Bolivia terminates bilateral investment treaty with U.S.

By Stewart Trew.. May 24th.   On May 23, the United States government posted this simple message to its Federal Register:

The Government of Bolivia has delivered to the United States a notice of termination for the bilateral investment treaty between the two countries, a termination that will take effect on June 10, 2012. As of June 10, 2012, the treaty will cease to have effect except that it will continue to apply for another 10 years to covered investments existing at the time of termination (June 10, 2012).

A 2007 report by the Institute for Policy Studies and Food and Water Watch on the corporate investor-state dispute regime commented on Bolivian President Evo Morales’ attitude towards these treaties:

When Bolivian President Evo Morales took office in January 2006, international gas companies made it clear they were considering suing his government if he followed through on campaign promises to increase the Bolivians’ share of revenues from this natural resource. Previous Bolivian governments had signed a flurry of bilateral investment treaties that gave foreign investors the right to file such lawsuits through international tribunals. In April 2006, Morales said these types of rules made him feel like a “prisoner” in the Presidential palace.

His predicament was a common one for political leaders around the world who are caught in an inter locking web of rules and institutions committed to promoting and protecting foreign investment - with little regard for the costs to democracy, the environment, and the public welfare. In the Bolivian gas case, the Morales government dismissed the threats and managed to renegotiate contracts with all of the foreign investors, substantially increasing the government’s revenues.

Other governments, notably Argentina and Ecuador, says the IPS-FWW report, have faced “crippling investor lawsuits.” Argentina has seen more than any other country with many of the cases related to measures the country took after 2002 to “alleviate the pain of the country’s financial meltdown on average citizens.”

The Bolivian notice of termination of its BIT with the United States comes only weeks after it nationalized the assets of Spanish-owned power transmission company Red Electrica, the latest in a long string of nationalizations since taking office. Red Electrica owned 85 per cent of the Bolivian power grid. Morales’ move on the company came on the heels of Argentina’s expropriation of Spanish firm Repsol’s share in the Argentine energy company YPF.

Commenting on the Bolivian nationalization, a U.S. State Department representative said, “These actions against foreign investors really dampen the investment climate in Bolivia, in Argentina, in wherever. So that’s our concern.” Bolivia and Red Electrica are in talks about appropriate compensation, which has investment lawyers wondering if Morales will end up attracting an investor-state dispute after all.

Matthew Parish, a partner at international law firm Holman Fenwick Willan, told the Financial Times, “I find it highly unlikely that Bolivia will offer the prompt, adequate and effective compensation for the expropriation . . . The real war over Latin American nationalisations will be fought amidst the hallways of arbitral tribunals created by bilateral investment treaties.”

Canadians can appreciate what “adequate and effective compensation” can mean under these extreme investment treaties after the Harper government settled with AbitibiBowater for $130 million — an amount that included the company’s stated rights to timber and water taking permits which, under the constitution, it is not entitled to own. The Canadian settlement said nothing of AbitibiBowater’s responsibility to pay for environmental remediation of its polluted pulp and paper mill, and it dumped the cost of severance packages for laid off workers on the Newfoundland government.

Unlike Red Electrica (so far), Repsol did not waste any time taking Argentina before the World Bank’s International Center for Settlement of Investment Disputes (ICSID), demanding $18 billion in compensation under a Treaty for Investment Promotion and Protection between the Latin American country and Spain.

“The Spanish government and European Union officials have said they will take measures against Argentina over the expropriation. Analysts say their options are limited, not least since Argentina has ignored past ICSID fines,” reports Reuters. “Also, Argentina is shut out of world debt markets, making it harder to bring international pressure to bear on it.”

Bolivia removed itself from the ICSID Convention in May 2007, followed by Ecuador in 2009. Venezuela announced its intention to leave the convention in January this year. The move is somewhat symbolic, because investors can under most bilateral investment treaties take disputes to ad hoc arbitration under UNCITRAL rules, and sometimes to the International Chamber of Commerce or other courts. But the repudiation of the investor-state regime by these countries, as well as Australia and India, is a trend that cannot be denied, and it’s firmly linked to the impact of decisions on public policy.

“Since January, multinational corporations have been waging an assault on Indian government policy,” reported Indian Express in April this year. “The UK telecommunications company Vodafone announced plans to take various international and domestic measures, arguing that the Indian government violated its investment pledge by changing its tax policy. Norway’s Telenor and Russia’s Sistema also launched legal battles, and India’s state-run Coal India Limited recently lost an international arbitration case to an Australian company.”

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