WB: BOTH JUDGE & JURY IN ICSID PROCESS

NGOs petition World Bank chief against investment tribunal

Martin Khor

863 citizens groups from 59 countries have sent a petition to World Bank President Robert B. Zoellick, expressing concerns about the International Centre for the Settlement of Investment Disputes (ICSID), whose Administrative Council Mr. Zoellick chairs.
   The NGOs are outraged that ICSID (which is part of the World Bank Group) is planning to hear an investor-state dispute case taken by the European company Telecom Italia's subsidiary Euro Telecom International (ETI) against the Bolivian government, even though Bolivia formally withdrew its membership of ICSID in May 2007.
   ICSID is an arbitration centre that companies make use of to sue governments that they claim have expropriated their investment, mainly in the framework of bilateral investment agreements and bilateral free trade agreements.
   The Bolivian government left ICSID on the grounds that it is an imbalanced arbitration tribunal where multinational companies sue governments for many millions of dollars, where the cases are held behind closed doors, and the World Bank is both judge and jury.
   ETI, which is owned by Telecom Italia, is suing Bolivia through ICSID, claiming that the government is expropriating its property.
   In 1996, the then Bolivian government privatised the state telecom company Entel by selling 50 per cent of its shares to ETI. Of the remaining shares, 44 per cent was retained by the government and 6 per cent held by the workers.
   The government of President Evo Morales in April 2007 asked ETI to sell part or all of its 50 per cent stake in Entel back to the state. This has been termed "re-nationalisation" by some quarters.
   The government also charged that ETI violated the terms of its privatisation contract by not investing sufficiently and by owing taxes.
   In May, the government announced it was withdrawing from ICSID. Talks between the company and the government did not result in any agreement. In October, ETI filed a claim with ICSID against Bolivia, in the framework of the Netherlands-Bolivia bilateral investment treaty.
   Entel is Bolivia's most important telecom company, providing more than 60 per cent of the country's telephone services. ETI is incorporated in the Netherlands and wholly owned by another Dutch company, International Communication Holding (ICH). ICH is in turn 100 per cent owned by Telecom Italia International, also a Dutch company, which is in turn 100 per cent owned by Telecom Italia, an Italian company which is also partly owned by Spanish Telefonica (42.3per cent), among others.
   Among the 863 groups sending the petition to the World Bank President are labour, environmental, religious, consumer, small farmer, human rights, women's, development, and peace organisations from five continents. Institute for Policy Studies, a Washington-based research organisation, was the initial drafter of the petition.
   In their petition to Zoellick, the NGOs made the following demands:
   ICSID should respect the Bolivian government's decision and stop the ETI case from going forward.
   ICSID/World Bank officials should treat the concerns of Bolivia as well as other countries such as Argentina and Ecuador (that have also indicated their dissatisfaction with ICSID) seriously, rather than sending a signal that governments are trapped in this system - even if they take proper steps to withdraw.
   The World Bank should establish an independent review panel to examine how ICSID (and the investment treaties and trade agreements it enforces) undermines other international treaties that promote social, economic, and human rights, as well as developing countries' capacity to reduce external debts and achieve the Millennium Development Goals.
   ICSID should decline to handle the ETI v Bolivia case, not only because Bolivia is no longer a party to the ICSID convention, but also because this matter would best be handled through domestic regulatory and legal remedies, as the Bolivian government has suggested.
   The global petition reflects growing concerns around the world about a system of investor rights that the NGOs say undermines democracy and human rights.
   They point to the famous case of the company Bechtel suing Bolivia in 2001 over a failed water privatisation project. After five years of intense public pressure, the company dropped the case in 2006.
   In their petition, the NGOs said that on 31 October 2007, ICSID registered a case against Bolivia submitted by ETI and that ICSID is preparing to constitute a tribunal for this case by the end of January 2008.
   The NGOs find these actions objectionable for three reasons.
   Firstly, ICSID is allowing this case to go forward, despite the fact that the Bolivian government has withdrawn from the ICSID convention.
   On May 2, 2007, the Bolivian government became the first in the world to withdraw its consent to allow ICSID to arbitrate disputes arising from investments in its territory. In taking this step, the government followed proper procedures in accordance with the ICSID convention and thus now denies that it is subject to ICSID jurisdiction.
   "Determining jurisdiction in this case requires deciding on the meaning of the Convention itself regarding the rules of exit," said the petition. "This is not an appropriate question for an investment tribunal, particularly one that is associated with the World Bank, the administrator of the Convention."
   The NGOs added that the Bolivian government has also raised justifiable concerns about an investor-to-state dispute settlement system that allows private corporations to undermine democratic processes and places unjust financial burdens on governments, particularly in the developing world.
   The previous Bolivian administration spent five years fighting a case brought by Aguas del Tunari, a subsidiary of Bechtel, over a failed water privatisation project. Although Bechtel eventually settled the case for a token sum, the Bolivian government incurred considerable legal costs, draining funds that could have been used to meet basic needs in South America's poorest country.
   The NGOs demanded that ICSID should respect the Bolivian government's decision and stop the ETI case from going forward. Failure to respect the Bolivian government's decision to withdraw from ICSID would only give further credence to the view that this is a system which undermines national sovereignty in favour of the interests of private corporations.
   Secondly, ICSID's moves appear designed to make an example of Bolivia, at a time when other countries are questioning the investor-to-state arbitration system, said the NGOs.
   On November 23, 2007, the Ecuadorian government notified ICSID that it would not accept its jurisdiction in cases stemming from disputes over non-renewable resources.
   The Argentine government has also raised concerns over flaws in the system, after being hit by more than 30 investor claims in recent years, many of them in retaliation for actions taken to alleviate the pain of financial crisis on average citizens.
   Venezuela and Nicaragua joined Bolivia in a joint declaration criticising ICSID on 29 April 2007, while the Australian government refused to accept investor-state dispute resolution in a 2004 trade pact with the United States.
   The NGOs proposed that ICSID/World Bank officials should treat these concerns seriously, rather than sending a signal that governments are trapped in this system - even if they take proper steps to withdraw.
   They called on the World Bank to establish an independent review panel to examine how ICSID (and the investment treaties and trade agreements it enforces) undermines other international treaties that promote social, economic, and human rights, as well as developing countries' capacity to reduce external debts and achieve the Millennium Development Goals.
   Thirdly, said the NGOs' petition, the subject of ETI's dispute, telecommunications regulation, is an issue with broad social implications that is inappropriate for an international commercial arbitration tribunal.
   Governments should have every right to ensure that the telecommunications sector meets social objectives, including universal, affordable access to services and sustainable employment. The World Bank, however, has consistently promoted privatisation and deregulation as the only means of developing this (and most other) economic sectors.
   "Thus, it is particularly inappropriate for ICSID to handle the ETI case, which stems from constitutionally sanctioned actions by the Bolivian government to ensure that telecommunications privatisation benefits Bolivian society and to explore options for increasing the government's ownership share of the system," said the NGOs.
   It is also worth noting that although ETI claims that the Bolivian government has "destroyed the value" of its investment, the company continues to operate and generate profits in that country.
   The NGOs proposed that ICSID should decline to handle the ETI v Bolivia case, not only because Bolivia is no longer a party to the ICSID convention, but also because this matter would best be handled through domestic regulatory and legal remedies, as the Bolivian government has suggested.
   Copies of the petition were also sent to Ana Palacio (ICSID Secretary-General), Franco Bernabe (CEO, Telecom Italia), and Cesar Alierta Izuel (CEO, Spanish Telefonica).
   The petition by such a large number of NGOs has highlighted the grievances that some governments have against ICSID in particular and the dispute system in investment agreements in general.
   In May 2007, Bolivia's Ambassador for Trade, Pablo Solon, explained in an interview when his country had decided to withdraw from ICSID.
   First, he said, ICSID was an unbalanced arbitration tribunal used by multinationals to challenge states. Out of 232 cases, 230 were brought by companies against states.
   Second, the tribunal meets behind closed doors, makes their own rules and its decisions cannot e challenged.
   Third, it is very expensive for governments of developing countries to defend themselves as a case would cost US$3 million in legal fees, travel and expert advice.
   Fourth, the tribunal is used by transnational companies to seek damages of many millions of dollars as their claims can involve not only loss of investments but also the loss of future profits.
   And finally, said Solon, the World Bank is often both the judge and the jury in the ICSID process.
   The Bolivian critique of the ICSID is supported by a detailed study on bilateral investment treaties and the ICSID system, "Challenging corporate investor rule", which was published by the Institute for Policy Studies and Food and Water Watch in April 2007.
   According to a summary of the study: "The current system of international investment protections has granted excessive powers to global corporations. In a growing number of cases, powerful firms have exploited these rules to undermine democratic processes at the expense of vulnerable communities and the environment."
   Meanwhile, there is scant evidence that these deals bring strong benefits for national economies. "Policy makers should seriously weigh the risks before signing any deals that expand this flawed and unbalanced system," said the study.
   The report also highlighted the following facts:
   - There were 2,500 bilateral investment treaties in existence in 2006, and 255 known investor-to-state lawsuits had been filed by November 2006 (two-thirds of these since 2002).
   - The overwhelming number of the concluded and pending ICSID cases that have been filed against developing countries. Of the total, 74 per cent were filed against middle-income developing countries, 19 per cent against low-income developing countries and only 1.4 per cent against the G8 industrial countries (all of them against the United States). One third of the pending ICSID cases (32 out of 109) are against Argentina.
   - The odds are very high that investors will win the ICSID cases, as 36 per cent of the rulings are in favour of investors while 34 per cent of cases were settled out of court with compensation to the investor.
   - Investor-state claims are often disputes over public services and natural resources. 42 per cent of cases involved public services (water, electricity, telecoms, waste management) while 29 per cent of cases involved oil, gas and mining.
   - The largest award paid in an investor-state case was US$877 million which the Slovak Republic paid to the Czech bank CSOB.
   -Third World Network Features

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The World Bank (WB) on January 10 approved IDA financing totalling US $247 million to help Bangladesh recover from the dual shocks of the August flooding and November cyclone, which caused significant loss of life and enormous social, human, and economic costs, says a press release. Of this total, US $170 million takes the form of additional credits, and US $52 million consists of reallocation of funds within ongoing projects toward flood restoration. Another US $25 million is being made available for cyclone recovery through existing projects.
   Praful Patel, World Bank Vice President for the South Asia region, who recently visited the cyclone affected areas, said the bank's support is designed to help the country cope with the strain on the economy and the immediate relief needs of nearly nine million cyclone victims.
   "Having witnessed the cyclone devastation first hand, the challenges are enormous to rebuild lives, and restore incomes, and livelihoods," said Patel. "Emergency spending is critical to address short-term needs of those affected by the cyclone - through programs such as cash or food assistance to households, grants and loans to help rebuild damaged homesteads and replace lost assets, and rehabilitation of damaged infrastructure."
   Patel said the WB's longer term focus is on disaster prevention and management. "Adaptation interventions are critical for Bangladesh in particular where climate change is projected to increase the intensity and frequency of natural disasters."
   The second Supplemental Financing of US $100 million to the Fourth Development Support Credit will allow the Government to undertake emergency spending without foregoing planned critical development expenditures. It will also enable it to remain on track in implementing its policy and institutional reform agenda. Another US $25 million is being reallocated within ongoing projects for medicine, power and clean water supply infrastructure.
   Additional financing of US$70 million will be used to support the Emergency 2007 Flood Restoration and Recovery Assistance Program in Bangladesh. The floods directly affected over 13 million people in 46 districts, caused over 1,000 deaths, affected over 2 million acres of agricultural land, and damaged infrastructure, social and educational facilities and private assets, including housing, crops, livestock, and fisheries.
   "Our estimates indicate that the total impact of the floods was about US$1.4 billion, constituting about 2 percent of GDP," said Xian Zhu, World Bank Country Director for Bangladesh. . "This assistance will help Bangladesh rebuild houses, transport infrastructure, crops, fisheries, livestock, schools and education centers, and individual and community water and sanitation facilities."
   This floods support package is designed to ensure speedy recovery and reconstruction through additional financing to three existing Bank projects ? Municipal Services Project (US$25 million), Rural Transport Improvement (US$20 million), and Social Investment Program (US$25 million provided as grant). It will rehabilitate infrastructure, including flood protection embankments, urban and rural roads and bridges, primary and secondary schools, municipal infrastructure, and flood proofing of all rehabilitation. It also aims to restore livelihoods for the affected poor through micro credit, emergency assistance funds, community infrastructure activities, skills development, and income generating activities.
   The credits from the International Development Association (IDA), the World Bank's concessionary arm, have 40 years to maturity, including a 10-year grace period; it carries a service charge of 0.75 per cent.

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