Investment Facilitation Mechanisms and Access to Justice in Brazilian Investment Agreements

Since 2015, Brazil has concluded more than a dozen Cooperation and Facilitation Investment Agreements (CFIAs), in a radical departure from Brazil's earlier policy to remain out of the network of investment treaties.[1] These CFIAs include a novel system, encompassing mechanisms for preventing and settling disputes, which differs strikingly from traditional investor-state arbitration available under most bilateral investment treaties. This Insight addresses potential synergies between the Brazilian system of courts, tribunals, and institutions involved with prevention and resolution of disputes, and the mechanisms in the CFIA. 

The CFIAs epitomize Brazil's transition from resisting the classical model of investment agreements for the protection of foreign investors, to responding to the need for a model that protects the interests of a new generation of Brazilian investors.[2] This transition resonates with deeper changes in the political landscape. A main reason for the non-ratification of several bilateral investment treaties in the late 1990s and early 2000s was investor-state arbitration provisions, which were deemed inconsistent with, inter alia, equal access to justice.[3] This reverberated with the movement for universal access to justice,[4] which had reached its zenith in 1988, with the adoption of the Constitution.[5] After the establishment of the National Council of Justice in 2004, the emphasis moved from universalization of access to justice, to access to efficient justice.[6] This change was fuelled by the dire situation of the judiciary domestically,[7] but it was also influenced by international aspects of the debate.[8]

The concept of access to justice involves not only access to the courts, but also effective delivery of justice and finality of the process. Unclogging the judiciary is crucial for access to justice by the most vulnerable. One solution is to identify mechanisms that help prevent and amicably resolve disputes—including through providing better information and strengthening alternative dispute resolution mechanisms (ADR).[9] This Insight discusses whether the design of the Brazilian CFIAs' organs for dispute settlement, particularly the Joint Committees (JC) and National Focal Points (NFP), is congruent with the practicalities of Brazilian dispute settlement, and promotes sustainable development[10]—specifically, access to justice for investors and other stakeholders.[11]

The CFIA Dispute Settlement Mechanisms

The CFIA model contains three mechanisms for institutional governance: the JC, the NFP, and state-to-state arbitration. The JC and the NFP are tasked with facilitating investments, notably through information dissemination to the parties and to investors, and the prevention of disputes between the parties and between a party and investors of the other party.

The JC is a treaty organ comprising the parties' representatives, mandated with administering the agreement. Its powers include consulting with the private sector, interested parties, and civil society, on specific issues.[12] Consultation with these actors might ensure that their views are taken into account in the agreement's implementation. Notably, information sharing with investors may increase the latter's knowledge of the Brazilian legal, political, and economic environment.[13] Moreover, the JC is mandated with the prevention of disputes between the parties. Before resorting to arbitration, the parties must consult with each other and submit their dispute to the JC. A party may submit any investor's issue of interest to the JC. Whenever possible, representatives of investors, governmental, and non-governmental entities involved in a dispute will participate in the procedure.[14] Investors' participation in this procedure allows them to be heard where they otherwise might not be, and it strengthens the procedures before the NFP.

In contrast with the JC, each party nominates a domestic authority to act as NFP. The NFP mandate can be broadly described along three lines: providing assistance to the JC, including in the prevention of disputes involving the parties to the agreement; providing information to the other party and respective investors about regulatory frameworks and business opportunities; and preventing disputes involving authorities of its own state and the investors of the other party. Notably, the NFP is mandated with receiving and processing "requests," "suggestions," and "inquiries" submitted by the government or investors of the other party.[15] "Requests" and "suggestions" may relate to laws and regulations, including draft laws and regulations, while "inquiries" refer to concrete situations affecting investors. The NFP must include the competent authorities when assessing and making recommendations about the requests and inquiries.

The JC and NFP design creates a chain of communication linking the investors and authorities of one state party through their domestic NFP, onwards to the JC, and reaching, through the other state's NFP, the authorities and investors of the other state party.[16] If properly implemented, this chain may enhance the amount, quality, and flow of information available to investors and governmental authorities. This creates opportunities for them to speak at strategic points in time (before the adoption of a new regulation or a line of action), which may prevent the unnecessary judicialization of certain disputes. Indeed, experience shows that a number of disputes arise from differences in culture or expectations, for instance. The ability to make recommendations might serve to raise the authorities' awareness about investors, investments, and the international standards applicable to investments. Insofar as domestic authorities become aware of disputes that may end up before the JC, authorities may take significantly different approaches, for instance regarding whether to apply, and the weight to give to, international standards.[17]

Brazil has appointed the Executive Secretariat of CAMEX—an arm of the Ministry of the Economy—to act as NFP.[18]CAMEX established the office of the Ombudsman for Direct Investment, which offers a point of engagement with investors regarding their requests and inquiries on its website. [19] The structure supporting the Ombudsman involves a network of focal points across different levels and branches of governmental agencies. Crucially, the Ombudsman is open to all investors from all countries irrespective of whether there is a CFIA in place. However, the Ombudsman is not open to civil society in general and will not hear private disputes between companies. It does not have the power to impose a change in legislation or regulation on any authority, and it is unknown how a state or municipal authority may react to recommendations to change regulations to accommodate the interests of a foreign investor.[20] Moreover, under Brazilian law, the legal character of the procedure for receiving inquiries, consulting with governmental entities, and making recommendations remains unclear, particularly because of restrictions on the use of ADR when public interests are involved.[21]

Concluding Thoughts on Implementation

Although the CFIA model draws on international experience, its configuration is a home-grown solution to the historic rejection of investor-state arbitration and to the perceived need for mechanisms to prevent the judicialization of disputes. The design might promote access to effective justice insofar as it enhances the flow and quality of information and fosters a dialogue between investors and authorities. 

The challenges facing the implementation of this model are similar to those confronting dispute resolution in Brazil generally: excessive bureaucratization and formalism when addressing grievances, which aggravate inefficiency and affect legitimacy.[22] This risk increases with the amount of work—there are thousands of foreign investors in Brazil of different sizes, in different sectors,[23] facing all sorts of issues as they carry out their daily matters. It is unclear how the Ombudsman will manage the complexities of interacting with other authorities and the network of domestic focal points in a complex federal system. Depending how it is implemented, the design may backfire in terms of access to justice, which remains plagued by vast inequalities.[24] The CFIA model falls short of providing strong rules for the inclusion of other stakeholders and civil society organizations, while opening up new, strategic opportunities for investors. This may exacerbate inequality, but, again, much depends on the implementation of the model.

About the Author: Sufyan Droubi is a Lecturer in Law at the University of Dundee. Previously, Sufyan was a Postdoctoral Research Fellow at the University of Manchester, at the University of São Paulo and at the São Paulo Research Foundation. He holds a Ph.D. in Law from the University of Essex. A fully qualified lawyer in Brazil since 1996, he spent twelve years in practice before turning to the academia.