The impacts of the investment protection system in Latin America

Latin America and the Caribbean is the region that has most felt the impacts of the international arbitration regime. Transnational corporations (TNCs) have used the Investor–State Dispute Settlement (ISDS) mechanism to sue national governments, compromising their right to manage their public budgets and to legislate. This website provides information on the impacts of the investment regime in the region.

ISDS in brief

The Investor–State Dispute Settlement (ISDS) system is included in several thousands of international treaties, allowing foreign investors to sue governments in international tribunals when they believe that changes in public policy affect their profits, even when government policies seek to protect the environment or public health. These lawsuits bypass national courts and are brought before three private lawyers with the power to decide what is more important, private profits or the public interest. Around the world, tribunals based on the Investor–State mechanism have guaranteed multi-billion profits to TNCs at the expense of the public interest.

Reports

Reports

“ISDS is a subsidy for MNCs and a tax on everyone else.”

Dan Ikenson – Cato Institute, a right-wing US think tank

“To Indonesia, ISDS provisions seem to be problematic and their benefits are far from clear.”

Abdulkadir Jailani – Former Director for Treaties of Economic, Social and Cultural Affairs, Ministry of Foreign Affairs, Republic of Indonesia

“It’s always odd to me when the business people come around and say, ‘Oh, we just want our investments protected’. I mean, don’t we all? I would love to have my investments guaranteed. But unfortunately, it doesn’t work that way in the market.”

Robert Lighthizer – former US Trade Representative
“What has happened, in my view, is an expansion of the field well beyond the contemplation of those who originally designed it.”
Toby Landau – arbitrator

“With respect to the flawed ISDS provisions in TPP […] I think we need to have a new paradigm for trade agreements that doesn’t give special rights to corporations that workers and NGOs don’t get.”

Hillary Clinton – 2016 Democratic Party presidential candidate
“ISDS arbitration panels hold the alarming power to review a nation’s laws and ‘effectively annul the authoritative acts of its legislature, executive and judiciary’.”
John Roberts – Chief Justice of the Supreme Court of the United States

Emblematic Cases

Emblematic Cases

  • Novartis vs. Colombia

    Demand

    Sued for defending public health

  • Eco Oro vs. Colombia

    Demand

    Sued for protecting water sources and the environment

  • Abengoa vs. Mexico

    Demand

    Sued for defending the environment and local communities

  • Cargill vs. Mexico

    Demand

    Sued for defending the domestic industry

Glossary

Glossary

20 key terms about the investment protection regime:

The universe of investment arbitration is characterised by acronyms and specialised terminology. Scroll over the most commonly used terms and acronyms to understand what they mean.

In international arbitration proceedings, the arbitration tribunal is a panel of three lawyers (usually pro-business) who decide whether the investor’s rights have been violated by the State in question. Its decision is final.

Regulatory chill occurs when the mere possibility of being sued by a foreign investor and of having to face the huge costs this entails inhibits the government from legislating in the public interest.

Bilateral Investment Treaty (BIT) is a bilateral treaty that grants extensive rights to foreign investors. Most investor claims against States are based on BITs.

Arbitration tribunals have interpreted the principle of fair and equitable treatment to protect the investors’ ‘legitimate expectations’, although the concept is not explicit in existing treaties. It has also given grounds to a right to a stable regulatory environment, for governments to refrain from changing laws, regulations or adopting other measures, even in the light of new knowledge or as a result of a democratic vote.

A treaty concluded between States that can be bilateral or multilateral. Most are Bilateral Investment Treaties (BITs) or Free Trade Agreements (FTAs) with investment protection chapters. There are currently close to 3,300 international investment treaties.

Confiscation of a property without consent. Investment treaties distinguish between direct and indirect expropriation. Nationalisation is a typical form of direct expropriation. The concept of indirect expropriation is more ambiguous. In reality, any law or legislative measure that reduces the profits a foreign investor had anticipated may be challenged as an indirect expropriation. Tribunals have interpreted public health, environmental and other safeguards as such, ordering states to pay compensation.

Fair and Equitable Treatment (FET) is a provision that ensures that companies’ investments are treated ‘fairly and equitably’. This clause is very broad and potentially the most dangerous to the public interest. While arbitrators have argued that it protects the investor’s ‘legitimate expectations’, this provision is the most frequently and successfully used by investors to challenge measures adopted in the public interest.

Most Favoured Nation (MFN) is a provision that ensures that any privileges granted to investors under an investment treaty with third parties are extended to all signatories of another treaty that includes MFN. Arbitrators have used MFN provisions as a ‘magic wand’ that allows investors to ‘import’ the most favourable rights from other treaties signed by the host country. This expands the risks of successful attacks on public policy.

Sunset Clause or ‘Zombie Clause’ maintains the investors’ rights after the treaty has been terminated and allows them to sue States for an additional 5, 10, 15 or even 20 years.

Performance requirements are measures that a government may impose on investors to ensure that their investments make a positive contribution to the country’s economy or development. Governments might require investors, for example, to include some local content, employ a certain number of local workers, undertake a meaningful level of research and development (R&D) in the country, or restrict their sales of goods or services in the domestic market. Investment protection treaties tend to prohibit governments from imposing performance requirements.

Investor-State Dispute Settlement mechanism (ISDS) is the mechanism that allows investors’ rights to be enforceable, providing companies the tools to bypass national courts and sue States in international arbitration tribunals. It is a parallel justice system to which only investors have access.

Regulatory measures are all measures (including new legislation, legislative amendments, etc.) that a government adopts to govern in full respect of national law.

National treatment is the principle ensuring that foreign investors are treated at least as well as domestic investors. In ISDS proceedings, it has been interpreted as prohibiting any measure that effectively disadvantages foreign investors or could in some way disadvantage them, even if this is not the intention.

Damages refer to the amount claimed by a foreign investor initiating ISDS proceedings against a government. Foreign investors may claim financial redress not only in relation to their actual investment but also on the basis of their expectation of future profits.

This is the International Centre for Settlement of Investment Disputes, based at the World Bank’s head office in Washington DC. It is the tribunal most commonly used in ISDS disputes.

This is the United Nations Conference on Trade and Development (UNCTAD), which hosts an investment protection division. It regularly publishes the most comprehensive statistics on international investment treaties and Investor–State disputes.

Award is the result of an ISDS proceeding as determined by the arbitration tribunal in charge of resolving the dispute.

Investment is generally an investment of capital that is expected to generate a profit. Investment treaties have extended the concept of investment to include intellectual property rights and sovereign bonds, among others.