Corporate Control over Public Interest – International Investment Treaties

By Freedom Fight Info

The last two decades have witnessed the silent rise of a powerful international investment regime that has ensnared hundreds of countries and put corporate profit before human rights and the environment. Through International investment treaties – such as Bilateral Investment Treaties (BITs), states determine the rights of investors in each other’s territories. These treaties include a set of investment protection clauses, such as national treatment (NT), fair and equitable treatment (FET), compensation in the event of expropriation – direct or indirect, most-favoured nation (MFN), and a ban on transfer of capital, among others. Furthermore, and maybe most important, they all include an investor-state dispute settlement mechanism (ISDS), which gives companies the right to directly file lawsuits against states at international tribunals, bypassing the national justice system, when they feel that their profits (or future expectation of profits) have been affected. These clauses tend to be formulated in very vague language, which has enabled investors to sue in a variety of circumstances making it difficult for governments to predict when their actions could be considered in breach of an investment treaty. Through Investor-State Dispute Settlement (ISDS) companies can sue governments at international tribunals if policy changes or new regulations – even ones to protect public health or the environment – are deemed to affect their profits. Over 3,000 international investment treaties has been signed worldwide, leading to a surge in legal claims at international arbitration tribunals.  The costs of these legal actions weigh on governments in the form of large legal bills, weakening of social and environmental regulation and increased tax burdens for peoples.

’’ISDS is very much in the interest of Multinational corporations and protects the interest of foreign investors. It provides foreign investors with higher protection than local investors have. Also international law firms have become very active actors in the investment system. They actively search for potential cases to bring against governments, lobby against reforms of the system, teach about investment arbitration at law schools, sit in editorial boards of academic magazines on investment arbitration and earn a lot of money through the system.’’, says Pietje Vervest,  Economic Justice Programme coordinator in the Transnational Institute (TNI)*.

Transnational Institute’s (TNI) study A test for European solidarity: The case of intra-EU Bilateral Investment Treaties (2013), written by Cecilia Oliviet, claims that Central and Eastern European countries have regularly been at the receiving end of lawsuit from investors. Together they have been sued, at least, 77 times. This number is particularly striking if we compare it with the known cases of corporate investors suing Western European states, against whom there are only 7 recorded cases. 65% of all disputes against Central and Eastern Europe are filed by fellow European countries and are based on intra-EU BITs.

The study Profiting from Injustice: How law firms, arbitrators and financiers are fueling an investment arbitration boom (2012) – published by TNI and Corporate Europe Observatory (CEO)* – tells us that the investment arbitration industry is far from a passive beneficiary of international investment law. They are rather highly active players, many with strong personal and commercial ties to multinational companies and prominent roles in academia who vigorously defend the international investment regime. They not only seek every opportunity to sue governments, but also have campaigned forcefully and successfully against any reforms to international investment regime.

Pia Eberhardt of Corporate Europe Observatory, one of the author of the Profiting from Injustice, tells to Freedom Fight Info that legal costs in investor-state lawsuits are enormous: on average they are 8 million US$, but can be much higher; the biggest chunk of these costs, 80%, end up in the pockets of the lawyers and law firms representing the parties. Other profiteers in the legal industry are the arbitrators, which decide the cases and are paid by the hour/per day. Closely linked to the legal industry are third-party funders, professional litigation funders, who are also starting to enter the field, financing parts of the legal costs in return for a share in the award.

Pia Eberhardt adds that resistance against international investment agreements and arbitration is happening in three groups: a) social movements and civil society organisations, b) academia and c) certain states/ policy-makers.

In social movements, says Eberhardt, resistance has been particularly strong in countries, which have been sued often under those treaties, such as Ecuador or Argentina. Thanks to the many lawsuits which have been filed under NAFTA, you also have relatively strong opposition and debate in Canada and the US. Finally, you do have relatively strong opposition in countries, which are currently negotiating free trade agreements with investment chapters, such as the Transpacific and – now increasingly also – in Europe. In all these countries, an important strategy for social movements and activists is to scandalise ongoing investor-state lawsuits, to show that the system is being used to challenge democratic laws in the public interest. Activists are also contrasting the system with the rule of law, showing that it falls short of rule of law standard in national judicial systems (that includes things such as transparent procedures, the right to appeal, judicial independence etc.).

On the state level, the strongest opposition comes from countries in the South, which have been abandoning ICSID, are trying to re-negotiate existing BITs and are trying to build alternative structures for arbitration. The most important countries to mention are Ecuador, Venezuela, Bolivia, South Africa. India is also reviewing its investment treaty system. In the Global North, Australia has been standing out as the previous Gillard-government decided to no longer negotiate investor-state-dispute rights in its free trade agreements.

The alliance against BITs, according to Eberhardt, should be as broad as possible in civil society: trade unions, farmers groups, environmental groups, digital rights activists, consumer groups, health groups, development groups… Academics are another important ally – as the system is widely legitimised in academia, so we need to strengthen the critical voices there. Another important group is lawyers: not those that make money from the system and defend it, but those that care about things such as judicial independence. Finally: regulators! In the US, there was a letter by regulators speaking out against the system; this is very important; it’s trade negotiators that are negotiating these treaties, but regulators will pay the price with limited policy space

Eberhard says to Freedom Fight Info that unilateral cancellation of investment treaties is possible but even a terminated BIT – if terminated by one side only, without an agreement of both parties to terminate the treaty with immediate effect – continues to survive. Because of a “survival clause” (also called “zombie clause”) that ensures that, after termination, the BIT continues to protect investments, which have been made until the termination, for another 10 or 15 years. The drawbacks of this step: it might scare investors.

Argentina has refused to pay awards, a strategy which it could follow because it does not have that many state assets abroad. Because the ICSID convention, which many countries in the world, including Argentina, have signed, allows an investor to claim the property of the country that lost in an investor-state dispute, in any other country, which has signed the ICSID convention. This is what makes the system so powerful. But the fact that Argentina has not paid awards, says Eberhardt, has definitely challenged the system.

Activists should encourage their governments to follow suit, so to assess/ evaluate and eventually cancel or at least renegotiate agreements and not pay awards. However, it is equally important to prevent any new agreement from entering into force. According to UNCTAD, in the past three years, on average, one investment treaty was signed per week. With the negotiations for the investment chapter in the EU-US trade agreement and with the proposed EU-China BIT, big treaties with enormous investment flows covered under them, could become a reality in the future. This must not continue!

Future threat – Transpacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP)

Transpacific Partnership (TPP) agreement, often referred to as ’’NAFTA agreement on steroids’’ is aimed at establishing a free trade zone that would encompass 800 million people on the territory from Vietnam to Chile – about a third of world trade and nearly 40 percent of the global economy. According to the website Stopttp.org, TPP will give multinational corporations and private investors the right to sue nations in private tribunals. These tribunals have the power to overturn environmental, labor, or any other laws that limit profit, awarding taxpayer funded damages.

’’We see that all Free Trade Agreements (FTA) now have an investment chapter with ISDS. There are over 3,000 investment treaties worldwide. With the upcoming Transpacific Partnership agreement and the Transatlantic Trade and Investment Partnership the world will be covered with a web of investment agreements and corporations will be able to challenge laws in the interest of the public and the environment worldwide’’, says Pietje Vervest to Freedom Fight Info.