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Sunday 21 April 2019
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The Neo-liberal Agenda of ICSID

Stanley

Noting the importance of creating an investor-friendly environment to attract investments within Namibia, various commentators have indicated the need to ratify (approve) the International Centre for Settlement of International Disputes (“ICSID”) Convention. Aptly noting, ICSID was founded in 1965 under the Washington Multilateral Convention, and is the brainchild of Aaron Broches, who served on the World Bank’s General Council. The idea was to create a neutral purpose-built arbitration centre, regulated by international rules and using procedural mechanisms to settle foreign investment disputes between investors and host States. Namibia signed the Convention on 26 of October 1998, but is non-binding as it is yet to be ratified by parliament. From an extractive industry perspective, the following passages indicate why I think Namibia should NOT ratify the Convention.

The decolonisation period during the 1950s and 1960s saw newly created and independent States beginning to nationalise many foreign companies within their jurisdiction, usually adopting rigorous regulatory policies and suspending exploration permits as well as mining/oil concessions. Private assets of foreign investors were transformed into public assets under the ownership of the national governments. These nationalisation policies were mainly influenced by “resource nationalism”, an umbrella term frequently describing acts by host states to expropriate (take back) or change the terms on which resources are extracted with the aim of obtaining greater benefits for the host state. Even though investors were entitled to compensation, domestic tribunals seemed unable to adequately resolve the compensation claims presented by foreign investors.

Realising that investments in host States hardly take place in a vacuum and are always at arm’s length with the prevailing political and social factors, Western capital-exporting countries such as the US sought better protection mechanisms for assets invested in developing countries by their citizens. It was this calling that led to the establishment of ICSID in 1965, as mentioned earlier. Because developing countries were sceptical of ICSID, the ICSID framers offered these developing countries “four safety valves” if they became signatories to the Convention, thereby allowing them some control in the resolution of disputes. The first safety valve was the exhaustion of local remedies providing that all local remedies would be exhausted before a dispute was submitted to ISCID.

The second safety valve was consent on a case by case basis, meaning that being a party to the ICSID Convention does not result in unconditional consent to ICSID arbitration. The third safety valve was that the law of the host State was to be the governing law, with ICSID reaching a compromise permitting the contracting parties to choose the law by agreement, whereby the law of the host State along with any rules of international law was to be applied. Finally, the last safety valve concerned State sovereignty and security, meaning that a nation could at any time decide the class or classes of cases it wishes to submit to the jurisdiction of ICSID after acceding to the Convention.

Unfortunately, soon after these safety valves were introduced, economists such as Milton Friedman started influencing neo-liberalism, a new ideology that started to take relevance at the end of the 1970s and was supported by Margret Thatcher (Britain) and Ronald Reagan (US). It enhanced the individual and enterprise freedoms, the free market, the allocation of public resources to private hands, and the importance of foreign investments for the improvement of the economy. The neo-liberalistic wave hit the United States during the 1980’s, when it started signing international protection agreements (“IPA’s”) as per its developed Model Bilateral Investment Treaty (“BIT”). Developing countries therefore started considering BITs with developed countries and accepted the highly protective dispute settlement provisions (through ICSID) in these BITs. This was highly influenced by the perception that becoming a party to ICSID not only increased mutual confidence by improving their domestic legal environment for foreign investment, but also increased the inflow of capital into the developing country.

The consequence of these BITs meant developing host States were deviating from the four valves mentioned earlier, as they were conforming to the new theme of attracting additional foreign investment by granting more protection to foreign investors under these BIT’s than that offered by traditional customary law. This deviation meant they had little or no protection against being easily sued by foreign investors, as these investors could leap-frog local courts and pursue arbitration on an international level. As of 31 December 2013, the oil, gas and mining sector amounted to 26 percent of all cases registered with ICSID since its establishment, and 27 percent of new cases registered in 2013 alone with the convention came from the same industry.

The main criticism of ICSID in this article is its link to the neo-liberal tendency of placing the interests of the foreign investors before the collective interests of the host nation. The influence of the World Bank (WB) within ICSID is evident from the fact that the WB President is ICSID’s Administrative Council, and the WB General Council serves as ICSID’s Secretary General. Further, the key stakeholders of the WB are industrialised States (with USA holding majority share) seeking to protect the interests of their foreign investor citizens, and such protection extends to losses incurred when host nations institute environmental regulations. The classical case of Santa Elena v Costa Rica puts the above “investment protection before environmental regulation” attitude into perspective, wherein the ICSID tribunal made it clear that any interference with the investor’s property that caused him loss was to be compensated, even if such actions taken by the host State were aimed at environmental regulation/protection.

My informed opinion remains that ICSID is the judicial arm of the World Bank, and is not an autonomous body to offer a suitable and fair forum for settling investor-State disputes within the extractive industry. Its neoliberal tendency towards investment protection is clearly seen in the manner ICSID reviews host-States’ policies aimed at regulating matters concerning their environment and public health. ICSID’s approach to disputes arising from States’ attempts at environmental governance and the resulting loss for foreign investors significantly hinders their (i.e. States’) ability to take actions to safeguard the welfare of their citizens.
With Namibia having a high regard for environmental protection, as evident in the current legal conundrum surrounding seabed phosphate mining, the country should avoid joining an arbitral institution that would put the individualistic interests of a few investors before the collective interests of the nation. ICSID’s neo-liberal bias in favour of investment protection leap-frogs national courts, and has little regard for the welfare of Namibia’s citizens. Namibia should not fall prey to an arbitral institution housing a mortally wounded neo-liberal agenda.

*Stanley Kambonde is the Founder and Managing Director at Esel Kay Consultancy, a consulting and advisory firm specialising in the natural resource and energy sectors. He holds BJuris and LLB (Honours) degrees from University of Namibia, and an LLM in Oil, Gas and Mining from Nottingham Trent University, UK. He can be reached at skambonde@gmail.com




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