Bilateral Trade and Investment Deals: BITs a serious challenge for global justice movements


We
cannot afford to bask in the movement successes at the World Trade
Organization (WTO) talks at Cancun. With echoes of Bush’s “either
with us or against us” dualism, U.S. Trade Representative Robert
Zoellick announced that the U.S. 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 oppose
the bewildering web of bilateral trade and investment agreements. 

Expanding
the liberalization agenda through bilateral agreements is a stealthy
step-by-step approach that could prepare a multiple launch pad 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 U.S., Japanese, and EU demands. 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. 

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 favorably
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 U.S. companies. Dangling the carrot of preferential
access to a multi-billion dollar market, the U.S. is also using
them as a sharp stick to target, dismantle, or reshape policies
to suit U.S. 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
on January 1, 2005. The U.S. and Australia are 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 U.S. 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 on within a specified period,
they can be referred to 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 privatization 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
2,000 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 the 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.  The popular
struggle against the privatized water system in Bolivia’s third
largest city, Cochabamba, is a symbol of the fight back against
neoliberalism and privatization. This followed Aguas del Tunari,
an affiliate of the U.S. corporation Bechtel, sharply increasing
prices. After the privatization was reversed, the water system was
handed back to the public. 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. 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 smelled and looked brown, while regulators considered
sanctions against Azurix for 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
U.S.-Argentina bilateral investment treaty, Azurix sued Argentina’s
bankrupt government for $550 million. Azurix says that the authorities’
actions amount to interference with its investment.

In
July, the French utility corporation Suez launched three cases against
Argentina for alleged breaches of a France-Argentina BIT arising
from three separate water concessions in Cordoba, Buenos Aires,
and Santa Fe. The Spanish company Telefonica has also brought a
claim against Argentina, and CMS Gas Transmission Co. is suing Argentina
under the U.S.-Argentina BIT. 

Pakistan
currently faces three investor-state dispute claims pending at ICSID
totaling around $1 billion. The 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 judgment. 

The
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)
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 favorable outcomes for corporations, which
have initiated proceedings under such agreements. 

International
business law firms that specialize in such cases are laughing all
the way to the bank. However ICSID rules, these cases will cost
millions of dollars to the targeted country. Citizens 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 U.S. service and pharmaceutical sectors while trying not to alienate
domestic corporate agricultural lobbies. U.S. 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 U.S.-New
Zealand Free Trade Agreement for similar reasons. 

The
U.S. explicitly links support for the “war on terror”
with willingness to negotiate trade and investment deals. While
a planned FTA with a “moderate” Muslim country like Morocco
offers much political capital for the U.S., U.S. corporations are
open about their own capitalistic interests. The U.S.-Morocco FTA
Coalition, comprising U.S. corporations and pro-free trade organizations,
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 U.S. agribusiness. 

In
FTA negotiations with Australia, the U.S. 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. U.S. negotiators, urged on by U.S. pharmaceutical
industries, want to get rid of Canberra’s Pharmaceutical Benefits
Scheme, which sets price controls for many prescription medicines.
U.S. drug companies want more profits from higher pricing and full
market access for their products. These are some of the “rewards”
for Australia’s loyal support for the U.S. war on Iraq. 

The
U.S.-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 U.S. 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 U.S.” 

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 U.S. 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 U.S. 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 U.S.
and Japan as “MAI clones.” Recent negotiations on an FTA
with Chile met strong opposition led by Korean farmers, including
nationwide demonstrations and a protest camp outside the National
Assembly. 

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 that confront
the growing web of bilateral agreements.



Aziz
Choudry is an activist and writer with New Zealand-based GATT Watchdog.