European Union weighs responses to Repsol privatisation - International Law Office

Introduction
EU response
Challenge launched

Introduction

Questions have been raised as to whether the viability of World Trade Organisation (WTO)-based challenges to Argentina's nationalisation of Spanish oil company Repsol YPF has been fully assessed. Although some officials seem to have ruled out a WTO challenge, Argentina's actions could well violate the government's WTO commitments.

The nationalisation of Spanish oil company Repsol YPF was approved by the Argentine Congress on May 3 2012. Spanish and EU representatives quickly denounced the move and began to consider multiple means of legal recourse.

EU response

In public statements after the action, the European Union objected that the nationalisation would further harm bilateral economic relations, which have been strained recently by Argentine import restrictions.

In a letter dated April 19 2012 to Argentine Trade Commissioner Hector Timerman, EU Trade Commissioner Karel De Gucht noted the European Union's "concerns about the overall business and investment climate", and indicated that Argentina's actions would affect EU-Mercosur negotiations and "jeopardize… our overall trade and investment relations". The following day, the European Parliament approved a resolution asking the European Commission to consider responses, such as a WTO complaint and suspension of the generalised system of preferences for Argentina.(1) In an April 26 2012 statement to the European Parliament's Committee on International Trade, De Gucht noted that the European Union is:

"looking closely at all tools at our disposal to give an effective response... tak[ing] account of the fact that this follows a series of unjustified and damaging protectionist measures recently introduced by Argentina."(2)

An unnamed EU source and WTO Director Pascal Lamy have stated that this is not a trade issue, but rather an investment issue. Although the European Parliament has called for the use of "all appropriate dispute settlement tools available at the WTO and the G-20", public statements appear to suggest that any WTO complaint would be limited to a number of import restrictions imposed by Argentina over the past year, rather than a direct challenge of the nationalisation of YPF.

Although the WTO agreements do not directly prevent governments from nationalising a company, a number of WTO claims could be developed by the European Union under the WTO's General Agreement on Trade in Services (GATS), the General Agreement on Tariffs and Trade (GATT) and the Agreement on Trade-Related Investment Measures (TRIMs).

The European Union, when seeking to challenge the nationalisation before the WTO, could, for example, argue that under the GATS a WTO member cannot create monopolies or impose limitations on the supply of a service by foreign companies in respect of services for which it has made full specific commitments. The European Union could advance the argument that by nationalising Argentina's main oil and gas company with long-term rights and privileges over oil and gas exploration and distribution, Argentina is in fact creating prohibited service monopolies in a number of service sectors in which it has undertaken full commitments – such as services incidental to mining and wholesale trade services for energy products. Furthermore, to the extent that Argentina grants more favourable treatment to third-country energy service companies compared to Repsol, the European Union may be able to make most-favoured nation claims under Article 2 of the GATS.

In addition, the European Union could argue that, as an enterprise managed by state officials in accordance with government-driven objectives to promote self sufficiency and limit reliance on imports, the nationalised YPF will in fact make effective import restrictions in violation of Article 11 of the GATT. When attracting investment from foreign companies, such companies may well be required to accept government-imposed objectives as conditions for obtaining the advantage of participating in the nationalised company's lucrative business. However, any investment measures that link the obtaining of an advantage to a condition that is inconsistent with Article 11 would violate Article 2(1) of the TRIMs. Article 17 of the GATT, relating to state trading enterprises, appears to be an additional legal basis that the European Union could seek to explore in light of the objectives of the nationalisation of YPF.

Given the magnitude of the concern raised by Argentina's nationalisation of Repsol YPF and the range of apparently credible WTO claims, the European Union may well leave open the possibility of a WTO challenge in connection with the nationalisation – based, for example, on some of the above arguments.

Challenge launched

An interesting new development is the recent WTO challenge brought by the European Union against Argentina in respect of a long list of import-related restrictions and requirements. In its May 25 2012 request for consultations formally initiating the WTO dispute, the European Union argued that Argentina has imposed a number of measures that:

• restrict the imports of goods; and
• discriminate between imported and domestic goods.

According to the European Union, these measures:

"do not appear to be related to the implementation of any measure justified under the WTO Agreement, but instead aimed at advancing the Argentinean Government's stated policies of re industrialization, import substitution and elimination of trade balance deficits."(3)

It considers that these measures appear to be inconsistent with Argentina's obligations under the GATT 1994, the Agreement on Import Licensing, the TRIMs, as well as the Agreement on Agriculture and the Agreement on Safeguards.

Although this challenge is, formally speaking, independent from the nationalisation of YPF Repsol, it may well be that it is the nationalisation which has prompted the European Union to file this complaint which had been in the making for some time. The European Union has sent a clear signal that it will no longer accept what it considers to be Argentina's protectionist trade and investment policies.

For further information on this topic please contact Jasper M Wauters at King & Spalding LLP by telephone (+41 22 591 0803), fax (+41 22 591 0880) or email (jwauters@kslaw.com).

Endnotes

(1) http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-2012-0143+0+DOC+XML+V0//EN&language=EN.

(2) http://trade.ec.europa.eu/doclib/docs/2012/april/tradoc_149377.pdf.

(3) WT/DS438/1, page 2.