in the region.

The number of investor-state claims in the world has increased significantly over the last two decades, from 6 cases in 1996 to 1,190 cases today. Countries in South America, Central America and the Caribbean account for 27.5% of these claims.

More than 50% of the countries in Latin America and the Caribbean have been sued in the international arbitration system. Argentina, Venezuela, Mexico, Peru and Ecuador are the most sued, with a total of 211 claims from 1996 to the present. Colombia registered 19 claims in that period.

The increase in claims peaked in 2003, mainly due to the Argentine crisis of 2001. Since then, Latin America has seen a steady increase in claims, with 180 cases registered between 2011 and 2021.

In investment arbitration, States have emerged as losers in the majority of cases. Of the 206 cases settled so far for Latin America, the investor obtained a favorable verdict in 62% of cases.

States face significant defense and litigation costs, even in cases where they win, and often have to pay the investor’s arbitration costs when the decision is against them.

International investment treaties targeted by international arbitration

This Transnational Institute report sheds light on the negative impacts of investment treaties in Latin America and the Caribbean. It also reports on the growing number of investor-state claims in the region and the regulatory frameworks within which they are being developed.

The claims are based on specific treaties, either Free Trade Agreements (FTAs) with investment protection chapters or Bilateral Investment Treaties (BITs). Most of the claims in Latin America and the Caribbean are based on the violation of these types of treaties (275 cases), followed by the contravention of FTAs (65 cases). In addition, the Trade Promotion Agreement is mentioned, which has given rise to 10 arbitration claims.

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The mining and hydrocarbon sector has experienced a significant increase in lawsuits for challenging environmental preservation policies and community rights.

Of the 327 known lawsuits in Latin America and the Caribbean, 74 are related to mining and oil and gas extraction. This sector has experienced a 105% increase in claims in the last decade (2011-2021), compared to the period 1998-2008.

International arbitration: where disputes are handled

The International Centre for Settlement of Investment Disputes (ICSID), belonging to the World Bank, is the most widely used international arbitration center in claims against countries in the region.

ICSID accounted for 77.6% of all claims, with Argentina being a prime example, as 56 of its 62 claims were settled there. Other arbitration centers include the Permanent Court of Arbitration (PCA) in The Hague (Netherlands) and the London Court of International Arbitration (LCIA).

Investors have the right to choose the arbitral rules that will guide the case. In the case of claims against Latin America and the Caribbean, ICSID rules were used in 72.8% of the claims, while UNCITRAL (United Nations) rules were used in 26.3% of the cases. These alternative rules are generally used when the country is not affiliated to ICSID or has left it, as in the case of Bolivia, Ecuador and Venezuela.

How Colombia fares in terms of international arbitration claims

In the context of these regional trends, it is important to analyze Colombia’s situation in international arbitration. According to the Litigation Report of the National Agency of Legal Defense of the State, as of June 2023, the country has 14 international investment disputes for USD $56 million.

Among the claimants are four Canadian companies linked to mining activities, four U.S. investors and investors from Switzerland, Spain and the United Kingdom.

Telefónica S.A., Eco Oro Minerals, Gran Colombia Gold Corp, Neustar CO, Red Eagle Exploration Ltd. They lead in the amount of claims, with values between USD $100 million and USD $700 million.

According to TNI’s report, most of these companies are large mineral exporters with little or no processing, which take advantage of treaties and lax domestic legislation to extract monumental profits.

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