In what may be the first arbitration to arise under the investment chapter of the US-Central America Free Trade Agreement (CAFTA), a US-based investor has filed a notice of intent to sue Guatemala for alleged breach of the CAFTA rules.

Pennsylvania-based Railroad Development Corporation (RDC) filed its notice on March 13, setting in motion a 3-month waiting period before a formal arbitration request can be made. RDC accuses the Guatemalan Government of indirectly expropriating the US firm's investments in a privatized railway in Guatemala. RDC invested in Guatemala in 1997; following a later change in Government, the US firm complains of interference with contractual rights contained in a 50 year concession agreement

In a statement, RDC Chairman Henry Posner III said that "Recent actions by the Government of Guatemala have amounted to an indirect expropriation of our company's assets and direct interference with its contractual rights. Further, we believe that these actions were taken on behalf of private Guatemalan companies interested in selected assets contained in the 'usufruct' (50-year concession) we won through a bid process in 1997."

RDC has retained the international law firm of Greenberg Taurig LLP, and, in particular, Regina Vargo, a former US Government trade official involved in the negotiation of the CAFTA.

An official with Guatemala's Embassy in Washington DC told ITN that they had no comment on the case at the present time. Calls placed to Guatemala's Ministry of Economy went unanswered at press time.

The potential arbitration between RDC and Guatemala is not the first investment treaty claim to be brought by RDC against a government in relation to a railway privatization.

In 2006, a consortium of foreign investors, including RDC, mounted a claim against Estonia for alleged breach of investment treaty protections in relation to that country's handling of a privatized rail concession held by RDC and its consortium partners.

The Estonian dispute was settled earlier this year, when Estonia agreed to pay compensation following the re-nationalization of its national railway (See: "Arbitration claims withdrawn after Estonia pays to renationalize railway", ITN, Feb.1, 2007, available on-line at: http://www.iisd.org/pdf/2007/itn_feb1_2007.pdf)