Argentine Seizure of Spanish Oil Company Unlikely to Reach WTO, EU Officials Say

18 April 2012

Argentina's controversial announcement on Monday that it would be nationalising Spanish oil company Repsol YPF is unlikely to face a WTO challenge, according to unnamed EU officials cited by Bloomberg, following comments by Spanish industry minister José Manuel Soria hinting that Madrid would push back in the areas of "diplomacy, trade, industry, and energy."

Argentine President Cristina Fernández de Kirchner announced on 16 April that her country's government planned to take a 51 percent controlling stake in the Spanish oil company, which would then be split between the Argentine central government and the country's provinces in a 51-49 ratio. The plan is expected to move swiftly through Argentina's Congress.

Kirchner justified the move by arguing that Repsol has not sufficiently invested in new oil production, in turn causing Argentina to have to import more energy. For its part, Repsol has argued that Buenos Aires' recent transition to becoming an energy importer is instead the result of an unsustainable energy policy by Argentina.

The announcement prompted outcry from Spanish and European officials, who expressed disappointment at the decision. However, recent speculation that the decision could lead to either a WTO dispute or to Spain imposing trade sanctions are unlikely, trade experts say.

Observers note that filing a challenge at the global trade body would have little chance of success, given that investment-protection pledges are not included in WTO rules.

The Commission has also warned that Spain would be breaking both European and international law by unilaterally imposing trade restrictions on Argentina, according to EU officials cited by Bloomberg.

Meanwhile, EU Trade Commissioner Karel De Gucht is expected to write to Argentina's trade minister to "reiterate our serious concerns." The EU is also set to postpone an EU-Argentine joint committee meeting focused on trade and economy issues that was scheduled for later this week.

"We are at the moment giving political support to Spain while also exploring all options," commission spokeswoman Pia Ahrenkilde Hansen said yesterday.

Mixed response from regional trading partners

Kirchner's move also came under fire from neighbouring Chile, with Santiago's economy minister Pablo Longueira noting that such measures could hurt future investment in Latin America.

"It turns us into a less attractive, less trustworthy region," he told Reuters, adding that G-20 trade ministers meeting next week should push for stronger WTO rules to punish countries that do not comply with international standards.

"I think that international forums should very clearly take on these protectionist signs by sanctioning those countries that in some way are not respecting the rules of the game at the international level."

Spain also received backing from Mexican President Felipe Calderón, who recently called Kirchner's decision "irresponsible and irrational."

However, Buenos Aires' move was supported by Venezuela's Hugo Chávez, while Bolivian President Evo Morales noted that the situation is a bilateral matter.

Spain-Argentina bilateral investment treaty at issue

Spain and Argentina currently have a bilateral investment treaty that entered into force in 1992. Investment treaties provide protection to foreign investors by guaranteeing national and most-favoured nation treatment, and usually protect against expropriation without compensation. These treaties further give investors the chance to call for international arbitration to solve investor-state disputes.

According to Spanish newspaper El País, Repsol is already considering pursuing investor-state arbitration against Argentina at the World Bank's International Centre for Settlement of Investment Disputes - an international forum that Argentina has faced on numerous occasions in recent years to resolve investment disputes with foreign companies.

The oil company has pledged to take "all necessary legal action" to preserve the value of its shares and the interests of its shareholders, according to El País.

ICTSD reporting; "EU Sees Repsol's Leverage in Investment Pact, Weighs Own," BLOOMBERG, 17 April 2012; "Spain Vows Argentina Trade War as Repsol Seeks $10.5 Billion," 17 April 2012; "España priorizará el biodiesel europeo sobre el argentine como represalia," EL PAÍS, 18 April 2012; "Repsol acusa a Argentina de expropriar YPF para tapar la crisis económica y social," EL PAÍS, 17 April 2012; "Repsol planea demander a Argentina en un arbitraje ante el Banco Mundial," EL PAÍS, 17 April 2012; "Spain Weighs Response to Nationalization of YPF," NEW YORK TIMES, 17 April 2012; "UPDATE 1-EU voices concern over Argentina YPF seizure," REUTERS, 17 April 2012; "Chile says Argentina's YPF seizure hurts investment," REUTERS, 18 April 2012.

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