Bloomberg News

EU Sees Repsol’s Leverage in Investment Pact, Weighs Own

April 17, 2012

Repsol YPF SA (REP)’s first option for countering the seizure of its subsidiary in Argentina lies in the enforcement of an investment treaty between Spain and Argentina, the European Commission said.

The commission, the European Union’s executive arm, ruled out a World Trade Organization complaint and said Spain would break European and international law by unilaterally imposing trade curbs on Argentina.

European officials warned that the nationalization of YPF SA (YPFD), majority-owned by Madrid-based Repsol, damages the business climate in Argentina and disturbs the legal underpinnings of other European companies’ operations there. They counted on the international uproar to force Argentina to back down.

“I am seriously disappointed,” the commission’s president, Jose Barroso, told reporters in Brussels today. “We expect the Argentine authorities to uphold their international commitments and obligations, in particular those resulting from a bilateral agreement on investments with Spain.”

Barroso said he spoke yesterday with Spanish Prime Minister Mariano Rajoy about how to respond to Argentina’s move to strip Repsol of control of YPF, Argentina’s largest crude producer.

EU officials will analyze “all the possible options which are available,” said commission spokeswoman Pia Ahrenkilde- Hansen.

Policy Dialogue

In a symbolic protest, the EU canceled an April 19-20 policy dialogue with Argentina on economic and trade issues. The meeting, the 10th in two decades, was to be chaired by Christian Leffler, head of the Americas section in the EU foreign service.

Spain’s investment pact with Argentina may entitle Repsol to seek independent arbitration to get the nationalization overturned or obtain compensation from the Argentine government, an EU official told reporters.

A preliminary analysis rules out a complaint to the WTO because investment-protection pledges aren’t part of Argentina’s commitments to the global trade body, the official said under condition of anonymity. As part of the EU’s border-free single market, Spain has no power to impose trade sanctions on its own, he added.

Europe’s leverage is limited by WTO rules and the lack of an EU-Argentina trade accord, said Cedric Dupont, professor of international relations at the Graduate Institute in Geneva.

“The Europeans would probably have no ground to complain against Argentina,” Dupont said. “They cannot go after them.”

The EU is also unlikely to speed the phase-out of trade preferences that Argentina is scheduled to lose in 2014 because it is no longer classified as a developing country, the European official said.

While the trade privileges can also be scaled back for human-rights abuses, there is no precedent for suspending them due to a commercial dispute, the official said.

To contact the reporter on this story: James G. Neuger in Brussels at

To contact the editor responsible for this story: James Hertling at

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