Colombia And Venezuela Agree A New Bilateral Investment Treaty, Venezuela's First Since Withdrawing From The ICSID Convention

• Law Firm: Herbert Smith Freehills
• Subject Matter: Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution
• Author: Mr Christian Leathley, Daniela Paez and Lucila Marchini
• Published date: 20 March 2023

On February 23, 2019, Venezuela broke diplomatic relations with Colombia and gave Colombian diplomats twenty-four hours to leave the country. Four years later, on February 3, 2023, Colombia and Venezuela signed an unprecedented bilateral investment treaty (BIT) that evidences the marked improvement in their relations since the election of President Gustavo Petro in June 2022. The BIT will come into force 60 days after both countries notify each other that they have completed the necessary domestic procedures.

Despite having 25 BITs in force, the Venezuelan Government has been bitterly critical of investment treaty protection over the course of the last decade, going so far as to denounce the ICSID Convention in 2012. Indeed, the new BIT with Colombia is the first BIT signed by Venezuela since 2008 (when it entered into BITs with Russia and Vietnam), and therefore the first since its withdrawal from the ICSID Convention.

Unlike Colombia, which has embraced free trade in recent decades (it is a founding member of the Pacific Alliance, for example), Venezuela has faced a barrage of sanctions and investment claims triggered by the controversial policies and expropriations introduced by former President Hugo Chavez and subsequent President Nicolas Maduro. Mindful of this experience, the new BIT appears to address many of the sensitive points that have caused challenges for Venezuela in the 57 investment claims that it has faced so far.

Background

Up until the recent election of leftist President Gustavo Petro, relations between Colombia and Venezuela had become increasingly cooler as the countries pursued markedly different economic and political strategies. The decision of Petro's predecessor, Ivan Duque, to recognise Juan Guaido as the legitimate President of Venezuela resulted in Nicolas Maduro breaking diplomatic relations with Colombia on February 23, 2019. Yet, on the campaign trail, Petro committed to rebuilding relations with Venezuela, and, after his electoral victory, he designated his closest advisor to be Colombia's new ambassador to Caracas.

Despite sharing a long border and close cultural ties, exports to Venezuela currently account for less than 1% of Colombia's total exports'a low proportion when compared to Colombia's exports to other neighbours such as Panama or Ecuador. The new Colombia-Venezuela BIT provides an opportunity to bolster trade and investment between both countries, and it also provides an experimental template for a BIT that...