By Aziz Choudry
December 2003
We cannot afford to bask in the failure of the World Trade Organization (WTO) talks at Cancun . With echoes of Bush's either with us or against us dualism, US Trade Representative Robert Zoellick divided the 146 WTO member governments at Cancun into can-do and won't do camps, announcing that the US would push ahead with free trade and investment agreements with can-do countries on a subregional or bilateral basis. This and the European Union's (EU) post-Cancun statements that it may restart a program of bilateral trade negotiations - should highlight the urgent need to integrate opposing and exposing the fast-expanding and bewildering web of bilateral trade and investment agreements into the work of global justice movements.
Attempts by delegations from the industrialized countries which dominate the WTO to kickstart negotiations on the Singapore issues new agreements on investment, government procurement, competition policy and trade facilitation failed at Cancun . But bilateral agreements are already constructing, in patchwork fashion, what Northern governments and their corporations have not been able to impose through multilateral negotiations on trade and investment.
Indeed since the demise of the Multilateral Agreement on Investment (MAI) the proposed radical OECD investment agreement and the failure of the Seattle WTO ministerial to launch a new comprehensive round of global trade negotiations - there has been a proliferation of negotiations on bilateral trade and/or investment agreements. For the most part, these low-profile deals have escaped the notice of the global justice movements which have mainly focussed on the WTO, MAI, the Free Trade Area of the Americas (FTAA), and the North American Free Trade Agreement (NAFTA). But these unassuming bilateral agreements, popping up like hydra's heads all over the world, are already locking countries into the same, if not more extreme, model of neoliberalism.
Bilateral trade and investment agreements are another way to ensure that governments do not backslide on economic reforms - the liberalization, privatization and deregulation measures dictated by World Bank/IMF structural adjustment programs or domestic free market policies imposed by neoliberal governments in the North.
Expanding the liberalization agenda through bilateral agreements is a stealthy step-by-step approach which could prepare a multiple launchpad for more comprehensive regional or multilateral agreements. It is a divide and rule approach, to break up the kinds of alliances formed between Southern governments in multilateral forums like the WTO to resist US, Japanese and EU demands. And bilateral agreements can serve as templates for broader negotiations. Once countries are locked into bilateral investment agreements, it will be harder to resist an MAI-type agreement at the WTO or FTAA. Governments of smaller, poorer countries are struggling to find the necessary resources to simultaneously negotiate several complex deals.
Peter Drahos and John Braithwaite write: Bilateralism is like cooking an elephant and rabbit stew. However you mix the ingredients, it ends up tasting like elephant.
Many bilateral free trade and investment agreements contain similar provisions as well as national treatment clauses which state that foreign companies and investors must be treated no less favourably than local companies and investors. Alongside the proliferation of bilateral investment treaties (BITs), many bilateral free trade agreements (FTAs) also contain similar investment provisions, besides expansive coverage of sectors like services, intellectual property, government procurement, and agriculture. Many of these provisions go well beyond WTO commitments.
With fast track Trade Promotion Authority under its belt, the Bush Administration is aggressively pursuing bilateral trade and investment agreements. It wants to stitch up bilateral and regional deals just as the EU has been doing, to secure greater access and control for US companies. Dangling the carrot of preferential access to a multi-billion dollar market, the US is also using them as a sharp stick to target, dismantle or reshape policies to suit US economic and geopolitical interests.
Besides using October's Asia Pacific Economic Cooperation (APEC) summit in Bangkok to demand support for his war on terror , George Bush formally announced that negotiations on an FTA with Thailand would start in 2004. Meanwhile, a Thai-Australia Closer Economic Relations Free Trade Agreement is scheduled to take effect from January 1 2005. The US and Australia is also in negotiations for an FTA, while both countries have concluded bilateral trade and investment agreements with Singapore .
Chapter 11, NAFTA's powerful investment chapter provides corporations with the right to sue governments for enacting any public policy or law that they do not like. Meanwhile, the MAI, drawing from NAFTA, was dubbed a charter or rights and freedoms for transnational corporations. It would have prevented governments from limiting what foreign investors could own, or from imposing performance requirements on them to use a set amount of local content, or hire local managers or staff, or to share technological know-how. It would have facilitated easier access for investors to be able to move assets financial instruments or production facilities across borders, regardless of social or ecological considerations. It would have guaranteed free transfer of all payments relating to an investment in and out of a country.
The MAI is far from dead. Many bilateral free trade/investment agreements already contain similar provisions. The US insists that they are part of any new negotiations.
In many BITs where a dispute cannot be settled amicably and procedures for settlement have not been agreed within a specified period, it can be referred to a body like the World Bank's private arbitration body for investment disputes, the International Centre for Settlement of Investment Disputes (ICSID) or the UN Commission on International Trade Law (UNCITRAL). NAFTA lets unhappy investors choose between the two. Either way, they represent the privatisation of commercial justice.
Founded in 1966, over half of ICSID's cases were filed in the past six years, mainly under investment treaties. Today, there are some 2000 BITs. UNCTAD describes them as the most important protection of international foreign.investment to date. Many disputes relate to contracts arising from the privatization of public services.
In a speech to the Inter-American Development Bank in October 2000, William D. Rogers of Washington, DC law firm Arnold and Potter argues that investment treaties are an open invitation to unhappy investors, tempted to complain that a financial or business failure was due to improper regulation, misguided macroeconomic policy or discriminatory treatment by the host government and delighted by the opportunity to threaten the national government with a tedious expensive arbitration .
Even before such a powerful tool can be expanded and applied to 34 countries throughout the Americas under the FTAA, countries like Bolivia and Argentina have already been sued under obscure BITs. Canadian investment analyst Luke Eric Peterson says: It seems the high-profile disputes under the NAFTA appear to have inspired many litigators to dust off the NAFTA's more obscure predecessors.
The popular struggle against the privatized water system of Bolivia 's third largest city, Cochabamba , is a symbol of the fightback against neoliberalism and privatization. This followed Aguas del Tunari, affiliate of US water corporation Bechtel sharply increasing prices. But after the privatization was reversed, the water system handed back to the public and it was forced to leave Bolivia , Aguas del Tunari/Bechtel lodged a request for arbitration against Bolivia at ICSID. It is seeking $25 million, claiming as expropriated investment the millions of dollars in potential profits it had hoped to make. (For the same amount, 125,000 Bolivian families without access to water could be connected.) The company used a 1992 BIT between Holland and Bolivia . While it was establishing its operations in Cochabamba , Bechtel was craftily filing papers to shift its subsidiary's corporate registration to Holland from the Cayman Islands .
Azurix, a former subsidiary of Enron won a bid to run the privatized water and sewage system for 2.5 million people in parts of Buenos Aires province, Argentina , in May 1999. Bahia Blanca residents complained that their water smelt bad and looked brown, while regulators considered sanctions against Azurix for very low water pressure. After the water supply was found to be contaminated, health authorities warned people not to drink or bathe in the water. The local regulating agency forced the company to deliver free bottled water to all those affected, not to charge for a period when the water was of poor quality, and also fined Azurix for breach of contract. In October 2001 Azurix said that it would withdraw from the contract, complaining that the province would not let it charge rates according to the tariff specified in the contract and would not deliver infrastructure. The province rejected the termination notice. Then, under a 1991 US-Argentina bilateral investment treaty, Azurix sued Argentina 's bankrupt government for US $550 million. Azurix says that the authorities' actions amount to interference with its investment.
Argentina is the target of several other disputes brought by disgruntled investors under bilateral agreements. In July, French utility corporation Suez launched three investor-state cases against Argentina for alleged breaches of a France-Argentina BIT arising from three separate water concessions in Cordoba , Buenos Aires , and Santa Fe . Spanish company Telefonica has brought a claim against Argentina . CMS Gas Transmission Co, is also suing Argentina under the US-Argentina BIT.
While Latin American countries, especially Argentina , feel the heat of bilateral investor-state disputes, they are not alone. Pakistan currently faces three investor-state dispute claims pending at ICSID totalling around US$ 1 billion. Swiss company SGS, whose board of directors includes former WTO Director-General Mike Moore, is claiming $120 million from Pakistan for premature termination of a contract to provide pre-shipment inspection services, an alleged breach of a 1996 Switzerland-Pakistan BIT. An ICSID panel met in Paris in February to consider the case but reserved its judgement.
Italian construction firm Impregilo, which headed the consortium to build the controversial Ghazi Barotha dam, part of a major hydroelectric project, wants $450 million. Using a Pakistan-Italy BIT, Impregilo claims Pakistan 's Water and Power Development Authority (WAPDA) seriously breached its contractual commitments. Turkish company Bayinder filed a similar-sized claim over termination of its motorway construction contract. Like many other BITs, the definitions of investment and other terms in the agreements which Pakistan signed are very broad and afford investors ample opportunity to claim against a frighteningly wide range of actions or omissions by the government and its agencies.
Domestic courts can be sidestepped by investors' recourse to international arbitration panels. ICSID and UNCITRAL only allow for the investor and government parties to the dispute to have legal standing. The public has no right to listen to proceedings or view evidence or submissions. Both bodies require only minimal disclosure of the names of the parties and a brief indication of the subject matter. That makes such disputes very difficult to track, let alone mobilize around. There is little incentive for investors to settle disputes amicably given the highly favourable outcomes for corporations which have initiated proceedings under such agreements.
International business law firms which specialize in such cases are laughing all the way to the bank. Regardless of how ICSID rules, these cases will cost millions of dollars to the country being being targeted. Ordinary people will shoulder these costs which will increase their indebtedness to international financial institutions, while compliance will be linked to future foreign aid commitments and loans.
With presidential elections looming, the Bush administration will be careful to use its bilateral strategy to advance the economic interests of US service and pharmaceutical sectors in its demands of other governments while trying not to alienate domestic corporate agricultural lobbies. Indeed, US farm lobbies have been urging Washington not to improve market access to Australian exports of sugar, dairy and beef by reducing tariffs through its FTA negotiations and have objected to the idea of a future US-New Zealand Free Trade Agreement for similar reasons.
The US explicitly links support for the war on terror with willingness to negotiate trade and investment deals. Yet while a planned FTA with a moderate Muslim country like Morocco offers much political capital for the USA , US corporations are open about their own capitalistic interests. The US-Morocco FTA Coalition, comprising US corporations and pro-free trade organisations, wants to lock in Morocco 's economic reforms and get access to Morocco 's markets, including its telecommunications, tourism, energy, entertainment, transport, financial services and insurance sectors. It wants a tighter Moroccan intellectual property regime, and better market access for US agribusiness.
In FTA negotiations with Australia , the US seeks the removal of all restrictions on investment like Australia 's Foreign Investment Review Board and limits on foreign investment in airlines, media and telecommunications. US negotiators, urged on by American pharmaceutical industries, want to get rid of Canberra 's Pharmaceutical Benefits Scheme which sets price controls for many prescription medicines. US drug companies want more profits from higher pricing and full market access for their products. These are some of the rewards for John Howard's loyal support for the US war on Iraq !
The US-Chile FTA aims to add momentum to FTAA negotiations and counter growing opposition from a number of governments and social movements to the proposed hemispheric agreement.
The Chile and Singapore FTAs with the US , which entered into force on 1 January 2004, have NAFTA-plus broad definitions of investment which throw the door wide open for disgruntled investors to take a case to a dispute tribunal. Intellectual property provisions go even further than the WTO's TRIPS (Trade-Related aspects of Intellectual Property rights) agreement, severely limiting the grounds for allowing use of compulsory licensing of medicines, and effectively extending the 20-year term of drug company patent monopolies by an additional five years, threatening access to affordable medicines, not least HIV/AIDS drugs.
Both agreements impose alarming new limits on the use of capital controls. In an April 2003 article, Indian policy analyst and researcher Kavaljit Singh argues that Chile 's controls on capital inflows have helped insulate it against financial crises. He says it stands to reason that the probability of occurrence of a financial crisis in Chile and Singapore would increase manifold with the removal of capital controls as envisaged in the bilateral trade agreements with the US.
Even free traders have slammed this aspect of these FTAs. In a March 2003 Financial Times article, Jagdish Bhagwati and Daniel Tarullo wrote: The intention of the Bush administration to use these two agreements as "templates" for other trade agreements, possibly including the Doha round, means that acceptance of the capital control provisions could engender a trade policy that causes far-reaching damage. The prohibition on capital controls has the makings of a US foreign policy debacle. Imagine that a government imposes short-term capital controls in order to manage financial problems. Compensation will ensue, but only for American investors. The citizens of the developing country will then see a rich US corporation or individual being indemnified while everyone else in the country suffers from the crisis. One would be hard-pressed to think of a better prescription for anti-American outrage.
Many of us were saddened and inspired by the suicide of South Korean farmer Lee Kyung Hae at Cancun , protesting the effects of the WTO on farmers. Perhaps we can also learn from the way that Korean social movements have mobilized against bilateral trade and investment agreements. They quickly identified proposed BITs with the USA and Japan as "MAI clones". Recent n egotiations on an FTA with Chile have met strong opposition led by Korean farmers, including nationwide demonstrations, and a protest camp outside the National Assembly. So far, the Korean National Assembly has not been able to ratify the agreement because of this opposition.
To overlook the global explosion of bilateral trade and investment agreements is to risk creating an achilles' heel for movements against neoliberal globalization. In tandem with our struggles against the WTO and FTAA, we need to rapidly develop strategies which confront the growing web of bilateral agreements.
* Aziz Choudry is an activist and writer with New Zealand-based GATT Watchdog.
This article was published by Z Magazine in December 2003
http://www.zmag.org/ZMagSite/Dec2003/Dec03TOC.html