Santiago, October 2019, thousands of people occupied the streets asking for economic structural reforms. A demonstration that started with students complaining about an increase in the metro fare escalated quickly in a national movement demanding significant changes in education, health and pensions. These three essential public services have been in the hands of the private sector for decades, a consequence of the neoliberal model implemented after the coup against the democratically-elected government of Salvador Allende in the 1970s. This cry for structural reforms is not unique to Chile. It has been heard in the Global North and the Global South, most recently in Colombia. We are witnessing a call for change and the decay of a neoliberal consensus, including a legal consensus. In the United States, a new administration implements a historical economic package that reminds many of the New Deal. In Chile, people have voted to replace the constitution with a new text that reflects the new priorities.
Even before electing representatives to the constitutional assembly, another cry has been heard resonating loudly in the media and policy debates. It does not come from the streets but from the mining and finance sector; it is the cry of Expropriation! Opposition parties have started to delineate what a new Constitution could mean for Chile in Congress. Discussions include a new tax on mining activities that would serve to fund a Covid-19 emergency operation; copper prices –Chile’s main export—have reached new maximums in the last weeks. Congress has also granted most Chileans the possibility to receive immediately part of the savings kept under the management of private pension funds. Recently, this also includes savings invested in annuities programs with insurance companies.
These measures are controversial, and there are good reasons to oppose the fact that people survive the Covid-19 emergency by giving up their pensions. The business sector has observed other problems but, more recently, it has recurred to a legal vocabulary of resistance. They claim that some of these measures constitute an expropriation, threatening the government to sue Chile before national and international tribunals. Surprisingly, they have found unexpected allies within the Chilean administration itself, as the finance minister noted that the measure in question is indeed an expropriation.
There is nothing new in this alignment of forces. Leaders of the extractive and finance sectors joined forces in the 1950s to imagine a legal response to the nationalizations and states’ increasing intervention in the economy. They pointed fingers at the North as much as the South, but were particularly concerned about the events in Indonesia, Egypt (Suez) and Iran. This coalition of norm entrepreneurs included Herman J. Abs (Deutsche Bank and Deutsche Shell), Hartley Shawcross (Shell), the American Bar Association and the International Chamber of Commerce. They also found the support of a finance minister, the German ordoliberal Ludwig Erhard. Together the finance and natural resources lobby cried loud and clear: Expropriation!
They also came up with the idea of a multilateral investment treaty and investor-state dispute settlement (ISDS) to address the problem. Although the multilateral treaty never came into being, their legal imagination has occupied the space of international investment law. Investment treaties were signed en masse in the 1980s and 1990s under the premise that foreign investment relations would now be depoliticized thanks to international arbitration.
The law and the legal vocabulary that the norm entrepreneurs of the 1950s and 1960s imagined in the Cold War becomes today’s battleground in Chile. Yet, this is not the only historical lesson. These people also insisted on naming things expropriation, arbitrary measures or inappropriate compensation even if they knew that the status of the law in those subjects was controversial, as US Courts and the ICJ noted in the 1960s and 1970s. They hoped that the law would catch up.
In Chile, the cries of Expropriation have not been followed by a detailed discussion of the existing laws and treaties, reservations, exceptions. Instead, the focus of many lawyers, bankers and mining firms is the cry itself. It is essentially a political use of domestic and international law as if these actors were not actually interested in prevailing in a potential dispute but instead in blocking the demands for structural reform. The cry of Expropriation of a finance minister makes no sense from a litigation perspective. It can only serve to prove Chile’s international responsibility; it is either irresponsible or just silly. Yet, it is totally understandable as a class act, as Domingo Lovera noted on Twitter.
There is another analogy between the advocates of international investment protection and those who cry Expropriation in Chile. The norm entrepreneurs of the 1950s and 1960s talked about the alleged benefits of foreign private investment, observing that countries could attract investment flows through incentives and investment treaties. But they made these assertions with no or limited empirical evidence. After defending investment treaties and ISDS, Shawcross observed that it would be good to know whether foreign investment promotes development. The policy reasoning was first to provide incentives, then we find out. The recent cry of Expropriation in Chile is similar in this respect too. The assertions that a raise in the mining tax would annihilate the mining sector or make it uncompetitive are supported by little analysis or empirical evidence. This begs the question of whether these actors care at all about the legal and economic policy details.
For a country like Chile—and the Global South in general, the cry of Expropriation brings memories of military occupation, foreign intervention, coups and international arbitration. Regardless of the soundness of the 1960s and 1970s economic policies, many of these measures were conceived to respond to people’s needs for health, education and dignity. In this respect, they were not different from the nationalizations implemented in Britain or France after World War II. The problem is that Global North countries have historically had more space to pass progressive measures, for instance, paying partial compensations to private owners. The norm entrepreneurs of the 1950s and 1960s did note their opposition to nationalizations and state economic intervention in the North, but launched their legal and political attack against the South. Global South countries need to be aware of this antecedent; governments and people need to cooperate and coordinate to ensure they can implement similar measures than in the North, with similar flexibilities.
The matter is relevant to people in the North too. The policy toolkits of neocolonialism or structural adjustment were first tested in the South and later implemented in the North. Measures that become popular in the South may later occupy the policy space and turn into the orthodoxy. Investment treaties and ISDS were first designed to discipline Global South but later utilized to sue Global North states.
Those who want to defend Global South’s space to experiment and pass progressive reforms can insist on formalism, as Koskenniemi has suggested, pointing to the legal text, the exceptions, reservations showing that many of these cries of Expropriation are only political utterances dressed in legal terminology. But this strategy may not be enough. Lawyers in the North and the South also need to begin conversations and collaborations to ensure that similar economic measures can be implemented everywhere. Sometimes, democratic and carefully crafted measures in the North are renamed as political and arbitrary actions in the South. Quite often, the Expropriation cry is only class politics, and discussing these claims as legal allegations—as opposed to political positions—may already be giving up too much. Otherwise, we run the risk that democratic discussions in Chile or other parts of the world occur in the background of international investment law.