When 21 Countries Opposed World Bank Plans for an Investor-State Dispute Institution
Fifty years ago this fall, at the 1964 World Bank annual meeting in Tokyo, 21 developing-country governments voted “no” on the convention to set up a new part of the World Bank Group where foreign corporations could sue governments and bypass domestic courts. It was to be called the International Centre for Settlement of Investment Disputes (ICSID). The 21 included all of the 19 Latin American countries attending as well as the Philippines and Iraq.[1]
The historic vote was dubbed El No de Tokyo, or the Tokyo No.[2] It could well be the largest collective vote against a World Bank initiative ever. And perhaps the one time that all Latin American representatives voted “no.”
So I write in part to toast that Tokyo No on its fiftieth anniversary. But I also write because it is time to recognize that the 1964 “no” vote has been vindicated by history.
What were the 21 voting no to? Rather than paraphrase, let me turn to the then-representative of Chile, Félix Ruiz, speaking on behalf of the Latin American countries voting no:
The legal and constitutional systems of all the Latin American countries that are members of the Bank offer the foreign investor at the present time the same rights and protection as their own nationals; they prohibit confiscation and discrimination and require that any expropriation on justifiable grounds of public interest shall be accompanied by fair compensation fixed, in the final resort, by the law courts.
The new system that has been suggested would give the foreign investor, by virtue of the fact that he is a foreigner, the right to sue a sovereign state outside its national territory, dispensing with the courts of law. This provision is contrary to the accepted legal principles of our countries and, de facto, would confer a privilege on the foreign investor, placing the nationals of the country concerned in a position of inferiority.[3]
In short, the new investor-state dispute settlement system was both unnecessary and unfair.
The ICSID treaty went forward, despite the “no” votes. For the record, Brazil never joined, and in fact has never agreed to investor-state dispute settlement in any venue.
Those who follow the World Trade Organization and its dispute resolution mechanism might note the irony: A fundamental rule of today’s neoliberal push towards “ultra-globalization,” as embedded in the WTO, is that a country’s rules must treat foreign and domestic investors the same. The irony is, of course, that ICSID’s existence seems to suggest that such ultra-globalization proponents do not find it problematic to have foreign investors privileged over domestic investors.
The Tokyo No criticisms were prescient in terms of the track record of ICSID in the ensuing decades. ICSID moved center-stage in the wake of the neoliberal bilateral and multilateral trade and investment agreements that expanded starting in the 1980s. Forty years after ICSID’s first case was filed in 1972, 48 new cases were added to ICSID’s docket in 2012.
And, as the number of cases being brought before ICSID has ballooned, so too have the criticisms—mainly by sovereign states but increasingly by trade lawyers. The arguments are that ICSID rulings are: 1) increasingly biased in favor of investors over the state (sound familiar?), and 2) too narrow in their focus on “commercial” rights (that is, the private foreign investor) over broader “non-commercial” issues. Should not a government, for example, have the right to protect a key watershed from the environmental ravages of gold-mining? Indeed, shouldn’t such a government be rewarded rather than sued at ICSID?[4] And, why should the investor—as a non-state actor—get to sue the government, while other presumably key non-state actors such as the affected communities are not even allowed to listen to ICSID’s often secret hearings, never mind participate equally? (OK: communities can submit amicus briefs—if they find a lawyer willing to write one on their behalf. But there is not even any assurance that such briefs will be read by the World Bank-certified tribunalists who preside over any given case.)
Prominent trade lawyer George Kahale III made waves recently by publicly declaring that ICSID tribunals, before which he had argued cases, were increasingly biased in favor of the foreign investors. And, since ICSID does not build its cases on legal precedents nor allow for appeals based on judicial reviews, there was no way to correct such rulings.
Indeed, as ICSID’s case-load was expanded, the verbal criticism has been matched with action. Bolivia, Ecuador, and Venezuela—all part of the original Tokyo No—have left ICSID. South Africa is establishing a new investment law that allows foreign corporations to bring such claims only to domestic courts. India is conducting a review of its treaties in the face of several corporate lawsuits, and Indonesia has announced its intent not to renew its bilateral investment treaties. Australia declined to include these corporate rights in the 2005 Australia-U.S. Free Trade Agreement. Recently leaked documents suggest that several of these governments are attempting to at least scale back investors’ rights (and, thus, the power of ICSID) in the Trans-Pacific Partnership (TPP) trade deal. So too are countries in the European Union—and notably France and Germany—voicing concerns about investor-state provisions.
But, wait: won’t the global economy fall apart without such investor rights and its key venue ICSID? Won’t foreign investment dry up? Well, actually, no. Case in point is Brazil, a leading host to foreign investment but, again, a country that has never accepted investor-state dispute settlement. To make a more general point: Foreign investors, if they believe they are making a risky investment, should simply rely on foreign risk insurance. And, like domestic investors, they have recourse to the relevant domestic courts in a given country.
There is increasing urgency to say “no” to ICSID. If the Trans Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) are approved as President Obama hopes, ICSID’s case-load will mushroom further, thanks to the investor-state dispute settlement clauses currently in both drafts. And we can expect even more action in terms of investors’ propensity to sue governments not just for “direct taking” via expropriation (the original purpose of ICSID), but also for “indirect taking” via environmental, social, and other regulations that might just impinge on a foreign investor’s future ability to make profits by pillaging said resources.
So, a shout-out to those governments of the 21 countries who so rightly said “no” in Tokyo fifty years ago. Let’s celebrate the 50th anniversary by urging current member governments to withdraw from this forum that undermines democracy, fairness, and the broader common good.
To borrow a slogan that seems apropos: Fifty years is enough.
[1] There were 21 votes against ratifying the ICSID convention, including the 19 Latin American World Bank member countries. The countries voting no were: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Iraq, Mexico, Nicaragua, Panama, Paraguay, Peru, Philippines, Uruguay, and Venezuela. Source: Antonio R. Parra, The History of ICSID (Oxford: Oxford University Press, 2012), pp. 66-67. <DOI: 10.1093/acprof:oso/9780199660568.001.0001>
[2] See Andreas F. Lowenfeld “The ICSID Convention: Origins and Transformation” Georgia Journal of International and Comparative Law, (2009) 38, pp.47-62; and Fiezzoni, Silvia “The Challenge of UNASUR Member Countries to Replace ICSID Arbitration,” Beijing Law Review, (2011) 2, pp. 134-144.
[3] Excerpt from statement of Felix Ruiz, Governor for Chile, September 9, 1964, in Tokyo, quoted in: Parra, Antonio R. The History of ICSID, Oxford: Oxford University Press, 2012, p.67. <DOI: 10.1093/acprof:oso/9780199660568.001.0001>. See page 66-68 for more on the history.
[4] This is not a hypothetical example. See documents related to ICSID case of Pac Rim Cayman Islands v Republic of El Salvador, which has now cost the government of El Salvador over $12 million for the ICSID law suit alone.
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This is a great article and it needs to be translated to Spanish urgently to be read all over Latin America and help the region to break from this perverse system. I’d like to share here an oped I recently wrote on the New York Times on the subject of ISDS and its negative repercussions in countries like El Salvador, trying to protect its environment from destructive gold mining practices.
http://www.nytimes.com/2014/12/04/opinion/when-corporations-sue-governments.html?_r=0
Still an important article. In addition to translating it into Spanish, as Manuel suggested, I’d add translating it into French, especially for the benefit of francophone Africa, and francophone island states.