WASHINTON and NEW YORK - April 30 - The World Bank’s investor arbitration court and bilateral trade agreements have given Global 500 companies unprecedented power over low- and middle-income developing countries. This “corporate rule” undermines governments’ authority to protect human rights and natural resources, according to a new report released today by Food & Water Watch and the Institute for Policy Studies. The report was released just after a case was heard in which British investor Biwater is demanded $25 million from Tanzania, the 15th poorest country in the world, over a failed water project.

“These unprecedented protections elevate the narrow interests of global corporations above social and environmental goals and are inherently undemocratic,” said Sarah Anderson, Director of the Global Economy Project at the Institute for Policy Studies.

The report, Challenging Corporate Investor Rule, explains how investment rules are incorporated into trade and investment agreements and enforced by the World Bank’s arbitration court (International Center for the Settlement of Investment Disputes - ICSID) and other international arbitration tribunals. The rules are weighted heavily in favor of global corporations and against the mostly poor countries caught up in disputes. ICSID hears cases brought by private investors against sovereign governments. Twenty percent of the companies are on the Global 500; 93 percent of the cases involve low- or middle-income developing countries. 

Most ICSID disputes, about 70 percent, involve private investment in public services such as water, electricity, and telecommunications, or investments in natural resources such as oil, gas and mining. According to Food & Water Watch, in too many cases, the World Bank or other international financial institutions required privatization of public services as a loan condition. In many of these loans, these funds then enable multinational corporations with poor environmental and public health records to assume control or management of local water supplies. 

“When contracts fail, as they inevitably do when private corporations are unwilling to provide the needed investment to maintain, build and expand the water systems, investor protections allow the companies to demand outrageous settlements from the countries they failed to serve,” said Food & Water Watch Executive Director Wenonah Hauter. “The Biwater case is a perfect example of how bilateral investment rules are skewed against poor countries like Tanzania.  Biwater is demanding compensation for lost potential profits despite the company’s failure to provide water for Dar es Salaam.” 

The costs of these failed projects are high in human terms.  In the city of Dar es Salaam, for example, more than two-thirds of the population on the outskirts of the city lack access to piped water in their homes and are dependent on expensive or unsafe options to gain access to drinking water.

In addition to the Biwater case, the report highlights 10 of the most controversial “investor-state” cases, including two of the more than 30 cases against Argentina, as well as suits involving indigenous peoples’ rights in Ecuador, Bolivia, Canada, and the United States. 

According to the report, ICSID tribunals have ruled in favor of the investor and ordered the government to pay compensation in nearly 70 percent of cases.  Just the threat of an investor lawsuit can have a chilling effect on social or environmental initiatives, as policymakers justifiably worry about provoking an expensive lawsuit.

“The good news is that political leaders, particularly in South America, are beginning to explore ways of challenging these excessive investor protections and putting forth proposals for more just trade and investment regimes,” concluded Anderson.  The report concludes with a summary of proposals for change. 

The report can be downloaded at: http://www.foodandwaterwatch.org/water/pubs/reports/corporate-investor-rule/

The Institute for Policy Studies is an independent, multi-issue think tank founded in Washington, DC in 1963.  IPS Global Economy Project Director Sarah Anderson, a co-author of the report, served on the staff of the Congressionally appointed International Financial Institutions Advisory Commission and is the co-author of Field Guide to the Global Economy. Visit www.ips-dc.org

Food & Water Watch is a nonprofit consumer rights organization, based in Washington, D.C., that challenges the corporate control and abuse of our food supply and water resources. Water for All Campaign senior organizer Sara Grusky, a co-author of the report, works with communities and organizations, especially in Latin America, that are working to replace corporate control of their water resources with local, democratic control. Visit www.foodandwaterwatch.org.

###