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Ambassador Rubens Ricupero knows something about globalisation. In one of his last public acts before leaving the UNCTAD, Ricupero warned poor country governments that they should think twice before liberalising their economies, since "to embark on liberalisation is like joining the Mafia. If you later regret it, you cannot get out by sending a resignation letter" – he said. This is the situation currently faced by Bolivian president Evo Morales, who last May 1 sent a withdrawal letter to one of the most dangerous and less known globalisation bodies – the International Centre for Settlement of Investment Disputes (ICSID).

Ambassador Rubens Ricupero knows something about globalisation. In fact, he was among those who forged it, though not always enthusiastically – it should be said – from his position as head of the United Nations Conference on Trade and Development (UNCTAD), as Brazilian negotiator before the World Trade Organisation (WTO) and as Brazil’s Economy Minister and influential canvasser for Fernando Henrique Cardoso when the latter resigned as Economy Minister in order to run for president.

In one of his last public acts before leaving the UNCTAD, Ricupero warned poor country governments that they should think twice before liberalising their economies, since “to embark on liberalisation is like joining the Mafia. If you later regret it, you cannot get out by sending a resignation letter” – he said.

This is the situation currently faced by Bolivian president Evo Morales, who last May 1 sent a withdrawal letter to one of the most dangerous and less known globalisation bodies – the International Centre for Settlement of Investment Disputes (ICSID). Nicaragua and Venezuela would be willing to follow his steps and Ecuador is quite sympathetic with the idea.

There are lots of reasons to be willing to withdraw from ICSID. Under the harmless name of “settlement of disputes”, ICSID is in fact an international court of justice that deals with investment matters. ICSID – created in 1966 by the World Bank – was a mechanism that provided arbitration in disputes between governments and foreign investors provided that both parties agreed to resort to it. And most of the times, disputes ended in negotiated solutions before the final ruling was issued. However, once the NAFTA (trade and investment agreement among the United States, Mexico and Canada) was implemented and bilateral investment treaties started to proliferate during the 1990s in the past century, ICSID became no longer an option to arbitrate disputes and turned into a compulsory legal mechanism to which present and future foreign investors could resort in case they felt ill-treated by a government.

Since its inception forty years ago, 255 registered cases have been filed with ICSID (there are cases said to be so secret that they are not even registered… but it is impossible to know their number). Of them, two-thirds have been filed in the last four years. A true avalanche, whose main target are Latin American countries, and particularly Argentina.

Previously, international law only governed litigation between States, as in the International Court of Justice in The Hague. The WTO only admits States as parties to its arbitration cases. Although a company or groups of companies must convince its government before filing a complaint against another country at the WTO, it may sue the host country direcly before the ICSID, thus bypassing the local courts.

However, not all investors are entitled to this. If a government measure affects both a local and a foreign company, the local one must content itself with the local courts while the foreign one resorts to ICSID, which has little to do with justice: its deliberations are secret and its rulings can only be appealed before the same ICSID, currently chaired by Paul Wolfowitz and Secretary-General Ana Palacio, former Minister of Foreign Affairs under José María Aznar and political friend of Wolfowitz at the time the latter engineered the invasion of Iraq.

But, how come? – the informed reader shall ask. Were not investment agreements supposed to ensure “national treatment” to foreign investors? Well, in fact, “national treatment” in the curious legal-political jargon of globalisation can be translated as the obligation not to provide foreign investors with “worse treatment than national investors”. Nothing prevents foreigners from being treated better than locals (rather, it is an obligation).

Transnational companies are so much better treated by ICSID that 70 per cent of cases – according to a report recently published by the Institute for Policy Studies – have had rulings or settlements in favour of them. In some cases the mere threat to file a claim against the government of a poor country before ICSID is enough to obtain compensations from it. And that is the least that could happen given the fact that 19 per cent of the cases have been brought against countries with an annual per capita income of less than US$700. To defend themselves, these governments must hire specialised law firms where each lawyer will charge them US$800 per hour… and lawsuits could take years to be resolved! On the other hand, less than 2 per cent of cases have been brought against G-8 member countries (the world’s most powerful countries).

If anyone notices – as is the case with Bolivia – that the membership of ICSID is contrary to the constitutional principle of equality before the law, it is not enough “to denounce” (the translation into diplomatic language of “to withdraw from”) the treaty. The next day following Evo Morales’ withdrawal from ICSID, Telecom-Italy filed a case against Bolivia. Not only is Telecom safeguarded by a six-month term before Bolivia is eliminated from the list of ICSID members, but even without being a member, Bolivia can be sued by each one of the twenty-four bilateral investment treaties signed by previous governments. Evo Morales will have to renegotiate them all if he wants to withdraw from ICSID. Notwithstanding its Italian origin, Telecom chose to sue Bolivia under the Dutch-Bolivian investment treaty, which is tougher than the one protecting Italian companies.

The country most threatened by ICSID is none of the three resigning their membership but Argentina, against which 32 of the 109 pending claims have been filed, amounting to an estimated total of over US$15 billion. Almost all these claims resulted from the 2002 devaluation when the fixed peso-dollar parity was brought to an end and all public and private contracts with payments stipulated in US dollars were compulsively converted to pesos. The fees for telephone, water, electricity, gas and mail services are currently at stake, since most claims were filed by the buyers of public utilities privatised under Carlos Menem. The Argentine tactics so far have consisted in delaying lawsuits, negotiating directly with claimants…and maintaining the Rosatti doctrine (stated by the former Minister of Justice) as “plan B”. According to this doctrine a ruling against Argentina would be rendered unconstitutional in case it triggered an unpayable avalanche of compensations.

Although it is going to be years before Bolivia can renegotiate its 14 investment treaties, things are not going to be easier for Nicaragua, since ICSID is included among the terms of the free trade agreement between Central America and the United States. There is a tangle of 2,500 bilateral investment treaties worldwide. United States has 40 of which 14 include the possibility of disputes between States and companies. It is not true that all US recent treaties include this as a sine qua non condition: Australia, which has a conservative and US-allied government, resisted this provision and got away with it. Nor is is true that this type of provisions are essential to attract investors. Researchers at Tufts University have just concluded, after careful study, that bilateral investment treaties have not resulted in increased investments. Indeed, the country US investors prefer within the region is Brazil, which has not signed any treaty.

This article was published on May 17, 2007 in Agenda Global, a weekly supplement issued every Thursday with the newspaper La Diaria (Montevideo, Uruguay).

Related Information:

* A new assertiveness for Latin American governments, by Mark Weisbrot (CEPR)

* The Bilateral Investment Treaties and the cases at ICSD: The Argentine experience at the beginning of the XXI century - (pdf format)

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