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FINANCE: Bias Seen in Int’l Dispute Arbiters

Emad Mekay

WASHINGTON, Jun 19 2007 (IPS) - A little known entity closely affiliated with the World Bank that mediates disputes between sovereign nations and foreign investors appears to be skewed toward corporations in Northern countries, according to an IPS review of pending cases and other independent analyses of the tribunals.

The administrative council of the Washington-based International Centre for Settlement of Investment Disputes (ICSID) consists of one representative from each of the 155 states that have ratified the centre’s founding convention. However, most of the arbiters who actually decide cases hail from industrialised countries, when most of the defendants are developing nations.

While submitting to the ICSID’s three-member arbitration panels is technically voluntary, many bilateral investment treaties require countries to agree to the centre’s jurisdiction.

The centre has facilitated arbitration on 234 cases since its inception in 1966, according to its website data.

Of the 300 judges who are looking into 111 pending cases at the ICSID, only 63 came from developing nations. In just one case was the three-member tribunal comprised entirely of arbiters from developing nations.

For example, the arbiters hearing a contract dispute by a U.S. power company, AES Corporation, against Argentina, come from France, Germany and Spain. Those judging another case by BP America, also against Argentina, come from Switzerland, France and the Netherlands.

In a case by the U.S. agricultural giant Cargill against Mexico, the arbiters are from the United States, Australia and Canada. In a case against Egypt by the Scandinavian hotel chain Helnan International, the arbiters are from France, Britain and Germany.

Earlier this year, citing suspicions of favouritism, three Latin America nations – Bolivia, Venezuela and Nicaragua – announced their intention to withdraw from the ICSID. ICSID officials tell IPS that only Bolivia has formally notified them of the decision, which will take effect this November.

“No country in the world has ever won in international arbitration,” complained Bolivian President Evo Morales. “Not the governments, not the nations, not the people. Only the companies win.”

Pablo Solón, Bolivia’s Special Ambassador for Trade and Integration, cited a case brought by Aguas de Illimani, a subsidiary of the French international water giant Suez. Apparently, the International Finance Corporation, an arm of the World Bank Group, was a shareholder in Aguas de Illimani, creating a potential conflict of interest.

The Washington-based centre is legally autonomous, but is closely linked to the World Bank, which funds its secretariat. The World Bank president chairs the ICSID’s administrative council. Critics point out that the Bank itself has long been accused of promoting the interests of the industrialised nations that control its board, such as the United States, Japan and European countries.

The Bretton Woods Project, a Bank watchdog group, notes that hearings are often held in Washington, Paris or London – “convenient for northern investors, but thousands of miles away from where the potentially affected citizen lives.”

The ICSID’s proceedings are mostly secret. ICSID officials say this is necessary to protect the privacy of parties, and case details are only announced after a ruling has been made.

The World Bank did not respond to repeated IPS requests for comment. However, an official with the centre speaking on condition of anonymity strongly denied that it favoured foreign investors from rich nations. The source said the centre merely “administrates” cases and that the parties involved choose the judges and arbiters.

But observers point out that that those judges come from a small pool and are mostly nationals of industralised countries.

Sara Grusky of Water and Food Watch says that developing countries have their hands tied by bilateral investment treaties and free trade agreements, which force them to abide by the rulings of the ICSID and other arbitration forums.

ICSID rulings are largely based on some 20 investment laws and over 900 bilateral investment treaties. About 70 percent of the disputes involve private investment in public services such as water, electricity, and telecommunications, or investments in natural resources such as oil, gas and mining.

“It’s very much an insider’s system,” Grusky said. “Most of the attorneys that are certified to participate in the tribunals are from industrialised countries.”

“This is extremely problematic because contrary to the judicial court system, where there’s a separation between judge and the attorney, the judge, the jury and the attorney are all played by one person,” she said. “So you have this situation where you have a huge conflict of interest.”

In recent years, the number of cases submitted to the centre has increased significantly because of the corporate-led wave of globalisation that has created a plethora of bilateral investment treaties and free trade agreements. The ICSID has become the leading arbitration institution for resolution of investor-state disputes, bringing it further under the spotlight.

In April, the Institute for Policy Studies, a U.S. think tank, and Food and Water Watch, a non-governmental organisation that monitors water investments, jointly published a study that found that 93 percent of the ICSID’s cases were against developing countries.

The 48-page study said that 74 percent of concluded and pending cases were filed against “middle-income developing countries” and 19 percent against “low-income developing countries”. Only 1.4 percent of all cases were filed against nations from the powerful Group of Eight most industrialised nations.

According to the report, ICSID tribunals have ruled in favour of the investor and ordered the government to pay compensation in nearly 70 percent of cases – many of which carry hefty penalties.

The largest damage award paid in an investor-state case was 877 million dollars, by the Slovak Republic to the Czech bank CSOB, the report found. The largest pending damage claim is 28.3 billion dollars by the British-based Group Menatep against Russia over alleged expropriation of the Russian oil giant Yukos. Menatep was a major shareholder in Yukos.

“The report exposes an international investment system that right now is designed primarily to benefit large corporations regardless of the cost for democracy, the environment and communities,” Sarah Anderson of the Institute for Policy Studies told IPS. The study showed that countries of the former Soviet bloc and in Latin America that rapidly privatised state enterprises and opened their doors to foreign investment have ended up fighting the greatest number of claims.

Cases include disputes between the U.S.-based Occidental Petroleum Corporation, which has filed claims against Ecuador, and the U.S. mining firm Newmont USA, against the Republic of Uzbekistan. They have also pitted corporate giants like DaimlerChrysler Services AG, Total, Enron Corporation and BP against Argentina.

Ares International of Italy is seeking settlement against Georgia, and Shell is in a dispute with Nigeria.

The IPS review also found that nations such as Chile, Egypt, Panama, Congo, Kenya, Burundi, Venezuela and Indonesia, among many others, are fending off billions of dollars in claims from companies like Siemens of Germany, SGS Société Générale de Surveillance of France, Eni of Italy, Mobil, and BP America.

“The system is set up in a way that’s so prejudiced against governments, and it gives corporations the power of sovereign governments,” said Sara Grusky, co-author of the report. “Governments cannot file cases. Multinational corporations are having a hard time in the domestic court system. So this is a way to give them special court system that they can use.”

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