Corporations
Win Big in Battle Against Investment Regulation
Dear
friends and colleagues,
Please
find below an IPS analysis on the latest state of play between multinational
corporations, national governments and the increasing number of investor-state
dispute (ISD) arbitration cases taking place between them over environment,
public health and social policy space.
IPS
highlights the most recent data released by the United Nations Conference
on Trade and Development (UNCTAD), including the latest numbers relating
to lawsuits brought against governments by multinationals invoking
investment clauses in bilateral investment treaties (BITs).
At the
end of 2011, there have been 450 known ISD arbitration cases brought
against governments by companies seeking compensation for policies,
laws, regulations or other actions that the multinationals argue encroached
upon their investments.
Most
ISD arbitration forums do not maintain a public registry of claims,
so the total number of actual treaty-based cases could be higher.
Citing
the UNCTAD report IPS notes further that 2011 saw 40 percent of ISD
cases decided in favour of states and 30 percent in favour of investors,
while the remaining 30 percent resulted in settlements.
In the
many instances in which these lawsuits by corporations have been successful,
governments have been made to pay fines amounting to tens, sometimes
hundreds of millions of dollars or euros.
IPS
also suggests that while investor protection was perhaps necessary
in previous decades when governments and government regulations played
a preponderant role that often adversely affected foreign interests,
the trend now seems to be “leaning heavily on corporations challenging
these regulations.”
Experts
have, therefore, begun to argue that a better balance of legislation
and regulations is needed to prevent exploitation by both states and
investors so as to protect both public and private interests.
With
best wishes,
Third
World Network
131
Jalan Macalister
10400
Penang
Malaysia
Email:
twnet@po.jaring.my
Websites:
www.twnside.org.sg, www.biosafety-info.net
<http://ipsnews.net/newsTVE.asp?idnews=107684>
Corporations Win Big in Battle Against Investment Regulation
Analysis by Isolda Agazzi
GENEVA, May 6, 2012 (IPS) - In a world where governments are increasingly
subservient to global finance capital, multinationals are gaining
ground in the fight against state regulations that aim to protect
the environment, public health or social policies.
According to the most recent data released by the United Nations Conference
on Trade and Development (UNCTAD), the number of lawsuits brought
against governments by companies evoking clauses in bilateral investment
treaties (BITs) was 450 at the end of 2011.
These are only the known cases; most are kept secret.
In the many instances in which these lawsuits have been successful,
governments have been made to pay fines amounting to tens, sometimes
hundreds of millions of dollars or euros.
The highly controversial BITs - which establish the conditions for
investment by companies of one country in another state - have handed
multinational corporations an arsenal of clauses with which to fight
state regulations against harmful investment.
In 2011, Argentina held the record of known cases (51), followed by
Venezuela (25), Ecuador (23) and Mexico. Most of the claims against
Argentina are related to the 2011 financial crisis and many to the
privatisation of water. In total, Buenos Aires has been fined more
than one billion dollars by multinational corporations.
Last year, Ecuador was forced to pay fines of 78 million dollars to
the United States' oil company Chevron, which claims that the country's
efforts to protect the Amazon from pollution have negatively affected
business.
This year, Argentina may face a new case, after the government moved
to regain state control over the country's biggest oil firm, which
had been owned by the private Spanish oil company Repsol for many
years.
According to UNCTAD, the year 2011 saw 40 percent of cases decided
in favour of states and 30 percent in favour of investors, while the
remaining 30 percent resulted in settlements.
Ironically, BITs allow companies to sue governments but not vice versa.
In December 2011, for instance, the Stockholm-based Vattenfall threatened
to sue Germany for the federal government's decision, in the aftermath
of the Fukushima catastrophe, to phase out nuclear energy by 2022.
The Swedish nuclear company was poised to rake in compensation amounting
to more than a billion euros. Evoking the Energy Charter Treaty -
a multilateral agreement that protects investment in the energy sector
- Vattenfall first tried, unsuccessfully, to convince the federal
government to accommodate its requests.
The deadline for peaceful dispute settlement expired last March and
now Vattenfall could sue the government at any time.
"Germany has around 130 BITs that could potentially severely
restrain its environmental policy," Nathalie Bernasconi, of the
Geneva-based International Institute for Sustainable Development (IISD),
told IPS.
"Foreign investors may challenge, in an international arbitration
process, any change in law and policy to protect the environment and
public health, to promote social or cultural goals, or to grapple
with financial or economic crises. However, it is impossible to predict
the outcome with any precision because each will depend in large part
on the composition of the arbitral tribunal deciding the case, which
consists of three highly-paid individuals, typically specialised in
commercial rather than public law."
It is the second time that Vattenfall has attacked Germany on environmental
charges. In 2009, it challenged the standards set out in an environmental
permit required for the operation of its coal-fired power plant situated
on the river Elbe, which runs through Hamburg.
Claiming that the regulations - aimed at limiting the increase in
water temperatures caused by the plant's operations - were too strict,
the company brought the case to an arbitral tribunal at the International
Centre for Settlement of Investment Disputes (ICSID).
In order to settle, Germany agreed to change the conditions under
which the permit was delivered and the case was dropped.
"A legal analysis by a German law firm commissioned by Greenpeace
confirms that the environmental standards in the permit were diluted
in a way that was probably not required under German law. It is a
typical case where a government... (has) abandon legislation or standards
it originally planned to adopt out of fear of being sued or condemned
in an international procedure," Bernasconi commented.
Another emblematic example of the power corporations wield over governments
is the case brought by Philip Morris International against Uruguay
and Australia under BITs the countries had signed with Switzerland
and Hong Kong respectively.
The U.S. tobacco giant is using these treaties to challenge new legislation
concerning the health warnings and advertising on cigarette packages
- even though the regulations are in compliance with and encouraged
by the World Health Organisation (WHO) framework convention on tobacco
control.
According to Veijo Heiskanen, a specialist in international arbitration
at Lalive law firm in Geneva, "From the 1960s to the 1970, states
had a direct role in economies. With the privatisation (wave) of the
1990s, this direct role was replaced by regulation."
This led to questions about whether the implementation of these regulations
was adversely affecting investors, particularly foreign ones, which
is often the case.
While investor protection was initially necessary to regulate government
measures like nationalisation, the trend now seems to be leaning heavily
on corporations challenging these regulations.
For example, in the late 1990s, Mexico was fined 16.7 million dollars
for forbidding the U.S.-based company Metalclad from dumping toxic
waste in the Guadalcazar County in the northern part of the north-central
state of San Luis Potosํ.
"The real question is whether (BITs) regulations are appropriate
and states should seek (sound) legal advice to make sure that they
are in compliance with international standards," stressed Heiskanen.
"These disputes are politically sensitive because there are (millions
of dollars) at stake."
Prior to paying fines to Chevron last year, Ecuador was sentenced
to the payment of 700 million dollars back in 2010. That same year
the Swiss cement supplier Holcim obtained 650 million dollars from
Venezuela, when the country nationalised cement production.
All experts are agreed that legislation and regulations need to find
a better equilibrium so that they cannot be exploited by states or
investors.
"Investment protection treaties must be modernised to strike
a better balance between investors' and states rights," Bernasconi
concluded. "The old model doesn't work any more."
States and citizens alike have become extremely mistrustful of the
dispute settlement process. "The commercial arbitration model
on which investment arbitration is built is just not adequate for
resolving sensitive issues of public policy," she added.
"A lack of transparency, unpredictability and conflicts of interest
have simply become unacceptable. This discontent has led countries
like Australia to disfavor investor-state dispute settlement entirely
and others to terminate their investment treaties.
"Watching these developments, countries like Brazil, which never
ratified any of its investment treaties, must count themselves lucky,"
she added.