Venezuela has finally made good on its oft-repeated threats to tear up its membership card from the International Centre for the Settlement of Investment Disputes (ICSID). Venezuela announced its withdrawal on January 24, 2012, setting in motion a six-month waiting period before the move takes effect.

Two other South American countries, Bolivia and Ecuador, have also quit ICSID in recent years. Rightly or wrongly, the centre takes a disproportionate amount of criticism from governments that have been dragged to arbitration over politically sensitive matters such as nationalisations, or regulatory squabbles.

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While withdrawals from ICSID garner headlines, they do not necessarily mean that a state is refusing to allow international arbitration to be used to resolve foreign investment disputes. In the cases of Bolivia and Ecuador, both countries have continued to take part in arbitration proceedings that were ongoing when each country decided that it was time to leave ICSID. Moreover, in the past few years, both Bolivia and Ecuador have participated in new arbitration proceedings initiated outside of ICSID, including a high-stakes arbitration with the Chevron corporation over liability for environmental pollution in Ecuador.

So, withdrawal from ICSID may simply mean that a state prefers that disputes be resolved somewhere other than in a Washington, DC-based, World Bank-affiliated forum.

The real question on the minds of observers is not so much where arbitrations are conducted, but rather whether governments will agree to pay judgments that are rendered against them. In this regard, many wonder if Venezuela will style itself after Argentina.

At first glance, Argentina has co-operated with international arbitration panels, many of them hearing slow-moving foreign investors claims dating back to the 2002 financial crisis in Argentina. Lawyers for the Argentine government have shown up and defended the government in these cases, rather than boycotting such proceedings on grounds of national sovereignty.

However, to the dismay of foreign investors, Argentina has yet to pay any of the multi-million dollar damages for rulings that have been rendered in such arbitrations.

Argentina insists that it is not refusing to pay. If foreign creditors present arbitral judgments to an Argentine court for certification, so Argentina says, the government will pay up promptly. But, many lawyers say that a detour into Argentine courts is not necessary, and would simply open the door to protracted legal challenges to such judgments – something which international arbitration is designed to avoid.

The resulting stalemate over Argentina’s effective 'refusal' to pay ICSID awards has generated considerable nervousness within the community of international arbitration practitioners. Recent comments by Venezuelan president Hugo Chavez hint that Venezuela may emulate Argentina’s approach. If that is the case, the entire business of international arbitration – not just ICSID – may come in for a downgrade in the eyes of foreign investors. Hundreds of millions – or even billions – of dollars in arbitration rulings could be fobbed off onto distressed debt markets, with so-called vulture funds enlisted to collect on judgments that governments refuse to pay voluntarily.

Luke Eric Peterson is the publisher of Investment Arbitration Reporter (http://www.iareporter.com), an online news and analysis service monitoring foreign investment law disputes.