University of Miami Law School University of Miami School of Law Institutional Repository University of Miami Inter-American Law Review 6-1-1973 The Andean Code: A Preliminary Appraisal A. C. Swan University of Miami School of Law Follow this and additional works at: http://repository.law.miami.edu/umialr Part of the Comparative and Foreign Law Commons, and the International Law Commons Recommended Citation A. C. Swan, The Andean Code: A Preliminary Appraisal, 5 U. Miami Inter-Am. L. Rev. 259 (1973) Available at: http://repository.law.miami.edu/umialr/vol5/iss2/2 This Article is brought to you for free and open access by University of Miami School of Law Institutional Repository. It has been accepted for inclusion in University of Miami Inter-American Law Review by an authorized editor of University of Miami School of Law Institutional Repository. For more information, please contact [email protected]. THE ANDEAN CODE: A PRELIMINARY APPRAISAL* ALAN C. SWAN** From the viewpoint of lawyers concerned with transnati nal business affairs in Latin America, one of the more intr guing developments of recent years has been the promulgation in 1971 of the so-called Andean Foreign Investment Code. Issued under the aeg.s of the Agreement of Cartagena, the Code has been hailed in some quarters as a bold new effort at reconciling developing country dependence upon foreign sources of capital and technology with their understandable fear that this depend- ence entails yielding-up too much of national sovereignty. If this is so, it would be a welcome step forward. The increasing tendency of develop- ing countries to seek independence by resort to expropriation and con- fiscation even as their requirements for foreign capital become more acute, is eloquent testimony to the fact that we have a serious problem. Nor must we forget that the desire for independence is a universal human impulse. Stop and reflect on what would occur in this country if we awoke one morning to find 50% of our banks, 70% of our petroleum production and 100% of our automobile manufacturing in foreign hands. I venture that the Burke-Harkte Bill would pale by comparison to the Xenophobic outcry that would sweep this nation. There is, I suggest, a problem, and a claim that the Andean Code offers a way to the solution of that problem. Our question is clear; is this so, or is the Code already or likely to become an illusion. To the international lawyer this question is of considerable interest because, however much we resist recognizing it, the traditional postulates of international law have been among the chief casualties in the rising tempo of warfare between the politics of nationalism and the economics of global development. I know of no major seizure of foreign owned assets by a developing country since World War II, where the compen- sation met the traditional "full, prompt and adequate" standard so vigor. *Paper delivered at Regional Meeting of American Society of International Law, University of Miami School of Law, February 17, 1973. **Associate Professor, University of Miami Law School, LAWYER OF THE AMERICAS ously espoused by the State Department and its constituency in the Amer- ican business community. And while I am prepared to acknowledge a value in this norm as a rhetorical device for Executive Branch negotia- tions, I can think of no greater folly than an attempt by the American courts to lend judicial dignity to its resurrection. If the traditional norms of international law afford no solution to the problem, procedural devices such as the World Bank Convention and various investment insurance programs have emerged largely still-born or incapable of reaching those areas of the world where they are most critically needed, namely Latin America. Resolution of the problem has, in short, passed beyond the reach of traditional legal norms and of the procedural substitutes offered in their stead. And in this setting, it be- comes preeminently the task of the international lawyer to examine each new departure in conflict resolution critically to gauge its prospects for success and, in success, for yielding up new and more viable norms. And so I return to my question. Does the Andean Code offer some such pros- pect, or is it an illusion? In addressing our question, we should be aware that two antithetical approaches - ideologies they might be called - have characterized much of the current discussion of the Code. Both I trust, we shall avoid here. One approach, invoking all the old conceptions of property rights codified in traditional international law, has tended to start on a high moralistic note of abhorrence to any politically inspired intervention in private economic decision making, and from this to leap uncritically to the assumption that the Andean Code, as violative of these precepts, will im- pose such costs on the private investor that he will either be driven away completely or that his decisions will be so distorted as to threaten the very objectives sought to be achieved by the Code in the first instance. The Code, in the mind of this school, has already been dismissed as a draconian monster; creature of a Xenophobic aberration in the Latin American mind. Perhaps these predictions of dire consequence will prove correct. Certainly I shall be critical of the Code; sometimes harshly critical. But the method employed in reaching conclusions is decisively important. To predict dire consequences a priori from a given set of ideological postu- lates is dangerous. Few men are so ideologically pure as to be beyond the corrupting influence of experience. And if regulators are rarely pure ideologues, businessmen are even less often so. It is not regulation per se, that will drive investors away, but the interaction of particular regula- THE ANDEAN CODE tions with the basic rationality - the profit motive - that objectively dominates most economic decision-making. It is dangerous indeed to sweep under the rug of an ideological abhorrence to regulation all the considerable talent that businessmen have exhibited in dealing with regulators. On the other hand, to argue that we must approach the Andean Code unencumbered by the baggage of outmoded notions of law and property rights, is not to justify embracing every expression of a resurgent Latin American nationalism. Moved in part by good-will and their desire to see Latin America progress, fearful lest their criticism be dismissed as North American chauvinism, suspicious of the more rigorous strictures of traditional economic thought, too many American commentators have become apologists for the Andean Code. They have professed to see in the Code a bright new promise of a reconciliation between Latin Amer- ica's need for foreign capital and the debilitating effects of dependence upon the foreigner. This predisposition too we must avoid because it is false. We may for any number of reasons dislike notions such as com- parative advantage and profit maximization. We may shrink before the taxing job of tracing economic effects -intended and unintended- through the labyrinth of particular institutional arrangements. But com- parative advantage is not a doctrine. It is a description of the world as it exists. And profit maximization is not a theory, but an observable fact concerning the behavior of the men who control the bulk of the world's capital resources. And the danger that out of particular political designs may emerge wholly unintended economic effects, is a danger that has plagued policy-makers since the beginning of political society. Moreover, if the developing countries of the world would cast aside as outmoded any moral obligation to respect the foreign investor's prop- erty rights, those investors in turn have no obligation to forego more promising enterprises elsewhere merely out of some humanitarian con- cern for the people of a particular nation or region. If we must talk of humanitarian obligations, I suggest that the disparity between the world's material needs and its available resources is so great, that efficiency in the use of those resources becomes a matter of some considerable priority, even of humanitarian obligation. And I for one know few tests of effici- ency in entrepreneurial stewardship more reliable than management's ca- pacity to maximize shareholder's profits, a test which does not exclude but appropriately limits actions emanating from a social conscience or the LAWYER OF THE AMERICAS desire to be a good citizen. So I repeat, no foreign investor, however long and profitable his association with a particular developing country, has any obligation to forego more profitable enterprises elsewhere merely out of concern for the people of that country. And any action by the Andean nations that proceeds upon other assumptions courts failure and deep disappointment. Any refusal of the American commentator to base his evaluation of Andean policy first upon the predictable effects of some such rigorous model of international business behavior, serves only to discredit his work and mislead his friends. In brief, our perspective is clear; we can neither embrace the Code uncritically on the basis of its own self-stated objectives nor dismiss it as some monstrous attack on all foreigners, their money and their technology. We must proceed, insofar as we can, to test its main features against certain objectively predictable determinants of private economic decision- making. Our task is not one of prediction, but of analysis; to identify the policy choices the Code's authors appear to have made and then as- suming a rational investor response to suggest the main lines along which, in the light of experience, the final verdict on the Code must rest. At this point, I would turn to a brief description of the main con- tours of the Code.