Politics and foreign direct investment: The multilateral investment guarantee agency and the calvo clause

Cornell International Law Journal

Volumn 29, Issue 1, 1996, Pages 161-188

  Dalrymple, Christopher K ^a,b  

^a MIT Sloan School of Management   (United States)

^b Center for Language and Brain   (United States)

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EID: 77952468886     PISSN: 00108812     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (319)

1. This Note will concentrate on foreign direct investment, the type of international equity investment by an alien in a foreign country that is most implicated by the Calvo Doctrine. There are other means of investing, however. These other types of investment include: various bilateral aid programs and project loans, the loans of international development lending institutions, i.e., the World Bank and the Inter-American Development Bank, loans from banking consortia, direct loans from foreign banks, etc.
2. See generally CHARLES OMAN, NEW FORMS OF INTERNATIONAL INVESTMENT IN DEVELOPING COUNTRIES (1984). However, after the recent peso crisis in Mexico, these types of investing may be scaled back, making foreign direct investment (FDI) even more critical to the development of Latin America.
3. David L. Aaron, After GATT, U.S. Pushes Direct Investment, WALL ST. J., Feb. 2, 1995, at A18.
4. One claimed advantage of FDI is that it is not a debt instrument requiring regular debt-service payments (payments which can affect a developing country's balance of payments). Only when a foreign investor's business earns a profit will any payments by a developing country be involved.
5. Ibrahim F.I. Shihata, Factors Influencing the Flow of Foreign Investment and The Relevance of the Multilateral Investment Guarantee Scheme, 21 INT'L LAW. 671, 675 (1987). Thus, part of the risk of the investment is transferred from the developing country and onto the foreign investor.
6. Id.
7. Indirect advantages of FDI include: [that] direct investment does not simply provide funds, but an integrated package of financial resources, managerial skills, technical knowledge, and marketing connections⋯. Other indirect but important attributes of this form of capital relate to benefits that ensue from the introduction of efficient and internationally competitive enterprises into the local economy.
8. Id.
9. Finally, FDI is "also substantially involved with import substituting and export industries, so the foreign trade performance of enterprises based on direct investment can have a significant effect on [a developing country's] balance of payments."
10. Klaus P. Berger, The New Multilateral Investment Guarantee Agency Globalizing the Investment Insurance Approach Towards Development, 15 SYR. J. INT'L L. & COM. 13, 19 (1988).
11. Because of these advantages, many Latin American countries with large debt obligations turned their focus from commercial loans back to FDI. The Latin American debt crisis in particular was responsible for a drastic reduction in net voluntary commercial bank lending to less-developed countries.
12. STTJN CLAESSENS, ALTERNATIVE FORMS OF EXTERNAL FINANCE 1 (World Bank Working Paper No. 812, 1991).
13. Further, when global FDI flows began increasing in the late 1980s, the percentage of foreign direct investment flowing to developing countries, including Latin American ones, fell. Recent Trends in FDI for the Developing World, FIN. & DEV., Mar. 1992. at 50.
14. See generally THEODOR MERON, INVESTMENT INSURANCE IN INTERNATIONAL LAW 30-37 (1976).
15. See also J. Voss, The Protection and Promotion of Private Investment in Developing Countries-An Approach Towards a Concept for a European Policy on Foreign Investment, 18 COMMON MKT. L. REV. 363 (1981). Efforts to establish some type of multilateral investment guarantee agency began in the 1950s.
16. Ibrahim F.I. Shihata, The Multilateral Investment Guarantee Agency, 20 INT'L LAW. 485, 485 (1986).
17. Organizations such as the World Bank, the Organization for Economic Cooperation and Development, the Inter-American Development Bank, the United Nations Conference on Trade and Development, and the European Community participated in these efforts and discussions.
18. Id.
19. At the time, none of the efforts or discussions led to the creation of such a multilateral investment guarantee agency.
20. Id.
21. Convention Establishing the Multilateral Investment Guarantee Agency, opened for signature Oct. 11, 1985, 24 I.L.M. 1598 (entered into force April 12, 1988) [hereinafter MIGA Convention]. The World Bank was established at the Bretton Woods Conference in 1944 to help fund reconstruction in Europe after World War II. Today, the Bank's primary function is to finance investments for development in its member nations. This function specifically includes the promotion of development in Third World and other less-developed countries. ARTICLES OF AGREEMENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT art. I. (1945).
22. Ibrahim F.I. Shihata, Towards a Greater Depoliticization of Investment Disputes: The Roles of ICSID and MIGA, 1 ICSID REV. FOREIGN INV. L.J. 1, 13 (1986).
23. Id. at 19.
24. "Latin American," as used herein, refers only to those nations with an Iberian background, namely, Mexico, the five Central American Republics, Panama, the Dominican Republic, Cuba, and the ten South American States. When this Note intends to limit die discussion to a certain subset of the above listed countries, it will clearly signify this limitation to the reader.
25. FOREIGN PRIVATE INVESTMENT IN DEVELOPING COUNTRIES 3, 3-4 (Int'l Monetary Fund, Occasional Paper No. 33, 1985).
26. For a general discussion of the macroeconomic factors affecting the flow of foreign direct investment, see Shihata, supra note 1, at 671.
27. See also Malcolm D. Rowat, Multilateral Approaches to Improving the Investment Climate of Developing Countries: The Cases of ICSID and MIGA, 33 HARV. INT'L L.J. 103, 103-104 (1992) for a discussion on how the investment climate of the 1980s affected Latin American countries in particular.
28. Shihata, supra note 1, at 672-673
29. James C. Baker & Lois J. Yoder, ICSID and the Calvo Clause a Hindrance to Foreign Direct Investment in LDC's, 5 OHIO ST. J. ON DISP. RESOL. 75, 89-90 (1989).
30. Id.
31. DANIEL SHEA, THE CALVO CLAUSE 16 (1955).
32. For a brief biography of Carlos Calvo, see Percy Bordwell, Calvo and the "Calvo Doctrine," 18 GREEN BAG 381 (1906).
33. SHEA, supra note 10, at 19.
34. Shihata, supra note 4, at 3.
35. Id. at 24-25.
36. GEORGE PENDLE, A HISTORY OF LATIN AMERICA 110-111 (1963). Spain and Portugal were the main colonial powers in Latin America, and most of their colonies gained independence between 1810 and 1820. These independence movements were successful because both Spain and Portugal were occupied by Napoleon's armies during the Napoleonic Wars and found it impossible to maintain control over their American possessions.
37. Id. at 87, 92.
38. Id. at 161.
39. The small class of wealthy landowners, or caudillos, who effectively ruled these newly independent countries, actively solicited foreign investment. Id. Foreign capital could provide many benefits for an astute caudillo. Those in political power found that "one of the surest supports of their regimes was the favour of foreign investors and commercial enterprises. Foreign money enabled [them] to enrich [their] friends and to win over some ⋯ of [their] enemies."
40. Id.
41. Id. at 164, 167.
42. In many cases, hostility that had been latent while the caudillos were in power became open upon their deaths or when their regimes toppled. After the death of the Venezuelan caudillo, Juan Vincente Gomez, "[a] mob went through the streets of Caracas sacking the houses of his ⋯ collaborators⋯. [T]he wives and children of the foreign oil men were rushed to safety because rioters threatened to set fire to the wells."
43. Id. at 167.
44. Id. at 162.
45. For an overview of Latin American history at this particular time, see DESMOND PLATT, FINANCE, TRADE AND POLITICS IN BRITISH FOREIGN POLICY (1968).
46. SHEA, supra note 10, at 12-13.
47. Id. at 10.
48. Id.
49. See also EMER VATTEL, THE LAW OF NATIONS (1916).
50. One of the influential commentators at the time, Vattel believed that a state which injured an alien also injured the alien's state.
51. Id. at 161-62.
52. Unlike Calvo, Vattel viewed the state primarily in terms of personal sovereignty rather than in terms of territorial jurisdiction. Id.
53. Id. at 12.
54. Diplomatic intervention had its origin in the following context: Nationals often felt entitled to complete security of their persons and property, and appealed to their governments on rather flimsy evidence and without any real effort to obtain local redress. The petitioned government, acting on limited, one-sided evidence, and often under domestic political pressure, sponsored claims that frequently were not based upon strict justice. Utilization of armed forces to compel the weaker nations to honor these dubious claims was not infrequent, and it sometimes happened that the severity of the measures adopted in seeking compensation for the alleged injuries was far out of proportion to the extent of the initial damages suffered.
55. Id.
56. Id. at 14.
57. Id.
58. Id.
59. SHEA, supra note 10, at 17-19. The Doctrine was not articulated by Calvo in any one specific work. Rather, it was arrived at through an amalgamation of his writings and correspondence.
60. Id. at 17.
61. Id.
62. See generally FRANK DAWSON & IVAN HEAD, INTERNATIONAL LAW, NATIONAL TRIBUNALS AND THE RIGHTS OF ALIENS (1971).
63. Dawson and Head argue that this assumption of the independence and equality of states is critical to the Calvo conception of diplomacy.
64. Id. at 26.
65. Edwin Borchard, The "Minimum Standards" of the Treatment of Aliens, 38 MICH. L. REV. 445, 447, 450 (1940). This equality of treatment standard is still favored today by most Latin American countries.
66. See Ewell E. Murphy, The Andean Decisions on Foreign Investment: An International Matrix of National Law, 24 INT'L LAW. 643, 649 (1990). The responses of many industrialized countries has made it clear that they expect national treatment to remain within the boundaries of an international minimum standard.
67. Borchard, supra, at 451-52.
68. Borchard furthermore asserted that: [t]he doctrine of absolute equality-more theoretical than actual-is ⋯ incompatible with the supremacy of international law. The fact is that no state grants absolute equality or is bound to grant it. It may even discriminate between aliens, [and] nationals of different states ⋯ While states naturally desire a free hand in dealing with all their inhabitants and while it is probably embarrassing to be restrained by treaty or international law in perpetrating excesses, this is one of the conditions of international intercourse.
69. Id. at 452.
70. EDWIN BORCHARD, THE DIPLOMATIC PROTECTION OF CITIZENS ABROAD 793 (1915).
71. CARLOS CALVO, LE DROIT INTERNATIONAL 231 (5th ed. 1870).
72. See also Bordwell, supra note 10, at 377 (agreeing with Calvo that it would be improper for an aggrieved alien to bypass the local legal system and request diplomatic intervention where the laws of the host State did not "conflict with the law of nations.")
73. This Note does not define "denial of justice" because the actions or behavior the phrase encompasses have never been truly specified. Instead, most discussion has centered on the elasticity of the term, itself viewed as a breeding ground for abuse. See infra note 40 and accompanying text.
74. CALVO, supra note 31, at 350-351.
75. Id.
76. Id.
77. Id.
78. One commentator stated that, Practically all the great powers have at different times resorted to a display of force to give moral support to a request for the protection of nationals in foreign countries or for the redress of injuries inflicted upon nationals.... There seems little doubt that the great powers in their ready resort to ultimatums and threats of the use of force to exact the payment of pecuniary claims, particularly in Latin-America, have often abused their rights and have inflicted gross injustice upon weak states.
79. BORCHARD, supra note 30, at 447.
80. SHEA, supra note 10, at 21.
81. Joseph J. Jova, Private Investment in Latin America: Renegotiating the Bargain, 19 TEX. INT'L L.J. 3, 12 (1984).
82. Id. at 12-13.
83. Id. at 13.
84. BORCHARD, supra note 30, at 809.
85. Id. at 795.
86. Id. at 793.
87. North American Dredging Co. of Texas (U.S.A.) v. United Mexican States, 4 Rev. Int'l Arb. Awards 26 (1926).
88. SHEA, supra note 10, at 196.
89. Id. at 195-96.
90. North American Dredging Co., 4 Rev. Int'l Arb. Awards at 26 (1926). The decision did not state that all Calvo clauses were valid in any situation. The Commission declared that alternative international remedies would remain available to a foreigner because to do otherwise would constitute a denial of justice.
91. Id. at 25.
92. In later decisions, however, the Commission did state that to constitute a denial of justice, the interest involved would have to be substantial and the conduct of the state "grave."
93. See, e.g.. El Oro Mining and Railroad Co., 5 Rev. Int'l Arb. Awards 191 (1931).
94. North American Dredging Co., 4 Rev. Int'l Arb. Awards at 26.
95. Id. at 27.
96. The Calvo clause read: The contractor and all persons who, as employees or in any other capacity, may be engaged in the execution of the work under this contract eidrer directly or indirectly, shall be considered as Mexicans in all matters, within the Republic of Mexico, concerning the execution of such work and the fulfillment of this contract. They shall not claim, nor shall they have, with regard to the interests and the business connected with this contract, any other rights or means to enforce the same than those granted by the laws of the Republic to Mexicans, nor shall they enjoy any other rights than those established in favor of Mexicans. They are consequently deprived of any rights as aliens, and under no conditions shall the intervention of foreign diplomatic agents be permitted, in any matter related to this contract.
97. Id. at 26-27.
98. Id. at 26.
99. Id. at 30.
100. Id. at 28.
101. Id. at 29.
102. See e.g., Interoceanic Railway Co. of Mexico, 6 Annual Digest 199 (1931-1932).
103. El Oro Mining and Railroad Co., 5 Rev. Int'l Arb. Awards at 191.
104. Id.
105. Donald Shea argues that Latin-American countries have tried to define "denial of justice" even more narrowly: [These countries] have tried to define the term unilaterally so as to cover only outrageous derelictions by the courts when they refuse access to the judicial remedies, when they refuse to render a decision, or when they flagrantly deny due process of law. This restricted procedural definition of the term, which would virtually exclude interposition, has not won wide acceptance by foreign offices, courts, or the leading publicists of the world.
106. SHEA, supra note 10, at 115.
107. Jova, supra note 37, at 12.
108. See, e.g., Charter of the Organization of American States, Apr. 30, 1948, arts. 12, 15, 16, 2 U.S.T. 2416, 119 U.N.T.S. 48, amended by 21 U.S.T. 658, 721 U.N.T.S. 324. The Charter established the Organization of American States as part of an effort of Latin American nations and the United States to build a more formal structure for their relations with each other.
109. Jova, supra note 37, at 14. Certain Charter provisions addressed die role of a foreign private investor in the region's development and the interests of the developing countries in such investment activities.
110. Id.
111. Jova, supra note 37, at 12.
112. For examples of constitutional provisions, see BOLIVIAN CONSTITUTION, translated in CONSTITUTIONS OF THE COUNTRIES OF THE WORLD, Release 92-94 (Albert P. Blaustein & Gisbert H. Flanz eds., 1992).
113. VENEZUELAN CONSTITUTION, translated in CONSTITUTIONS OF THE COUNTRIES OF THE WORLD (Albert P. Blaustein & Gisbert H. Flanz eds., 1983 & Supp. 1994).
114. Work Accomplished by the Inter-American Juridical Committee During Its Regular Meeting Held from January 12 to February 13, 1976, at 147, OAS Doc. OEA/Ser.Q/IV.12CJ1-27 (May 1976).
115. The Committee stated that: Transnational enterprises and the corporations comprising them are not persons under international law and lack jus standi in international courts. The American states should abstain from adhering to conventions which in any way grant those enterprises or the corporations comprising them direct access to international courts, including arbitration courts, because this would justifiably place transnational enterprises in an advantageous position over national enterprises. The questions posed by transnational enterprises could eventually be heard by international courts through agreements entered into by the states to resolve their disputes. International courts receive their competence by express consent of the states.
116. Id.
117. Charter of Economic Rights and Duties of States, G.A. Res. 3281, 29 U.N. GAOR, 29th Sess., Supp. No.31. at 52, U.N.Doc. A/9631 (1974) [hereinafter CERDS].
118. Article 2(2)(c) of the Charter provides that: [Each State has the right to] nationalize, expropriate or transfer ownership of foreign property, in which case appropriate compensation should be paid by the State adopting such measures, taking into account its relevant laws and regulations and all circumstances that the State considers pertinent. In any case where the question of compensation gives rise to a controversy, it shall be setded under the domestic law of the nationalizing State and by its tribunals, unless it is freely and mutually agreed by all States concerned that other peaceful means be sought on the basis of the sovereign equality of States and in accordance with the principle of free choice of means.
119. Id. art. 2(2)(c).
120. See also discussion infra part IV.B.
121. Agreement on Andean Subregional Integration, opened for signature May 26, 1969, 8 I.L.M. 910 (1969) [hereinafter Cartagena Agreement].
122. Jova, supra note 37, at note 41.
123. Cartagena Agreement, supra note 60, art. 25.
124. Id. art. 26.
125. Id. art. 27.
126. Id. art. 5.
127. Id. arts. 13, 14.
128. Id. art. 6.
129. Id. art. 7(a).
130. Id. art. 27.
131. Decision 24 of Dec. 31, 1970, Commission of the Cartagena Agreement, revised by Decisions 37, 37-A, 70, 103 & 109, 16 I.L.M. 138 (1977) [hereinafter Decision 24].
132. In many cases this state of affairs can be traced to the debt crises many Latin American countries experienced. Most, if not all, of these countries' troubled loans came from more developed North American and European countries.
133. See generally Ewell E. Murphy, Jr., Decision 24, Mexicanization, and the New International Economic Order: The Anatomy of Disincentive, TEX. INT'L L.J. 289 (1978).
134. For a detailed discussion of the restrictions that Latin American countries placed on foreign investment and trade, see Mark Baker & Mark Holmes, An Analysis of Latin American Foreign Investment Law: Proposals for Striking a Balance Between Foreign Investment and Political Stability, 23 U. MIAMI INTER-AM. L. REV. 1, 2-14 (1991).
135. Decision 24, supra note 70, art. 30.
136. Specifically, Article 30 states that: Foreign enterprises that may be established in the territory of any Member Country ⋯ shall agree, in representation of their shareholders, to place on sale for purchase by national investors, gradually and progressively ⋯ the percentage of their shares, participation or rights necessary for the transformation of , such enterprises into mixed enterprises, within a period which may not exceed 15 years in Colombia, Chile, and Peru, and 20 years in Bolivia and Ecuador.
137. Id.
138. Id. art. 37.
139. Id. art. 17.
140. Id. art 3.
141. Id. art. 51.
142. Id. art. 50.
143. Id. art. 51.
144. Decision 220 of May 11, 1987, Commission of the Cartagena Agreement, 27 I.L.M. 974 (1988) [hereinafter Decision 220] (replacing Decision 24).
145. Id. art. 33.
146. Id. art. 34.
147. Cartagena Agreement, supra note 60, art. 27.
148. See infra part IV.C.
149. Decision 291 of Mar. 21, 1991, Commission of the Cartagena Agreement, 30 I.L.M. 1283 (1991) [hereinafter Decision 291] (replacing Decision 220).
150. Id. art. 2.
151. Id.
152. Id. art. 10.
153. Id. arts. 2, 10.
154. THEODOR MERON, INVESTMENT INSURANCE IN INTERNATIONAL LAW 31 (1976).
155. Address of World Bank President A.W. Clausen, 1981 Joint Annual Meetings of the World Bank and International Monetary Fund Summary Proceedings (1982).
156. See, e.g., Report of the Study Group for the Development of Africa, Eur. Consult. Ass'n, at 22, 20th Sess., Doc. No.701 (1957).
157. Report on an Investment Statute and a Guarantee Fund Against Political Risk, Eur. Consult. Ass'n, at 22, 20th Sess., Doc. No.1027 (1959).
158. INTERNATIONAL CHAMBER OF COMMERCE, STATEMENTS AND RESOLUTIONS 1963-1965, at 11 (1965).
159. For a general discussion of international investment guarantee proposals, see William Conant Brewer, Jr., The Proposal for Investment Guarantees by an International Agency, 58 AM. J. INT'L L. 62 (1964).
160. Articles of Agreement of the International Finance Corporation, opened for signature May 25, 1955, arts. 1,11(2), 7 U.S.T. 2197, 264 U.N.T.S. 117.
161. Convention on the Settlement of Investment Disputes between States and Nationals of Other States, opened for signature Mar. 18, 1965, 17 U.S.T. 1270, LIAS. No.159 [hereinafter ICSID Convention].
162. ICSID had its roots in a study initiated by the World Bank in 1962. Responding to what it felt were drawbacks in foreign investment dispute settlement mechanisms of the time as well as in the hopes of encouraging foreign investment in less developed countries, the World Bank study examined the feasibility of establishing an institution to facilitate the settlement of international disputes through arbitration.
163. See Report of the Executive Directors on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 41.L.M. 524, ¶ 12 (1965).
164. The ICSID Convention was submitted for ratification in March 1965 and entered into force on October 14,1966 after ratification by twenty countries. ICSID Convention, supra, art. 68(2). At this time, every Latin American nation voted against ratifying the ICSID Convention. Id.
165. OPIC was authorized by the Foreign Assistance Act of 1969. Foreign Assistance Act of 1969, 22 U.S.C. §§ 2191-2200a (1994). OPIC, a U.S. government corporation, is run by a board of directors hailing both from the government and private sector.
166. While some countries had ratified the MIGA Convention two years earlier, the Convention had to pass certain hurdles before it could be enacted. Specifically, the MIGA Convention required ratification by at least five "Category One" countries (developed countries) and at least fifteen "Category Two" countries. MIGA Convention, supra note 3, art. 61(b).
167. MIGA Convention, supra note 3, pmbl.
168. Id. art. 2(a), (b).
169. Id. art. 39(a), (b).
170. The rationale for this is that "[t]he voting structure of the Agency reflects the view that Category One and Category Two countries have an equal stake in foreign investment, that cooperation between them is essential, and that both groups of countries should, when all eligible countries become members, have equal voting power (50/50)."
171. Commentary on the Convention Establishing the Multilateral Investment Guarantee Agency, 1 ICS1D REV. FOR INV. LJ. 195, ¶ 63 (1986) [hereinafter Commentary].
172. MIGA Convention, supra note 3, sched. A.
173. Id. art. 39(b).
174. Id. art. 39(c).
175. Rowat, supra note 6, at 128.
176. "MIGA's voting structure clearly reflects the attempt to avoid a majority vote for capital exporting countries."
177. Berger, supra note 1, at 24.
178. "The Convention basically follows die Bretton Woods model of weighted voting, offering each member country 177 membership votes and one additional vote per share subscribed." Id. To further the goal of parity between countries, "during the critical period of the first three years, each group is assured a minimum of 40 percent of total voting power by allocation of supplementary voting shares as necessary."
179. Id. at 25.
180. This provision does cover "measures attributable to the host government such as nationalization, confiscation, sequestration, seizure, attachment and freezing of assets."
181. Commentary, supra note 98, ¶ 14.
182. This provision does not cover "[m]easures normally taken by governments to regulate their economic activities such as taxation, environmental and labor legislation as well as normal measures for die maintenance of public safety" as long as these measures do not discriminate against the guarantee holder.
183. Id.
184. MIGA Convention, supra note 3, art. 11(a)(iii).
185. Coverage under diis provision is predicated on die exhaustion of local remedies in a timely fashion or die lack of enforceability of such a remedy. Id.
186. Id. art. 11(a)(i), (ii), (iii), (iv).
187. Id. art. 11(b).
188. Commentary, supra note 98, ¶ 19.
189. Id.
190. According to Mr. Shihata, this language would include investments such as "various forms of industrial cooperation such as management and service contracts, licensing and franchising agreements, turnkey contracts as well as arrangements concerning the transfer of technology and know-how where the investor assumes a stake in die performance of the venture."
191. Shihata, supra note 4, at 15.
192. MIGA Convention, supra note 3, art. 12(b).
193. Id. art 12(d)(i)-(iv).
194. Specifically, the article provides that before guaranteeing an investment, MIGA shall satisfy itself as to: (i) the economic soundness of the investment and its contribution to the development of the host country; (ii) compliance of the investment with the host country's laws and regulations; (iii) consistency of the investment with the declared development objectives and priorities of the host country; and (iv) the investment conditions in the host country, including the availability of fair and equitable treatment and legal protection for the investment.
195. Id.
196. Id. art 13(a)(ii), (iii).
197. Id. art. 13(c).
198. Commentary, supra note 98, ¶ 23.
199. MIGA Convention, supra note 3, Annex II, arts. 3, 4.
200. Id. Annex II, arts. 2, 3(a), 3(b), 4(e).
201. Id. Additionally, most MIGA proponents argue that these agreements, if they are to be justified at all, have to provide for different methods which are consistent with the constitutional requirements of the country concerned.
202. Commentary, supra note 98, ¶¶ 76(a)-(d).
203. MIGA Convention, supra note 3, art. 56(a).
204. The Board, consisting of no less than twelve Directors, is appointed by the President of the World Bank, who acts as ex officio Chairman of the Board.
205. Id. art 32.
206. Id. Annex II, art. 4.
207. Id. art. 18(a).
208. According to Black's Law Dictionary, [s]ubrogation denotes the exchange of a third person who has paid a debt in the place of the creditor to whom he had paid it, so that he may exercise against the debtor all the rights which the creditor, if unpaid. Insurance companies, guarantors and bonding companies generally have the right to step into the shoes of the party whom they compensate and sue any party whom the compensated party could have sued.
209. MIGA Convention, supra note 3, art. 57(b).
210. Shihata, supra note 4, at 3-4.
211. Id. at 3.
212. Jova, supra note 37, at 7.
213. See also JAMES COCKCROFT ET AL., DEPENDENCE AND UNDERDEVELOPMENT (1972).
214. Jova, supra note 37, at 7.
215. Id.
216. CERDS, supra note 59.
217. Jova, supra note 37, at 16.
218. Id.
219. Id.
220. Id.
221. Id.
222. These negative aspects of foreign investment include: (i) the possibility that the foreign investor will outperform and possibly displace the national investor; (ii) local firms, not being as solid a credit risk as a large foreign firm, will not be able to expand or diversify its operations to the same extent as the foreign firm; (iii) the foreign firm has an unequal bargaining position in that it can always "pack-up" and go home, taking with it technology and know how. This fact inhibits negotiation and true cooperation in development efforts; and (iv) possible negative effect on the balance of payments attendant upon dependency and mat mis effect is heightened by foreign investments in the manufacturing sector.
223. Id. at 16-17.
224. Jova, supra note 37, at 17.
225. Richard Lillich, The Diplomatic Protection of Nationals Abroad: An Elementary Principle of International Law Under Attach; 69 AM. J. INT'L L. 359, 361-362 (1975).
226. Andres Rozental, The Charter of Economic Rights and Duties of States and the New International Economic Order, 16 V A. J. INT'L L. 309, 317 (1976).
227. Id. at 312.
228. Id. at 314-315
229. Gillian White, A New International Economic Order, 16 VA. J. INT'L L. 323, 330 (1976).
230. Id.
231. Lillich, supra note 134, at 361.
232. CERDS, supra note 59, art. 2.
233. Id.
234. Id. art. 2(2)(c).
235. Id. art. 2.
236. Critics of CERDS were only too aware of where its ideas originated.
237. Lillich noted that Latin American efforts on the Charter were "no more than a thinly-disguised attempt to endow the Calvo Doctrine ⋯ with limited international status. This development, which would immunize states from potential international responsibility by denying claimants the right to seek the diplomatic protection of their states, is as unnecessary as it is unfortunate."
238. Lillich, supra note 134, at 361.
239. Rozental, supra note 135, at 309.
240. See Dale B. Furnish, The Andean Common Market's Common Regime for Foreign Investments, 5 VAND. J. TRANSNAT'L L. 313, 317-321 (1972).
241. Id.
242. Decision 291, supra note 84.
243. Id. art. 2.
244. Id. art. 10.
245. Cartagena Agreement, supra note 60, art. 51.
246. Law of Sept. 17, 1990, art. 2, GACETA OFICIAL DE BOLIVIA, NO.1662, Sept. 26, 1990 [hereinafter Bolivian Foreign Investment Law].
247. Id. art. 3.
248. BOLIVIAN CONST., supra note 57, art. 24.
249. Id.
250. Legis. Decree 662, art 2, EL PERUANO, Sept. 2, 1991 [hereinafter Legislative Decree 662].
251. PERUVIAN CONSTITUTIONS, translated in CONSTITUTIONS OF THE COUNTRIES OF THE WORLD (Albert Blaustein & Gisbert H. Flanz eds., 1987).
252. Legislative Decree 662, supra note 156.
253. Legislative Decree 662, supra note 156, art. 16.
254. Id.
255. Shihata, supra note 4, at 24-25.
256. See also Richard B. Alsop, The World Bank's Multilateral Investment Guarantee Agency, 25 COLUM. J. TRANSNAT'L L. 101 (1989).
257. Alsop states that Latin American states need not avoid MIGA on the basis of the Calvo Doctrine. ICSID's provisions on the exhaustion of local remedies, the application of domestic laws, and diplomatic protection offer protection for the host country unequalled even by a wider interpretation of the Calvo clause.
258. Id. at 133.
259. MIGA provides many of the same protections.
260. Shihata, supra note 4, at 24-25.
261. Jova, supra note 37, at 7.
262. Id. at 5.
263. Shihata, supra note 4, at 3-4.
264. Id. at 4.
265. See MIGA Convention, supra note 3, sched. A.
266. Member Countries are divided into two categories for voting purposes. Category One countries include the European countries, North American countries, Australia, and South Africa. Category Two countries include Caribbean countries, Latin American countries, and African countries.
267. Id.
268. Id. cmt. 63.
269. Under the Convention, both home and host countries will receive equal voting power when all World Bank members become MIGA members.
270. Id. art. 39(a).
271. During MIGA's first three years, Category Two nations would be guaranteed forty percent of the total votes.
272. Id. arts. 3(d), 39(b), 39(d).
273. One commentator expressly noted that a significant rationale for these MIGA voting procedures was to "provid[e] a strong incentive for developing countries to participate."
274. Rowat, supra note 6, at 128.
275. Shihata, supra note 4, at 3.
276. For an informative brief historical overview of Latin American economies and foreign investment in those economies see Jova, supra note 37, at 8-10.
277. Shihata, supra note 4, at 20.
278. Id.
279. Baker & Yoder, supra note 8, at 90.
280. Id.
281. MIGA Convention, supra note 3, art. 18(b).
282. Id. Annex II, arts. 2, 3(a), 3(b), 4(e).
283. Shihata, supra note 4, at 19.
284. See, e.g., Agreement Relating to Investment Guarantees, Nov. 26 and 29, 1962, U.S.-Venez., 474 U.N.T.S. 107.
285. Treaty Concerning the Treatment of Protection of Investments, Oct. 27, 1982, U.S.-Pan., art. II, 21 I.L.M. 1227.
286. Shihata, supra note 4, at 20.
287. Rowat, supra note 6, at 125.
288. The Overseas Private Investment Corporation functions as an investment guarantee agency focused on United States citizens who invest abroad. The agency was established by passage of the Overseas Private Investment Corporation Act of 1969, 22 U.S.C. §§ 2191-99 (1994).
289. For an in-depth discussion of die origins and role of the OPIC program, see Steven Franklin & Gerald T. West, The Overseas Investment Corporation Amendments Act of 1978: A Reaffirmation ojthe Developmental Role of Investment Insurance, 14 TEX. INT'L L.J. 1 (1979).
290. Berger, supra note 1, at 36 n. 149.
291. See, e.g., Agreement on the Guaranty of Private Investments, Dec. 22, 1959, U.S.-Arg., 12 U.S.T. 955, T.I.A.S. No.4799.
292. MIGA Convention, supra note 3, Annex II, art. 2.
293. Id. an. 57(b) and Annex II.
294. Id.
295. Id.
296. Id.
297. Shihata, supra note 4, at 21.
298. MIGA Convention, supra note 3, Annex II.
299. MIGA, as a multilateral organization, cannot directly participate in ICSID arbitration procedures. Id. However, there is a strong presumption that any arbitration will be conducted under ICSID rules.
300. Rowat, supra note 6, at 131.
301. MIGA Convention, supra note 3, Annex II, art. 4(j).
302. ICSID Convention, supra note 93, art. 51(4).
303. MIGA Convention, supra note 3, Annex II, art. 4.
304. See also Rowat, supra note 6, at 131.
305. Shihata, supra note 4, at 12.
306. Id.
307. It is interesting to note that these compromises and incentives were built into MIGA in order to combat the very principles, e.g., the Calvo Doctrine and the dependency theory, that MIGA promoters have argued are "overvalued." If these doctrines are indeed overvalued, then why does the MIGA Convention work so diligently to overcome them?
308. Shihata, supra note 4, at 15.
309. MIGA Convention, supra note 3, art. 15.
310. Even more startling in light of claims on behalf of MIGA is the fact that "a member government may, if it wishes, limit its use of MIGA's services to the coverage of investments by its nationals in foreign member countries without necessarily allowing it to cover foreign investments in its own territory."
311. Shihata, supra note 4, at 15-16.
312. MIGA Convention, supra note 3, art. 11.
313. The Convention contemplates this risk as "encompass[ing] measures attributable to the host government such as nationalization, confiscation, sequestration, seizure, attachment and freezing of assets."
314. Commentary, supra note 98, ¶ 14.
315. Id.
316. Rowat, supra note 6, at 129.
317. MIGA Convention, supra note 3, art. 11.
318. Shihata, supra note 4, at 14.
319. MIGA Convention, supra note 3, art. ll(a)(iii).