Fundación Solón Blog :: BITS with a bite

A few years ago at the time of the British government signing the UN charter for human rights, there were lots of conservative commentators on TV warning that the UK would soon become a country with a dangerous “litigation culture.”

“In America people are suing because they spilt their coffee and it was too hot,” they warned darkly. “We can’t afford to have that here. It would make it impossible for companies to operate.”

The reality is that the litigation culture is not taking place in the States. It is taking place in the South. It is not being taken against companies by individuals but by companies against elected governments. And people’s human rights to clean water, food, and sovereignty over their own resources are being undermined as a result.

Suing Bolivia

The last month has seen several multinational companies threatening to take Bolivia to international court for breach of contract.

First the French multinational and privatized water utility Suez said it was initiating a legal process against the Bolivian government saying it had taken a “series of unilateral actions and terminated the contract which has a highly negative impact on Suez and its investments.”

Then it was the turn of the multinational petrol and gas companies who said last week that they would initiate legal negotiations against the “expropriating” actions of the Bolivian Government with a view to seeking international arbitration if their concerns were not met.

Both Suez and the energy companies said that their actions were justified as the Bolivian Government’s actions undermined commitments made in Bilateral Investment Treaties (otherwise known as BITs).

What are BITs?

Although there has been much opposition to multilateral trade and investment agreements by civil society, BITs have largely avoided similar scrutiny, despite the fact that they are far more widespread and contain essentially the same components. So what are BITS and how do they affect people in Bolivia?

Bilateral Investment Treaties are agreements signed between two countries with the aim of enhancing and securing foreign investment between two countries. According to the United Nations Conference on Trade and Development (UNCTAD) reports, BITs constitute "the most important protection of international foreign investment" to date.

Charters for exploitation

BITs are supposedly about encouraging investment between two countries by providing a legal framework which gives security and protection to foreign investors. In reality it is a charter for exploitation by multinational companies. In the last few years as multilateral trade talks have slowed down and stalled, BITS have multiplied. There are currently over 1100 Bilateral Investment Treaties in force, 18 within Bolivia.

The British-Bolivia Bilateral Investment Treaty signed at the height of Thatcherism in 1988 is one of Bolivia’s first BITs and is typical of many.

The treaty says that each country has to offer equal protection and support to multinationals as it offers to national companies. It allows for free and uncontrolled repatriation of profits, and forbids nationalization or actions similar to expropriation “except for a public purpose or social benefit” and tied to “adequate compensation.”

Company rights, not responsibilities

Nowhere in the treaty does it talk of companies’ responsibility to work in a fair, equitable and environmentally sustainable way. It is all about company rights and not their responsibilities. Of course the treaty talks of giving equal rights to nationals and companies of both States in terms of investment, but there are not any Bolivian multinationals who can take advantage of this equality in rights of exploitation.

The treaty’s premise as it is outlined in the first few words is that the treaty will “create favourable conditions for greater investment” recognizing that “reciprocal protection…will increase prosperity in both States.” Bolivians, of whom two thirds still live under the poverty line, can certainly testify that 20 years of an economy open to investment has not increased prosperity.

The reality of liberalisation has seen the oil and gas companies receiving some of the highest profits in the region for the exploitation of gas. Meanwhile, Suez, the water company despite promising large investment mainly received money from the international aid community while forcing up prices of connections to water to up to nine times the average salary.

Yet when popular resistance has demanded and forced changes to national laws that have prioritised multinational profits against the interests of local people, both Suez and the gas companies have been able to appeal to various Bilateral Investment Treaties for protection.

Given rising opposition to free trade policies in Latin America, it is not surprising that there have been a growing number of cases filed against Latin American governments by multinational companies. The World Bank lists 35 cases that are currently being taken against Argentina alone by a whole range of multinational energy companies, basic service providers and telecommunications companies. Of the 92 current pending cases, none have been filed against western nations.

Regulation of companies is vital for development

There is growing awareness that greater regulation of multinational companies and foreign capital is vital to ensuring sustainable and equitable development. As the UK Government-backed Africa Commission argued clearly “forcing poor countries to liberalise through trade agreements is the wrong approach to achieving growth and poverty reduction in Africa, and elsewhere.” [my emphasis]

However with the existence of Bilateral Investment Agreements, it is very difficult to reverse the process of liberalization. Through secretive and binding disputes mechanisms in these agreements, foreign investors are able to challenge any government law, measure, omission or policy which they claim adversely affects their investment.

For example, although Bolivia’s new hydrocarbons law does not nationalize the gas industry, its small attempts to assert greater government control of the country’s natural resources have already been called actions “similar to expropriation” by the multinational energy companies. They have used the threat of legal action to demand changes to the law.

Legal process favours companies over governments

Unfortunately, the legal process is almost certain to benefit the multinational companies. Most BITS talk about a 6 month window for an amicable settlement before cases are taken to the International Centre for Settlement of Investment disputes (ICISD). The ICSID is described on its website as “an autonomous international organization” but it is funded by the World Bank, has World Bank members sitting on its council and is often based at the World Bank.

In practice, their decisions invariably favour the multinational complainant, although it is impossible to analyse their judgements as the proceedings are kept private and confidential.

In the case of Suez and their threat to sue the Bolivian government, the accusation of institutional bias will be even greater as World Bank will actually be a party to the complaint as it is an associate of the privatized water utility Aguas del Illimani through its private sector-lending arm, the International Finance Corporation (IFC), which purchased 8% of its shares in 2001. In the words of Carlos Crespo the World Bank is now in a position to act as "judge and jury" in the forthcoming lawsuit.

Moreover, as Susan Spronk argues in her analysis of the case on Znet, Suez has other advantages in its legal campaign against Bolivia given its healthy financial position which will enable it to afford expensive lawyers and its growing expertise in suing developing country governments. It has 3 cases against Argentina alone.

Resistance needs solidarity

However that does not mean there are no possibilities for resisting the relentless trend towards multinational control of developing country economies. Because one advantage of legal action is that it exposes the multinational players who are putting pressure on impoverished countries to increase their profits. That gives an opportunity for international actors to express solidarity and back communities as they seek to reassert control over their resources.

In November 2001, Bechtel, the privatized US water company that had been kicked out of Cochabamba by a popular uprising, filed a demand of $25 million against Bolivia at the ICISD. A global campaign forced Bechtel to back down. International solidarity had scored a victory in support of the Bolivian people. As Bolivians struggle to regain control over its rich reserves of gas and as they assert the fundamental right to water, we in the West have a vital role to ensure that they win again.