The underlying legal system that allows companies to sue entire countries
(Republish with translation from: The Guardian, "The obscure legal system that lets corporations sue countries", Claire Provost and Matt kennard, Wednesday 10 June 2015 06.00 BST, Illustration by Giacomo Gambineri)
Fifty years ago, an international legal system was created to protect the rights of foreign investors. Today, as companies earn billions in damages, people know that all this has escaped dangerously and is now out of control
Luis Parada's office is just four blocks from the White House, in the heart of K Street, Washington's Washington Interest Road - a section of steel and glass buildings once called the "road to riches" when the influence-peddling became a thriving American industry. Parada, a vibrant 55Larian from El Salvador, is one of a handful of lawyers in the world who specialize in defending sovereign states in appeals filed against them by multinational companies. He is a defense lawyer in a dark but increasingly powerful field of international law - where foreign investors can sue governments in a network of arbitration courts for billions of dollars in damages.
Fifteen years ago, Parada's work had a small position even within the legal business. But from 2000, hundreds of foreign investors have sued most of them half of the world, claiming damages saying their earnings have been threatened or lost by a wide range of government actions. In 2006, Ecuador (Ecuador) canceled an oil exploration contract with Occidental Petroleum based in Houston, 2012, after Occidental filed a lawsuit before an international investment court (case: Occidental Petroleum Corporation and Occidental Exploration and Production Company v. The Republic of Ecuador, ICSID Case No. ARB / 06 / 11), Ecuador was ordered to pay a record amount of $ 1,8 twice - which is roughly equal to the country's health budget for one year. (Ecuador lodged an application for the annulment of this decision).
The first case that Parada was called upon to defend was for Argentina at the end of 1990 against French group Vivendi, who sued Argentina when the Tucumman province intervened to curb the prices it charged to people for water and sanitation services (case: Joined by Aguas del Aconquija SA and Vivendi Universal SA v. Argentine Republic, ICSID Case No. ARB / 97 / 3 (formerly Compañía de Aguas del Aconquija, SA and Compagnie Générale des Eaux v Argentine Republic)). Argentina eventually lost and was ordered to pay the company more than 100 million dollar compensation. Today, in his most important case, Parada is a member of a defense group for El Salvador as he tries to challenge a multi-million dollar claim filed by a multinational mining company when this small Central American country refused to allow it to mined gold on its territory.
The lawsuit was filed by 2009 by a Canadian company, Pacific Rim (case: Pac Rim Cayman LLC v. Republic of El Salvador, ICSID Case No. ARB / 09 / 12) - which was later purchased by an Australian mining company, OceanaGold- which said it had been encouraged by the government of El Salvador to spend "tens of millions of dollars to undertake mining research". However, the company claimed that when the valuable gold and silver deposits were discovered, the government, for political reasons, withdrew the permits needed to start the mining. The company's requirements, which at some point exceeded 300 million dollars, have now dropped to 284 millions - yet that's more than the total amount of foreign aid that El Salvador received last year. El Salvador argued that the company not only had not received the necessary environmental permits but also failed to prove that it had acquired property rights in much of the land that covered its claim: many farmers in the northern region of Cabañas, where the company wanted to dig, refused to sell their land.
Every year on 15 September, thousands of El Salvadorans are celebrating this day because then much of Central America gained its independence from Spain. Fireworks and parades take place in villages and towns across the country. But last year, in the city of San Isidro, Cabañas, celebratory events had a significantly different tone. Hundreds gathered to protest against mining. Gold mines often use cyanide to separate gold from ores and widespread concern about the already serious water pollution in El Salvador has helped fuel a strong, determined movement to keep the country's minerals in the ground. In the central square, colorful banners were hanging, calling on OceanaGold to withdraw her treatment against the country and leave the area. Many people called the slogan "No to Mineria, And to see"(Not in mining, yes in life).
On the same day in Washington, Parada gathered his notes and went to an out-of-process meeting in one of the conference rooms in the World Bank's J building, across from its headquarters in Pennsylvania Avenue. This is the International Center for the Resolution of Investment Disputes (International Center for Settlement of Investment Disputes, ICSID) και είναι ο πρωταρχικός φορέας για το χειρισμό των υποθέσεων όπου οι επιχειρήσεις καταθέτουν αγωγές εναντίον κυρίαρχων κρατών. (Το ICSID δεν είναι ο μοναδικός space for such cases. There are similar forums in London, Paris, Hong Kong and The Hague, among others). The date of the hearing was not random or coincidental, says Parada. The case has been framed in El Salvador as a test of the country's sovereignty in the 21st century, and it has been hinted that there should be a hearing on Independence Day. "The most important question in this case", he said, "is whether a foreign investor can force a government to change its legislation to please the investor as opposed to complying with the laws in the country (?)".
The most important question is whether a foreign investor can force a government to change its legislation to please the investor as opposed to complying with the laws of a given investor
- Luis Parada
Most international investment and free trade agreements grant foreign investors the right to activate this system, which is known as an Investor-by-Country Dispute Settlement Mechanism (Investor-State Dispute Settlement, ISDS) when they want to challenge the decisions of a government that affect their investment. In Europe, this system has become a deadlock in the negotiations on the controversial Transatlantic Trade and Investment Partnership (TTIP)Transatlantic Trade and Investment Partnership) between the European Union and the US, because it will massively expand the scope and power of this mechanism and will be much more difficult to challenge in the future. Both France and Germany have said they want the provisions on access to the investor-to-state dispute resolution mechanism to be removed from the TTIP Treaty and at present the whole issue is under discussion.
See, (add mtf): The 5 Department (PART FIVE: INVESTMENT, SERVICES AND RELATED MATTERS), Chapter 11 (Chapter Eleven: Investment), Part A (Section A - Investment), from Article 1101 (Article 1101: Scope and Coverage) to Article 1139 (Article 1139: Definitions) in the trade agreement North American Free Trade Agreement, NAFTA (North American Free Trade Agreement) that is in force since January of 1994, between the US, Canada and Mexico, is a good "example to avoid".
On this chapter have been based so far many arbitration cases, 77 of which are known. There is a recent report, the "NAFTA Chapter 11 Investor-State Disputes to January 1, 2015"On the implementation of the 2 decades of agreement and the cases that emerged based on the ISDS mechanism. On the 30 page of this report [PDF file, 41 pages in English] there is the concluding article entitled “Democracy Under Challenge, Canada and Two Decades of NAFTA's Investor-State Dispute Settlement Mechanism” (Democracy Under Conflict, Canada and the Two Decades of the NAFTA Investor-State Dispute Resolution Mechanism) by Scott Sinclair of the Canadian Center for Policy Alternatives, which shows the impact of the trade agreement on Canada and, in particular, the consequences the State has suffered from the 11-based assumptions of this agreement.
Investors have used this system, not only to bring actions for damages for alleged land expropriations and factories, but against a huge range of governmental measures, including environmental and social regulations, for which they claim to violate their rights. Multinationals have filed lawsuits not only to recover money that they have already invested but also for allegedly lost profits and for "projected future profits". The number of lawsuits against countries in ICSID is now about 500 - and this number increases at an average rate of one case per week. Amounts paid as compensation are so large that venture capitalists have smelled it and now see enterprise claims against states being considered as assets that can be invested or used as a leverage to secure multi-million dollar loans . Increasingly, companies use the threat of prosecution in ICSID to exert pressure on governments not to question investors' actions.
See, (add mtf) (a) EU-centered ICSID case statistics, "THE ICSID CASELOAD-STATISTICS (SPECIAL FOCUS-EUROPEAN UNION)", Relate to cases filed by March 1 2014, at the World Bank's ICSID.
And
b) ICSID case statistics for 2014, "The ICSID Caseload - Statistics 2014"In the ISDS BLOG.
All these assumptions already exist without the "help" from the negotiated TTIP. Imagine what has to be done as soon as the two cumulative larger economies of the planet, the EU and the US, sign an agreement containing provisions for a provision for a dispute settlement mechanism.
"I did not have the slightest idea that this was coming", said Parada. Sitting in a meeting room with glass walls at his office at Foley Hoag, he paused, looking for the right word to describe what happened in his field. "Sweet", He finally decided. "I think the investor-state dispute settlement mechanism was created with good intentions, but in practice it has completely escaped, it's now rotten".
* * *
The quiet village of Moorburg in Germany is located directly opposite the river from Hamburg. Passing through the 16 century church and the wildflower-rich meadows, two huge chimneys steadily erect a huge cloud of a thick, gray smoke in the sky. This is the Kraftwerk Moorburg, a new coal-fired power plant, a thermal power plant - the controversial neighbor of the village. 2009, was the subject of an investor-state 1,4 € (Case: Vattenfall AB, Vattenfall Europe AG, Vattenfall Europe Generation AG v. Federal Republic of Germany, ICSID Case No. ARB / 09/6 (formerly Vattenfall AB, Vattenfall Europe AG, Vattenfall Europe Generation AG & Co. KG v. The Federal Republic of Germany)) filed by Vattenfall, the Swedish energy giant, against the Federal Republic of Germany. It is an excellent example of how this powerful international legal system, built to protect foreign investors in developing countries (from fraudulent governments and dictators), is now being used to challenge the actions of European democratic governments.
Since the 1980 decade, German investors have sued dozens of countries, including Ghana, Ukraine and the Philippines, at the World Bank in Washington. But with the Vattenfall case, Germany was found the same in the dock for the first time. And what irony, for those who felt that Germany is the grandfather of an investor-state arbitration: was a group of German entrepreneurs in the late 1950, who first thought of a way to protect their investment abroad as a wave of developing countries gained their independence from European colonial powers. Headed by the president of Deutsche Bank, Hermann Abs, they called their proposal as the "international magna carta"(International Magna Carta) for private investors.
The arbitrage system between investor and state was created with good intentions, but in practice it has completely escaped, became rotten
- Luis Parada
In the 1960 decade, the idea was adopted by the World Bank, which said that such a system could help the poorest countries in the world to attract foreign capital. "I am convinced"Said World Bank President George Woods, at that time,"that those ... who adopt a welcoming [environment] for international investment as their national policy - and that means they do not cheat their words about it, giving foreign investors a fair opportunity to make attractive profits - will achieve their development goals faster than those who don't".
1964 at the World Bank's annual meeting in Tokyo approved a resolution to establish a mechanism for dealing with investor-to-state affairs. The first line of the preamble to the ICSID Convention defines its objective as a "international cooperation for economic development". There has been a sharp confrontation with this system since its establishment, where a bloc of developing countries warned that it would undermine their sovereignty. A group of 21 countries - almost all Latin American countries, as well as Iraq and the Philippines - voted against the proposal in Tokyo. But the World Bank has decided to proceed independently of these reactions. Andreas Lowenfeld, an American law scholar who had been involved in some of these first debates, he later observed by saying"I believe that this was the first time that a major World Bank resolution has pushed too much the opposition".
Worldwide growth remains the stated goal of ICSID. "The idea", Said the current secretary general of the institute, Meg Kinnear, that"is if an investor believes there is a fair, impartial mechanism that can trigger it should a dispute arise, then it will have much more confidence and that will help promote investment ... and when investing in a country, obviously they will create jobs, income, technology and everything that accompanies an investment".
But now, governments are finding out, very late, the real cost of this "trust". The Kraftwerk Moorburg factory was already a controversial case long before the filing of the lawsuit. For years, local residents and environmental groups had objections to its construction amid growing concerns about climate change and the impact of the project it would have on installing and operating on the banks of the River Elbe. 2008 in Vattenfall was granted a water license for the Moorburg project, but in response to pressure from locals, local authorities imposed rigorous environmental terms to limit water use and the impact of this use on fish.
Vattenfall sued Hamburg in the local courts. But, as a foreign investor, he could also file the case with ICSID. These environmental measures, he said, were so severe that they constitute a violation of our rights, as enshrined in the Energy Charter Treaty (Energy Charter Treaty), a multilateral investment agreement signed by more than 50 countries, including Sweden and Germany [see below. Pdf file, 32 pages in English, International Energy Charter, Agreed text for adoption in The Hague at the Ministerial Conference on the International Energy Charter on 20 May 2015]. The company claimed that the environmental conditions available in its license were so severe and restrictive that they made the operation of the plant uneconomic and thus were acts of indirect expropriation.
"It was an absolute surprise to us", Local Green Party leader Jens Kerstan told us at a meeting at his sunny office in Hamburg last year. "As far as I knew, there were some agreements to protect German companies in the [developing] world or from dictatorships, but that a European company would sue Germany, that was a complete surprise to me".
The Vattenfall v. Germany case resulted in settlement of 2011, as the company won the case at the local court and received a new permit for the use of water for the Moorburg plant - which significantly reduced the environmental specifications originally imposed, according to the legal experts, allowing the plant to use more water from the river and weakening the measures it needed to take to protect the fish. The European Commission has now taken a series and, by intervening, has taken Germany to the Court of Justice (see below. European Commission Takes Germany to Court for Coal-fired Power Plant in Hamburg on Habitats Directive Arguments), saying the permission of the coal-fired power plant in Moorburg is in breach of EU environmental legislation (namely 92 / 43 / EOK COUNCIL DIRECTIVE of May 21 on the conservation of natural habitats and of wild fauna and flora) by not doing more to reduce the risk on protected fish species such as salmon, which passes near the factory while migrating from the North Sea !!!
One year after the Moorburg case was closed, Vattenfall filed a lawsuit for another claim (Case: Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No. ARB / 12 / 12, Notice of Arbitration (not public, see IAReporter story) κατά της Γερμανίας, αυτή τη φορά για την απόφαση της ομοσπονδιακής κυβέρνησης για τη σταδιακή κατάργηση της πυρηνικής ενέργειας για την παραγωγή ηλεκτρισμού. Αυτή η δεύτερη μήνυση -για την οποία πολύ λίγες information είναι διαθέσιμες στο κοινό, παρά τις αναφορές ότι the company seeks to get € 4,7bits from German taxpayers- it is still in progress. About one-third of all ICSID-related cases are filed with a "compromise" ending, and this - as the Moorburg case shows - can be a very lucrative investment for investors, although their terms are rarely fully disclosed.
There are now thousands of international investment and free trade agreements signed by States that contain provisions that give foreign companies the possibility of accessing the investor-state dispute resolution system if companies decide to challenge decisions of some government. These differences are usually heard in front of groups consisting of three arbitrators, each party choosing one and the third being selected by agreement between the two parties. Decisions are taken by majority and are final and binding decisions. There is no appeal procedure - only an option with the submission of a cancellation request that can be used for very limited reasons. If the state does not pay the damages that the judgment has been given, its assets are seized in almost every country in the world (the company may ask the local courts to issue an enforcement order). While a court can not oblige a country to change its laws or to give a company a license, the threat to the risk of mass damages from compensation may in some cases be enough to persuade a government to re-examine its actions. The existence and the threat of use of the arbitration process can be used to encourage states to enter into substantive settlement negotiations.
If states fail to pay after the decision, their assets are seized in almost every country in the world
In Guatemala, internal government documents received through the country's Freedom of Information Act show that the risk from these cases greatly weighs the state's decision not to challenge a controversial goldmine despite the protests by citizens and following the recommendation it issued the Inter-American Commission on Human Rights (Inter-American Commission on Human Rights) that says it should close. Such an act, warns the documents, could cause the company belonging to the Canadian Goldcorp mining giant to activate ICSID or invoke the clauses in the Central American Free Trade AgreementCentral American Free Trade Agreement, CAFTA) to acquire "access to international arbitration and subsequent claims for compensation from the State". The mine, which was temporarily shut down by the government of 2010, was reopened again.
See, (adding μτφ): A recent list of such cases: "TABLE OF FOREIGN INVESTOR-STATE CASES AND CLAIMS UNDER NAFTA AND OTHER US" TRADE "DEALS, April 2015" (Table of Foreign Investor and State Claims by NAFTA and Other US Trade Agreements April 2015) [pdf file, 43 pages in English]
As business requirements are getting bigger, it seems more and more likely that the huge financial risks associated with the arbitration mechanism to resolve investor-state disputes will effectively give foreign investors a normal veto right on any government decision.
* * *
When businesses fail in their demands towards states, there may be other advantages that arise. 2004, the South African new meta-apartheid law, the Mineral and Petroleum Resources Development Act, the MPRDA (Law on the Development of Mining and Petroleum Resources) entered into force. Along with a new mining map, the law sought to restore historical inequalities in the mining sector, partly by requiring companies to cooperate with the citizens who suffered under the apartheid regime. The new system terminated all previously owned mining rights and required companies to submit a new application for authorization to continue their business. It also recommended that a mandatory 26% of the shares owned by the country's mining companies be from black citizens of South Africa. Two years later, a group of Italian investors, controlling most of the granite industry in South Africa, filed a claim between investor and landmark (case: Piero Foresti, Laura de Carli & Others v. The Republic of South Africa, ICSID Case No. ARB (AF) / 07/01), against the State of South Africa. The country's new mining regime, as they claimed, had illegally expropriated their investments and was unfairly brought to them. They claimed $ 350 million in compensation.
The case was filed by members of the Foresti and Conti families, Tuscan prominent industrialists and a Finstone holding company based in Luxembourg. The petitioners cited two bilateral investment treaties signed in the late 1990 during the presidency of Nelson Mandela. Jason Brickhill, a lawyer at the Legal Resources Center in Johannesburg, said the new, post-apartheid government seemed to have seen these agreements "more as diplomatic acts of goodwill than as serious legal commitments with potentially widespread economic consequences".
At that time, our government officials were invited to meetings in Europe, he said,and there were all sorts of discussions about what would be South Africa's economic and commercial direction, and part of that was the expectation that conditions for investment would come up - but they had no real understanding of what they were bound by law with their signature". Peter Draper, a former employee of the South African Department of Trade and Industry, put it a bit more impatient:We virtually signed everything without asking a lot or without much attention".
The case lawsuit against South African companies lasted for four years before it ended sharply when the Italian group withdrew its claims and the court ordered him to pay € 400.000 for South African court fees. At that time, one Press release of the government celebrated "successful completion" of the whole case - despite the fact that South Africa had already spent € 5 million for non-refundable legal costs. But investors have claimed a more significant victory: the pressure brought about by the case, they said, managed to achieve an unprecedented and clearly improved agreement with the South African government, an agreement that allows their companies to transfer only 5 % of their ownership of black South African citizens - from 26% originally set by the law. "No other mining company in South Africa has such a generous deal after the advent of the new extraction regime", such as he boasted one of the investors' lawyers, Peter Leon, at that time.
The government seems to have agreed on this agreement, which runs counter to the spirit of post-apartheid indemnities in South Africa, to prevent a flood of other claims against it. "If for the case the arbitration had ruled against the government, then it would be that the big damage would happen, as everyone would come up against it, so this arrangement is much better"Said Jonathan Veeran, another of the company's lawyers, in an interview with his Johannesburg office. His customers said "were very pleased with the result".
* * *
A small number of countries they are now trying to escape the system's ties with the mechanism for resolving investor-state disputes. One of these is Bolivia, where thousands of people went to the streets of the country's third largest city, Cochabamba, 2000, to protest a dramatic increase in water charges from a private company owned by Bechtel, an American construction company company. During the demonstrations, the Bolivian government intervened and terminated the concession agreement with the company. The company then filed a 50 million dollar lawsuit against Bolivia at ICSID (case: Aguas del Tunari, SA v Commission Republic of Bolivia, ICSID Case No. ARB / 02 / 3). 2006, after a campaign calling for the case to be rejected, agreed to accept a symbolic price less than 1 dollar.
Following this exact case, Bolivia canceled the international agreements it had signed with other states that offered investors access to such courts. But to do this and change the system is not easy to do. Most of these international agreements have termination clauses, according to which their provisions remain in force for 10 or for 20 years, even if the Treaties themselves are canceled!
2010, Bolivian president Evo Morales, nationalized the country's largest power provider, Empresa Eléctrica Guaracachi. The United Kingdom-based electricity company, Rurelec, which indirectly owns 50,001% in the company, dragged Bolivia to the Hague Permanent Court of Arbitration, asking 100 for millions of dollars as compensation (Case: Guaracachi America, Inc. and Rurelec PLC v. The Plurinational State of Bolivia, UNCITRAL, PCA Case No. 2011-17). Last year, Bolivia was ordered to pay millions of dollars to Rurelec 35, after months of negotiations, the two sides reached a compromise for a compensation payment just above $ 31 million in May 2014. Rurelec, who refused to give us her comments on this article, celebrated her victory with a series of press releases on her website. "The only thing that saddens me is that it has delayed so much to achieve a settlement"Said its CEO in a statement. "All we wanted was a friendly deal and a handshake with President Morales".
Even with the states that first objected to the introduction of the investor-state dispute settlement system at 1964 World Bank, they have since signed dozens of agreements, thus spreading the scope of this mechanism. With the rapid growth that exists in this kind of environment - today there are more than 3.000 in place - a specialist industry has grown into advising companies on how to better exploit those conditions that give investors access to the dispute settlement system , as well as how to structure their businesses to take advantage of the various protections offered by the mechanism. It is a lucrative sector: legal costs alone are 8 $ million per case, but have exceeded $ 30 millions in some cases, the fees of the referees start from $ 3.000 per day, plus costs. While there is no equivalent to legal assistance for states trying to defend themselves against these complaints, companies have access to a growing group of third-party donors who are willing to fund companies' cases against states, usually in in exchange for a fraction of the possible compensation.
Increasingly, these complaints are becoming more valuable, even before any possible settlement of insurance indemnities. After Rurelec filed a lawsuit against Bolivia, she went into the market and secured a multi-million dollar business loan, using her dispute with Bolivia as a guarantee to be able to expand her business. Over the last 10 years, and especially after the global financial crisis, a growing number of specialized investment funds have moved to raise money through these cases, addressing the multi-million dollar claims of companies against states as a new "asset class".
One of the largest funds specializing in corporate lawsuits against governments, Burford Capital, is headquartered just a few blocks from East Croydon Railway Station, on the fifth floor of a bizarre brown brick building. Companies rarely disclose that their cases are funded by any of these third-party investors, but in Rurelec's case against Bolivia, Burford has issued a triumphant press release celebrating its "groundbreaking" participation. Typically, financiers like these will agree to support companies' allegations against the states in exchange for a fraction of any possible compensation companies may receive. In this case, Burford gave Rurelec a million dollar 15 "loan", using her suit against Bolivia as a guarantee.
See, (adding μτφ): Database with assumptions according to the ISDS mechanism, the UNCTAD (United Nations Conference on Trade and Development), the last column indicating the outcome of the case, many are either in favor of the investor or a compromise of 2 parties. Assumptions in favor of the State are the fewest.
"Rurelec did not need funds to pay her lawyers. Instead, it needs funds to continue to grow its business"Burford said in a statement. "This is a good proof that the benefits of financial litigation go far beyond simply helping to pay legal expenses", Added the CEO,"and in many cases can provide an effective alternative funding method to help companies achieve their strategic goals". "Funding" was also very satisfactory to Burford, as: it announced net earnings of $ 11 million from this controversy.
A spokesman for Burford further explained: "Burford did not fund Rurelec's claim, which had started two years before we joined the company. Instead, we financed it under a corporate loan facility to enable Rurelec to expand its operations in South America, but we also looked at its pursuit of the arbitration case (as the contingent assets) to help it repayment of her loan".
From the outset, part of the justification for the existence of the international dispute resolution system between investor and state was to create a "neutral forum" for the conflicts to be resolved to give investors the right to seek diplomatic support from their countries of origin when making claims in similar cases. But the documents we received in response to an application under the Freedom of Information law reveal that Rurelec was also in a position to invoke the British government, which could actively intervene to support her case.
The response to the 44 page documents includes dozens of emails and memos from May 2010 to June 2014, many of which explicitly mention British pressure on behalf of the company. An email to the United Kingdom ambassador to Bolivia Ross Denny, where the sender has hidden, includes the "lobby for Rurelec, yes". Another, by Denny, states: "our regular high pressure on behalf of Rurelec has helped to demonstrate the seriousness with which we take into account the protection of the interests of our businesses". In another one simply says: "Rurelec needs our help".
It appears that the British embassy knew that the arbitration system was supposed to be impartial. An email, which seems to be about how to respond to a survey by a member of the parliament, said:All things are equal, our line was that HMG will not be involved in a legal process stemming from the investment agreements we have signed". The message, whose sender and receivers have been deleted, continues: "If FCO [the Ministry of Foreign Affairs and Commonwealth] had a continuous dialogue with the company on this issue, it might be more appropriate for you to respond in some way to us about the benefits of investment conditions".
* * *
El Salvador has already spent more than 12 million dollars to defend against Pacific Rim, but even if it succeeds in rejecting the $284 million the company is seeking in damages, it won't be able to recoup those costs. For years protest groups in El Salvador have been asking the World Bank to initiate an open and public evaluation of ICSID. To date, no such study has been conducted. In recent years, a number of ideas have been proposed for reforming the international investor-state dispute settlement system - to adopt a "loser pays" approach, for example, or to increase transparency. The solution can be found in creating a system effectsso that controversial decisions can be reviewed.
Last year, David Morales, the Ombudsman for Human Rights of El Salvador (a post created during the peace process after the civil war in the country, 1979 with 1992), put a full-page ad in the La Prensa Gráfica newspaper calling on the government to reconsider all the international investment treaties it has signed with a view to renegotiating or canceling them. Luis Parada, who represents El Salvador in his dealings with the Pacific Rim, agrees that this would be a wise move: "I personally do not think that countries are earning so many of these conditions to suffer the dangers arising from possible international arbitration cases".
El Salvador has already spent more than 12 million dollars defending himself against the Pacific Rim. He can never recover those expenses
Other countries have already decided to reduce their losses and try to get out of these trade conditions. Shortly after the settlement of foreign mining with the new meta-apartheid mining rules, South Africa began finishing many of its own investment deals.
"What we are concerned about is that we could be in an international arbitration - with a decision made by three people - on what is actually a South African legislative program that has been done through democratic processes and that someone this arbitration panel could potentially put all this program in question”, Xavier Carim, a former deputy director-general at South Africa's Department of Trade and Industry, told us. "It was very, very clear that these conditions are open to such broad interpretations by panels or by investors wishing to challenge any government measure, with the possibility of a substantial payment of end-of-"Said Carim, who is now a representative of South Africa at the World Trade Organization in Geneva. "The simple fact is that these conditions ultimately give you very little benefit because they simply involve a great risk".
Before moving on to terminate its agreements, the South African government commissioned an internal study to determine whether such agreements actually helped to boost foreign investment. "There was no connection between signing contracts with new investments"Explains Carim. "We have had huge investments from the US and Japan and India and some other countries with which we have no investment agreements. Whether or not companies come to invest in a country has nothing to do with whether or not there is a bilateral investment treaty. They invest, if there is expectation for profits and return on their investment".
Brazil has not signed up to date with this system - it has not entered into any treaty with provisions to resolve investor-state disputes - and yet it has had no problem attracting foreign investment.
Parada said he would need "a broad consensus from determined countries"In order to really curb this system. "The states that created the system are the only ones who can fix it", he said. "But I have not yet seen a critical mass of states with the political will [to do so]… much less a broad consensus. But I still hope it does".
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• The Claire Provost and Matt kennard they are colleagues at the Center for Investigative Journalism. This article is published with the support of the Investigative Fund at The Nation Institute. Matt Kennard's book, The Racket, is published by Zed Books.
• Follow Long Read on Twitter: @gdnlongread
