2. Arbitration of Government Contracts in Latin
America: Peru, the Example to Follow?
Franz Kundmüller
fkundmuller@limaarbitration.net
www.limaarbitration.net

3. • Global Environment
– Globalization´s Density
• Perú in Numbers
• Dispute Settlement
– Evolution of the DS tools
• Peruvian Legal Framework
– Access of the State to Arbitration
• State Arbitration Experience
– Procurement, Graphics
– Best Practices in Investment Disputes

4. Global Environment
Globalization´s Density

5. Global Environment
• Since 1990, the exchange of goods and services grew to
45% of the global GDP
• FDI has grown 2000% since the eighties
• 100 biggest global organizations; 49 are States and 51
are transnational companies
• Increasing number of States
• 50,000 international treaties registered in UN
• Global crisis
CASSESE, Sabino (2002) El Espacio jurídico Global; Revista de
Administración Pública No. 157, Enero-Abril 2002

6. Global Environment
Trade Agreements 2002 (IDB)
400
Trade agreements
Economic cooperation
agreements
300
200
100
0
1967 1972 1977 1982 1987 1992 1997 2002

7. Global - Legal Environment
Multilaterales Treaties 1995
3731 Multilateral Treaties
•Economic issues, 1622, 43%
•Politics and Diplomacy, 838, 22%
•Human Rights and Hum. Law, 311, 9%
•Military, 162, 4%
•Environment, 319, 8%
•Others, 479, 14%
KING, ALLEN, DIRLING (2003); International Law and Globalization: Allies, Antagonists or
Irrelevance?; Syracuse Journal of International Law and Commerce, Winter 2003 .

8. Devlin (2002), Integration and Trade Agreements;Pacífic Basin,
“spaghetti bowl”
FTAA
PR China
CACM
Hong Kong
Brunei Costa
Panama
Taiwan Rica
Cambodia
El Salvador
Russia
Canada Guatemala Uruguay
Indonesia
Honduras Paraguay
Laos Argentina Brazil
Nicaragua
Japan Mercosur
Malaysia USA
Myanmar
Philippines
Mexico
Bolivia
ASEAN
Colombia
Singapore
South Korea Chile
Venezuela
Ecuador Bahamas
Thailand
Andean Dominican
APEC Vietnam New Zealand
Community Republic
Intra-LAC APEC Peru CARICOM
in force
Australia Dominica Trinidad & Tobago
Intra-Asia-
Suriname Grenada Barbados
Pacific in force
Jamaica St. Vincent & Grenadines
Intra-LAC
Papua New Guinea Guyana Antigua & Barbuda
Under Negotiation
St. Kitts & Nevis Belize
Trans-Pacific
Haiti St. Lucia
Under Negotiation
Negotiations under
strong consideration Source: Ando, Estevadeordal, Miller (2002)

9. Global FDI inflows (UNCTAD)

10. Investment Arbitration in the World

11. Perú

12. Perú in numbers
• 3,080 km Coastline, 5 neighbour countries
• 200 miles of Territorial Sea
• 1´285,215 km2 total area, 3rd biggest country after Brasil and
Argentina in the region
• 12 cities with over 200 thousand habitants
• Coast Stripe (Deserts and Valleys); 87hab x km2: 11%;
Mountains (Sierra); 22hab x km2: 30%;
• Amazon Basin (Jungle); 4hab x km2: 59%
• High biodiversity, 20% of the total of birds; 40 to 50,000 types
of plants
• Over 84 “micro climates” (114 in the world), over 75 “eco
systems” within a single country

13. Perú 1981 – 2010 (UNCTAD)
Perú 1981 - 1990 1991 - 2000 2001 - 2010
Population 21.76 millions 25.66 millions 29.54 millions
Per Cápita GDP US$1,354.- US$2,078.- US$9,200.-
% GDP Growth - 0.9% 4.45% 8.9%
FDI inflows, millions
of US$ 29 3,106 9,200
% of the GDP 19.3% 20.16% 29.1%
Exp.% of the GDP 15.76% 16% 28.05%
Imp.% of the GDP 13.83% 18.16% 20%

14. Happiness Index Erasmus University Rotterdam
http://worlddatabaseofhappiness.eur.nl Assessed at: 03-Feb-2008
• Denmark 8.2 • Chile 6.7
• Colombia 8.1 • Uruguay 6.7
• Mexico 7.6 • France 6.5
• USA 7.4 • Greece 6.4
• Germany 7.2
• China 6.3
• Britain 7.1
• • India 6.2
Italy 6.9
• Spain 6.9 • Japan 6.2
• Argentina 6.8 • Peru 6.0
• Brasil 6.8 • Bolivia 5.8
• Venezuela 6.8 • Russia 4.4

15. Peruvian Statistics Institute; March 2012
(Instituto Peruano de Estadísticas e Informática)
• Urban Poverty in Perú until 2010
20% of the population
• Rural Poverty in Perú until 2010
61% of the population
• Poverty reduction
2004: 58.5% 2007: 42.4% 2010: 30.8%
2005: 55.6% 2008: 37.3% Extreme Poverty:
2006: 49.1% 2009: 33.5% 7.6%
• Infrastructure Deficit: 30 to 40 BillionUS$

16. Peruvian infrastructure deficit 2008
National Competitiveness Council (Consejo Nacional de
la Competitividad)
Sector Deficit US$ millions
Transport 13,961
Water and Sewage 6,306
Electric Power 8,329
Gas 3,721
Telecom 5,446
Total 37,760

17. Three Goals and Competitiveness Agenda
• Peruvian Minister of Economy (April 2012):
– Perú should reach the No. 1 position until 2014
• Investment; Perú is No. 2 in the Region
• Doing Business; Perú is No. 2 in the Region
• Human Development; Perú is No. 16 in a group of 24
countries
– Perú has a competitiveness Agenda in 7 issues (STI,
Entrepreneurship and Edu, Internationalization,
Infrastructure, ICT, Environment, Doing B)
– Competitiveness slightly above the average of the region

18. Dispute Settlement
Evolution since the 90´s

19. The “big picture” during the 90´s
Adr´s

20. Confidence and Judiciary (IDB; 1997)
• Japan 68% • Chile 27%
• Germany 67% • Colombia 26%
• UK 66% • El Salvador 25%
• France 55% • Mexico 22%
• Uruguay 53% • Venezuela 22%
• USA 51% • Bolivia 21%
• Italy 43% • Perú 21%
• Spain 41% • Ecuador 16%

21. GDP and
Confidence GDP per capita
•Japan 19,390 US$
Less GDP per capita means •Germany 19,770 US$
less confidence in the
Judiciary? •France 18,430 US$
•Uruguay 6,670 US$
International cooperation
•Chile 7,060 US$
for the reform of the
Judiciary Systems during •Colombia 5,460 US$
the nineties •Perú 3,110 US$
•Ecuador 4,140US$

22. Judiciary, duration of the judicial process
• Argentina, over 2 years in the 45% of cases
• Chile, 2 years and 9 months
• Colombia, 2 years and 9 months
• Costa Rica, 10 months
• Paraguay, over 2 years
• Perú, 4 years and 6 months
• Uruguay, 8 months
• Peru procurement disputes: over 4 years, legal
limitations for State-arbitration

23. New Legal Framework for Arbitration, following sources
(UNCITRAL, ICSID, Conv. NY.)
Bolivia, 1997 Guatemala, 1995
Brasil, 1996 Honduras, 2000
Colombia, 1998 México, 1993
Costa Rica, 1997 Panamá, 2002
Chile, internacional 2004 Paraguay, 2000
Ecuador, 1997 Perú 2008
El Salvador, 2002 Venezuela, 1998

24. Peruvian legal framework (domestic and
international)
Arbitration

25. Peruvian Constitution 1993
• Art. 139: Arbitration, “independent” Jurisdiction such as
the Military Jurisdiction (?!); origin: 1979
• Art. 63
– … the (peruvian) State and the peruvian public entities can
submit to national or international arbitration their disputes
concerning contractual relations, through the form established
by law
• Art. 62
– … the conflicts deirved from contractual relations can only be
settled through arbitration or judicial means, according to the
rules of protection of the contract or those established by law.
Through “stability contracts”, the peruvian state can establish
contractual warranties and security. These contracts can not be
modified by new laws

26. Peruvian Arbitration Law: State
• Art. 4
– Definition of the concept of State: Includes every public
organization and government level (central, regional and
local)
– Disputes among public organizations can be arbitrated too
– The state can arbitrate disputes derived from contracts
with nationals or foreigners, domiciliated or non
domiciliated within peruvian territory
– Disputes derived from financial activities could be
arbitrated too
• 14th Complementary Rule; recognition of awards to be
enforced according with ICSID rules

27. International Treaties and “stability contracts”
Investment Arbitration (our own “Spaghetti Bowl”)
• 10 Free Trade Agreements (USA, China, Chile, Japan
…)
• 3 Economic Complementation Agreements (Mexico,
Cuba and Mercosur)
• 36 Bilateral Investment Treaties 53 Investment
Agreements
• 769 Tributary Stability Agreements

28. Arbitration and legal framework
• NY and Panamá Convention for the recognition and
enforcement of arbitral awards
• Washington (ICSID) Convention
• Peruvian Arbitration Law 2008, harmonized with international
standards and global environment
• Aprox. 60 sectorial laws, decrees and rules, which include the
Peruvian Procurement Law
• Procurement: Settlement of disputes derived from the
execution phase of the contract; Peruvian Procurement Law:
DL 1071

29. Arbitration Agreement in Procurement Contracts
• Mandatory clauses in the contract
– That could be triggered by the State
• Bails
• Rescissory clauses
– That could be triggered by the State and the Private
Contracting Party
• Conciliation and Arbitration
• The obligation to include these clauses is established
in the Peruvian Procurement Law (Development of
the Art. 138 of the Constitution).

30. Arbitration and State

31. State Immunity
– European Convention on State Immunity 1972
– US Foreign Immunities Act 1976
– UK State Immunity Act 1978
– UN Convention on State Immunity, 2004; Art. 1 y 2
(signed by the PRCH)
• Mercantile transactions excluded
– Sell and Buy of goods and services
– Financing activities and warranties
– Any other mercantile activity, including works
contracts and others
– From Structuralism to Functionalism

32. Arbitration and State
• Domestic Level: Democratization of the dispute settlement
needs derived from the contract
– Gravitational Force of State Sovreignty
– Weak institutions and poor annual budget execution
– State: “Complex” decisionmaking
• Interests, sectors involved, civil society, etc.
– Tendence to “evasive practices” due to auto-control and
audit activities
– Privilege in the control of information
– Political risks (electoral years vs. “normal” years)
– Delays in payment (Budgetary Laws and Rules)

33. Study: Arbitration in Procurement
• 1,400 Cases
• 1998 – 1st quarter of 2010
• Total disputed amount:
– Aprox. 1,2 BiUS$
• Total Contracts:
– Aprox. 13 BiUS$

55. Conclusions
Thank you for your attention!