Eldred v. Ashcroft: Steamboat Willie Rides the Wave of...

Volume XVIII, No. 3

05/03

THE FLORIDA BAR Spring 2003

The Florida Bar Website: www.flabar.org • International Law Section Website: www.ils-flabar.org

INSIDE:

Farewell from the Chair . 2

Section Annual MeetingCalendar ...................... 2

Trademark and DesignRegistration in theEuropean Union: WhyAmerican and Non-EUCompanies Must File .. 3

Russian InternationalLegal Symposium ........ 4

Venezuela: PrivitizationDilemma ....................... 6

2003 Section Calendar .. 8

Annual Meeting Seminar:International ArbitrationUpdate ....................... 11

Tug of War: The ConflictBetween the EuropeanUnion and Its MemberStates Over BilateralAir TransportAgreements ............... 14

Brazil: An InternationalPerspective ................ 20

See “Steamboat Willie,” page 39

Eldred v. Ashcroft:Steamboat Willie Rides the Wave of

International Copyright TermHarmonization Effortsby Stephen C. Muffler, Esquire, Fort Lauderdale

IntroductionBeing Disney’s first

animated film featuringMickey Mouse with asynchronized sound re-cording1, SteamboatWillie continues to sailthrough history, impact-ing the copyright lawsboth on a national and

international basis. Directed by Mr. WaltDisney and released on November 18, 1928,this little mouse, and his 7 minutes and 15seconds of black and white footage, portraysa steamboat pilot trying to impress Minnie“while making a little music along theway”.2 Most recently, Steamboat Willie wasin the center of the cyclone of internationalcopyright term harmonization efforts. Itsvoyage originated with the Passage of theSonny Bono Copyright Term Extension Actof 1998 (hereinafter referred to as theCTEA)3. Steamboat Willie then sailed itsway through the federal court system,prompting the United States SupremeCourt majority opinion of Eldred v.Ashcroft4 on January 15, 2003. This articlewill explore the passage of foreign copyrightterm extension acts and how internationalcommercial pressure was one of the cata-lysts for the CTEA and a considerable un-

dertow supporting the reasoning in Eldredv. Ashcroft.

Troubled Waters for the Shipand Crew

Steamboat Willie, and its star MickeyMouse, were only a few of the many valu-able Disney copyrighted products that wereabout to enter the public domain under theformer Copyright Act of 1976.5 Other char-acters included Disney’s rights to Pluto,Goofy and Donald Duck which wouldquickly enter the public domain only a fewyears after 1998.6 The Copyright Act of1976 granted protection generally from thework’s creation until 50 years after theauthor’s death.7 This brewing storm, chal-lenging United State’s copyright protectionterms, was not unforeseen in light of thefour previous legal acts extending the copy-right terms in our nation’s history.8 Theforecast was apparent when the EuropeanUnion took action in 1993 and extendedtheir own protection for copyright terms toa duration of 70 years after the death of theauthor.9 However, the European Unionelected to afford protection for U.S. copy-right holders to the lesser duration of 50years after the death of the author in ac-cordance with United State’s copyright

AnnualMeetingSeminar:

InternationalArbitration

Update

See page 11.

2

Farewell from the ChairAs I sit here

thinking of all ofthe activities thatthe InternationalSection has en-gaged in this yearsuch as the Que-bec-Florida Forum,the 24th AnnualImmigration Law

Update (with 287 attendees), the In-ternational Litigation Update, con-tinued progress on local hosting ofthe Secretariat and our own on-lineweb developments, as well as theevents that we have had to postponedue to a combination of terrorism,the Iraq war, SARS, etc., I realizethat none of these activities just hap-pened by themselves. They took ig-niters. People in our Section whothought of an idea, developed it, andsaw it through to fruition. There wasno Darwinism in these events. It tooka continual presence of hard workingpeople to formulate, shape and oftenreshape the Section’s activities tofruition. The heart of that presenceis really the relationship between theSection’s members. For, if we couldnot relate as well as we do, we couldnot begin to function as well as wehave. We have not become a largeand ungainly organization with theinabilities to work together, as is of-ten the case, when growth occurs. We

have lived up to the challenge tochange and this year has certainlybeen most challenging. However, inretrospect, my position has been arelatively easy one to fulfill, not be-cause I haven’t been kept busy withSection activities, but because Sec-tion members have worked so dili-gently that the hills that we have hadto climb have seemed merely like oc-casional bumps.

It is said that people, as well as or-ganizations, are often at their worstwhen events are peaceful. It is onlywhen things go bad that the chal-lenges bring out the best. We are for-tunate to have members who do notjust sit on past successes but reactto new challenges. Although, we oc-casionally have a program that failsto attract the participation that wehad envisioned or must be postponeddue to events outside of our control,we have come to the realization thatfailure is not final unless we let it be.Time after time, we have found thatwhat may initially look like failurereally turns out to be a success. Andthat is only due to the abilities of ourmembers to rework, retrench andrethink. Many scenarios which otherorganizations would look at as set-backs have simply led us on to newcreations. This is a time to look backbut not stay back. We have manyendeavors to accomplish and our

members have the heart and the per-severance to accomplish them.

Still upcoming in 2003 is the In-ternational Arbitration Update, thepreviously postponed Russia Forumis now scheduled for July, our co-sponsored IFTTA/UFTTA Confer-ence in Monte Carlo in June and theBrussels/London meetings with theEU and British Parliaments tenta-tively set to take place in August. Inaddition there is the continued workof the many committees and indi-viduals in the Section of which spe-cial thanks goes out to (names of Sec-tion award members). And this listis by far not inclusive of the numberof people who have worked long andhard to help the Section achieve itsgoals. As always, the Section couldnot begin to function without thededicated performance of its Bar co-ordinator, Angela Froleich.

On top of it all, I, and I think thatI speak for most members, have re-ceived a lot of enjoyment and satis-faction out of our participation withthe Section. What more could a chairask for? I have been extremely proudto wear the Section identificationname plate at events worldwide. .Ifpride and boastfulness be sins, thenwhen it comes to the InternationalLaw Section, I am most guilty. I amboth proud and grateful to have beengiven the honor to chair the best.

— Laurence D. Gore, Chair

Section Annual Meeting CalendarJune 25, 2003 International Arbitration Update, 8:25 a.m. - 4:45 p.m.

The Florida Bar’s Annual Meeting, Orlando World Center Marriott

June 26, 2003 Reception in Chair’s Suite, 6:00 p.m. - 8:00 p.m.The Florida Bar’s Annual Meeting, Orlando World Center Marriott

June 27, 2003 International Law Section Luncheon, 12:30 p.m. - 2:00 p.m.The Florida Bar’s Annual Meeting, Orlando World Center Marriott

International Law Section Executive Council Meeting, 2:00 p.m. - 6:00 p.m.The Florida Bar’s Annual Meeting, Orlando World Center Marriott

International Law Section Reception (with Out-of-State Practitioners Division),6:00 p.m. - 8:00 p.m.The Florida Bar’s Annual Meeting, Orlando World Center Marriott

See Hotel Reservation Form on page 12. To register for the Annual Meeting, see the insert in your May BarJournal, or visit www.flabar.org and follow the links for “Annual Meeting.”

3

Trademark and Design Registrationin the European Union:

Why American and Non-EU Companies Must Fileby Robin Abraham, Esq.

With recent international court de-cisions levying multimillion dollardamage awards against Americanand multinational companies for vio-lation of European Union (“EU”) lawand/or infringement of registeredEuropean trademarks and designs,prudent companies are calling uponexperienced international intellec-tual property attorneys to register forEU protection with the Office forHarmonization in the Internal Mar-ket (“OHIM”) in Spain. In this age ofburgeoning technology, even thougha company may not intend to engagein business outside the US, if its prod-ucts are seen on the internet, someinternational courts have levied finesand judgments against companies forfailing to register. Often, these inter-national judgments are domesticatedand enforced in the United States.

This fact is particularly frustratingfor American companies whose de-signs, logos and trademarks have beenmisappropriated by foreign “pirating”companies, but timely filed by thesecompanies, in accordance with EU law.In cases like these, American compa-nies have been found to have infringedthe more aggressive EU registrants,even though pirating companies bla-tantly misappropriated the victimcompany’s intellectual property (“IP”).

For these reasons among manyothers, American based companiesnow account for the largest percent-age (25.53%) of all registration filingswith OHIM. Germany (16.61%), theUnited Kingdom (13.12%), Italy(7.24%) and Spain (6.49%) account forthe other countries most often utiliz-ing the OHIM registration system. Inaddition to offensively avoiding aninternational infringement action (of-ten based upon a company’s own in-tellectual property), the advantagesare numerous. Presently, registrationwith OHIM provides a company withtrademark and design protectionthroughout 15 countries.1 While addi-tional filings with specific membercountries may be advisable depend-ing upon circumstance, the OHIM fil-

ing is widely accepted and enforcedthroughout the EU. As of January2004, the EU is expected to grow to25 countries, from 380 million to 455million people.2 Thus, OHIM regis-trants are protected in an economiccommunity of at least 15 countrieswith gross national product exponen-tially larger than that of the UnitedStates. Moreover, the EU is consid-ered to be the biggest internationaleconomy for most US companies.

Overview of the OHIMRegistration Process

The EU Community TrademarkSystem is very different from the reg-istration process required by the USPatent and Trademark Office. SinceEU trademark rights are based pri-marily upon registration, Americanand non-EU companies are racing toregister their IP with OHIM beforetheir IP is misappropriated. This isparticularly true since unlike theAmerican system, an applicant cansecure a trademark registrationwithout submitting any proof of use.Trademark owners can sue for in-fringement within the first five yearsof registration even if they have notused the mark in the EU.

US companies are utilizing theCommunity Trademark (“CTM”) sys-tem for a number of reasons. CTMapplications are processed morequickly than many applications ofEU member countries. As evaluatedon a per country basis, CTM applica-tions are less expensive to file, pros-ecute and maintain than separatenational filings in the EU systems.However, supplemental national reg-istrations in the EU member statesmay be advisable to enable US com-panies to engage in forum shoppingto enforce their rights.

Companies interested in protectingtheir logos, trademarks, servicemarksand other intellectual property inter-ests should consult with an experi-enced international intellectual prop-erty attorney who is uniquely familiarwith OHIM and individual EU coun-

try registration procedures. Depend-ing upon industry, an experienced in-ternational intellectual property at-torney can tailor a company’sindividual registrations with OHIMand the EU, and implement a success-ful strategy in this age of technology.

ConclusionWhile many companies are con-

templating the value of OHIM regis-tration, one fact is indisputable. If acompany fails to register with OHIM,or the registration is rejected byOHIM, that company loses all eco-nomic and business access to the en-tire European Union. For these rea-sons, consultation with an ex-perienced international intellectualproperty attorney is highly advisable.

Robyn Abraham(JD/MBA) is aBoard Certified In-ternational Attor-ney who specializesin international in-tellectual propertylaw. In December2002, she was oneof five American at-

torneys who served as a delegate to theCommunity Trademark Forum inAlicante, Spain. Miss Abraham is alsoan invited mediator/arbitrator for theWorld Intellectual Property Organiza-tion in Geneva Switzerland. She is avoting member of the Academy of Tele-vision Arts & Sciences in Los Angeles.Miss Abraham may be contacted viaemail at: rabraham@ international-legal.com

Copyright 2003. R.A. Abraham. AllRights Reserved.

Endnotes:1 The EU is presently comprised of Bel-

gium, Denmark, Germany, Greece, Spain,France, Ireland, Italy Luxembourg, the Neth-erlands, Austria, Portugal, Finland, Swedenand the United Kingdom.

2 As of January 2004, the following coun-tries are expected to join the EU: Bulgaria,Czech Republic, Estonia, Cyprus, Latvia,Lithuania, Hungary Malta, Poland, Romania,Slovenia, Slovakia and Turkey.

4

Register Now For:

RUSSIAN INTERNATIONALLEGAL SYMPOSIUM

July 6 - 12, 2003Moscow & St. Petersburg ( Russia )

For additional information please visit our website:

www.Russia-Florida-Forum.com

Focus: Russian international business law and re-lationships with the US and Europe. With St. Pe-tersburg fêting its 300-year anniversary, the continu-ing development of western investments & businessand the recent establishment of the NATO-RussiaCouncil, Russia is rapidly moving into internationalbusiness and legal spotlights.

Scheduled in Russia’s two splendid cities – Mos-cow and St. Petersburg – the symposium gathershighly renowned legal and business specialists tofocus on current business and legal issues.

Organizers and participants at this seminar includeAttorneys and Civil Law Notaries from all over thewestern world (USA, Canada, Germany, France,etc.) as well as Russian professionals from St. Pe-tersburg and Moscow. Investors, businessmen andfinancial institutions are also invited.

This Russian Symposium is your opportunity to:

• Participate in the Professional Seminars and in-teractive Workshops;

• Gain considerable CLE Credit (14 approved)

• Obtain expert input on certain strategic interna-tional legal issues;

• Develop business and personal networks with toplegal and business persons from Russia, Canada,France, Germany, etc.

• Gain international exposure for your firm throughour Special Sponsoring Opportunities;

• Discover Russia’s amazing cultural heritage aswell as its artistic and historical wonders throughour ancillary cultural/social programs;

SPECIAL TRAVEL PACKAGES AVAILABLEContact: Greg Guiteras (Lorraine Travel)

Tel: (305) 446-4433 – Fax: (305) 441-9444e-mail: [email protected]

How to Register?• Review the Symposium program on our website

• Take advantage of our negotiated Travel Packages• Learn about the Sponsoring Opportunities available• Fill in the Application form & send it with the

appropriate fee before the deadline

Please visit our website at:www.Russia-Florida-Forum.com

Registration fees (Florida Bar):

ILS Non ILS Significant Fee WaiversMembers Members Others Attendees

Moscow Prog.(July 6-8) $200.00 $300.00 $150.00 $150.00

St. PetersburgProg. (July 9-12) $200.00 $300.00 $150.00 $150.00

Additional options (per person):

Gala at Tsar’sPalace $100.00 $130.00 $80.00 $50.00

Ballet- Kirov $50.00 $70.00 $70.00 $30.00and Bolshoi

General Lucius Smejda, Esq. orIrina Nemtsev, Esq.Tel: (305) 358-9995Fax: (305) 358-9997Email: [email protected]

Civil Law Todd KocourekNotary Tel: (800) 360-6990Information Fax: (850) 222-7284

Email: [email protected]

Florida Bar Angela FroelichQuestions Tel: (850) 561-5633

Fax: (850) 561-5825

5

MOSCOW PROGRAM—— Sunday, July 6 ———

Arrival in Moscow

4:00 pm at Hotel: Orientation & Program

5:00 pm at Hotel: Organizing Committee Buffet

——— Monday, July 7 ———1:00 pm: “Overview of Russian Legal System” at

Hotel

3:00 pm: “Overview of Russian & American Notaries”at Federal Notarial Chamber

4:30 pm: “Overview of Russian Legislative System”at DUMA

7:30 pm: Bolshoi Ballet Troupe

——— Tuesday, July 8 ———PRESENTATIONS:

9:00 am: Practicing International Law in CIS10:00 am: International Banking Considerations11:00 am: North American Financial Centers:

Montreal & Miami12:00 pm: Collegial Lunch “US-Russian

Relationships”3:00 pm: Visit to Russian Supreme Court

“Overview Russian Judiciary System”

TRAVEL TO ST. PETERSBURGby plane or train on July 9.

ST. PETERSBURG PROGRAM——— Wednesday, July 9 ————

Day: Socializing: collegial meetings, tourism/travel

5:00 pm: Reception at St. Petersburg NotaryChamber: “Russian & American Notaries”

8:00 pm: Buffet at University Club honoringSpeakers & Sponsors

——— Thursday, July 10 ————SEMINARS (In Russian with

simultaneous translation)

9:00 am: Comparative commercial laws & practice

9:50 am: Comparative corporations, entities &practice

11:00 am: Comparative real estate law & practice

11:50 am: Comparative tax laws & practices

12:40 pm: Comparative financial laws & practices(Banking, Investments)

1:30 pm: Collegial Brunch at St. Petersburg LawSchool

2:30 pm: WORKSHOPS (in indicated language)• Developing Commercial Real Estate(e.g. Russia, Florida) (English #1)• Financial Businesses & Investments:Banking (e.g. Russia, Canada) -Presentation of the International FinancialCenter of Montreal (French #1)

4:00 pm: WORKSHOPS• Immigration law & procedures forexecutives & business owners (eg. Russia– USA) (English # 2)• Drafting & negotiating internationalcontracts: choice of law applicable, disputeresolution (arbitration and mediation) (e.g.Russia-France) (French # 2)

——— Friday, July 11 ————SEMINARS

8:30 am: Comparative Ethical Considerations inInternational Practice

9:20 am: International Dynamics Civil Law Notariat

10:10 am: International Treaties & Courts

• The Hague Convention & Apostilles

• Russian Property, Human Rights laws &European & international courts

11:00 am: Comparative Laws & Mechanisms ofDispute Resolution

12:00 pm: WORKSHOPS• Governmental Incentives & Servicesavailable for International Commerce &Investments (e.g. Russia, Florida) (English# 3)• Governmental Incentives & Servicesavailable for International Commerce &Investments (e.g. Russia, France, Canada)(French # 3)

2:00 pm: Bus departure to Tsar’s PalacePETERSHOF including:• 3:30pm: Visit of Fountains & Gardens• 5:00 pm: Private visit of Grand Palace• 7:00 pm: Champagne, Caviar & VodkaReception (with Russian Zakusky) atDancing Hall.

——— Saturday, July 12 ————Day: Business & collegial meetings or tourism

6:30pm: Farewell Champagne Reception at BolshoiDrama Theatre

7:00 pm: Kirov Ballet – Swan Lake

Program as at May 14, 2003Subject to change without notice

6

Venezuela: Privitization Dilemmaby Gilbert K. Squires

III. INTRODUCTIONThis treatise ex-

plores the past andcurrent Venezu-elan Petroleum In-dustry situation. Itoutlines the politi-cal and economicconditions thatdrove Venezuela tonationalize its pe-

troleum industry after achieving thedistinguished role of one of theworld’s major producers. In addition,there will be brief discussions onVenezuela’s history, geography, andpopulation. The influence and powerof certain Venezuelan families withnotoriety will be explored.

Although the original paper waswritten with an eye to assist theMultinational Oil Company (MNOC)in determining whether to return toVenezuela; today, it will serve to de-termine whether the MNOC shouldremain in Venezuela, will aid busi-ness developers, consultants, and at-torneys in preparing to advise theirrespective clients about this impor-tant energy country. In the early tomid 1990’s the, then newly estab-lished, “Reactivación de Campos”(marginal field reactivations) and“Alianzas Estratégicas” (strategicalliances) set the stage for theMNOC’s return to Venezuela. Theformer, dealt with exploitation andproduction improvement, one stepremoved from direct exploration—the Exploration and Productionjewel coveted by most MNOCs. Thelatter, dealt with the development ofincreased refining capacity and theexploitation of Venezuela’s vastheavy1 crude reserves in the OrinocoRiver Heavy Oil Belt (La Faja).

Venezuela nationalized its oil in-dustry in 1975-1976, creatingPetroleos de Venezuela S.A. (PdVSA),the country’s state-run oil and gasconcern. PdVSA is one of the world’slargest oil companies and is by farVenezuela’s largest business andemployer. The company controlsVenezuela’s oil and gas sectors aswell as the country’s coal industrythrough its subsidiary Carbozulia.

PdVSA works with foreign investorsin Venezuela under the country’s hy-drocarbons law of November 2001,which stipulates that PdVSA hold a51% stake in any new explorationand production agreement. Theprivatization of PdVSA is bannedunder Venezuela’s 1999 constitution.

PdVSA also plays an importantrole in Venezuelan politics. Besidesbeing Venezuela’s largest employerand responsible for approximatelyone third of the country’s GDP,PdVSA is also run by presidentialappointees and has seen five differ-ent directors during PresidentChavez’s tenure. In February 2002,the appointment of Gaston Parra tothe company’s presidency along withthe appointment of five new boardmembers incited unrest amongst thecompany’s workforce. On March 8,2002, management and laborers atPdVSA organized a 4-hour strike, fol-lowed by a series of work stoppagesto protest the political reshuffling ofthe company’s management. Thisstrike later turned into a generalnationwide strike, which served asthe catalyst for the brief overthrowof President Chavez. In April 2002,Ali Rodriguez was appointed presi-dent of PdVSA. Ali Rodriguez hadpreviously served as the president ofOPEC, and prior to that asVenezuela’s minister of energy andmines.2

As of mid-December 2002, the na-

tionwide strike, which began on De-cember 2, has severely compromisedPdVSA’s operations, with many wellsreportedly unmanned, refineries op-erating at partial capacity, and oiltankers waiting at sea to berth. OnDecember 5, PdVSA was compelledto declare Force Majeure on the ex-port of petroleum products and onDecember 9, the Venezuelan Na-tional Guard took over gasoline dis-tribution throughout the country.Also on December 9, seven ofPdVSA’s eight highest executivessubmitted their resignations toPresident Chavez (all except AliRodriguez).3

A. Venezuelan GeneralitiesDepending on the survey, Venezu-

ela is either the fourth of fifth larg-est oil producer. Today, and in par-ticular with the threat of war againstIraq, Venezuela has gained evenmore importance to the UnitedStates as an oil supplier. Thecountry’s location, political system,influential families, and recentprivatization experience in Venezu-ela and globally. Since 1992,Venezuela’s political system and oilindustry have remained in transi-tion.

1. HistoryChristopher Columbus visited the

area now known as Venezuela in histhird voyage to the New World in1498. However, it was Alonso deOjeda who claimed Venezuela on hisCaribbean expedition in 1499.4 Whileprobing the north coast of SouthAmerica his explorers came acrosslake Maracaibo and saw Indians liv-ing in communities built on stilts inthe shallow waters of the lake. Thecommunities reminded the explorersof Venice; hence the name LittleVenice or Venezuela was given to thearea.5 Archeological remains foundin the Lake Maracaibo region indi-cate that the natives’ ancestors livedin the area 3,750 years ago.6

The first Spanish settlement wasestablished in about 1500, but due tosubsequent fierce Caracas native re-sistance to the conquest and the lack

7

of gold, the Spanish crown, in 1528allowed the German banking Houseof Wesler to settle and develop thecountry. Spain resumed control in1566, and transferred responsibilityfor the country’s supervision fromSanto Domingo, in what is today theDominican Republic in the Carib-bean, to the Viceroyalty of NewGranada, in the future capital of Ven-ezuela, Caracas, which was foundedin 1567.7

Simón Bolivar, the liberator, par-ticipated in Venezuela’s declarationof independence from Spain on July5th 1810, which had been precipi-tated by Napoleon’s invasion ofSpain in 1803 and the expulsion ofthe Bourbon King. It was not until1830 that Venezuela became trulyindependent. From 1821 to 1830,Venezuela was part of the Gran Co-lombia, which Bolivar organized.8

Jose Antonio Paez, who Bolivar leftto govern Venezuela, thus, becameVenezuela’s first president in 1830.The country was, however, run byseries of dictators until 1958. Al-though shaken by recent distur-bances,9 Venezuela was still consid-ered one of the most stabledemocracies in South America.

By the end of the 18th century,Caracas was emerging as a signifi-cant member of the Spanish Empire;and the process revealed itself to beunusually well-balanced and harmo-nious developing colonial society.10

An economic flowering, unparalleledin the region’s long history broughtCaracas temporarily out of the ob-scurity in which it was, and intowhich it subsequently relapsed afterindependence.

Spanish legislation and imperialadministrations either anticipated oraccommodated the needs of the pro-vincial economy; and the changes inthe imperial trade system, whichhave hurt other American coloniesonly seem to have given Caracas anadded incentive to grow. Not even theincreasingly difficult years after1796, when the negative effects ofthe Napoleonic Wars intensified, en-tirely obscured the essentially posi-tive economic relation between prov-ince and empire.

2. Location, Population, and Ge-ography

Venezuela is a country about twicethe size of the State of California

with vast energy, mineral, and othernatural resources, and an educatedpopulation.11 It is located on thenorthern coast of South America,along the Caribbean Sea. Most of thecountry’s population is clusteredalong the coast and in major cities;the interior is largely undevelopedllanos12 and rain forests.

Caracas is the capital city of Ven-ezuela and of the province with itsname. Its population can be exam-ined with a great degree of accuracythanks to the extraordinary compi-lation of data for the colonialbiosphoric carried out by JohnLombardi. Caste distinctions derivedprimarily from racial differencesformed the basis for established so-cial hierarchy in colonial Caracas. Inthis order, whites dominated provin-cial society, and the combination oftheir privileged legal status withtheir relatively small numbers en-sured at least a basic community ofinterest vis-à-vis the province’s othercastes.13

The most easily identifiable divi-sions inside the white caste werethose resulting from the ethnic dif-ferences among them. They were di-vided into three broad categories:mainland Spaniards or penisulares,Canary island immigrants or isleñosand canaries, and creole or Venezu-elan-born whites. Whites in Caracas,as whites everywhere in the empire,dominated the whole spectrum ofoccupations and activities to the dis-advantage of other races in the prov-ince. In keeping with Spanish colo-nial tradition, the highest placedimperial officials and administratorswere almost invariably “natives ofthe mother country.”

The free-coloreds, or “castas” and“pardos” as they were often known,were the single largest racial groupin the province, and very nearlyformed the majority of the popula-tion.14 The general lot of the castaswas understandably a hard one.Statutes restricted all aspects oftheir lives, both social and personal.Discriminatory dress codes forbadetheir wearing apparel that mightconnote equal status with whites.Intermarriage was for all intents andpurposes forbidden. Pardos were ex-cluded from the possibility of enter-ing the church, universities, andtherefore, the legal profession. As aresult, the pardos had limited em-ployment possibilities. They tendedto be artisans, plantation overseers,day laborers, and lower rank soldiersin the militias.

Black slaves were an importantcomponent of the province’s exporteconomy, which revolved aroundcommodities produced on planta-tions.15 Although a majority of theslaves in Caracas worked on planta-tions, a large minority did not. Itshould be noted that over 70% of theprovince’s slave population was con-centrated in the small coastal rangeand narrow coast where the bulk ofthe province’s plantation agriculturewas centered. Also, the planter classwas not inclined to increase the slavelabor on their holdings when,, as wasbeing done in Havana, Cuba, slavescould have been imported whole salewith government aid.16

There was not much data avail-able on the native population. It wasdivided into two groups: the tribu-tary Indians (indios de tributo) and

The International Law Quarterly is prepared and published by the International Law Sec-tion of The Florida Bar.

Laurence D. Gore, Ft. Lauderdale .................................................................................ChairDavid S. Willig, Miami ........................................................................................... Chair-ElectLucius Smedja, Miami ............................................................................................. SecretaryJohn H. Rooney, Jr., Miami .................................................................................... TreasurerFrancesca Russo-Di Staulo, Miami ............................................................ Newsletter EditorAngela Froelich, Tallahassee ............................................................ Program AdministratorLynn M. Brady, Tallahassee ......................................................................................... Layout

Articles between 10 and 20 pages involving the various disciplines affecting internationaltrade and commerce may be submitted on computer disk with accompanying hard copy, oron typewritten, double-spaced 8 ½” x 11" paper (with the use of endnotes, rather than foot-notes.) Please contact Francesca R. Di Staulo for submissions to the Quarterly and for anyquestions you may have concerning the Quarterly.

continued, next page

8

2003 Section Calendar

the free Indians (indios libres).17 Thenatives lived in pueblos or villagesbuilt around the working of commer-cial lands, “tierras de comunidad”(community lands). These lands wereunder constant attack from the land-owners throughout the 18th century.Indians found themselves fightinglawsuits to protect their territorialboundaries. Some of the populationcharacteristics of colonial times stillremain in Venezuela, as in the restof the Americas, despite the abolitionof slavery and increased economicfreedoms.

3. Brief overview of Venezuela’sGeology, Major Projects ap-proved by the Venezuelan Con-gress, and Natural ResourcesDiscussion

In addition to huge light and me-dium gravity oil reserves, Venezuelahas one of the largest undevelopedcoalfields in Latin America, as wellas, bauxite, iron ore, and gold. Whenthis paper was initially written, Ven-ezuela was continuing its research tofind methods of conversion of its 1.2trillion barrels of bitumen, an extraheavy hydrocarbon, into an inexpen-sive fuel. (The author was on the ini-tial Conoco (now ConocoPhillips)team investigating ways to joint ven-ture with then Maraven, a PdVSA

subsidiary.) It has been reported thatthe Arauca natives of Venezuela hadseen oil seeps in some of Venezuela’sprolific oil areas. However, it was notuntil the late 19th century that aVenezuelan landowner began mak-ing kerosene from oil found in west-ern Venezuela.

Eastern Venezuela18 exhibits simi-lar characteristics as the ones seenin Canada’s Province of Alberta. Theheavy oil reserves are hosted in Cre-taceous and Tertiary sands at theedge of a foreland slope in a paleo-deltaic environment.19 The heavy oilis not limited to the Orinoco Belt, butgrades into the prolific lighter oilfields to the north.20 Venezuela isblessed with having a cornucopia ofresources! Regrettably, it seems un-able to manage them efficiently andprudently for the benefit of all its citi-zens.

Venezuela is home to the WesternHemisphere’s largest conventionalproven oil reserves at 77.7 billionbarrels and 148 trillion cubic feet(Tcf) of natural gas, as of January2002. Venezuela’s natural gas re-serves are second in the WesternHemisphere behind the UnitedStates’. Substantial extra-heavy oiland bitumen21 deposits are not in-cluded in this total. During the firstnine months of 2002, Venezuela pro-duced an estimated 2.9 million bar-rels per day (bbl/d), down almost170,000 bbl/d from 2001 annual pro-duction figures. Of this 2.9 millionbbl/d, about 466,000 bbl/d were con-sumed domestically, while the re-maining 2.4 million bbl/d were ex-ported. About 1.4 million bbl/d (58%of total exports) were shipped di-rectly to the United States duringthe first nine months of 2002 (note:this does not count crude oil sent tothe Caribbean, refined there, andthen re-exported to the UnitedStates).22

Venezuela has ranked consis-tently in the last several years as oneof the top four sources of U.S. oil im-ports (along with Canada, Mexico,and Saudi Arabia). Venezuelan ex-ports to the United States peaked in1997 at about 1.8 million bbl/d. Whiletotal U.S. petroleum imports haverisen by about 1.5 million bbl/d since1997, imports from Venezuela havedecreased by about 300,000 bbl/d. In1997, Venezuelan oil accounted formore than 17% of total U.S. oil im-

VENEZUELAfrom preceding page

Section Activities at The Florida Bar’s Annual Meeting,Orlando World Center Marriott:• June 25, 2003

International Arbitration Update Seminar

• June 26, 2003Reception in Chair’s Suite6:00 p.m. - 8:00 p.m.

• June 27, 2003Section Luncheon12:30 p.m. - 2:00 p.m.Section Executive Council Meeting2:00 p.m. - 6:00 p.m.Section Reception(with Out-of-State Practitioners Division)6:00 p.m. - 8:00 p.m.

July 5-13, 2003Russian International Legal SymposiumMoscow & St. Petersburg, Russia

August 8-10, 200International Law Section RetreatThe Palms of South Beach, Miami

September 11-21, 2003Brazil: An International PerspectiveRio de Janeiro, Salvador da Bahia, Manaus and the Amazon

October 2003International Income Tax and Estate PlanningMiami

November 2003European Community Parliment, BrusselsBritish Parliment, London

9

ports, compared to just 12% duringthe first nine months of 2002.23

Besides being a major supplier tothe United States, Venezuela alsoprovides significant quantities of oilto its neighbors in the CaribbeanSea. Under the auspices of the SanJose Accord, Venezuela and Mexicoprovide eleven Central Americanand Caribbean nations with a totalof 160,000 bbl/d of crude oil and prod-ucts under preferential terms. TheSan Jose Accord was originallyimplemented in 1980 and is renewedannually.24

Venezuela also supplies majorCaribbean refineries with significantquantities of crude oil, the two larg-est being the 495,000-bbl/d Hovensarefinery on St. Croix, and the320,000-bbl/d Isla Refinery onCuracao. Some of the Venezuelancrude processed at these refineries isthen marketed for export, with anestimated 200,000-300,000 bbl/dcoming to the United States.25

Venezuela contains billions of bar-rels in extra-heavy crude oil and bi-tumen deposits, most of which aresituated in the Orinoco Belt, locatedin Central Venezuela (estimatesrange from 100 billion to 270 billionbarrels of recoverable reserves).There are four congressionally ap-proved joint ventures betweenPdVSA and foreign partners to de-velop extra-heavy crude oil. All fourprojects aim to convert the extraheavy crude from approximately 9°API crude to lighter, sweeter syn-thetic crude, known as syncrude.These projects normally produceabout 450,000 bbl/d of syntheticcrude oil (this is expected to increaseto 700,000 bbl/d by 2005), much ofwhich is destined for the U.S. GulfCoast. Syncrude is considered by theInternational Energy Agency (IEA)to be “non-conventional crude oil.”26

Venezuela’s four congressionallyapproved extra-heavy crude oil jointventures are currently at differentstages in their development. In theearly to mid 1990’s, the VenezuelanCongress began debates, which re-sulted in the approval of the“Alianzas Estrategicas” or strategicalliances that allowed foreign directparticipation in the country’s downstream business. These allianceswere unique in that the had an up-stream component. That is, therewas exploitation associated with the

development of heavy oil reserves forpartial refining (or upgrading) inVenezuela and final refining abroad.These alliances like the “Reacti-vacion de Campos” or marginal fieldreactivation/redevelopment weremore palatable to the Congress andthe country at large since thesethrough constitutional crafting didnot challenge Venezuela’s sover-eignty over its natural resources. Nordid they challenge, at least not di-rectly, the nationalizations of the mid1970’s.

The first project, Conoco’sPetrozuata, produces extra-heavycrude oil from the Zuata region of theOrinoco Belt for transport to the portof Jose on Venezuela’s northerncoast. Conoco owns and operates twoparallel 130-mile pipelines with ca-pacities of 200,000 bbl/d to transportproduction from its wells and othersin the region. Heavy crude oil isblended with naphtha27 for pipelinetransportation to an upgrading facil-ity. The upgrading facility processesthe heavy oil into a higher value syn-thetic crude oil (with an API rangebetween 19° and 25°), and associatedbyproducts: LPG; sulfur; petroleumcoke and heavy gas oil. As productionincreases, pipeline capacity could beexpanded to 500,000 bbl/d. Since1997, Petrozuata has drilled morethan 320 wells in 55,000 acres of theZuata region, and production is cur-rently 120,000 bbl/d.28

ExxonMobil and PdVSA’s jointventure at the Cerro Negro extra-heavy oil field started production in2001. Extra-heavy crude oil fromCerro Negro is diluted with naphthaand routed northward via pipeline toan upgrader complex at the port ofJose. The project’s upgrader at theJose complex processes 120,000-bbl/d of extra heavy crude oilinto approximately108,000 bb/d of syncrudeand bypro-ducts (sulfurand coke). Some of thesyncrude is then exportedto the partners’ 180,000-bbl/d Chalmette refinery,located in Louisiana, nearNew Orleans, where theoil is refined and sold inU.S. markets. Germany’sVeba Oil and Gas was alsoa 16% partner in the up-stream component of theproject, but in January

2002, began the process of selling itsinternational assets to Petro-Canada.29

TotalFinaElf and Statoil are part-ners with PdVSA in the Sincorproject, which began production inFebruary 2002 and has been produc-ing about 140,000-160,000 bbl/d ofoil in recent months. Production isexpected to plateau at 200,000 bbl/d, with about 35 years of operation.Sincor’s extra-heavy crude is up-graded at a facility in the Jose com-plex, and then marketed for export,similar to the Petrozuata and CerroNegro projects. Sincor’s syncrudeoutput comes in two grades, ZuataSweet and Zuata Medium.30

ConocoPhillip’s and ChevronTex-aco’s joint venture with PdVSA, theHamaca project, came on stream inNovember 2001 and is currently pro-ducing about 30,000 bbl/d of extra-heavy crude, most of which is dilutedand shipped to refineries in theUnited States. Peak production ofabout 190,000 bbl/d is expected afteran upgrading facility at the Josecomplex is completed in early 2004.The crude will be upgraded to about26° API, and the field is expected topump for about 34 years.31

Orimulsion is a branded productthat is used as a boiler fuel, similarto #6 fuel oil. It is an emulsion of ap-proximately 70% natural bitumen,30% water, and less than 1% surfac-tants (emulsifiers). Bitumen is con-sidered a non-oil hydrocarbon and isnot counted towards Venezuela’sOPEC crude oil production quota.Burning Orimulsion in conventionalpower plants produces emissions ofcarbon dioxide, sulfur dioxide, andnitrogen oxide roughly similar to


10

emissions from fuel oil.32

Bitor, a PdVSA subsidiary, man-ages the processing, shipping andmarketing of Orimulsion. Bitor nowoperates one Orimulsion plant inCerro Negro, with a capacity of 5.2million metric tons per year, andhopes to produce 20 million metrictons per year by 2006. According toBitor, more than 1.2 trillion barrelsof bitumen exist in the Orinoco Belt.Economically recoverable reservesare now estimated at about 267 bil-lion barrels. Canada, China, Den-mark, Guatemala, Italy, Japan, andLithuania either consume or are con-sidering consuming Orimulsion.33

As the chart indicates, Venezuela’scoal production has skyrocketed inthe last 15 years to approximatelynine million short tons from essen-tially zero production. The chart fur-ther shows that there is negligiblelocal coal consumption.

Venezuela has recoverable coalreserves of approximately 528 mil-lion short tons (Mmst), most of whichis bituminous. Venezuela is the sec-ond largest producer of coal in LatinAmerica, after Colombia. Productionin 2000 amounted to 9.3 Mmst, al-most all of which was exported toother countries in the region, theeastern United States, and Europe.Domestic consumption in 2000 wasonly about 450,000 short tons.34

The Guasaré Basin, near the Co-lombian border, is the major coal-pro-ducing region in Venezuela. Coal pro-duction has been limited during thelast several years by infrastructureand transportation constraints. Thegovernment announced in April 1999intentions to increase production ofhigh-quality coal to 21 million tonsper year by 2008. Venezuela’s coalsector is dominated by Carbozulia,which is owned by PdVSA.35

4. Political System: Its Relation-ship to Oil

A substantive survey of Vene-zuela’s political machinery is pro-vided for one important reason: OIL!Along with Mexico, Venezuela is areliable hemispheric source of petro-leum, and [although today it seemshard to believe] has been called thebest functioning democracy of Latin

America after diminutive CostaRica.36 The critical importance ofVenezuelan oil stems from its prox-imity to the United States and thecontinued probability of productiondisruptions from the Persian Gulf, asevidenced by the 1991 war againstIraq and today’s U.S. war footingagainst the government of SadamHussein.

Ten years ago when this paperwas first written, the author statedthat Venezuela was a stable democ-racy. Despite the angst against Ven-ezuelan President Hugo Chavez,coup attempts, the indictment ofPresident Carlos Andres Perez, andother political turmoil; I still say thatit is a stable democracy since thecountry has not and likely will notfall into a civil war. Since 1958, Ven-ezuela has had one of the constitu-tional democracies amongst the De-veloping Countries (DC’s). Also, inthe last 15 years, Venezuela had as-sumed the role of honest broker inmediating highly emotional issuesinvolving the Developed Countriesand its fellow DC’s.37

Contemporary Venezuela is a syn-thesis of more than 150 years of his-torical evolution as an independentnation with four centuries of His-panic cultural formation and the ex-plosive intrusion of oil commerciallyproduced in 1917. Petroleum has piv-oted Venezuelan Politics for most ofthe 20th century and now into the21st century. These oil politics havehad domestic and international di-mensions as Venezuela moved frombeing a passive supplicant of the for-eign oil company to its current roleof a politically conscious nation thatmanages its nationalized oil indus-try intending to generate a stableand integrated development.38 De-spite these goals, quadrupled govern-ment income since 1973 formation ofthe Organization of Petroleum Ex-porting Countries (OPEC), andpledges made to manage abundancewith a mentality of scarcity, Venezu-ela has failed to buy its way intomodernity and stability.39 Curiously,the headlines of a decade ago couldbe changed to the name of PresidentHugo Chavez and we would read thesame underlying reasons for coupattempts and political instability.

Popular strife and political andpersonal cronyism have been a livingpart of Venezuela since its indepen-

dence from Spain in the early 19thcentury. The Venezuelan constitutionof 1830 attempted to ensure the po-litical dominance of the propertiedclasses through high property andliteracy qualifications for voting andfor holding office, through indirectelections, and through the preserva-tion of slavery. The country’s politicsbetween 1830 and 1935 were war-lord politics in which regionallybased caudillos40 vied for powerwithin a network of personal alli-ances centered on common interests,force of personality, ties of friendshipand even family.41 Twentieth centuryVenezuela saw the formation of vari-ous political parties, all vying for apiece of Venezuela’s economic pie.42

Despite its imperfection, the Ven-ezuelan experiment with democracyhas to be held up as a beacon of hopeat a time when so many analysts ofLatin American politics, within andoutside the region have concludedthat corporatism43 andauthoritarianism are an inseparablepart of the region’s cultural legacyand determinants of the region’s fu-ture.44 Venezuela’s challenge to andfor democracy resides in acceleratingdevelopment and public growthwhile eliminating the distortions cre-ated by two major competing groups:politicians and businessmen. Politi-cians insist on populism and busi-nessmen exaggerate their economicinterests. These two dogmas distortreality; causing the elites to holddenigrating images of one and otherwhich lead to political discrimination[as well as social discrimination] andunnecessarily lengthy and conflictivepolicy negotiations.45 Evidence thecurrent unrest in Venezuela and thedemands for president Hugo Chavez’resignation. While President Chavezcounters that the “newly” adoptedBolivarian Constitution only autho-rizes a referendum in August of2003.

This Venezuelan “divide elite syn-drome” is a sign of political modern-ization, however, it is an obstacle tothe acceleration of socioeconomic de-velopment. Conflicts between politi-cians and entrepreneurs should re-sult in a healthy counterbalance andfruitful debate, free from overpower-ing interests. However, the exagger-ated inter-elite conflicts distort andstagnate public policy making. Theseelites have filled a role in creating a

See “Venezuela,” page 22


11

Maximum CLER: 9.00 Hours #209929.00 General 1.00 Ethics

Maximum Certification: 9.00 Hours9.00 International Law

International Arbitration Updatepresented by the International Law Section

WEDNESDAY, JUNE 25, 8:25 A.M. – 4:45 P.M.8:25 a.m. – 8:30 a.m. Introductory Remarks

Edward H. Davis, Jr., Astigarraga Davis, Miami

8:30 a.m. – 9:15 a.m. Arbitration v. LitigationModerator: Edward M. Mullins, MiamiPanelists: Joel B. Harris, New York, NYMichael A. Hanzman, Miami

9:15 a.m. – 10:15 a.m. Comparison of Arbitration ChoicesModerator: Paul E. Mason, Key BiscaynePanelists: Albert J. Orosa, American Arbitration AssociationAdrian Winstanley, LCIALorraine M. Brennan, International Chamber of CommerceArif Hyder Ali, World Intellectual Property Organization

10:15 a.m. – 10:30 a.m. Break (sponsored by LCIA)

10:30 a.m. – 11:00 a.m. Drafting and Negotiating Enforceable Arbitration Clauses inInternational AgreementsJose A. Santos, MiamiAlexander Yanos, New York, NY

11:00 a.m. – 11:30 a.m. The Legal Framework of Arbitration Under Florida Law:How Does it All Fit Together?Samuel R. Mandelbaum, Tampa

11:30 a.m. – 12:00 noon New Developments in International ArbitrationJohn Fellas, New York, NY

12:00 noon – 12:30 p.m. Enforcement of Foreign Arbitral AwardsAlexander Reus, Miami

12:30 p.m. – 1:30 p.m. Lunch (sponsored by Becker & Poliakoff, P.A.)What Rules of Ethics Govern in International Arbitrations?Richard Naimark, New York, NY

1:30 p.m. – 2:45 p.m. Interactive Training in Arbitration Advocacy by the AAA, Part ICraig E. Stein, AAA Arbitrator 8 Trainer, ICDR, International Division of AAA

2:45 p.m. – 3:00 p.m. Break (sponsored by Hughes Hubbard & Reed, LLP)

3:00 p.m. – 4:45 p.m. Interactive Training in Arbitration Advocacy by the AAA, Part IICraig E. Stein, AAA Arbitrator 8 Trainer, ICDR, International Division of AAA

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ATTORNEY CERTIFIED ININTERNATIONAL LAW

The Board of Legal Specialization and Education along with the International Law CertificationCommittee has certified the following attorney in international law, effective June 1, 2003.

Congratulations!!

Michael A. Silva - Miami

CERTIFICATION:

Make It Your Goal Too!

Filing Period for March 2004 Examination:July 1, 2003 through August 31, 2003

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NOTE: Brussels and LondonParliment Programs Have BeenRescheduled!The International Law Section Program at the The EuropeanCommunity Parliament in Brussels and the British Parliamentin London has been rescheduled to November, 2003. For moreinformation, please contact Laurence D. Gore, Chair of theInternational Law Section at 954/493-7400.

14

Tug of War: The Conflict Between theEuropean Union and Its Member States Over

Bilateral Air Transport Agreements©

by Paul Stephen Dempsey

Historically, in-ternational avia-tion has been gov-erned by bilaterala g r e e m e n t s(bilaterals) be-tween nationswhich laid out theterms of marketaccess for the re-spective states’ air

carriers.1 The Member States of theEuropean Union [EU] were no differ-ent, and by 1993, they had amassedmore than 800 separate bilaterals.2

However, heady in the wake of theformation of the common aviationmarket by the Third Package of regu-latory liberalization in 1993,3 the ad-ministrative arm of the EU – theCommission4 – began a campaign totake over the negotiation and imple-mentation of such agreements onbehalf of the Member States.5 Thusbegan a battle between the Commis-sion and the Member States that hascontinued into the 21st Centurywithout full resolution.

The Commission Struggleswith the Council andMember Governments Onthe Issue of Bilaterals

In March of 1993, the MemberStates’ transport ministers rejecteda proposal to pool their bilaterals andvest negotiating powers for futureagreements in the Commission.6 Onetransport minister even went so faras to characterize bilaterals as “sac-rosanct”7 Although frustrated by therecalcitrance of the Member States,the Commission denied allegationsthat they would bring legal actionagainst them.8 However, theCommission’s attitude would not al-ways be so forgiving.

Eleven months later, the subject ofbilaterals was once more brought tothe fore of the Union’s attention bythe Comité des Sages (Comité)9 in areport on many facets of the Euro-pean aviation industry. The Comité

stated that bilaterals “ignore the newrealities” of the unified Europeanaviation market and should be re-placed by a multilateral regime di-rected by the EU rather than theMember States.10 The report recom-mended that the Commission begiven such powers by mid-1995.11

The Commission apparently tookthe recommendation to heart, as inMarch 1995 it issued a “strong . . .warning” that individual MemberStates would be haled before the Eu-ropean Court of Justice if they con-tinued to negotiate bilaterals withother nations (particularly the US).12

The then-Transport Commissioner,Neil Kinnock, denounced bilateralsas “the most serious obstacle to com-petition,”13 while a senior aide to theCommission stated that the Com-mission is “duty bound under Euro-pean law to carry out infringementproceedings” against Member Statesengaging in such behavior.14 How-ever, most of the Member States didnot share the Commission’s concerns,or at least not to the same degree,and the assembled transport minis-ters rejected the Commission’s pro-posals.15

Following that defeat in 1995,Kinnock and the Commission de-cided to apply some pressure to theMember States, filing a complaintagainst six Member States that hadcompleted bilaterals with the US af-ter the implementation of the ThirdPackage.16 It was in this less-than-friendly atmosphere that the trans-port ministers met the followingyear, although Kinnock chose topresent the situation more positivelyby claiming that there had been “con-siderable progress” on the subject ofconferring negotiating powers to theCommission.17 The transport minis-ters agreed to give negotiating pow-ers on the Commission, but the pow-ers were wrenched from them at highcost. The Member States requiredthe Commission to conduct any suchnegotiations in two phases—the firstphase was to give the Commission

the power to negotiate “soft issues”,such as computer reservation sys-tems, slot allocation, ground han-dling, and air carrier ownership,while the second phase would givethe rights to “hard issues”, such astraffic rights and pricing.18 The Com-mission would not receive the rightsto negotiate agreements on the “hardissues”, unless it could show that ithad achieved “substantial results inthe first phase.”19 Furthermore, theMember States retained the rights tonegotiate their own bilateral agree-ments with other nations.20

While the Commission declaredthat the transport ministers’ conces-sions constituted a “true victory”, theUS government said that it wouldrefuse to participate in any sort oflimited negotiations.21 However, evenwith that rejection, Kinnock felt con-fident enough of his new powers tobe generous with the Member States,stating there would be “no roll-backon any bilateral agreement in exist-ence or under negotiation” and thatthe complaint against the MemberStates who had signed bilateralswould be dropped.22

By 1997 though, the Commission’spatience with the Member Stateswas wearing thin once more, asMember States continued their inde-pendent negotiations.23 At the Octo-ber meeting of transport ministers,Kinnock pledged that there would bea role for the Member States in anynegotiations, but also floated the pos-sibility of reinitiating legal actionagainst Members which had alreadysigned bilaterals.24 Yet the transportministers were moved by neither thevelvet glove nor the iron fist of theCommission and once more rejectedgranting it full powers to negotiateagreements.25 This promptedKinnock to acknowledge that theMember States were “resistant” toturning over negotiations to theCommission, and to promise that hewould “return to this issue” at thenext transport ministers’ meeting.26

Kinnock was not to have to carry

DEMPSEY

15

on alone in the struggle to win nego-tiating authority for the Commis-sion, however. Competition Commis-sioner Karel van Miert, long viewedas one of the most charismatic andinfluential members of the Commis-sion,27 increasingly brought theweight of his powerful office to bearagainst carriers whose parent gov-ernments had negotiated (or were inthe process of negotiating) bilateralagreements.28 Van Miert stated inFebruary 1998, “I consider that bilat-eral open skies agreements do notconstitute the right answer.”29 Hecontinued by explaining:

If we want to establish fair compe-tition conditions between Euro-pean and North American airlines,the best solution is to conclude aglobal agreement between theCommunity and the United States.We must develop a common policygiving Community carriers the pos-sibility to compete on fair and eq-uitable terms . . . .30

But even testimony from such apowerful member of the Commissionwas insufficient to convince theMember States to desist from theiractivities, so in March the Commis-sion announced that it had reopenedlegal proceedings against MemberStates that had signed bilateralagreements with the US.31 In its an-nouncement, the Commission saidthat it was “not motivated simply bythe legal breach of EU rules,” butbecause the bilaterals “do not safe-guard the long-term interests of theEuropean air transport industry.”32

By giving access to national marketson different terms, the Commissionconcluded bilaterals “not only distortthe competition between airlines butalso between airports.”33 In spite ofthe Commission’s careful couching ofits language, its frustration with theMember States still showed through,“Member States are not only failingto comply with EU law, but are alsonot co-operating to adopt, within areasonable time, an EU approachmaking it possible to remedy the le-gal infringements and ensureequivalent regulatory conditions . . ..”34 A spokesperson for Kinnock’s of-fice was more blunt, “The cozy nego-tiations are over and the gloves havenow been taken off. If this does rattlesome governments – so be it.”35

The Member States reacted poorly

to the Commission’s threats, withBritain and France declaring the fol-lowing day that they would continuetheir negotiations regardless.36 TheGerman transport minister calledthe threat “unacceptable” andwarned that it would “endanger Eu-ropean jobs,” while others referred toit as “counterproductive.”37 Portugaland Italy announced their plans toproceed with their talks with theUS,38 seemingly undeterred byKinnock’s statement that such be-havior was “a shortsighted policybased on nationality”.39 But even fol-lowing the Member States’ virtualdismissal of Kinnock’s increasinglyheavy-handed tactics, the TransportCommissioner still offered that theyhad a “final chance” at the October1998 transport ministers’ meeting togive the Commission full negotiatingpowers.40

The transport ministers, however,were unimpressed by Kinnock’spleas or threats, and again rejectedthe Commission’s bid.41 This led theCommission to take its legal actionto the next level by filing a full com-plaint with the Court of Justice.42 Ina speech announcing the move,Kinnock admitted that the MemberStates had given the Commissionnegotiating powers, “but its scope isnot broad enough to make meaning-ful negotiation possible and untilthat changes the Commission . . . hasno option but to pursue legal ac-tion.”43 He continued to explain thatthe Commission “sees no other optionbut to pursue the procedure under[the Treaty of Rome] to the finish.”44

Yet even as Kinnock delivered thisblow to the Member States, he con-tinued to hold out the hand of part-nership, stating that the Commissionwas “willing and available to con-structively build a common approachas regards air transport relations . . .and hopes that substantial progress. . . will be made in the comingmonths”.45

While the Commission may havebeen willing to construct a “commonapproach” towards external Euro-pean aviation policy, the MemberStates still were not. The UK contin-ued its negotiations with the US, al-beit at a significantly reduced rate,46

while just weeks after the Commis-sion announced its complaint againsteight Member States, Italy declaredthat it had completed a bilateral with

the US that would phase in Italian“open skies”.47 The Commission re-taliated by commencing legal pro-ceedings against the Netherlandsover its bilateral with the US.48 Thiscame as a particular shock to theUnion’s membership, as the Com-mission had previously indicatedthat the Netherlands/US bilateralwould be allowed to stand since itpredated the Third Package.49

Ironically though, throughout therecriminations and complaints, mostMember States voiced support forgiving the Commission negotiatingpowers for external aviation agree-ments. As early as 1993, the Danishambassador to the EU stated, “Wecan get better results by negotiatingin common.”50 In 1996, the transportminister of Germany expressed hopefor “a U.S. – European agreement inthe long term.”51 That same year, atthe transport ministers’ meeting, theItalian minister said that no one inthe EU needed to be convinced of thevalue of multilateral negotiations,while the representative from theNetherlands was characterized asbeing “enthusiastic” about the pros-pects for the Commission being givenfull negotiating powers.52 Portugalhas also stated that it “firmly sup-ports” the Commission’s position onthe subject.53 Indeed, the only Mem-ber States that were particularly in-transigent about the possibility ofgiving the Commission full negotiat-ing powers has been the unlikely duoof France and the UK,54 which havemanaged to repeatedly sway enoughof the Member States at any giventime to prevent a full transfer of pow-ers. However, in 1999 the Commis-sion introduced a new approach tothe matter—the Common Transat-lantic Aviation Area—which ap-peared calculated to finally end thenearly decade-long struggle betweenitself and the Member States.

The Proposed CommonTransatlantic AviationArea

On May 12, 1999, Neil Kinnockgave a speech to the European Avia-tion Club entitled European AirTransport Policy: All Our Tomorrowsor All Our Yesterdays Replayed?55

Kinnock admitted air transportationin Europe “is shaping up to the fu-ture,” but he warned “that restruc-


16

The following attorneys are Board Certifiedin International Law:

Certification:Make It Your Goal!

Want to become Board Certified? Need more information?Contact Carol Vaught at The Florida Bar, 800/342-8060,

ext. 5738, or [email protected].

Chicago, ILJeremy Ross Page

Ft. LauderdalePeter Alan Quinter

MelbourneRobert E. Bickford

MiamiArturo J. Aballi, Jr.

Thomas BaurJohn Hobart FriedhoffEdward Martin Joffe

Andrew Joshua MarkusAlexander ReusMichael A. Silva

Thomas James SkolaTheodore Robert Walters

Roswell, GAPhilip Whitworth Engle

TampaJohn Charles Bierley

Richard Allen JacobsonSamuel Robert Mandelbaum

Voorhees, NJMark S. Guralnick

West Palm BeachGeorge C. J. Moore

Winter HavenLucius M. Dyal, Jr.

Miami LakesAlix Jean Marie Apollon

NaplesStanley Frazer Rose

OrlandoRobert Ryon HendryJames Ray LavigneJ. Brock McClane

Thomas L. Raleigh, III

Palm BeachRobin A. Abraham

Port CharlottePamella A. Seay

turing in [the] industry will only betruly successful if it is accompaniedand strengthened by an effective andproactive external strategy.”56 Hethen proceeded to lambaste theMember States which had insistedon continuing to pursue bilaterals,referring to the “magical attraction”of bilaterals and stating, “Nostalgia. . . still has a big future.”57

However, what initially seemed tohave been little more than an occa-sion for Kinnock to criticize his op-ponents quickly became somethingmore substantial. Kinnock raised theconcept of a Common TransatlanticAviation Area (CTAA, alternativelyreferred to as the Transatlantic Com-mon Aviation Area, TCAA, or simply

the Common Aviation Area, CAA), aplan that he had initially floatedshortly after becoming TransportCommissioner but which had beenput aside during the lengthystruggles with the Member States.58

The CTAA would not merely be anEU-wide bilateral, but would bequalitatively different, encompass-ing many subjects normally outsidethe scope of bilaterals, such as con-sumer rights and environmental pro-tection, as well as traditional sub-jects like traffic rights andcode-sharing.59 Whether the CTAA istruly something other than a “mega-bilateral” is open to debate, but theCommission apparently felt stronglyenough about its potential to circum-vent the dead-lock on the grant of ne-gotiating powers that the legal pro-ceedings against Member Stateswere put on indefinite hold.60

Paradoxically, once Kinnock andthe Commission had finally deviseda seemingly feasible method ofachieving their goals in the arena ofexternal aviation policy, the entireCommission was reorganized andKinnock was removed from the officeof Transport Commissioner.61 Thenew Transport Commissioner,Loyola de Palacio, showed much lessinterest in the subject of bilateralsand the CTAA,62 with leadership onthe subject of the CTAA passinglargely into the hands of the Associa-tion of European Airlines [AEA] andits member companies.63 Thus, at aUS-sponsored 1999 meeting of 90transport ministers, while de Palaciopresented the concept of the CTAA,it was the heads of several Europeanair carriers who spoke most force-fully on its behalf.64 The chairman ofBritish Midland Airways expresseddismay that the US and the UK, bothof which had been long-time cham-pions of deregulation, were now soopposed to even the idea of theCTAA.65 Lufthansa’s CEO statedthat the CTAA was “the only way tomake some progress” on the subjectof international aviation.66 The presi-dent of KLM declared that bilateral-ism was dead and that the air trans-port industry was doomed to followin the path of the silent movies if theCTAA, or at least some form ofmultilateralism, was not adopted.67

While the latter address may havebeen hyperbolic, it did serve to illus-trate the increasing desire of the aircarriers themselves to move beyondthe bilateral system.

Despite these strong testimonials,the CTAA did not gain many sup-porters from among the world trans-port ministers, and no reference to itwas included in the final statementreleased by the conference.68 Fur-thermore, while de Palacio suggestedat the conference that the EU andthe US could meet every six monthsthereafter to lay the groundwork foran initial conference on the CTAA,69

the first period for such discussionspassed without action on either sideof the Atlantic. By mid-2000 therewere still no plans to even schedulediscussions on the subject, making itunlikely that de Palacio’s stated goalof a CTAA conference by 2002 wouldbe met.70 Indeed, on approximatelythe date the first discussion sessionwould have met, it was announced

BILATERAL AIR TRANSPORTfrom preceding page

17

that Portugal had signed a new bi-lateral with the US, giving the USenhanced “open skies” access to thePortuguese market.71

Nonetheless, by November 2002,the United States had negotiated‘open skies’ bilateral air transportagreements with 59 nations, of which11 were EU members.72 Thebilaterals provided free access to allcity-pairs between the two nations byairlines flying the flag of either (in-cluding a requirement that a carrierdesignated by a government for traf-fic rights be effectively owned andcontrolled by citizens of that govern-ment), unlimited ‘fifth-freedom’rights beyond, ‘double disapproval’pricing, and a requirement that com-puter reservations systems [CRSs] benon-discriminatory. The CRS con-cerns had largely been superceded byEU regulations on the subject guar-anteeing competitive freedom, andthe fifth-freedom rights had becomeeffectively superfluous once U.S. car-riers turned over intra-Europeanroutes to their code-sharing partners,converting the landing slots for usein trans-Atlantic operations. The neteffect was that any U.S. carrier couldfly on any conceivable route betweenthe two nations, yet only the flagcarrier(s) of the bilateral partner na-tion could exercise the traffic rights.

The ECJ ‘Open Skies’Decision

On November 5, 2002, the Euro-pean Court of Justice rendered itslong-awaited decision on the com-plaint that had been filed by theCommission against eight EU states,seven of which (i.e., Austria, Belgium,Denmark, Finland, Germany, Lux-embourg, and Germany) signed ‘openskies’ bilateral air transport agree-ments with the United States, andone of which (i.e., the United King-dom) signed a restrictive bilateral(Bermuda II) that included an ‘effec-tive ownership and control’ clause infavor of U.K. carriers.73

The court rejected the argumentof the Commission that it had exclu-sive external competence to negoti-ate air transport trade agreementson behalf of the 15 EU member gov-ernments. But it held that the EUwas exclusively competent on faresand rates on intra-EU routes, andCRSs. Further, four types of provi-

sions in bilaterals are inconsistentwith EU Law:1. Nationality clauses (including es-

tablishment) – the ‘effective own-ership and control’ provisions vio-late the right of establishmentguaranteed under Article 43;

2. Areas of exclusive Communitycompetence, such as:a. Air fares and rates on intra-Community routes – the so-called‘fifth freedom’ pricing provisions;b. Computer reservations sys-tems; andc. Airport slot allocations.74

The court held that the eightMember States’ bilateral air trans-port agreements were illegal underEU Law. None of the bilaterals inquestion addressed the last subject.Only the first raises issues of realsignificance, since eliminating thenationality clause would enable anyEU carrier to exercise routes underthe bilateral. These are all areas inwhich the Council conferred jurisdic-tion on the Commission in the three‘packages’ of 1987, 1990 and 1992(addressing the granting of operatinglicenses by Member States to EU car-riers, carrier access to intra-commu-nity routes, and the establishment offares and rates on intra-communityroutes) as well as two other regula-tions of 1989 and 1993 (on CRS andairport slot allocation, respectively).Effectively, the decision holds thatwherever the EU has promulgatedregulations that affect nationals ofnon-EU countries, the EU acquiresexclusive competence to deal withnon-EU countries on such matters.Moreover, the EU acquires exclusivecompetence over subject matters onan issue-by-issue basis, rather thanon an industry-sector basis. By im-plication, the EU may also possessexclusive competence on such avia-tion issues involving competitionrules, commercial opportunities (in-cluding groundhandling), safety, en-vironmental matters, and customsduties, taxes and user charges.

But the decision was silent as towhat the Member States or the Com-mission must do to rectify the illegal-ity. There is precedent for the EU tonegotiate air transport agreementswith other governments. It has nego-tiated a bilateral air transport agree-ment with Switzerland, a multilat-

eral agreement with Norway andSweden, and a multilateral as partof a larger agreement on a EuropeanEconomic Area with Iceland and Nor-way. So it could begin negotiationswith the other nations on areas inwhich it has been granted exclusivecompetence. However, the Councilhas given the Commission authorityonly to negotiate ‘soft rights’ with theUnited States, but not traffic rights.Without such authorization, theCommission does not have authorityto conclude a new bilateral with theU.S. or any other nation, except ar-guably, on those matters over whichit has exclusive competence. Neitherdo member States have legal author-ity to enter into bilaterals on mattersabout which the Commission has ex-clusive competence.75

The ECJ decision made it clearthat no EU Member State could law-fully enter into a bilateral air trans-port agreement that included an “ef-fective ownership and control” clauseunless access to routes was open toall EU air carriers. But the court didnot proclaim the existing bilateralsto be null and void. Since they areunlawful under EU Law, perhaps theoffending States have a duty to re-nounce them, as the Commissionquickly urged;76 though immediatelyafter the court decision, none ap-peared eager to do so. In fact, Francequickly signed a bilateral air trans-port agreement with the Peoples Re-public of China that contained theillegal “effective ownership and con-trol” clause.Although unlawful under EU domes-tic law, under international law theirprovisions are still binding upon sig-natory States. Perhaps the Statescould open negotiations with theUnited States to remove the offend-ing provisions, a move the U.S. wel-comed. But on January 29, 2003, theCommission announced that it wouldtake legal action against any EUmember that “engages in negotia-tions with the U.S. on a unilateralbasis.”77 Further, the Commissionhas conceded that “neither the Com-munity nor the Member States havea free rein to conclude air transportagreements.”78 Presumably then, theEU and Member States will have tosit on one side of the bargainingtable, while other nations sit on theother side.

It was also unclear what thecontinued, next page

18

United States would do. Would it en-ter into trilateral negotiations witha Member State (or States) and theCommission, and if so, would it bewilling to amend the effective own-ership and control clause to apply toall Community carriers? Would theU.S. insist on access by additionalU.S.-flag carriers to LondonHeathrow Airport, given theCommission’s competence to addresslanding slot issues? And what of theseveral hundred bilateral air trans-port agreements Member Stateshave concluded with third-party gov-ernments? Probably all, or nearly all,include ‘effective ownership and con-trol’ provisions, and hence, are repug-nant to EU Law as well. Yet somenations may be unwilling to allowthe designation of an unlimited num-ber of EU carriers over routes be-tween their countries and Europe.

Endnotes:1 David Mazzarella, The Integration of

Aviation Law in the EC: Teleological Juris-prudence and the European Court of Justice,20 TRANSP. L. J. 353, 354 (1992); PaulDempsey, Law & Foreign Policy in Interna-tional Aviation (Transnational 1987).

2 Bruce Barnard, EC Ministers RejectPooling of Air Traffic Agreements, J. OFCOM., Mar. 16, 1993, at 3B.

3 The European Community itself–andthen the EU–promulgated a series of compre-hensive regulations mandating intra-Com-munity air transport liberalization. This se-ries, known individually as “packages,”culminated in the Third Package, put intoeffect in 1993. The Third Package brought theEU commercial aviation market ever closerto true cabotage rights. The Treaty of Romeestablished the EC in 1957 for the purpose ofenhancing economic efficiency among thewestern European nations. The EU was es-tablished by the Treaty of Maastricht in 1992.On January 1, 1993 the EU began functionaloperation and the power embodied in theTreaty of Rome passed on to the EU. TheTreaty of Rome includes rules intended topromote competition in various economic sec-tors, including transportation. Nevertheless,until the packages were promulgated, fornearly three decades the EC/EU left aviationoutside the mainstream of European integra-tion.

4 The European Union has four govern-ing bodies: (1) the Council (equivalent of theU.S. executive); (2) the Parliament (equiva-lent of the U.S. Congress; (3) the Court ofJustice (equivalent of the U.S. SupremeCourt); and (4) the Commission (equivalentof the SEC, FTC, and all other administra-tive agencies rolled into one). The four gov-erning bodies of the EU — the Council, the

Commission, Parliament, and the EuropeanCourt of Justice — share responsibility tointerpret and implement the governing trea-ties. The Council, whose members representthe Member States, is responsible for carry-ing out the objectives of the EU through leg-islative enactments. The Commission, com-prised of nonpartisan members chosen bycommon agreement by the Member States,gives recommendations and advisory opinionsto the Council. Parliament has the duty of ad-vising the Council on issues relevant to thedevelopment of the EU. The Court of Justiceinterprets the provisions of the Treaty ofRome and enforces its requirements.

5 Bruce Barnard, EC Ministers RejectPooling of Air Traffic Agreements, J. OFCOM., Mar. 16, 1993, at 3B.

6 Id.7 Id.8 Id.9 Popularly called the “Committee of

Wise Men” in English-language sources.10 Wise Men: Bilaterals Ignore “New Re-

alities” of Single Market, AVIATION EUR.,Feb. 17, 1994.

11 Id.12 EC Goal: All-Or-Nothing Bilaterals

with U.S., AVIATION DAILY, Mar. 6, 1995,at 26.

13 Julian Moxon, EC Sets Open-SkiesSchedule, FLIGHT INT’L, June 14, 1995.

14 Id.15 Bruce Barnard and Lisa Burgess, Ger-

many Faces EU Suit if it Signs US Air Pact,J. OF COM., Feb. 16, 1996, at 1A..

16 Bruce Barnard, Kinnock Perseveres inFight for EU-Wide Air Talks With US, J. OFCOM., June 20, 1995, at 2B, 2B; the targetedMember States were Austria, Belgium, Den-mark, Finland, Luxembourg, and Sweden.

17 France Rejects Traffic Rights as Issuein Multilateral Talks, AVIATION DAILY,Mar. 14, 1996, at 1, 2.

18 Commission’s Multilateralism Man-date Comes in Phases, May be Too Late,AVIATION DAILY, June 20, 1996, at 1, 1.

19 Id.20 Id.21 Id.22 Id.23 Chris Johnstone, Brussels Cajoles and

Threatens in Bid for United EU Air Front, J.OF COM., Oct. 8, 1997, at 20A.

24 Id.25 European Union Denies Kinnock Au-

thority to Negotiate ‘Hard Issues’ With U.S.,AVIATION DAILY, October 10, 1997, at 63.

26 Id.27 Lois Jones, When the Going Gets

Tough…, AIRLINE BUS., May 1998 at 26, 26-27.

28 G. Porter Elliott, Antitrust at 35,000Feet: The Extraterritorial Application ofUnited States and European CommunityCompetition Law in the Air Transport Sector,31 GEO. WASH. J. INT’L & ECON. 185, 208-09.

29 Commissioner Karel van Miert, Ad-dress to North Atlantic Assembly Meeting(Feb. 16, 1998).

30 Id.31 Commission Takes Further Legal Ac-

tion against Member States’ “Open Skies”agreements with the United States, <http://www.europa.eu.int/en/comm/dg07/press/

ip98231en.htm>; the Members named wereAustria, Belgium, Denmark, Finland, Ger-many, Luxembourg, and the UK, which hadsigned a preliminary agreement with the USin 1995.

32 Id.33 Id.34 Id.35 Chris Johnstone, Kinnock Challenges

Open-Skies Pact, J. OF COM., Mar. 12, 1998,at 12A,.

36 Id.37 Kevin O’Toole, The EC Wants Indi-

vidual US Open Skies Deals to be Torn Up,FLIGHT INT’L, Mar. 25, 1998, at 28.

38 Id.39 Pierre Sparaco, European Deregulation

Still Lacks Substance, INT’L AIR TRANSP.,Nov. 9, 1998, at 53.

40 Bruce Barnard, Virgin Set to ChallengeUS Carriers in US Skies, J. OF COM., SEPT.24, 1998, at 11A.

41 Chris Kjelgaard, Commission TakesEight EU Nations to Court Over USBilaterals, AIR TRANSP. INTELLIGENCE,Oct. 30, 1998.

42 Id.43 Id.44 Id.45 Id.46 John D. Morrocco, Open Skies Impasse

Shifts Alliance Plans, AV. WK. & SPACETECH., Nov. 9, 1998, at 45.

47 U.S., Italy Agree to Open Skies, Pend-ing Alitalia-Northwest Immunity, AVIATIONDAILY, Nov. 13, 1998 at 275.

48 Netherlands/US Bilateral AgreementFocus of EC Proceedings, AIRLINE INDUS-TRY INFO., Feb. 8, 1999.

49 Id.50 Bruce Barnard, EC Ministers Reject

Pooling of Air Traffic Agreements, J. OFCOM., Mar. 16, 1993, at 3B, 3B.

51 Germany – U.S. Open Skies ‘Megadeal’May Boost Multilateral Negotiations, Avia-tion Daily, Feb. 8, 1996, at 1.

52 France Rejects Traffic Rights as Issuesin Multilateral Talks, Aviation Daily, Mar.14, 1996, at 1.

53 Frances Fiorino, More Open Skies, AV.WK. & SPACE TECH., Jun. 12, 2000, at 19.

54 Commission’s Multilateralism Man-date Comes in Phases, May be Too Late,AVIATION DAILY, Jun. 20, 1996, at 1, 1;Spain, Ireland, and Germany have also beenamong the Member States to resist the Com-mission, but their positions have been moreflexible.

55 Commissioner Neil Kinnock, EuropeanAir Transport Policy: All Our Tomorrows orAll Our Yesterdays Replayed (May 12, 1999);the title is a reference to a line inShakespeare’s Macbeth, which Kinnockquoted from at some points.

56 Commissioner Neil Kinnock, EuropeanAir Transport Policy: All Our Tomorrows orAll Our Yesterdays Replayed (May 12, 1999).

57 Id.58 Id.59 Id.60 Simon Warburton, Kinnock Calls

Again for Common Transatlantic Pact, AIRTRANSP. INTELLIGENCE, May 13, 1999.

61 De Palacio is Proposed to Take Over AsEuropean Transport Commissioner, ATCMARKET REP., July 22, 1999 at 8.

BILATERAL AIR TRANSPORTfrom preceding page

19

62 De Palacio’s focus is centered on inter-nal European air transportation issues, par-ticularly air traffic control. New EU Trans-port Commissioner Pledges to Fight for ‘SingleSky’, AVIATION DAILY, Aug. 31, 1999, at 1.

63 James Ott, Aviation Summit Yields EUPlan for Open Market, AV. WEEK & SPACETECH., Dec. 13, 1999, at 43, 44.

64 Id.65 Id.66 Id.67 Id.68 Chris Thornton and Chris Lyle,

Freedom’s Paths, AIRLINE BUS., Mar. 2000,at 74, 75.

69 Graeme Osborn and Karen Walker-Was, Sans Frontiers?, AIRLINE BUS., Feb.2000, at 34, 35.

70 Id.71 Frances Fiorino, More Open Skies, AV.

WEEK & SPACE TECH., Jun. 12, 2000, at19.

72 DOT Ass’t Sec. Jeffrey Shane, OpenSkies Agreements and the European Court ofJustice (address before the ABA Forum on Airand Space Law, Hollywood, FL, Nov. 8, 2002).Of EU Member States, only Greece, Spain,the United Kingdom and Ireland had notsigned an ‘open skies’ bilateral with the U.S.

73 Commission of the European Commu-nities v. Republic of Austria, ECJ (Nov. 5,2002) et al, Cases C-466/98, 467/98, 468/98,469/98, 471/98, 472/98, 475/98, AND 476/98.

74 EU Press Release No. 89/02 (Nov. 5,2002). Other areas of exclusive Communitycompetence in civil aviation are safety, secu-rity, and the environment.

75 Warren Dean, The European Court ofJustice Decision on Bilateral Agreements:Impact and Implications, 17 Air & Space Law-yer 1 (Winter 2003).

76 Communication of the Commission of19 November 2002 (COM(2002) 649 Final).

77 Thomas Fuller, Europeans Told toAvoid U.S. Accords on Airlines, Int’l HeraldTribune, Jan. 30, 2003.

78 Communication of the Commission of19 November 2002 (COM(2002) 649 Final), at10.

Mr. Dempsey’s article was origi-nally published in The Transporta-tion Lawyer. This article was re-printed with Mr. Dempsey’s per-mission.

Paul Stephen Dempsey isTomlinson Professor of Global Gov-ernance in Air & Space Law and Di-rector of the Institute of Air & SpaceLaw at McGill University, inMontreal, Canada. From 1979-2002,he held the chair as Professor ofTransportation Law and Director ofthe Transportation Law Program atthe University of Denver. He was alsoDirector of the National Center forIntermodal Transportation. From1975-79, he served as an attorney

with the Civil Aeronautics Board andthe Interstate Commerce Commissionin Washington, D.C., and in 1981- 81he was Legal Advisor to the Chair-man of the I.C.C.

Professor Dempsey has writtenmore than fifty law review and pro-fessional journal articles, scores ofnewspaper and news magazine edi-torials, and several books:• Metropolitan Planning Organiza-

tions: An Assessment of the Trans-portation Planning Process (NCIT2000)

• Airport Planning & Development:A Global Survey (McGraw Hill1999).

• Airline Management: Strategiesfor the 21St Century (Coast Aire1997).

• Air Transportation: Foundationsfor the 21St Century (Coast Aire1997).

• Denver International Airport: Les-sons Learned (McGraw-Hill 1997).

• Aviation Law & Regulation (twovolumes, Butterworth 1993).

• Airline Deregulation & Laissez-Faire Mythology (Quorom Books1992).

• Flying Blind: The Failure of Air-line Deregulation (Economic PolicyInstitute, 1990).

• The Social & Economic Conse-quences of Deregulation (QuorumBooks 1989).

• Law & Foreign Policy in Interna-tional Aviation (Transnational1987).

• Law & Economic Regulation inTransportation (Quroum Books1986).Dr. Dempsey holds the following

degrees: A.B.J., J.D., University ofGeorgia; LL.M., George WashingtonUniversity; D.C.L., McGill University.He is admitted to practice law inColorado, Georgia and the District ofColumbia. Professor Dempsey was aFulbright Scholar, was awarded theTransportation Lawyers AssociationDistinguished Service Award, andwas designated the University ofDenver’s Outstanding Scholar. Hewas the first individual designatedthe University of Denver’s HughesResearch Professor and DePaulUniversity’s Distinguished VisitingProfessor of Law. The Colorado trans-portation community named him

“Educator of the Year”, and inductedhim into the Colorado Aerospace Hallof Fame. From 1979-2002, he was fac-ulty editor of the Transportation LawJournal. He also served on the Edito-rial Boards of the Denver BusinessJournal, and The Aviation Quarterly(Lloyds, London), and currentlyserves on the Editorial Boards of theGerman Journal of Air & Space Lawand the Annals of Air & Space Law.

From 1986 to 1998, he was host ofKWGN-TV’s weekly talk show, “YourRight to Say It.” Professor Dempseyhas appeared on the ABC EveningNews with Peter Jennings, theMacNeil-Lehrer News Hour, ABCWorld Business Report, NBC Today,ABC Good Morning America, CNNCrossfire, National Public Radio,CBS Radio, NBC Mutual Radio, andother news broadcasting networks inthe United States and abroad. Hiseditorials have been published nu-merous newspapers and news maga-zines, including Newsweek, the NewYork Times, and the Wall Street Jour-nal.

Dr. Dempsey is also Vice Chairman& Director of FrontierAirlines, Inc.,and has served with that airline sinceits birth in 1994. He is Director of theJordan Centre for Aviation Securityand Safety at Queen Noor Civil Avia-tion Technical College in Amman,Jordan. He was a founder and firstChairman of the Board of Governorsof the Certified Claims ProfessionalAccreditation Council, Inc., andPresident and Director of the GeneseeFoundation, Inc. He has also servedas a consultant to U.S. and foreignairlines, railroads, motor carriers, buscompanies, transportation labor or-ganizations and industry associa-tions, government agencies, and tele-communications companies.

Dr. Dempsey has delivered expertwitness testimony and studies beforethe Public Utility Commissions of thestates of California, Colorado, Kan-sas, Iowa, Ohio, Pennsylvania, andWashington, the Province of BritishColumbia, and the courts of Missouriand Nevada. He has testified beforethe transportation committees of theU.S. Senate, the U.S. House of Repre-sentatives, the Canadian Senate, andthe state legislatures of Colorado,Michigan and Texas.

20

B r a z i l :An International

P e r s p e c t i v eA Continuing Legal Education Program featuring the three

most “essential” cities in Brazil – Rio de Janeiro! Salvador daBahia! Manaus and the Amazon!

Co-sponsored by Florida Gulf Coast University andThe Florida Bar International Law Section

Sophisticated Rio de Janeiro with its world-famous beaches and fun-loving “Cariocas,” (Rio locals). FunkySalvador, brimming with history and culture and music - the “heartland of Brazil.” The exotic Amazon rainforestwtih its life and nature, known the world over for its importance to the earth.

Earn up to 9.0 CLE credits while enjoying the sights, sounds, history, and culture of Brazil for 11 days, fromSeptember 11 - 21, 2003, with departure from Miami, Florida.

Co-sponsored by Florida Gulf Coast University and The Florida Bar International Law Section, this programcombines the wonders of Brazil with an international perspective for the International Lawyer.

Agenda and Schedule

Thursday, September 11Depart from Miami on overnight flight to Rio de Janeiro.

Friday, September 12Morning arrival in Rio de Janeiro, transfer to 5-star Le Meridien Hotel, located on the beachfront inCopacabana. Welcome to Brazil with the “Rio by Night Dinner and Folklore Show.”

Saturday, September 13Today’s full-day tour of Rio includes Corcovado Mountain and the imposing Statue of Christ the Redeemer.A jeep tour through the Tijuca National Forest ends in the charming Santa Teresa district. After lunch at alocal restaurant, the tour continues to downtown Rio and the Sambadrome, home of Rio’s incredible Carni-val Parade. A drive through Flamengo Park leads to the remarkable Miranda Museum. Dinner is on yourown.

Sunday, September 14For CLE participants, morning CLE presentation topics feature “Brazil: Its Government and Legal System,”and “Lula and the Future of Brazilian Trade.” Optional tours are available for non-CLE participants. Afternoonis at leisure. We gather in the evening for Gafiera Night with dinner and dancing – the Samba, Bossa Nova,Lambada, and More!

Monday, September 15After breakfast, we transfer to the airport for a flight to Salvador da Bahia and check-in at the 5-star PestanaBahia Hotel overlooking the bay. Following an afternoon at leisure, your included dinner features local Bahiandelicacies and a folklore show at Miguel Santana.

21

Tuesday, September 16A morning historical walking tour of the city begins in Barra with the famous lighthouse, to the Pelourinhoarea with the best preserved complex of colonial architecture in the Americas. The afternoon CLE programfeatures “International Intellectual Property” and “The Free Trade Area of the Americas.” Optional tours areavailable for non-CLE participants. Dinner is on your own.

Wednesday, September 17Today is at leisure in Salvador da Bahia. Use your day to stroll along the Mercado Mondelo Market for sou-venirs, enjoy the park or beaches, or take part in an optional half day panoramic city tour, or the full daySchooner Tour to the Monk’s Island with lunch at the elegant Quinta Pitanga on Itapirica Island. Dinner is onyour own.

Thursday, September 18An early morning transfer to the airport for our connection to Manaus. A 30-minute boat ride up the Rio Negrotakes you to the Amazon Eco-Park Lodge, a charming complex set around a “moluca,” an Indian style greathouse. This secluded hideaway is bordered on one side by a soaring white sand dune and on the other bydense jungle. The community is laced with pathways and landscaped gardens. Dinner is at the Lodge.

Friday, September 19Breakfast, lunch, and dinner are included at the Lodge. Tours vary, depending on the weather, water levels,and other factors. There are generally two different activities included each day. Activities include jungleexploration by canoe, jungle trekking, alligator spotting at night, piranha fishing, and bird watching.

Saturday, September 20A mid-morning transfer takes us back to Manaus and the 5-star Tropical Manaus Hotel and Resort. Thisafternoon, CLE participants will meet for presentations on “International Environmental Law and Regulation”and “International Ethics Issues.” Non-CLE participants have the afternoon at leisure, or can participate in anoptional city tour. Dinner is on your own. Perhaps you may take in the folklore show at the hotel or thenightlife of Manaus.Sunday, September 21A morning transfer to the airport for the flight to Miami. Arrive latein the day to clear customs.

CLE CREDITS: Continuing legal education credits have been applied for through the Florida Bar. Certifica-tion credit in International Law has also been applied for from the Florida Bar. Speakers include local andinternational experts. If you are a member of the bar of another state, please contact the provider for addi-tional information.

COSTS: CLE Registration fee is $195 for Florida Bar International Law Section members. For non-mem-bers, the registration fee is $225. Travel costs are $3045 per person based on double occupancy. Singlesupplement is $565. Price includes roundtrip airfare from Miami, hotels, transfers, some meals, in-countrytravel, local guides, and tours. Price does not include Brazil visa or anything not specifically mentioned in theitinerary. Provider reserves the right to substitute comparable alternatives in the event of unavailability orinability to provide tours mentioned in this brochure

REFUND POLICY: Full refund, less $25 administration fee, if written notification is received at least 75 daysprior to travel. 75% refund 60 days prior to travel. 50% refund 30 days prior to travel. No refunds for cancel-lations received 30 days or less prior to travel.

For more information, to receive a brochure, or to register,send an email to Prof. Pamella Seay, [email protected], or call (941) 255-7414.

Florida Gulf Coast UniversityCollege of Professional Studies

10501 FGCU Blvd. S.Fort Myers, Florida 33965-6565USA

22

system whereby non-governmentalsector influence policy making.46

In 1959 when Romulo Betancourtassumed power, he devoted attentionto two economic areas: oil and indus-trialization.47 Also, the first steps to-ward institutionalizing business-government relations were takenduring this period. As it relates topolicy, the Betancourt Administra-tion renewed the implementationintervention and controls over the oilindustry that his party tried to estab-lish during the 1945 to 1948 period.Juan Pablo Perez Alfonso was theMinister of Mines and Hydrocarbonsduring the aforementioned periodand in the new administration. Thisnew government inherited from thedemocratically deposed militaryjunta a decree that provided for anincrease in the government’s share ofoil profits from 50 to 65 percent.48

President Betancourt kept thedecree in effect throughout his ad-ministration, which helped him inpartially covering the financial prob-lems of his presidential term. How-ever, this was short lived since in1962 oil prices fell in the interna-tional markets. This price collapsewas attributed to: (1) oil companiesceasing to honor production self-limi-tation agreements; (2) independentscompanies (small and medium oilcompanies that generally limitedtheir operations to the Lower-48states, to be distinguished from ma-jor oil companies like ExxonMobil)began to enter the international mar-ket; and (3) the Soviet Union beganexporting oil beyond Eastern Europe.

In 1963 there were electionswherein Raul Leoni of the AD won.Here business and government rela-tions were aimed at creating amechanism for the promotion of ex-ports tat led to the formation of aLatin American Regional Trade As-sociation, social reforms through taxreform for income redistribution andthe institutionalization of a business-government relations system called“democratic planning”.49

Leoni’s administration did not at-tempt to set up a novel or aggressiveoil policy. It unexpectedly achieved avery effective control mechanismover the industry’s reference prices.

Leoni’s administration inherited theoil policies of Betancourt and PerezAlfonso aimed at the growth of theCorporacion Venezolana de Petroleo(CVP– Venezuelan Petroleum Corpo-ration). President Leoni wanted toenter regional markets and protectthe Venezuelan currency from poten-tial devaluation; he realized that hecould not do this without the supportof entrepreneurs. Despite two yearsof intense negotiations, the FED-ERACAMARAS (Federacion deCamaras de Comercio y Produccion–Federation of Chambers of Com-merce and Production) continued tooppose regional integration due tointernal differences and basic protec-tionist fears.50

In 1968, Rafael Caldera waselected president and the SocialChristian party (COPEI) was inpower. The most significant issuesduring this administration were oilnationalization, gas nationalization,tax reform, Andean sub-regional in-tegration, foreign investment regula-tions, export promotion, and privatecapital democratization.51 The oilpolicy was aimed at achieving a morefavorable position for Venezuelawhen negotiating the industry’s na-tionalization with the multinationaloil companies (MNOCs). PresidentCaldera tried to implement servicecontracts as a substitute for the tra-ditional concession system.52 TheVenezuelan congress opposed thatversion of services contracts intro-duced by the executive and approveda much tougher version.

There was tremendous hostilitybetween Creole Petroleum (Exxon),the largest MNOC operating in Ven-ezuela, and Occidental petroleum,which had shown great interest ingaining access to Venezuela throughservice contracts; all this proved thatthis business was still attractive andthe Venezuelan government still hadbargaining power. Due to unexpectedchanges in international oil pricesand debate over Venezuelan tax re-form, signature of the service con-tracts was further delayed. Here wasone time where AD and COPEIseemed to work together, they werewilling to take a wait and see atti-tude.53

a) Families of Venezuela andtheir Political Influence

As presented before, business

families or entrepreneurs had to becourted by the government in orderto advance political and social objec-tives. Venezuela has been vied bysome local authors as a free streetmarket where ministers, govern-ment officials, doctors, and congress-men share the nation’s wealth. Also,tremendous corruption is used to at-tempt immediate riches.54 The influ-ential families have had involve-ments and dealings in every facet ofVenezuela’s economic and politicalactivities and events.

In 1975 there were complaintsthat the government of then (and1992’s) president Carlos AndresPerez was doing the same thing thatpresident Betancourt had done: openthe door to the MNOCs.55 This isquite peculiar since it was under boththese governments that there weremajor reforms to petroleum activitiesand even nationalization in Venezu-ela. There was the argument nation-alization without nationalizing andexpropriation without expropriationwere just sophisticated ways ofstrengthening foreign domination.56

The “rich” families of Venezuelahave for many years viewed the pet-rochemical industry as the new orlast frontier to be conquered by theVenezuelan entrepreneur.57 DonPedro Tinoco, nicknamed “el tenaz”58

was directly influential with AD andCOPEI.59 He was the son of the le-gal advisor for Iron Mines of Venezu-ela, a large multinational companyand he was representative of theVenezuelan Chase Manhattan Bankand agent for the Rothschilds whoheld major interests in the BancoLatino Americano.

Dr. Tinoco was a major intermedi-ary in the secret plans between thegovernment and the MNOCs duringthe nationalization period.60 He wasa former Treasury Minister, who wasin a position to guarantee business,as President Perez was in power. Thisis further exemplified by Dr. Tinoco’sco-authorship of Article 5, the lawthat governed petroleum activities inthe country.61

Gumersindo Rodriguez Gil wasthe leader of another influential fam-ily. He too was connected to the ADfrom the early 1960’s. He was knownto have some socialist tendenciesthat were not taken seriously by hisfriends and supporters. He main-tained his sphere of influence, but did

VENEZUELAfrom page 10

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not capitalize as others did.62

When the paper was first written,Gustavo Cisneros, known as the elo-quent one, was leader of VenezuelanTelevision, Pepsi-Cola of Venezuela,and other bottling concerns. Since1992, the Grupo Cisneros’ holdingshave grown tremendously to includeinterests in oil related activities andother international ventures. DiegoCisneros, the family patriarch cameto Venezuela from Cuba in 1945 andstarted a business carrying sand toconstruction sites.63 EugenioMendoza, leader of the Mendozagroup, another very powerful familygroup, is intimately tied to theCisneros and Vollmer families.Other important names are: DiegoArria Salicetti, Enrique Delfino,Arturo Pérez Briceño, Luis HugoAmador, Edgar Asis Espejo, SiroFebres Cordero, Armando Tamayo,and Carmelo Lauria. There is com-mentary holding that these familiesare more attached by soul to Europe.This is typical of most Latin Ameri-can elites, and it is why in somecountries it is said that the elites“hold court.” There is, however, someattachment to the United States andeven the Antilles. They hold a cul-tural discrimination based on alli-ances with foreigners and the na-tional bourgeois for their ownbenefits regardless of their country’sfuture.64 It follows from the forego-ing that any investment in Venezu-ela needs to account for the influ-ence, positive or negative, that thesefamilies could have on the venture.Therefore, the wise investor wouldexplore the merits of a cautious re-lationship with these families; rec-ognizing that there could be “popu-lar” downsides if the existence ofthat relationship becomes publicknowledge in Venezuela.

There are other families of signifi-cant importance in Venezuelan poli-tics which I will just mention for gen-eral information since detaileddiscussion would cover more thanthese pages will allow, and is beyondthe scope of this treatise. Frankly, thissituation of influential families iscommon worldwide. The issue iswhether there is transparency. And ifso, whether the citizenry shares in thebenefits often limited to the few elites.

B. Current Events: The ChavezDilemma

President Hugo Chavez Frias isan ex-military man and the currentelected president of the Republic ofVenezuela. In 1992, he was one of theprotagonists of two attempted coupsin which over 100 people died. Dur-ing the 1993-95 period, Ramon JoseVelazques becomes interim presi-dent after Carlos Andres Perez isousted under corruption charges.Later, Rafael Caldera was electedpresident. Former president Perezwas found guilty of embezzlementand corruption. The argument favor-ing the coups then, was that thecountry needed economic and politi-cal stability and to be rid of the cor-ruption problems that were stagnat-ing the country and keeping the vastpopulation in a state of poverty. Weask ourselves: what has changed?

In 1998, Hugo Chavez Frias iselected president. In 2000, ForeignMinister Jose Vicente Rangel dis-closes plot to kill president Chavez.Chavez wins another six years in of-fice and a mandate to pursue politi-cal reforms. In November of 2001,president Chavez announces mea-sures aimed at stimulating theeconomy, including a land reform law,which determines how the govern-ment can take over idle, private land,and a hydrocarbons law, which dealswith flexible royalty rates for compa-nies, which operate state-owned oilfields. Protesters demand that lead-ers of the state oil monopoly besacked. In December, Caracas, thecapital of Venezuela grinds to a haltas millions protest against PresidentChavez’s controversial economic re-forms, especially a new land law thatgives the government the power toexpropriate large estates and agri-cultural land deemed to be unproduc-tive.65

In February of 2002, the Bolivar,Venezuela’s national currency, drops25% against the dollar after the Ven-ezuelan government scraps five-year-old exchange rate controls.Later that month, president Chavezappoints a new board of directors tostate oil monopoly PdVSA. Thecompany’s executives (technocrats)strongly opposed this action. OnApril 9th trade unions and theFedecamaras declare a generalstrike to support PdVSA’s dissidents.President Chavez vows to crushstrike. Some 150,000 people rally insupport of strike and oil protest. Na-

tional Guard and pro-Chavez gun-men clash with protesters - morethan 10 are killed and 110 injured.President Chavez shuts down cover-age of violence by TV stations. Themilitary high command rebels, de-mand Chavez resigns.

On April 12th, president Chavezresigns, is taken into military cus-tody to await possible charges stem-ming from violence. The militarynames Pedro Carmona, one of thestrike organizers, as head of transi-tional government. However, on April14th, president Chavez returns tooffice after the collapse of the interimgovernment. In July 2002, formerpresident Jimmy Carter fails tobring about a face-to-face meetingbetween President Chavez and themain opposition parties. In October,president Chavez says securityagents foil another plot to topple hisgovernment. Workers stage a na-tional strike to press Chavez to stepdown or call early elections. A groupof senior military officers goes onnational TV calling for civil disobe-dience, alleging the government iscorrupt and has impoverished thenation. In December, the oppositionstrike cripples the oil industry. Orga-nizers demand that Chavez resign.The weeks-long stoppage leads tofuel shortages in Venezuela and oilprices at $32/bbl.66

1. Hugo Chavez’s birth and riseto power: What does it have to dowith oil?

He was born July 28th, 1954 inSabaneta, State of Barinas. His par-ents were schoolteachers and he wasthe second of six children. He earnedhis secondary school diploma in sci-ence (Bachiller en Ciencias) in 1971and in 1975 he completed his stud-ies and Venezuela’s Military Acad-emy becoming a second lieutenant inartillery with an Engineering spe-cialty in Military Arts and Science.67

Chavez continued through variousdomestic and international militarystudies enhancing and advancing hismilitary career with distinction. Hepursued Masters studies in PoliticalScience at the University of Caracaswithout completing his thesis. OnDecember 17th, 1982, his national-ist convictions caused him to alongwith other captains form the MBR-200 (Moviniento BolivarianoRevolucionario-200– Revolutionary


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Bolivarian Movent-200) in honor ofSimon Bolivar’s bicentennial. Bolivarwas the 19th century liberator ofVenezuela and other South Americancountries from Colonial Spain toform “La Gran Colombia” (The GreatColombia). The group was “thinking”association of young military officerswho, according to their own state-ments, gathered study Bolivar’sthinking and the country’s situation.

They claimed not to have politicalambitions, but only the desire to dig-nify the military and to fight corrup-tion and ineptitude prevalent insome civilian governments poised todrain the country’s petroleum in-come. In reality, they proselytizedthrough many military quarters, bar-racks, and commands, and virulentlydenounced the actions of governmentleaders. In July of 1991, Chavez waspromoted to Lt. Colonel and placedin command of Nicolas BriceñoParatrupe Brigade based in Maracay.At that time, Venezuela was mired inan economic and social crisis neverbefore seen in the country. The re-mains of what was called “elcaracazo,” popular actions protestingthe 1989 neoliberal policies of presi-dent Carlos Andres Perez who wastrying to implement the draconianeconomic measures mandated by theInternational Monetary Fund(IMF).68

Chavez and his colleagues whoincluded the most brilliant studentsin their academy classes and rankedfrom Captain to Lt. Colonel, chosethis moment of high social unrest toexecute their plan named: OepracionEzequiel Zamora (operation EzequielZamora) which called for them totake over the country’s powerthrough an intrepid and surprisingmilitary coup. During the night ofFebruary 3rd, 1992, wearing red be-rets, 300 members of the elite para-trooper brigade moved to Caracasand positioned themselves aroundthe La Casona, the presidential resi-dence, and around the FranciscoMiranda Naval Air Station, com-monly known as La Carlota. Othermembers of the coup team took im-portant positions in the critical cit-ies of Maracaibo, Maracay, andValencia. However, they did not take

over the television and other commu-nications media. After a few confus-ing hours and exchange of gunfire,president Perez, managed to get to ElPalacio de Miraflores (the presiden-tial palace), not too far from LaCasona. There, president Perez pro-ceeded to manage the affairs of gov-ernment and to deal with the coup.Perez appeared on television in theearly morning hours of the 4th ofFebruary to announce the coup’s fail-ure and the solidarity of the militaryhigh command. Lt. Col Chavez him-self, wearing military fatigues ap-peared on television announcing thecoup did not achieve its objectives“for now.”69

The coup attempt, which inter-rupted 34 years of democracy sincethe 1958 fall of the dictator MarcosPerez Jimenez was well received bya considerable size of the population.From that moment on, Lt. Col.Chavez’ popularity just went up andup while president Carlos AndresPerez’ popularity sank. Chavez, whowas suspected of having extreme leftwing tendencies or to the contrary,fascist affiliations, was arrested andcourt marshaled in Caracas for rebel-lion. This was a light charge consid-ering the nature of the events, a realintended coup d’etat.

On November 27th, 1992, while atthe Yare prison Chavez and the na-tion witnessed another coup attemptperpetrated by his colleagues on theoutside. The coup plotters were moredetermined than in February. Theybombed buildings of important gov-ernment institutions and for a fewhours controlled key barracks and atelevision station. The station trans-mitted a message that seemed to dis-tance them from Chavez. However,later it was determined that the plot-ters intended to liberate Chavez.Nevertheless, this event caused moreconsternation for president Perezsince it involved higher ranked offic-ers than the February attempt. Itinvolved the three services and washeaded by the Rear AdmiralsHernan Gruber Oderman and LuisCabrera Aguirre, and Air GeneralEfrain Francisco Visconti Osorio. Onthe 28th of November, near one hun-dred rebels headed by GeneralVisconti escaped to Peru, while manyothers were detained.

On the 27th of March, 1994, lessthan a year after the parliamentary

destitution of president CarlosAndres Perez for mishandling offunds, the new president, the veteranstatesman, Rafael CalderaRodriguez signed an order droppingthe military charges against Lt.. Col.Hugo Chavez in exchange for his res-ignation and discharge from the mili-tary. Chavez’ unconstitutional con-duct was viewed as incompatiblewith the military uniform. However,his discharge opened the door forChavez’ political activism.

Far from thanking presidentCaldera, who Chavez did not con-sider different from the rest ofVenezuela’s traditional politicians,Chavez began to contact his old mili-tary chums from 1992 and other mili-tary men from left winged partieswith the purpose of forming a politi-cal front aimed at crumbling the oldpolitical class. Now, however, Chavezwould use political means instead ofinsurrection. Therefore, the newMRV (Movimiento V Repulica– Re-public V Movement: V standing forVenezuela) was created. This was thecivilian version of the old MBR-200.

As the General Director of theMRV, Chavez traveled the entirecountry promoting restoration of thenation’s lost honor, honest and effi-cient governing of the national pat-rimony, and concrete measures tofight social insecurity. Crime in Ven-ezuela had grown rampant duringthe late ‘80’s. Chavez’ populist rheto-ric brought a message of redemptionand of service to the homeland con-stantly referring to the life and meth-ods of Simon Bolivar, the country’sliberator. Without a clear ideology,maybe even a confused left wing per-spective, Chavez’ movement aspiredto open a “third way” in a continentthat had already experimented withsocialist statism and, more recentlyalmost to the country, neo-liberalcapitalism.

Hugo Chavez, who is married andis the father of four children, said hesometimes felt he belonged to theleft. However, he, also, described him-self as a devout catholic inspired bythe Bible and his own idealized viewof Simon Bolivar. Although manytried to define Chavez’ movement bycomparing it to some Venezuelan,Bolivian, and Ecuadorian “benevo-lent” military dictators, Chavez re-mained unconventional in that hedid not articulate a specific ideology


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as he tried to differentiate himselffrom the “stale” political parties thatexisted in Venezuela. However, onApril 29th, 1997, Chavez registeredthe MRV in the Electoral Register forthe purpose of participating in theupcoming legislative elections of No-vember 8th, 1998. There, the MRVbecame the second ranked politicalparty in the country with 49 of the189 seats in the Chamber of Depu-ties and 21.3% of the electoral vote,fourth behind the AD. The AD wasthe social democrat party that hadprovided most of the presidents dur-ing Venezuela’s democratic periods,including Carlos Andres Perez.70

Chavez was a presidential candi-date in the elections of December6th, who came with a triumphantspirit after the successful legislativelections. The MRV was enormouslypopular amongst the least favoredparties: MAS (Movement toward So-cialism), PCV (Venezuelan Commu-nist Party), PPT (Homeland for All),and four other smaller left parties.The ex-paratrooper, Chavez, took a57% landslide over Henrique SalasRomer, an economist and AD candi-date, and over Irene Saez Conde,former Miss Universe and COPEIcandidate. He showed himself to bea popular man who came fromhumble beginnings. Chavez becamepresident Hugo Chavez Frias on Feb-ruary 2nd, 1999.

Venezuela’s constitution gavepresident Chavez a five-year term.Regional dignitaries like Bolivia’sHugo Banzer, Peru’s AlbertoFujimori, and Cuba’s Fidel Castrorichly attended his inauguration. Af-ter adding a to his induction state-ment: “I swear over this dying con-stitution…” Chavez delivered aharsh speech full of biblical andSimon Bolivar cites wherein herailed against outgoing presidentCaldera and the recently elected con-gressmen and women not part of theMRV, his political party. Also, he de-clared a state of social emergency,requested extraordinary powers toimplement an economic reform plan,and convened a referendum to dis-solve the congress, elect a Constitu-ent Assembly, and to annul the “1961Carta Magna.”71 President Chavezwarned, “…either the country madea democratic revolution or the revo-lution would run over them.” Headded that the military would leave

their barracks to perform civilianduties and that he aspired to pullVenezuela from its bent position andto cover it in the flag of continentalleadership, as it was during the daysof The Liberator (an allusion to theLiberator Simon Bolivar).

President Chavez’ position onVenezuela’s oil! In his campaign hepromised a drastic reform of thestate oil company PdVSA. PdVSArepresents 80% of Venezuela’s ex-ports, 40% of its income, and 27% ofthe GDP. Oil is the engine ofVenezuela’s economy. Sadly,Venezuela’s governments had notseen to diversify the country’seconomy. A pity, because the countryis rich with other resources and hasenough land to create a proper agri-cultural industry to feed its popula-tion. But president Chavez was notlooking to privatize PdVSA; insteadhe wanted to make it more efficientto increase the nation’s coffers. Heintended to stabilize the disastrouseconomy, which he inherited. Never-theless, the international commu-nity, and especially the United Stateswas very concerned with what wasgoing to happen with Venezuela’svast oil reserves—the fourth worldoil producer and the second in OPECafter Saudi Arabia. Although beforebecoming president, Chavez went toEurope to assure MNOCs that theyshould not fear their ability to pur-chase crude and that their invest-ments in Venezuela were going to besafe in a Chavez presidency. How-ever, Chavez was firm in saying thathe would review all existing con-tracts between Venezuela and theMNOCs. Also, he stated that hewould honor the country’s agreementwith OPEC. Further, he told OPECthat the organization should be lesscompliant towards developed coun-tries.72

2. The ImpassePresident Chavez was very out-

spoken against the U.S. policy in theregion, especially against activitiesin Colombia. He embraced presidentFidel Castro of Cuba, and even trav-eled to Iraq, in his quest to changeOPEC’s compliance towards devel-oped nations. Additionally he tookwhat was perceived as controversialpostures regarding matters of inter-national import. This did not makeChavez many friends in Washington,

D.C. And to compound matters, hisdomestic posture did not make himfriends at home either.

Chavez created a “new Bolivarianstate” and acted with a messianicpopulism that connoted images ofChina’s Mao. But all this did not helpsolve Venezuela’s economic problems.The external debt was eating 40% ofthe country’s budget. Near record lowoil prices were the one-two-punchthat further aggravated thecountry’s malaise. Chavez was un-able to solve these problems, al-though he was able to convinceOPEC to reduce productions vol-umes, therefore increasingVenezuela’s much needed income.This income was used to help presi-dent Chavez fund some of his muchneed social reform programs.

To depict all that led to the currentimpasse would be beyond the scopeof this treatise. But suffice to say thatChavez’ problems multiplied whenhe attacked the nation’s “sacred cow,”PdVSA. He has been criticized bymany former and current (those fewwho can speak openly) PdVSA execu-tives and employees. One of thosecriticizing from outside of PdVSA isLuis E. Giusti, former CEO who ar-gues that Oil Minister Ali Rodriguez’policies have cost the country in de-clined production. Giusti, now a con-sultant with the Center for Strate-gic & International Studies inWashington, D.C., and others state inForbes Magazine:73

“They have a foolish ideology aboutsovereignty in oil,” “It’s a jump backmaybe 40 years in time.” PDVSA, …needs to spend $4 billion a year justto maintain output from fields wherethe historic rate of decline is 25% ayear. Yet its entire capital budget was$3.8 billion last year, down from $5.4billion in 1997. Rodriguez insistsPDVSA has the capacity to pump al-most 4 million barrels a day and a$40 billion plan to increase that to 5million by 2007. Outsiders scoff, say-ing the company was only able toexceed its OPEC quota of 2.5 millionbarrels a … by tapping crude frominventories stockpiled earlier. “[T]hecompany … [is] running flat out,”says a former top PDVSA executivewho, like many in Caracas, is fearfulof being identified.

At the time of this writing in De-cember of 2002, Venezuela is goinginto its third week of national strike


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where Chavez’ opposition wants himto resign now instead of waiting un-til a referendum set for next August2003. Despite long lines for gasoline,president Chavez says that it is allunder control. In fact, Brazil, at therequest of the Chavez government,recently sent gasoline to Venezuelato help fight the shortages. Time willtell how the saga ends.

C. Venezuela’s membership inthe Organization of PetroleumExporting Countries (OPEC)and its relationship with theUnited States

The United States and Venezuelahave interacted dramatically in the20th century. Venezuela has been theprime recipient of U.S. capital, a sig-nificant trading partner, and a test-ing ground for U.S. Development andreform policies. The exploitation ofVenezuela’s oil fields, mostly by U.S.based oil companies, and the ensur-ing surge of income to Venezuela hasaltered that country’s political andeconomic life. However, the U.S. po-litical security and economic welfarehave come to depend on petroleumexporting nations like Venezuela.74

World War I changed the percep-tion of Venezuela’s value to theUnited States. Fueling the war sig-nificantly drained the U.S. oil fields.The U.S. government became veryalarmed when is saw British Oilcompanies with their government’ssupport capture the world’s mostpromising oil fields. As a result, inthe 1920’s the Department of Statedeveloped a concerted effort to loosenthe British hold on Venezuelan oiland to open that country to U.S. capi-tal.75

In 1959, income per barrel of oilstarted decreasing and Venezuela’seconomy suffered greatly. Before theformation of OPEC, Middle EastCountries collected taxes from con-cessions based on profits off of clos-ing prices. In some cases, companiesgranted discounts based on closingprices.76 Venezuelan tax computa-tions were viewed as a basis for clos-ing prices, when that was not reallythe case. Starting in 1960, theCCCCH (Coordinating Committeefor the Conservation and Commerce

of Hydrocarbons) raised objectionson the prices applied to transactions,which showed the effects of discount-ing. Nevertheless, Venezuela felt thedecreased income per barrel.

Despite the price drops, in the1960’s the search for petroleum wasintensified on continental platforms,in the open sea, and in the heart ofthe arctic. The North Sea had beensubject of great exploration activity,but it was not until 1970 that a hugeoil field was discovered in the Nor-wegian territorial waters. Subse-quent discoveries were made in theterritorial waters of Holland, Den-mark, and Great Britain. Colombiaand Ecuador’s oil production was inthe jungles east of the Andes and hadto be piped to the Pacific. The oil wasmostly used for internal consump-tion and to offset imports. The SovietUnion (which then include the Cen-tral Asian Republics of Azerbaijan,Turkmenistan, Uzbekistan,Tajikistan, Kazakhstan, etc.) wasexperiencing difficulties exploitingSiberian deposits. And in the U.S.,Alaska faced opposition from save-temperature groups.77

In June of 1961, at the invitationof the Venezuelan Petroleum Corpo-ration (CVP), an arm of the Ministryof Hydrocarbons, state oil companyrepresentatives of Argentina, Bo-livia, Brazil, Colombia, Mexico, andParaguay, met in Maracay, Venezu-ela, to discuss the need to create anorganization to unify them and pro-mote agreements of common inter-est. Another meeting was held in Riode Janeiro, which included Chile inSeptember of 1966. At this meetingARPEL (Latin American State Asso-ciation for Reciprocal Oil Assistance)was founded.78

In January of 1968, the PetroleumMinisters of Saudi Arabia, Kuwait,and Libya met in Beirut, Lebanon,and signed an agreement creatingOAPEC (Organization of Arab Petro-leum Exporting Countries). Later,Abu Dhabi, Algeria, Bahrain, Dubai,Qatar, Iraq, Egypt, and Syria, joinedthe organization. OAPEC’s objec-tives can be summarized as de-scribed by Saudi Arabia’s SheikhAhmad Zaki-al-Yamani:79

• Petroleum activity was to becomea tool for protecting the interestsof member countries and of theArab people in general.

• Permit the creation of opportuni-ties for member states to invest inthe oil business.

• Direct relations established withoil-consuming nations with a viewtowards expanding markets.

These two organizations wereamongst the precursors of OPEC(Organization of Petroleum Export-ing Countries), the organization wasformally founded, however, on Sep-tember 14th, 1960, after a four-daymeeting in Baghdad between Iran,Iraq, Kuwait, Saudi Arabia, and Ven-ezuela. In its membership, Venezuelawas emerging as a truly Petroleumnation. Political, economic, and socialrealities and the perception of an“Imperial” U.S. contributed to the for-mation of OPEC and the LatinAmerican countries joining it.

D. Latin American Transition[In 1992, when I originally wrote

this treatise, Latin America andEastern Europe were going througha period of extensive political an eco-nomic transition. Although many ofthose changes have already occurred,it is safe to say that the world is see-ing just as many changes today. Theglobal war on terrorism, politicalchanges in Brazil with the election ofpresident “Lula” da Silva, presidentVicente Fox of Mexico facing securityand economic problems, Colombia’s“low intensity” civil war, and theproblems with the U.S. economy,don’t make today much differentthan ten years ago. Therefore, I willpresent the original text as the sub-stance is still applicable today.]

[Latin America continues in astate of transition after the lost de-cades of the ‘80’s. A decade perme-ated by dictatorships, war in CentralAmerica, regional hyperinflation,and excessive foreign debt. The fallof the Soviet Union created condi-tions where Latin American Coun-tries could no longer play one SuperPower against the other to achievegoals of controlling the populationand restricting the riches to a se-lected few. Although this is the case,the Latin American democracies didnot know how to break the last partof the parading. They did not knowhow to spread the wealth to improvethe lot of the general citizenry. Re-grettably, the newly elected LatinAmerican governments reverted to


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what they knew from an imbeddedcolonial history. Corruption,cronyism, and political feudalismcontinued.]

The severe problems of the 1980’schocked Latin American countriesinto abandoning policies they hadclung to for decades. Latin Americancountries had achieved growththrough a system of mutual politicaland economic favors exchanged be-tween governments and certain con-stituents.80 Governments expandedtheir power by limiting and control-ling foreign investment and trade,and by raising taxes. This systemworked while governments could ac-cumulate the resources to developtheir nations and maintain loyalty,even if it meant inefficient state pro-tected monopolies or widespread cor-ruption.81

Latin America’s setbacks duringthe 1980’s were painful to the U.S.economy. Nearly one third of the U.S.Trade Deficit resulted from the im-pact of the international raw mate-rial depression on Latin America, for-merly one of the United States’manufacturer’s best costumers.Therefore, the United States had torecover Latin America as a consumerto overcome its trade deficit withJapan.82 Moreover, Europe’s integra-tion is giving the United States andits Latin American neighbors impe-tus to create a hemispheric blockthat can wield greater economic andpolitical power. [The North AmericanFree trade Agreement (NAFTA) withits signatories,Canada, Mexico, andthe United States has been in placefor roughly ten years. And talks to-ward a Free Trade Area of the Ameri-cas (FTAA) are going on in earnest.]

[Now just as then it is importantto note that] [a]lthough [LatinAmerican countries] have tremen-dous similarities, they are very het-erogeneous.83 Venezuela, Brazil, andMexico have many similarities, butthey are very different. They havesimilar patterns of populationgrowth and urban concentration.However, they differ significantly interms of size, language, and livingstandards. I have included Argentinain this discussion, although [in 1992]it is different from an ethnic, educa-tion, population and standard of liv-ing basis from Venezuela. However,[at the time] Argentina, like Chile,has known significant reforms al-

most to the point of considering it amodel for privatization efforts.

1. Comparison to México[During the past decade, and some

what before, Mexico has been] in theprocess of liberalizing its marketsexcept for oil. [Albeit, there havebeen several restructurings and re-organizations within the state oil gi-ant, PEMEX (Petroleos Mexicanos)].A similar situation [has been] seenin Venezuela, although it opened itsmarket to MNOCs and smaller inde-pendents for the “Reactivacion deCampos” (Field Reactivations) andengaged in Strategic Alliances to se-cure foreign capital investment todevelop and market some of its im-portant heavy oil reserves. The NorthAmerican Free Trade Agreement re-mains the area of most news forMexico. Mexican industry [still has]failed to upgrade its technology andorganize efficiently, [despite] earlyeconomic reforms.84

Article 27 of the Mexican Consti-tution of 1917 was drafted in a na-tionalistic spirit. This article rulesthat ownership in the subsoil’s re-sources belongs to the nation. There-fore, it does not exclude the possibil-ity of private participation “…as thenation will carry out the explorationaccording to the regulatory law”.85

The use of the word nation and notstate was no accident, since staterepresents a judicial order whichcannot by definition remain static.86

The Mexican constitution left openthe possibility of adapting the formof oil exploration to future needs. Andthis was done in 1938 with second-ary legislation granting exclusiveright to single state body, PetroleosMexicanos (PEMEX). The currentregulation obtained its present formin 1958.

Since it was the secondary regu-lation of 1958 that ruled out the pos-sibility of private participation,Mexico would only need to changethat regulation, not the constitutionto allow for a private firm’s involve-ment in hydrocarbon exploration andproduction. The justification tochange the regulatory law is twofold.First, an efficient oil industry is nec-essary to modernize Mexico and toprotect a non-renewable resourcefrom bad planning. Second, whatmade previous laws viable was theirparticular context. Then, Mexico was

a closed economy and PEMEX was alarge oil producer providing all theneeds of the country. Today, the mar-ket is different and so are the de-mands.87 [In 1992, just as t]oday, themarket is different and so are thedemands.88

In the past decade, Mexico mademany economic changes along themargins. We saw the end of presidentCarlos Salinas de Gortari’s adminis-tration replaced by his hand-picked(famous dedazo) candidate, presi-dent Ernesto Zedillo after the mur-der of the popular Colosio who openlychallenged the dinosaurs of the PRI(Revolutionary Institutional Party).The PRI was then defeated by presi-dent Vicente Fox form the PAN (Na-tional Action Party). This was a wa-tershed event since the PRI hadcontrolled the presidency and almostall institutions of government forover 70 years. The fall of the PRI canbe equated to the fall of the BerlinWall and the former Soviet Union. Itmeant the fall of institutionalism,but not an overnight change. Be-cause the country, in addition to itsown “caudillismo” (feudal cronyismdating from colonial time), has hadnear three generations of politicaland economic corruption. This hasbeen a pernicious problem for Mexicothat came to light with the arrestand trial of Raul Salinas, brother offormer president Salinas; and withthe abuses that caused extremeriches for the friends of Carlos whobecome overnight billionaire ownersof Mexico’s newly privatized indus-tries. President Fox, a former U.S.multinational executive brought anew perspective to Mexico. Throughan executive search tapped RaulMuñoz Leos, former Director Generalof DuPont de Mexico, S.A. de C.V., tolead PEMEX. But Fox faced in-creased problems with narco-traf-fickers, domestic crime and insecu-rity, and a divided Mexican congress.

Therefore, despite some changes onthe margins to include natural gastrade between northern Mexico andsouth Texas, more American oil ser-vice companies, and some attempts atelectricity privatization through regu-lations by the newly created CRE (En-ergy Regulatory Commission). ButMexico is still very much the same–some say it has gotten worse!

2. Comparison to Argentinacontinued, next page

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[In 1992] Argentina [was] perhapsthe most advanced Latin Americancountry in privatization matters andoil sector transition. It began thetransformation of its complex energysector as part of one of the most am-bitious programs in the hemisphere.The energy sector is a particularlysensitive area, as it was entirelymonopolized by the government inthe past and was fertile ground forhidden deficit financing.89

Yacimientos Petroliferos Fiscales(YPF), the state owned oil company,was entrusted with: (1) all oil fieldoperations, where it tried to compen-sate for its inefficiency by makingagreements with private sector oilcompanies; (2) transport pipelines;and (3) regulation of the downstreamindustry90 by fixing all prices oncrude oil and gasoline, transport tar-iffs, and refining margins.91

Existing service contracts werenegotiated into private sector conces-sions or joint ventures leaving YPFwith a minority stake. The down-stream sector has been totally regu-lated, and crude oil and gasolineprices have been freed from restric-tions enabling oil companies to sellfreely in the local market, or to ex-port and retain the foreign currencyearnings. Two thirds of Argentina’spotential exploration areas [were]being offered on a year-long revolv-ing bid basis to any private sectorcompany wishing to explore with thehopes of making a major discoveryand obtaining a 25 year concession.The legal framework for this andother privatization efforts is alreadyin place and the process for new laws[was] underway.92 These changes tak-ing place in Argentina could serve asa guide for Venezuela.

However, the process and not theresults could be the appropriateguide. Like in Mexico, former presi-dent Menem has been accused of cor-ruption and cronyism. In Argentina,the friends of the president becameexceedingly wealthy as a result of theprivatizations, debt increased, andthe economy suffered a completemeltdown. Argentina was the “dar-ling” of Latin American investments.Now, it suffers from popular unrest,high unemployment, and the col-

lapse of government and bankinginstitutions. Once again, the LatinAmerican “feudal” system laden withcorruption and bad policies damageda beautiful opportunity. Privatiza-tion as a noun and a verb suffereddue to the poor implementation ofMenem’s and successive govern-ments. I hope governments in theregion are not discouraged.

3. Comparison to BrazilBrazil is the largest country in

Latin America, in fact, larger thanthe United States and abundant innatural resources among them oil.[Then and now, I can say that] Bra-zil is still moving slowly and miredin the malaise of corruption, debt,and poor organization. However,there are signals that it is trying tolearn from its Argentine neighbor.93Despite those efforts, Brazil had un-employment problems as high as11.3% in the Sao Paulo area, andhigh inflation, 26% per month, lowerthan the previous 80% per month.94Up until 1992, privatization effortsin Brazil had been more fake thansubstance. The political turbulence of1991 was cited as a major reason forthe absence of foreign debt holdersat privatization auctions. There wasnot much excitement for the sale ofcompanies like Usiminas. There maybe more participants at privatiza-tion auctions when blue chipparastatals such as Telebras andPetrobras are made available.95

Curiously, president Collor wasimpeached and there had been manycriticisms of continued corruptionwithin Brazil. Those events broughtin the new administration of presi-dent Fernando Henrique Cardosoand there were many industriesprivatized in Brazil. But oil was leftuntouched. There were intentionsand some opportunities for a returnto some form of Brazilian styled riskcontracts. Also, there was tremen-dous progress bringing natural gasfrom Argentina and Bolivia to feedthe needs of the industrial south. Butdespite all this, the people of Brazilcontinued to suffer while the fewelites continued to increase theirwealth. Accordingly, a former tradeunionist and self made man whocame from the poorest of the poorneighborhoods was elected presidentcausing fear in the minds and pock-ets of many elites in Brazil—presi-

dent Luiz Inacio “Lula” da Silva.96

Brazil elected a populist presi-dent in response to decades, orshould I say centuries of neglect andabandonment of the masses in favorof support for the rich elites. Similarconditions led to the election of HugoChavez in Venezuela. Time will tellwhether Lula will turn Brazil in to agiant of economic and social equal-ity—a place where economic growthfor all can really occur.

As it relates to oil privatizationand foreign participation, Venezuelacan be considered to be behind Ar-gentina, but certainly ahead ofMexico and Brazil.

IV. THE FAILURE OF VENE-ZUELA’S OIL INDUSTRY NA-TIONALIZATION DESPITESOME SUCCESSES

Many will argue that the Venezu-elan state oil company, PdVSA, is amodel of success for state oil compa-nies. They will be correct in that ar-gument, however, PdVSA has failedas related to the social costs effectedon Venezuela through somewhat un-restrained borrowing in the worldmarket and continued investmentsin oil developments that were bestdeferred under low oil price cases.Unlike other neighboring countrystate oil companies, PdVSA hashighly skilled personnel and has de-veloped and advanced technologyfrom it original MNOCs prior to thenationalizations. PdVSA’s invest-ment policies have significantly af-fected the country’s treasury andbalance of payments.

A. HistoryThe rise of LDC (Lesser Developed

Country) nationalism in the 1970’sfound OPEC to be one of its princi-pal spokesmen. Venezuela was on theforefront of action, promoting OPECand strongly supporting change inthe exchange terms between pro-ducer and consumer countries. TheUnited States became increasinglydependent on oil imports. When Ven-ezuela decided to nationalize its oilindustry, which was managed by U.S.and other MNOC, the global, hemi-spheric, and bilateral relations werealtered.97

Venezuela’s oil production hadpeaked in 1970, declined through1985, and increased by 21% through1990. Now revising old policies, since


29

the early 1990’s Venezuela has un-dertaken to encourage foreign pri-vate investment in petroleum relatedjoint ventures. In that regard,PdVSA created the Office of Strate-gic Associations to negotiate jointventures, and the Venezuelan gov-ernment had reduced taxes for pro-ducing and refining heavy and extra-heavy crude oil. Despite thesereforms, Venezuela had not, in theearly 1990’s, succeeded in “flocking”major U.S. investments back into thecountry. Of course, the oil prize wastoo high for the MNOCs to resist andmajor alliances were created in themid-1990. Nevertheless, the memoryof the nationalizations remainedvivid for the MNOCs and for the Ven-ezuelans too.

1. Companies that operated inVenezuela

U.S. businesses, particularlyMNOCs, were bullish on Venezuelaprior to nationalization, and they feltthe same way about former presidentCarlos Andres Perez.98 Many of thesecompanies that had previous opera-tions in Venezuela are trying to re-turn; albeit, they kept representa-tives ties with the resultingVenezuelan affiliate of the state oilcompany (PdVSA).99 Ironically, presi-dent Perez was the one who nation-alized in 1976, and in 1992 was try-ing to bring back foreign investment.MNOC executives believed thatPerez’ policies were creating abrighter business outlook than inprevious years. An Exxon executivesated in the mid-1970’s that:“…there are four places in LatinAmerica…[with]…a…big future [forthe MNOC business]—Mexico, Ven-ezuela, Argentina, and brazil. Amongthese four, Mexico, Brazil, and Ven-ezuela stand out.”100

2. Why nationalization?Venezuela’s case for nationaliza-

tion as it was announced in the mid1970’s was driven by a political de-sire to control its destiny, rather thanto maximize short run income.101 Pre-viously, it just seemed like Venezu-ela had allowed foreigners to comeinto the country and have their waywith the country’s natural resources.During the period of nationalizationthere had been a wave of national-ism flowing through the DC’s andbannered by one of its OPEC cham-

pions, Venezuela.102 There were tre-mendous benefits anticipated fromnationalization, which never materi-alized in full due to Venezuela’s ram-pant corruption and mismanage-ment.

There were numerous argumentssuggesting that natural monopoliesshould be publicly held and that oilis such a natural monopoly. Those infavor stated that oil industry wasessential to the nation’s security andthat the private sector in Venezuelacould not and would not create an oilindustry. Therefore, the Venezuelangovernment should continue to pro-vide for such industry. Further, theystated that these industries requirebehaviors different from profit moti-vation and the maximization thatcomes with it. Hence, the oil compa-nies should be owned, regulated, orsubsidized by the government.103 Anot so well kept secret was that, ofcourse, the state oil company wouldbe the government’s “cash cow” fromwhich uncontrolled funds could bedrawn for public spending and otherun-auditable expenses. But the gov-ernment ownership argument didnot consider how the oil industry de-veloped in Venezuela, as it wasbrought into the country by theMNOCs. British Petroleum was oneof those oil companies, at one time,very much allied with the Britishgovernment. Securities regulationsand the nature of the American busi-ness system caused oil companies tokeep an arms length relationshipfrom the U.S. Government.

The debate in Venezuela and inother countries (including the UnitedStates) still persists regarding howmuch government involvement tohave, where and when. This is partof the problem in Venezuela today,and there is the problem and one rea-son for PdVSA’s failure (despite hav-ing done much better than PEMEX,PETROBRAS, and many others).Venezuela overlooked the economicrealities that consideration for profitand efficiency bring to the table.

V. PROJECT FINANCING:THE NEED FOR FOREIGNINVESTMENTA. Why foreign investment?

As alluded to before, in the early1990s, Venezuela was unable to meetall its obligations due the collapse inoil prices, corruption, and the

country’s overwhelming dependenceon the oil sector. Curiously, ten yearslater, Venezuela is faced with thesame problems, although it allowedstrategic alliances to help fund someof its oil development plans. The gov-ernment had embarked in majorregulatory changes to encourage for-eign investment in the oil sectorsince the Venezuelan governmentrealized that it could not develop allthe projects it desired through gov-ernment borrowing. Direct govern-ment borrowing was the traditionaland almost exclusive method used bymost LDCs to fund their majorprojects and operations operation.This method is distinct from thewhat is used in the United Statesand other developed countries wherethere are transparent and well es-tablished banking and financial sys-tems which are used with direct bor-rowing to raise capital throughsecurities, bonds, and other deben-tures. Of course, taxes are used toraise funds for many federal, state,and municipal projects, althoughthat is not a welcomed political ap-proach. The LDCs have difficulty col-lecting the taxes levied and don’thave a large enough population baseto tax. The LDCs often don’t havesophisticated securities laws or otherbonding mechanisms in place to al-low for funding of state relatedprojects. Of course, there are excep-tions in many countries and manysectors. However, lack of trust in thelocal systems and corruption make itdifficult to raise private capital inmany LDCs.

The Venezuelan congress steppedforward and enacted laws, which al-lowed limited foreign participation inthe country’s oil industry. In June of1991, the Venezuelan governmentsubmitted a proposal to its congressthat would give Shell, Exxon, andMitsubishi, 30%, 29%, and 8%, re-spectively, in the Cristobal ColonLNG (Liquefied Natural Gas)project. The remaining 33% would goto Lagoven (PdVSA subsidiary). Un-der the terms of the then proposedagreement, Lagoven would have toconsent to all key decisions to satisfythe Venezuelan Law requiring statecontrol of the hydrocarbons sector.104

Venezuela’s congress, at the time,approved a tax reduction from 67.7%to 30% to PdVSA for its joint ven-tures with MNOCs in the production


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and refining of heavy and extra-heavy oils. Venezuela’s impetus wasits stated desire to achieve key pro-duction goals by 1996. Indeed, Ven-ezuela was able to achieve its produc-tion target. However, as the graphshows, the production decline beganin 1997 and has continued to date.Coincidentally, the decline began asthe MRV, president Chavez’ partycame into power and has spiraleddownward during the extendedweeks of the strike against theChavez government in Venezuela. Ofcourse, there could be reasons for thedecline other than the rise of theMRV. However, one sure conse-quence of the production decline isVenezuela’s inability to pay its debtand to support its people with basicservices.

Another consequence of the pro-duction decline is that it could be adisincentive to attract foreign pri-vate capital in the short term. Thepolitical instability that has been theprimary cause (some may argue) forthe production decline may frightenthe new foreign investor who is oftendriven by a “lemming” type of behav-ior. The MNOCs already in Venezu-ela may like that lemming about tofall into the abyss, while the poten-tial new entrant to the Venezuelanmarket will likely follow the heardthat says: “let’s wait and see whathappens before we go in.” Therefore,foreign investment in Venezuela andthe people of Venezuela will continueto suffer.

B. Traditional Means of Invest-ments

Countries have traditionally se-cured investment funds through bor-rowing, and with the advent of theEurobond and other capital markets,companies and countries have devel-oped more creative ways of doing thesame– borrowing! In fact, some ofthose very creative schemes wereoutright theft, as Enron, Tyco, andWorldcom, just to name a few, havebeen alleged to have done.

1. Government Borrowing andfund Allocation

The government can borrow frombanks or in international markets,however, the price may be too highfor the country’s economy. In thepast, Eurocurrencies, a form ofmoney for investments, could directthe destiny of nations, the fate ofcompanies, and even that of individu-als.105 Today, with the Euro in placeand competing strongly with the Dol-lar, Euro-based investments/borrow-ing can be an interesting source forproject funding. Now, there will notbe a need to hedge against currencyfluctuations within Europe and thesecondary, and very lucrative, mar-ket created to manage short-termEuropean currency risk has evapo-rated.

Eurocredits and Eurobonds weredeveloped to manage longer-termcurrency fluctuations. TheEurocredit was advantageous in thatit financed more substantialamounts. These Eurocredits or syn-dicated bank loans had a fixed inter-est rate (LIBOR or LIBOR plus asmall fraction) for a fixed period of-ten six months. These credits had

maturities of five to sevenyears, but depending onthe circumstance, periodsof 12 to 15 years could benegotiated.

Still today, Project fi-nancing would be a goodway to secure funding forprojects in Venezuela.However, these can be hardto get, especially in times ofpolitical instability. Never-theless, this can be a reces-sion immune financemechanism if a commoditylike oil is being financed.Granted, the revenue perunit of production may be

lower, but if production can be in-creased with little or no incrementalinvestment, cash flows could bemaintained. This is a tricky proposi-tion!

Forfaiting operations have beenanother method of obtaining funds.They consist of the purchase of notesdrawn at the time of delivery ofgoods, without recourse against pre-vious creditors. They have an obviousadvantage in financing and riskmanagement. The product exporterdoes not have to carry the risk of anexport-import credit, which wouldhave otherwise been required to ob-tain. Small borrowers often used for-feiting; it is not recommended forlarge companies and public entities.

a) Overseas Private InvestmentCorporation (OPIC)

U.S. MNOCs trying to do businessin Venezuela would be well served ifthey turned to OPIC for funding sup-port. It is an independent, U.S. Gov-ernment owned corporation that pro-vides political risk insurance forAmerican companies doing businessabroad. It was founded in 1971 andhas supported projects in more than100 countries. The chart showsOPIC’s regional investment flows inJune of 2001. Although, in recentyears, there has been an increasedemphasis in Russia and Eastern Eu-rope, almost one quarter of OPIC’sinvestments go to South Americaand slightly more than 25% goes toRussia. While despite the recentlyenacted Africa Growth and Opportu-nity Act (AGOA), Africa, a continentof 800 people, 55 countries, and anarea of 30.1 million km2 (one thirdlarger than Latin America and theCaribbean) has only 8% OIPC’s loanflows.

OPIC services are only availableto American citizens (or companies)doing business abroad and only afterthe host country has entered into abi-lateral agreement with OPIC.Venezuela entered into such agree-ment with the government of formerpresident Carlos Andres Perez inJune of 1990. Therefore, reviving the1962 agreement that had been sus-pended by Venezuela’s adhesion tothe Andean Pact’s rules on foreigninvestment.

The loans carry market interestrates and have a five-year term.There are capital limitations that


31

need to be investigated before goingforward with the loan or insuranceapplication. This method of financingmay be appropriate for any futurejoint venture with PdVSA.

b) Multilateral Investment Guar-antee Agency (MIGA)

MIGA is another mechanismavailable to secure project insurance,and to certain extent project financ-ing.106 This organization issues guar-antees against non-commercial riskssuch as:107

1. restrictions on currency conver-sion and transfer.

2. expropriation, including creepingexpropriation (actions by govern-ments that in effect, deprive theforeign investor of ownership orcontrol).

3. breach of contract in cases wherea foreign investor has no access orlacks timely access to judicialhearing or arbitration.

4. armed conflict or civil insurrec-tion.

MIGA is an autonomous organiza-tion independent from the WorldBank. However, its activities supple-ment those of the World Bank, theInternational Development Associa-tion, and the International FinanceCorporation. Venezuela is a membercountry of MIGA; therefore, the U.S.MNOC should explore financing orinsurance through MIGA for its in-vestments in Venezuela.

Of course, there are other sourcesand methods available for financingprojects in Venezuela. Also, there arereasons for which some would bemore preferable than others. How-ever, those would be beyond the scope

of this treatise at thistime.

VI. CONCLUSIONSVenezuela is and shall

remain an importantcountry in the World En-ergy setting. Its huge oiland natural gas reservesand its geographical posi-tion in the American con-tinent further buttress itsimportance to the UnitedStates of America. It is astrategic nation for anycompany or enterprise in-volved in the exploration,

production, refining, and marketingoil and of hydrocarbon products. Asthe United States prepares for warwith Iraq and the United States’strategic reserves are at all-timelows, stability in Venezuela will beeven more important! However, con-stancy cannot be counted on! Thesetimes present an opportunity for theastute, diligent, and focused investorto look at Venezuela as a countrywith value-chain investment pros-pects. Venezuela and its people re-quire transparency and investmentdiversification. There is an opportu-nity, with the cooperative support ofthe Venezuelan public and privatesector, to create a new developmentparadigm in Venezuela. A new gen-eration of Venezuelans can create amodel of prosperity in a diversifiedeconomy.

Venezuela cannot be ignored! It,along with Brazil, Mexico, and Ar-gentina, are pivotal countries for theFree Trade of Area of the Americas(FTAA). The American economy is oildependent and Venezuela is one ofthe top oil producing countries.Therefore, the American economy islinked to Venezuela’s oil and politi-cal economics.

MNOCs are not into building com-munities, least of all countries. How-ever, the MNOC executive can nolonger ignore “collateral” conditionsin the countries they work in. It is nolonger sufficient to invest in the cor-rupt systems of the past, explore,exploit, and repatriate. Without“meddling” in the internal politics ofthe country, the MNOC must do morethan its best to ensure and assist inthe proper distribution and develop-ment of the local economy. Further,the MNOC should (without violating

antitrust laws) identify investmentopportunities that can benefit otherrelated and non-related multina-tional companies in which theMNOC can participate. These ven-tures can add value to the MNOC’sinvestments. Yes, they must focus inand on the bottom line to ensuretheir stockholders are pleased. Butthis focus cannot be at the expenseof the medium and long term.

The MNOC executive will needthe assistance and support of Coun-sel with a clear understanding of therisks involved in assessing and de-veloping the business opportunitiesin Venezuela. Be it to rationalize as-sets held in the country or to man-age new investments that will be re-quired to bring Venezuela’s oilproduction to the pre-strike levels;business developers and attorneyswith strong business backgroundwill be required to help Venezuelaand the MNOC’s investment initia-tives.

VII. BIBLIOGRAPHY• WORLD FACT FILE, Michael O’Mara

Books, Ltd. (1990).

• D. BLANK, Venezuela Politics in aPetroleum Republic, Prager (1984).

• P. MCKINLEY, PRE-REVOLUTION-ARY CARACAS, POLITICS,ECONOMY, AND SOCIETY 1777-1811 (1985).

• IUCN 1983 Report

• THE OIL SANDS OF CANADA-VEN-EZUELA 1977, CIM Volume 17.

• THE UNIVERSITY OF CHICAGOSPANISH-ENGLISH, ENGLISH-SPANISH DICTIONARY, Universityof Chicago (1987).

• J. YEPES, The Challenge of Venezu-elan Democracy (1981).

• P. DUNO, Los Doce Apostoles, VadellHermanos, 1975.

• S. RABE, The road to OPEC-UNITEDSTATES RELATIONS WITH VEN-EZUELA, 1919-1976, University ofTexas Press (1982).

• L. VALLENILLA, OIL: THE MAKINGOF A NEW ECONOMIC ORDER,VENEZUELAN OIL AND OPEC,McGraw-Hill (1975).

• MARTINEZ et al., SLOAN MANAGE-MENT REVIEW, Winter 1992.

• GAO Report on Mexico’s Oil Sector tothe House Subcommittee on Interna-


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tional Trade and Economic Policy, B-247884.

• AMBITO FINANCIERO, April 5,1992.

• S. DE LA PLAZA, EL PETROLEO ENLA VIDA VENEZOLANA, Universi-dad Central de Venezuela (1974).

• D. MOMMER, EL ESTADO VENE-ZOLANO Y LA INDUSTRIA PETRO-LERA, Universidad Central de Ven-ezuela (1974).

• A. TINOCO, ANOTACIONES DEDERECHO MERCANTIL, EdicionesLibra.

Endnotes: 1 Crude oil’s viscosity is described through ameasurement called API gravity. It rangesfrom 1 to 60. API is the abbreviation forAmerican Petroleum Institute, founded in1920, it is the leading standardizing organi-zation for oil field drilling and productionequipment. API gravity = [(141.5/specificgravity) – 131.5], the results are expressed indegrees API. The specific gravity is that of theparticular hydrocarbon. The lower the APIgravity, the greater the density and viscos-ity; at the higher API gravities the density islower and the hydrocarbon will require lessenergy to refine. Specific Gravity is the ratioof the weight of a given volume of a substanceat a particular temperature to the weight ofan equal volume of a standard substance atthe same temperature. Water is often thestandard substance and measurements ataken at room temperature and atmosphericpressure. Source: A Dictionary of PetroleumTerms 2nd Edition, 1979, and comments fromthe Author.2 Source: Energy Information Administration(EIA), December 17th 2002.3 EIA, December 17th 2002. 4 WORLD FACTFILE, Michael O’Mara Books, Ltd. (1990), p.576. 5 D. BLANK, Venezuela Politics in aPetroleum Republic, Praeger (1984), p. 15. 6WORLD FACT FILE, Michael O’Mara Books,Ltd. (1990), p. 576. 7 WORLD FACT FILE,Michael O’Mara Books, Ltd. (1990), p. 576. 8D. BLANK, p. 17. The Gran Colombia wascomposed of Colombia (Panama was a prov-ince of Colombia), Ecuador, and Venezuela.Bolivar was unable to keep the nations to-gether since he was occupied helping to de-feat the Spanish forces in Peru during the1821 to 1826 period.9 The New York times International reportedon Tuesday, February 11th, 1992: A violentnationalist ideology inspired by army officersmounted an unsuccessful coup last week andcame close to killing the President of Venezu-ela. Venezuela was the second largest sup-plier of oil to the United States after SaudiArabia.According to documents made available here,the officers drew on writings by 19th centuryVenezuelan military leaders to advocate re-

deeming the “lost” 20th century by wipingaway “the so called democratic experiment.”A “national salvation government” wouldhave jettisoned orthodox free-market eco-nomic policies that currently prevail in Ven-ezuela, which is endowed with the largest oilreserves in South America. [This is from al-most 11 years ago, and it seems like it couldbe form yesterday. Not much has changed inVenezuela!]10 P. MCKINLEY, PRE-REVOLUTIONARYCARACAS, POLITICS, ECONOMY, ANDSOCIETY 1777-1811 (1985).11 IUCN 1983 Report.12 Known as dry flatlands.13 P. MCKINLEY, p. 13.14 P. MCKINLEY, p. 18.15 MCKINLEY, p. 22.16 MCKINLEY, p. 22.17 MCKINLEY, p. 25.18 THE OIL SANDS OF CANADA-VENEZU-ELA 1977, CIM Volume 17, p. 69. The OrinocoPetroleum Belt is the name applied to thelarge sequence of accumulations of heavycrudes aligned immediately to the north of theOrinoco River (which travels the whole coun-try and drains 75% of the terrain before emp-tying in the Atlantic through the DeltaAmacuro, in the southern part of the EasternBarinas Apure Basins).19 THE OIL SANDS OF CANADA-VENEZU-ELA 1977, CIM Volume 17, p. 12.20 THE OIL SANDS OF CANADA-VENEZU-ELA 1977, CIM Volume 17, p. 12.21 Bitumen is a mixture of hydrocarbons.Often used in terms of bituminous shale oroil shale, whish is a geologic formation or zonecontaining hydrocarbons that cannot be re-covered by an ordinary oil well but can bemined. After processing at high costs, thehydrocarbons are extracted from the shale.Source: A Dictionary of Petroleum Terms 2ndEdition, 1979, and comments from the Au-thor.22 EIA, December 17th 2002.23 EIA, December 17th 2002. 24 EIA, Decem-ber 17th 2002.25 EIA, December 17th 2002.26 EIA, December 17th 2002.27 Naphtha is a volatile, flammable liquidhydrocarbon distilled from petroleum andused as a solvent or fuel. Source: A Dictionaryof Petroleum Terms 2nd Edition.28 EIA, December 17th 2002.29 EIA, December 17th 2002.30 EIA, December 17th 2002.31 EIA, December 17th 2002.32 EIA, December 17th 2002.33 EIA, December 17th 2002.34 EIA, December 17th 2002.35 EIA, December 17th 2002.36 D. BLANK, p. ix.37 D. BLANK, p. 1. See reports onVenezuela’s involvement in harboring de-posed Haitian President Bertrand Aristide.38 D. BLANK, p. 2.39 D. BLANK, p. 3. Venezuela has shown a“Two-Faced Boom: Riches and Riots” the NewYork Times reported on January 21, 1992: Inthe three years of the Presidency of CarlosAndres Perez, Venezuela has experienced5,000 protests…. The president’s detachedstyle, the economic situation, and Perez’ un-willingness to punish corruption among gov-ernment employees is the issue. On January10, 1992, The New York Times reported on

the attempted coup on President Perez’ gov-ernment: On January 9th, wary that the plot-ters of an unsuccessful coup may be depictedas heroes, the government stationed censorsin newsrooms and confiscated stacks of maga-zines…. [The Friday before], an associationof retired military officers cited corruption aspoor administration by the last four civiliangovernments as causes of the coup attempts.40 THE UNIVERSITY OF CHICAGO SPAN-ISH-ENGLISH, ENGLISH-SPANISH DIC-TIONARY, University of Chicago (1987). De-fined as leader, chief, or political boss.41 D. BLANK, p. 17.42 D. BLANK, The following is an outline ofthe Venezuelan political parties:AD (Democratic Action): It was created in1941 by Romulo Betancourt and remains theprimary Populist Party. The partytransitioned the country from rural leader-ship of landowners to the nation led by lead-ers of the urban masses.COPEI (Christian Democratic Party): Wasfounded by Rafael Caldera in 1946 as a con-servative Catholic oriented party in opposi-tion to the then secular and leftist AD. Themilitary of AD in 1948 and the bitter experi-ence Perez Jimenez’ dictatorship left causedthe metamorphosis of the party to a morepopulist Christian Democratic or SocialistChristian design of Western European Gov-ernments like [then] West Germany andItaly.URD (Democratic Republican Union): Thisparty was created in 1946 by one of the lead-ers of the ’28 generation, Jovito Villaba. Theparty helped diffuse the alienation of the ur-ban middle class voters by brining togetherthe Ulsar-Pietri forces into a coalition thatwas vital in securing the respect for the elec-toral democracy in the 1964-68 period.MAS (Movement Towards Socialism): Thisprotest party was created in 1970, it had itsorigin in a violent attempt to transform Ven-ezuela. Like AD and COPEI, it is trying tobecome one of the pillars of the populist es-tablishment. The party is attributed to threepoliticians: Teodoro and Luben Petkoff (broth-ers) and Pompeyo Marquez.MEP (People’s Electoral Movement): The es-sential reason for the party’s coming into be-ing was Romulo Betancourt’s veto of LuisBeltran Prieto Figueroa as the party’s 1968presidential candidate. Prieto took specialumbrage at what he alleged was Betancourt’sracism. Prieto was Venezuela’s first politicianto clearly display African heritage. Despiteofficial denials, there is much latent racismin Venezuelan society. Prieto included this inhis 1968 campaign, that he was the “coloredmandate.”PCV (Venezuelan Communist Party): Theparty gained notoriety in 1978 with the presi-dential campaign of Hector Mujica, a youth-ful and personable university professor.VG (Vanguard Party): In 1974, EduardoMachado split from his brother GustavoMachado who was leader of PCV. FedericoBrito Figueroa and Guillermo Garcia Ponceare its leaders, although the party failed tomaintain its status of nationally registered in1978 and 1979.MIR (Revolutionary Left Movement): Thisparty was a remnant of the 1960 AD divisionand was restored to the status of politicalparty in 1977. It had been outlawed in 1963


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as a guerrilla group. In 1979 it emerged asthe fourth largest party in municipal electionsand Americo Martin as its presidential can-didate.LS (Socialist League): This party was orga-nized in 1973 as one of the guerrilla bands(Organization of Revolutionaries). It was al-legedly responsible for the kidnapping of U.S.businessman William Niehaus. David Nives,who was elected to congress in 1978 as theparty’s sole representative was released fromprison for the alleged crime based on his con-gressional status.EPA and GAR (El Pueblo Avanza—ThePeople Advance— and Revolutionary ActionGroup): Both have catholic derivations.Edwin Zambrano led EPA and RafaelIribarren led GAR.PRV, R, CCN, and Military Candidates:These are smaller parties, which wheel mi-nor influence43 NEW AMERICAN HERITAGE DICTIO-NARY OF THE ENGLISH LANGUAGE,Houghton Miffin Company, 1979. A form ofgovernment where the principal economicfunctions are organized as corporate entities.44 J. YEPES, The Challenge of VenezuelanDemocracy (1981), p. 2.45 J. YEPES, p. 5.46 J. YEPES, p. 5.47 J. YEPES, p. 179.48 J. YEPES, p. 179.49 J. YEPES, p. 186.50 J. YEPES, p. 187.51 J. YEPES, p. 192.52 Brief discussion on International Agree-ments:A. Joint Ventures and DefinitionsGenerally, in the context of U.S. law, a jointventure is a legal entity requiring a commu-nity of interests with a right to direct theventure’s policy and duty to share both prof-its and losses. (C. OSAKWE, JOINT VEN-TURES WITH THE SOVIET UNIT, Law andPractice, 2-1 (1990)).

It is a form of association or partnership be-tween a company and another company orbetween a company and a host governmentor state company to operate a venture jointly.(A. BOULOUS, THE INTERNATIONALENERGY INDUSTRY: WHAT ROLE FORJOINT VENTURES BETWEEN HOST GOV-ERNMENTS AND ENERGY COMPANIES?,International Bar Association Section on En-ergy and Mineral Resources Law, Prague,Czechoslovakia, Feb. 1992).

It is important to note that recognition of ajoint venture as a legal entity is relativelynew. English Common Law recognizes part-nerships after the elements of a partnershipare shown, but it doesn’t recognize a jointventure as such. American courts have cre-ated the joint venture concept through judi-cial decisions. (A. BOULOUS, p. 6.). [At thetime of this original writing], under Venezu-elan Commercial Law, joint ventures [were]not defined. The commercial code describesother forms of corporate business organiza-tions. (CODIGO DE COMERCIO DE VEN-EZUELA, Editorial Panapo, Venezuela(1985)).

B. Types of International AgreementsUntil well into the 20th century, the petro-

leum industry was focused in the UnitedStates. However, U.S. companies, mostlymultinational private oil companies, began toincrease exploration activities outside theU.S. shortly after World War I. There weremajor discoveries made in the Middle East,Venezuela, Indonesia, and Mexico. The U.S.was not alone in this effort, Japanese andEuropean companies, many of which weresubsidized, began international exploration.(BURKE and DOLE, BUSINESS ASPECTSOF PETROLEUM EXPLORATION IN NON-TRADITIONAL AREAS, BMC, Inc. (1991)).

Governments, primarily those of DC’s, havehad to adopt means of involving private com-panies in the exploration and exploitation oftheir natural resources since they often didnot have the experience, technical know-how,or the capital to engage in that activity.Therefore, various types of agreements weredeveloped to allow the parties to meet theirobjectives. A general description of theseagreements follows.1. ConcessionsThe oldest form of international explorationagreement is the concession contract. It givesthe petroleum company direct ownership inthe petroleum produced. The host country isentitled to a portion of the production as aroyalty and is entitled to levy taxes on the netincome generated from the sale of the produc-tion. The early concession system dates backto the concession granted to W.K. d’Arcy bythe Shah of Persia in 1901 and even earlierin the Dutch East Indies. (BLINN et al., IN-TERNATIONAL PETROLEUM EXPLORA-TION AND EXPLOITATION AGREE-MENTS, LEGAL ECONOMIC AND POLICYASPECT, Euromoney Publications PLC(1986), p. 56.).Concession agreements have the followingmain features (BLINN, et al., p. 55):i. The multinational oil company has an ex-clusive right to explore for, and to exploit,petroleum at its own risk and expense.ii. MNOC owns the production and can dis-pose of it subject to an obligation to supplythe local market.iii. MNOC pays surface rentals to the hostcountry during the exploration and exploita-tion phases.iv. MNOC pays, subject to the host country’selection, royalty in kind.v. MNOC owns all the equipment and instal-lations used in petroleum operations.

This type of arrangement was very favorableto the MNOC. But since the concessions wereoften consortia with overlapping membership,there were joint venture off-take agreementscreated that limited the total production frommajor concessions. These concessions coveredimmense areas and gave the MNOC freedomto drill or not to drill on the lands granted.Also, they were offered for very long periods.As host countries became more sophisticated,the agreements were modified through nego-tiation, renewal, or in many cases national-ization. (E. SMITH, TYPICAL WORLD PE-TROLEUM AGREEMENTS, University lfTexas at Austin School of Law., Paper 9, p. 9-3 and 9-4. The 1933 concession granted toStandard Oil of California for 50,000 PoundsSterling had a 66-year term. The Abu Dhabiand Kuwait concessions had a 75-year term.

Concessions granted in Mexico following its1911 revolution could not exceed 30 years.)Modern concession agreements, thus, providefor a more active role for the host country anda corresponding decrease in the responsibili-ties of the MNOC. These arrangements didnot alter the legal nature of the agreements.Only the features disadvantageous to the hostcountry were eliminated.

Many developing host countries have conces-sions with the following features (BLINN etal., p. 61.):i. The concession area is limited to the demar-cations of the national territory.ii. The concession’s duration is limited andcan be extended if oil is being produced incommercial quantities.iii. The MNOC is required to employ nation-als to the extent practicable.iv. The financial benefits to the host countryare in the form of royalty payments, some-times in a sliding scale format based on pro-duction volumes, taxes on net revenue of theMNOC, and bonuses.v. Host countries can exercise review and con-trol of the MNOC’s decisions by requiringminimum exploration programs and activeparticipation in the decision process.

2. Production Sharing Contracts (PSC’s)The Production Sharing Contract is an ar-rangement whereby the host country and theMNOC share in production according to per-centages stated in the contract. Venezuelahas used this format. In this format, theMNOC provides all the funds and is entitledto recover its costs from a portion of produc-tion. Although this concept was used in Bo-livia as early as the 1950’s, these are rela-tively new instruments for defining therelationship between host country andMNOC. This agreement format is preferredby LDCs over the traditional concessionagreement. (BURKE and DOLE, p. 17, andBLINN et al., p. 17).

The U.S. lawyer may conceptualize this as afarmout. (E. SMITH, p. 9-33. Professor Smithstates that Professor Omorogbe from Nigeriaexplains why LDCs like PSCs as follows:[These are] arrangements where the foreignfirm and government share the output of theoperation in predetermined proportions. Thisnew form has been regarded … as a substan-tial departure from the old concessions in thatthe host state is theoretically the undisputedowner of the petroleum, with the foreign cor-porations being engaged as contractors toperform certain specified tasks in return fora fee in kind).

The legal distinction between the PSC andfarmout is that in the former there will be noassignment of the developed acreage. AndLDCs like this feature because there is no“surrendering” of sovereignty. Here, theMNOC receives less than under the conces-sion, there is not title or interest in the oil inplace. Also, the MNOC has less discretionover the way it operates.

Some of the features in PSCs are (BLINN etal., p. 69):i. The MNOC is appointed as contractor for aspecified area.


34

ii. The MNOC operates at its sole risk andexpense under control of the host country.iii. Production belongs to the host country.iv. The MNOC is entitled to recover cost fromproduction in the contract area.v. After cost recovery, production is sharedbetween the MNOC and host country on apredetermined split.vi. MNOC’s income is subject to taxation.vii. The equipment and installations belongto the host country either from the outset orprogressively according to an amortizationschedule.

Items v and vi present the most notable as-pects of a PSC, that is, sharing of productionand the concurrent government take. Gener-ally, the MNOC will receive a fraction of pro-duction (30% to 50%) from which it reim-burses itself for capital expenditures andoperating costs. There are may be an amorti-zation period covering capital costs, drillingbeing a major capital cost. Depending on thehost country, financing costs may or may notbe included in the reimbursable expenses.However, these can be stated as a percent-age of actual operating cost. These mattersare addressed under cost recovery terms.

3. Risk Service Contracts (RSC)This form of agreement was developed in thelate 1960’s, their genesis was in the MNOC’sdesire to gain access to relatively certaincrude supplies. Under this type of agreement,title to the petroleum remains in the hostcountry, the MNOC does not earn any directinterest in the petroleum reserves. TheMNOC gets a profit by being paid in produc-tion. This form of agreement was common inLatin America with the notable example ofthe “Brazilian Risk Service Contract.” (E.SMITH, p. 9-38).

PSCs and RSCs have similar features. Themain difference is in the cost recovery andcontractor remuneration mechanisms.Hence, the MNOC bears all the financial riskwithout any rights in the explored territory.In 1976, Petrobras, the Brazilian State OilCompany, signed the first RSC in the wakeof the discovery of the Garoupa field. How-ever, the geology of Brazil proved risky, andthese types of contracts were a way for theBrazilian government to find production at“another’s expense” and then pay the MNOCa fee if it was successful. Venezuela, in 1968,through the Venezuelan Petroleum Corpora-tion (CVP) published minimum conditions forservice contracts in areas of southern LakeMaracaibo. However, these disappeared whenthe industry was nationalized in 1975.

Some of the CVP’s RSC features follow(BLINN et al., p. 86):i. The MNOC assumed the financial risk andreceived, up to 90% of the production for costrecovery, profit and income tax payment.ii. The market price for the crude was jointlydetermined by the CVP and the MNOC.iii. CVP participated in development and ex-ploitation operations trough a committee

composed of equal number of representativesof both parties.

4. Participation AgreementsParticipation agreements should not be con-sidered a different type of international agree-ments. They are an agreement between thehost country or its national oil company andthe MNOC. It is an adjunct to one of the afore-mentioned agreements and can be viewed asa form of Joint Operating Agreement (JOA).(E. SMITH, p. 9-41, Professor Smith quotesBlinn and describes the participation systemsas those with fixed, gradual, and optionalparticipation formats. The fixed participationformat consists of granting a given percent-age of production to the host country or itsnational oil company. The gradual participa-tion entails increasing that participation ac-cording to the production level or some otherparameter. And the optional participationallows the host country to decide its partici-pation at its pleasure.)5. Other Applicable AgreementsJOAs, Farmout Agreements, and UnitizationAgreements are other types of agreementsthat come into play in international opera-tions. These, however, are primarily betweenMNOCs operating in a host country. Althoughnot a joint venture as interpreted in the “mod-ern view,” a JOA has the basic purpose of join-ing parties under a contractual framework to“jointly” venture for exploration and exploi-tation operations.Farmout Agreements are premised on shar-ing or splitting the interest on a given prop-erty and thus the costs under certain condi-tions. However, it should be noted that in theinternational context, only operating inter-ests are split not property or ownership in-terests because these are not conveyed. Unit-ization Agreements have their basis on thetraditional U.S. Pooling Agreements, com-monly used in Texas to join production fromcommon reservoirs or fields with an aim to-wards economic efficiency. These PoolingAgreements can be voluntary or involuntary.In the international context, these agree-ments are more complex since the reservoirmay cross national borders and may involveseveral companies. Nevertheless, these needto be considered despite limited to no inter-national rules of unitization.

6. Background on Venezuela’s Agreements: AHistorical Perspective [When this documentwas originally written, Venezuela’s govern-ment was debating the legal framework thatwould govern the strategic alliances inOrinoco Heavy Oil Belt.] Nevertheless, it isinstructive too revisit the history of the agree-ments used in Venezuelan oil development.Those systems have been characterized as theconcessions and service contract systems. Thesystems ended in 1976 with the nationaliza-tion of petroleum. Now, the Venezuelan gov-ernment is trying to attract foreign invest-ment through a field reactivation offer, theCristobal Colon Liquefied Natural Gas projectinvolving Mitsubishi, Shell, and Exxon, andthe Orinoco Heavy Oil Belt developmentproject.

(PETRAS et al., THE NATIONALIZATIONOF VENEZUELAN OIL, Preager Publishers(1977), p. xii)

The Concession system was applied as fol-lows:i. The concept of private oil concessions wasestablished in law in 1920.ii. The Hydrocarbon Law of 1943 created uni-form tax treatment for all concessions andincreased the state’s participation in the oilcompany’s profits to 50%.iii. The sale of concessions ended in 1947.iv. The 1947 law was revoked and new con-cessions were sold during the 1956-57 period.

The Service Contract system that came intoplay, was as follows:i. The Venezuelan Petroleum Corporation(CVP) was established in 1960 to administerService Contracts, to directly participate inoil related activities, and to subsidize privatefirms in the oil industry.ii. Subsoil rights were retained by the stateand concessions were forbidden.iii. In 1971, state participation in oil compa-nies’ profits was raised to 78%.iv. In 1971, the Oil Reversion Law sets thedate for the end of all current concessions andexpropriates those concessions that are notcurrently being exploited.v. In 1971, natural gas is nationalized.vi. In 1976, petroleum is nationalized.

53 J. YEPES, p. 193.54 P. DUNO, Los Doce Apostoles, VadellHermanos, 1975. This book is written inSpanish and the Author of this Treatise trans-lated the noted sections to English. Title: TheTwelve Apostles.55 P. DUNO, p. 24.56 P. DUNO, p. 38.57 P. DUNO, p. 47. Don Gustavo Cisneros(Chairman of Grupo Cisneros), one ofVenezuela’s wealthy enterprise owners saidthis in a 1975 interview. The Spanish versionread as follows: “Nosotros los empresarios yequipos técnicos que mencioné antes, hemostenido la inquietud de explorar el campopetroquimico porque creemos que es la nuevafrontera que tiene el empresario venezolanoo quizå la ultimo frontera.” Today, in 2002,the Grupo Cisneros plays an important rolein the Venezuelan oil industry.58 THE UNIVERSITY OF CHICAGO SPAN-ISH-ENGLISH, ENGLISH-SPANISH DIC-TIONARY, University of Chicago (1987).Means the tenacious one.59 P. DUNO, p. 89.60 P. DUNO, p. 90.61 P. DUNO, p. 93. Dr. Tinoco was tied intoall new major projects in the country: Petro-chemicals; Cemento de Guanta and Zulia; theprivate Refinery in Costa Rica (built withmoneys from the National Investment Fund);but more importantly, he was co-author ofArticle 5 of the Venezuelan Petroleum Law(this law dealt with the nationalization of thepetroleum industry). He was president of abank and of the Reform Commission whileholding the position of congressman. Therewas discussion regarding Tinoco’s pardoningSuperior Oil’s US$66 million when he wasTreasury Minister for a US$250,000 fee.Tinoco’s power base extends to several corpo-rations owned under different names to allowevasion of the maximum amount that can beloaned to a single individual for business de-velopment.62 P. DUNO, p. 107.


35

63 P. DUNO, p. 111. Diego Cisneros had aStudebaker dealership in 1945 and developeda friendship with Romulo Betancourt beforehe became president. In 1961, Cisneros estab-lished the Pepsi-Cola concern known as Po-lar, and later the American Brand relation-ship. Later, Gustavo Cisneros supportedcongressman Sosa Pietri in his efforts to in-clude language in Article 1 of the new consti-tution, which reserved for the state exploita-tion of basic petrochemical products.Curiously, Mr. Sosa Pietri was a recent presi-dent of PdVSA.64 P. DUNO, p. 118.65 BBC NEWS | World | Americas |Timeline: Venezuela http://news.bbc.co.uk/1/hi/world/americas/1229348.stm66 BBC NEWS | World | Americas67 Biografías de Líderes Políticos CIDOB:Hugo Rafael Chávez Frías (... http://www.cidob.org/bios/castellano/lideres/c-063.htm). Translated from Spanish and ed-ited by the author.68 Biografías de Líderes Políticos CIDOB69 Biografías de Líderes Políticos CIDOB70 Biografías de Líderes Políticos CIDOB71 Biografías de Líderes Políticos CIDOB.Statement of Constitutional principles imple-mented in 1961.72 Biografías de Líderes Políticos CIDOB73 Forbes Magazine, Forbes Inc., Monday,January 6, 2003 Volume 171, Issue 0174 S. RABE, the Road to OPEC-UNITEDSTATES RELATIONS WITH VENEZUELA,1919-1976, University of Texas Press (1982).75 S. RABE. p. i.76 L. VALLENILLA, OIL: THE MAKING OFA NEW ECONOMIC ORDER, VENEZU-ELAN OIL AND OPEC, McGraw-Hill (1975),p. 120.77 L. VALLENILLA, p. 134.78 L. VALLENILLA, p. 135.79 L. VALLENILLA, p. 136.80 MARTINEZ et al., SLOAN MANAGE-MENT REVIEW, Winter 1992.81 MARTINEZ et al.82 MARTINEZ et al.83 MARTINEZ et al.84 HEMISFILE, SPECIAL ENERGY ISSUE,Volume 3, March 1992.85 HEMISFILE.86 HEMISFILE.87 HEMISFILE.88 GAO REPORT ON MEXICO’S OIL SEC-TOR TO THE HOUSE SUBCOMMITTEEON INTERNATIONAL TRADE AND ECO-NOMIC POLICY, B-247884, March 18, 1992.In pertinent part (page 23) the report states:Senior Mexican government officials we in-terviewed emphasized that the oil industryremains off-limits to profit sharing ventureswith private and foreign oil producers, andadded that constitutional and regulatory re-strictions remain unchanged. Further, theU.S. Embassy reports that the current Presi-

dent of Mexico has proclaimed that Mexicowill retain its ownership and complete con-trol over the petroleum industry. Thus,PEMEX will continue to be solely responsiblefor oil exploration and production activitiesin Mexico.

Most U.S. oil producers we contacted indi-cated that without receiving a share of equityor out, they would not provide managementexpertise or funds for oil exploration and de-velopment projects in Mexico. For example,four representatives of major U.S. oil produc-ers reported tat their companies expect a re-turn on their investment commensurate withthe risks of oil exploration and developmentactivities. Two representatives stated theircompanies will not simply act as “banks” forPEMEX.89 HEMISFILE.90 Oil production operations are divided intoUpstream operations involving exploration,exploitation, and development (production);and Downstream Operations involving refin-ing, marketing, supply, and transportationactivities. Although characteristic of the up-stream area, natural gas production and pro-cessing activities have been kept either as aseparate entity or part of the upstream sec-tor. Natural gas production and processing isa separate business unit in many countriesand companies.91 HEMISFILE.92 HEMISFILE. The Argentine congress [was]debating the deregulation of the gas industry[and implemented according laws.] In late1991, it passed the legal framework for thederegulation of the electric industry. Threeseparate sectors were set up:1) The electric grid will remain in the publicsector.2) Power generators with open access to thegrid will be able to sell electricity at free mar-ket prices and on contracts.3) Distributors will be granted a concessionin return for the obligation to supply powerat cost based fixed-tariff.93 AMBITO FINANCIERO, April 5, 1992. ThisArgentine newspaper article indicates thatBrazil is attempting to secure natural gasfrom Argentina to fuel its southern industry.Up to $8 billion could be spent in infrastruc-ture development with an aim at reducingBrazil’s imports for crude from third coun-tries. Part of the Spanish version follows: Unrecurso sin Mercado no sirve, confió unfuncionario de Economía refiriéndose a latranscendental negociación que la Argentinaestá llevando a cabo con Brasil respecto al gas,y sería anunciada oficialmente en junio du-rante la vista de Collor de Melo [presidentede Brasil]. El acuerdo, que generaríainversiones en infraestructura por $7000-$8000 millones de dólares, permitiría a Brasilsustituir buena parte de sus importaciones de

terceros países, por compras de gas de la Ar-gentina que es un socio de MERCOSUR [Ar-gentina, Brasil, Paraguay y Uruguay fueronlos primeros signatarios del acuerdo demercado común para el Cono Sur Americano].94 BRAZIL WATCH, Orbis Publications, Ltd.,Vol. 9, No. 4, Feb. 24, 1992.95 BRAZIL WATCH.96 CNN.com, Saturday, December 28, 2002Posted: 5:28 PM EST (2228 GMT):RIO DE JANEIRO, Brazil (AP) — When out-going President Fernando Henrique Cardososteps down next week, he leaves a mixedlegacy as a leader who tamed super inflationand raised health standards, but struggledunsuccessfully to improve the economy.The former Stanford University sociology pro-fessor made impressive strides in combatinginfant mortality and illiteracy among thenation’s 175 million people. Brazil’s programto fight AIDS has been hailed by the UnitedNations as a model for developing countries.But Cardoso, who has received a U.N. prizefor improving the quality of life of Brazilians,is also bequeathing stagnant growth, high un-employment and foreign debt of $100 billionto his successor, Luiz Inacio Lula da Silva.Silva will be inaugurated on Wednesday.Latin America’s largest country has theworld’s fourth widest gap between rich andpoor — ahead only of Sierra Leone, Swazilandand the Central African Republic. About 50million people in Brazil live on less than adollar a day.Cardoso defends his record, saying he did “thepossible” in his two four-year terms.In his first term, he used a new currency —the real, loosely linked to the U.S. dollar —and high interest rates to decrease quadrupledigit inflation to single digits in matter ofmonths.In 1997 when fallout from the Asian economiccrisis struck the overvalued real to send theBrazilian economy skidding, he floated thecurrency, effectively devaluing it by almost 50percent and drastically reducing Brazilians’purchasing power.“He stabilized Brazil and created the ideainvestment can come to Brazil without anyproblem,” said Jose Luis Guerrero Cusumano,a Georgetown University professor and experton Latin American economics. “The downsidewas that as time elapsed the internal debtdoubled. Even though the country lookedstable from an international point of view,there was something terribly wrong.”Without the euphoria that marked his firstterm, Cardoso was unable to ensure the elec-tion of his hand-picked successor, HealthMinister Jose Serra. Yearning for change,Brazilians opted for Silva, a former unionleader from the left-wing Workers’ Party, whopromised jobs, economic growth and a war onhunger.During the campaign, the differences between


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Cardoso and Silva couldn’t have seemedwider. An intellectual with refined tastes,Cardoso is the son of a former Brazilian armygeneral. He speaks English and French flu-ently, has taught at French universities andplans to spend three months in Paris afterSilva takes office.Silva, the son of a poor farmer, dropped outof the fifth grade to sell peanuts and shineshoes. He became a radical union activist andwas jailed as a subversive during Brazil’s dic-tatorship. He speaks only Portuguese, with aworking class accent.But there are signs their administrations mayeventually share more similarities than dif-ferences. Cardoso, who spent time in exileduring the 1964-85 military dictatorship, be-gan his political career on the left and onlyslowly moved toward the center. And likeSilva, he has a long history of promoting so-cial welfare.Silva, who once espoused socialism, has re-peatedly reassured investors he won’t aban-don Cardoso’s free market policies he used tocriticize. He soothed financial markets byappointing fiscal moderates to key cabinetposts, and warned voters that he can’t changeBrazil overnight.“Ironically, if you look at what Lula is sayingit is very difficult to differentiate between thetwo positions,” said Albert Fishlow, the headof Columbia University’s center for Brazilianstudies. Silva is widely known as Lula, hisnickname.97 PETRAS et al., p. xiii.98 PETRAS et al., p. 115.An Exxon executive noted:The considerations for investment are not inany way unique here. Clearly, U.S. companiesare looking at such basic questions as the sta-


bility of the government, the extent to whichrisk is involved is involved in these institu-tions. These are the major considerations.With reference to Venezuela, another execu-tive stated: I would have said that it is amongthe more stable South American countries. Iwould see it as quite a favorable place to in-vest in. Over the last few years, the govern-ment gives me the impression of having abroader basis of support. It is less likely to beturned up by a revolution. That really pin-points it. It has a broader basis of support inthe country and this must lead to greater sta-bility compared to Venezuela itself in the1940’s and 1950’s.These comments were made in the mid-1970’s. [In 1992, I added:] Query whether thefeeling would be the same today given recentevents in Venezuela. [Today, in late 2002, Iask the same question.]99 L. RANDALL, POLITICAL ECONOMY OFVENEZUELAN OIL, Preager (1987), p. 44.The following table represents the companiesthat were operating in Venezuela and the ef-fects of subsequent consolidations startingwith their status in 1975. As shown, from 14major companies, three resulted from nation-alization and additional integration. Therewere some other players like Continental Oil[now ConocoPhillips] who entered Venezuelathrough purchases of San Jacinto Oil in LakeMaracaibo. [Phillips had positions in Venezu-ela and entered into the heavy oil develop-ment plan. Therefore, today in 2002,ConocoPhillips if further exposed in Venezu-ela.]* See chart below.*100 PETRAS et al., p. 117101 L. RANDALL, p. 39.102 The phenomenon known as “creepingexpropriation” preceded these times of directnationalization and expropriation. Famouscases abound. Most notably presidentAllende’s ordered nationalization of the Chil-ean copper mining industry in the early 1970;and Libya’s take over of its oil fields and in-

dustry.103 L. RANDALL, p. 39.104 GAO REPORT, VENEZUELAN ENERGY.105 COUSSEMENT, LONG RANGE PLAN,Vol. 11, Oct.1978106 K. HUDES, CONVENTION ON ESTAB-LISHING THE MULTILATERAL INVEST-MENT GUARANTEE AGENCY, in Zamora-Brand, BASIC DOCUMENT OF INTERNA-TIONAL ECONOMIC LAW, (1990), p. 491, n. 1.107 C. WALLACE, FOREIGN DIRECT IN-VESTMENT IN THE 1990’S, A NEW CLI-MATE IN THE THIRD WORLD, Kluwer(1990), p. 132.

Mr. Gilbert K. Squires, GILBERTK. SQUIRES, P.L., has joined as OfCounsel to the Office of Steinberg &Associates, P.A., in Miami Beach,Florida, U.S.A. Mr. Squires bringsextensive experience in CorporateLaw, International Energy (Oil & Gasand Power Generation) and Commer-cial Transactions added to an impor-tant background in Technology,Trade, and Entertainment Law. Es-tablished in 1969, Steinberg & Asso-ciates, emphasizes: Estate Planningand Probate Litigation, Real Estate,Personal Injury, Commercial Litiga-tion, Family Law, Immigration, En-tertainment and Motion Picture,Business and Corporate Law, Bank-ruptcy, Administrative and Govern-ment Law. The firm is listed in theBar Register of Preeminent Lawyersand is committed to providing high-quality personal legal services to itsclients worldwide.

1975 1976 1977 1977 1978 1986NATIONALIZATION COORDINATION COORDINATION INTEGRATION REORGANIZATION

Creole Lagoven Lagoven Lagoven Lagoven Lagoven(Exxon)

Amoco Amoven

Shell Maraven Maraven Maraven Maraven Maraven

Phillips Roqueven

Mene Meneven Meneven Meneven Meneven CorpovenGrande

Talon Taloven

Mito Juan Vistaven

Pet-Mer Guariven

Ven-Sun Palmven Palmven Llanoven Corpoven

Mobil Llanoven Llanoven

Sinclair Bariven

CVP CVP CVP CVP

Chevron Boscaven

Texaco Deltaven Deltaven

37

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term lengths at that time. Thus, awork authored or created in Europewould be protected a full 20 yearslonger than it would be if created inthe United States!

This surprising result was due tothe Berne Convention for the Protec-tion of Literary and Artistic Works ofSeptember 9, 1886, as revised atParis on July 24, 1971 (hereinafterreferred to as the Berne Convention).The Berne Convention is an agree-ment by various signatories consti-tuting a “Union” to protect copy-righted materials worldwide. Itspurpose is to protect authors of liter-ary and artistic works in a uniformmanner across the globe. The UnitedStates became a member of theBerne Convention on March 1,1989,10 and implemented the BerneConvention into Title 17 of the U.S.C.Code.11 The various European Unionmembers are also signatories of theBerne Convention.12 The Berne Con-vention states “The term of protec-tion granted by this Convention shallbe the life of the author and fiftyyears after his death”.13 HoweverArticle 7 of the Berne Conventioncontinues on to read, “the countriesof the Union [Berne Convention] maygrant a term of protection in excessof those provided by the precedingparagraphs”.14 The European Unionmembers decided to exercise theirrights under the Berne Conventionwhen extending the copyright termduration under their respective lawsto 70 years after the death of the au-thor. Finally, Article 7 of the BerneConvention additionally states “Inany case, the term shall be governedby the legislation of the countrywhere protection is claimed; however,unless the legislation of that countryotherwise provides, the term shallnot exceed the term fixed in the coun-try of origin of the work”15

Herein lays the material defect ofthe Berne Convention which hascaused the latest parry between na-tions relative to copyright term ex-tensions. The European Union, whileextending the copyright term to “lifeplus 70” under its member nations’laws, directed its members to denythis longer term protection to the

works of any other country whoselaws extended the term for theshorter period of “life plus 50”. Thiswas an appropriate directive by theEuropean Union in light of Article7(8) of the Berne Convention. Thisdirective was a shot over the bow ofthe United States’ copyright armadaand would be the coal to stoke theboilers of Steamboat Willie for an-other 20 years.

Piloting the Currents ofU.S. CongressionalCopyright HarmonizationEfforts

This disparity between the Euro-pean Union protection for copyrights,which now lasted “life plus 70” andthe lesser protection afforded toUnited State’s works of “life plus 50”under the Berne Convention, coupledwith the aggressive lobbying activi-ties by interested copyright holders16,culminated in the introduction, de-bate and passage of the CTEA.17 Thepower to approve and modify copy-right terms within the United Statesrests in Article I, Section 8, Clause 8of the United States Constitutionwhich states: “ the Congress shallhave power…. to promote theprogress of science and useful arts, bysecuring for limited items to authorsand inventors the exclusive right totheir respective writing and discov-eries” (hereinafter referred to as theCopyright Clause). However thedrafters of this constitutional provi-sion clearly envisioned the “exclusiveright” be for a limited term as re-flected in the words they selected.

Congress was no doubt mindfulthat the European Union’s directiveextending copyright protection leftmany U.S. authors unprotected ascompared to their European artisticcounterparts. Debates in both theUnited State’s House of Representa-tives and U.S. Senate reflected thisconcern. U.S. RepresentativeMcCollum, from Florida, in supportof the CTEA during floor debatestated “In addition, it would elimi-nate harmful discrimination againstAmerican works abroad … Unfortu-nately, without the enactment of thislegislation, U.S. copyright ownerswould continue to be at a critical dis-advantage in overseas markets. TheEuropean Union, which is the larg-est market for U.S. copyrighted prod-

ucts protects its own products for 20years longer than it protects Ameri-can works. This is due to the fact thatforeign countries only protect U.S.works for as long as the U.S. itselfprotects its own works. Enactment ofS. 505 [CTEA] would eliminate thisextreme economic disadvantage andcontribute to America’s balance oftrade. With S. 505 we will no longerbe abandoning 20 years worth ofcopyright protection for our creativecommunity. In addition, we will bepromoting the creation of new copy-righted works for the American pub-lic and strengthening our interna-tional trading position abroad.18 U.S.Senator Leahy also echoed this con-cern in the Senate chambers on thevery same day by explaining “OnJuly 1, 1995, the European Union is-sued a directive to its member coun-tries mandating a copyright term of20 years longer then the term in theU.S. As a result, the E.U. will nothave to guard American works be-yond the American term limit,whereas European works will have20 years more security and revenuesin the marketplace. The songwriterCarlos Santana put it eloquently inhis statement submitted to the Sen-ate Judiciary Committee three yearsago on this subject, ‘As an Americansongwriter whose works are per-formed throughout the world, I findit unacceptable that I am accordedinferior copyright protection in theworld marketplace’. His reasons areas relevant today as the day he madethat statement. The 1998 Report onCopyright Industries in the U.S.Economy issued by the InternationalIntellectual Property Alliance indi-cates just how important the U.S.copyright industries are today inAmerican jobs and the economy and,therefore, how important it is for theU.S. to give its copyright industriesat least the level of protection that isenjoyed by European Union indus-tries.”19 The Internet and the ad-vancement of world communicationsalso necessitated the need for harmo-nization of copyright terms globallyto “life plus 70 years” in light of Ar-ticle 7(8) of the Berne Conventionknown as the “rule of the shorter pe-riod.”

Ultimately, the CTEA passed rela-tively soundly in the wake of the Warin Kosovo and presidential scandalsin the Whitehouse being in the fore-

STEAMBOAT WILLIEfrom page 1


40

front of the public’s concern at thetime. The CTEA became effective onOctober 27, 1998, and to a great de-gree leveled the playing field withthe European Union relative to copy-right term protection. Under theCTEA, works created by personsthemselves, were protected for theirlifetimes plus an additional 70years.20 For “works for hire”, by cor-porations, for anonymous works, orpseudonymous works, the timeframe for protection was expanded to95 years from publication or 120years from creation, whichever ex-pires first.21 These copyright termextensions apply to all works pub-lished on or after January 1, 1978.22

Works published before 1978 thatwere copyrighted as of the CTEA’seffective date, are afforded protectionfor 95 years from their original pub-lication date.23

The Voyage Through theU.S. Federal Court SystemSmooth Sailing throughthe Lower FederalTribunals

It seemed as if our dancing pilotin Steamboat Willie had weatheredthe storm and made it to a safe har-bor when the CTEA became federallaw. However, the voyage through thefederal court system was going to bemore tumultuous than navigatingthrough the congressional tributar-ies. A collection of opponents of thelegislation filed a declaratory actionseeking the United States DistrictCourt of Columbia to rule that theCTEA was unconstitutional.24 Theplaintiffs were a coalition of busi-nesses and individuals who benefitcommercially from the use of worksthat enter public domain and loosetheir copyright.25 Eldritch Press,which offers free accessible literalworks found within the public do-main,26 lead the charge for the plain-tiffs. The additional plaintiffs in thiscase were Mr. Eric Eldred himself,Higginson Book Company, Jill A.Crandall, Tri-Horn International,Luck’s Music Library, Inc., Edwin F.Kalmus Co., American Film HeritageAssociation, Moviecraft Inc., DoverPublications, Inc., and Copyrights

Commons.27 This coalition of plain-tiffs sued Janet Reno in her officialcapacity as Attorney General of theUnited States.28

Both the plaintiffs and the defen-dants moved for judgment on thepleadings with the plaintiffs arguingthe CTEA was unconstitutional as it:(1) violated the First Amendment’sFreedom of Speech Rights; (2) Con-gress acted beyond its enumeratedpowers when retrospectively extend-ing the protection; and (3) the CTEAviolated the public trust doctrine.29

Without concerning itself with inter-national issues, the Berne Conven-tion or the European Union’s direc-tive to extend copyright protection to“life plus 70”, the Federal DistrictCourt of Columbia on October 28,1999, summarily ruled in favor of thegovernment upholding the CTEA asconstitutional.30

The plaintiffs appealed the judg-ment against them to the UnitedStates District Court of Appeal of theDistrict of Columbia.31 The plaintiffsbased their appeal on the fact thatthe CTEA was beyond the power ofCongress to enact as it: (1) violatedthe First Amendment Freedom ofSpeech Rights; (2) violated the origi-nality requirement of the CopyrightClause; and (3) violated the Copy-right Clause by improperly extend-ing the protection term.32 The ap-peals court acknowledged thecongressional intent to align U.S.copyright term durations with itsEuropean counterparts by extendingthe term to “life plus 70”.33 The ap-peals court, through its majorityopinion delivered by Judge Ginsburg,concluded that the passage of theCTEA was a “necessary and proper”measure exercised by Congress “tomeet contemporary circum-stances…”34 Appellate JudgeSentelle, in his partial dissentingopinion, admonished his fellow benchmembers for their weighing the sig-nificance of foreign copyright termprotection in a case involving U.S.constitutional restrictions. JudgeSentelle pointedly wrote, “The factthat the CTEA ‘matches UnitedStates copyrights to the terms ofcopyrights granted by the EuropeanUnion’…is immaterial to the ques-tion. Neither the European Unionnor its constituent nation states arebound by the Constitution of theUnited States. That Union may have

all sorts of laws about copyrights orany other subject which are beyondthe power of our constitutionally de-fined central government.” 35 Never-theless, the appeals court upheld thelower court’s holding that the CTEAwas constitutional. It appeared thatour good natured mouse hadsmoothly sailed through the federaldistrict and appeals courts.

Navigating through theEye of the Hurricane andthe Scrutiny of the U.S.Supreme Court

Once again, the case was appealedon October 11, 2001, to the final de-cision makers, the United States Su-preme Court in the case now titledEldred v. Ashcroft.36 The plaintiffs,now designated as petitioners, againchallenged the CTEA as unconstitu-tional because it was a: (1) violationof the Copyright Clause; and (2) aviolation of the First Amendment’sFreedom of Speech Rights.37 Being amatter of great national and interna-tional importance, fourteen other or-ganizations and individuals filedseparate amicus curiae briefs in sup-port of petitioners’ effort to safeguardthe public domain.38 The U.S. Attor-ney General, as the respondent in thecase, was also joined by nineteen“friends of the court” via separateamicus curiae briefs including theMotion Picture Association ofAmerica, Inc. in an effort to defendthe CTEA.39 One glance at the ros-ters of amicus curiae briefs on behalfof the respondent revealed Mickeywas piloting the flagship SteamboatWillie within a friendly fleet of fellowcopyright holders.

On October 9, 2002, the U.S. Su-preme Court heard oral argumentfrom the parties. Attorney LawrenceLessig, representing the petitioners,challenged Congress’ internationalharmonization efforts head on byaddressing Justice Ginsburg “Wehave no quarrel with the objective ofharmonization fitting within the‘promote the progress of science’ un-derstanding, subject to constitu-tional limitations. If France adopteda rule that said you couldn’t grantcopyrights to hate speech, we couldnot harmonize with that rule consis-tent with our First Amendment andsimilarly, as Mary Beth Peters testi-fied before Congress, ours is the only

STEAMBOAT WILLIEfrom preceding page

41

Constitution that has an expresslimitation on terms. That’s got tomean something, and if it means thatwe are limited in our ability to agreewith the Europeans as they continu-ally expand the term in light of theirown vision of what copyright isabout, then that’s the meaning of theconstitutional restriction.” 40 Attor-ney Lessig obviously attempted tosquare dissenting appellate JudgeSentelle’s concerns that the UnitedStates, unlike the Europeans, is con-strained by its Constitution whenextending copyright term protection.

Mr. Theodore Olson, Solicitor Gen-eral for the United States and therepresentative voice of the respon-dents, also directed the justice’s at-tention to international copyrightterm trends within the EuropeanUnion by stating “We have the adop-tion of copyright terms which areconsistent, generally speaking, withcopyright terms which exist in theEuropean Union, our principal com-petitor, and in connection with inter-national treaties.”41 In defense of theCTEA, the U.S. Attorney General re-lied in part on U.S. internationaltrade concerns relative to copyrightsby explaining “Uniformity of copy-right laws is enormously importantto facilitate the free flow of copy-righted works between markets andto ensure the greatest possible ex-ploitation of the commercial value ofthese works in world markets for theinformation super-highway offerswidespread distribution of copy-righted works to almost anywhere inthe world at limited costs, harmoni-zation of copyright laws is imperativeto the international protect of thoseworks and to the assurance of theircontinued availability. …By enhanc-ing the rights of all American au-thors abroad, Congress also renderedthe United States a more attractiveplace to create and publish in thefirst instance.”42 Additionally, theamicus curie brief filed by the MotionPicture Industry Association ofAmerica also supported the newterm extensions as Congress’ reason-able attempt to bring in line U.S.copyright laws with those of the Eu-ropean Union to promote the“progress of science”.43

The U.S. Supreme Court settledthe issue on January 15, 2003, whenJustice Ginsburg delivered the opin-ion of the Court, with Justices

Rehnquist, O’Connor, Scalia,Kennedy, Souter and Thomas joiningand with Justices Stevens andBreyer dissenting with separatewritten opinions. The majority notedthat Congress had previously modi-fied U.S. Copyright laws in 1976 toaccommodate the Berne Conventionstandard of “life plus 50 years”.44 Themajority, after explaining that theywere satisfied that the CTEA com-plied with the “limited times” pre-scription, turned their attention toanalyzing if this act was a rationalexercise of legislative authority con-ferred by the Copyright Clause.45 Thecourt defined the legislative domainto include the passing on such inter-national issues as uniformity of copy-right terms under the Berne Conven-tion.46 Further, the court supportedCongress’ concern over the Europeancopyright term expansion and itscompetitive disadvantages it causedto American artists.47 The court con-cluded that the enactment of theCTEA was fully rational in light ofCongress’ international concerns forthe need for copyright parity with theEuropean Union.48

The majority opinion then ad-dressed the petitioner’s Freedom ofSpeech First Amendment challenges.The court first refused to apply theharsher standard of “strict scrutiny”which is often the review standardemployed by courts analyzing tradi-tional (non-copyright cases) FirstAmendment Freedom of Speech re-strictions. In rejecting this more fa-vorable standard for the petitioners,the court wrote “We reject petition-ers’ plea for imposition of uncom-monly strict scrutiny on a copyrightscheme that incorporates its ownspeech protective purposes and safe-guards. The Copyright Clause andFirst Amendment were adopted closein time. This proximity indicatesthat, in the Framers’ view,copyright’s limited monopolies arecompatible with free speech prin-ciples. Indeed, copyright’s purpose isto promote the creation and publica-tion of free expression. As Harper &Row observed: The Framers intendedcopyright itself to be the engine offree expression. By establishing amarketable right to the use of one’sexpression, copyright supplies theeconomic incentive to create and dis-seminate ideas” 49 The court believedthat the “pre-existing” built-in limi-

tations within U.S. Copyright laws,such as the “fair use” doctrine andlimiting copyrights to “expressions”and not “ideas”, adequately protectedthe Free Speech rights within theUnited States.50 The court dis-patched the petitioner’s Free Speechchallenges by concluding “To the ex-tent such assertions raise FirstAmendment concerns, copyright’sbuilt in free speech safeguards aregenerally adequate to addressthem”51 In doing so, the SupremeCourt ultimately upheld the consti-tutionally of the CTEA.52

Evidently, the Supreme Court’smajority opinion to uphold theCTEA was, at least in part, a vali-dation of Congress’ concern for copy-right term expansion efforts whichwere occurring globally. Howeverthe court was obviously mindful ofCongress’ possibly unwise participa-tion in a global “follow the leader”race for additional copyright termextensions, lead by the Europeanswho are not constrained by the pa-rameters set within CopyrightClause.53 This was a transnationalrace that would ultimately keep theUnited State’s at an internationalcommercial disadvantage.

Smooth Sailing Ahead, AtLeast for Now

Steamboat Willie, and its flotilla offellow U.S copyright holders, hadweathered the storm. SteamboatWillie and Mickey Mouse will notapproach public domain until ap-proximately 2019 under the newcopyright durations of the CTEA.The majority of the U.S. SupremeCourt Justices, and the dissentingappellate judge Sentelle, havebegged the question of just how wiseis it for the U.S. Congress to partici-pate in the international competitionto increase copyright terms in lightof the inherent Copyright Clause re-strictions upon our legislature. Theoperational affect of Article 7(6) and(8) of the Berne Convention has ne-cessitated an undermining of theCopyright Clause’s effect to limitCongresses’ ability to continually ex-tend copyright terms. Under theBerne Convention, other “Union”members can simply extend theircopyright terms under their respec-tive laws while the United State’sCongress will ultimately run afoul of

42

the U.S. Constitution should it at-tempt to match such continued copy-right term escalations.

It has become evident that Article7(6) of the Berne Convention needsto be amended to place a ceiling onthe maximum years for copyrightterms to the new “life plus 70” thatnow seems to be the new interna-tional norm. To truly harmonize in-ternational copyright laws, and topreserve the intent of CopyrightClause, the U.S. should lobby otherBerne Convention member states toamend Article 7(6) of this interna-tional convention to read: “The coun-tries of the Union may grant a termof protection in excess of those pro-vided by the preceding paragraphsbut the term shall not exceed seventyyears after the death of the author.”

This amendment will end the racebetween the United States and theEuropean Union in copyright termextensions. This is a race the UnitedStates simply cannot win, nor evenkeep pace with other nations, in lightof the restrictions placed on Congressby the Copyright Clause. Interna-tional harmonization of copyrightterms must start with the amend-ment of the Berne Convention as pro-posed herein. Such a slight modifica-tion of its wording will further this“Union’s” purpose of protecting au-thors of literary and artistic works ina uniform manner across the globe.This is truly a purpose deemed wor-thy of our high regard in interna-tional business circles. This harmo-nization effort will take time and itmust start now, before yet anotherround of escalation of copyrightterms occurs over and above the “lifeplus 70.”

Endnotes:1 Malone, Patrick A., The Encyclopedia

of Disney Animated Shorts, Retrieved on Feb-ruary 1, 2003, from http://www.teemings.com/shorts/disney/years/1928/steamboatwillie.html.

2 Id.3 Pub.L. 105-298 Sec. 102(b) and (d), 112

Stat. 2827-2828 (amending 17 USC Sec. 302& 304).

4 Eldred v. Ashcroft, 123 S.Ct. 769, 16Fla. L. Weekly Fed. S 44 (2003).

5 Iandiorio, David L., (December 14,2002) There’s a Mouse in the House: TheCTEA Goes to the Supreme Court, The Okla-

homa Bar Journal, Vol. 73, No. 36;Springman C., The Mouse that Ate the Pub-lic Domain: Disney, The Copyright Term Ex-tension Act, and Eldred v. Ashcroft, Find LawLegal Commentary, Retrieved on January 31,2003, from http://writ.findlaw.com/commen-tary/20020305_springman.html.

6 Springman C., The Mouse that Ate thePublic Domain: Disney, The Copyright TermExtension Act, and Eldred v. Ashcroft, FindLaw Legal Commentary, Retrieved on Janu-ary 31, 2003, from http://writ.findlaw.com/commentary/20020305_springman.html.

7 Pub.L. 94-553, sec. 302(a), 90 Stat.2572 (1976 Act).

8 Act of May 31, 1790, ch.15, sec. 1, 1Stat. 124 (1970 Act) (first US copyright actfor a term of 14 years and a renewable 14years if the author continued to live past thefirst term); Act of Feb. 3, 1831, ch. 16, sec. 1,16, 4 Stat. 436, 439 (1831 Act) (extending theterm to 42 years after publication if renewed);Act of Mar. 4, 1909, ch. 320, sec. 23-24, 35Stat. 1080-1081 (1909 Act) (extending theterm to 56 years after publication).

9 EU Counsel Directive 93/98, p.4.10 International Copyright Relations of

the United States, Circular 38a, p.1, The U.S.Copyright Office (1999).

11 Berne Convention Implementation Actof 1988 PL 100-568 (HR 4262), Oct. 31, 1998.

12 International Copyright Relations ofthe United States, Circular 38a, p.2-6, TheU.S. Copyright Office (1999) : [Austria (mem-ber as of Oct. 1, 1920), Belgium (member asof Dec. 5, 1887), Denmark (member as of July1, 1903), Finland (member as of Apr. 1, 1928),France (member as of Dec. 5, 1887), Germany(member as of Dec. 5, 1887), Greece (memberas of Nov. 9, 1920), Ireland (member as of Oct.5, 1927), Italy (member as of Dec. 5, 1887),Luxembourg (member as of June 20, 1888),Netherlands (member as of Nov. 1, 1912),Portugal (member as of Mar. 29, 1911), Spain(member as of Dec. 5, 1887), Sweden (mem-ber as of Aug. 1, 1904), United Kingdom(member as of Dec. 5, 1887).]

13 Berne Convention Art. 7(1).14 Berne Convention Art. 7(6).15 Berne Convention Art. 7(8).16 Associated Press appearing in Chicago

Tribune, “Opposing Copyright Extension,”October 17, 1998; Alan K. Ota, “Disney InWashington: The Mouse that Roars,” Con-gressional Quarterly, August 10, 1998, p.2167; Phyliis Schlafly, “Why Disney has Cloutwith the Republican Congress,” Nov. 25,1998, Eagle Forum, Retrieved on February 5,2003, from http://www.eagleforum.org/col-umn/1998/nov98/98-11-25.html.

17 Pub.L. 105-298, sec. 102(b) and (d), 112Stat. 2827-2828 (amending 17 U.S.C. sec. 302,204).

18 105 Cong. Rec. H9951 (daily ed. Octo-ber 7, 1998) (statement of Rep. McCollum).

19 105 Cong. Rec. S11672 (daily ed. Octo-ber 7, 1998) (statement of Sen. Leahy).

20 17 U.S.C. Sec. 302(a).21 17 U.S.C. Sec. 302(c).22 17 U.S.C. 302(a) & 303(a).23 17 U.S.C. 304(a) & (b).24 Eldred v. Reno, 74 F. Supp. 2d 1 (U.S.

Dist. D.C. 1999).25 Eldred v. Reno, 239 F.3d 372 at 375

(U.S C.A. D.C 2001).26 Eldritch Press operates a free web site

with a collection of free works to the public at

http://www.eldritchpress.org.27 Eldred v Reno, 74 F. Supp. 2d 1, at 2

(U.S. Dist. D.C. 1999).28 Id. (Note: ultimately the case was re-

titled before the U.S. Supreme Court to sub-stitute John Ashcroft as the U.S. Attorney).

29 Id. at 1.30 Id.31 Eldred v. Reno, 238 F.23d 372 (Dist

Appeal D.C. 2001).32 Id. at 376.33 Id. at 374-375.34 Id. at 379.35 Id. at 384.36 Eldred v. Ashcroft, 123 S.Ct. 769, 16

Fla. L. Weekly Fed. S 44 (2002).37 Id. at 776.38 Amicus briefs on behalf of Petitioners

filed on May 20, 2002, by College Art Asso-ciation, Visual Resources Association, Na-tional Humanities Alliance, Consortium ofCollege & University Media Centers and Na-tional Initiative for Networked Cultural Heri-tage, Eagle Forum Education & Legal De-fense Fund and the American Association ofPhysicians & Surgeons, Inc., SeventeenEconomists, Free Software Foundation, HalRoach Industries and Michael Agee, Tylor T.Ochoa, Mark Rose, Edward W. Waltersheid,the Organization of American Historians, andH-Law: Humanities and Social ServicesOnline, Intel Corporation, The InternetArchive, Prelinger Archives and ProjectGutenberg Literary Archive Foundation, In-tellectual Property Law Professors, LibraryAssociations, National Writers Union andothers, Professor Malla Pollack and Progres-sive Intellectual Property Law Associationand the Union for the Public Domain.

39 Amicus briefs on behalf of Respondentsfiled on August 2, 2002, by International Coa-lition for Copyright Protection and NashvilleSongwriters Association International andadditional briefs filed on August 5, 2002, byAmerican Intellectual Property Law Associa-tion, Amsong, Inc., AOL Time Warner, Inc.,Association of American Publishers, Bureauof National Affairs, CCH & Other Publishers,Directors Guild of America et. al., Dr. SeussEnterprises, L.P. et. al., Senator Orrin G.Hatch, House Judiciary Committee Members,Intellectual Property Owners Association,New York Intellectual Property Law Associa-tion, Recording Artists Coalition, RecordingIndustry Association of America, ProfessorEdward Samuels, Song Writers Guild ofAmerica, and Symphonic and Concert Com-posers.

40 Oral Argument Transcript p.23-24,Oct. 8, 2002, Alderson Reporting Company,(No. 01-618).

41 Id. at p. 47.42 Respondent’s Brief at 37-38, Eldred

(No. 01-618).43 Amicus Curie Brief of Motion Picture

Association of America, Inc. at p. 24-27, (No.01-618).

44 Eldred v. Ashcroft at 775-776.45 Id. at 781.46 Id.47 Id.48 Id. at 781-783.49 Id. at 788.50 Id. at 788-789.51 Id. at 789.52 Id. at 788-790.53 Id. at 782-783 (“In sum, we find that

STEAMBOAT WILLIEfrom preceding page

43

the CTEA is a rational enactment; we are notat liberty to second-guess congressional de-terminations and policy judgments of thisorder, however debatable or arguably unwisethey may be.”)

Stephen C. Muffler is a partner inthe Fort Lauderdale law firm of Case& Muffler, LLP practicing businesslaw, intellectual property rights, cor-

porate and real estate transactionsand litigation. He graduated with aJ.D. from Nova SE University in1993 and an LL.M.-Master of Lawsin International Law, from Univer-sity of Miami’s School of Law in1996. Mr. Muffler is a member of theInternational Law Section of theFlorida Bar. He teaches MBA stu-dents as an adjunct professor for

Nova Southeastern University in lo-cations throughout Florida, Georgiaand in the countries of Panama, Ba-hamas and Jamaica and on-line.Periodically Mr. Muffler also teachesMBA & Undergraduate businesscourses at University of Phoenix asan adjunct professor. His courses in-clude business law & ethics as wellas internet law.

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