By Don Quijones of Mexico and Spain, and editor at Wolf Street. Originally published at Wolf Street
International arbitration lawyers have a soft spot for Latin America, for a reason: over the last ten years, the region has been one of the primary sources of their exorbitant fees, which can range from $375 to $700 per hour depending on where the arbitration takes place.
By 2008, more than half of all registered claims at the International Centre for Settlement of Investment Disputes (ICSID) were pending against Latin American countries. In 2012, around one-quarter of all new ICSID disputes involved a Latin American state.
Today the region faces a fresh deluge of ISDS claims. The countries most affected include Uruguay, whose anti-tobacco legislation has been challenged by Philip Morris at an international arbitration panel; Argentina, Ecuador and Colombia, which until a few years ago had never been on the receiving end of an investor-state dispute settlement (ISDS). Now it is the target of multiple suits that could end up setting its government back billions of dollars.
The claimants include Glencore, the world’s biggest and most heavily leveraged commodities trader; Carlos Slim-owned América Móvil, the leading wireless services provider in Latin America and the third largest in the world; the Spanish insurance company Sanitas; the Swiss pharmaceutical giant Novartis; and the Canadian miner Eco Oro and US miner Tobie Mining and Energy.
Each company on that list feels that decisions or actions taken by the Colombian government have in one way or another cost or will cost them profits to which they feel entitled. And each company is doing what it has the right to do under today’s trade treaties — suing the government of that country for damages.
It is the last company on the list — Tobie Mining and Energy — that is the biggest concern to the Colombian government for the damages it seeks: $16.5 billion. That’s a lot of money for a nation with per-capita GDP of $7,831 and whose currency has lost 40% of its value against the dollar over the last 18 months. It’s the equivalent of 20% of its national budget.
The dispute revolves around a gold mining concession in the Taraira region near Colombia’s border with Brazil. In 2009 the Colombian government created the Yaigoji Apaporis national park in the Amazon rain forest. Tobie and its two consortium partners, Cosigo Resources (Canada) and Cosigo Resources Sucursal Colombia (Colombia), had been granted a mining concession for part of that region. Under the 2011 U.S.-Colombia Free Trade Agreement, the consortium claims that Colombia is liable for the company’s lost investment and future profits, which apparently amounts to €16.5 billion.
According to a new study by Krzysztof J. Pelc, an Associate Professor of Political Science at McGill University in Canada, although companies are winning fewer and fewer cases against national governments — at last count they were winning less than 10% of the indirect expropriation claims they brought against democratic countries — they are litigating more and more.
The fact that corporations can sue nations under ISDS without having to satisfy any pre-conditions, or even run the risk of being sued back, makes it ludicrously easy to bring “frivolous” claims against democratic governments, warns Tech Dirt’s Glyn Moody.
Each time a country is taken to arbitration by an international corporation, it has to shell out millions of dollars in legal fees and potentially hundreds of millions or even billions of dollars in damages. Many cases can drag on for months or even longer, draining valuable national resources and funds. Naturally, the temptation to settle before the case even reaches arbitration is huge. It might be even more tempting, especially for cash-strapped governments like Colombia, to simply reverse the offending legislation.
In Colombia, the government currently faces the prospect of not just one, but two ISDS cases over mining concessions. The second case involves the Canadian mining company Eco Oro Minerals, which has initiated proceedings against Colombia over the Andean state’s decision to protect the high-altitude wetlands, or páramo, of Santurbán, which aside from being the site of Eco Oro’s proposed Angostura mining project, provides as much as 70% of the nation’s water supply.
The gold mine has the financial backing of the World Bank, but so, too, does the Colombian government’s renewed push to protect its rainforest. Millions of dollars have also poured in from USAID’s BioREDD programme, while the governments of Norway, Germany and the UK have agreed to pay over $300 million if Colombia reduces emissions from deforestation.
In other words, while vast sums of Western taxpayer funds are pouring into Colombia to encourage it to protect its environment, Western corporations — with full backing from the World Bank — are doing all they can to prevent the government from safe-guarding its environment, including the water supply its people depend on.
That’s not to say that Colombia’s government is in any way an innocent party in all of this. For years, the current Santos administration and the Uribe administration before it have kowtowed to the demands of miners, as you’d expect from a country that depends enormously on commodities like oil, coal and gold and which has done next to nothing to reduce that dependence.
The government has also signed just about every trade agreement dangled in front of it, ignoring stark warnings that the nation’s infrastructure and companies were not strong enough for the economy to effectively compete with the likes of the U.S., Canada, Mexico, Chile and the EU. The results speak for themselves. In the last five years Colombia’s balance of payments deficit has ballooned from $9.7 billion to $18.92 billion. Since signing a historic bilateral trade agreement with its closest trading partner, the United States, in 2011, the country has gone from having an $8 billion trade surplus to a $2.5 billion deficit in 2015.
Now it faces potentially billions of dollars in damages for threatening the future profits of some multinational corporations. To avoid its current troubles, all it needed to do was carefully read the section on investor-state dispute settlements in each of the bilateral treaties it signed. Indeed, it could have just asked the opinion of the Spanish arbitrator Juan Fernandez-Armesto, who said not so long ago:
When I wake up at night and think about arbitration, it never ceases to amaze me that sovereign states have agreed to investment arbitration at all […]. Three private individuals are entrusted with the power to review, without any restriction or appeal procedure, all actions of the government, all decisions of the courts, and all laws and regulations emanating from parliament.
But for Colombia — and many other countries — it’s probably too late, having already signed to dotted line. By Don Quijones, Raging Bull-Shit
In Mexico, a nightmare is coming true. Read… Debt Spiral Grips Both, Pemex and Mexico
A sovereign can simply and quickly solve such problems, pemanently.
Simply pass a law or decree making it a capital offense to challenge in any jurisdiction matters pertaining to lawful decisions of the government.
Then, try the miscreant in absentia………..
Then, KILL the individual, CEO, and Board of Directors of the miscreant using commandos…….. wherever, and wheneve they may be found…….
Including any judge of any court willing to take such cases, and rule on such cases…….
I disagree with your solution because the international agreement takes precedent over national law. In the case of Columbia, the solution might be to point out the costs and losses associated with loss of drinking water, cost of healthcare associated with people affected downstream from the mines and losses from services provided by flora and fauna affected by mining operations. Services provided by pollinators such as bees and birds can easily run close to a $1 trillion. It would require the property rights be strongly protected such that any one provided with a lease must ensure to not affect the property rights of others downstream (i.e. whether its air, water, etc). That will put a serious damper on the suits as long as the governments are not dumb enough to provide a waiver to the company or companies on such matters.
Considering Columbia’s change in their Balance of Trade with the U.S., why could they not just say, “We are refusing to participate anymore.” and rip up the Trade Agreement? Is there a law against that, too?
Well, there you are into the laws of physics. As in, use of force. Let’s see, which country spends more on its military than the next, what, 4 biggest spenders combined? Which country has more military bases around the world, and who owns the Marines, the special forces, the drones, and — coming soon! — mini-nukes?
Any trade deal can be deemed unconstitutional under the constitution of any country that has a constitution when the process to pass it was itself unconstitutional. i.e. “fast track’ bypassing the normal process to legislate anything.
The giant corporations have an army of goons and an array of NGOs at their disposal, ready to pounce on any government that doesn’t comply, let alone one that rebels. There’s a gun to their heads. For one example, look at what has happened to environmentalists in Honduras. Western capitalism has reached new heights of criminality and the US is at the center.
I agree with this 100%. It is fully within the rights of ANY govt to kill such people since the US has claimed the right to kidnap, assassinate, or bomb any people anywhere. The Colombian govt van simply declare these CEOs, lawyers, arbitrators terrorists or enemies of the state and eliminate them as they see fit.
I much prefer assassination of CEOs to simply blowing up wedding parties or villages on the chance that a couple people in the area are car bombers. If you blow up a correlate HQ you are nearly guaranteed to only kill criminals and other scum as general innocent civilians are few and far between in big corporate HQs.
They were global financial terrorists in 2007-08 when they caused the market meltdown and we did nothing. In 2016 the terrorists have grown to beyond using questionable financial transactions to deplete and degrade nations, they are now taking scalps, and again we’re doing nothing.
‘Since signing a historic bilateral trade agreement with its closest trading partner, the United States, in 2011, the country has gone from having an $8 billion trade surplus to a $2.5 billion deficit in 2015.’
Cherry pick much? Let’s dig into the data: “Exports decreased 36.6 percent year-on-year to 1.84 USD billion mainly due to lower oil (-48.3 percent), manufacturing (-17.6 percent) and agricultural (-30.7 percent) sales.”
What’s gonna happen to a commodity-dominated economy, when the prices of its commodity and ag exports get chopped in half over five years owing to a global price trend?
That’s right: the monetary value of its exports plunges, driving its trade account into deficit.
Given that the same trend has occurred in virtually all commodity-oriented economies, blaming it on a trade pact is specious.
As an illustration, take a look at Colombia’s shambolic neighbor, Venezuela. It saw an $11 billion trade surplus in mid-2014 collapse to a $1 billion deficit early this year.
This reversal was due to crude oil’s price collapse. It had nothing to do with Venezuela’s trade relations.
In response to your completely baseless allegation, here’s a link from the US Department of Agriculture proving that the massive change in fortunes was not just a result of falling commodity prices. To save you the trouble of clicking on it, here’s a direct quote:
“In fiscal year 2014, U.S. food and agricultural exports to Colombia totaled a record $2.3 billion — up 60 percent from 2013 and up 169 percent from 2012, the year the U.S.-Colombia Trade Promotion Agreement entered into force.”
Now, if you actually bothered to do some research rather than just casting aspersions, you might have found that the biggest shift in the reversal of the trade balance occurred between 2011 and 2013, long before the collapse of oil prices and the end of the super commodity cycle. You might have also read about the devatstating impact this surge in agricultural imports has had on Colombian farmers.
Finally, in 2015, during the worst phase of the oil price collapse, Colombia’s balance of payments deficit actually shrank a little — probably a result of the 40% collapse of the peso mentioned in the article. Put simply, people have a lot less money to spend on foreign goods when those foreign goods are 40% more expensive.
Columbia/Venezuela seems like an apples to oranges comparison as colombia signed the FTA, while Venezuela has not. Do you know which agricultural products we we’ve been dumping on Colombia?
Stepping back from one year and one sector to take a broader view, US Census figures show that U.S. exports to Colombia (all sectors, not just ag) were essentially flat, rising from $16.4 billion in 2012 to $16.5 billion in 2015:
Meanwhile, over the same 2012 to 2015 period, Colombia’s exports to the US plunged from $24.6 billion to $14.1 billion.
Did the US, after signing a trade agreement with Colombia, perfidiously start boycotting Colombia’s goods?
No. This is overwhelmingly a price effect. Examine volumes rather than dollar values, and the balance hasn’t changed that much.
Note also that the dispute process works both ways. Brazil won a WTO case against the U.S. for its cotton subsidies. The U.S. paid $300 million to the Brazilian Cotton Institute.
You may have a point regarding the role of commodity prices, although it’s worth noting that the decline in Colombian exports began in 2012, the year the treaty came into effect, and two long years before commodity prices began collapsing. As such, I apologize for my bad termpered, knee-jerk reaction. Not that it’s any excuse, but it’s been a long, hard week :-]
However, I still stand by the fact that signing so many “free” trade agreements has been terrible for Colombia’s broader economy, as the government was repeatedly warned it would be. Since signing all those agreements its trade performance has deteriorated significantly, granted in part due to plunging global commodity prices. And the immediate impact on the country’s agriculture was severe enough to spark a rural revolt,
Meanwhile, the country’s being sued left, right and center by companies determined to trash the environment, and hardly any of the incredible benefits that were touted at the time — including the enormous advances in human and labor rights promised by Hilary Clinton — have materialized. As the Guardian reported last year, Colombia is still one of the most dangerous countries to be a trade unionist.
It’s hardly what you’d call a positive score sheet.
Lastly, it’s interesting to see that you chose Brazil as an example of the recipricocity of the investor-state dispute process, since Brazil is (as far as I’m aware) the ONLY country in Latin America and one of remarkably few countries in the world to have refused to sign ANY trade agreement that includes investor sovereignty charters and has only just begun accepting arbitration as a means of redress.
In other words, to get the compensation it received from the U.S, government, the Brazilian Cotton Institute used the traditional multilateral channels. It did not need ISDS.
Brazil’s most recent trade agreements are called Cooperation and Facilitation Investment Agreements (“CFIA”), and as the title suggests, the onus is on cooperation and facilitation — not protection — of investment.
Colombia looks like Ecuador in its effort to protect its environment, its highland and water supply. And investors arbitrate imaginary losses because in a very short time the environment will be sacrosanct. Either that or we’ll all be dead.
Dang! I was really hoping for a little something on how Colombia’s free trade benefited some of the generous contributors to the
RoyalClinton family foundation, such as Frank Giustra and Goldman Sachs.
What happens with ISDS when corporations have competing claims? Oil company A sues over a coastline protection plan that’s heavily pushed by beach front developers. Government quickly trashes the plan to avoid liability. Real estate developer B brings a claim based on its expected resort profits. Presumably the government is expected to split the baby or pay out to one of the parties by default.
Since it’s conceivable that oil company A conveniently has a real estate division, they would split the take.