ICSID and Latin America: criticisms, withdrawals and regional alternatives - América Latina en Movimiento
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2013-07-05

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ICSID and Latin America: criticisms, withdrawals and regional alternatives

Nicolas Boeglin
Clasificado en:   Internacional: Internacional, Tratados, |   Economía: Economia, InstitucionesFinancieras, |
Disponible en:   English       
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The International Centre for Settlement of Investment Disputes (ICSID) between investors and states was established in 1965 with the adoption of the Washington Convention, establishing a specific arbitration mechanism under the auspices of World Bank to resolve a very peculiar kind of disputes: the disputes between a state and a foreign investor. The decolonization process that took place in the 50s and 60s and the nationalization of many foreign companies by the new states (as well as the suspension of permits of exploration, mining an oil concessions, adoption of discriminatory legislation, among others unilateral decisions) provoked many tensions around the world, and domestic tribunals seemed at this time unable to resolve adequately the compensation claims presented by the investor. The Convention of 1965 stipulated that ICSID arbitration tribunals are constituted by three arbitrators: one designed by the claimant (the foreign investor), one by the state and that the third one (the President) by the World Bank. The Convention establishes also the procedural rulings and other formal aspects. We must note that in 1965, there are no general universal human rights instruments in force (the UN Declaration of Human Rights of 1948 is the only general text at the UN), and a few treaties on specific categories of victims or crimes; and we must recall that topics like the protection of indigenous peoples' rights, the protection of environment and the status of water resources are absent of discussions of the international community.
 
The first case before ICSID came in 1972 (Holiday Inns S.A. against Morocco) followed by 4 cases in 1974, but many “non cases” or “empty” years followed: 1973, 1975, 1979, 1980, 1985, 1988, 1990 and 1991 (1). The situation was such that “for a while it seemed as if ICSID was bound to become a dormant and a underutilized institution” (2). The spectacular increase in the number of cases before ICSID since 1996 (1997: 10 cases/year; 2011: 38 cases/year) has much to do with the effect of bilateral treaties on protection and promotion of investment (better known as BITs) signed since the 1990´s: these BITs represent 63% of the base of consent of state´s acceptance of ICSID jurisdiction (3). This percentage increases to 78% for the cases registered in 2011.
 
ICSID in the American hemisphere
 
Contrary to the perception that the ICSID mechanism has been accepted in the majority of the American hemisphere, many states of this region continue to be extremely distant from ICSID: Canada, Cuba, México and Dominican Republic have not ratified the ICSID Convention. In the case of Mexico, this attitude is rated by a Mexican author as “wise and rebellious” (4). We also have to recall that the following Caribbean states remain outside the ICSID jurisdiction: Antigua and BarbudaBelize, Dominica (Commonwealth of) and Suriname. In South America, Brazil has not approved (and not even signed) the ICSID convention and there has been no demonstration of interest shown in this matter by the now 6th world economy. Concerning Brazil, we must add that it has not ratified any BITs despite having signed many of them.
 
The case of Costa Rica’s access to the ICSID Convention is extremely illustrative: Costa Rica signed ICSID Convention in September 1981 but only ratified it 12 years later in 1993. This long period of time was due to Costa Rica’s the reluctance to accept the ICSID mechanism as long as expropriation, a case present in Santa Elena, was not resolved before national courts. The Santa Elena case deals with the expropriation ordered by Costa Rica when creating the Santa Rosa National Park in 1978: this decision gave rise to a claim by the Development Company of Santa Elena SA held by US citizens of 6,400,000 U.S. dollars to Costa Rica, the state offering an amount of 1,900.000 U.S. dollars, considering that the property had been acquired in 1970 by that company at a price of 395,000 U.S. dollars. In the absence of agreement, and after Costa Rica’s ratification in 1993 of the ICSID Convention, the company claimed on May 31, 1995 that Costa Rica pay 41 million U.S. dollars, and ICSID arbitration decided to order Costa Rica compensation payment of 16 million U.S. dollars. We read in a recent memorandum of an organization called GCAB (Global Committee of Argentina Bondholders) dated 2005, that Costa Rica's decision to ratify the ICSID Convention in 1993 resulted from direct United States pressure due to the Santa Elena expropriation case (5): "In the 1990s, following the expropriation of property owned alleged by an American investor, Costa Rica refused to submit to ICSID arbitration. The American investor invoked the Helms Amendment and delayed a $ 175 million loan from the Inter-American Development Bank to Costa Rica. Costa Rica consented to the ICSID Proceeding, and the American investor ultimately Recovered U.S. $ 16 million” (6). We must note that the Santa Elena case against Costa Rica resolved by ICSID in 2000 is the very first case against a Latin American state before ICSID.
 
Latin America and ICSID caseload
 
If we consider the first 100 cases of ICSID, Latin American countries were concerned by 25 cases (8 cases for Argentina, 7 for Mexico, 3 in Venezuela and other countries with one). But in recent years, “ICSID has witnessed a dramatic increase in the number of arbitrations where Latin American countries are respondents” (7). A clarification with numbers will help to understand better. If we consider the concluded cases to this date (May 30, 2013) for a total of 262 cases (indicated at ICSID website), Latin American countries are concerned by 81 cases (let's say 30,9% of concluded cases): Argentina 25 cases, Mexico 13, Ecuador 10, Venezuela 11, Peru 6, Costa Rica 5, Bolivia, Chile and Honduras with 2 cases each, and El Salvador, Guatemala, Panama and Paraguay with one case each. And if finally we consider current pending cases at the moment (May 30, 2013) with a total of 167 cases, the number of cases concerning Latin American States is 73, (let's say 43,7% of the total number of pending cases):  Argentina with 25 cases, Venezuela with 25, Peru 6, Ecuador and Guatemala with 3 each, Bolivia, Costa Rica and El Salvador and Paraguay with 2, Chile, Honduras, and Uruguay with one each.
 
The increasing importance of Latin American states before ICSID proceedings in recent years, and the unfavourable decisions obtained, probably explain the recent regional discussions in the attempt to find an alternative regional framework to deal with state-foreign investor disputes. These discussions not only took place in the ALBA framework (Alianza Bolivariana para los pueblos de Nuestra América) but also in UNASUR (Unión de Naciones Suramericanas) and the recently created (in December 2011) CELAC (Comunidad de Estados Latinoamericanos y Caribeños), an alternative to OAS (Organization of American States) has also included this issue in its discussions: the idea is to find a mechanism to resolve foreign investor-state disputes outside the ICSID framework (8). In the recent meeting between CELAC and the European Union celebrated in Santiago (Chile) in January 2013, the need for a new mechanism was part of the discussion of UNASUR members. However the final declaration adopted only mentions that: (point 10) We commit to maintain a supportive business environment for investors, recognising nonetheless the right of countries to regulate in order to meet their national policy objectives in accordance with their international commitments and obligations. Likewise, it is also vital that investors comply with national and international law, in particular, inter alia, on taxes, transparency, protection of the environment, social security and labour."  While discussions on a new mechanism will continue in Latin American regional organizations, some states of the region have also decided that the withdrawal from the ICSID Convention is a striking mechanism to reduce ICSID´s power.
 
Possible new withdrawal from the ICSID convention
 
Like any international treaty, the Washington Convention of 1965 is subject to denunciation by any state Party if it considers that it no longer corresponds to its interests to be part of it. In accordance with Article 71 of the ICSID Convention, the denunciation shall take effect six months after receipt of notification.
 
Bolivia was the first state to withdraw from the ICSID Convention (denunciation notified in May 2007 and effective November 2007), followed by Ecuador (denunciation notified in July 2009, effective January 2010) (9). Venezuela officially announced its withdrawal in late January 2012 which became effective in July 2012 (10). According to a draft bill dated March 21, 2012 that is pending in the Congress, Argentina (a state that accounts for 25 cases before ICSID of the 167 pending ICSID cases to date) also seems ready to incline to this option in the very next future (11). In parallel, Argentina is studying the option of another mechanism for reducing ICSID’s power, initiated by Venezuela, Ecuador and Bolivia: the formal termination or withdrawal of many BITs: Venezuela in 2008 terminated BITs with The Netherlands, used as a consent base for ICSID jurisdiction acceptance by Venezuela in 10 cases (12). The fact that the neighbour Brazil is the state with the highest volume of foreign investors in Latin America, free of ICSID mechanism and BITs, can partially explain, among many other reasons, Argentina´s current inclination.
 
As long as states, like Argentina and many others, accumulate a large amount of cases against them or obtain negative decisions before ICSID arbitrators it is possible that this list of ICSID withdrawals will increase in the Americas. This option could in the future interest countries in which the Executive Branch, despite public opinion objections and criticism made publicly, have signed one-sided concession contracts (including clauses that are clearly abusive): this unilateral act would allow them to minimize the effect of possible future demands of foreign investors and to contain – and placate - public opinion pressure. Recently, in January 2013, ICSID ruled in favour of Venezuela and against a Canadian mining company named Vanessa Ventures: this case (initiated in 2004 against Venezuela) and the ICSID decision raises many questions in Costa Rica (13). This is due to the fact that this same Canadian mining company presented a claim in Costa Rica in 2003, related to Las Crucitas project, and decided to suspend ICSID proceedings in 2005 invoking “negotiations” with Costa Rica. In November 2010 an Administrative Court suspended all permits and concessions of the Las Crucitas project and recommended that the Prosecutor Office investigate 15 officials, including President Oscar Arias (2006-2010) and his Minister of Environment, Roberto Dobles, among others. This decision was confirmed by Costa Rica´s Supreme Court in November 2011 (14)
 
Critics of ICSID
 
The ICSID mechanism has been criticised by many developing states and authors, as well as NGO and civil society leaders. The following quote gives a complete panorama of the critical aspects pointed out for a number of years: “Developing countries and some scholars began to look at ICSID critically, formulating a list of complaints such as: ICSID’s lack of financial and management structure to face its increasing workload; ICSID’s umbilical cord with the World Bank; concerns by some Latin American states that hostility toward ICSID may hamper access to World Bank credit; the pressure on developing countries to resort to assistance from extremely expensive foreign law firms; non-commercial interests, such as health or environmental protection have not received adequate attention; a lack of transparency by arbitration panels; a shadow of arbitrator bias in favor of the investor, with different ad hoc tribunals analyzing similar cases reaching disparate results; 24 the absence of an appeals process, but only a limited annulment procedure; failure to take into account situations of massive economic downturns; cracks in its system of voluntary enforcement and compliance with the award, with some foreign investors losing their faith in Argentina’s willingness to honor ICSID awards” (15).
 
Concerning civil society and NGOs, the lack of effective participation of civil society during the arbitration mechanism remains unresolved. For instance, the possibility to present amicus curiae by third parties to ICSID arbitrators is a very recent one (16): even if the 2007 ICSID decision was announced as setting “a landmark precedent by recognizing the public interest involved in this water-related investment arbitration, which will influence water concessions around the world”, recent articles indicate the lack of consistency of ICSID jurisprudence after 2007 (17).
 
The lack of sensitivity shown by the members of the ICSID tribunals in their decisions on issues relating to defense of collective interests (human rights, environment, indigenous peoples, right and access to water) has also been denounced. The image of the Salvadorian Catholic Church authorities imploring the “mercy” of ICSID arbitrators in the Pacific Rim C case (name of – another - Canadian mining company) in 2010 is still very present (18) in Central America. For other authors, States officials are placed in a very difficult situation to defend national interests due to the fact that “the State is placed in an uncomfortable position, because the government is under severe pressure to fulfill its commitments when concluding BITs in order to attract foreign investors to its territory” (author´s free translation) (19).
 
Some years ago, ICSID arbitrators have even been invited by scholars to try to "green" their decisions (20). More recently, some scholars have been claiming for “reconceptualising international investment law" from a sustainable development perspective (21): these questions constitute a real challenge for this peculiar mechanism created in the 60's in an era of nationalisation and expropriation of companies engaged in the exploitation of mineral and oil resources: a time when environmental and social consequences of extractive projects were just ignored and no consolidated rules on environmental and human rights aspects existed.
 
Last (but surely not least) a recent report presented by Trade and Investment (a European based NGO), and called “Legalised profiteering”shows how international law firms are involved in fuelling international investment disputes – “with devastating social, environmental and budgetary impacts” for States and populations” (22). This report and many other articles and documents are probably forcing decision makers to think about the necessity of re-orienting arbitration disputes. A recent case presented in May 2013 against Costa Rica at ICSID by a gas distribution company (from Switzerland), that follows another claim presented in February 2012 by a Spanish company (referring to the impossibility of upgrading tariffs of obligatory vehicle revision) show the urgent necessity for such reorientation (23). 
 
Conclusions:
 
It has to be mentioned that for the moment, the aforementioned Latin American states are the only ones in the world that have decided to withdraw from the ICSID Convention. It is also the only region in the world considering the necessity to find an alternative to the ICSID mechanism. We must recall that this same region was the only one in the 60s and 70s that strongly opposed to the creation of that very peculiar body under the World Bank: the first draft prepared on the future ICSID Convention in 1963 had been approved by the Board of Governors of the World Bank in September 1964, at the annual meeting of the World Bank in Tokyo. However, at that time, the following Latin American countries (besides Iraq and the Philippines) voted against it, in what is known in specialized literature as the "Tokyo No": Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela (24).
 
- Nicolas Boeglin is currently Professor of Public International Law, at the Law Faculty of the University of Costa Rica (UCR). Contact: nboeglin(a)gmail.com
 
 
 
Notes:
 
1: See ICSID Caseload-Statistics, Issue 2012-2, p. 7. Available at: http://icsid.worldbank.org/ICSID/FrontServlet?requestType=ICSIDDocRH&actionVal=ShowDocument&CaseLoadStatistics=True&language=English31.
 
2 : WAIBLE M & WU Y.,Are arbitrators political ?”. Paper, Bonn University. Available at: http://www.wipol.uni-bonn.de/lehrveranstaltungen-1/lawecon-workshop/archive/dateien/waibelwinter11-12
 
3:  See ICSID Caseload-Statistics, opc.cit,, p. 10. On the impressive number of BITs in the 1990, see figure 1 at: ELKINS Z, GUZMAN A & SIMMONS B.,Competing for Capital: the diffusion of Bilateral Investment Treaties: 1960-2000”, Paper, Available at: http://escholarship.org/uc/item/1hg4f4dw#page-38
 
4: See GONZALEZ DE COSSIO F.,México ante el arbitraje CIADI:¿prudente o rebelde”, Universidad Autónoma de México (UNAM). Availabe at: http://www.bibliojuridica.org/libros/6/2815/7.pdf

5:.See text of the decision of july 17th, 2000 of ICSID tribunal at: http://icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=showDoc&docId=DC539_En&caseId=C152
 
6: See GCAB (Global Committee of Argentina Bondholders), Memorandum of February 2005 “GCAB Releases Legal Memorandum Summarizing Recent Argentine Legislation and Bondholder Remedies”. Available at: http://www.prnewswire.com/news-releases/gcab-releases-legal-memorandum-summarizing-recent-argentine-legislation-and-bondholder-remedies-54081267.html
 
7: See FACH GOMEZ K., “Latin America and ICSID: David versus Goliath”, 2010, p. 1, available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1708325
 
8: See recent note in the press (Panorama, Venezuela), January 10, 2012 : UNASUR se perfila como sustituto del CIADI. Available at: http://www.panorama.com.ve/portal/app/vista/detalle_noticia.php?id=3115. See also FACH GOMEZ K., op. cit., p. 39.
 
9: See   MALIK M., La dénonciation de la Convention de Washington du 18 mars 1965 par la Bolivie et l´Equateur. Academic research, 2010. Available at: http://www.lepetitjuriste.fr/Documents/M%C3%A9moire%20D%C3%A9nonciation%20convention%20Cirdi.
.
10: See note of El Universal (Venezuela) of January 25, 2012, including the official statement made by Venezuela to ICSID, available at:http://www.eluniversal.com/economia/120125/venezuela-comunico-al-banco-mundial-su-retiro-del-ciadi
 
11: Bill of Argentina Congress dates April 21, 2012. Tex of the draft of that bill available at:
http://www1.hcdn.gov.ar/proyxml/expediente.asp?fundamentos=si&numexp=1311-D-2012

12: See FACH GOMEZ K. Op cit,p. 30
 
13: See our modest note BOEGLIN N., “El oro, el CIADI, Venezuela y Costa Rica”,  available at: http://www.crhoy.com/opinion-el-oro-el-ciadi-venezuela-y-costa-rica/
 
14: Full text of Administrative Court decision of November 2010 is available at: http://es.wikisource.org/wiki/Sentencia_del_caso_por_la_mina_Crucitas
 
15: See FACH GOMEZ K, Op.cit, pp. 2-3
 
16 : See: Suez/Vivendi case against Argentina. See “ICSID tribunal accepts civil society organizations as amici curiae”, 2007, CIEL. Available at: http://ciel.org/Trade_Sustainable_Dev/ICSID_AmicusCuriae_24Feb07.html
 
17: See MAYER P. «Les arbitrages CIRDI en matière d´eau », Société Française pour le Droit International (SFDI), Colloque d´Orléans, L´eau en droit international, Paris, Pedone, 2011, pp.162-183, at pp. 172-183.
 
18: See press article, « Arzobispo capitalino pide piedad a tribunal internacional en controversia minera”, Prensa Gráfica, August 5, 2010. Available at :http://www.laprensagrafica.com/economia/nacional/135392-arzobispo-capitalino-pide-piedad-a-tribunal-internacional-tras-controversia-minera.html.
 
19: «Le gouvernement est soumis à de fortes pressions pour respecter les engagements qu´il a pris en concluant le TBI, car il a le souci d´attirer les investisseurs étrangers su son territoire ». See MAYER P. op cit., p. 176.
 
20:: FACH GOMEZ K, “La protección del medio ambiente y el comercio internacional: ¿hay que “pensar en verde” el arbitraje de inversiones? ”, Paper, October 2008. Available at: http://mpra.ub.uni-muenchen.de/16288/1/KatiaFach.pdf
 
21: See MANN H, “Reconceptualising international investment law: its role in sustainable development”, IISD Publication Center, May 2013. Available at: http://www.iisd.org/pdf/2013/reconceptualizing_investment_law.pdf
 
22: See “Legalised profiteering? How corporate lawyers are fuelling an investment arbitration boom”,TRI, 2012. Available in English version at: http://www.tni.org/briefing/legalised-profiteering. The same report has been published in  Spanish untittled: “Cuando la injusticia es negocio. Como las firmas de abogados, árbitros y financiadores alimentan el auge del arbitraje de inversiones”. Available at: http://www.tni.org/sites/www.tni.org/files/download/cuando_la_injusticia_es_negocio-web.pdf
 
23: See press release of May 2013, “País debería cambiar normas para someterse a arbitrajes internacionales”, Semanario Universidad (Costa Rica). May 2013. Available at: http://www.semanario.ucr.ac.cr/index.php/noticias/pais/9944-pais-deberia-cambiar-normas-para-someterse-a-arbitrajes-internacionales-.html
 
24: See ICSID, History of the ICSID Convention. Documents Concerning the Origin and the Formulation of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, Washington DC, ICSID, vol. II-1, pp.606-608. See also FACH GOMEZ K., “Latin America and ICSID: David versus Goliath”, p. 2, available at: http://aragosaurus.academia.edu/katiafachgomez/Papers/858321/Latin_America_and_ICSID_David_versus_Goliath. See also English studies using “No-de-Tokyo” Spanish expression: for instance, VINCENTELLI I.A., “The uncertain future of ICSID in Latin America”, December 2009, Available at: http://works.bepress.com/cgi/viewcontent.cgi?article=1000&context=ignacio_vincentelli

 



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