By Federico Lavopa
BUENOS AIRES, Aug 12 2015 (IPS)

The investor-state dispute settlement (ISDS) system has come under increasing criticism in recent years.

Inconsistent decisions, poorly reasoned awards, lack of transparency, parallel proceedings, serious doubts about arbitrator’s impartiality and the sheer size of the compensations sought by investors and awarded by arbitration tribunals are just some examples of the flaws that have been pointed out by detractors of the system.

Federico Lavopa

The dozens of cases that were initiated against Argentina as a result of the outburst of one of its worst economic and financial crises in late 2001 became an often-quoted sad illustration of many of these shortcomings of the ISDS system.

Apart from the tragic consequences entailed by the economic and political crisis which was faced by Argentina, in particular in 2001/2002, which included a fall in gross domestic product (GDP) per capita of 50 percent, an unemployment rate of over 20 percent, a poverty rate of 50 percent, strikes, demonstrations, violent clashes with the police, dozens of civil casualties and a succession of five presidents in 10 days, Argentina received a flood of claims from foreign investors that were filed under different ISDS mechanisms and, in particular, before the International Centre for Settlement of Investment Disputes (ICSID).

Indeed, in the period 2003-2007, claims against Argentina represented one-quarter of all the cases initiated within the framework of the ICSID Convention. These claims before international arbitral tribunals challenged the changes to the economic rules that Argentina had implemented to contain the effects of perhaps the worst economic cycle of its history.

After 1991, Argentina had embarked on an economic deregulation and liberalisation programme. Among others, this programme included the convertibility of the Argentine peso and the creation of a currency board to maintain parity between the peso and the U.S. dollar by limiting the local money supply to the amount of Argentina’s foreign exchange reserves. “If all investors that sued Argentina had obtained 100 percent of their claims, the total amount that the country should have had to bear would have been at around 80 billion dollars”

This economic and pro-market programme was accompanied by a strong emphasis on the attraction of foreign investment which, among other aspects, resulted in the conclusion of 58 bilateral investment treaties (BITs) – 55 of which came into effect.

It also included a mass privatisation process of public companies which, at that time, represented an important part of the domestic economy.

This market-oriented model reached its limits in the late 1990s, and in May 2003 a new president took office, whose government reformed the regulatory framework for the economy – particularly that for the public services privatised over the 1990s – and introduced a package of emergency laws which implied a considerable change in the conditions under which foreign investors and, in particular, public services providers had to run their business in Argentina.

As a consequence, many of them decided to resort to the investor-state dispute settlement mechanisms embodied in the dozens of bilateral investment treaties that Argentina had signed in the 1990s. In total, in the period 2001-2012, exactly 50 cases were filed against Argentina.

A striking characteristic of the Argentinian experience is the amount of requests for compensations made by the companies that sued Argentina. According to estimates made when the peak of cases following the crisis was reached, if all investors that sued Argentina had obtained 100 percent of their claims, the total amount that the country should have had to bear would have been at around 80 billion dollars.

This sum would have been practically impossible to pay, even if Argentina had not been undergoing a period of acute economic crisis, because it represented approximately 13 percent of Argentina’s GDP for 2013.

Although Argentina’s response to this flood of cases was varied and it is still early to offer definite figures, it is already possible to conclude that, in general, arbitration tribunals were prone to render awards in favour of investors.

Almost 45 percent of the cases have received a condemnatory award, although most of these cases could still be reversed by annulment proceedings, whereas only 15 percent of the arbitration proceedings ended up with a final decision completely in favour of Argentina. The remaining 30 percent are mostly cases which resulted in an agreement between the parties or which were altogether suspended.

All in all, of the 80 billion dollars of the possible amount of compensations calculated when the peak of cases against Argentina was reached following the crisis, Argentina has so far received final rulings involving the payment of 900 million dollars.

The first salient conclusion is that the ISDS system has a very low capacity to adapt to totally exceptional circumstances for which it does not seem to have been designed. Despite the efforts of Argentinian attorneys to show that the measures implemented in the post-crisis period were adopted in an emergency context, being so exceptional as to justify any breach of the substantial clauses of the BITs, few tribunals were prepared to sustain this defence.

This notwithstanding, and with most of these cases having already been dealt with, the upcoming scenario for Argentina seems much less drastic than that forecast when the peak of cases was reached.

While they represent a heavy burden for a developing country like Argentina, so far the compensations actually paid amount to a small portion of the sum initially estimated.

The Argentinian case also represents a worrisome example of the failure of the ISDS system to ensure coherence and soundness in its decisions.

Although the dozens of cases submitted against Argentina addressed exactly the same package of measures (the post-crisis emergency laws) and  had to assess very similar arguments of the different claimants and a practically identical series of defences put forward by the Argentinian government, the conclusions at which they arrived have shown striking differences.

Additionally, some of the decisions have been subject to strong criticism and/or declared null and void by annulment committees.

Finally, the experience of Argentina shows the difficulties that arbitration tribunals might encounter when trying to scrutinise the economic policy choices made by governments. On top of the sensitiveness of examining sovereign decisions of States, arbitrators might find themselves in the awkward situation of deciding on highly technical matters which they are clearly ill-equipped to assess.

The case of Argentina thus represents a sad example of the urgent need to reconsider and reform the ISDS system. Yet, the lessons to be drawn from this experience do not seem to lead to clear conclusions about which direction to take.

On the one hand, the system has proved to be extremely inflexible, which prevented it from addressing the exceptional peculiarities of the Argentinian case. On the other hand, however, the wide margin of discretion available for the arbitral tribunals resulted in the adoption of inherently poor decisions, and with high levels of incoherence among them. (END/COLUMNIST SERVICE)

Edited by Phil Harris   

The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, IPS – Inter Press Service. 

*  This column is based on a paper with the same title published as South Centre Investment Policy Brief No 2, July 2015, available here.

Excerpt:

Hasina, one of the 2,438 Rana Plaza workers that came out alive, by the remains of the factory. Credit: Robert Stefanicki/IPS.

By Robert Stefanicki
DHAKA, Oct 30 2013 (IPS)

Six months after the worst man-made disaster in Bangladesh’s history, safety conditions in garment factories have a chance to improve. But not the lives of survivors or the victims’ next of kin.

On Apr. 24, the collapse of Rana Plaza factory building took 1,133 lives of mostly female workers. The disaster was too big to ignore. The unprecedented scale of the tragedy shocked people the world over, many of them dressed in clothes made in Bangladesh on request of giants such as Tesco, Carrefour, Benetton or Walmart.

Today, the site in the Dhaka suburb is enclosed by a barbed wire and metal fence covered with banners. ‘How long do we have to wait for compensation for the death of our parents ?’ asks one.“Foreign clients should not avoid responsibility, even if the workers’ imagination is too narrow to blame them."

What was left of Rana Plaza can be seen from the top floor of a neighbouring building. Debris has been cleared, but the bodies of two cars stick out of a vast pool of mud water.

“They were parked in an underground garage,” Hassan, one of the volunteer rescuers told IPS. His team, he said, took some 400 people out of the rubble.

A survivor, Hasina, pulled her scarf up showing a deformed right arm with extensive scars.

“That day I came to work at 8:30. I heard from my colleagues about the cracks in the wall. We did not want to enter the building, but the supervisor forced us,” she told IPS. “Then the power was gone and soon after it happened.”

A piece of the ceiling pinned Hasina down. She was rescued the same evening. Today the young woman can barely move her hand, and is unable to work.

Hasina received compensation of 36,000 taka (450 dollars). The Bangladesh Garment Manufactures & Exporters Association (BGMEA), a powerful guild, promised to pay survivors a salary, so Hasina still gets 10,000 taka a month.

She is undergoing rehabilitation. Treatment is free, but she complains that commuting by rickshaw costs 20 taka each time – an amount that adds up.

The Rana Plaza tragedy resulted in an outpouring of commitments from governments, local and global institutions, groups and individuals.

According to some reports, each family of the deceased and seriously injured received up to a million taka – but IPS did not meet anybody who got anything close to that amount.

The compensation was paid mostly by the government of Bangladesh. Irish retailer Primark (one of the brands whose clothes were produced at Rana Plaza) paid a short-term allowance of 16,000 taka (200 dollars) to each victim, in what unwittingly made Primark the most recognisable brand in Bangladesh.

Long-term compensation is still under negotiation. The bad omen was that in a September meeting on this issue organised in Geneva with the support of the United Nations International Labour Organisation (ILO), only nine of the 29 companies that ordered production at Rana Plaza were present.

With 3.6 million people working in the garment industry, Bangladesh is the world’s second-largest clothing exporter after China. About 60 percent of exports go to Europe and 23 percent to the United States. The minimum wage for a garment worker is 38 dollars a month, though after a massive street demonstration recently, an increase is imminent.

Yet the survivors are far from blaming the West for what happened at Rana Plaza. Usually they do not know which brand made an order for clothes they were sewing.

Abdulrahman, who lost his wife Sharifa in the collapse (he got a total of 136,000 taka, or 1,700 dollars, in compensation plus a rickshaw from local NGO Karmojibi Nari), does not even blame the owner of the building, since “he did not order the factory owners to place the power generators on the upper floor instead of on the ground floor.” It was the generators’ vibrations that caused the collapse.

Abdulrahman blames only the factory owners, who along with the building’s owner Sohel Rana, are under arrest, awaiting trial.

What penalty is appropriate for Sharifa’s death? “I don’t want the manufacturer to be hanged. A life sentence would be enough. And he should apologise,” the mourning widower said.

“Foreign clients should not avoid responsibility, even if the workers’ imagination is too narrow to blame them,” said Dr. Khondaker Moazzem of the Centre for Policy Dialogue in Dhaka.

According to the researcher, who co-authored the report ‘100 Days of Rana Plaza Tragedy’, the compensation paid to the victims so far is too small. “According to some independent calculations the injured workers should get an average of more than two million taka.”

Families of the missing are in the worst situation. So far, 332 workers have not been identified or found, and their relatives are in a limbo, with no right to any compensation.

For the garments industry, Rana Plaza seems to have been a wake-up call. Six months on, new deals to improve safety of the workers are in place.

One is called ‘The accord on fire and factory safety in Bangladesh’. It was signed (under pressure from customers and public opinion) by more than 100 retailers and brands, mostly from Europe. Before the end of this year they plan to start “independent” inspections at about 1,600 factories used by them.

In another measure, employees will be trained to exercise their rights, including the right to refuse entry into a building considered unsafe.

‘The alliance for Bangladesh worker safety’ has been set up, and 23 brands, mostly from the U.S., have joined. This factory safety deal is seen as less rigorous than the other accord because its signatories are not legally bound by their commitments, and it is not linked to unions or workers’ rights groups.

Not least, the government in Dhaka and the ILO, with the backing of the British and Dutch governments, have launched a 25-million-dollar plan to provide technical expertise for building and fire safety assessments in the country’s garment trade over the next three-and-a-half years.

Amid doubts on the supply of professional and incorruptible inspectors for the job, individual brands have already inspected more than 500 factories themselves.

Since the Rana Plaza disaster, the authorities in Bangladesh are more sensitive to any breach of safety rules and are keen to close unsafe factories as never before. The manufacturers themselves prefer to do that rather than to risk a new tragedy. The BGMEA has so far inspected 620 plants and ordered the closure of 20.

Everybody in Bangladesh agrees that such a tragedy must never be repeated. But the way ahead is far. Three weeks ago, a fire ripped through the Aswad garments factory in a Dhaka suburb. Ten workers died.

Residents of Saint Marc, in the Artibonite region of Haiti, wear masks to protect themselves against cholera. Credit: UN Photo/Sophia Paris

By Thalif Deen
UNITED NATIONS, Feb 22 2013 (IPS)

The United Nations has come under heavy political fire for its decision to deny compensation for thousands of victims of cholera in Haiti – a deadly disease spread by U.N. peacekeepers in the troubled Caribbean nation.

“The decision is really outrageous,” Michael Ratner of the Centre for Constitutional Rights, told IPS.

“Can it be where we live in a world where people under the U.N.s authority can cause a major epidemic and the U.N. claims its sympathetic, but will not lift a finger to compensate people of its wrongs?” he asked.If this were a private corporation that could be sued in a U.S. court, there is little doubt that it would end up paying hundreds of millions, if not billions in damages.

Ratner said the U.N.’s claims were the very definition of crocodile tears.

“When it comes to Haitians, it seems that no one cares. I believe that the secretary general (Ban Ki-moon) could have lifted any claimed immunity of the United Nations or its officials, but apparently he chose not to.”

Justice here is now delayed, “but ultimately I believe the Haitian people will prevail,” said Ratner, who also teaches international human rights litigation at Columbia University.

The United Nations could also face legal action internationally – perhaps going as far as the International Court of Justice (ICJ) in the Hague – despite its legal immunity as a protective shield.

Asked if the dispute could go to the ICJ, Mark Weisbrot, co-director of the Washington-based Center for Economic and Policy Research (CEPR), told IPS, “Well, that is another possibility.”

But it has to be kept in mind, he pointed out, that the United Nations is not just an independent actor here.

“Its actions in Haiti, like its deployment to Haiti, are determined by the United States and its allies in this situation (since there isn’t any group of nations opposing them),” he said. So, the responsibility is really with the “international community” who brought these troops to Haiti.

“If they wanted to clean up the mess they made, they could do it. And they will, if there is enough political pressure,” he added.

The ICJ, which is a judicial organ of the United Nations, primarily resolves disputes between and among U.N. member states.

On Thursday, U.N. spokesman Martin Nesirky told reporters that the representatives of cholera victims have been advised that their “claims are not receivable pursuant to Section 29 of the Convention on the Privileges and Immunities.”

Under this Section, the United Nations is required to make provisions for “appropriate modes of settlement” of private law disputes to which the world body is a party, or disputes involving a U.N. official who enjoys diplomatic immunity.

Nesirky also said he was not in a position to provide any details.

“It’s not the United Nations’ practice to discuss in public the details of, and the response to, claims filed against the organisation,” he told reporters.

The spread of cholera in Haiti, which has killed more than 7,500 and infected over 500,000 people since October 2010, has been sourced to the Nepali contingent of peacekeepers with the 9,500-strong U.N. Stabilisation Mission in Haiti (MINUSTAH).

Ban conveyed the U.N. decision to Haitian President Michel Martelly early this week.

The families of the next of kin sought a minimum of about 100,000 dollars for each Haitian killed in the cholera epidemic.

Last December, the United Nations launched a two-billion-dollar humanitarian appeal to fight the epidemic.

Phyllis Bennis, director of the New Internationalism Project at the Institute for Policy Studies and author of several books on the United Nations, told IPS, “The apparently unprecedented effort to hold the U.N. institutionally accountable for the consequences of its negligence should focus on holding accountable the powerful countries – in Haiti.”

She singled out France and the United States – “whose decisions determine U.N. actions, as well as the entire list of wealthy countries who pledge funds to support peacekeeping activities, but who routinely fail to meet their promised amounts”.

Weisbrot told IPS the United Nations is not supposed to be immune from this legal action under their own rules but they are pretending to be. This is not unprecedented, he said, in that U.N. troops have committed abuse in other countries without being held accountable for it.

“One thing that is perhaps unprecedented here is that the U.N. troops don’t really have a legitimate reason for being in Haiti in the first place,” he added.

Weisbrot said there was no peacekeeping agreement for them to help enforce, or post-conflict situation.

“They were brought to Haiti in 2004 to support a coup that was engineered by the United States and its allies, against a democratic government. So that is unprecedented,” he said.

Weisbrot also said the scientific and forensic evidence that U.N. troops brought cholera to Haiti is far beyond the standard of reasonable doubt required in the U.S. criminal justice system, let alone the less exacting standard of preponderance of the evidence in a civil suit.

He said it included studies by independent scientists, articles published by the New England Journal of Medicine, the U.S. Centers for Disease Control and Prevention, and even the U.N.’s own research.

“If this were a private corporation that could be sued in a U.S. court, there is little doubt that it would end up paying hundreds of millions, if not billions in damages,” he said.

The U.N.’s denial, he said, represents a failure not only of the U.N. system, which is abused by the rich countries, but a moral failure by the U.S. and its allies, who sent those troops to Haiti without proper safeguards and against the will of the Haitian people.

Bennis said the tragedy of the cholera outbreak in Haiti reflects two separate trajectories, both of which are rooted in international power imbalances.

Haiti’s endemic poverty results from a centuries-old legacy of colonialism, slavery, U.S.-backed dictatorship, and most recently a ruthless profit-driven globalisation that has left its people impoverished and the country without a sufficient infrastructure even to provide clean water and sewage treatment.

“The failures of the U.N.’s peacekeeping system are rooted in the dominance of major powers over UN operations, in which rich countries make the decisions while poor countries provide the troops – usually without adequate preparation, training, or, as we saw in Haiti, even decent facilities,” said Bennis, author of ‘Calling the Shots: How Washington Dominates Today’s UN’.