The World Bank’s International Centre for the Settlement of Investment Disputes (ICSID) resolves disputes between foreign investors and the countries in which they invest. It operates in secrecy despite its power to make decisions that can significantly influence daily realities in developing countries. Civil society is calling for the reform of ICSID. The ICSID secretariat itself has proposed a number of changes in an ongoing review process. However, the future of the reforms looks uncertain due to resistance from developing countries.
ICSID was established by the Convention on the settlement of investment disputes between states and nationals of other states in 1966, when it was ratified by twenty countries. There are now 142 members. ICSID claims to be an “autonomous international organisation” but is in fact part of the World Bank group. All of its country members are also members of the Bank and unless a government objects, its World Bank governor sits ex officio on ICSID’s administrative council. The council is chaired by the World Bank’s president. Annual meetings of the council are held in conjunction with the Bank/Fund annual meetings. There is also an ICSID secretariat, the expenses of which are financed by the Bank.
The Bank’s official motivation for creating ICSID was the belief that an institution specifically designed to facilitate the settlement of investment disputes between governments and foreign investors could help to promote increased flows of international investment. This reflects a broader corporate mistrust of domestic judiciaries in developing countries, despite the high level of Bank funding for judicial reform programmes over the last decade. Almost all cases heard by ICSID are from companies in the industrialised north against southern governments.
The majority of rich countries ratified ICSID forty years ago, while developing countries have come on board more recently. Most Latin American countries ratified the convention during the nineties when they were implementing IFI-promoted privatisation programmes. ICSID created more favourable investment conditions for multinationals to enter poor countries. However, for domestic firms this smacks of a double standard: while the foreign investor can choose between a domestic or international dispute resolution procedure, national parties can only rely on the domestic option. This increased investment risk is one of the reasons why domestic companies in Latin America have played such a minor role in privatisation processes.
For corporate eyes only
ICSID’s proceedings are secret. Access to files and hearings is not permitted to anyone other than the parties involved. Decisions are also kept secret except when the parties agree to make them public. Unlike many domestic dispute resolution procedures, there is no possibility of participation by any other interested party. Hearings are often held in Washington, Paris or London – convenient for northern investors, but thousands of miles away from where the potentially affected citizen lives.
Until now ICSID has not allowed for the submission of amicus curiae (amicus curiae, the latin words for ‘friends of the court’, are documents provided by interested parties containing arguments that could help the decision-making process). However, a landmark decision in May indicated the willingness of the Centre to consider amicus curiae in a controversial water services dispute (see below).
Such secrecy often violates domestic or regional access rights and norms. It creates obscure mechanisms for decisions to which citizens have no access. Its rulings can have a tremendous effect on essential services, resulting in substantial changes in the way that consumers receive their water, gas, electricity, etc. It is on the basis of this concern that civil society groups are calling for public access to the tribunals.
In 2002, in the case Aguas del Tunari S.A. and Republic of Bolivia, three hundred civil society representatives from Bolivia and beyond sent petitions to the tribunal, urging it to: allow petitioners to intervene as amicus curiae; publicly disclose the prosecution and defence statements; make all arbitration hearings public; and ensure that the arbitrators visit Cochabamba, Bolivia (see Update 33). In a letter six months later the tribunal replied that it did not have the authority to decide on such matters. It said that the relevant decision-making powers lay with the parties, who had not consented to the petition. It was not clear if only one or both parties were opposed.
In March 2005, a coalition of organisations from Argentina and the US presented a petition for transparency and participation in the case Aguas Argentinas S.A., Suez Sociedad General de Aguas de Barcelona S.A., Vivendi Universal S.A. and the Republic of Argentina. The petition argued that Argentina’s legislation, including international human rights treaties that have constitutional status, guarantees the participation of civil society in proceedings that may affect collective rights. Hence the Argentine government should not have signed the ICSID treaty in violation of its constitution, and any company doing business in the country must act in accordance with previously agreed norms. The government of Argentina responded affirmatively to the petition but the water company rejected it. In frustration, the attorney general of Argentina published all the information he had available on the pending cases on the internet.
In an unprecedented ruling in May, the tribunal acknowledged that the case “potentially involved matters of public interest and human rights” and that amicus submissions not only had the potential to inform the legal proceedings, but also “would have the additional desirable consequence of increasing the transparency of investor-state arbitration”.
Winds of change
In October 2004, the ICSID secretariat prepared a discussion paper entitled Possible improvements of the framework for ICSID arbitration. The paper was sent to members of the administrative council of ICSID, arbitrators and business for comments. The secretariat also claims that that it was sent to civil society groups, although it is not clear which ones.
The paper examined many of the transparency and accessibility problems illustrated in the Bolivian and Argentine cases, including the possibility of immediate public disclosure of all decisions, stricter disclosure requirements for arbitrators, the opening of hearings to the public, and the acceptance of amicus curiaebriefs.
The proposal has not been distributed widely, but there have already been mixed reactions to it. The response from the South Centre, an intergovernmental think tank based in Geneva representing the views of southern country governments, has expressed opposition. It questions the authority of the secretariat to make such proposals. South Centre argues that greater transparency would act against the interests of southern governments by facilitating the participation of developed country organisations and interest groups with far greater resources. They also assert that it will increase the costs of arbitration. Finally, they defended the idea that arbitration is a “private dispute resolution process”. This reflects the opinion of some southern government representatives who do not want to disclose classified information.
Alternatively, the International Institute for Sustainable Development (IISD), a think tank on international trade and investment based in Canada, has welcomed the reform proposals. IISD notes that the disputes are not essentially private and that the permission for amicus participation will not overwhelm the role or resources of the litigating parties. It also argues that the experience at the WTO, where this participation is now permitted, has shown that the system works smoothly and that the fears of higher costs and bureaucracy are unsubstantiated.
Antonio Parra, the current ICSID deputy secretary-general and backer of the reforms, is leaving the post at the end of September and southern governments’ support will be required for the reforms to succeed. There is no official communication about reactions to the proposals or follow-up steps to be taken. It is up to civil society, especially in the south, to pressure their governments to back the proposed reforms.