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“Privatized justice” system for transnationals should be abolished

The investor-state dispute settlement mechanisms are incompatible with the Charter of the United Nations and Human Rights, concluded the prominent Cuban-American lawyer Alfred-Maurice de Zayas, in his report to the General Assembly of the UN as Independent Expert on the Promotion of a Democratic and Equitable International Order, appointed by the Human Rights Council.

This system, argues the expert, “should be abolished” because it is a “fundamentally flawed system having adverse human rights impacts and because its operation has upset the international order by debilitating States, encroaching on their regulatory space and aggravating inequality and inequity in the world.”

Among the examples cited by de Zayas to support these conclusions are the litigations of Philip Morris against tobacco regulations in Uruguay and Australia, of Chevron and Occidental Petroleum against Ecuador, the Renco mine against Peru and Vivendi against Argentina, among others.

Born in Havana in 1947 and a US citizen since the 1960s, de Zayas worked several years in corporate law for a private firm in New York and then held various positions at the United Nations, always linked to human rights. He is currently professor of international law at the School of Diplomacy and International Law in Geneva, Switzerland.

The settlement of disputes between investors and states is a fairly recent international legal mechanism that accompanies many international investment agreements. Instead of litigating before the local courts or invoking diplomatic protection, this system allows investors to turn to three arbitrators, in confidential procedures, to decide if their rights have been violated by a State. These tribunals can deal with claims of investors against States, but do not accept demands of states against investors, when for example the latter violate laws and regulations, pollute the environment and water supply, etcetera.

The main legal argument underpinning the critique of  this system is that it is incompatible with the Charter of the United Nations, “which is something like the global constitution.” Article 103 of the Charter states that “in the event of a conflict between the obligations of the Members of the United Nations under the present Charter and their obligations under any other international agreement, their obligations under the present Charter shall prevail.” This means, according to the report, that bilateral and multilateral free trade and investment agreements that contain provisions that conflict with the Charter must be revised or terminated, and incompatible provisions must be severed.

Out of 608 known cases against 99 governments with 60 per cent of arbitrations in favour of investors (excluding payments made as a result of extra-arbitration agreements), de Zayas concluded that there are frequent “conflicts with regional legislation, the decisions of human rights courts and the constitutional separation of powers.” In addition, the mere threat by a corporation may have an inhibitory effect, because small states are forced to mobilize millions of dollars to defend themselves, having to hire specialized firms whose lawyers charge USD 1,500 an hour during years of lengthy procedures.

“Investor-State dispute settlement has mutated from a corporate shield against allegedly unfair behavior by States into a tactical weapon to delay, weaken and kill regulation” concludes de Zayas.

These courts are not impartial. Ms. Gabrielle Kaufmann-Kohler was one of the referees between Argentina and Vivendi despite being a director of the Swiss bank UBS, one of the owners of Vivendi. While the International Center for Settlement of Investment Disputes (ICSID) hosted by the World Bank, admitted the irregularity, the award was not canceled because arbitral decisions are final.

In conclusion, the expert recommends the outright abolition of this system, to replace it by an international court on investment. The United Nations is called upon to exercise greater vigilance on the conflict between arbitration and human rights and the International Court of Justice in The Hague could be asked for a legal opinion on the system.

The report encourages civil society to demand that agreements being negotiated that include these provisions, such as the trade in services agreement (TISA), the Trans-Atlantic (TTIP) and the Trans-Pacific (TPP) agreements be submitted to referenda. The expert notes that of the existing 3,200 treaties that include ISDS, more than 1,500 are expiring soon. This creates an excellent opportunity to not renew or renegotiate them.

Roberto Bissio is the Coordinator of Social Watch.

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