Investment Facilitation Mechanisms and Access to Justice in Brazilian Investment Agreements

Issue: 
9
Volume: 
24
By: 
Sufyan Droubi
Date: 
May 06, 2020

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.


[1] There are CFIAs with Angola (in force), Chile, Colombia, Ecuador, Ethiopia, Guyana, India, Malawi, Morocco, Mexico (in force), Mocambique, Suriname, and the United Arab Emirates. 

[2] Fábio Costa Morosini & Ely Caetano Xavier Junior, Regulação do investimento estrangeiro direto no Brasil: da resistência aos tratados bilaterais de investimento à emergência de um novo modelo regulatório, 12 Revista de Direito Internacional (UNICEUB) 421 (2015). 

[3] See reports of the Foreign Relations Commission and the Economy, Industry and Trade Commission in the parliamentary debate over the defunct Brazil-UK bilateral investment treaty in Câmara dos Deputados do Brasil, Projeto de Decreto Legislativo no 367-C de 1996, 60 Diário da Câmara dos Deputados, Brasília, 21696–7, 21722 (2000).

[4] Maria Tereza Aina Sadek, Acesso à justiça: um direito e seus obstáculos, Revista USP 55–66 (2014). 

[5] Brasil, Constituição da República Federativa do Brasil (1988) art. 5, XXXV (access to justice) and LXXIV (assistance for people without resources).

[6] Supremo Tribunal Federal, Pacto Republicano: parceria entre os Três Poderes a serviço da democraciahttp://www2.stf.jus.br/portalStfInternacional/cms/verConteudo.php?sigla=portalStfDestaque_pt_br&idConteudo=173547.

[7] UN Commission on Human Rights, Report of the Special Rapporteur on the independence of judges and lawyers, Mr. Leandro Despouy, Addendum, Mission to Brazil, E/CN.4/2005/60/Add.3 4 (2005).

[8] For instance, Vivek Maru, Access to Justice and Legal Empowerment: A Review of World Bank Practice, 2 Hague Journal on the Rule of Law 259–281 (2010). 

[9] Luciana Gross Cunha & Daniela Monteiro Gabbay, Diagnóstico sobre as causas de aumento das demandas judiciais cíveis, mapeamento das demandas repetitivas e propositura de soluções pré-processuais, processuais e gerenciais à morosidade da Justiça, Brasília: Conselho Nacional de Justiça (2010).

[10] All CFIAs provide that the promotion of sustainable development is among their main objectives.

[11] United Nations, SDG 16: Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels, Sustainable Development Goals Knowledge Platform16, https://sustainabledevelopment.un.org/sdg16.  

[12] Brazil-Mexico CFIA 14(4)(d); Brazil-Angola CFIA 4(4)(iv); Brazil-Colombia CFIA 16(4)(d); Brazil-Malawi CFIA 3(4)(d); Brazil-Mozambique CFIA 4(4)(iv); Brazil-Ethiopia CFIA 17(4)(d); Brazil-Suriname CFIA 18(4)(d); Brazil-Guiana CFIA 18(4)(d); Brazil-UAE CFIA 18(4)(d) (silent on civil society); Brazil-Morocco CFIA 1494)(d); Brazil-India CFIA 13.4(d).

[13] On the duty to disseminate information about investments and normative frameworks to the private sector, Brazil-Mexico CFIA 17; Brazil-Angola CFIA 7; Brazil-Colombia CFIA 20; Brazil-Malawi CFIA 6; Brazil-Mozambique CFIA 7; Brazil-Ethiopia CFIA 21; Brazil-Suriname CFIA 22; Brazil-Guiana CFIA 22; Brazil-UAE CFIA 22; Brazil-Morocco CFIA 18; Brazil-India CFIA 17.

[14] Brazil-Mexico CFIA 18(3)(c); Brazil-Angola CFIA 15(3)(iii); Brazil-Colombia CFIA 22(3)(c); Brazil-Malawi CFIA 13(3)(c); Brazil-Mozambique CFIA 15(3)(iii); Brazil-Ethiopia CFIA 23(3) (4); Brazil-Suriname CFIA 24(3)(4); Brazil-Guiana CFIA 24(3)(4); Brazil-UAE CFIA 24(3)(4); Brazil-Morocco CFIA 19(3)(4); Brazil-India CFIA 18.3-4.

[15] Brazil-Mexico CFIA 15(4)(b); Brazil-Angola CFIA 5(4)(b); Brazil-Colombia CFIA 17(4)(b); Brazil-Malawi CFIA 4(4)(b); Brazil-Mozambique CFIA 5(4)(b); Brazil-Ethiopia CFIA 18(3)(c); Brazil-Suriname CFIA 19(4)(c); Brazil-Guiana CFIA 20(4)(c); Brazil-UAE CFIA 1994)(c); Brazil-Morocco CFIA 15(4)(c); Brazil-India CFIA 14.4(c).

[16] Notably, Brazil-Ethiopia CFIA 18(5); Brazil-Suriname CFIA 19(5); Brazil-Guyana CFIA 19(5); Brazil-UAE CFIA 19(5); and Brazil-India CFIA 14.8. All CFIAs have provisions on the duty to exchange of information. The Brazilian NFP is responsible for interacting with its peers in other countries, Presidente da República do Brasil, Decreto No 9.770, de 22 de Abril de 2019 (2019), https://www.planalto.gov.br/ccivil_03/_Ato2019-2022/2019/Decreto/D9770.htm#art1, s. 4(v). 

[17] For instance, the debate on whether CFIAs may have direct effect becomes relevant, José Augusto Fontoura Costa, Daniel Tavela Luís & Vivian Daniele Rocha Gabriel, Application of Cooperation and Facilitation of Investment Agreements In Brazil, 11 Revista de Direito Internacional Econômico e Tributário 92–118 (2017). 

[18] Presidente da República do Brasil, Decreto no 8.863, de 28 de Setembro de 2016https://www.planalto.gov.br/ccivil_03/_Ato2015-2018/2016/Decreto/D8863.htm, as amended by Decreto Nº 9.770, supra note 17.

[19] CAMEX, Resolução No 12, de 16 de Fevereiro de 2017 (2017), http://www.camex.gov.br/component/content/article/resolucoes-camex-e-outros-normativos/58-resolucoes-da-camex/1792-resolucao-n-12-de-16-de-fevereiro-de-2017. For the website, CAMEX, Ombudsman de Investimentos Diretos – OIDhttp://oid.economia.gov.br/en

[20] On the power to recommend changes in the laws and regulations, Resolução No 12, supra note 20, s.4(vii).

[21] Eduardo Cambi & Fernando Machado de Souza, A Disponibilidade Do Interesse Público No Novo Código De Processo Civil E O Princípio Da Eficiência Na Administração, 44 Revista da AJURIS 129–154 (2017).

[22] IPEA, SIPS Sistema de Indicadores de Percepção Social – Justiça (2010), http://www.ipea.gov.br/portal/images/stories/PDFs/SIPS/101117_sips_justica.pdf.

[23] Banco Central do Brasil, Relatório de Investimento Direto (2019), https://www.bcb.gov.br/publicacoes/relatorioid. Note that the Ombudsman is also mandated with the provision of assistance to Brazilian investors with interests abroad. 

[24] Daniela Monteiro Gabbay, Maria Cecília de Araujo Asperti & Susana Henriques da Costa, Are the Haves Getting Even More Ahead Than Ever? Reflections on the Political Choices Concerning Access to Justice in Brazil in the Search of a New Agenda, Direito GV – Research Paper Series (2017), https://papers.ssrn.com/abstract=2998779.