ALBA Members Take the Lead in Crafting Alternatives in Arbitrating Investor-State Disputes

May 03, 2013

In an article this week in the Malaysian Star, South Centre Director Martin Khor describes a move by Latin American and Caribbean countries – most of which belong to the Bolivarian Alliance for the Americas group, or ALBA –  to form an alternative to the World Bank’s International Center for Settlement of Investment Disputes (ICSID) to settle investor-state disputes, noting the predilection of ICSID to rule in favor of corporations:

LEADERS of several Latin American countries have set up a new coalition to coordinate actions to face the growing number of international legal suits being taken against governments by transnational companies.

A ministerial meeting of 12 countries held in Guayaquil, Ecuador, decided on several joint actions to counter the threat posed by these lawsuits, which have claimed millions or even billions of dollars from governments.

Seven of the countries, mostly represented by their ministers of foreign affairs, trade or finance, adopted a declaration with an agreement to form a conference of states affected by transnational interests.

They are Ecuador, Bolivia, Cuba, Nicaragua, Dominican Republic, St Vincent and the Grenadines as well as Venezuela.

But while these are all ALBA members (except the Dominican Republic), Khor notes that several other countries were also present at the meeting are not: “Representatives of another five countries (Argentina, Guatemala, El Salvador, Honduras and Mexico) also attended the meeting and will convey the results to their respective governments.”

Khor describes the proposed new arbitration center:

The ministers decided to set up an executive committee, initially led by Ecuador to coordinate political and legal actions including sending information on legal disputes involving the states, coordinating joint legal actions and disseminating information to the public.

They also agreed to establish a regional arbitration centre for settling investment disputes, based on fair and balanced rules when settling disputes between corporations and States.

The proposed centre is to provide an alternative to existing international tribunals which are seen as biased in favour of investors’ interests.

Khor also notes significant conflicts of interest among ICSID arbitrators:

The tribunals, such as ICSID (based at the World Bank in Washington), have also been accused of being mired in conflict of interest situations.

Only a few arbitrators hear a majority of cases, with many of them also appearing as lawyers for companies in other cases, and some being board members of transnational companies.

Indeed, a 2007 paper [PDF] by Sara Anderson of the Institute for Policy Studies and Sara Grusky of Food and Water Watch found that investors prevailed in 36 percent of ICSID disputes, and 34 percent were settled out of court with compensation to the investor. ICSID and other investor-state dispute hearings have also been highly secretive; only two out of 255 cases filed by November 2006 had allowed public attendance. In only four cases were third parties allowed to file amicus curiae briefs.

Corporations have also gained tremendous power to sue governments through trade and investment agreements such as NAFTA and CAFTA. The proposed Free Trade Area of the Americas (FTAA) – which died in 2005 at a Mar del Plata summit amid strong resistance from Brazil, Argentina and other countries – also would have included such provisions. According to Khor, it was such investor-state disputes which prompted the Latin American and Caribbean governments to hold the meeting:

The meeting had been prompted by serious concerns arising from investment cases taken by transnational companies against the governments under bilateral investment treaties and free trade agreements that enable these companies to sue for loss of future profits due.

For example, to new government regulations or a cancellation or amendment of a contract.

There have been more than 500 known investor-to-state cases, 60 alone in 2012.

Some countries in the region, such as Argentina, Ecuador, Venezuela and Mexico each had 20 to 30 cases taken against them.

Venezuela, the first of Latin America’s new left governments to oppose the FTAA, originally launched ALBA as an alternative to the FTAA. While the FTAA has vanished into history, the ALBA has grown to include eight full members and two observers. As Bolivia’s former ambassador to the U.N. and now executive director of Focus on the Global South Pablo Solón notes:

ALBA is not solely the creation of chavismo. Rather, it is a government-level expression of a much deeper opposition to the neoliberal model in Latin America. ALBA emerged in 2004 as a response to the U.S.-led Free Trade Area of the Americas (FTAA), which included 34 regional countries while excluding Cuba. ALBA was preceded by the continent-wide Campaign Against the FTAA, involving organizations of workers, farmers, Indigenous peoples, students, women, professionals, faith-based communities, defenders of human rights, artists, and intellectuals, among others.

The campaign against the FTAA gave voice to widespread local initiatives against the wave of privatizations imposed by the Washington Consensus since the 1980s. Ironically, the FTAA led directly to the unification and articulation of popular discontent in Latin America—the resistance movements that spawned the region’s anti-neoliberal governments.

Perhaps it should come as no surprise that countries that have pursued trade policies counter to the corporation “bill of rights” model enshrined in NAFTA, CAFTA et al would also now take the lead in creating alternatives to the investor-state dispute mechanisms that have privileged corporate interests over environmental concerns, workers’ rights, and other “externalities.” Like so many other recent moves forward in regional integration, the new investor-state arbitration mechanisms are likely to have appeal beyond just ALBA. 

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