Published in SUNS #7576 dated 30 April 2013

Guayaquil, Ecuador, 23 Apr (Meena Raman) - South American governments have formed a new alliance to fight back against the increasing lawsuits taken against them by transnational companies under bilateral investment treaties.

The alliance, known as "the Conference of Latin American States affected by transnational interests", was established during a Ministerial-level meeting held in Guayaquil, Ecuador, on 22 April.

The meeting was chaired by Ecuador's Minister of Foreign Affairs and Trade, Mr. Ricardo Patino, while a keynote address was given by Ecuador's Vice President Jorge Glas Espinel.

He told the meeting about cases brought against his country by two multinational oil companies which resulted in unfair judgments by an international tribunal. In one judgment made in favour of the US oil company Oxy (Occidental Petroleum), Ecuador was asked to pay compensation of US$2.3 billion.

The meeting ended with the adoption of a declaration by seven countries, of which six were represented by Ministers. The countries are Ecuador, Bolivia, Cuba, Nicaragua, Dominican Republic, St. Vincent and Grenadine and Venezuela.

Delegations from another five countries - Argentina, Guatemala, El Salvador, Honduras and Mexico - also attended the meeting and they agreed to report on the meeting to their governments. The representatives, mainly Ambassadors, were not able to endorse the declaration as they did not have the mandate.

In the declaration, the Ministers agreed to establish a permanent conference of states affected by transnational interests to deal with challenges posed by transnational companies, especially legal suits taken by them against governments under the bilateral investment treaties.

The conference will be guided by an executive committee which will coordinate political and legal actions, send information on legal disputes and disseminate information to the public. Ecuador, as the host country of the conference, will be the initial coordinator of the committee.

The declaration also supported the setting up of a regional arbitration centre to settle investment disputes between corporations and States. This is aimed at being an alternative to the International Centre for the Settlement of Investment Disputes (ICSID), based at the World Bank in Washington DC, which was viewed by the conference participants as being biased in favour of investors.

The conference also established an international observatory with several functions. These include the tasks to analyse investment dispute cases, to reform the present arbitration system, suggest alternative mechanisms for fair mediation, coordinate between the judicial systems of Latin American States, ensure the enforcement of domestic judicial decisions in investment disputes, and advise governments in their negotiations on contracts with transnational corporations.

The next meeting of the Conference of States is scheduled to be held in Caracas within the next three months.

Most of the time of the meeting was taken up by the Ministers, senior officials from state legal departments and Ambassadors of the countries present sharing their experiences on problems arising from their bilateral investment treaties, and especially about the legal cases taken against them by foreign investors.

Presentations were also made on the nature of investment treaties, the legal cases, and problems about the arbitration system by experts from the South Centre, Public Citizen, Transnational Institute, the Latin American Network on Debt and Development, and from the Ecuadoran Superintendent on Competition, and the Ecuadoran prosecutor's office.

Many participants expressed serious concerns about the biases of the arbitration system and the conflicts of interest as a result of many arbitrators also being lawyers for companies in other cases and some being members of the Board of transnational companies.

The rationale for holding the meeting was explained in a background note prepared by the hosts, the Foreign Ministry of Ecuador.

The note said that in recent years 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, which to a greater extent have been settled favouring private interests from the North, not only affect the fiscal capabilities of the States and pose a serious challenge to their national jurisdiction -- and, ultimately, the exercise of their very sovereignty -- but also, they alienate citizens from their common and agreed-upon democratic set of rules. The scale of this phenomenon could even compromise on-going development plans which are in progress in Latin America and other regions of the globe," said the note.

It added that this problem originated in the 1990s, the heyday of neoliberalism. During this period, Bilateral Investment Treaties (BITs) were used profusely, as well as other agreements, for the protection of foreign investments.

"The governments of the South submitted to these agreements in the expectation of attracting great amounts of direct foreign investments and thus replacing their severely diminished capacity to save, which was negatively impacted by structural adjustment policies.

"The most negative consequences of such commitments become evident now, precisely when a number of nations of the South are exploring new ways for development. It is not a coincidence that the need to overcome the obsolete normative trade schemes between the States of the South and the North becomes more urgent now, at a time when most Latin American institutions have reoriented their priorities towards attending the needs of their own peoples, instead of the impositions of the foreign capital.

"In order to achieve this goal -- overcoming obsolete structures -- the countries of the South must get together, where analysis and measures for common action can be discussed and agreed upon. Consequently, these actions will orient the construction of shared agendas in multilateral organisations, both at the regional and the global level."

The declaration issued at the conclusion of the meeting is as follows:

"Considering that the developing countries have valuable resources to be used in a sustainable way for the development of our people; that the States hire and make concessions to foreign companies, in a relationship which should be of mutual benefit to investors and to our peoples;

"The recent events in various countries of Latin America, concerning disputes between States and transnational corporations have shown that there are still cases where the judgment violates international law and the sovereignty of the States as well as its legal institutions, due to the economic power of certain companies and deficiencies of the international systems of dispute settlement on investment, facts that must be evaluated in depth by the States in intergovernmental forums established for this purpose;

"That there are various ongoing processes of bilateral negotiations with transnational corporations that require solidary assistance among the States of the region to bring these processes to results that will benefit the people of the South, We hereby agree:

"1. To express solidarity with those Latin American countries that have been, or are currently involved in litigations against transnational corporations in international arbitration.

"2. To support the constitution and implementation of regional organisations for settling investment disputes, to ensure fair and balanced rules when settling disputes between corporations and States. Encourage UNASUR (the Union of South American Nations) in the approval of a regional mechanism currently under negotiation and promote the inclusion of other Latin American States in this mechanism.

"3. To create an International Observatory funded with contributions of the States which, among other objectives, (i) periodically gives an account for the state of international litigation on investments in both regional and global instances, (ii) identifies procedures to monitor the performance of international courts of arbitration, (iii) investigates, analyses and proposes mechanisms to reform such instances [of] arbitration, (iv) studies, analyses and supports the creation of alternative mechanisms of intermediation for the fair, reasonable and definitive resolution of differences between the States and transnational companies, (v) constitutes an encounter forum for experts in international litigation on investments that work together with the countries of the South, (vi) promotes the creation of mechanisms for coordination and mutual consultation between the judicial systems of Latin American States, to ensure the enforcement of domestic judicial decisions on disputes between States and transnational corporations; (vii) creates a compendium of legislation, policies, and trade and investment agreements, regarding negotiation processes between States and corporations, to facilitate the adoption of joint strategies by the States; (viii) studies, analyses and provides the States with technical, legal and political advice to ensure the effective translation of their interests into trade and investment contracts with transnational corporations; (ix) establish dialogue mechanisms with social movements.

"It is agreed that the Republic of Ecuador, the Dominican Republic and the Bolivarian Republic of Venezuela, working together, shall produce a proposal to create such (an) organization within a period not exceeding three months.

"4. To propose the implementation of these agreements in global coordination spaces of the Southern countries, such as the Group of 77 plus China, to seek global agreements within multilateral organizations such as the United Nations, world trade organizations and international financial organizations, with the purpose of visualizing the advantages and profits of transnational corporations in developing countries, their contribution to development, as well as potential abuses committed in the context of their engagement with the States.

"5. To establish the Executive Committee of the Ministerial Conference of Latin American States Affected by Transnational Interests, whose role will be designing and implementing mutually supportive actions in the political and legal areas, among others, (i) conveying urgent and timely information on legal disputes involving any of the signatory States, in the form of early alerts; (ii) coordinating joint legal actions with international legal teams of experts and professional lawyers; (iii) establishing permanent channels of communication with social movements; (iv) designing communication strategies, as a counterbalance to global campaigns undertaken by transnational companies, for the dissemination of legal, technical and political aspects of the cases exposed, as well as the motivations of States. Initially, Ecuador shall be responsible for the coordination of this Committee.

"This Committee shall meet within a period not exceeding four weeks in the city of Caracas, Venezuela."

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