Investor-State Dispute Settlement

So called investor-state dispute settlement (ISDS) have become an instrument of international law by various bilateral investment treaties as they have been signed with many developing countries. Europe is affected by the Energy Charter Treaty from 1998 which has already been signed by 51 countries, the European Union as well as Euratom. Investor-state dispute settlements guarantee investors the right to file a lawsuit against a foreign government whenever their future profits should be at risk. What may sound harmless and justified is in deed an unjust regime which already accounts for many human rights violations, mainly in developing countries. ISDS as they are currently state of the art have already heavily compromised the democratic legislation of many affected states. They can require the public to pay high indemnifications or even worse to take back and abolish consumer, social, environmental or other regulations. The trials are held under exclusion of the public and without any possibility to appeal. The lawyers are neither voted democratically nor are they designated by the public.

The planned free-trade agreements between Europe, the USA and Canada (TTIP, CETA, TiSA) have also been devised to contain such a special clause for investor protection which allows companies to sue against states. After vehement protests of EU citizens against TTIP and CETA there are no more negotations about TTIP and the ratification of CETA has been deferred. A verdict of the European Court of Justice (ECJ) on th 6th of March which applies to an investor protection treaty between the Netherlands and Slovakia gives us reason for hope because it says that a concurrent legislative system and investor state dispute settlement courts are incompatible with EU law.

Nonetheless the lobby does not sleep: On the 20th of March the governments of the EU member states have convened to entrust the European Commission with negotiations about rules for a new global investment court. The new global investment court is no more called ISDS but now it is called MIC “Multilateral Investment Court”. An advantage of the MIC towards the ISDS is that lawsuits will not be excluded from the public. Furthermore parties will have the right to appeal. However if the Multilater Investment Court would be installed in deed then big companies can continue to sue states based on poorly defined clauses like the 'fair and equitable treatment'. Only foreign state investors are allowed to file a complaint. Big transnational companies would acquire unimagined rights for profit without incuring any duties like complying with human rights. It can only be the aim of the population to fully get rid of the unjustified special actions as granted to big companies by a global investment court like the MIC, the Multilateral Investment Court.

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When Bolivian Water had been a Highly Profitable Investment

The lawsuit of Agua del Turani against Bolivia is one of the worst examples for investor state dispute resolutions (Aguas del Turani S.A. v. Republic of Bolivia - ICSID Case No.RB/02/3). A non-public contract from 1999 about the privatization of the water supply of Cochabamba was the base for the lawsuit. It included concessions about the water delivery for 40 years with a guaranteed annual cash flow of 16%. The privatization of the water supply was a precondition for new credits from the World Bank. The majority shareholders of Aguas del Turani were the company Bechtel the largest construction and plant engineering company of the USA and the Spain multinational Abengoa.

As the contract was put into practice in November 1999 a violent increase in prices was the result. According to Aguas del Turani the rise in prices accounted for just 10% while other sources state increases from 50% up to 200%. Tany Pardees an affected person commented the dramatic surge in prices like the following: ‘What we pay for water comes out of what we have to pay for food, clothes and the other things we need to buy for our children.’.

As a result people protested heavily for their right on an affordable water supply. The government tried to suffocate the protests with police and military and even declared martial law. After the death of a 17 year old adolescent (Victor Hugo Danza) things went out of control so that the concern left Bolivia in April 2000. The government took the concession back and passed a new law for water delivery. In November 2002 Aguas del Turani sued Bolivia at the International Centre for Settlement of Investment Disputes (ICSID). Bolivia was condemned to pay 50 Mio USD of lost revenue though the company had just invested 1 Mio USD. At the background of ongoing protest Aguas del Turani and Bolivia finally agreed for a symbolic compensation payement in 2006.

Egypt was Sued Because it Introduced a Minimum Wage

The French concern Veolia which was engaged by the Egyptian state e.g. for water purification has sued Egypt for its introductin of a minimum wage. The minimum wage reduced the companies prospective profits. Amount in controversy: 82 Mio. USD. There is not much known about this lawsuit as it is held behind closed doors. With more than 100 bilateral contracts including investor state dispute resolutions there are likely more companies which would have to agree with the Egyptian state on the introduction of minimum wages. More than just a clear loss of national sovereignity.

Arbitration Award for RDC against Guatemala and the Customary International Law

In 1997 Guatemala has privatized its well equipped railway network which was no more sufficiently utilized since the upgrading of the road system and the closing of banana plantations. The privatization contract contained the commitment to invest about 10 Million USD into the railway network which was already suffering from decay.

However the Railroad Development Corporation never adhered to the commitments it was considered having agreed upon so that Guatemala sued against the company by a so called leviso proceeding (leviso, es: inimical). As a consequence the company sued back. In 2012 Guatemala was condemned to pay 50 Million US-Dollars of lost revenue, the 10 Million USD the company should have invested into the countries railroad sytem plus 5 Mio. USD of process costs while the leviso proceeding against the company were already closed.

Basically the free trade contract should have guaranteed “fair and equitable treatment” (FET) which means that the judicature would need to adhere to the minimum standard as provided by customary international law. Customary international law is part of the law of nations. However law was interpreted “investor friendly” which means in parctice that the leviso preceedings were condemned though they are part of the legal order in many many South American states.

The so called fair and equitable treatment is also part of TTIP and CETA. The analysis of the precedent case and its possible effects on Europe if these free trade agreements should become signed has not yet been finished by the Technical University of Dresden.

Peru: Mining Combine Refused to Accept Environmental Regulations and Sues Back because it had to Close Down

According to the Blacksmith Institute La Oroya has been one of the ten most polluted areas of the world in 2006 and 2007. It is the centre of Peruvian mining activity with large deposits of lead, copper, zinc and silver. In 1997 it has been baught by Doe Run Peru, an US-American company which is part of the Renco Group. The waste waters of the smeltry are contaminated with heavy metals and its sulphurous exhaust gases contain lead, arsenic and cadmium. The acidic rain pollutes areas under cultivation and the Rio Mantaro which is the source of drinking water for La Oroya. Seven of Ten children in La Oroya had 20-40μg lead in their blood while the maximal acceptable concentration as given by the WHO is 10μg. Many people suffer from asthma bronchial, kidney diseases and nervous affections.

Environmental Assignments were part of the contract when Doe Run Peru bought the area like f.i. to equip the smeltries with filters. The company entirely failed to implement any of these environmental specifications so that its operating license was taken back in 2010 by the Peruvian state. As a consequence the company has filed a lawsuit of about 800 Million Dollars against the state which is still running (2014).

Chevron against Ecuador

Before the Texaco Petroleum Company (TexPet) has been baught by Chevron in 2001 it had mined crude oil in the Ecuadorian Amazon however without deploying state of the art technology. 17 Million gallons of crude oil and 64 Billion liters of toxic waste have been spilled contaminating huge areas while flaring natural gas. The drinking water of people has been contaminated. Many people have died from cancer. Some indigenous communities have been braught close to extinction.

In this case TexPet Ecuador was the first to start a complaint against the Ecuadorian state. Ecuador should have falsified its demand in oil and thus have received unjustifiable cost advantage. Ecuador was condemned by a court of arbitration (UNCITRAL) to pay an indemnification of 100 Million USD. As a consequence the Ecuadorian state was pressed to sign the “Settlement Agreement” in 1995 while the “Final Release” was signed in 1998. It says that Ecuador will not be alowed to sue TexPet because of the environmental disaster it has caused because it had already taken some cosmetic measures against the oil spill like covering crude oil sinks with earth.

The solely remaining possiblilty was that the population itself sued against Chevron which was done by the “Largo Agrio” claim in 2011. It resulted in Chevron being demanded to pay 18 Billion USD which could however only be prosecuted by foreign courts because Chevron had no more possesions in Ecuador at that time. Nonetheless Chevron sued back on top of the bilateral investment treaty (BIT) Ecuador had signed in 1997. The result was that Ecuador would have to pay the 18 Billion USD itself or that it would stop the proceedings. In deed the claimants demanded the tribunal to override the Ecuadorian constitution and its obligations under the human rights treaties in favour of the BIT. Until today Chevron has persistently refused to pay any indemnification or to mitigate the suffering of the affected people.

Lone Star tries to claim Tax Avoidance Tricks

During the finance crises Lone Star Fonds Korea Exchange Bank Holdings a letter-box company in Belgium baught the Korea Exchange Bank from South Korea just in order to resell it to the Private Equity Funds Lone Star the rather buyer. As the bank was sold from a holding in Belgium and not directly from South Korea the bank endorsed itself by a free trade agreement signed in 1976 to pay no more capital yields taxes as no such tax used to exist in Belgium. However South Korea did not accept this as their administration of justice reasoned that the rather buyer was the investment fund Lone Star on from the beginning.

As you may already suppose Lone Star opened up an investor state dispute resolution against South Korea demanding 2.7 Million Euro of already paid taxes back. Lone Star simply tried it with similar tax avoidance tricks as many other big companies like Google, Starbucks and others desiring to claim them enduringly basing on the investor state dispute resolution of the said free trade agreement (If Lone Star wins the proceedings there will be another precedent case and no possibility to appeal.).

Metalclad is Allowed to Build a Disposal for Hazardous Waste

In 1992 the US-american company Metalclad has baught a treatment plant for hazardous waste in Guadalcazar, Mexico. It wanted to transform it into a landfill and had obtained a permission by the Mexcian state to do so. However the construction approval of local authorities was missing because the location was inappropriate for such a disposal. The local population had already been complaining about contaminated drinking water for years.

Metalclad started to transform the site into a landfill and local authorities imposed a suspension of building work. In 1995 they refused to give it an operating license. Basing on NAFTA, the North American Free Trade Agreement, Metalclad sued the Mexican state demanding compensations of 90 Million USD. The arbitration court condemned Mexico to pay 15.6 Million USD and allowed the dispose hazardous waste at the landfill.

Pharama Concern Sues Canada for its Interpretation of Patent Law

The pharma concern Eli Lilly sues Canada for 500 Million USD. Canada has declared the patents for the medicinal drugs Straterra (against ADHS) and Zyprexa (against schizophrenia) because of lacking long term studies invalid. The benefit of these drugs was put at doubt. Note that Zyprexa is a medicine which is administered to people against their will and which can have severe side effects like up to a sudden unexplainable death in seldom cases. The lawsuit was filed by a competitive producer of generic drugs. It is said that the main goal of Eli Lilly would not be the indemnification but a change in Canadas constitution.

Ethyl Sued Canada in order to Sell a Harmful Fuel Additive

At the end of the 90ies Ethyl Corp sued Canada to sell its Fuel Additive MMT containing manganese which was suspected to harm the nerval system. The additive was already forbidden in the United States. While the respective long term studies demanded by Canadian law were still missing Canada had issued an explicit embargo for the import and transport of this substance. This was considered an “expropriation” by the arbitration court of the ICSID as governed by the World Bank and set in force by NAFTA. Canada accepted a settlement of the dispute and paid 13 Million USD to Ethyl Corp. Nonetheless it had to allow the substance.

The described case contributed to mobilize “globalization critics” (I would rather say critics of carnivore capitalism and corporocracy) to participate in the protests in Prague (2000) an Genova (2001). Even the Chrétien government which was fighting for this free trade agreement had to admit a defeat.

Canada Pays because it Stopped Export of Toxic Waste

On the 5th of May in 1992 Canada ratified together with many other nations the Basel Convention on the Control of Transboundary Movements of Hazarduos Wastes and Their Disposal. Hazardous wastes must not be exported to foreign countries but disposed professionally on-site. When the U.S. environmental protection agency allowed such an export in October 1995 of PCB from Canada to the USA Canada stopped the export on base of the Basel agreement. PCBs have been globally forbidden by the 2001 Stockholm Convention`s Dirty Dozen among twelve especially toxic and hazardous substances.

However the company S.D. Myers Inc. which would have profited from such an export sued on base of NAFTA, the North American Trade Agreement for 20 Million USD. The court decided that the Canadian state had to pay 4.8 Million Dollars.

Canada Sued because of Fracking Moratorium

In 2011 Quebec had administered a fracking moratorium until an environmental impact assessment could be made for mining gas at the St. Lawrence River (e.g. At some sites of the USA the drinking water became inflamable and contaminated by fracking activities.). In 2012, as a result the US-american company Lone Pine Resources Inc. sued against Canada demanding 250 Million USD at the base of NAFTA. The government would have acted ‘arbitrary, indiscriminately and illegal’. The mining rights would have been held back ‘without a “fair” trial, without compensation and without any recognizable public interest’.

Vattenfalls first Stroke against Germany

In 2007 the local CDU government permitted the construction of a new coal-fired power plant for Hamburg. When the CDU lost its absolute majority in 2008 the green party joined the government. However they could not achieve a withdrawal of the concession. Neither could they achieve a gas power plant to be built instead because it would have been rarely feasible to construct a gas power plant with the same power output. Management spokesman of Vattenfall Hans-Jürgen Cramer had threatened the new government to be sued for Billions of Euros.

Consequently the coal-fired power plant was constructed. However the new coalition enacted a legal ordinance that the power plant may only work throttled for 250 days of the year. After a lawsuit at the higher administrative court of Hamburg had been unsuccessful Vattenfall sued against Germany in front of the ICSID (International Center for Settlement of Investment Disputes) demanding 1.4 Billion USD. The lawsuit was possible due to the Energy Charter Treaty (ECT) which came into force in 1998. Currently 51 countries, the European Union as well as Euratom have signed the treaty. The outcome of the lawsuit is yet unknown to the public because of nondisclosure agreement clause. Even well known experts are not allowed to see the documents.

Vattenfall sues against the Nuclear Phaseout of Germany

As a consequence of the Fukushima worst-case nuclear accident the Lower House of German Parliament has decided to phase out nuclear energy with overwhelming majority. The extension of the running time for many nuclear power plants approved in the year before was canceled. Eon, RWE and Vattenfall appealed on a constitution complaint for 15 Billion Euro at the Federal Constitution Court which was dismissed. EnBW which is also running nuclear power plants in Germany did not take part in the complaint (we suppose likely due to ethical reasons).

The Swedish Vattenfall concern did however even go further. Vattenfall sued due to the ECT (see for the last section) at the ICSID (belonging to the World Bank) against the decision of the Lower House of the German Parliament. The volume of the complaint amounts to 3.7 Billion Euro. The proceedings do now already extend for years. An inquiry of the green party was dismissed due to nondisclosure clause signed bywith the ECT. 2015-08-01: The ICSID in Washington has decided that Germany should pay an unbelievable amount of 4.7 Bio. Euro to Vattenfall; Take Action at SumOfUs.

Italy: against Oil Drilling in the Adria

The British oil and gas company Rockhopper sued Italy in May 2017 because Italy had refused to allow for oil drilling in the Adriatic sea. Before the Italian parliament had forbidden all oil and gas activities because of environmental concerns and because of the problem of earthquakes. Rockhopper sues on top of the Energy Charta Treaty (ECT) for indemnification in the amount of 200-300 Million USD. There has been no decision on the issue yet (2019).

Although Italy has already left the Energy Charta Treaty (ECT) it can still be obliged to pay. Italy can be sued up to 20 years with hindsight for any investment taken before Italy has exited the ECT (January the 1st of 2016); a 'zombie' clause in the treaty makes this possible.

Curchill Mining wants Indonesian Coal

In May 2007 Churchill Mining PLC baught mining rights from four companies over an Indonesian affiliate from the Ridlatama Group. However the investment contract between the Ridlatama Group and Churchill Mining PLC was declared invalid by the South Jakarta District Court because the company did not even have a license to mine coal in Indonesia. Churchill Mining had caused offences against existing licenses during mining activities in the woods. As a result no additional license was granted.

Though the company had only invested 40 Million Dollar into the exploration of a coal deposit it sued at the base of the UK-Indonesia-BIT and the Australia-Indonesia BIT for Billions of Dollars.

… and Even More Examples

There are even many more examples for investor state disputes like Mexico being sued for a 20% tax on High Fructose Corn Sirup which has been confirmed to be a special cause for obesity or Australia for its Tobacco Plain Packaging Regulations in 2011 which lays down the design of the packaging because producers had obscured or hidden the health warning notes as required by law. Though Australia had won the dispute about tobacco packaging (the lawsuit had been dismissed because of ‘formal reasons’) the public still had to pay 39 million USD. Ecuador had to pay 2.3 Billion Dollar while the compensation for the nationalization of Occidental Petroleum amounted only to 1.8 Billion Dollar. The nationalization was done after an offence of contracts by Occidental Petroleum. South Africa was not allowed to prescribe a certain national percentage at the auction of mining rights …

The Investors do not Cry for Argentinia

While we do not want to examine the reasons for the Argentinian crises in detail where private people have been expropriated by locking the money on their banking accounts in order to use it to pay off the depth of the state (Yes they have simply looted their peoples banking accounts to serve the debtors of the state.) we want to set an eye on some of the investor state disputes held with Argentinia.

Under the pressure of public debts many sectors of the Argentinian economy have been privatized in the 90ies: water supply, energy supply, remote communications and a large share of public transport. While the poverty of the people exacerbated and all life sustainmant costs were on the rise the government found itself constrained by heavy riots to do something against the rise in prices for electric current and water which did especially hit the poorer classes of the population: The government mandated a cap in prices for electricity and water.

The result were heavy international dispute settlement claims. In the year 2006 on third of all ICSID claims were targeted against Argentinia. Some lawsuits have already been finished: Argentinia is supposed to pay 165 Million USD to the water supplier Azurix (USA), 54 Million USD to the energy supplier National Grid (UK), 133 Million USD to the gas supplier CMS (USA) and 185 Million USD to the investment group BF (UK).

In the face of these horrifying prospects the Argentinian government considers to break up with all of its free trade agreements which contain so called investor protection clauses. This may be the only viable way for the future. Other countries like Ecuador, Venezuela and Bolivia have already done so.

We believe that it should not be necessary to comment any further about any of these issues as we believe that most people will have a natural feeling of justice. Isn`t it direly perverted to prosecute those people by law who should in deed be saved against various partially severe crimes commited by leaders of international concerns and companies? .- apart from the fact that many, most or all of the said cases seem to contradict legal conceptions as they are currently established a.o. in the member states of the European Union (The really bad thing is that these courts take precedence over national courts.).

For those who simply can not believe what they have just read it should be time to wake up!

Joining one of the free trade agreements like TTIP, CETA or TISA at least without discarding the clauses for investor state protection may be the end of the “European Dream”. It is most likely that Europe would simply fall apart into singleton nation states (which we believe can defend themselves much worse than a joint union of states; one could just remember the GATS which was taken back in Austria only because of joining the European Union) because withdrawing from such agreements and staying part of the European Union would only be possible if all government heads consented. We believe it to be almost impossible that any folk of the world will bear such an aggravation of injustice, crime and deterioration of living circumstance in endurance.

Note that in our opinion not even an economic justifications can be given for so called investor state dispute resolutions. Interest rates and profits are considered to be a compensation for economic engagement and especially the risks. If there is no more risk for the investor because the public becomes liable for enterpreneurial risks then what justification is there for high profits? (We also see this with large banks which are considered “system critical”.) It is heavily unfair in order not to say that it is a crime to challenge the public for expected profits and the risk of loss; apart from that: How fair is a game where those who are in leadership can change the rules of the game arbitrarily?

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