Speakers:

• Marcos Orellana, Center for International Environmental Law (CIEL), Chile
• Jason Tockman, American Lands Alliance, United States
• Simon Ticehurst, Oxfam International, UK

Background:

Growth in trade, foreign investment, and economic relationships among countries is one of the central features of the process of economic globalization, which is leading to serious social and environmental problems. Trade rules are clashing with environmental standards, undermining national environmental protections. The income gap between rich and poor continues to grow. Forests, fisheries and other treasures of the world's natural heritage are overexploited as they are subjected to global market demands.

International investment is eclipsing trade as an engine of growth and is having equally dramatic effects on progress towards sustainable development. International agreements liberalizing investment are proliferating. Investors are using Chapter 11 in the North American Free Trade Agreement (NAFTA) to present claims and try to win compensation if the country in which it has invested creates a regulation that diminishes its profits. Both NAFTA Chapter 11 and the United States' bilateral investment treaties (BITs) include a provision which allows an investor to take a state to an arbitration panel.

This workshop explored the historical evolution of the legal framework for the protection and promotion of foreign direct investment, current trends in bilateral and multilateral investment disciplines, application of current trends to specific sectors, i.e. deregulation and privatization of services, and challenges involved in the move towards a sustainable investment framework.

Summaries of Presentations:

Marcos Orellana from CIEL opened the workshop with a brief review of the historical evolution of the investment framework. He began by noting that investment issues, contrary to how the WTO is currently touting them, are not new.

He offered the parallel between the current Bechtel case in Cochabamba with the Mavrommatis Concessions case, a water-related investment dispute in Palestine between the UK and Greece in the 1920's heard by the Permanent Court of Justice. He stated that a difference between then and now is that investment disputes then were resolved through a state-to-state relationship, whereas now the relationship is that of investor-to-state.

He then spoke about the customary international law on diplomatic protection, noting that denial of justice required the exhaustion of local remedies. He also spoke about the abuse of diplomatic protection by capital exporting States through intervention and even through the use of force. He then presented the Calvo doctrine as the expression of the resistance of Latin American states to these abuses, noting that the doctrine had implications in three spheres: national treatment, diplomatic protection, and the exhaustion of local remedies. Marcos then presented the North American Dredging Company case in the 1920s, where the United States-Mexican Claims Commission authoritatively expounded the nature and scope of the Calvo Clause.

Marcos then presented the international debate over investment issues from the 1960s to the 1990s. He talked about the New International Economic Order (NIEO), and developing states' permanent sovereignty over their natural resources as the legal basis for the nationalization of important sectors of the economy. He also described the central features of the thousands of Bilateral Investment Treaties that had been concluded during these decades. He noted that the impacts of trade and investment liberalization where yet to be assessed and described some initiatives in this regard. He finished up by speaking briefly about the recent passage of the Fast Track Bill in the US Congress.

Jason Tockman of American Lands Alliance next spoke about NAFTA. He stated that what NAFTA did for trade and investment was to bring in new rules, and he pointed out that many of the rules in NAFTA are being looked at for the FTAA & WTO negotiations. He stated that several of these rules severely restrict domestic regulations. Comparisons were made between the General Agreement on Trade in Services (GATS) being negotiated within the WTO and NAFTA's Chapter 11.

Jason then went on to give specific examples of cases brought under NAFTA, describing in particular Ethyl Corp, Metalclad, Methanex, and Loewen. He spoke additionally about how the Polluter Pays Principle was frustrated by NAFTA's Chapter 11, which contained rules to "Pay the Polluter".

Jason then discussed the idea of protectionism within international trade and how it relates to NAFTA's Chapter 11. He mentioned that one of the difficult issues arising in Chapter 11 arbitrations had been about discriminatory vs. nondiscriminatory practices, as well as about determining the intent of the State. Jason ended by discussing how the precautionary principle has been replaced with a requirement for least-trade-restrictive practices.

Simon Ticehurst from Oxfam International discussed ideas for and future work towards a positive and sustainable investment framework. He began by explaining Oxfam's role within trade and investment, elaborating on the relationship between investment and development and poverty reduction.

He noted that there has been a massive increase in investment over the last 10 years, but asked the questions: What's happening to all this massive investment? Is there economic growth? Is there poverty reduction? Simon noted that in Mexico, a large part of foreign direct investment has gone into mergers and takeovers, and pointed out that in fact, people are getting laid off due to the mergers. He also pointed out that considering merger financial figures when tracking investment growth is a backward linkage and does not help to create an accurate representation of investment.

He said, however, that there is potential in foreign direct investment, in that it can contribute to economic growth if it is linked to the local economy, generating both direct and indirect employment. It also has the potential to level regional inequalities by stimulating economic activity and jobs in less wealthy areas, and can make it possible for developing countries to improve their technology base, through transfer of technology and know how. Simon mentioned that unfortunately, due to investment provisions that focus disproportionately on investors privileges, as well as limit the ability of governments to regulate, investment is not fulfilling this potential. He stated that it would take a fundamental shift from current trade policies to an improved ability of local governments to regulate foreign investments to begin developing a positive investment agenda for the future.

Simon then related specific ideas to regulate a win/win scenario within trade & investment. Some ideas included joint ventures, training programs for local workers, and establishing performance requirements. He also discussed the need for strong accountability mechanisms, and suggested that home countries must be prepared to be held accountable for the actions of their multi-national corporations.

Discussion:

After the presentations, the audience raised many questions, and this resulted in interesting discussion. The main issues and questions that evolved were:

1) Are there accountability mechanisms currently in place for multi-national corporations? What can be done to promote fair trade and codes of conduct within corporations?

2) What are the benefits of promoting a completely new WTO vs. reformation of the WTO?

3) Is there any possibility of incorporating a differentiation, within legal treaties, of different forms
of investments- for example, no legal protection for "bad" investment?

4) How well is it felt that negotiators in developing countries fully comprehend the trade agreements that they are negotiating?

5) What is the capability of the NAFTA tribunal to filter out frivolous cases?

6) Is there a serious potential for cases concerning land rights?

7) Are the courts capable of forcing punitive damages for violation of environmental side
agreements?

There was a good turnout for the workshop and by the finish numerous ideas for positive work in the trade and investment forum had been exchanged.


See also the report on Human Rights & the Environment at the World Social Forum, and the initial announcement regarding these workshops.


This page last modified on 27 February 2003