Bilateral Trade and Investment Deals: BITs a serious challenge for global justice movements

The MAI is far from dead. Many bilateral free trade/investment agreements already contain similar provisions. The U.S. insists that they are part of any new negotiations. 

In many BITs, where a dispute cannot be settled amicably and procedures for settlement have not been agreed on within a specified period, they can be referred to the International Centre for Settlement of Investment Disputes (ICSID) or the UN Commission on International Trade Law (UNCITRAL). NAFTA lets unhappy investors choose between the two. Either way, they represent the privatization of commercial justice. 

Founded in 1966, over half of ICSID’s cases were filed in the past six years, mainly under investment treaties. Today, there are some 2,000 BITs. UNCTAD describes them as “the most important protection of international foreign investment” to date. Many disputes relate to contracts arising from the privatization of public services. 

In a speech to the Inter-American Development Bank in October 2000, William D. Rogers, of the Washington, DC law firm Arnold and Potter, argues that investment treaties are “an open invitation to unhappy investors, tempted to complain that a financial or business failure was due to improper regulation, misguided macroeconomic policy, or discriminatory treatment by the host government and delighted by the opportunity to threaten the national government with a tedious expensive arbitration.” 

Even before such a powerful tool can be expanded and applied to 34 countries throughout the Americas under the FTAA, countries like Bolivia and Argentina have already been sued under obscure BITs.  The popular struggle against the privatized water system in Bolivia’s third largest city, Cochabamba, is a symbol of the fight back against neoliberalism and privatization. This followed Aguas del Tunari, an affiliate of the U.S. corporation Bechtel, sharply increasing prices. After the privatization was reversed, the water system was handed back to the public. Aguas del Tunari/Bechtel lodged a “request for arbitration” against Bolivia at ICSID. It is seeking $25 million, claiming as “expropriated investment” the millions of dollars in potential profits it had hoped to make. The company used a 1992 BIT between Holland and Bolivia. While it was establishing its operations in Cochabamba, Bechtel was craftily filing papers to shift its subsidiary’s corporate registration to Holland from the Cayman Islands. 

Azurix, a former subsidiary of Enron, won a bid to run the privatized water and sewage system for 2.5 million people in parts of Buenos Aires province, Argentina in May 1999. Bahia Blanca residents complained that their water smelled and looked brown, while regulators considered sanctions against Azurix for low water pressure. After the water supply was found to be contaminated, health authorities warned people not to drink or bathe in the water. The local regulating agency forced the company to deliver free bottled water to all those affected, not to charge for a period when the water was of poor quality, and also fined Azurix for breach of contract. In October 2001, Azurix said that it would withdraw from the contract, complaining that the province would not let it charge rates according to the tariff specified in the contract and would not deliver infrastructure. The province rejected the termination notice. Then, under a 1991 U.S.-Argentina bilateral investment treaty, Azurix sued Argentina’s bankrupt government for $550 million. Azurix says that the authorities’ actions amount to interference with its investment.

In July, the French utility corporation Suez launched three cases against Argentina for alleged breaches of a France-Argentina BIT arising from three separate water concessions in Cordoba, Buenos Aires, and Santa Fe. The Spanish company Telefonica has also brought a claim against Argentina, and CMS Gas Transmission Co. is suing Argentina under the U.S.-Argentina BIT. 

Pakistan currently faces three investor-state dispute claims pending at ICSID totaling around $1 billion. The Swiss company SGS, whose board of directors includes former WTO Director-General Mike Moore, is claiming $120 million from Pakistan for premature termination of a contract to provide pre-shipment inspection services, an alleged breach of a 1996 Switzerland-Pakistan BIT. An ICSID panel met in Paris in February to consider the case but reserved its judgment. 

The Italian construction firm Impregilo, which headed the consortium to build the controversial Ghazi Barotha dam, part of a major hydroelectric project, wants $450 million. Using a Pakistan-Italy BIT, Impregilo claims Pakistan’s Water and Power Development Authority (WAPDA) breached its contractual commitments. Turkish company Bayinder filed a similar-sized claim over termination of its motorway construction contract. Like many other BITs, the definitions of “investment” and other terms in the agreements, which Pakistan signed, are very broad and afford investors ample opportunity to claim against a frighteningly wide range of actions or omissions by the government and its agencies. 

Domestic courts can be sidestepped by investors’ recourse to international arbitration panels. ICSID and UNCITRAL only allow for the investor and government parties to the dispute to have legal standing. The public has no right to listen to proceedings or view evidence or submissions. Both bodies require only minimal disclosure of the names of the parties and a brief indication of the subject matter. That makes such disputes very difficult to track, let alone mobilize around. There is little incentive for investors to settle disputes amicably given the highly favorable outcomes for corporations, which have initiated proceedings under such agreements. 

International business law firms that specialize in such cases are laughing all the way to the bank. However ICSID rules, these cases will cost millions of dollars to the targeted country. Citizens will shoulder these costs which will increase their indebtedness to international financial institutions, while compliance will be linked to future foreign aid commitments and loans.

With presidential elections looming, the Bush administration will be careful to use its bilateral strategy to advance the economic interests of U.S. service and pharmaceutical sectors while trying not to alienate domestic corporate agricultural lobbies. U.S. farm lobbies have been urging Washington not to improve market access to Australian exports of sugar, dairy, and beef by reducing tariffs through its FTA negotiations and have objected to the idea of a future U.S.-New Zealand Free Trade Agreement for similar reasons. 

The U.S. explicitly links support for the “war on terror” with willingness to negotiate trade and investment deals. While a planned FTA with a “moderate” Muslim country like Morocco offers much political capital for the U.S., U.S. corporations are open about their own capitalistic interests. The U.S.-Morocco FTA Coalition, comprising U.S. corporations and pro-free trade organizations, wants to lock in Morocco’s economic reforms and get access to Morocco’s markets, including its telecommunications, tourism, energy, entertainment, transport, financial services, and insurance sectors. It wants a tighter Moroccan intellectual property regime and better market access for U.S. agribusiness. 

In FTA negotiations with Australia, the U.S. seeks the removal of all restrictions on investment like Australia’s Foreign Investment Review Board and limits on foreign investment in airlines, media, and telecommunications. U.S. negotiators, urged on by U.S. pharmaceutical industries, want to get rid of Canberra’s Pharmaceutical Benefits Scheme, which sets price controls for many prescription medicines. U.S. drug companies want more profits from higher pricing and full market access for their products. These are some of the “rewards” for Australia’s loyal support for the U.S. war on Iraq. 

The U.S.-Chile FTA aims to add momentum to FTAA negotiations and counter growing opposition from a number of governments and social movements to the proposed hemispheric agreement. 

The Chile and Singapore FTAs with the U.S. have “NAFTA-plus” broad definitions of investment, which throw the door wide open for disgruntled investors to take a case to a dispute tribunal. Intellectual property provisions go even further than the WTO’s TRIPS (Trade-Related aspects of Intellectual Property rights) agreement, severely limiting the grounds for allowing use of compulsory licensing of medicines and effectively extending the 20-year term of drug company patent monopolies by an additional five years, threatening access to affordable medicines, not least HIV/AIDS drugs. 

Both agreements impose alarming new limits on the use of capital controls. In an April 2003 article, Indian policy analyst and researcher Kavaljit Singh argues that Chile’s controls on capital inflows have helped insulate it against financial crises. He says it “stands to reason that the probability of occurrence of a financial crisis in Chile and Singapore would increase manifold with the removal of capital controls as envisaged in the bilateral trade agreements with the U.S.” 

Even free traders have slammed this aspect of these FTAs. In a March 2003 Financial Times article, Jagdish Bhagwati and Daniel Tarullo wrote, “The intention of the Bush administration to use these two agreements as ‘templates‘ for other trade agreements, possibly including the Doha round, means that acceptance of the capital control provisions could engender a trade policy that causes far-reaching damage. The prohibition on capital controls has the makings of a U.S. foreign policy debacle. Imagine that a government imposes short-term capital controls in order to manage financial problems. Compensation will ensue, but only for American investors. The citizens of the developing country will then see a rich U.S. corporation or individual being indemnified while everyone else in the country suffers from the crisis. One would be hard-pressed to think of a better prescription for anti-American outrage.” 

Many of us were saddened and inspired by the suicide of South Korean farmer Lee Kyung Hae at Cancun, protesting the effects of the WTO on farmers. Perhaps we can also learn from the way that Korean social movements have mobilized against bilateral trade and investment agreements. They quickly identified proposed BITs with the U.S. and Japan as “MAI clones.” Recent negotiations on an FTA with Chile met strong opposition led by Korean farmers, including nationwide demonstrations and a protest camp outside the National Assembly. 

To overlook the global explosion of bilateral trade and investment agreements is to risk creating an achilles’ heel for movements against neoliberal globalization. In tandem with our struggles against the WTO and FTAA, we need to rapidly develop strategies that confront the growing web of bilateral agreements.

Aziz Choudry is an activist and writer with New Zealand-based GATT Watchdog.