Latin American countries are challenging rules on how to arbitrate disputes over trade agreements.
WASHINGTON – A bloc of a dozen Latin American countries have agreed to take collective action to oppose a spate of crippling lawsuits increasingly brought by multinational corporations against the governments of developing countries for alleged violations of trade agreements.
Advocates of fair trade and stricter corporate accountability say the decision, taken last week at a ministerial summit in Ecuador, offers a significant precedent for a nascent movement by developing countries increasingly pushing back against what they view as unfair trade terms in investment treaties.
“It’s incredibly exciting that 12 countries have pulled together to look at what has become a very serious issue,” Eric LeCompte, executive director of Jubilee USA, a network of anti-poverty and anti-debt groups and a counterpart to one of the organizations that negotiated the new agreement, told Mint Press News.
“It’s not rocket science – this is about multinational corporations being able to hold countries hostage through continuous litigation, to litigate them into submission. Now, however, the space that’s being created offers ways to start to establish laws to limit this type of litigation and move to resolution.”
Most of these lawsuits have been launched on the backs of bilateral investment treaties (BITs) signed between developed and developing countries. Several such agreements were signed in Latin America during the 1990s, though corporate heads appear only now to be increasing their reliance on using the legal leverage they offer. Experts estimate that there have been some 500 major lawsuits launched against developing countries by transnational companies in recent years, some 60 of which came last year alone.
“These lawsuits are bringing charges of anywhere from a million to billion dollars – on top of the staggering legal fees, for developing countries not to be able to negotiate these lawsuits within their own sovereign laws is an incredible challenge,” LeCompte said.
“That’s why this new move is important, as why we’re seeing these countries saying enough is enough. What’s important here is developing countries pulling together and trying to stake a space within which multinational companies can’t continue to violate their sovereignty as well as their laws.”
Particularly grating for many is that these lawsuits are not actually decided within national judicial systems. Rather, they are brought before international arbitration tribunals that have been the subject of repeated accusations of lack of representation and conflicts of interest.
“Binding investment treaties provide foreign corporations special ‘rights’ to sue sovereign governments in secretive, unaccountable courts that are run by a revolving circus of legal firms, whose lawyers profit by adjudicating one case and prosecuting the next,” Deborah James, director of international programs at the Center for Economic and Policy Research, a Washington think tank, told Mint Press News.
“These treaties are now are emerging as the antithesis of transparent, democratic and accountable good governance, particularly as foreign corporations have repeatedly shirked responsibility for massive labor and environmental violations in many Latin American countries.”
The situation led to a declaration in April to jointly address the issue, signed by the governments of Bolivia, Cuba, the Dominican Republic, Ecuador, Nicaragua, St. Vincent and the Grenadines, and Venezuela. Last week’s agreement focuses on ways to achieve trade dispute resolution without resorting to these arbitration tribunals. This would include the creation of a regional arbitration center, along with an international monitor to provide oversight of such cases and ensure fair mediation.
“Smart leaders in the region, being more independent of U.S. foreign and corporate policy diktats, are taking steps to reign in this metastasizing cancer, and are instead developing mechanisms to provide a fair and transparent investment climate while disciplining corporate excesses,” James said.
“This is a truly remarkable effort that will pay handsome dividends in the future in terms of avoiding frivolous and damaging lawsuits. Other countries and regions should follow their lead, or they will continue to see case after case mounting against their democratic interests.”
Mining companies have been at the forefront of the growing trend of investor-state lawsuits, particularly in Latin America. The Ecuador agreement cites several of the most notable cases, including lawsuits by Chevron against Ecuador, another by the U.S.-based Occidental Petroleum against Ecuador, and the international mining firm Pacific Rim Cayman against El Salvador, among several others.
The Occidental settlement is the largest to date. In October 2012, the company was awarded some $1.7 billion plus interest for having terminated a contract a half-dozen years earlier. Other lawsuits have been brought in an attempt to push governments to accede to new demands. El Salvador, for instance, has been sued by two companies, Pacific Rim Cayman and the Commerce Group (a U.S.-based interest), which wanted the government to award them gold-mining permits. Another U.S. extractives company, Renco Group, has sued the Peruvian government for $800 million after the government withdrew an operating license for a smelter operating in a notoriously polluted area.
According to a study released earlier this year by the Institute for Policy Studies, a Washington think tank, Latin American countries were the focus of around half of all investor-state lawsuits pending in March 2013 before the largest tribunal, the International Center for Settlement of Investment Disputes (ICSID). Further, about 60 pending cases (roughly a third of the total) at that time had been brought by extractives companies, compared to just three pending in 2000 and just seven brought during the 1980s and 1990s.
Why would officials in Latin America and other developing regions have agreed to such terms in the first place? Critics have long warned that investment treaties are negotiated under notable secrecy and have been guided by a view of investment benefits that is increasingly seen as offering false promises.
“Many of these investment treaties are approved in the dark, with a lack of due process and no input from citizens,” Aldo Caliari, director of the Rethinking Bretton Woods Project at the Center of Concern, a Washington think tank and one of the groups that helped negotiate the new Latin American agreement, told Mint Press News.
“The mythology behind these sort of clauses, including agreeing to be bound by tribunals, has to do with idea that if you do your country will be attractive for foreign investment, though those benefits have often proven to be nonexistent.”
Indeed, Caliari points to a rising trend of developing countries now looking to renounce the BITs to which they had previously agreed. South Africa is currently going through such a process, announcing in July, for instance, that it was terminating its BIT with Spain (though some protections for previous investments will continue). In the past, South Africa had been the target of repeated mining-related lawsuits by European investors.
Likewise, as negotiations toward a U.S.-India BIT continue, activists have stepped up calls to halt the process. Coinciding with Indian Prime Minister Manmohan Singh’s state visit to the United States last week, a coalition of 75 civil-society groups urged the Indian government to stop all investment protection negotiations and publicize details of past compensation paid to foreign investors, among other demands.
The Latin American agreement will now offer significant impetus to such actions, Caliari suggests.
“We really hope that more countries will take courage from seeing that this can be done,” he notes. “For many years, people thought these countries would be in deep trouble if they didn’t have these agreements in place. But seeing this now really encourages other countries to understand that it is possible, that there are a range of ways to address any potential disputes that may emerge.”
TPP and beyond
Arbitration tribunals have been something of a sacrosanct rule in investment treaties in the past, and it is clear that many developed countries continue to see them as an integral part of the blueprint today, as well. Certainly this is the case here in the United States.
This extra-judicial form of dispute resolution continues to constitute a key demand by the United States in the ongoing negotiations toward a Trans-Pacific Partnership (TPP), the mammoth proposed free trade agreement that would include more than a dozen countries from around the Pacific Rim. Although there are suggestions that Australia, for one, has voiced strong opposition to the arbitration requirement in the TPP, there is little information available about where most of the negotiators stand on the issue. In line with past trade negotiations, after all, the past 18 rounds of TPP talks have been almost comically shrouded in secrecy.
More worryingly for many critics of the tribunal system, President Barack Obama’s administration has repeatedly expressed its intent that the TPP, if it is ever agreed and implemented, should constitute a next-generation blueprint for trade treaties. In fact, during President Obama’s first term, the United States did revisit its blueprint for how it approaches BIT negotiations. However, the final recommendations — and particularly their subsequent implementation — were widely seen as watered-down, and ultimately little progressive change was put in place.
Meanwhile, President Obama had hoped to make a major announcement on the progress of the TPP negotiations at the Asia-Pacific Economic Cooperation (APEC) summit, slated to be held in Bali starting Saturday. For now, however, it appears that resolution of multiple outstanding issues remains far off.