Dealing with the TNCs
Threatened by billion-dollar lawsuits arising from investment treaties, several governments have formed a new grouping to deal with transnational companies.
LEADERS of several Latin American countries have set up a new coalition to coordinate actions to face the growing number of international legal suits being taken against governments by transnational companies.
A ministerial meeting of 12 countries held in Guayaquil, Ecuador, decided on several joint actions to counter the threat posed by these lawsuits, which have claimed millions or even billions of dollars from governments.
“No more should small countries face lawsuits from big companies by themselves,” said Ecuador Foreign Minister Ricardo Patino at a media conference after the meeting which he chaired.
“We have now decided to deal with the challenges posed by these transnational companies in a coordinated way.”
Seven of the countries, mostly represented by their ministers of foreign affairs, trade or finance, adopted a declaration with an agreement to form a conference of states affected by transnational interests.
They are Ecuador, Bolivia, Cuba, Nicaragua, Dominican Republic, St Vincent and the Grenadines as well as Venezuela.
Representatives of another five countries (Argentina, Guatemala, El Salvador, Honduras and Mexico) also attended the meeting and will convey the results to their respective governments.
The ministers decided to set up an executive committee, initially led by Ecuador to coordinate political and legal actions including sending information on legal disputes involving the states, coordinating joint legal actions and disseminating information to the public.
They also agreed to establish a regional arbitration centre for settling investment disputes, based on fair and balanced rules when settling disputes between corporations and States.
The proposed centre is to provide an alternative to existing international tribunals which are seen as biased in favour of investors’ interests.
The tribunals, such as ICSID (based at the World Bank in Washington), have also been accused of being mired in conflict of interest situations.
Only a few arbitrators hear a majority of cases, with many of them also appearing as lawyers for companies in other cases, and some being board members of transnational companies.
The ministers also decided to create an “international observatory” to monitor and analyse investment cases, to reform the present arbitration system and suggest alternative mechanisms for fair mediation between states and transnational companies.
The observatory would also promote coordination between the judicial systems of Latin American states, to ensure the enforcement of domestic judicial decisions on disputes between states and transnational corporations.
It should also give advice to governments on their negotiations with transnational corporations, especially in trade and investment contracts.
The meeting had been prompted by serious concerns arising from investment cases taken by transnational companies against the governments under bilateral investment treaties and free trade agreements that enable these companies to sue for loss of future profits due.
For example, to new government regulations or a cancellation or amendment of a contract.
There have been more than 500 known investor-to-state cases, 60 alone in 2012.
Some countries in the region, such as Argentina, Ecuador, Venezuela and Mexico each had 20 to 30 cases taken against them.
The proliferation of cases in recent years has also affected developing countries in other regions, such as South Africa, India, Indonesia and Vietnam, as well as many developed countries.
Disillusionment with the agreements and the arbitration system has prompted a variety of actions by governments such as the suspension of negotiations for new treaties, attempts to renegotiate or withdraw from existing treaties, and withdrawal from the jurisdiction of the ICSID tribunal.
Ecuador Vice-President Jorge Glas Espinel briefed the meeting about two arbitration disputes taken against his government by oil companies under bilateral investment treaties (BITs), and on the tribunal judgments which in his view were unfair and even outrageous.
In one of the cases, Ecuador was asked to pay US$2.3bil (RM6.98bil) compensation (including interest) to the American oil company Oxy even though the arbitrators recognised that the company had broken the terms of its contract with the government.
Other ministers and officials also presented the experiences of their countries in cases taken against them by foreign investors, and proposed actions that could be taken to avoid future cases or reduce their effects.
A background note explaining the reason for the meeting said that arbitration proceedings and claims by European and US multinational companies against a growing number of states of the South have dramatically increased.
These costly litigations, the majority of which were decided in favour of the investors, not only affect the states’ fiscal situation but pose a serious challenge to their national jurisdiction and sovereignty.
The costly litigations also compromised on-going development plans in Latin America and other regions.
This problem originated in the 1990s when bilateral investment treaties were signed by developing countries in the expectation of attracting foreign investments, but the negative consequences of such commitments have now become evident, said the note.
A second meeting of the newly formed grouping will be held in Caracas in July.