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February 07, 2014


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I'm not familiar with the details of the GE contract, but this story is completely consistent with the track record and character of the former Albanian Prime Minister, Sali Berisha.

The PM in Albania is very powerful. (The country is still figuring out liberal democracy.) So, the government tends to take on the flavor of the PM's personality. And Berisha was an old-fashioned socialist (he looked like a reformer standing next to Enver Hoxha's people, but that's not really saying much) and a very, very stubborn man. Admitting defeat, ever, was very much not his style. So it's not surprising that his government got in this dispute, and it's equally unsurprising that they fought it to the very bitterest end. That was totally how Berisha rolled.

In last year's election, the international community (or that portion of it that concerns itself with Albania) was pretty openly rooting for his opponent -- the current PM, Edi Rama. That's in large part because Berisha was incredibly difficult, and almost everyone had become sick of dealing with him.

Doug M.

That said... going back one iteration, it's almost certain that the GE contract award was massively corrupt. This was in the administration of Berisha's predecessor, Fatos Nano. Things were pretty lively back then. (Not that they were exactly a model of Nordic-style good government under Berisha, to be sure.)

Berisha and Nano hated each other /a lot/ -- Berisha had Nano thrown in jail for three years back in the 1990s. So it's completely unsurprising that one of Berisha's first moves upon taking office was to cancel one of Nano's flagship infrastructure projects.

Doug M.

Additional wrinkle: several Balkan countries have shown a pattern of (1) letting disputes go to arbitration in London when they really could / should have been settled, and then (2) once in London, doing a really crap job of defending themselves.

If I were advising the Albanians wrt the CEZ dispute, I'd strongly recommend that they get some really goddamn good lawyers. People with demonstrable experience in international commercial arbitration IN LONDON and with a proven record of at least sometimes winning there.

Doug M.

Your post reminds me of an anecdote on the Tradex case in Philippe Sands' Lawless World. One of Philippe's former students called him up saying he had found a bunch of letters from ICSID in a locked wooden cupboard. No-one had responded to the letters, not really knowing why the government was being asked to nominate arbitrators for some strange Washington proceeding. The tribunal had therefore already been established and the first proceeding against Albania started a few weeks after.

That's an amazing story, Lauge.

It boggles the mind that governments sign these BITs (or other agreements) without realizing that they can be enforced. It makes sense on the simplest level --- they are governments of sovereign states and nobody is likely to invade over a BIT violation --- but you would think that somebody would have realized that there are a lot of vulnerable income flows to be seized, blocked, or otherwise interfered with.

Hmm. Lauge, you're the BIT expert; Doug, you know the Balkans. Are Balkan governments more prone to thinking that international commitments are no more than vague statements-of-intent?

Noel, it's not so much "Balkan governments" per se. More like... these are small states, these are young states, and they often have serious capacity issues. There may be only a fingers-of-one-hand small group of people in the whole country who grasp what the significance really is. In the particular case of Albania, the country only opened its doors in 1994 and has really only engaged with the world since ~1999 or so. So, they haven't had a lot of time to develop a bench of experts in international arbitration.

Ministers are often political appointees with little or no background in specialized fields like international arbitration. And it's not always easy for Ministers to reach out for expertise (even if they want to) because Ministries tend to be stovepiped and not to talk to each other very well. This is often exacerbated by the presence of coalition governments -- the Minister of Justice and the Minister of Privatization may be from different parties and/or may sharply dislike or distrust each other.

Institutional memory tends to be weak, for various reasons. Government salaries are very low, so competent people cycle out of government into the private sector as soon as they have the chops for it. (Or they go into corruption in a big way, if they're able.) Changes of administration tend to involve wholesale dismissal of everyone above a certain level, and often dramatic changes in policy too. "Everything the previous Minister did is now suspect" is the default.

So, my guess? Good chance that when the commitments were signed, there were people in the room who understood their implications. But there weren't many of them, and they probably left fairly soon thereafter, and their knowledge was not effectively transferred.

Doug M.

I agree entirely with Doug. Except, perhaps, for the last paragraph. It was exceedingly rare that developing country/transition economy negotiators understood the implications. Often, the treaties weren't really negotiated at all.

In the case of Eastern Europe and the Balkans, in particular, the American Bar Association played an important role pushing the agreements with the argument that consent to investment treaty arbitration was necessary to attract foreign investment. The message was accepted in most capitals without much questioning.

So there was a combination of (i) mistaking hard law for soft law; and (ii) seriously overestimating the economic benefits.


Perhaps? I'd make a distinction between the treaties and the subsequent contract agreements that use dispute resolution under the treaties.

And you can't really condemn them for signing the New York Convention. Almost everyone has signed it -- last time I looked, it was ~150 countries representing >95% of world GDP. The holdouts are mostly poor countries in Africa. I'd suggest that while signing it doesn't much help investment, not signing it could noticeably deter investment. The CISG, same-same. (I'm neutral on New York, but the CISG is the shit. A remarkable achievement.)

Treaties not being negotiated: one thing that really struck me during my time in Romania was how little they paid attention to the experiences of the Visegrad countries in joining the EU, and how much they threw overboard in their own rush to membership. They could have negotiated many, many more subrogations -- special exceptions to EU rules -- than they actually did. Now they're stuck with a lot of rules that they're finding rather uncomfortable.

For some of these things, small countries don't really have much room to maneuver: there's really no choice but to sign. The New York Convention is in that category. For others, they have the wiggle room, but may or may not choose to use it.

Doug M.

Albania was involved in a considerable number of investment disputes, considering that it is a small country. Among others: Pantechniki, Tradex, Sky Petroleum, Burimi, Mamidoil and the recent CEZ. In addition to these publicly available cases, there might be other investment disputes which are not publicly available because of confidentiality rules. However, Albania won many of these disputes. So, to go back to your question of whether Albania expropriates, it is hard to say, considering the outcome of these awards.
After any election, the government tends to change the public administration, including the members and advocates of the "Avokatura e Pergjithshme e Shtetit", which is in charge of dealing with all cases against Albania (mainly international arbitration disputes or human rights cases before the ECtHR). However, the government normally contracts with foreign law firms which represent Albania in international proceedings (Paris, Geneva and London based law firms).

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