International Institute for Sustainable Development | Investment Treaty News | 9 May 2007
Bolivia notifies World Bank of withdrawal from ICSID, pursues BIT revisions,
By Damon Vis-Dunbar, Luke Eric Peterson and Fernando Cabrera Diaz
Investment Treaty News has learned that Bolivia has sent a formal notice to the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID) declaring its withdrawal from the ICSID convention.
In widely reported comments made late last month, Bolivian President Evo Morales had called upon Latin American Governments to withdraw from the World Bank’s investment dispute facility. The Washington Post quoted President Morales as saying that "(We) emphatically reject the legal, media and diplomatic pressure of some multinationals that ... resist the sovereign rulings of countries, making threats and initiating suits in international arbitration".
It remained unclear, however, if such political rhetoric had been accompanied by an actual move to exit ICSID — although there were persistent rumours circulating in the arbitration community and in Bolivia that the Morales Government had moved to withdraw from ICSID.
In an interview with Investment Treaty News, Pablo Solon, Bolivia’s Charge D’affaires for Trade with the Ministry of Foreign Affairs in La Paz, says that a letter dated May 1st, 2007 was sent to the World Bank’s president Paul Wolfowitz giving formal notice of Bolivia’s departure from ICSID.
INVESTMENT TREATIES ALSO SLATED FOR REVISION OR TERMINATION
Mr. Solon also said that Bolivia intends to pursue revisions to its 24 bilateral investment treaties (BITs). These revisions will be sought in three areas : the definition of investment ; performance requirements ; and dispute resolution.
Mr. Solon said Bolivia wants to limit the definition of an investment to those that “truly generate a value to the country.” For rules on performance requirements, Bolivia wants greater scope to set requirements for the use of domestic inputs and set rules for the transfer of technology. Finally, in the area of dispute resolution, Bolivia is aiming to limit investor-state arbitrations to domestic fora, rather than international venues such as ICSID.
Bolivia intends to pursue these changes one at a time, as these existing BITs are set to expire. Many of Bolivia’s BITs stipulate that they are in force for 10 years, after which either country can choose to end the treaty. If the original 10 year period elapses without a notice to terminate, then the BIT remains in force in one of two ways. Some BITs are renewed for 6 or 10 year periods and can only be terminated if notice is given in advance of the end of one of those periods. Other BITs, such as the Bolivia-United States agreement — which came into force in June of 2001 — are renewed indefinitely and can be terminated at any time after the initial ten year time-span, given one year’s notice.
Notably, most of Bolivia’s BITs also contain a so-called survival clause, which ensures that most of the protections offered in the BIT will continue to apply to investments made prior to the termination of the treaty, for 10 to 20 years after that termination date.
Mr. Solon tells ITN that Bolivia has already notified several countries of its intention to renegotiate their bilateral investment treaties.
IMPLICATIONS OF BOLIVIA’S WITHDRAWAL FROM ICSID UNCLEAR
Although there are currently 144 adherents to the ICSID Convention, thus far, no government has formally withdrawn from the ICSID system. As such, the implications for foreign investors of Bolivia’s move are a matter of debate amongst lawyers specializing in investment treaty arbitration.
The ICSID Convention allows states to withdraw from ICSID, with Article 71 of the ICSID Convention stating that denunciation shall take effect six months after the receipt by the World Bank of a notice to withdraw.
However, one prominent legal expert says that, from the moment a notice of withdrawal has been received by the World Bank, the door to ICSID arbitration may already be closed to some foreign investors.
“If you look closer ... the six month notice period offers very little comfort to investors and potential litigants,” says Professor Christoph H. Schreuer, Professor of International Law at the University of Vienna, and author of a well-known academic commentary on the ICSID Convention.
Professor Schreuer points to Article 72 of the ICSID Convention, which states that a notice to withdraw will not affect arbitrations where “consent” has been given prior to the notice of withdrawal.
According to Professor Schreuer’s interpretation of this article, any consent to ICSID arbitration given prior to the notice of withdrawal will not be impacted. However, after a notice of withdrawal, any attempt by an investor to give consent would be too late.
The key question is what constitutes consent.
“My reading is that consent under the ICSID Convention is always by agreement. If there is an ICSID clause in a bilateral investment treaty or national legislation, that does not in itself constitute consent. That consent needs to be accepted by the other party.”
Such consent does not need to take the form of a request for arbitration, said Schreuer. It does, however, need to take the form of a written letter to Bolivia accepting the state’s offer of consent to jurisdiction under ICSID.
Fernando Mantilla-Serrano, a Partner with the international arbitration group at the law firm Shearman and Sterling, takes a differing point of view on this matter. He argues that Article 72 of the Convention refers to consent to arbitration by just one of the parties.
"At least from the plain meaning of the text of the Convention, you don’t need any other party to have acted on that consent," said Mr. Mantilla, who advises foreign investors in Latin America, including in Bolivia and Venezuela.
According to this view, foreign investors protected under a BIT that had been in force prior to ICSID’s receipt of Bolivia’s withdrawal notice would continue to enjoy access to arbitration at ICSID well into the future. On Mantilla’s reasoning, Bolivia’s consent to ICSID arbitration is grounded in the relevant bilateral investment treaties, and investors can continue to take advantage of that consent notwithstanding Bolivia’s withdrawal from the ICSID Convention.
One upshot of this view would be that arbitrations against Bolivia could be handled by ICSID many years after Bolivia had withdrawn from the ICSID Convention, provided that the investors could avail themselves of the arbitration clauses contained in Bolivia’s bilateral investment treaties.
Mantilla acknowledges, of course, that this is a legal “theory”, and that it would fall to the ICSID Secretariat, in the first instance, and perhaps to arbitral tribunals, to decide how to handle future claims brought to ICSID against Bolivia.
While debate is likely to swirl as to the legal implications of Bolivia’s move to withdraw from ICSID, other avenues also appear open for investor arbitration — at least until the obligations in Bolivia’s existing treaties expire.
Robert Volterra, a London-based Partner with Latham & Watkins, notes that the ability of investors to pursue a claim against the host state is rooted in the various investment treaties signed by that country. Volterra, who was lead counsel for Aguas del Tunari and Bechtel in an earlier arbitration against the Bolivian Government, points out that many Bolivian investment treaties provide for non-ICSID arbitration options, for example under the ad-hoc UNCITRAL rules.
NATIONALIZATION SPURS INTEREST IN BIT PROTECTIONS
Bolivia’s move to withdraw from ICSID comes at a time when the country is in the midst of nationalizing key sectors of its economy. In recent months several adversely affected foreign investors have hinted at international arbitration as a possible recourse.
Glencore, the Swiss commodity trader, is known to have sent the Bolivian government a so-called triggering letter — setting in motion a mandatory negotiation period before they could turn to arbitration under the Swiss-Bolivia bilateral investment treaty — after one of its plants was seized earlier this year.
Telecom Italia, the Italian Telecommunications firm, has also adverted to its investment treaty protections, in the wake of an announcement that Bolivia intends to nationalize Entel Bolivia.
Bolivia is currently party to one arbitration at ICSID. In 2006, a Chilean chemical firm, Quimica e Industrial del Borax Limitada (Quiborax), initiated arbitration proceedings claiming that its Bolivian mining company was expropriated, in breach of a Bolivia-Chile bilateral investment treaty.
Bolivia was also involved in an earlier arbitration at ICSID — one which drew widespread media coverage — involving a controversial dispute over a water services concession in Cochabamba. That arbitration with the Dutch-based Aguas del Tunari was settled in early 2006, and the arbitration claim withdrawn.*
Otherwise, a Bolivian government source says that the country has not been involved in other arbitrations under its investment treaties, although the country has been threatened with arbitration from time to time.
* “Bolivian water dispute settled, Bechtel foregoes compensation”, By Luke Eric Peterson, Investment Treaty News, January 20, 2006, available on-line at : http://www.iisd.org/pdf/2006/itn_jan20_2006.pdf