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Why the Venezuela Government Arbitration Walkout Won't Work

Wednesday, January, 18, 2012

Venezuelan President Hugo Chavez has a long history of strained relations with US corporations. This came to a head recently in the Venezuela government arbitration with Exxon Mobil. According to Venezuelan Oil Minister Rafael Ramirez, the debt Venezuela owes Exxon was settled at in an arbitration in front of the International Chamber of Commerce.


Exxon brought another arbitration with Venezuela in front of the International Centre for Settlement of Investment Disputes, or ICSID. This led Chavez to declare that Venezuela should leave ICSID and disregard any decisions they make about Venezuela. While it could be argued that the second Exxon is redundant and Chavez is right, there is more to the walkout that casts it in a different light.


Venezuela Has Several Other Pending Arbitration Hearings


By walking out of ICSID and thumbing their noses at Exxon, Venezuela would also be doing the same for 16 other US corporations. These corporations would still want their piece of Venezuela's flesh, and between their resources and ICSID's enforcement mechanisms, they would probably get it. ICSID has already announced that Venezuela's departure would not affect pending arbitrations.


Even if Venezuela somehow managed to not pay on these pending arbitrations, this would send a resounding message across the globe: Venezuela is a deadbeat nation. That would crush Venezuela's economy.


Pulling Out of Arbitration Court Would Be Unwieldy


Given the sheer number of arbitration hearings pending for Venezuela, it would not be as simple as Venezuela just “leaving” ICSID. The 17 arbitrations would be heard over the course of about 15 years. Of course, Venezuelan representatives would not be obligated to appear at the mediations, but that would essentially be an automatic negative ruling.


Additionally, the act of departing the ICSID would mean that Venezuela would have to renounce 24 international investment treaties. Along the way, Venezuela would likely have to renegotiate these treaties to not include ICSID involvement. This process could take anywhere from 10 to 15 years.


Chavez may be justifiably outraged with Exxon, but his proposal to shun government arbitration is unlikely to actually happen.