Three Latin American countries drop foreign investor suits

A dispatch from Ellen Gould that is a bit nebulous on the surface: Bolivia, Venezuela and Nicaragua are withdrawing from the International Center for Settlement of Investment Disputes (ICSID). Ellen explains:

It’s a little bit complicated to understand why this is such fantastically positive news, but this development basically means Bolivia, Nicaragua, and Venezuela are making it far more difficult for foreign investors to use investment agreements to challenge the sovereign rights of governments to act in the public interest. The International Center for Settlement of Investment Disputes (ICSD) is the mechanism for private investors to enforce the provisions of investment agreements – think Bechtel versus Bolivia over water rights. Getting out of ICSID means rejecting the worst, anti-development aspect of bilateral investment agreements. It almost tears them up, without having to renegotiate each treaty one by one.

Bilateral investment treaties (or BITs) are the international equivalent of what Canada has agreed to for (controversial) investor-to-state disputes in the NAFTA. A summary of Bolivia’s decision and rationale:

Details of Bolivia‚s decision to withdraw from the International Center for Settlement of Investment Disputes (ICSID)

Nick Buxton

On 29th April 2007, Bolivia, Venezuela and Nicaragua announced their decision to withdraw from the International Centre for the Settlement of Investment Disputes (ICSID) at the fifth summit of PTA-ALBA. They stated that they were withdrawing from the ICSID convention „in order to guarantee the sovereign right of countries to regulate foreign investment on their national territories.‰ They said that multinational companies were using ICSID after having undermined „constitutional rules, national laws, contractual obligations, regulatory environmental and labour resolutions.‰

The decision received some complaints from businesses and the opposition parties who said it would damage foreign investment and isolate the country. Opposition Congressman Jorge Aguilera of the party Podemos said that „pulling out of a body which in some way provided balance for controversies is very bad for the country. Hopefully the President can reconsider so we don‚t isolate ourselves as a country.‰ The Bolivian Movement for Sovereignty and Solidarity-based Integration of the Peoples however praised the decision. Rogelio Mayta, a Bolivian lawyer and member of the movement said „The Government by withdrawing from ICSID is just ensuring that the Constitution is applied and above all protecting the interest of Bolivians.‰

At a press conference on 8 May 2007, Pablo Solón, Bolivia‚s leading trade and integration negotiator gave further background on the decision and the next steps the Bolivian Government is planning to take. The text is a summary of the press conference. Any direct quotes by Pablo Solón are in quotation marks.

Why is the Government withdrawing from ICSID?

1. Because it is an unbalanced arbitration tribunal where only multinationals challenge States. Of 232 arbitration cases, 230 have been brought by TNCs against States
2. Because it is a tribunal that deliberates behind closed doors, makes its own rules and makes decisions that can not be challenged. Only 2 out of 110 cases have allowed public audiences
3. Because it is a very expensive tribunal for developing countries. A lawyer in Washington can earn $800 per hour. A small case for a country including fees for lawyers, travel and experts can cost $3 million.
4. Because it is a tribunal where multinationals seek damages of millions of dollars as they claim not only for investments but loss of future profits. 36% of cases have ruled in favour of TNCs, 34% have led to out of court settlements in favour of multinationals and 30% have become paralysed for various reasons. In the few cases that States have won, they have not been compensated by TNCs.
5. Because the World Bank is both judge and jury in ICSID processes. Through CIF, the World Bank is involved as a shareholder in many privatised companies controlled by multinational companies. In the case of the La Paz/El Alto privatised water company Aguas del Illimani, the World Bank through CIF held eight per cent of the company‚s shares. The tribunal is formed of three arbitrators (one each for the State and TNC) with the third one often chosen by the President of the World Bank.
6. Because the ICSID convention was signed in violation of Bolivia‚s constitutional laws which say that all companies in the country are „considered national companies and must be subject to the sovereignty, laws and authorities of the Republic.‰ It reiterates this saying that „foreign companies and citizens are subject to Bolivian laws, and can not invoke exceptional privileges or appeal to diplomatic channels‰

„We are withdrawing rather than pushing for reforms, because the reforms would take time and we want to free ourselves from these unjust institutions.‰

Bolivia‚s experience under ICSID

Bolivia already suffered from the injustice of ICSID when US multinational Bechtel sued Bolivia for between $25 and $100 million dollars after it was thrown out during the Cochabamba Water War. Bechtel sued under a Bilateral Investment Treaty (BIT) between Bolivia and Holland by the mere fact of having a postal address in Holland. Only a huge international activist campaign forced Bechtel to back down.
ETI Telecom, an Italian multinational notified ICSID on 30 April 2007 that it was undertaking negotiations with the Bolivian Government over its decision to nationalise the former State telecommunications company. This opens the possibility for the company in six months to initiate legal proceedings if the company deems that an „amicable agreement‰ wasn‚t reached. Again this was done under the Bolivia-Dutch BIT. „When you are in partnership and say you want a divorce you can not be put on trial. There has to be proof of domestic violence, that you have cheated. But in ICSID, merely by wanting a divorce, a company can claim there has been an aggression against its investments.‰
In early 2005, Quiborax, a national mining company initiated legal actions under ICSID. The company was illegally given mining rights to a protected area in the south of Bolivia, Uyuni. Under mass mobilisation, the concession was cancelled. Even though the company is national, the company got its Chilean shareholders to initiate legal action against Bolivia.

Is Bolivia going to leave the World Bank? Does it mean Bolivia has lost faith in international institutions?

„Bolivia is not leaving the World Bank. You have to remember there are five parts to the World Bank; two to do with credits, one for guaranteeing foreign investments, one for financing foreign investment and one for arbitration. We are continuing to work with IBRD and IDA.‰

„But the World Bank can not be both judge and jury∑.‰

„There is a bigger issue than whether Wolfowitz resigns and that is the fact that the World Bank has lost its way. The World Bank needs a profound transformation. It needs to prioritise development without conditions like privatisation and not protect foreign investors in the way it has in institutions like ICSID.‰

„Hopefully we will never again have to have a Stand-by agreement with the IMF. We are not in agreement with the idea that to get resources, we have to obey conditions set by these institutions.‰

The Government is supporting the establishment of a South Bank (to support development) and a South Fund (to help with macro-economic imbalances). „But these institutions won‚t come with the imposition of a certain recipe‰

What are the next steps?

On 2nd May 2007, Bolivia formally informed the World Bank of its decision to withdraw from ICSID. Bolivia is not going to make the decision apply to existing cases and will honour any cases that are launched up to the 2nd November. The Government will then work in two areas to develop a fair system of arbitration.

1. New contracts with companies will specify forms of arbitration. There are alternatives for example, the existence of arbitration panels within the Chamber of Commerce.
2. As BITs (Bolivia has signed 24) come up for renewal (normally after ten years), the Bolivian Government will renegotiate in particular removing article nine that usually refers to ICSID.

„We are willing to give guarantees to foreign investors. But we need to develop investment treaties that are in line with the Constitution which allows arbitration that is balanced and based on national laws.‰

Bolivia is also launching an international campaign to end ICSID „which exists to guarantee enormous profits for multinationals and not for defending the rights of peoples and States.‰

What kind of relationship does the Government want with foreign investors?

„We want a sane relationship.‰

There are two fundamental problems with current investment treaties:

1. What is an investor? Most translate this as someone who brings money to invest in factories etc and we want to protect this. But this can‚t mean giving away intellectual property, free property rights or rights to someone who just wants to speculate.
2. Needs to include regulation of investments to ensure benefits. It should stipulate use of national labour, reinvestment of profits, abiding by environmental regulations etc, but in fact investment treaties do the opposite and give investors rights without necessary responsibilities.

Won‚t this action risk future investments?

„Having either a BIT or being a member of ICSID is no guarantee of foreign investments. Brazil receives the largest amounts of FDI in the region and has no BITs and for constitutional reasons is not a member of ICSID. Similarly China which receives large amounts of investment only recently joined ICSID.‰

„The issue is whether rules are clear and balanced. If they aren‚t balanced, people just come to rob a country‚s riches, but if the rules are clear then companies can benefit too. I believe investments will increase. They are low but there has already been an increase in 2006 compared to 2005.‰