Foreign Investors Gone Wild (Foreign Policy in Focus, via AlterNet)

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Foreign Investors Gone Wild

By Sarah Anderson, Foreign Policy in Focus. Posted May 7, 2007.



Leaders of developing countries are often forced to work with institutions that promote and protect foreign investment -- with little regard for the costs to democracy and the environment.

When Bolivian President Evo Morales took office in January 2006, he pledged to follow through on his campaign pledge to increase Bolivians' share of revenues from their major source of foreign income, natural gas. International gas companies, however, threatened to sue. Previous Bolivian governments had signed a flurry of bilateral investment treaties that gave foreign investors the right to bypass domestic courts and file such lawsuits through international tribunals. Morales complained that these rules made him feel like a "prisoner" in the presidential palace.

The Bolivian president's predicament is a common one for political leaders around the world. They are caught in an interlocking web of rules and institutions that promote and protect foreign investment -- with little regard for the costs to democracy, the environment, or the public welfare. These increasingly controversial investor protections have become the "get out of jail free" card for corporations in the global economy. They are promoted by the World Bank and other international financial institutions, codified by bilateral investment treaties and free trade agreements, and enforced through the World Bank's arbitration court and other international tribunals.

Countries are pushing back against these investor protections. They might be able to find common cause with some in the U.S. Congress. But the deep pockets of the corporations and the rigged rules of the global economy pose significant obstacles.

Investors Über Alles

Armed with unprecedented legal powers, foreign investors have literally gone wild. They can sue over alleged violations of a long list of protections. The most controversial guard against government actions, including environmental and public health laws, that diminish the value of their investment. While international arbitration judges cannot force a country to change its laws, they can award massive damages to the investor. And that threat alone can have a chilling effect. A U.S. chemical corporation, for example, succeeded in using investment rules in the North American Free Trade Agreement (NAFTA) to pressure Canada to repeal an environmental health regulation.

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In another case with disturbing human rights implications, Italian investors are targeting post-apartheid affirmative action policies in South Africa. They are suing over a law designed to redress historic racism by requiring mining companies to have 26% black ownership and 40% black management by the year 2014. These policies, the investors claim, violate protections against expropriation and discrimination in the Italy-South Africa bilateral investment treaty.

Currently, there are more than 100 cases pending before the World Bank's International Centre for Settlement of Investment Disputes (ICSID), which decides most investor-state disputes. More than 90% have been against developing countries. Meanwhile, these rules are not delivering increased foreign investment. Tufts University researchers recently found that signing bilateral investment treaties with the United States had no effect on Latin American and Caribbean investment flows. In fact, Brazil, which has refused to sign any such deal with the United States, is by far the region's biggest recipient of U.S. investment. ......(more)

The complete piece is at: http://www.alternet.org/workplace/51404/