Last year, on August 30th 2018, a Panel of Private Arbitrators, based in The Hague (Netherlands, EU), composed of three private arbitrators, issued a ruling that could represent an ill-fated precedent for humanity. Through a lawsuit between the Ecuadorian state and the US multinational Chevron, the panel intends to annul a sentence, issued by a judicial system of a sovereign country, such as Ecuador, which condemned the same company to pay $9,500 for the damage deliberately caused to the environment in the provinces of Orellana and Sucumbíos, in the northern Ecuadorian Amazon, between 1964 and 1990, by the oil company Texaco, now Chevron. During its oil operations, the company threw into the environment about 650,000 barrels of crude, corresponding to almost 64 billion liters of toxic water, affecting more than 30,000 people and an area of approximately 500,000 hectares, all this, to make it clear, was done voluntarily, to reduce the cost of production and expand the profit margin.
After 25 years of struggle, in June 2018, the people affected by the disaster had achieved a historic victory, when the Constitutional Court of Ecuador denied Chevron the last possible degree of appeal, confirming the judgments of the Provincial Court of Sucumbíos and the National Court. Now, in spite of the efforts and sacrifices made during all this time, the affected communities see their rights erased by a sentence that comes from a distant continent, foreign to the facts, and, in addition, in a trial of which they were never a part. This fact is against all kind of expressed law and the very Constitution of Ecuador, but even so, the Ecuadorian State is acting against its citizens, kneeling before the global economic powers and the Chevron company, and is now trying to comply with the arbitration award and annul our sentence.
What is making all this possible has a name, and it is called the ISDS system, that is to say: investor-State dispute settlement; or, rather, the system of international blackmailing that puts economic interests of multinational companies before Human Rights and the environment.
What is this system then? Who set it up, when and why?
The story is very long, but we are going to try to give some answers to our readers, with the aim of making them understand why it is so important to fight against this unjust and illegal system.
The ISDS is an instrument of international public law, a mechanism contained in Free Trade Agreements (FTAs), or investment agreements, that grants foreign investors the right to access an international panel to resolve investment disputes against a host state that is a party to the treaty. Within this framework, the ISDS was originally conceived as a way to protect investors from arbitrary state abuse. This had the ultimate goal of promoting foreign investment between states.
All this sounds great, but not all that shines is gold.
In fact, disputes between foreign investors and states, when they first emerged, reflected a colonial-era approach to foreign investment, with European or U.S. corporations investing in the developing world, often with strong backing from their governments: after World War II, as colonial agreements came to an end and nationalist governments took hold in parts of the developing world, multinational corporations, headquartered in Europe and the United States, experienced continuing and growing problems with their investments, including the expropriation of assets. In reaction, these firms pressed for an international system of disputes, based on treaties, that would provide “neutral” arbitrators to hear their legal claims arising from the lack of trust of local courts. Obviously, these arbitrators were and remain primarily chosen among Western lawyers who have often been working for the same transnational corporations all their lives. This was the beginning of the modern, treaty-based ISDS.
Today, it is clear that the ISDS system is cooling social and environmental regulation by allowing companies to sue governments when such regulation negatively impacts their investments. This is a danger not only to Human Rights, but to the entire planet, at a time when we need to act soon to stop global warming.
There are many legal and moral criticisms of this system:
Essentially, this system undermines the foundations of State sovereignty, as it exhausts national legal power vis-à-vis multinationals, which can benefit, unique in international law, from ad hoc private arbitration panels; this represents an anomaly in international law, insofar as it constitutes a subjective autonomous right guaranteed to large corporations, in a system that normally does not grant this type of right even to individuals; it is unidirectional, since only companies can sue states, and not the other way around; judgments handed down by arbitration panels are unappealable, and dictated by private arbitrators – lawyers, not even judges – who come from commercial law, while they are in charge of public policy cases and human rights violations; finally, these arbitrators are remunerated and appointed by the same company they have to prosecute, which constitutes a clear conflict of interest.
In addition, as the Chevron v. Ecuador case demonstrates, there is a well-founded fear that this system could impede access to justice for populations and individuals affected by corporate crimes: as mentioned above, last year’s arbitration award orders the Ecuadorian state to overturn the ruling in favor of those affected, and imposes it a multimillion-dollar fine, the amount of which is not yet known. The blackmail is that if the State complies with the judgments of the sentence – that is, if it annuls the sentence and prevents it from being executed in other countries – that amount will be lower, otherwise the fine will be much higher. Currently, Ecuador has 14 pending arbitration lawsuits with several multinational companies, which could mean billions in sanctions.
That is why, as UDAPT, we have joined the Global Campaign against ISDS, which in Europe has reached more than 500,000 signatures, putting at risk the stipulation of the free trade agreement which, for almost a decade, has been being negotiated with the United States, and which contains this legal instrument for the settlement of disputes, precisely between investors and states – it is the TTIP, Transatlantic Partnership for Trade and Investment. This teaches us that when civil society comes together and proves capable of exerting significant pressure, it can influence the decisions of powerful states and governments, which was previously thought impossible.
As an alternative to the ISDS system, the State of Ecuador, in 2014, led a process to push towards the elaboration of a binding treaty on Human Rights within the UN, to link companies to respect those rights and the environment. Today, the Ecuadorian state itself is one of the main detractors of this process.
The issue is complex, but we hope, with this article, to raise awareness and clarify doubts about a system that, as its main weapons, exploits people’s ignorance and disinterest. Together we win, divided we fall.
Rights for people, rules for corporations!
For the global campaign website:
For more information on the Binding Treaty: