Members of the International Centre for Settlement of Investment Disputes (ICSID) gather to discuss arbitration rules. Photo: Bilaterials.org
By Sergio Ferrari – Sep 7, 2022
In the last 30 years, the pressure of foreign investors against Latin American states has been increasing day by day, and the number of lawsuits for “non-compliance” on their part has multiplied. Up from six known cases in 1996, there are now 1,190.
Throughout that period, these countries were condemned to pay $33.6 billion, which thus vanished from the public coffers. According to the Transnational Institute (TNI) based in Amsterdam in the Netherlands, this figure represents a third more than the losses due to the impact of climate catastrophes on the continent between 1970 and 2021.
According to the recent report prepared by Bettina Müller and Luciana Ghiotto from the TNI research team, which was published in the last week of August and contains data updated in December 31, 2021, Argentina, Venezuela, Mexico, Peru and Ecuador, with 211 lawsuits filed by multinational companies, are the countries that have endured the greatest legal pressure over the last three decades.
Neoliberal instrument of dependency
Bilateral Investment Treaties (BITs) are the instruments that allow these claims to be processed. They are agreements between two countries that aim to protect the legal security of investors.
As explained by the Spanish organization Ecologistas en Acción, BITs usually include a series of standard provisions that are always favorable to transnational corporations and that prevent, for example, direct or indirect expropriation of companies. They rarely include references to human rights.
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Undoubtedly the most pernicious provision is the Investor-State Dispute Settlement (ISDS). If a company claims that a state has not complied with some clause of an agreement, the company can evade the justice system of that country and bring the case before international tribunals.
These instances to which large companies usually resort are presented to the International Centre for Settlement of Investment Disputes (ICSID), which is the most requested; the International Court of Arbitration of the International Chamber of Commerce; or the United Nations Commission on International Trade Law (UNCITRAL). These organizations can award compensation in favor of the affected investors, which in most cases include lost profits, i.e., the profits that the investor calculates it has lost due to any of the measures taken by the defendant country and which the plaintiff considers harmful to its interests.
These agreements, described by the Spanish environmental organization as “a fundamental tool for neoliberal globalization,” benefit from three elements that make up their very essence: the extremely vague wording of most of these legal instruments which makes it possible to prosecute a state for almost any reason; the opaque and not at all transparent methods used to resolve the processes that will ultimately be decided by international arbitrators; and finally, as Ecologistas en Acción points out, “the unidirectionality and exclusivity of ISDS,” referring to how investors can denounce states but do not accept the reverse situation, i.e. when investor breach any part of the agreement (or when they violate human rights).
The ISDS Impacts website, which takes up TNI’s research, explains that “the Investor-State Dispute Settlement system is included in thousands of international treaties.” It is the mechanism that allows foreign investors to sue governments before international tribunals if they consider that changes introduced by them in public policies—even those designed to protect the environment or public health—affect their profits.
Transnational corporations, birds of prey
According to the TNI report, in the last 30 years, the 327 lawsuits against Latin American and Caribbean states represent a quarter of the total number of accusations filed by multinationals worldwide. On the continent, the vast majority (86.8% of cases) were brought by US, Canadian, and European investors. Among the Europeans, the investors were mainly from Spain, the Netherlands, Great Britain, and France. Three out of four claims were brought before ICSID, which is one of the five organizations of the World Bank Group. The results speak for themselves: companies have won against the states in 62% of the cases resolved, either by obtaining a favorable award or by benefiting from an agreement between the parties.
Of the 42 countries in Latin America and the Caribbean, 23 have already experienced the rigor of the international arbitration system. Particular viciousness is expressed against Argentina (62 claims), Venezuela (55), Mexico (38), Peru (31), and Ecuador (25). This mechanism of prosecuting the states of the continent intensified in particular between 2011 and 2021, a period in which the number of lawsuits increased from 91 to 180, doubling the total number of lawsuits. These lawsuits mostly concern multinationals operating in the mining and oil and gas extraction sectors, but they also significantly affect companies that profit from gas and electricity, as well as manufacturing.
Argentina, which has lost 87% of its lawsuits, is the country on the continent that has suffered the most defeats before such tribunals. And it holds the record for the highest amount paid in a single case: $5 billion was transferred to the Spanish company Repsol in an agreement between the parties. The lost lawsuits cost the South American country $9.2 billion, money that it had to pay to the investors.
Venezuela, the second most sanctioned nation in the continent by international tribunals, has 64% of the claims against it end with unfavorable decisions. It has to its credit the most expensive award in the continent. In 2019, the ICSID Tribunal ordered it to pay $8.36 billion to the transnational Conoco Phillips.
In concrete monetary terms, states almost always turn out to be the big losers, notes the Transnational Institute in its recent report. “Lawsuits cost them millions of dollars in defense and litigation costs.” Even in cases where arbitration tribunals rule in favor of the states, it is normal for them to have to spend millions of dollars to hire law firms for their defense, which can charge up to $1,000 per hour of service. An emblematic case is that of Ecuador, which up to 2013 had spent $155 million to guarantee its legal defense and to pay arbitration expenses.
The sums claimed by the companies since 1996—according to the detailed report of the NGO based in Amsterdam—amount to $240.7 billion. However, in 68 of the 327 lawsuits the amounts demanded are not known, so actual figure is significantly higher. The courts have so far ordered Latin American nations to pay $33.6 billion.
According to United Nations calculations, with that money, the issue of extreme poverty in 16 of the continent’s nations could be solved. “In turn, this amount represents more than the external debt of El Salvador, Nicaragua, and Belize together (2020 values) and represents a third more than the total losses that the region endured between 1971 and 2021 due to climatic catastrophes,” explains TNI.
As for the pending claims (it is only known what the companies are claiming in 44 of the 96 open cases), this could mean additional losses of $49.6 billion for Latin America and the Caribbean.
A reality as forceful as it is dramatic of unequal combat institutionalized as the only and universal truth. It is as if in the ring, two actors (a boxer and the referee) were fighting, together, against the other boxer, beaten by the blows he receives from four hands.
Sergio Ferrari Argentine is a journalist based in Switzerland. He is a contributor to the Swiss newspaper Le Courrier and various European media. He is a correspondent from the UN / Geneva for Latin American media. He is the author and co-author of several books, including “On the Other Side of the Peephole” and “Ni fous, ni morts”.
(Resumen Latinoamericano – English)
