Towards a More Standardized Rule of Compensation?
Feb-11-08 09:29 am
ExxonMobil and Venezuela--under the leadership of Hugo Chavez--have been pushing forward greater standardization of the rule of compensation through their most recent business dispute.
With the price of oil and natural gas sustaining high levels over the past several years, oil-producing countries have asserted greater control over their resources, extracting both greater influence among global energy markets as well as the domestic political and economic realms to which resource revenues, or rents, accrue. An interesting aspect of resource wealth and ownership under international law has revolved around the rules of expropriation, nationalization, and compensation. While surely state nationalization of energy industries, and expropriation of foreign-owned assets is a not a new phenomenon, the most recent wave of nationalizations has occured within the context of a more binding homogeneous global economic system as compared to that of four decades ago. The status of expropriation under international law is considered legal if it is carried out for a "public purpose," as well as--and perhaps more importantly--"adequate" compensation is provided. The second criterion is more contentious, especially from the expropriating state's vantage point. One of the more recent cases highlighting this point is the dispute between ExxonMobil and Venezuela. As the New York Times reports today, the disagreement has entered a new phase with the most recent international ruling favoring ExxonMobil and effectively freezing a significant amount of Venezuelan state monies:
The oil giant Exxon Mobil has won court orders freezing as much as $12 billion in petroleum assets controlled by Venezuela’s government in an escalation of a dispute over efforts by President Hugo Chávez to assert greater control over the country’s oil industry.There are two issues to note in this phase of the dispute. The first revolves around the political-economic question of energy imports, oil dependence, and relative posturing. While Hugo Chavez may threaten the US with cutting off oil supplies as a reaction to the current ruling, the reality is that Venezuela is more reliant upon the US as an export market for their heavy crude (about 60% of Venezuelan crude goes to the US), whereas the US is less reliant upon Venezuela as a supplier (about 10% of US oil imports comes from Venezuela). While any disruption may be hazardous to the US economy and energy markets, the reality of this "assymetric interdependence" trumps both the posturing and the rhetoric of either party in the dispute. Secondly, and perhaps more interestingly, the rule of compensation in dealing with expropriation under international law may be heading towards greater standardization, especially if this case proves to influence Venezuela into compensating ExxonMobil within an acceptable price band of "adequate" compensation. While international rules of human rights may be perceived as having a higher degree of universiality, international rules and norms of business and finance are constructed under the rubrix of specific global economic systems. The fact that the rule of compensation may be taking on a new acceptable and enforcable role under international law may point towards the consolidation, realization, and internalization of the standards of a globalized market economy with regulated and limited state action.
Posted by: Brendan P. Geary
About the editor:
Commentary and analysis at the intersection of international law and politics.
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