My Testimony on US Trade Agreements at the US State Department

Readers,

Yesterday in Washington I testified before a commission appointed by the Obama administration that has been assigned the responsibility of looking at the type of investment treaties that the U.S. signs with other countries. These are called Bilateral Investment Treaties or BITS. I focused my testimony on one key provision of those treaties: What happens when a foreign corporation and a government have a disagreement about an issue? How does it get resolved?

This is an issue that has threatened the sovereignty of many countries around the world, as foreign corporations haul countries into secretive trade courts, suing them for millions for the crime of seeking to protect their environment or regain control of their natural resources. And the U.S. is no exception. California was sued in a NAFTA trade court for banning a Canadian made toxic chemical that was seeping into the groundwater.

And it was just such a secretive trade court, the International Center for the Settlement of Investment Disputes (ICSID), where Becthel sought to take $50 million out of the pockets of residents of Cochabamba following the 2000 Water Revolt.



To be sure, there is a need for a system to resolve disputes like this. Both sides have a right to seek justice if they are wronged. The problem is that the system we have is a slanted playing field, giving all the rights to the corporations and none to the citizens affected.

Below is my testimony from yesterday for those interested. Challenging and reforming this system of international investment law is also the focus of a new project we are launching soon together with our friends at the Institute for Policy Studies in Washington -- The Network for Justice in Global Investment.

Jim Shultz

Testimony of Jim Shultz
Executive Director of the Democracy Center
San Francisco, California and Cochabamba, Bolivia

Before the Obama Administration’s Review
of the U.S. Model Bilateral Investment Treaty

Washington DC, July 29, 2009


I would like to thank the administration for this opportunity to testify this morning. I would like to use this opportunity to tell a story that illustrates the significant problems with one key aspect of the U.S. BIT model – its reliance on the International Center for the Settlement of Investment Disputes (ICSID) as the mechanism for resolving disputes between investors and governments.

This story took place in the city where I have lived for the last eleven years, Cochabamba, Bolivia, the Water Revolt against the Bechtel Corporation. I reported on this story from the streets when it happened and most recently wrote a chapter about it for our new book, Dignity and Defiance, Stories from Bolivia's Challenge to Globalization (UC Press). I will include that chapter as an attachment to my testimony.

In 1997 the World Bank set as a condition of additional lending to Bolivia for water development the privatization of the public water systems of two of its largest cities, including Cochabamba. In 1999 in a closed-door process with just one bidder the government of Bolivia awarded a 40-year lease to a subsidiary of Bechtel. Soon afterwards the company increased water rates dramatically, an average of 51% on all water users and 43% on the very poorest. A civic rebellion against the price increases shut down the city with general strikes on three occasions, including for a week in April 2000. A 17-year-old boy, Victor Hugo Daza, was shot and killed by army troops sent out by the government to defend the contract. Finally Bechtel left.

In November 2002 Bechtel's company filed a $50 million case before ICSID against the government of Bolivia, based on an investment of less than $1 million. That case illustrates three enormous weaknesses in the ICSID process:

First, the process is utterly secret. The people of Cochabamba, who would be expected to pay Bechtel, were not allowed to know when the tribunal met, where, who testified before it, or what they said. There is no reason on Earth that this process should be secret. As with committees of Congress or in court hearings in the US the default setting of the process should be open and public and closed only based on specific circumstances.

Second, the process is ridiculously distant from the supposed "scene of the crime". Lawyers and officials meeting behind closed doors in Washington, many of whom have never been to Bolivia, cannot be expected to understand the realities of the case without going to where it is based and hearing from the people involved.

Third, the process is ridiculously expensive. The legal fees paid by Bolivia in this case were more than Bechtel's investment in the country. They could have instead paid for more than 300 schoolteachers for a year. Bolivians cannot afford to pay U.S. prices, and especially for the price of U.S. lawyers.

The corporate representatives here today should especially take note of the Bechtel experience. Because Bechtel did not win this case. It dropped this case in January 2006 for a token payment of 30 cents. It did so because of the extraordinary pressure that citizens and social movements brought to bear on the company and its officials. Protesters picketed the house of the subsidiary's CEO. They shut down Bechtel's San Francisco headquarters with civil disobedience. When the door is closed on legitimate participation what corporate officials can expect is even more of what Bechtel officials received. You can count on it.

Now I realize that the easy thing here would be to continue relying on ICSID. It is there and it is familiar. But I also believe that we can certainly be more creative and can certainly develop a system that is more fair, more efficient and less costly. I encourage the administration to do just that.

Thank you.