Several countries
are reviewing these agreements, prompted by the number of cases brought
by foreign companies who claim that changes in government policies
affect their future profits.
THE tide is turning against investment treaties that allow foreign
investors to take up cases against host governments and claim
compensation of up to billions of dollars.
Indonesia has given notice it will terminate its bilateral
investment treaty (BIT) with the Netherlands, according to a statement
issued by the Dutch embassy in Jakarta last week.
“The Indonesian Government has also mentioned it intends to
terminate all of its 67 bilateral investment treaties,” according to the
statement.
It has not been confirmed by Indonesia. But if this is correct,
Indonesia joins South Africa, which last year announced it is ending all
its BITS.
Several other countries are also reviewing their investment treaties.
This is prompted by increasing numbers of cases being brought
against governments by foreign companies who claim that changes in
government policies or contracts affect their future profits.
Many countries have been asked to pay large compensations to companies under the treaties.
The biggest claim was against Ecuador, which has to compensate an
American oil company US$2.3bil (RM7.6bil) for cancelling a contract.
The system empowering investors to sue governments in an
international tribunal, thus bypassing national laws and courts, is a
subject of controversy in Malaysia because it is part of the
Trans-Pacific Partnership Agreement (TPPA) which the country is
negotiating with 11 other countries.
The investor-state dispute settlement (ISDS) system is contained in
free trade agreements (especially those involving the United States) and
also in BITS which countries sign among themselves to protect foreign
investors’ rights.
When these treaties containing ISDS were signed, many countries did
not know they were opening themselves to legal cases that foreign
investors can take up under loosely worded provisions that allow them to
win cases where they claim they have not been treated fairly or that
their expected revenues have been expropriated.
Indonesia and South Africa are among many countries that faced such cases.
The Indonesian government has been taken to the International Centre
for Settlement of Investment Disputes (ICSID) tribunal based in
Washington by a British company, Churchill Mining, which claimed the
government violated the United Kingdom-Indonesia BIT when its contract
with a local government in East Kalimantan was cancelled.
Reports indicate the company is claiming compensation of US$1bil to US$2bil (RM3.3bil to RM6.6bil) in losses.
This and other cases taken against Indonesia prompted the government to review whether it should retain its many BITS.
South Africa had also been sued by a British mining company which
claimed losses after the government introduced policies to boost the
economic capacity of the blacks to redress apartheid policies.
India is also reviewing its BITS, after many companies filed cases
after the Supreme Court cancelled their 2G mobile communications
licences in the wake of a high-profile corruption scandal linked to the
granting of the licences.
But it is not only developing countries that are getting
disillusioned by the ISDS. Europe is getting cold feet over the
investor-state dispute mechanism in the Trans-Atlantic trade agreement
(TTIP) it is negotiating with the United States, similar to the
mechanism in the TPPA.
Two weeks ago, Germany told the European Commission that the TTIP must not have the investor-state dispute mechanism.
Brigitte Zypries, a junior economy minister, told the German
parliament that Berlin was determined to exclude arbitration rights from
the Transatlantic Trade and Investment Partnership (TTIP) deal,
according to the
Financial Times.
“From the perspective of the [German] federal government, US
investors in the European Union have sufficient legal protection in the
national courts,” she said.
The French trade minister had earlier voiced opposition to ISDS,
while a report commissioned by the UK government also pointed out
problems with the mechanism.
The European disillusionment has two causes.
ISDS cases are also affecting the countries. Germany has been taken
to ICSID by a Swedish company Vattenfall which claimed it suffered over a
billion euros in losses resulting from the government’s decision to
phase out nuclear power after the Fukushima disaster.
And the European public is getting upset over the investment system.
Two European organisations last year published a report showing how the
international investment arbitration system is monopolised by a few big
law firms, how the tribunals are riddled with conflicts of interest and
the arbitrary nature of tribunal decisions.
That report caused shock waves not only in the civil society but also among European policy makers.
In January, the European Commission suspended negotiations with the
United States on the ISDS provisions in the TTIP, and announced it would
hold 90 days of consultations with the public over the issue.
In Australia, the previous government decided it would not have an
ISDS clause in its future FTAs and BITS, following a case taken against
it by Philip Morris International which claimed loss of profits because
of laws requiring only plain packaging on cigarette boxes.
In Malaysia, the ISDS is one of the major controversial issues
relating to the TPPA. Many business, professional and public-interest
groups want the government to exclude the ISDS as a “red line” in the
TPPA negotiations.
Prime Minister Datuk Seri Najib Tun Razak had also mentioned
investment policy and ISDS as one of the issues (the others being
government procurement and state-owned enterprises) in the TTPA that may
impinge on national sovereignty, when he was at the Asia-Pacific
Economic Cooperation Summit and TPPA Summit in Indonesia last year.
So far, the United States has stuck to its position that ISDS has to
be part of the TPPA and TTIP. However, if the emerging European
opposition affects the TTIP negotiations, it could affect the TPPA as
this would strengthen the position of those opposed to ISDS.
Meanwhile, we can also expect more countries to review their BITS.
Developing countries seeking to end their bilateral agreements with
European countries can point to the fact that more and more European
countries are themselves having second thoughts about the ISDS.
Contributed by Martin Khor Global Trends The Star/ANN
- The views expressed are entirely the writer’s own.
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