Foreign Investors Gone Wild
Foreign Investors Gone Wild
When Bolivian President Evo Morales took office in January 2006, he pledged to follow through on his campaign pledge to increase Bolivians' share of revenues from their major source of foreign income, natural gas. International gas companies, however, threatened to sue. Previous Bolivian governments had signed a flurry of bilateral investment treaties that gave foreign investors the right to bypass domestic courts and file such lawsuits through international tribunals. Morales complained that these rules made him feel like a "prisoner" in the presidential palace.
The Bolivian president's predicament is a common one for political leaders around the world. They are caught in an interlocking web of rules and institutions that promote and protect foreign investment -- with little regard for the costs to democracy, the environment, or the public welfare. These increasingly controversial investor protections have become the "get out of jail free" card for corporations in the global economy. They are promoted by the World Bank and other international financial institutions, codified by bilateral investment treaties and free trade agreements, and enforced through the World Bank's arbitration court and other international tribunals.
Countries are pushing back against these investor protections. They might be able to find common cause with some in the U.S. Congress. But the deep pockets of the corporations and the rigged rules of the global economy pose significant obstacles.
Investors Ãœber Alles
Armed with unprecedented legal powers, foreign investors have literally gone wild. They can sue over alleged violations of a long list of protections. The most controversial guard against government actions, including environmental and public health laws, that diminish the value of their investment. While international arbitration judges cannot force a country to change its laws, they can award massive damages to the investor. And that threat alone can have a chilling effect. A
In the Bolivian gas case, the Morales government dismissed the threats and managed to renegotiate contracts with all the foreign investors, substantially increasing the governments' revenues. Other leaders have not been so fortunate. In nearby
Ecuador is facing a $1 billion suit by Occidental Petroleum, a company widely reviled in that country for alleged human rights and environmental abuses, including using child labor to clean toxic materials, failing to repair pipeline leakages, and operating in protected indigenous lands without authorization.
Occidental's critics cheered when the Ecuadorian government gave Occidental the boot in 2006, charging that it had violated its contract by transferring a share of production to another foreign firm. The Bush administration immediately suspended trade negotiations with
In another case with disturbing human rights implications, Italian investors are targeting post-apartheid affirmative action policies in
Currently, there are more than 100 cases pending before the World Bank's International Centre for Settlement of Investment Disputes (ICSID), which decides most investor-state disputes. More than 90% have been against developing countries. Meanwhile, these rules are not delivering increased foreign investment.
Rich Countries Not Immune
In another case affecting indigenous rights, the
However, over the past 14 years U.S. trade officials have managed to insert excessive investor protections in trade agreements with 14 countries and in pending deals with four additional nations (as of May 1, 2007). The only exception is a 2004 U.S.-Australian deal. That country's negotiators refused to accept investor-state dispute settlement. Worldwide, these rules have proliferated through more than 2,500 bilateral investment treaties.
On April 29, 2007, the leaders of
This surprise announcement will not be enough, legally, to release the three Latin American countries from the interlocking web of rules and institutions designed to shield foreign investors. Bilateral investment treaties signed by Bolivia and Venezuela would still be in force, and getting out of them could take years. Nicaragua would still be bound by the investment rules of the Central American Free Trade Agreement. And ICSID is the dominant but not the only enforcement option. Foreign investors could instead demand that their cases be heard under similar United Nations arbitration rules.
Nevertheless, this announcement was tremendously significant on a political level and may empower other countries to challenge these excessive investor protections. Argentina and Ecuador are likely allies. Argentine Minister of Justice Horacio Rosatti has said, "ICSID does not have authority over the economic measures taken by a country during a crisis." Ecuadorian President Rafael Correa has vowed to fight the Occidental Petroleum suit, stating that "Ecuador has not accepted and will not accept arbitration in ICSID or any other body."
Replacing the current international investment rules with more just and equitable ones will require cooperation between North and South. In the United States, Democratic congressional leaders are considering new approaches to trade policy but have yet to call for an end to investor-state powers. They should begin a dialogue with governments that have been hardest hit by these excessive investor protections and learn from their experiences. Together, they could craft new rules that would allow governments to ensure that foreign investment supports the public interest - rather than being ruled by the corporate bottom line. Foreign investors have had their fun. It's time to get them to act like responsible global citizens.