Jonathan C. Hamilton, Bolivia, Latin America Energy Advisor, Inter-American Dialogue (2007)

Bolivian President Evo Morales recently proposed that Bolivia, Venezuela, and Nicaragua pull out of the Washington-based International Centre for Settlement of Investment Disputes (ICSID), the World Bank affiliate for investor-state arbitration, to safeguard national sovereignty from pressures by multinational companies.  Why is President Morales raising this issue now? Will any or all of the three countries withdraw from ICSID? At what benefit and/or cost? Commentary by Latin American energy Advisor Board Member Jonathan C. Hamilton.

Recent developments may test the widely accepted view that reliable dispute resolution mechanisms are central to attracting foreign investment. 

Latin American countries spent years building a legal framework for arbitration by modernizing national laws and ratifying treaties providing for investor-state arbitration.  Colombia, Panama, and Peru are now pressing for ratification of US free trade agreements that include latest-generation investment protections.  Yet Bolivia and other disaffected states appear to be taking steps to dismantle pieces of the framework for investor-state arbitration. 

As a policy matter, these steps follow a wave of ICSID cases against Latin states in recent years, including 60 of the 110 ICSID cases now pending.  These steps also arise in the political and policy context of Venezuela’s move to pull out of the World Bank and bolster its role as a regional power; the Bolivian announcement was made in Venezuela. 

As a legal matter, Bolivia’s denouncement of the ICSID Convention, whatever its effect, would not be effective for six months.  Moreover, Bolivia may seek to revise certain of its 18 bilateral investment treaties (BITs).  The 2001 Bolivia-US BIT, for instance, provides access to UNCITRAL arbitration (not only ICSID arbitration).  It can be terminated 10 years after entry into force, with one-year advance notice; and certain protections remain in force for a decade thereafter, even if enforcement issues arise.  Ecuador aims to terminate its 1997 BIT with the US; but that BIT has arbitration and termination provisions similar to the Bolivia BIT. 

In short, the dismantling of investment protections is more quickly announced than accomplished.

Some countries tested the widely accepted view that reliable dispute resolution mechanisms are central to attracting foreign investment. But the dismantling of investment protections is more quickly announced than accomplished. 

Jonathan C. Hamilton