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THIRD WORLD Investment Accords Come Under Growing Scrutiny EconomicsTHIRD WORLD TRENdS & ANAlySiS Published by the Third World Network KDN: PP 6946/07/2013(032707) ISSN: 0128-4134 Issue No 581 16 30 November 2014 Investment accords come under growing scrutiny More voices are being raised, not only in developing but in devel- oped countries as well, questioning the wisdom of signing trade and investment agreements which would allow foreign investors to sue governments in international tribunals. The increasing calls for a rethink of such treaties are prompted, among others, by concerns over bias and flaws in the so-called investor-state dispute settlement system. l Tide turns on investor treaties p2 l Investment treaties bring more risk than benefit p3 Also in this issue: Water services flowing back into Cosmetic changes to fundamen- public hands p9 tally flawed World Bank report p5 Analysis: TTIP may lead to EU Trade deals sow seeds of injustice dis-integration, unemployment, p7 instability p11 No 581 Third World Economics 16 30 November 2014 1 CURRENT REPORTS Investment agreements THIRD WORLD Economics Tide turns on investor treaties Trends & Analysis 131 Jalan Macalister The winds of change are blowing against trade and investment treaties 10400 Penang, Malaysia that contain the investor-sue-the-state system, which is now described as Tel: (60-4) 2266728/2266159 toxic by Western politicians and media. Fax: (60-4) 2264505 Email: [email protected] Website: www.twn.my by Martin Khor Contents The tide is turning against the controver- claiming many billions of euros of lost sial system in which foreign companies profits because of new German policies CURRENT REPORTS are allowed to sue governments of their to phase out nuclear power and to 2 Tide turns on investor treaties host countries in a foreign court for mil- tighten emissions regulations in power 3 Investment treaties bring more risk lions or billions of dollars. plants. That the country’s environmen- than benefit At first it was the developing coun- tal policies are being challenged in such tries that started to rebel against the sys- an audacious way, and that this is made 5 Cosmetic changes to fundamentally flawed World Bank report tem, known as investor-state dispute possible by a skewed ISDS system, out- settlement (ISDS), which is embedded raged the public, the parliament and the 7 Trade deals sow seeds of injustice within bilateral investment treaties government. 9 Water services flowing back into (BITs) or in free trade agreements (FTAs). Germany was not the first devel- public hands South Africa, Indonesia and Bolivia oped country to turn around. A few ANALYSIS have withdrawn from the BITs they years ago, Australia decided not to en- 11 TTIP may lead to EU dis-integration, signed with other countries, following ter any new BITs or FTAs that contain unemployment, instability cases taken against them by multina- ISDS, after its government was sued for tional companies that made claims of up billions of dollars by Philip Morris for to $3 billion, in the case of Indonesia ver- its policy requiring minimum display of sus a British oil company. corporate logos on cigarette packages. Other developing countries are re- The new Australian government has viewing their BITs or weighing whether since watered down this ban by consid- to sign up to FTAs they are negotiating ering membership of FTAs with ISDS on that contain the ISDS system. a case-by-case basis. It is a matter of time before many of Meanwhile, two of the new top offi- THIRD WORLD ECONOMICS is published fortnightly by the Third World them decide to pull out or give notice cials of the European Commission, the Network, a grouping of organisations and that they are allowing existing BITs to President and the Trade Commissioner, individuals involved in Third World and development issues. expire without being renewed. both made known their scepticism if not opposition to ISDS when they took of- Publisher: S.M. Mohamed Idris; Editor: Chakravarthi Raghavan; Editorial Assistants: Developed-country opposition fice a few weeks ago. The Trade Com- Lean Ka-Min, T. Rajamoorthy; Contributing Edi- tors: Roberto Bissio, Charles Abugre; Staff: Linda missioner even called ISDS “toxic”. Both Ooi (Administration), Susila Vangar (Design), More surprising is that the disquiet officials hinted that they would make it Evelyne Hong & Lim Jee Yuan (Advisors). against ISDS has spread to prominent difficult for future EU trade deals to con- l Annual subscription rates: Third World coun- developed countries, their institutions tain ISDS. tries US$75 (airmail) or US$55 (surface mail); In- dia Rs900 (airmail) or Rs500 (surface mail); Ma- and establishment media. The new EC leaders were partly re- laysia RM110; Others US$95 (airmail) or US$75 The German government shocked sponding to the European Parliament, (surface mail). Europe when it announced it would not many of whose members are strongly l Subscribers in India: Payments and enquiries sign up to a free trade agreement that the opposed to having ISDS in the TTIP. can be sent to: The Other India Bookstore, Above Mapusa Clinic, Mapusa 403 507, Goa, India. European Commission had concluded European non-governmental orga- with Canada on behalf of the 28 Euro- nizations are also up in arms against l Subscribers in Malaysia: Please pay by credit card/crossed cheque/postal order. pean Union states because it contains the ISDS, accusing the international tribu- ISDS system. It is inconceivable that the nals that hear the cases of being heavily l Orders from Australia, Brunei, Indonesia, Phil- ippines, Singapore, Thailand, UK, USA: Please FTA can take effect if Europe’s biggest biased in favour of investors and against pay by credit card/cheque/bank draft/interna- economy refuses to be part of it. the states, and also of being riddled with tional money order in own currency, US$ or euro. If paying in own currency or euro, please calcu- Germany has also made clear it does conflict-of-interest situations. late equivalent of US$ rate. If paying in US$, please ensure that the agent bank is located in the USA. not want the ISDS system to be inside The same 10 to 20 law firms act as the Transatlantic Trade and Investment lawyers in some cases and as arbitrators l Rest of the world: Please pay by credit card/ cheque/bank draft/international money order in Partnership (TTIP) that the European in others. In one case, the chair of a tri- US$ or euro. If paying in euro, please calculate Commission is negotiating with the bunal that ruled against Argentina was equivalent of US$ rate. If paying in US$, please ensure that the agent bank is located in the USA. United States. later found to be a board member of the This is a remarkable turnaround parent company of the firm that sued Visit our web site at http://www.twn.my. since Germany has been one of the main and won. Yet a review panel ruled that Printed by Jutaprint, No. 2, Solok Sungei Pinang advocates of BITs. One reason for this is the decision would remain and that there 3, Sungai Pinang, 11600 Penang, Malaysia. that two cases have been brought against was no need for the case to be heard © Third World Network the country by a Swedish company again by another panel. 2 Third World Economics 16 30 November 2014 No 581 CURRENT REPORTS Investment agreements Another blow against the ISDS sys- the UN Conference on Trade and Devel- After foreign firms attacked the tem came when the Secretary-General of opment in Geneva in October. black empowerment law, South Africa the OECD, the club of developed coun- The criticisms against ISDS include put in process an all-inclusive multi- tries, wrote an opinion piece on the “in- that the provisions of the treaties are stakeholder review of all its bilateral in- creasing problems” of the investment problematic, the arbitration system is vestment treaties. The government con- treaties. biased and flawed, and that national cluded that these treaties were inconsis- Then the Financial Times and The laws, parliaments and government poli- tent with its new constitution that aimed Economist, the two most prominent pro- cies are being seriously undermined by to restore the human rights and improve free enterprise newspapers in the West- allowing foreign investors to bypass the employment prospects of South Af- ern world, also joined in the onslaught them by taking up cases in international ricans. Bilateral investment treaties, the against BITs. The FT even published a tribunals that do not take account of the review found, “pose risks and limitations full-page article on what it headlined as national laws when making their deci- on the ability of the government to pur- “toxic deals.” sions.ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿp sue its constitutional-based transforma- The winds of change were also evi- tion agenda.” Since this review, South dent when many governments and or- Martin Khor is Executive Director of the South Africa has further concluded that “bilat- Centre, an intergovernmental policy think-tank of ganizations spoke in favour of urgent developing countries, and former Director of the eral investment treaties were now out- reform of the whole ISDS system at the Third World Network. This article first appeared dated and posed growing risks to World Investment Forum organized by in The Star (Malaysia) (24 November 2014). policymaking in the public interest.” On that basis, the government has recently moved to terminate many of its Investment treaties bring more risk than bilateral investment treaties. South Af- benefit rica is far from thumbing its nose at for- eign capital. Alongside the carefully ne- Developed countries rethinking the merits of investment accords can look gotiated withdrawal from its treaties, to South Africa and Ecuador for examples of the potential harm these South Africa is willing to renegotiate them.
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