Ecuador attacks Chevron in Argentina: world governance runs both ways

I hate the word “governance,” but it is useful. After all, there are things that are governed without a single government. When those multiple governments are hierarchically ordered (even if legally sovereign) then I prefer the word “empire.” But sometimes imperial institutions can run both ways.

The bilateral treaties that govern the investor-state arbitration system tend to be unequal. Consider for example the U.S.-Ecuador treaty. The United States exempts Ecuadorean investors from using anything but U.S. courts in the following sectors:

• Air transportation
• Banking
• Customhouse brokers
• Government grants
• Government insurance and loan programs
• Energy and power production
• Insurance
• Maritime services and maritime-related services
• Mining on the public domain
• Ocean and coastal shipping
• Ownership of real property
• Ownership and operation of radio and television stations
• Ownership of shares in the Communications Satellite Corporation
• Primary dealership in United States government securities
• Provision of common carrier telephone and telegraph services
• Provision of submarine cable services
• Use of land and natural resources

Meanwhile, the Ecuadoreans exempt:

• Traditional fishing (not including fish processing or aquaculture)
• Ownership and operation of broadcast radio and television stations

Quite a difference! Looks pretty damn imperial, no? You can kinda understand why President Correa wants to withdraw from ICSID and abrogate the investment treaties.

Thing is, these treaties are ultimately enforced not by ICSID or some other sort of world-government-in-drag, but national courts. And the same conventions that allow national courts to enforce foreign rulings (the way Argentina lost its ship in Ghana) can be used to establish extraterritorial jurisdiction. That can do it a bit to reduce the imperial feel to the international system that protects property rights. The Ecuadoreans, in short, can use foreign courts to enforce their laws.

Last year, Ecuadorean courts levied a $18.2 billion damage claim against Chevron for polluting watersheds in the country. Ecuador’s legal team knows that ChevronTexaco doesn’t have many assets in Ecuador, so its strategy is to go around the world looking for Chevron assets that it can attach. (You can read a copy of the plan from the legal team here. They call it the “Invictus memo.”) In February, Chevron won a preliminary victory when it got an arbitration tribunal to take its side. Problem is the ruling applied only to Ecuador.

So it was big news in October when the U.S. Supreme Court ruled [CLARIFICATION: It was not a ruling per se; the SCOTUS decided not to hear an appeal, thus allowing the plaintiffs to proceed] that Ecuador could freely continue its search for Chevron assets. A week later an Ecuadorean court let the plantiffs seize $96.3 million owed to Chevron by the Ecuadorean government (yes, that would be in effect Ecuador taking cash from itself) and all licensing fees owed Chevron from the use of its logo. And now ...

... an Argentine judge has given the plantiffs all of Chevron’s shares in Chevron Argentina, all of Chevron Argentina’s dividends, its 14% stake in the Oleoductos del Valle pipeline, 40% of its bank deposits and 40% of the revenue from future Argentine crude sales!

How much is the above worth? Well, I don’t know how much cash-on-hand Chevron Argentina enjoyed and it’s safe to assume that they won’t be paying any dividends as long as the judgment is in place, but it is possible to calculate the value of its crude production. (Oleoductos del Valle loses money.) The June domestic price of crude in Argentina was US$467 per cubic meter. (If you click the link and download the data, you’ll find that the price didn’t vary much.) Using production data from January through September of 2012, you’ll find that Chevron Argentina will produce crude worth about $833 million in 2012. 40% of that is $333 million; not a bad chunk of change. Of course, the Ecuadorean government will only get about 35% of that, since the income is actually due the plantiffs and their lawyers. Still, $117 million per year is nice, and if the precedent holds it could wind up with a lot more than that as more Chevron assets are attached around the world.

Eventually the Ecuadorean government might even net enough to pay off Occidental.

Comments

[Steven Bodzin]

The last line, while funny, doesn't make sense since the Ecuadorean government isn't the plaintiff in any of these cases.

[Noel Maurer]

That's true, but the Ecuadorean government will collect income taxes on the proceeds from the awards. With a 35% marginal tax rate, that's how I calculated the 35% × $333m = $117m figure.

[Steven Bodzin]

got it, 10-4 good buddy