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Bolivia: Guidelines for foreign investment

Published: 30. 07. 2012

Bilateral investment treaties have come under fire in many places owing to their one-sided protection of investor interests. Bolivia for example is engaged in a fundamental revision of its policy. Its goal is to reduce privileges for foreign investors and better integrate them into the country's development strategy.

At the initiative of the Bolivian Government, the investment protection agreement between that Andean country and the USA, effective since 2001, expired on 10 June. Its provisions will continue in force for another ten years for all US investments already existing at the time (there are no Bolivian investments in the USA). Relations between the Morales Government and Washington have long been troubled. But the USA is not alone in feeling the effects of Bolivia's new investment policy.

In 2007 that poor Andean country decided to rescind all agreements and replace them with new ones intended to take better account of the interests of the host country vis-à-vis foreign investors. Specifically, La Paz wants the new contracts to cover only investments that actually create value in the country. To that end, Bolivia wants to lay out certain «performance requirements» such as the obligation to utilize local suppliers and products and to introduce modern technology. Disputes are now to be brought before local rather than international courts of arbitration.

Renunciation of the World Bank arbitration body

Besides, Bolivia (like Venezuela and Ecuador) no longer accepts the International Center for the Settlement of Investment Disputes (ICSID) as an arbitral body. The Center belongs to the World Bank group and deals with most investment-related conflicts. The arbitration process is highly contentious, because investors are actually able to sue host governments but not vice versa. It did indeed take some courage to renounce the ICSID. But in the view of an observer who is conversant with Bolivian trade policy, it was worth it on balance. Today there are only nine known complaints existing against Bolivia (filed before the renunciation), versus 51 against 'record holder' Argentina.

Bolivia's reform efforts are the outcome of that country's bad experiences with foreign investors. After all the endeavours by the neo-liberal governments of the 1980s and 1990s to attract investments, it was soon clear that they were going almost exclusively to the mining and petroleum sector. Only very few products were being processed locally, thereby helping to generate local added value. Foreign corporations did in fact also invest in areas like telecommunications, but the sector had already been profitable before it was privatized. On balance there was more money leaving than entering Bolivia, and only a negligible amount of profits was being ploughed back into the country.

Favouring national investments

Once elected President in 2005, Evo Morales introduced a new policy. The new 2009 Constitution was strongly influenced by social movements and organizations and favoured national over foreign investments. All foreign investments now also fall under national legislation; preferential treatment as compared to local investors is no longer possible.

Bolivia now plans to renegotiate all agreements step by step and to align them with the Constitution and the national development plan. Some agreements have already been terminated; in other cases, the notice periods must be allowed to run off (agreements are automatically renewed every ten years).
As a basis, a model agreement has been drawn up in La Paz and is currently at the consultation stage. It is based on the investment law now being discussed in the Parliament. The EU is already exerting pressure and has urged the Government to decide expeditiously on a new legal framework in order the «tranquilize» investors. But Bolivia is in no hurry. It is well known after all that investments are attracted not necessarily by the number of privileges but rather by the greatest profit potential. Brazil is a case in point. It has no investment protection agreements at all but attracts the most investment in Latin America.

According to Bolivian sources, investment in the oil and banking sectors initially declined but is now gathering momentum once again. Bolivia is striving for a better balance between its own interests and those of investors. Investments are to be measured by their contribution to the country's development, the sustainable exploitation of natural resources and to providing the population and with basic services at reasonable prices. In any case, the new Constitution regards the provision of energy, healthcare, water and education as human rights and not as pawns in the hands of commercial interests.

Isolda Agazzi, Alliance Sud

Published in: Alliance Sud News No. 72, Summer 2012



Switzerland's investment agreements

According to Lukas Siegenthaler, Head of International Investment and Multinational Enterprises at the State Secretariat for Economic Affairs (Seco), Bolivia has so far not (yet) terminated its investment protection agreement with Switzerland. Swiss direct investments in the Andean country stood at 59 million francs in 2010. Siegenthaler adds that Switzerland regularly reviews all its agreements and if necessary aligns them with any legislative changes. Accordingly, the concept of investment was further refined after a dispute between Romak SA and Uzbekistan. In 2009 the World Bank's dispute settlement centre had rejected a complaint by the Swiss firm Romak against Uzbekistan for failure to pay for a delivery of grain, on the grounds that the delivery did not constitute an investment but a purely commercial transaction. In its more recent agreements (for example with Kosovo and Egypt), Switzerland now expressly excludes such purely commercial transactions.
At the request of Parliament, the preambles to agreements now make reference to the principles of sustainable development, says Siegenthaler. «Up until four, five years ago, Parliament would wave through investment protection agreements without major debates. It now lays out requirements that we must take into account». Together with other federal offices, Seco has set up a working group to examine how to incorporate provisions on sustainable development into agreements.

Except for Egypt, no developing country has so far requested Switzerland to include specific clauses in agreements. Egypt has requested that the preamble contain a reference to sustainable development. «We know that some countries are currently revising their investment protection agreements. But so far we have received no formal request to renegotiate existing agreements», he adds. «Switzerland is perhaps not a priority for them».
Still pending is a complaint filed by Philip Morris in 2010 with the World Bank's arbitration body against Uruguay, invoking the investment agreement with Switzerland. The Lausanne-based company deems its interests to have been harmed by the anti-tobacco policy of the Government in Montevideo.

Isolda Agazzi, Alliance Sud

Published in: Alliance Sud News No. 72, Summer 2012

Classification: America , Economy , Trade
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