Private Sector


Threats to withdraw from Bank’s investment tribunal

2 July 2007

versión en español

End April the leaders of Bolivia, Venezuela, and Nicaragua agreed to withdraw from the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID), a tribunal which rules on cases against governments brought by foreign investors. ICSID faces growing challenges to its authority, as contradictions emerge in its rulings against Argentina, and civil society groups successfully demand their right to be heard.

Of the three countries, only Bolivia has formally declared its intention to withdraw from the ICSID convention. Bolivian president Evo Morales said that “(We) emphatically reject the legal, media and diplomatic pressure of some multinationals that … resist the sovereign rulings of countries, making threats and initiating suits in international arbitration”. Bolivia is aiming to limit investor-state arbitrations to domestic fora, rather than international venues such as ICSID. The move comes at a time when the country is in the midst of nationalising key sectors of its economy, with foreign investors hinting at international arbitration as a possible recourse.

protections allow the companies to demand outrageous settlements from the countries they failed to serve

The implication of Bolivia’s move is unclear since no government has previously withdrawn from ICSID. The ICSID convention states that ‘denunciation’ shall take effect six months after the receipt by the World Bank of a notice to withdraw. There are legal disagreements over whether or not future arbitrations against Bolivia (on investments which pre-date the withdrawal) would continue to be handled by ICSID as is agreed in numerous bilateral investment treaties.

Glencore, the Swiss commodity trader, has initiated proceedings against Bolivia after one of its plants was seized earlier this year. Telecom Italia has threatened to do likewise after an announcement that Bolivia intends to nationalise Entel Bolivia. Bolivia is currently party to one arbitration at ICSID. In 2006, a Chilean chemical firm, Quimica e Industrial del Borax Limitada (Quiborax), initiated arbitration proceedings claiming that its Bolivian mining company was expropriated, in breach of a Bolivia-Chile bilateral investment treaty. Bolivia was also involved in an earlier arbitration at ICSID – one which drew widespread media coverage (see Update 49) – involving a controversial dispute over a water services concession in Cochabamba. That arbitration with the Dutch-based Aguas del Tunari was settled in early 2006, and the arbitration claim withdrawn.

A civil society sign-on letter of support for the Bolivian government’s withdrawal has been sent to Ana Palacio, ICSID’s secretary-general and Robert Zoellick, the new president of the World Bank.

According to a new report from US NGO Food and Water Watch, Challenging corporate investor rule, ICSID tribunals have ruled in favour of the investor in over a third of cases, while a further third are settled out of court with compensation for the investor. “When contracts fail, as they inevitably do when private corporations are unwilling to provide the needed investment to maintain, build and expand the water systems, investor protections allow the companies to demand outrageous settlements from the countries they failed to serve,” said director Wenonah Hauter. Hauter warned that “just the threat of an investor lawsuit can have a chilling effect on social or environmental initiatives, as policymakers worry about provoking an expensive lawsuit”. The report makes a number of recommendations to reform the arbitration process including increased transparency and participation, the creation of an appeals process, and de-linking the tribunal from the Bank.

Argentina: contradictory rulings

In a 22 May ruling Argentina was found liable for breaching protections owed to US-based Enron under the US-Argentina bilateral investment treaty. The ICSID Enron tribunal rejected Argentina’s defence of ‘necessity’ (that its actions were necessary in the wake of severe economic crisis), making no mention of a previous ICSID ruling in a separate case which had accepted the ‘necessity’ defence. Privately, Argentine officials have expressed frustration at the growing body of “contradictory” rulings in ICSID arbitrations arising out of the Argentine financial crisis.

In May ICSID rejected a bid by Argentina to disqualify three arbitrators in a dispute with Camuzzi International S.A. and Sempra International Energy, after the tribunal declined to admit a post-hearing submission which Argentina considered crucial to its defence. As is customary, no reasons were given to explain or justify the decision.

Civil society submission in Tanzanian case

End March, a coalition of Tanzanian and international NGOs made a groundbreaking submission to ICSID. The 50-page brief puts forward arguments as to the responsibilities of foreign investors under international investment agreements, particularly where investments implicate sensitive human rights or sustainable development objectives. There has been no feedback at all from the 6 June hearing, and no word as to whether they will now release any of the documents in the arbitration to the public.

In 2000, the Bank and Fund had made privatisation of the Dar es Salaam Water and Sewerage Agency one of the conditions of HIPC debt relief. In 2005, the Tanzanian government pulled the plug on the deal with British-based Biwater claiming that no new domestic pipework had been installed and that the company had invested less than half of the promised $8.5 million which it had agreed (see Update 46).