What can the EU do about Argentina’s Expropriation of Spanish Investments?

Argentina made headlines last week with its plan to nationalize oil company YPF. The decision to expropriate 51% of the shares in YPF hydrocarbons corporation–eliminating the controlling stake of Spanish firm Repsol–was announced on 16 April, and was accompanied by a takeover of the company’s office by Argentine authorities.

In response, Repsol has announced its intent to pursue an expropriation claim, and Spain has taken retaliatory measures, seeking to restrict imports of biodiesel fuel from Argentina.

The EU has made clear its displeasure with Argentina and its intent to support Spain. But given that this is an investment case that legally falls primarily under the Spain-Argentina bilateral investment treaty (BIT), what role can the EU play?

The European Parliament adopted a resolution on 20 April condemning the nationalization as an “attack on the exercise of free enterprise and the principle of legal certainty,” and calling on the Council, Commission, and High Representative Catherine Ashton to take action:

The European Parliament

[…]

4.  Recalls that the objective of the ongoing negotiations on the Association Agreement between the EU and Mercosur is to introduce a framework for economic integration and political dialogue between the two blocks in order to achieve the highest degree of progress and prosperity for both regions, and believes that for such negotiations to be successful both sides have to approach the talks in a spirit of openness and mutual trust; points out also that decisions such as that taken by the Argentine authorities can put a strain on the climate of understanding and friendship needed to reach such an agreement;

[…]

6.  Calls on the Commission to respond to these restrictions using all the appropriate dispute settlement tools available at the World Trade Organisation and the G20 to cooperate with other countries facing similar discriminatory barriers to trade and investment;

7.  Calls on the President of the European Council, the President of the European Commission and the High Representative for CFSP to make every effort with the Argentine authorities to defend the Community interest and to safeguard the principle of legal certainty which guarantees Europe’s presence and investment in this South American country, by returning to the path of dialogue;

8.  Urges the European Commission and the Council to explore and adopt any measures required to safeguard European interests in order to avoid such situations arising again, including the possible partial suspension of the unilateral tariff preferences under the GSP scheme;

[…]

10.  Welcomes the statement by High Representative Ashton condemning the action of the Argentine Government and the cancellation of the meeting of the EU-Argentina Joint Cooperation Committee; urges Commissioner De Gucht and High Representative Ashton to use all diplomatic avenues available to solve this situation with their Argentine counterparts; calls on the Commission and the Member States to work closely with their colleagues in international fora such as the G20 and the WTO to achieve a consensus opposing the actions of the Argentine Government;

Despite the European Parliament’s reference to the WTO dispute settlement system, since this is an investment case, there is no clear basis for a WTO complaint (although there has been talk of a separate complaint regarding import licensing requirements). The EU could, however, pursue several of the Parliament’s other suggestions.

The EU can (and has already begun to) impose diplomatic pressure on Argentina. High Representative Ashton, Trade Commissioner De Gucht, and others have made statements condemning Argentina’s actions. In addition, the EU cancelled a meeting of the European Union-Argentina Joint Cooperation Committee last week in protest against the expropriation.

More substantially, the EU could suspend Argentina’s trade benefits under the Generalized System of Preferences (GSP). The current GSP scheme permits the withdrawal of benefits for a number of reasons, including “serious and systemic unfair trading practices which have an adverse effect on the Community industry and which have not been addressed by the beneficiary country” (Article 15(1)(d)). The EU would not be alone in using GSP status to pressure Argentina–the US announced last month that it would suspend GSP benefits in protest against Argentina’s non-payment of prior arbitral awards under the US-Argentina BIT. However, the EU’s current GSP arrangement is set to expire in 2014, and it remains unclear whether the EU would take earlier action to alter import rules for Argentine products.

Perhaps most drastically, the EU could freeze ongoing talks regarding an Association Agreement between MERCOSUR (of which Argentina is a part) and the EU. Negotiations were already suspended in 2004 following disagreements over trade rules, and have only recently been revived. However, a statement by Chief Executive of the European External Action Service Christian Leffler affirming that the EU is “still aimed to arrange an association between the EU and Mercosur” makes this option seem unlikely.

Exciting times for EU external relations–updates to follow.

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