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ABSTRACT
This article examines Brazil's unique experience with bilateral investment treaties (BITs) – the country signed 14 of them in the 1990s, but none was ever ratified. The case is puzzling for a number of reasons. First, BITs were an initiative of the presidency, and the Brazilian political system is notorious for executive branch's high level of success at enacting legislation. Second, the record of treaty ratification is very high in the country; between 1988 and 2006, 98% of the treaties signed entered into force in less than 18 months. Finally, the Brazilian Congress approved various investor-friendly policies that required even higher voting thresholds in the same period that BITs were being negotiated. We use primary legislative data and interviews with policymakers and bureaucrats to argue that a concentrated but strong ideological opposition in the Congress certainly contributed to hinder BIT ratification, but an unresolved executive – which addressed most investor's demands through alternative channels – was the decisive factor in explaining non-ratification. Ultimately, our findings imply that scholars need to open the black box of the executive in order to better understand the determinants of treaty ratification.
ACKNOWLEDGEMENTS
We thank all commentators to the article, especially Cesar Zucco, Timothy Power, Andrew Hurrell, Duncan Snidal, Ngaire Woods, Bob Keohane, Valeria Palanza and Ken Shadlen. We also appreciate the help of Ana Regina Amaral, Paulo Roberto Almeida and Sarquis José Buainain Sarquis, Debora Bitiah and Marcelo Zero. This research would not have been possible without the support of the Oxford-Princeton Global Leaders Fellowship. All errors remain ours.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
† We have presented previous versions of this article at the Global Leaders Fellowship Workshop, Oxford, UK, May 2010; ECPR, Reykjavik, August 2011; and at Chile Catholic University, Santiago, August 2011.
1. See Egger and Pfaffermayr (Citation2004), Neumayer and Spess (Citation2005), Yackee (Citation2008), Sauvant and Sachs (Citation2009), Desbordes and Vicard (Citation2009), Kerner (Citation2009), Aisbett (Citation2009), Halward-Driemeier (Citation2009), Büthe and Milner (Citation2009), Salacuse and Sullivan (Citation2009), Haftel (Citation2010), Poulsen (Citation2010), Tobin and Rose-Ackerman (Citation2011), Egger and Merlo (Citation2012) and Kerner and Lawrence (Citation2014).
2. For example, Guzman (Citation1998), Vandevelde (Citation1998), Gallagher and Birch (Citation2006), Elkins et al. (Citation2006), Swenson (Citation2009), Bergstrand and Egger (Citation2013), Schneider and Urpelainen (Citation2013) and Jandhyala et al. (Citation2011).
3. See Haftel (Citation2010) for an extensive review of this literature.
4. We borrow this term from Haftel and Thompson (Citation2013).
5. See Hathaway (Citation2008) for a comparison of the formal requirements for treaty ratification in Brazil. They are the same South American countries, where 86% of BITs signed were ratified, and within an average of 2.5 years.
6. ‘The Doctrine was advanced by the Argentine diplomat and legal scholar Carlos Calvo, in his International Law of Europe and America in Theory and Practice (1868). It affirmed that rules governing the jurisdiction of a country over aliens and the collection of indemnities should apply equally to all nations, regardless of size. It further stated that foreigners who held property in Latin American states and who had claims against the governments of such states should apply to the courts within such nations for redressal instead of seeking diplomatic intervention. Moreover, according to the doctrine, nations were not entitled to use armed force to collect debts owed them by other nations. A Calvo clause in a contract between the government of a Latin American state and an alien stipulates that the latter agrees unconditionally to the adjudication within the state concerned of any dispute between the contracting parties’ (source: Britannica, on-line academic edition).
7. Jornal do Brasil, 4/1/1994.
8. This was documented in Gilaberte (Citation1995), and reported in interviews conducted with Brazilian negotiators at Itamaraty in December 2010, and with a senior official involved in the American BIT program in April 2011. We find no reason to believe the Brazilian experience differs, in that sense, from that of other Latin American countries (see Mortimore and Stanley, Citation2006, for the Argentine case), or that this was consequential to explain different patterns of BIT ratification.
9. Rittner, D. (2002) ‘País deve derrubar acordos externos’, Valor Econômico, December 2010.
10. All quotes from written justification notes (Exposição de Motivos), accompanying the Portugal, Chile, UK and Ireland, and Switzerland Treaties (January 1995), p. 1, which use basically the same wording. Celso Amorim was the Foreign Affairs Minister, and Ciro Gomes the Finance Minister for Portugal, Chile, UK and Ireland, and Switzerland. Luiz Felipe Lampreia and Pedro Malan were the respective ministers for France and Germany treaties.
11. The use of BITs as a means to reduce investment risk was revealed in interviews with diplomats who participated in the process (Gilaberte, Citation1995, interviews conducted by the authors, December 2010).
12. Ministers of Finance and Foreign Affairs, Presidential message to Brazil–Chile BIT, 21 December 1994.
13. Figueiredo and Limongi (Citation1999) argue that presidential plus party leaders powers enhance cooperation, Alston and Mueller (Citation2006) reinforce the use of pork, Amorim Neto (Citation2006) calls attention to cabinet sharing, and Zucco and Lauderdale (Citation2010) reinforce government–opposition lines.
14. Bargaining means either concessions on policy or granting pork and patronage to get the necessary votes, unilateral action means the use of decrees or other discretionary powers, and undermining the assemblies means the attempt to win electorally more acquiescent majorities or control the assembly members’ career paths.
15. Only recently there has been some recognition of legislative empowerment over such policies (Anastasia et al., Citation2012; Lima and Santos, Citation2001).
16. We use her/him interchangeably.
17. CCJC Report in response to the Question number 7, 1993.
18. This has been a controversial issue: Would it necessarily lead diplomats back to the international level to renegotiate on the interpretation clauses or not? Some say it does oblige, some it does not (Fontanive, Citation1997). The fact is that since 1988 around 7% of the treaties were approved with some reservation clause (Diniz and Ribeiro, Citation2008).
19. Individual votes on this matter are not typically recorded. Theoretically, a treaty is ratified as long as there are more yea than nay votes. The Supreme Court has ruled that even if all abstain and there is only one yea vote, the bill is approved.
20. All three presidents (Franco less than others) shared a favorable view of foreign investment, and were committed with the liberalization of the Brazilian economy. We have no reasons to believe that the fact that BITs were negotiated, signed and sent to Congress under different presidents mattered for the ratification process. Cardoso, more than any other, should have profited from the signature/ratification of these treaties, since he was the president under which the majority of state companies were privatized.
21. In his view, BITs would open ‘great perspectives of economic cooperation that go beyond the rigidity of preconceived and watertight concepts of the past about the inexorability of international capital flow trends, of the “obvious fate” of some countries as solely capital importers, instead of participating (as Brazil had, recently) more creatively and competitively of the great financial fluxes (…).’ Chile report at CREDN, p. 63286, DCN.
22. Some BITs set up ‘prompt payment in freely convertible currency’ for expropriations, but the Brazilian Constitution allows municipal governments to pay expropriations with 10-years debt, and rural expropriations with 20-years agrarian debt bonds (FC 182-184). According to some interpretations brought to the table, that means the treaties would override the Constitution, leading to international disputes that the Supreme Court might not homologate, and setting different treatments to national and foreign enterprises.
23. Membership, as well as chairmanship to committees, changes every year in the Chamber (every two years in the Senate) – there is no such thing as the seniority system. Differently from the US committee system, the Brazilian legislature is not organized along ‘winner takes it all’ lines. The distribution of chairmanship is proportional to party size in the organization, so even opposition parties can chair committees. Size matters and larger parties control more important committees, but small parties can form caucuses (blocos) and compete for committee control. In a highly fragmented environment, the proportional distribution is a way to coordinate among members and at the same time decrease conflicts around goods that will favor electoral connection. As a result, when BITs returned, there were different members and chairmen for the same committees.
24. On the matter of FDI versus financial capital differentiation, he affirmed that incentives such as taxation over investments or quarantine, to be decided by each government, should be the norm, and BITs should not touch the issue. On transfers, he stressed the preponderance of national laws. On expropriations, he refused the need of interpretative clauses, as the Constitution would always prevail. The rapporteur stressed how treaties were ‘important tools to foment trade, technology transfer and are today indispensable for improving and growing of the economies that will inevitably insert in the globalization process.’
25. By ‘resolve,’ here, we mean the willingness of the executive – policymakers, ministers and the president himself – to exhaust all instruments at hand to approve a certain policy, be it persuasion, threats, management of the coalition (through cabinet reshuffle to reward/punish), budget allocations or patronage.
26. Executive turf occurs as conflictive preferences within the executive cause a paralysis and let the bills travel in Congress without much pressure, not because the executive did not want them to be approved, but because different actors would push for different options.
27. Interview conducted by the authors: April 2011.
28. Interview conducted by the authors: April 2011
29. We thank Alexandre Sarquis for this comment.
30. These could be seen in the ‘Blue Book’, handed in 1992 by a group of 14 MNCs to the Minister of Finance – a set of demands related to national treatment, liberalization and lower taxation of capital transfers (source: ‘Multinacionais querem divulgar novo tratamento ao capital estrangeiro’, Gazeta Mercantil, March 1992).
31. The Brazilian Constitution still restrains foreign participation in many areas, such as nuclear ores, postal services, aerospacial navigation, health services, rural land, news and broadcasting.
32. As it is understood, it is a delegation from Law 4,595, 1964. The Council is responsible for the regulation of the financial system, and regulates on credit, exchange and monetary issues. Its composition has changed over time, and today comprises the Minister of Finance, the Minister of Management, Budget and Planning and the president of the Central Bank.
33. This is consistent with Allee and Peinhardt Citation(2010) findings that countries heavily constrained by their dependence on global economy are those most likely to consent to ICSID clauses. It is possible that the high attractiveness of the Brazilian economy, ranked the fifth in A.T. Kearney's FDI confidence index in 2014, grants the government leverage to refuse signing the convention.
Additional information
Notes on contributors
Daniela Campello
Daniela Campello is an assistant professor of politics in the School of Public and Business Administration at the Getúlio Vargas Foundation. Prior to that, she was an assistant professor of politics and international affairs at Princeton University. She is the author of The Politics of Market Discipline in Latin America: Globalization and Democracy forthcoming with Cambridge University Press in 2015.
Leany Lemos
Leany Barreiro Lemos holds a Ph.D. in comparative studies of the Americas, from the University of Brasilia. She was a visiting fellow at Georgetown University, Oxford University and Princeton University, and has been serving as a senior staffer of the Brazilian Federal Senate since 1993. She is currently the Chief of Staff of the Brazilian Socialist Party (PSB) Caucus in that institution.
