Foreign-investment disputes: Come and get me WHEN Carlos Menem wanted to lure foreign companies to Argentina during his presidency in 1989-99, one of his favoured tactics was the bilateral investment treaty. In 1991 he signed deals with the United States and France, among others. They required Argentina to protect foreign firms" property rights, and to let companies with grievances present claims at the International Centre for the Settlement of Investment Disputes (ICSID), a World Bank body that conducts arbitration between businesses and governments. Thanks in part to these treaties, foreign investment soared. In 2001 Argentina's economy collapsed. Both foreign and domestic companies suffered huge losses. Unlike local firms, however, foreigners could turn to ICSID for compensation. Dozens filed cases. Argentina has done well at ICSID, winning six of the ten resolved cases. A dozen more claims have been withdrawn. But the awards it has lost amount to $400m. A typical award involved CMS Energy, an American natural-gas company. Its operating agreement with Argentina stipulated that tariffs should be in dollars, adjusted for inflation in the United States and converted to pesos at the market exchange rate. In 1999 Argentina froze the tariffs in pesos, which were later devalued. It never increased them again. The other cases involved Azurix, a water company; Continental Casualty, an insurer; and a water-provision subsidiary of France's Vivendi. Argentina has not yet paid a cent to any of them. Argentina sees ICSID as too business-friendly, with some justification. According to Jürgen Kurtz, a law professor at the University of Melbourne, its tribunal members often come from commercial arbitration, where disputes are resolved narrowly, on the basis of firm contracts rather than treaties. But many ICSID claims involve investment treaties, which grant governments exceptions for broad interests such as public health or the environment. The arbitrators must determine whether a state's actions meet those criteria. Two of Argentina's leftist counterparts, Bolivia and Ecuador, have already withdrawn from ICSID entirely. A third, Venezuela, has said it will pull out. Even rich countries are starting to question arbitration. Last year Australia said it would not include investor-state arbitration in future trade agreements. The government is facing a claim by Philip Morris, a tobacco company, at a tribunal in Singapore over a law standardising cigarette packaging. Argentina has never threatened to quit ICSID. Its government insists it is open to honouring the awards. The only delay, it says, is that the claimants have not brought their rulings to a local court for collection. The companies, however, are wary of the Argentine judiciary. They say that ICSID was set up to enable firms to avoid local courts, and that their awards are binding even without Argentine judicial approval - a position that ICSID's arbitrators have backed. And they are not eager to pay the fee, worth 3% of the claim, that Argentine courts charge to process such awards, especially if there is a risk that they will be overturned. Moreover, in the past the Argentine government has paid judgments in bonds rather than cash. Azurix and Blue Ridge Investments - a Bank of America subsidiary that bought CMS Energy's claim - are trying to turn up the heat. They have requested that the United States Trade Representative ask President Barack Obama to revoke the trade preferences Argentina now enjoys, and are lobbying to block its access to World Bank loans. They can pursue Argentine state assets in any ICSID member country - although most of Argentina's foreign assets have already been grabbed by holders of its defaulted sovereign bonds. America could also conceivably sue Argentina at the International Court of Justice. But in the meantime, the claims remain unpaid. Whether that will cause a big decline in foreign investment is unclear. Multinationals had written off Ecuador, Bolivia and Venezuela long before they left ICSID. Even without arbitration, they will stay in Australia, which has reliable local courts and rich natural resources. Brazil has become a top investment destination without ratifying a single investment treaty. But medium-sized countries with middling political risk - such as Argentina - benefit most from arbitration. The country that has chosen to test the system is among the most likely to miss it if it falls apart.