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TWN Info Service on Finance and Development (Jan08/01)

18 January 2008


863 NGOS PETITION WORLD BANK CHIEF AGAINST INVESTMENT TRIBUNAL

863 citizens groups from 59 countries have sent a petition to World Bank President Robert B. Zoellick, expressing concerns about the International Centre for the Settlement of Investment Disputes (ICSID), whose Administrative Council Mr. Zoellick chairs.

The NGOs are outraged that ICSID (which is part of the World Bank Group) is planning to hear an investor-state dispute case taken by the European company Telecom Italia’s subsidiary Euro Telecom International (ETI) against the Bolivian government, even though Bolivia formally withdrew its membership of ICSID in May 2007.

Below is a report on the petition and background to the dispute. It was published in SUNS # 394 Thursday 17 January 2008. This article is reproduced here with the permission of the SUNS.  Reproduction or recirculation requires permission of SUNS (sunstwn@bluewin.ch).

With best wishes
Martin Khor
TWN


863 NGOs Petition World Bank Chief Against Investment Tribunal
By Martin Khor, Kuala Lumpur, 16 January 2008

863 citizens groups from 59 countries have sent a petition to World Bank President Robert B. Zoellick, expressing concerns about the International Centre for the Settlement of Investment Disputes (ICSID), whose Administrative Council Mr. Zoellick chairs.

The NGOs are outraged that ICSID (which is part of the World Bank Group) is planning to hear an investor-state dispute case taken by the European company Telecom Italia’s subsidiary Euro Telecom International (ETI) against the Bolivian government, even though Bolivia formally withdrew its membership of ICSID in May 2007.

ICSID is an arbitration centre that companies make use of to sue governments that they claim have expropriated their investment, mainly in the framework of bilateral investment agreements and bilateral free trade agreements.

The Bolivian government left ICSID on the grounds that it is an imbalanced arbitration tribunal where multinational companies sue governments for many millions of dollars, where the cases are held behind closed doors, and the World Bank is both judge and jury.

ETI, which is owned by Telecom Italia, is suing Bolivia through ICSID, claiming that the government is expropriating its property.

In 1996, the then Bolivian government privatized the state telecom company Entel by selling 50% of its shares to ETI. Of the remaining shares, 44% was retained by the government and 6% held by the workers.

The government of President Evo Morales in April 2007 asked ETI to sell part or all of its 50% stake in Entel back to the state. This has been termed “re-nationalisation” by some quarters.

The government also charged that ETI violated the terms of its privatization contract by not investing sufficiently and by owing taxes.

In May, the government announced it was withdrawing from ICSID. Talks between the company and the government did not result in any agreement. In October, ETI filed a claim with ICSID against Bolivia, in the framework of the Netherlands-Bolivia bilateral investment treaty.

Entel is Bolivia’s most important telecom company, providing more than 60% of the country’s telephone services. ETI is incorporated in the Netherlands and wholly owned by another Dutch company, International Communication Holding (ICH). ICH is in turn 100% owned by Telecom Italia International, also a Dutch company, which is in turn owned 100% by Telecom Italia, an Italian company which is also partly owned by Spanish Telefonica (42.3%), among others.

Among the 863 groups sending the petition to the World Bank President are labour, environmental, religious, consumer, small farmer, human rights, women’s, development, and peace organizations from five continents. Institute for Policy Studies, a Washington-based research organization, was the initial drafter of the petition.

In their petition to Zoellick, the NGOs made the following demands:

-- ICSID should respect the Bolivian government’s decision and stop the ETI case from going forward.

-- ICSID/World Bank officials should treat the concerns of Bolivia as well as other countries such as Argentina and Ecuador (that have also indicated their dissatisfaction with ICSID) seriously, rather than sending a signal that governments are trapped in this system - even if they take proper steps to withdraw.

-- The World Bank should establish an independent review panel to examine how ICSID (and the investment treaties and trade agreements it enforces) undermines other international treaties that promote social, economic, and human rights, as well as developing countries’ capacity to reduce external debts and achieve the Millennium Development Goals.

-- ICSID should decline to handle the ETI v Bolivia case, not only because Bolivia is no longer a party to the ICSID convention, but also because this matter would best be handled through domestic regulatory and legal remedies, as the Bolivian government has suggested.

The global petition reflects growing concerns around the world about a system of investor rights that the NGOs say undermines democracy and human rights.

They point to the famous case of the company Bechtel suing Bolivia in 2001 over a failed water privatization project. After five years of intense public pressure, the company dropped the case in 2006.

In their petition, the NGOs said that on 31 October 2007, ICSID registered a case against Bolivia submitted by ETI and that ICSID is preparing to constitute a tribunal for this case by the end of January 2008.

The NGOs find these actions objectionable for three reasons.

Firstly, ICSID is allowing this case to go forward, despite the fact that the Bolivian government has withdrawn from the ICSID convention.

On May 2, 2007, the Bolivian government became the first in the world to withdraw its consent to allow ICSID to arbitrate disputes arising from investments in its territory. In taking this step, the government followed proper procedures in accordance with the ICSID convention and thus now denies that it is subject to ICSID jurisdiction.

“Determining jurisdiction in this case requires deciding on the meaning of the Convention itself regarding the rules of exit,” said the petition. “This is not an appropriate question for an investment tribunal, particularly one that is associated with the World Bank, the administrator of the Convention.”

The NGOs added that the Bolivian government has also raised justifiable concerns about an investor-to-state dispute settlement system that allows private corporations to undermine democratic processes and places unjust financial burdens on governments, particularly in the developing world.

The previous Bolivian administration spent five years fighting a case brought by Aguas del Tunari, a subsidiary of Bechtel, over a failed water privatization project. Although Bechtel eventually settled the case for a token sum, the Bolivian government incurred considerable legal costs, draining funds that could have been used to meet basic needs in South America’s poorest country.

The NGOs demanded that ICSID should respect the Bolivian government’s decision and stop the ETI case from going forward. Failure to respect the Bolivian government’s decision to withdraw from ICSID would only give further credence to the view that this is a system which undermines national sovereignty in favour of the interests of private corporations.

Secondly, ICSID’s moves appear designed to make an example of Bolivia, at a time when other countries are questioning the investor-to-state arbitration system, said the NGOs.

On November 23, 2007, the Ecuadorian government notified ICSID that it would not accept its jurisdiction in cases stemming from disputes over non-renewable resources.

The Argentine government has also raised concerns over flaws in the system, after being hit by more than 30 investor claims in recent years, many of them in retaliation for actions taken to alleviate the pain of financial crisis on average citizens.

Venezuela and Nicaragua joined Bolivia in a joint declaration criticizing ICSID on 29 April 2007, while the Australian government refused to accept investor-state dispute resolution in a 2004 trade pact with the United States.

The NGOs proposed that ICSID/World Bank officials should treat these concerns seriously, rather than sending a signal that governments are trapped in this system - even if they take proper steps to withdraw.

They called on the World Bank to establish an independent review panel to examine how ICSID (and the investment treaties and trade agreements it enforces) undermines other international treaties that promote social, economic, and human rights, as well as developing countries’ capacity to reduce external debts and achieve the Millennium Development Goals.

Thirdly, said the NGOs’ petition, the subject of ETI’s dispute, telecommunications regulation, is an issue with broad social implications that is inappropriate for an international commercial arbitration tribunal.

Governments should have every right to ensure that the telecommunications sector meets social objectives, including universal, affordable access to services and sustainable employment. The World Bank, however, has consistently promoted privatization and deregulation as the only means of developing this (and most other) economic sectors.

“Thus, it is particularly inappropriate for ICSID to handle the ETI case, which stems from constitutionally sanctioned actions by the Bolivian government to ensure that telecommunications privatization benefits Bolivian society and to explore options for increasing the government’s ownership share of the system,” said the NGOs.

It is also worth noting that although ETI claims that the Bolivian government has “destroyed the value” of its investment, the company continues to operate and generate profits in that country.

The NGOs proposed that ICSID should decline to handle the ETI v Bolivia case, not only because Bolivia is no longer a party to the ICSID convention, but also because this matter would best be handled through domestic regulatory and legal remedies, as the Bolivian government has suggested.

Copies of the petition were also sent to Ana Palacio (ICSID Secretary-General), Franco Bernabe (CEO, Telecom Italia), and Cesar Alierta Izuel (CEO, Spanish Telefonica).

The petition by such a large number of NGOs has highlighted the grievances that some governments have against ICSID in particular and the dispute system in investment agreements in general.

In May 2007, Bolivia’s Ambassador for Trade, Pablo Solon, explained in an interview when his country had decided to withdraw from ICSID.

First, he said, ICSID was an unbalanced arbitration tribunal used by multinationals to challenge states. Out of 232 cases, 230 were brought y companies against states.

Second, the tribunal meets behind closed doors, makes their own rules and its decisions cannot e challenged.

Third, it is very expensive for governments of developing countries to defend themselves as a case would cost USUS$3 million in legal fees, travel and expert advice.

Fourth, the tribunal is used by transnational companies to seek damages of many millions of dollars as their claims can involve not only loss of investments but also the loss of future profits.

Fifth, the outcome of cases is mainly favourable to the companies and against the states. According to Solon, 36% of cases are ruled for the transnationals and 34% involve out-of-court settlement for the companies.

And finally, said Solon, the World Bank is often both the judge and the jury in the ICSID process.

The Bolivian critique of the ICSID is supported by a detailed study on bilateral investment treaties and the ICSID system, “Challenging corporate investor rule”, which was published by the Institute for Policy Studies and Food and Water Watch in April 2007.

According to a summary of the study: “The current system of international investment protections has granted excessive powers to global corporations. In a growing number of cases, powerful firms have exploited these rules to undermine democratic processes at the expense of vulnerable communities and the environment.”

Meanwhile, there is scant evidence that these deals bring strong benefits for national economies. “Policy makers should seriously weigh the risks before signing any deals that expand this flawed and unbalanced system,” said the study.

The report also highlighted the following facts:

-- There were 2,500 bilateral investment treaties in existence in 2006, and 255 known investor-to-state lawsuits had been filed by November 2006 (two-thirds of these since 2002).

-- The overwhelming number of the concluded and pending ICSID cases have been filed against developing countries. Of the total, 74% were filed against middle-income developing countries, 19% against low-income developing countries and only 1.4% against the G8 industrial countries (all of them against the United States). One third of the pending ICSID cases (32 out of 109) are against Argentina.

-- The odds are very high that investors will win the ICSID cases, as 36% of the rulings are in favour of investors while 34% of cases were settled out of court with compensation to the investor.

-- Investor-state claims are often disputes over public services and natural resources. 42% of cases involved public services (water, electricity, telecoms, waste management) while 29% of cases involved oil, gas and mining.

-- The largest award paid in an investor-state case was US$877 million which the Slovak Republic paid to the Czech bank CSOB.

 


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