On May 23, the United States government posted this simple message to its Federal Register:
The Government of Bolivia has delivered to the United States a notice of termination for the bilateral investment treaty between the two countries, a termination that will take effect on June 10, 2012. As of June 10, 2012, the treaty will cease to have effect except that it will continue to apply for another 10 years to covered investments existing at the time of termination (June 10, 2012).
A 2007 report by the Institute for Policy Studies and Food and Water Watch on the corporate investor-state dispute regime commented on Bolivian President Evo Morales’ attitude towards these treaties:
When Bolivian President Evo Morales took office in January 2006, international gas companies made it clear they were considering suing his government if he followed through on campaign promises to increase the Bolivians’ share of revenues from this natural resource. Previous Bolivian governments had signed a flurry of bilateral investment treaties that gave foreign investors the right to file such lawsuits through international tribunals. In April 2006, Morales said these types of rules made him feel like a “prisoner” in the Presidential palace.
His predicament was a common one for political leaders around the world who are caught in an inter locking web of rules and institutions committed to promoting and protecting foreign investment – with little regard for the costs to democracy, the environment, and the public welfare. In the Bolivian gas case, the Morales government dismissed the threats and managed to renegotiate contracts with all of the foreign investors, substantially increasing the government’s revenues.
Other governments, notably Argentina and Ecuador, says the IPS-FWW report, have faced “crippling investor lawsuits.” Argentina has seen more than any other country with many of the cases related to measures the country took after 2002 to “alleviate the pain of the country’s financial meltdown on average citizens.”
The Bolivian notice of termination of its BIT with the United States comes only weeks after it nationalized the assets of Spanish-owned power transmission company Red Electrica, the latest in a long string of nationalizations since taking office. Red Electrica owned 85 per cent of the Bolivian power grid. Morales’ move on the company came on the heels of Argentina’s expropriation of Spanish firm Repsol’s share in the Argentine energy company YPF.
Commenting on the Bolivian nationalization, a U.S. State Department representative said, “These actions against foreign investors really dampen the investment climate in Bolivia, in Argentina, in wherever. So that’s our concern.” Bolivia and Red Electrica are in talks about appropriate compensation, which has investment lawyers wondering if Morales will end up attracting an investor-state dispute after all.
Matthew Parish, a partner at international law firm Holman Fenwick Willan, told the Financial Times, “I find it highly unlikely that Bolivia will offer the prompt, adequate and effective compensation for the expropriation . . . The real war over Latin American nationalisations will be fought amidst the hallways of arbitral tribunals created by bilateral investment treaties.”
Canadians can appreciate what “adequate and effective compensation” can mean under these extreme investment treaties after the Harper government settled with AbitibiBowater for $130 million — an amount that included the company’s stated rights to timber and water taking permits which, under the constitution, it is not entitled to own. The Canadian settlement said nothing of AbitibiBowater’s responsibility to pay for environmental remediation of its polluted pulp and paper mill, and it dumped the cost of severance packages for laid off workers on the Newfoundland government.
Unlike Red Electrica (so far), Repsol did not waste any time taking Argentina before the World Bank’s International Center for Settlement of Investment Disputes (ICSID), demanding $18 billion in compensation under a Treaty for Investment Promotion and Protection between the Latin American country and Spain.
“The Spanish government and European Union officials have said they will take measures against Argentina over the expropriation. Analysts say their options are limited, not least since Argentina has ignored past ICSID fines,” reports Reuters. “Also, Argentina is shut out of world debt markets, making it harder to bring international pressure to bear on it.”
Bolivia removed itself from the ICSID Convention in May 2007, followed by Ecuador in 2009. Venezuela announced its intention to leave the convention in January this year. The move is somewhat symbolic, because investors can under most bilateral investment treaties take disputes to ad hoc arbitration under UNCITRAL rules, and sometimes to the International Chamber of Commerce or other courts. But the repudiation of the investor-state regime by these countries, as well as Australia and India, is a trend that cannot be denied, and it’s firmly linked to the impact of decisions on public policy.
“Since January, multinational corporations have been waging an assault on Indian government policy,” reported Indian Express in April this year. “The UK telecommunications company Vodafone announced plans to take various international and domestic measures, arguing that the Indian government violated its investment pledge by changing its tax policy. Norway’s Telenor and Russia’s Sistema also launched legal battles, and India’s state-run Coal India Limited recently lost an international arbitration case to an Australian company.”
CANADA AND PAKISTAN CONTINUE FIPA TALKS IN OTTAWA
The new attitude is bound to affect Canada-India investment negotiations, which concluded in 2007 but with the Indian government refusing to ratify the treaty. (The Canada-India FTA will not incorporate an investment treaty, rather the two sides have agreed to keep working on it separately.) Now The News International is reporting that, “The [Pakistani] ministry of commerce has opposed the proposed bilateral investment treaty (BIT) with Canada on a number of grounds as the controversial clause of covered investment is only to favour Canadian companies.”
A third round of negotiations toward a Canada-Pakistan Foreign Investment Promotion and Protection Agreement (FIPA, or Canada’s version of the BIT) starts in Ottawa today, just over a year after talks began.
“We have suggested to the Board of Investment that it would be too early to conclude the treaty as the ministry did not get enough time to thoroughly examine the proposed BIT and forwarded it to WTO section of the ministry for detailed comments,” said a senior official of the ministry in the article. “The situation is evident that ministry did not want to conclude the proposed BIT with Canada in haste likewise of BIT with USA.”
The issue for developing countries may not be so much the investor-state provision per se but the feeling that they are counter-productive or hazardous with countries like Canada, the U.S. and Europe where investors use the process to threaten and punish governments for legitimate public measures they do not like. Canadian mining firm Pacific Rim’s CAFTA lawsuit against El Salvador for not approving the company’s environmental impact assessment due to concerns about the impacts of a proposed gold mine on water and agriculture, as well as community opposition to the project, could cost the country $77 million, or 1 per cent of its GDP.
A letter signed by over 100 jurists to Trans-Pacific Partnership negotiating countries warned against including these investor rights in the mega free trade deal. The jurists, several of them from Canada, wrote:
the substantive rights granted by FTA investment chapters and BITs have also expanded significantly and awards issued by international arbitrators against states have often incorporated overly expansive interpretations of the new language in investment treaties. Some of these interpretations have prioritized the protection of the property and economic interests of transnational corporations over the right of states to regulate and the sovereign right of nations to govern their own affairs.
The letter continues:
In several instances, arbitral tribunals have gone beyond awards of cash damages and issued injunctive relief that creates severe conflicts of law. For instance, a recent order by a tribunal in the case brought by Chevron against Ecuador under a U.S.-Ecuador BIT ordered the executive branch of that country to violate its constitutional separation of powers and somehow halt the enforcement of an appellate court ruling.
To put the Bolivian decision with respect to its BIT with the U.S. into perspective, the TPP letter explains that “Over $675 million has been paid out under U.S. FTAs and BITs alone, 70% percent of which pertained to challenges to governments’ natural resource and environmental policies, not to traditional expropriations.”
The Council of Canadians has long opposed bilateral investment treaties in NAFTA, subsequent free trade deals and Canada’s FIPAs, mostly with developing countries but recently with China. Canada is the 6th most sued country under this regime according to a recent UNCTAD report. It is both sadistic and masochistic for the Harper government to continue the charade which has been so costly for Canada (upwards of $160 million has been paid out in fines and settlements) and developing countries, without any solid proof these treaties increase investment either into or out of Canada.