CARACAS, Venezuela (AP) — Venezuela has formally begun its withdrawal from a World Bank-affiliated arbitration body, the government announced Wednesday, a decision made by President Hugo Chavez as cases have accumulated against the country's seizures of companies and their assets.
Chavez and his allies say that disagreements with foreign companies operating in Venezuela should be settled with local authorities and within its judicial system.
The Foreign Ministry announced Venezuela's withdrawal from the Washington-based International Centre for Settlement of Investment Disputes, known by its initials as ICSID, in a statement, calling the government's decision "irreversible." It suggested the arbitration center unfairly favors foreign companies.
The ICSID's website lists 18 pending cases against Venezuela, while top government lawyer Carlos Escarra said recently that Venezuela faces a total of 28 arbitration cases, many of them before the ICSID.
The cases include multimillion-dollar claims by the Houston-based oil company ConocoPhillips Co., U.S. glass manufacturer Owens-Illinois Inc. and Canadian mining company Crystallex International Corp.
Diego Moya-Ocampos, an analyst with the IHS Global Insight consulting firm in London, said Venezuela's withdrawal from the center would not affect pending cases.
But he said the move could scare off foreign investors, particularly oil companies with potential interest in forming joint ventures with the state-run oil firm Petroleos de Venezuela in the Orinoco Oil Belt, which holds vast deposits of extra-heavy crude.
Studies confirming those deposits in a swath flanking the Orinoco River have allowed Venezuela to surpass Saudi Arabia as the nation with the world's biggest proven reserves, according to the Organization of Petroleum Exporting Countries.
But Venezuela urgently needs cash to develop its industry in the Belt.
Leaving the ICSID "could seriously affect foreign investment, especially in the Orinoco region," Moya-Ocampos said in a telephone interview. "It could also affect Venezuela's credibility in international market and increase the cost of borrowing."
The Foreign Ministry said the 1966 treaty that established the ICSID undermines Venezuela's sovereignty and contradicts the country's constitution.
Government officials who signed the agreement in 1993 were "pressured by traditional economic groups that participated in the dismantling of Venezuela's national sovereignty," it said.
Under the terms for withdrawal, there is a six-month month period during which more cases can be filed, said Marcos Carrillo, a professor of arbitration and conflict resolution at the Andres Bello Catholic University and IESA business school in Caracas.
If a state-run or private company refuses to comply with the center's decision, winners of ICSID rulings often seek to recover lost assets by seeking an embargo on the sale of assets owned by the defendant, Carrillo said.
Referring to Venezuelan officials, he said: "When there's an ICSID decision, they have two options: Either they voluntarily comply with it or it's enforced."
If Venezuela were to "refuse to participate or recognize any future awards, the convention makes any award in those cases enforceable in any of the 140 jurisdictions that are members of ICSID," said Russ Dallen, a financial analyst in Caracas.
Venezuela's attorney general, Carlos Escarra, suggested last year that Venezuela should consider abandoning the ICSID, following the example of leftist governments in Ecuador and Bolivia, which pulled out in the past several years.
Escarra, a close ally of Chavez, died of a heart attack on Wednesday.
Associated Press writer Fabiola Sanchez in Caracas contributed to this report.