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.

The Honduran Coup – Call for Action

Readers:

People all over the world concerned with human rights and democracy in Latin America have been fixed for nearly a month now on the military coup against the democratically elected President in Honduras. The coup has wide repercussions, not only for Honduras but also for the entire region.

For decades Latin America was plagued by democratic governments tossed out of office by military forces, events usually followed by brutal dictatorships. This coup, the first to succeed in ousting a President in decades (with the exception of the Venezuelan coup against Hugo Chavez, which lasted a few days). Returning to a coup culture in Latin America would be a huge reversal for democracy in the region.

A note here: There is a wide difference between a military coup, in which a democratically-elected President is escorted from the country at army gunpoint and presidential resignations triggered by mass protest and the collapse of public support. The latter is what happened to Gonzalo Sanchez de Lozada in Bolivia in 2003 and to Richard Nixon in the U.S. in 1974.

Below is a brief post by Kris Hannigan-Luther of the Democracy Center, with links to more information on the Honduran coup and what citizens across the world – and particularly in the U.S. – can do to take action.

Jim Shultz

The Honduran Coup – Call for Action

Written by Kris Hannigan-Luther

Late this week talks between Honduran ousted President, Zelaya and the de facto government in Honduras were suspended, and it appears that Zelaya is heading back to Honduras from Nicaragua overland, with plans to enter Honduras this weekend. The de facto Honduran government, headed by Roberto Micheletti, who was named president by Congress after the military coup, has promised to arrest Zelaya if he attempts to return to Honduras.

In the 27 days since the coup in Honduras, many of us have read news reports and analyses on the historical and economic context of the Honduran crisis. We have heard statements issued by the Organization of American States, by the Obama administration and by other heads of state. While we are not experts on the situation in Honduras, we feel that it is appropriate to share links to information as well as calls to action with you, our readers.

We join with our sister organizations, which call for an end to the human rights violations that are occurring in our neighboring country of Honduras.

On July 10th, the Washington Office on Latin America’s (WOLA) Executive Director, Joy Olson, testified before the House Committee on Foreign Affairs Subcommittee on the Western Hemisphere regarding the Crisis in Honduras.

According to Olson’s testimony: On June 28th there was a coup. The Honduran military forcibly removed democratically elected President José Manuel “Mel” Zelaya, by gunpoint from the presidential palace, and put him on a plane to Costa Rica. Read Joy Olson’s complete testimony here.

The New York Times reported on the coup in a July 28th article. Read the complete article.

While the New York Times article asserts that “…President Manuel Zelaya was ousted by the army on Sunday, capping months of tensions over his efforts to lift presidential term limits…” other analysts point out that the ousted Honduran President was not trying to lift presidential term limits. Joy Olson of WOLA testified, “…there is no concrete proof that this (lifting of term limits) was his intent, much less any guarantee that an assembly, if called, would include a clause on presidential re-election in a new constitution.”

Human Rights Violations

WOLA and other organizations have written and spoken out against on-going violations of human rights since the coup. WOLA cites a report released by the Committee of Families of the Detained and Disappeared of Honduras (COFADEH), which documents unlawful detentions, press censorship, a curfew reinstated by the government and other suspended civil liberties.

Witness for Peace’s Ben Beachy traveled to Tegucigalpa as part of an emergency commission of observers from across the hemisphere. He also highlighted human rights violations that have taken place since the June 28 coup, writing that over 1000 arbitrary arrests of civilians have taken place, as well as the censure and expulsion of nearly all independent media outlets, physical attacks and at least four deaths related to the violence. Visit the Witness for Peace website to learn about their calls to action.

In the United States, members of the House of Representatives have unveiled a new resolution condemning the coup in Honduras. House Resolution 630 was introduced by Representatives Delahunt, McGovern and Serrano. This resolution demands that President Zelaya be immediately reinstated as the legitimate Honduran President and that the Obama Administration cut off all non-humanitarian assistance to Honduras until that time.

The Latin America Working Group(LAWG) is campaigning for U.S. citizens to contact their representatives in Congress and ask them to support this resolution.
This coup demonstrates that our democracies need strengthened and respected on all sides. According to WOLA’s Joy Olson: When all was said and done, many of the actors in the play seem to have overstepped their legal authorities. In this story, there are no heroes of democracy.

Please Give the Democracy Center Your Vote!

Dear Friends and Readers:

Politics Online, the organization dedicated to covering and advancing the use of the Internet for political activism, has just named the Democracy Center as one of 25 finalists in it annual selection of: Top 10 Who Are Changing the World of Internet and Politics.

Selection of the ten winners is up to you!

Politics Online will select the 10 winners via a public vote, over the Internet, in which anyone is invited to participate. We hope that followers of our work here at the Democracy Center will take a few seconds to cast a vote in our favor.

You can vote here!

For more than a decade – through our newsletters, briefing papers, videos and this Blog – the Democracy Center has been using the Internet to bring global attention to developing country issues that would otherwise be ignored.

We have also pioneered the Internet as a tool for global organizing, including the international campaign that successfully forced the Bechtel Corporation to drop a $50 million legal case against the people of Bolivia following the Cochabamba Water Revolt. More than 300 organizations in 43 countries joined that effort, leading to Bechtel's settlement of the case in 2006 for thirty cents.

That’s just the start of what we have planned. So, please, take a few seconds and offer us your vote – right here.

Jim Shultz

President Obama Ends U.S. Trade Preferences for Bolivia

Since he took office five months ago, President Barack Obama has had to show his political cards on one issue after another. How interventionist would he be dealing with the collapsing financial system? How far toward state-run care would he go on health reform? Where would he stand on gay marriage? What kind of candidate would he put on the Supreme Court? How soon would he pull troops out of Iraq and how many would he put into Afghanistan?

On the political back burner, behind these high profile questions was another one: How will President Obama play the complicated cards of the U.S. relationship with Latin America – in what ways would he be different than President Bush and in what ways would he be the same?

This week two issues have forced President Obama to show some of his cards on Latin America. The first is his response to the military coup in Honduras. The second is his announcement last Tuesday that he is ending U.S. trade preferences for Bolivia. Both reveal something of the new President's political math as he deals in earnest with his neighbors to the south.

The Honduran coup was probably not a tough call for the administration. It doesn't take much political courage to oppose the first military coup in Central America in a quarter century (though some have charged that the administration's initial condemnation of the coup could have been stronger). Nevertheless, it was a welcome break from the days of April 2002 when the Bush administration gave comfort and support to the short-lived coup against Venezuelan President Hugo Chavez.

Bolivia – Following in Bush’s Footsteps

On Bolivia, however, President Obama took a very different stance this week – putting himself squarely in alignment with the policies of the President Bush.

Last September, when the governments of Bolivia and the U.S. were playing an escalating game of diplomatic tit-for-tat, beginning with President Evo Morales' expulsion of the U.S. Ambassador, President Bush overruled Congress and suspended U.S. trade preferences with Bolivia. The move put at least 20,000 Bolivian jobs at risk.

The Bush administration's official basis for the suspension was that it had “decertified” Bolivia's anti-narcotics efforts, charging that Bolivia had failed to fulfill its commitments to fight illegal drug trade in the country. By U.S. law, those ATPDEA trade preferences are tied to Bolivia's anti-narcotics efforts. But coming as it did square in the midst of diplomatic battle, and contrary to a bipartisan vote in Congress to continue those preferences for Bolivia, it seemed clear that the Bush administration’s move had a lot more to do with politics than drugs.

Since January those watching the issue – especially thousands of workers in textile factories in Bolivia's impoverished highlands – have been waiting hopefully to see whether President Obama would reverse the Bush policy. On Tuesday the President announced that he would not. In fact he made the suspension of the trade preferences permanent.

"No duty-free treatment or other preferential treatment…shall remain in effect with respect to Bolivia after June 30, 2009," reads the ruling from the Office of the U.S. Trade Representative.

So what was behind President Obama's decision on Bolivia?

Administration representatives and defenders will argue that it was a straight up ruling that Bolivia's anti-narcotics efforts do not meet the standards required to continue the trade preferences. The Trade Representative's Office writes in its findings, "The current challenges include explicit acceptance and encouragement of coca production at the highest levels of the Bolivian government," and it argued that a large portion of that growing crop is headed for cocaine production, not herbal tea. That finding was also buttressed by a new United Nations report this month claiming that cocaine production in Bolivia has increased by 9% over the past year.

Analysts with more expertise than I have, on all sides of the issue, can debate the statistics and the evidence about Bolivian coca's ultimate destination. But anyone living in Cochabamba can tell you that the hills on the outskirts of this valley are populated by a growing number of clandestine operations devoted to turning coca into cocaine. When the Obama administration argues that its decision is simply a strict reading of the facts and the law, it has a case.

However, other observers more skeptical of Washington’s moves will attribute the decision to other considerations.

Some may suggest that, in its dealings with the combative Morales, the Obama team decided that Bolivia might make a nice line in the sand – a signal that, while it intends to be more friendly toward some of the governments the Bush administration loathed, Obama's Washington still has its limits. President Morales has not done himself many diplomatic favors in his dealings with the new administration. This includes his breaking up the warm handholding at the April Summit of the Americas with a demand that President Obama publicly declare himself free of involvement in an alleged assassination conspiracy against Morales.

Others with even more sinister suspicions may claim that Washington is subtly trying to weaken Morales politically in advance of December’s Presidential election. The end of the trade preferences pits two parts of Morales’ political base against one another – coca growers who benefit from increased cultivation and workers in the factories who may now lose their jobs because of that increased growing.

I myself am not big on conspiracy theories.

What is not in question, however, is that the announcement from Washington on Tuesday signals an end to whatever shaky honeymoon existed between Obama and Morales. Bolivia's President wasted no time in pouncing on his counterpart in the north. “President Obama lied to Latin America when he told us in Trinidad and Tobago that there are not senior and junior partners,” he declared in La Paz. He added, “Even if the appearance of the government in the United States has changed, the politics of the Empire haven’t.”

We can probably expect rhetorical attacks aimed at President Obama to become a part of Mr. Morales' speeches on the stump as he heads into December's elections for President, as attacks aimed at President Bush have been before.

In fact, one result of the political machinations between the Obama administration and Latin American leaders in recent months is that President Morales seems to have replaced President Chavez as the South American ‘bad boy’ in terms of relations with the U.S. While Chavez is gifting books to President Obama and exchanging ambassadors once again, Morales seems more and more isolated as Mr. Obama's chief critic in the region.

But What About the People?

All this is about the politics and the political calculations involved in these matters, the stuff on which political analysts and political followers tend to dwell. But what about the people affected by all this? Where do they fit in to the political calculations in Washington and La Paz?

One other thing that is certain as a result of the Obama administration’s Bolivia decision is that thousands of workers here are now likely to lose their jobs. This brings me back to the fundamental question we asked in September when President Bush first suspended the trade preferences, the same question we put forward in the video of worker testimony (click on the frame above) that we showed in Washington in October when the Trade Representative held its hearing on this issue:

Why is it in the interest of the United States to put these people out of work?

The answer is, it isn’t.

Just today, President Obama spoke of his concern for the rising number of unemployed in the U.S. Too many families, he noted, worry about "whether they will be next" to lose their jobs. Being thrown into unemployment in Bolivia, where economic opportunity is scarce, is no better. But nowhere does that show up in the Obama administration's Bolivian calculation.

Another thing that it is certain about the impact of President Obama's decision is that it won't do anything to combat the production of cocaine in Bolivia. If anything, it will make things worse. Putting tens of thousands of people out of work is only likely to push more of them into some kind of involvement with the illegal drug trade. That is a fact that should not have been hard for analysts in the administration to understand.

So What Will Obama Do that is Different than Bush?

President Obama has made clear this week at least one way in which he is content to copy the policies of President Bush. Now the question is whether, on the issues of illegal drugs and trade, he is willing to demonstrate some of that creativity he promised to do things differently than Mr. Bush.

Here are two ways he can do just that.

First, the Obama administration could recognize the basic fact that helping create honest work in Bolivia is simply good policy for both Bolivia and the U.S. It should find a way to quickly restore the trade preferences without any link to drug policy. That is how it should have been from the start and doing so now would demonstrate genuine political courage and intelligence. Those preferences are about the thousands of workers impacted and the thousands more they support. Their future should not be dependent on coca production they have nothing to do with or whether their President tosses public insults at Washington.

Second, if the Obama administration is serious about wanting to help reduce cocaine production in Bolivia, it should move past policies that don't work and start adopting new ones that have a chance.

That begins by not insisting on making the U.S. a central player in Bolivia's anti-narcotics program. Washington's "Drug War" has a horrific history here, including giving Bolivian prosecutors special U.S. salary as an incentive to put thousands of innocents in jail. The U.S. will never be trusted here on drug policy. A serious U.S. strategy to combat illicit Bolivian coca would encourage more involvement by Argentina and Brazil, two governments that have far more cordial relations with Morales and whose people are the real target for the cocaine produced here, not the U.S.

A genuine approach would also make the logical distinction between the coca leaf, which is not an illicit drug, and cocaine, which is. Supporting the legal export and sale of products such as coca tea – served and recommended by the U.S. Embassy in La Paz – won't soak up all the leaves headed for processing into cocaine, but it will make a difference and create honest employment.

Both these directions would mark a radical departure from the myopic policies the U.S. has pushed here for more than two decades, but they make sense.

What's left now is to see is whether President Obama has a few cards left in his hand that he hasn't played, ones other than those he just picked up when President Bush left them behind on the table last January.