Oct 17, 2014 - 11:15am

A Tale of Two Countries: Venezuela, the United States, and International Investment


Senior Vice President for International Policy

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A mural depicting the late Venezuelan president Hugo Chavez on the side of an apartment building in La Guaira, Venezuela.
A mural depicting the late Venezuelan president Hugo Chavez on the side of an apartment building in La Guaira, Venezuela. Photo credit: Bloomberg.

For some real-world insight on the debate over international investment, consider two very different countries—Venezuela and the United States—and how they have come to see foreign investment and investment agreements differently.

At issue is the campaign of misinformation in Europe against “investor-state dispute settlement” (ISDS) in the Transatlantic Trade and Investment Partnership (TTIP). While this campaign is new, the principles upheld in these agreements are not, as the U.S. Chamber’s Myron Brilliant wrote recently the editor of the Washington Post:

For decades, international agreements have provided for neutral arbiters to resolve investment disputes under procedures based on the due process protections in our Constitution… ISDS can’t overturn the policy decisions, laws, or regulations of any country.

Indeed, all ISDS can do is award compensation when a government expropriates property, discriminates against investors on the basis of their nationality, or otherwise tramples on the rule of law principles cherished by all true democracies.

How does this play out in Venezuela and the United States?

Venezuela leads the world rankings for the most ISDS cases. According to a recent analysis by the BBC, there are 27 ISDS disputes pending against Venezuela, well ahead of second-place Argentina (22) and third-place Egypt (13). (These are investment disputes pending before the World Bank’s International Center for the Settlement of Investment Disputes, to which many investment treaties refer disputes.)

Why are so many investors so disputatious in Venezuela? In a word, because the government seized their property. The Venezuelan government undertook a far-reaching program of nationalizations of industry, especially between 2006 and 2008.

From food companies to the oil patch, no sector was spared, and tens of billions of dollars’ worth of investments were seized. ODH Consultants, based in Caracas, estimates that $53 billion in compensation is being sought in just 13 of the 27 disputes. Canada’s Scotia Bank has estimated the total at $24 billion.

To avoid having to pay, the Venezuelan government has initiated diplomatic proceedings to withdraw from its investment treaties, but this process will require several years.

Contrast Venezuela’s experience with that of the United States. While Venezuela has suffered massive capital flight over the past decade, the United States is today home to more than $2.7 trillion in foreign direct investment.

While Venezuela is fleeing its investment treaty obligations, the United States is not. The United States has entered into bilateral investment treaties (BITs) or free-trade agreements (FTAs) that include ISDS with 54 countries. (For comparison, European countries such as Germany, Britain, and the Netherlands have BITs with more than 100 countries each.)

How does the United States compare to Venezuela in terms of disputes? While there are currently 27 cases currently pending against the Venezuelan government, the U.S. Department of State reports that only 22 ISDS disputes have been brought against the United States—over a period of more than 30 years.

Most tellingly, the United States has never lost a case. American taxpayers have never been held liable to pay damages in an ISDS dispute.

That doesn’t mean ISDS is meaningless for the United States. American officials have long recognized that the United States must accept the same obligations in investment agreements that it asks of other governments. For this reason, recourse to ISDS needs to be an option for foreign investors in the United States.

But the irony is plain. In Venezuela, where investors could really use the protections afforded by investment treaties, the government has abandoned these agreements and expropriated billions of dollars of property—while investors flee the country.

By contrast, the United States has attracted more investment from abroad than any other country. Foreign investors in the United States don’t appear to need the protections of investment treaties and ISDS, but they are available nonetheless.

So here’s a question for Europeans who say ISDS mustn’t be included in TTIP: Which path do you wish to follow?

About the Author

About the Author

Senior Vice President for International Policy

Murphy directs the U.S. Chamber’s advocacy relating to international trade and investment policy.