The Brazilian government has the option of going to court (the International Court of Justice) to contest the change in the rules for the petroleum industry in consequence of the Bolivian decision to nationalize the country’s petroleum and natural gas reserves.
This would be the most likely course, according to Umberto Celli Júnior, professor of International Law at the University of São Paulo (USP), if Brazil decides to submit the matter to a legal solution. The International Court has already ruled on similiar issues.
As Celli Júnior sees it, however, the Brazilian government should first adopt a posture of political and diplomatic negotiation. "Based on Brazil’s present foreign policy of delaying things and trying to reach political solutions, this should be the initial approach," he said.
According to the professor, the possibility of appealing to the International Court might serve as a means to press Evo Morales’ government to rethink the decision it announced on Monday, May 1st.
Celli Júnior believes that the economic damage Petrobras could suffer might influence the Brazilian government’s decision. "This could have an impact on how long Brazil will be willing to seek a diplomatic solution before going to court."
The Bolivian nationalization decree determines that all the country’s petroleum and natural gas reserves should be transferred to the state-run Yacimientos Petroliferos Fiscales Bolivianos (YPFB), which will be in charge of selling the products.
Another change has to do with the profits: 82% of the revenues will go to the Bolivian government and the remaining 18% to the operating companies.
Since the privatization of the sector in the 1990’s, three foreign companies have been responsible for the country’s petroleum and natural gas production: the British firm, BP, the Spanish firm, Repsol, and the Brazilian state-run company, Petrobras.
According to the international law specialist, Evo Morales’ decision violates international rules concerning foreign investments. Besides the International Court of Justice, Brazil could also take the case to the World Trade Organization (WTO), of which both Brazil and Bolivia are members.
However, according to Celli Júnior, even though the WTO has a conflict resolution mechanism for disputes brought by member states, the WTO wouldn’t be the best forum, since it doesn’t have specific rules concerning investments.
"The most traditional path to resolve the problem, if it turns into a legal issue, would be the International Court of Justice," he said.
Celli Júnior pointed out that there is no formal agreement between the Brazilian and Bolivian governments protecting investments made in Bolivia. If Brazil decides to go to court with the question, its case will have to be based on the contract between Petrobras and the Bolivian government and the rules of international law.
"In relation to Brazil, the situation is quite unusual and unprecedented," he observed.
For Bolivia, on the other hand, the situation is nothing new, the professor observed. Two or three years ago, the public water supply system, which was in private hands, was nationalized.