Thursday, April 26, 2012

Between Law and Norm, State and Globe: Thoughts on the Exporpriation of Repsol by the Argentine State

I have for some time be writing about the increasing autonomy of corporations from the states that created them.  I have suggested that the logic of globalization has inverted the relationship between state and multinational corporate entity, an inversion that results in the commodification of law as states vie for the business of large corporate actors. Backer, Larry Catá, Governance Without Government: An Overview and Application of Interactions Between Law-State and Governance-Corporate Systems, in Beyond Territoriality:  Transnational Legal Authority in an Age of Globalization (Günther Handl and Joachim Zekoll Editors, Leiden, Netherlands & Boston, MA: Brill Academic Publishers, forthcoming 2012). ; Backer, Larry Catá, Multinational Corporations as Objects and Sources of Transnational Regulation. ILSA Journal of International & Comparative Law, Vol. 14, No. 2, 2008.

(Women walk past a poster that reads “CFK – YPF. They’re ours, they’re Argentine” in Buenos Aires last week. Photo: Reuters)

Now comes the recent actions of Argentina, which having privatized its state owned oil industry in the late 1990s has to the former Spanish state owned enterprise Repsol has determined to expropriate that interest and return this business to the state sector.  That is, having sold the company to Repsol in the 1990s, it will now take it back with an “expressed determination to “pay nothing at all” in compensation to the Spanish oil company. ” Fiona Govan, Argentine government to pay Repsol ‘zero pesos’ for YPF seizure as Spanish oil company issues legal warning, The Telegraph (UK), April 25, 2012.

Repsol itself has threatened legal action for violation of both national and international laws, even as it moved to reassure it investors that the expropriation will not hurt its business. Repsol, The unlawful expropriation of YPF does not affect Repsol’s growth capacity outside Argentina (Repsol Website, April 17, 2012).
But Repsol has done more.
The move would discourage external partners from providing the investment YPF needs to exploit vast shale oil deposits discovered within the Latin American country and is the latest attempt by Repsol to fight back against the illegal seizure of its subsidiary.
“We reserve the right to take legal action against any party investing in the YPF and its assets following the unlawful expropriation of the company,” Kristian Rix, a spokesman for Repsol in Madrid, told the Daily Telegraph on Monday.
The Spanish energy company believes billions of dollars are required to develop Argentina’s prospects including at least €25bn a year over the next decade to exploit the Vaca Muerta shale discovery made last year.
Julio De Vido, Argentina’s Planning Minister has already approached Brazil’s state-run oil company Pertobras over investment in YPF and plans to contact other foreign oil companies including Exxon, Chevron and ConocoPhilips.
The development comes amid yet more rhetoric from Argentina as government sources insisted the offer of compensation would be “zero pesos”. (Fiona Govan, Argentine government to pay Repsol ‘zero pesos’ for YPF seizure as Spanish oil company issues legal warning, The Telegraph (UK), April 25, 2012.)
Both the Spanish government and the European Union moved to protect their interest as well.
The Spanish government, meanwhile, adopted a carrot-and-stick approach.
Foreign Minister Jose Manuel Garcia-Margallo sounded conciliatory, saying Spain historically had very good relations with Argentina and wants to recover them. He said Spain would try to convince Argentina it needed to reach agreement with Repsol on fair compensation for nationalizing YPF, which he nonetheless said was a mistake that would scare off foreign investors.
“It is in Argentina’s interest not to end up isolated in the world,” the minister said.
At the same time, he said, Spain has proposed to EU partners a series of retaliatory measures against Argentina, such as filing a complaint with the World Trade Organization or downgrading trade relations.
The EU could strip Argentina of trade benefits provided to developing countries or halt free-trade talks between the EU and the South American bloc called Mercosur. That would mean dealing bilaterally with Mercosur’s non-Argentine members, which are Brazil, Uruguay and Paraguay, Garcia-Margallo said in Luxembourg. (Alan Clendenning, Repsol threatens to sue firms that help Argentina, Houston Chronicle, April 25, 2012 )

In this picture released by Argentina's Press Office, President Cristina Fernandez, left, greets supporters during the inauguration of an energy plant in San Juan Argentina, Thursday April 19, 2012. Argentina's government showed no signs of backing down Thursday from expropriating a Spanish company's controlling stake in YPF, Argentina's formerly state-owned energy company, shrugging off international condemnation while finding overwhelming support for the plan in congress. Photo: Argentina's Press Office / AP. From Alan Clendenning, Repsol threatens to sue firms that help Argentina, Houston Chronicle, April 25, 2012

The expropriation, then,  suggests the tensions created as the global economic order moves from one that was primarily based on the supremacy of the state, and their domestic legal orders, to one that de-centers the state and reduces its role to that of partner within webs of legal and contractual relations between states, states and non-state actors and international organizations.  It suggests the way that the power of law is being countered by the expanding power of governance contract, and one in which the monopoly of state control within its territory is being challenged by the authority of international actors to reach into states through norm and contract.  More importantly, it suggests that power within a territory may not be as central to sovereign development as the Argentine action–grounded in that 20th century view of autonomous national development, might appear. Argentina may be able to do as it likes within its territory, but it has little power to move outside actors–states and non-state organizations–from engaging with it in its now more risky economic development plans.

To a large extent, the expropriation marks a rear guard action of the state, and an expression of longing for a time half a century old, of the Third World’s New Economic Order.  That is a world in which corporations are understood as creatures of the state in which they are chartered, one in which the ovberriding needs of the people, as determined by its government, makes law voidable and contingent.  It is a world that the internal logic of globalization opposes.  The Cuban State has been quick to see the struggle in those terms, and to weigh in on the side of the Argentine state apparatus.
Ministry of Foreign Affairs Declaration
The Ministry of Foreign Affairs of the Republic of Cuba has learned of the decision made by the government of the Republic of Argentina to expropriate 51% of the oil company YPF, as stipulated in national legislation. Yacimientos Petrolíferos Fiscales is a subsidiary of the Spanish corporation Repsol which operates in Argentine territory.
The company YPF, originally an Argentine state enterprise, was among the many privatized or sold at implausibly low prices by President Carlos Saúl Menem, who governed the country between 1989 and 1999, within the framework of neoliberal policies which were imposed on Our America during this period given the insistence and collusion of the United States.
Cuba reiterates its unconditional solidarity with the Argentine Republic and affirms that the country is acting within its rights to fully exercise its sovereignty over its natural resources, including oilfields. The country’s action is based on international law and numerous related decisions which have been adopted by the General Assembly of the United Nations. (Republic of Cuba, Ministry of Foreign Affairs, Declaration, Havana, April 19, 2012, reprinted in Granma, April 20, 2012).
For more on the Cuban view underlying this declaration, see, Backer, Larry Catá, Odious Debt Wears Two Faces: Systemic Illegitimacy, Problems and Opportunities in Traditional Odious Debt Conceptions in Globalized Economic Regimes. Duke Law School, Law & Contemporary Problems, Vol. 70, 2007. It may take years to sort this out.  But what will make this most interesting will be to see the way in which the state interests of Argentina, the interests of the international community, and the governance structures of globalization are deployed to reach a resolution. Backer, Larry Catá, Economic Globalization Ascendant: Four Perspectives on the Emerging Ideology of the State in the New Global Order. University of California, Berkeley La Raza Law Journal, Vol. 17, No. 1, 2006;


Nicholas Rowland said...

Fascinating case for understanding contemporary struggles over the global position of states vis non-state entities. This concern echoes a major hypothesis in writing on the future of the state, that the state has becomes a supporting actor of globalization and thereby its own decline (see Susan Strange (1995) considering such issues in her balanced essay “The Defective State” DAEDALUS). Also, another case I imagine you're well aware of has to do with Phillip Morris in Columbia years ago regarding PM's ability to pressure Colombian officials to lift the tariff on US cigarettes in order to discourage smugglers from illegally importing them into the Colombian state (which, of course, PM was responsible for). Nicely, the combination of US-based lobbyists working in Colombia and somewhat disenfranchised indigenous Colombian smugglers created an elegant solution where non-state actors (variously arranged) helped to usurp state power (see it here: or here:

Anonymous said...

Amusing state of affairs